1. Student Managed Investment Fund
Financial Sector
Scott Nunez – Sector Manager
Pooria Dariush – Associate Manager
Laura Takacs – Analyst
2. I. Economic Data
II. Industry Outlook
III. Company Information
IV. Company Drivers
V. Company Analysis
VI. Valuation Analysis
VII. Summary
Table of Contents
3. Economic Data
Economic Data
GDP 4th Quarter 2.2%
Inflation Rate -0.1%
Unemployment Rate 5.5%
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Industry Data
Fed Fund Rates for Nov. 0.15%
3-Month Treasury 0.01%
10-Year Treasury 1.88%
.00%
1.00%
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3.00%
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5.00%
6.00%
-$40,000,000
-$20,000,000
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
FY
2005
FY
2006
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
FY
2015
Revenue Interest rates
As interest rates are expected to rise so will banking
revenue at an expected rate of 7.4% annually.
7. Market Data
52-week high 35.00
52-week low 27.60
Previous close 33.95
Market Cap 2.32B
Outstanding Shares 67.58M
Beta 1.39
EPS (ttm) 1.70
Trailing P/E Ratio 20.19
Catalysts
Transparent Business Model
Favorable Long-term prospects
Operated by Honest and
Experienced Management
Available at a very attractive price
Eagle Materials
[Ticker: HOMB]
Home BancShares, Inc. (Home BancShares) is a bank holding company. The Company is primarily
engaged in providing a range of commercial and retail banking and related financial services to
businesses, real estate developers and investors, individuals and municipalities through its wholly
owned community bank subsidiary. The Company’s subsidiary is Centennial Bank (the Bank). The
Company provides loans to single and multi-family real estate, residential construction and
commercial buildings.
Home BancShares Inc.
Stock Performance
8. Company Overview
Key Highlights
Continuous growth
Stable through downturns (Early 2000’s, 2008/2009)
Cheap customer acquisition
0
0.5
1
1.5
2
2.5
2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Earnings Per Share
0
50
100
150
200
250
300
2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Operating Income
2014 Revenue
Interest Income
Non-Interest Income
$309 Million
10. Branch Locations
Arkansas (82) Alabama (7)Florida (61)
• Central
Arkansas
• North
Central
Arkansas
• Northeast
Arkansas
• Northwest
Arkansas
• Baldwin
County
• Central Florida
• Panhandle Florida
• South Florida
11. S.W.O.T. Analysis
Strengths
• Unique business model
• Strong balance sheets
• Outstanding credit quality
• Exceptional community reputation
• Experienced executives and board
members
Opportunities
• Well established position with a well
defined market niche
• Non-cyclical to economy
• FDIC-assisted acquisitions
• Neutral to foreign markets
• Hire experience bankers with strong
community relationships
Weaknesses
• Brand recognition
• Lower lending limits
Threats
• Competitive landscape
• Constant financial regulations
• Interest rate instability
12. Risks
Economic volatility
Government regulations
Interest rates
Competition from other financial institutions
Economic conditions continue to improve
Home Bancshares continues to mold to new regulations
Home Bancshares generally does not retain long-term, fixed-rate real estate loans in portfolio
Strong reputation and consistent business practices
Key Risks
Risk Mitigation
13. Value Added Matrix
Drivers
Strategy
Advantage
Acquisitions Organic Growth De Novo Branching
Largest contributor to growth
Attractive financial opportunities
High return growth
Untapped markets
Maximize shareholder returns
Maintain previous banks deposits
Expand business opportunities
Cheap customer acquisition
Economic landscape is improving
Focus in on large markets to
maximize potential
Lending to credible borrowers
Experienced banking officials
Strong banking reputation
Quick decision making
Further increase deposits in new
locations
Strategically placed branches
Evaluate potential market areas of
interest
Superior operation execution
Sound strategic choices
14. Executive Directors
Name(age) Since/Started Position
John Allison (68) 2009/1998 Chairman of the Board
C. Randall Sims (60) 2015/1998 President, CEO, Director
Robert Adcock (66) 2007/1998 Independent Vice Chairman of the Board
Randy Mayor (50) 2010/1998 CFO, Treasurer, Director
Brian Davis (49) 2010/2004 CAO, Investor Relations Officer
Kevin Hester (51) 2010/1998 Chief Lending Officer
Tracy French (53) 2015/2002 Director
Thomas Lounge (52) 2014 Director
Various (59-72, avg- 67) 2003-2011,
avg- 2005
Independent Directors (7)
23. Summary
Transparent Business Model
Favorable Long-term prospects
Operated by Honest and Experienced Management
Available at a very attractive price
Buy
Current Price $33.95
Target Price $44.04
% Upside 22.9%
Catalyst
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Analyst Reccomendations
Buy sell Hold 12 mnth tgt Price
Hinweis der Redaktion
This building materials outfit is the fifth-largest producer of wallboard and the eighth-largest cement manufacturer in the U.S.,
Look here for an explanation of each risk
Government Regulation:
Company focuses on being compliant with all laws and regulations
Ensure sustainable practices in order to be environmentally friendly
Use less energy, produce less waste, use more recycled resources.
Eagle has an enviable track record in controlling air pollutants. Eagle continues to work closely with the Environmental Protection Agency and local and state environmental authorities in monitoring, reporting and managing air emissions at the company’s cement plants.
Cost of Fuel:
Low energy prices = Lowered costs for transportation of their products such as cement and gypsum and lowers cost of manufacturing in areas such as cement which requires a large amount of energy to produce.
Interest Rates:
Interest rates and conditions constitute the amount of building and construction in the marketplace. As seen through industry outlook, construction is set to continue to grow and rate increases should not rise too much in the near future.
Infrastructure:
MAP-21 Surface Transportation Reauthorization - Congress must solve the Highway Trust Fund (HTF) revenue crisis before they can draft a policy bill - current MAP-21 extension expires May 31, 2015 (Moving Ahead for Progress in the 21st Century Act) – New funding possibly coming.
Possible new funding for rail authorization (Amtrak)??? i.d.k.
• Maintain strong credit quality – Credit quality is our first priority. We employ a set of credit standards designed to ensure the proper management of credit risk. Our management team plays an active role in monitoring compliance with these credit standards in the different communities served by Centennial Bank. We have a centralized loan review process, which we believe enables us to take prompt action on potential problem loans. During the past few years we have taken an aggressive approach to resolving problem loans, including those problem loans acquired in the FDIC-assisted and non-FDIC-assisted acquisitions. This approach is paying dividends, as we are experiencing reductions in levels of past due and non-accruing covered loans. We are committed to maintaining high credit quality standards.
• Continue to improve profitability – We will continue to strive to improve our profitability and achieve high performance ratios as we continue to utilize the available capacity of branches and employees. During 2014, we acquired Traditions and Broward and converted them into our operating systems. These conversions will provide tremendous opportunities for improved profitably as a result of cost savings because of the economies of scale for the combined companies. As we work out the problem loans in our special assets department, we plan to emphasize business development and relationship enhancement in lending and retail areas in these newly acquired markets. Our core efficiency ratio has improved from 59.4% for the year ended 2008 to 41.2% for the year ended 2014. Core efficiency ratio is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding non-fundamental items such as merger expenses and/or gain and losses. These improvements in operating efficiency are being driven by, among other factors, improvements in our net interest margin, growth in fee income, cost savings from the acquisitions, the streamlining of processes in our lending and retail operations and improvements in our purchasing power.
• Attract and motivate experienced bankers – We believe a major factor in our success has been our ability to attract and motivate bankers who have experience in and knowledge of their local communities. Historically, our hiring and retaining experienced relationship bankers has been integral to our ability to grow quickly when entering new markets.
• Maintain a “fortress” balance sheet – We intend to maintain a strong balance sheet through a focus on four key governing principles: (1) maintain solid asset quality; (2) remain well capitalized; (3) pursue high performance metrics including return on tangible equity (ROTE), return on assets (ROA), efficiency ratio and net interest margin; and (4) retain liquidity at the bank holding company level that can be utilized should attractive acquisition opportunities be identified or for internal capital needs. We strive to maintain capital levels significantly above the regulatory capital requirements through our focus on these governing principles, which historically has allowed us to take advantage of acquisition opportunities as they become available without the need for additional capital.
Capital Adequacy- The leverage ratio is a company’s Tier 1 capital divided by its average total consolidated assets. Certain highly-rated bank holding companies may maintain a minimum leverage ratio of 3.0%, but other bank holding companies are required to maintain a leverage ratio of at least 4.0%. Well capitalized is a leverage ratio in excess of 5%. As of December 31, 2014, our leverage ratio was 10.31%.
The guidelines in effect as of December 31, 2014 require a minimum Tier-1 ratio of 6.0% and a total risk-based capital ratio of at least 10% to be “well capitalized.” Total capital is the sum of Tier 1 and Tier 2 capital. As of December 31, 2014, our Tier 1 risk-based capital ratio was 12.55% and our total risk-based capital ratio was 13.51%. Thus, as of December 31, 2014, we are considered well capitalized for regulatory purposes.
