Equity Research Valuation Summaries for Regional Banks (2017)

multiples due to lagging EPS growth. For our P/TBV valuation, we apply a 1.2x tangible book multiple to BANCs 2Q17E tangible book below peer multiples due to lagging ROTE. For our DCF analysis, we forecast net income growth stabilizes at 3% in the terminal stage. We also assume a beta of 1.1x in the terminal stage. Downside risks to our price objective are slower than expected loan growth, and a reduction in the common dividend. Bank of Hawaii Corp. (BOH) We use an equal weighted three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $75 PO and assign a 2.2x multiple to 2Q17E TBV, representing a premium to peers, which we believe is appropriate given a stronger profitability and capital profile. Our 17x multiple on 2017E EPS is equal to the the peer median given average EPS growth relative to peers. Our DCF assumes a two-stage cost of capital of 9.8% anda terminal growth rate of 3%. Downside risks to our price objective are a longer-than-anticipated low rate environment and a reversal of local economic improvement. Upside risks are a stronger- than-expected economic rebound, better-than-expected capital distribution and a shorter-than-anticipated low rate environment. BankUnited, Inc. (BKU) To arrive at our $37 price objective, we have employed an equal-weighted three factor valuation methodology that incorporates target P/TBV, P/E and DCF. We have applied a target P/TBV value multiple of 1.5x on our 2Q17E TBV and a P/E target multiple of 16x ‘17 EPS, based on BKU's above average growth relative to peers. Our DCF assumes a two-stage cost of capital of 7.9% and 9.3% and a terminal growth rate of 6%. Downside risks to our price objective are slower CRE loan growth on the back of regulatory oversight, as well as an inability to deploy excess capital, increased competition for Florida M&A and an inability to continue to implement an organic growth strategy in New York City. BB&T Corporation (BBT) We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $45 PO and assign a 1.6x multiple to 2017E TBV and 14.5x multiple on 2017E EPS. We have weighted the P/E and P/TBV factors equally at 40%, and our DCF analysis by 20%. Our EPS multiple is in-line with BBT’s historical avg, which reflects very high-growth years in the 1990s, a pace unlikely to be achieved near term given BBT’s size as well as the challenging macro backdrop and industry headwinds. Our DCF assumes a two-stage cost of capital of 9.7% and 10.9% and a terminal growth rate of 4%. Risks to our price objective are macro risks such as a double dip recession, the implementation of a strict liquidity coverage ratio and further regulation on overdraft income that restricts bank profitability. Specific to BBT, risks are enhanced regulatory scrutiny and capital standards as a Domestic SIFI, the announcement of a large, expensive deal, and the risk that the NPBC transaction does not consummate. Capital Bank Financial Corp. (CBF) Our $38 PO is based on an equal-weighted, two-factor valuation methodology that assumes: We assumes a 20.0x P/ 2017e EPS and a target P/TBV of 1.6x to 2017E tangible book given our forecast above peer EPS growth. Downside risks to our PO are an inability to deploy excess capital and create value through acquisitions. Bankof America Merrill Lynch 2016 Future of Financials Conference | 17 November 2016 65 HOUSE_OVERSIGHT_014379