9th annual Spring value investing congress

9th annual Spring value investing congress

•April 3, 2014 • Las Vegas, NV

A Shareholder Activist’s Perspective on Bank StocksRichard Lashley, PL Capital

www.ValueInvestingCongress.com

A Shareholder Activist’s Perspective on Bank Stocks

April 3, 2014 PL Capital, LLC, 47 E. Chicago Avenue, Suite 336, Naperville, IL 60540

John Palmer (630) 848-1340 Fax: (630) 848-1342 [email protected] Richard Lashley (973) 539-5400 Fax: (973) 539-5404 [email protected]

Curt Thompson (312) 560-2675 Fax: (630) 848-1342 [email protected]

The 9th Annual Value Investing Congress

Las Vegas, NV

Richard Lashley, Principal

PL Capital Group

Disclaimers

2

Information in this document is provided by Richard Lashley, PL Capital, LLC and their affiliates.

It may not be based on sources considered to be reliable. In no case is any information contained

herein warranted or implied to be an accurate representation of facts or otherwise guaranteed to

be correct or complete.

This material is not an offer to sell or a solicitation to buy any securities discussed herein or any

interest in the Financial Edge Fund, L.P. or any other LP or Fund managed or advised by PL

Capital (“the Funds”).

PL Capital’s Investment Niche

3

Over the Past 18+ years PL Capital’s Brand of Shareholder Activism and Investing has

Generated Higher Returns with Lower Volatility

PL Capital

U.S. Bank/Thrift

Stocks

Willing to Work with

Realistic Management

Teams And Boards

Target Undervalued

and Underperforming

Banks/thrifts

“Fix It or Sell It”

18+ Years

Managing Bank Stock

Funds

($215 mil AUM)

Shareholder Activists

(rare in banking)

Small/Mid-cap Banks

($300 mil to $3.0 bil

In Assets)

$30 mil to $300 mil

Market Caps

.

PL Capital’s

Richard Lashley and John Palmer

Have Unique Experience & Skill Sets 4

Over the Past 18+ years PL Capital’s Brand of Shareholder Activism and Investing has

Generated Higher Returns with Lower Volatility

Lashley

and

Palmer

Often quoted in

national banking

publications

1980’s and early 1990’s:

CPAs focused

exclusively on the bank

and thrift industry

Early to Mid 1990’s:

Bank/Thrift M&A

Financial Advisors

18+ years managing bank

stock investment

partnerships at

PL Capital

Significant Experience

as Bank Directors

Experts at shareholder

activism, proxy

contests, and

corporate governance

Reputations as

substantive and serious

professionals

.

Financial Edge Fund, LP

Consistently Ranked Among the Best Performing

Financial Sector Hedge Funds 5

Ranked among the Best Performing Hedge Funds in the Financial Services Sector:

(Year 2013) #7

(Year 2012) #3

(Year 2011) #4

(Year 2010) #3

Source: Hedge fund performance as ranked by the BarclayHedge's database.

Topics

6

The Post-Financial Crisis Recovery Period Will be Among the 3 Best Periods

to Invest in Bank Stocks in the Past 30 Years

There Will be a M&A Boom Which Will Last for Another 3-5 Years

A Simple but Elegant Formula to Estimate Small/Mid-cap Bank Stock M&A Values

(hint: It’s all about the cost saves)

Actionable Ideas

The Post-Financial Crisis Period Will be One of the 3 Best Times

to Invest in Bank Stocks

7

DOWNTURN

S&L Crisis 1989-1990

(14 months) -49%

LTCM Crisis 1998-2000

(21 months) -27%

Financial

Crisis

2007-2009

(22 months) -82%

RECOVERY

1990-1998

(7 ½ years) +1,023%

2000-2007

(7 years) +153%

2009-Present

(5 years+)

+269%

(so far)

SNL U.S. Bank and Thrift Index Total Return

Bank Stocks are Cyclical--The Downturns are Sharp and Short

While the Recoveries/Upturns are Longer

Source: SNL Financial LC; Financial Crisis Recovery period defined as 3/6/09 to 2/28/14

The Banking Industry is in Much Better Shape Than Commonly Believed

IT WAS WORSE in the RTC Period of the Early 1990’s

8

Source: FDIC (www.fdic.gov) and SNL Financial, LC

1,484

1,575

1,406

1,109

1,492 1,426

1,063

572

318

193 117 92 84 79 94 114 136 116

80 52 50 76

252

702

884 813

651

467

204 262

470

534

382

271

181

50 15 8 6 1 3 8 7 4 11 3 4 0 0 3 25

140 157

92 51

24

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Nu

mb

er

of

Inst

itu

tio

ns

Year

Number of "Problem" Banks

Number of Failed Banks

http://www.fdic.gov/

Industry Fundamentals

Are Almost Back to Pre-Crisis Levels

9

Banking

Industry

Aggregate

Results

2013 2012

2011

2010

2009 2008 2007 2006

% Profitable 92% 90% 84% 78% 69% 75% 88% 92%

ROA 1.07% 1.00% 0.88% 0.65% (0.08)% 0.03% 0.81% 1.28%

ROE 9.56% 8.9% 7.8% 5.9% (0.8)% 0.4% 7.8% 12.3%

NPAs/Assets 1.63% 2.20% 2.60% 3.11% 3.37% 1.91% 0.95% 0.50%

Net Charge-

Offs/ Loans 0.69% 1.10% 1.55% 2.55% 2.52% 1.29% 0.59% 0.39%

Loan Loss

Provision/NCOs 60% 70% 68% 84% 133% 175% 155% 109%

Equity/Assets 11.2% 11.2% 11.2% 11.2% 11.0% 9.3% 10.4% 10.5%

Source: FDIC Quarterly Banking Profile (www.fdic.gov)

Despite the Rebound Since 2009

Small/Mid-Cap Bank and Thrift Stock

Valuations Are Still Historically Attractive 10

Source: SNL Financial LC (1) Includes SNL U.S. Thrift $1B-$5B, SNL U.S. Thrift $500M-$1B, SNL U.S. Bank $1B-$5B, and SNL U.S. Bank $500M-$1B

Avg.

P/TBV

(1992-2014)

50%

100%

150%

200%

250%

300%

Average Price/TBV of SNL Thrift Indexes and SNL Bank Indexes ($500Mil - $5Bil)1

(12/31/92 - 2/28/14)

Bank Stock Valuation Curve

Small Caps and Large Caps Most Attractively Valued

11

Source: SNL Financial LC, as of 01/09/14

0%

50%

100%

150%

200%

250%Market Capitalization Asset Size

Median Price/Tangible Book Value (TBV) % by:

Med

ian

Pri

ce/T

BV

%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Nu

mb

er

of

Ban

ks

Year

Number of U.S. Banks (1984-2013)

The Banking Industry Has Been in a Secular Consolidation Wave for 30+ Years

and Now There Will Be a Cyclical 3-5 Year M&A Boom

12

Source: FDIC Quarterly Banking Profile (www.fdic.gov)

0%

50%

100%

150%

200%

250%

300%

-

100

200

300

400

500

600

Avg.

Pri

ce/

Tan

gib

le B

oo

k

Num

ber

of

Dea

ls

Number of Mergers

Average Price/Tangible Book %

0%

2%

4%

6%

There Will Be a Cyclical M&A Wave

That Lasts for Another 3-5 Years

13

Source: SNL Financial LC and FDIC Quarterly Banking Profile (thru 3/24/14, using Announcement Date) *1/1/14 to 3/24/14 Annualized

Ratio of Mergers Per Year to Total U.S. Banks/Thrifts

Why Bank M&A Will Happen

14

Pent up supply of both sellers and acquirers due to lack of deals during the Financial

Crisis

Acquirers can’t grow organically

Smaller banks cannot cost justify remaining independent – there is real economics in

M&A due to large cost savings

$3 billion in assets is the new $300 million – Regulators want smaller banks to merge

to establish appropriate risk management and compliance processes

The FDIC is not granting new bank charters so the only entry to banking is to buy

Mid-cap acquirers have stronger stock price “currency” to do deals (see page 11)

Recent merger announcements have been at 30% to 150%+ market premiums which

shows how undervalued these stocks are (see page 17)

Both buyers and sellers stocks are going up on deal announcements

“Mergers of Equals” (MOEs) are hot right now

We expect “double dips” as the acquirers also sell after rolling up several acquisitions

Cost Save Adjusted M&A Multiples are Historically Attractive

This Will Drive More “Good” M&A

(“Good” for both buyer and sellers)

Source: RBC Capital Markets presentation dated March 6, 2014 (using SNL Financial LC data)

9.8x9.0x

13.3x

11.7x

13.5x 13.5x12.6x

9.8x

8.0x

16.6x

14.8x

17.9x 17.6x18.6x

19.2x

17.0x

13.1x12.4x

12.2x11.1x

14.7x15.3x 15.4x

16.0x 15.9x

12.1x

10.1x

0x

2x

4x

6x

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

0x

2x

4x

6x

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

Pre-2000 2000-2002 2003 2004 2005 2006 2007 2008-2010 Post 2011

Median

79 14 32 35 24 41 37 12 52

Sample Size

Includes transactions with deal values > $50 million and excludes targets with LTM ROAA < 0.25%.

Cost Savings: Based on announced cost savings, assuming LTM noninterest expense base and tax-effected at 35%.

Capital Adjustment: Purchase price adjusted for excess tangible capital above 8.0%, in which excess capital is removed

from purchase price at 1.0x book value and earnings are adjusted assuming pre-tax opportunity cost of 2.00%.

15

A Simple but Elegant Way to Estimate a Bank’s M&A Value

(the Cost Saves Drive M&A Value Even for Banks

that Lose Money or Make Low Returns) 16

Can be obtained from

Street estimates; if no

Street estimates, use the

run rate of net income

to project the next 12

months

Next Year’s Net

Income Est.

Tax Effected

Cost Saves

10-11x PE

Deal Multiple

M&A Value

Range + x =

Most banks trade in the

market well below this

value!!

Typically 25% for out of

market deals and 35%

for in-market deals; tax

effect the cost saves

before adding to the

estimated net income

Put a 10x to 11x PE ratio

on those cost save adjusted

earnings to get a range of

M&A value (recent deals

average 10x—this will

increase over time)

Caveats:

This does not take into account extraordinary balance sheet adjustments (e.g. credit marks, interest rate marks) that might be necessary for banks with issues.

Banks with significant excess capital and low earnings often sell for tangible book value (adjusted for extraordinary marks) plus a deposit premium rather than the

above formula

(in $millions)

Year 1 Estimated

Net Income

M & A Cost Saves (35%)

Year 1 Post Cost Saves

Net Income

Net Interest Income + 27.0 + 27.0

Credit Losses - 1.0 - 1.0

Noninterest Income + 13.0 + 13.0

Noninterest Expense - 33.0 11.6 - 21.4

Pretax Net Income + 6.0 + 17.6

Tax - 2.0 4.0 - 6.0

After Tax Net Income 4.0 7.6 11.6

x 10 = $116 mil

x 11 = $128 mil

EX

AM

PL

E

Large Cost Saves Drive Attractive Merger Premiums

As Shown by PL Capital Owned Positions

Acquired in Mergers Since 2010 17

Date

Announced Selling Bank ST

Total

Assets

($)

Deal

Price/Share

($)

Fin. Edge

Fund’s

Average

Cost ($)

Deal

Price/TBV

1 Month

Deal

Premium1

Deal

Premium vs.

Financial

Crisis Low2

6-14-13 BCSB Bancorp (BCSB)* MD 642 mil 23.77 12.79 138% +43% +260%

5-13-13 CFS Bancorp (CITZ)* IN 1.2 bil 10.49 3.25 102% +28% +500%

12-20-12 Roma Financial (ROMA) NJ 1.9 bil 15.00 9.03 212% +81% +55%

7-19-12 Fidelity Bancorp (FSBI)* PA 665 mil 22.85 6.21 147% +110% +353%

5-31-12 Beacon Federal (BFED) NY 1.0 bil 20.50 14.00 117% +55% +305%

5-1-12 Central Bancorp (CEBK) MA 523 mil 32.00 10.76 152% +77% +941%

3-12-12 North Central (FFFD)* IA 433 mil 30.58 12.51 100% +59% +217%

2-9-12 Heartland (HRTB)* IN 235 mil 9.72 6.88 96% +152% +224%

1-25-12 VIST Financial (VIST) PA 1.4 bil 12.50 8.76 117% +98% +150%

1-24-12 Indiana Comm. (INCB)* IN 1.0 bil 24.06 19.21 120% +63% +245%

12-5-11 SE Financial (SEFL) PA 307 mil 14.50 5.89 122% +245% +245%

6-20-11 Tower Bancorp (TOBC) PA 2.6 bil 28.00 21.38 142% +36% +53%

4-28-11 State Bancorp (STBC)* NY 1.6 bil 13.51 15.91 188% +30% +216%

4-19-11 BancorpRI (BARI)* RI 1.6 bil 48.25 34.76 193% +57% +211%

Source: SNL Financial LC and PL Capital (1) % increase in stock price from one month prior to the deal announcement (2) % increase in stock price from the lowest price the stock traded for during the financial crisis

Past performance and merger pricing/premiums do not guarantee future results or merger pricing/premiums.

* PL CAPITAL 13D POSITIONS IN BOLD

Banking Sector Activism is Robust

Despite Only a Handful of Activists Such as PL Capital

This Also Accelerates M&A 18

Source: J.P. Morgan’s Eye on the Market published February 18, 2014.

Activist Events Spread Across Industries Percent of activist events, 1994-2013

Large Cap Bank Stock Investment Idea:

TARP Warrants

19

TARP Warrants are an Attractive Way

to Invest in Some of the Larger Banks

The 2008 TARP preferred issuances included warrants

The Treasury has auctioned off several bank warrants which are now publicly traded

(e.g. Capital One, Bank of America, PNC, Citigroup, Zions, Comerica, et. al.)

Most of these warrants expire at the end of 2018

The warrants contain attractive anti-dilution protection for any dividends paid out in

excess of dividend level paid when the TARP was issued

The “out of the money” time premiums are very low, particularly compared to the

likely growth in tangible book value and earnings through 2018

PL Capital Likes the JPM, COF and PNC Tarp Warrants the Most.

BAC, ZION and C Tarp Warrants are Less Attractive.

20

We Prefer the TARP Warrants of the Banks Noted

Name Ticker Mkt. Cap (bils) Recent Price Price/TBV % Price/2014 EPS Price/2015 EPS Div. Yld. %

M&T Bank MTB 16 $121.17 232 15.7 13.6 2.31

U.S. Bancorp USB 79 $43.42 301 13.7 12.6 2.12

KeyCorp KEY 13 $14.40 143 13.9 12.6 1.53

SunTrust STI 22 $40.38 153 13.3 12.3 0.99

Fifth Third FITB 20 $23.34 180 13.2 12.2 2.06

Regions RF 16 $11.11 148 13.0 12.1 1.08

BB&T BBT 29 $40.77 226 13.2 12.0 2.26

PNC PNC 46 $86.42 160 12.4 11.6 2.04

Wells Fargo WFC 258 $48.96 208 12.1 11.5 2.45

Bank of America

BAC 182 $17.21 126 13.0 10.6 0.23

Capital One COF 43 $75.32 163 11.0 10.3 1.59

JPMorgan JPM 231 $60.93 152 10.3 9.6 2.49

Citigroup C 153 $50.30 90 10.3 8.7 0.08

21

TARP Warrants

We Like

X

X

X

The JP Morgan (JPM) TARP Warrants (JPM.WS)

Are Attractive

22

The current time premium in the warrant is only $2.50, which is extremely low for a 4 ½ year warrant considering that JPM’s

tangible book value per share is projected to grow $24.00 (net of dividends) by October 2018.

JPM

Price (3-20-14) $60.11

Total Assets (trils) $2.4

Market Cap. (bils) $228

Shares o/s (bils) 3.8

2014 EPS Est. $5.92

Dividend Yield 2.5%

JPM.WS

Price (3-20-14) $20.15

Expiration Date 10-28-18

Strike Price $42.42

LTM Avg. Daily Volume 146,891

Projection Assumptions

• Stock and warrant price as of 3-20-14

• 2013 Operating EPS of $5.65 used as a baseline for EPS growth rate and Current Price/LTM EPS

• 2014-2018 EPS Growth Rate: 6%

• 2014-2018 Dividend Payout Ratio: 30%

• 2018 Price/Tangible Book Value (131%) shrinks vs. current Price/TBV (150%)

• 2018 Price/LTM EPS of 11.0x remains consistent with 10 year median (11.0x) and current (10.6x)

• No stock buybacks incorporated in TBV/share

• IRR noted above does not include any benefit from the anti-dilution excess dividend adjustment

which for JPM would add approximately 2% to the IRR

• ROTEs remain fairly steady from 2013 (actual = 14%) and 2018 projected = 12%)

JPM Tarp Warrant IRR Sensitivity Matrix

(using a range of EPS growth rates and terminal 2018 PE ratios)

23

Note: Using PE rations to project the stock price in 2018 may understate the potential stock price and warrant value (IRR) in the no growth or

negative growth scenarios because there will still be substantial TBV growth, which over time should increase the stock price and warrant value (IRR).

The Capital One (COF) TARP Warrants (COF.WS)

Are Attractive

24

The current time premium in the warrant is only $0.50, which is extremely low for a 4 ½ year warrant considering that COF’s

tangible book value per share is projected to grow $30.00 (net of dividends) by November 2018.

COF

Price (3-20-14) $74.28

Total Assets (bils) $297


Shares o/s (mils) 573

2014 EPS Est. $6.81

Dividend Yield 1.6%

COF.WS

Price (3-20-14) $32.64


Strike Price $42.13






• 2018 Price/Tangible Book Value (148%) shrinks vs. current Price/TBV (161%)

• 2018 Price/LTM EPS (11.0x) remains consistent with 10 year median (11.0x) and current (10.7x)


• IRR noted above does not include any benefit from the anti-dilution excess dividend adjustment

which for COF would add approximately 3% to the IRR

• ROTEs shrink from 2013 (actual = 15%) to 2018 (projected = 13%)

COF Tarp Warrant IRR Sensitivity Matrix


25



The PNC Financial (PNC) TARP Warrants (PNC.WS)

Are Attractive

26

The current time premium in the warrant is only $4.00, which is extremely low for a 4 ¾ year warrant considering that PNC’s

tangible book value per share is projected to grow $31.00 (net of dividends) by December 2018.

PNC

Price (3-20-14) $86.63

Total Assets (bils) $320


Shares o/s (mils) 533

2014 EPS Est. $7.03

Dividend Yield 2.0%

PNC.WS

Price (3-20-14) $23.40


Strike Price $67.33






• 2018 Price/Tangible Book Value (157%) consistent with current Price/TBV (160%)

• 2018 Price/LTM EPS increases to 13x (10 year median) from 11.7x currently


• ROTEs remain fairly steady between 2013 (actual = 14%) and 2018 (projected = 12%)

PNC Tarp Warrant IRR Sensitivity Matrix


27



Small-cap Bank Stock Investment Ideas:

28

1. Metro Bancorp, Inc. (METR)1

2. Horizon Bancorp, Inc. (HBNC)2

3. Intervest Bancshares (IBCA)3

(1) PL capital owns 5.2% of METR as of March 21, 2014 per schedule 13D. (2) PL capital owns 6.1% of HBNC as of March 24, 2014 (Schedule 13G position). (3) PL capital owns 7.4% of IBCA as of March 24, 2014 (Schedule 13G position).

Metro Bancorp (METR) – Investment Value Proposition Summary

This former affiliate of Commerce Bank has a valuable deposit

franchise in Central PA

METR uses the Commerce Bank retail banking model (open 7

days a week; late hours; focus on checking accounts; “high touch”

and high cost)

Low interest rates have hurt EPS because they are geared for

higher interest rates

Numerous other banks want to buy METR, but have been

rebuffed by METR; METR is instead pursuing new branches in

the Philly suburbs

METR’s 70 year-old CEO owns 300,000 shares

PL Capital believes the burden of proof is on METR to prove that

growing rather than selling now would produce more shareholder

value

Est. Current M&A Value: $27-$30 (+ 32% to +47%) or greater

29

Key Facts –Metro Bancorp, Inc.

(METR)

Total Assets $2.8 Billion

Location Harrisburg, PA

(Central PA)

Common Shares

Outstanding 14.2 million

Market Cap $291 million

Recent Stock Price $20.41

% Institutional

Ownership 72%

% Insider

Ownership 8%

Tangible Book

Value/ Share $16.19

2014 EPS Est. $1.25

2015 EPS Est. $1.30

Div. Yield (%) 0.0%

NPAs/Assets (%) 2.03%

Source: SNL Financial, LC and PL Capital, LLC

Metro Bancorp (METR) – Central PA Footprint expanding into

Suburban Philly

30

Source: SNL Financial, LC

Metro Lags its Peers in Profitability

31

METR

Peers1

($1-$5 Bil in Assets)

Return on Average Assets (%) 0.64% 0.88%

Noninterest Expense/ Avg Asset (%) 3.3% 3.0%

Loans/ Deposits (%) 78% 83%

Avg. Earning Assets/ FTE $2.9 mil $4.4 mil

Net Interest Income/ FTE $105,000 $162,000

Noninterest Income/ FTE $30,000 $37,000

Total Revenue/ FTE $135,000 $199,000

Efficiency Ratio (%) 73% 67%

Source: SNL Financial, LC and Sterne Agee (1) Includes all publicly traded banks/thrifts in the U.S. between $1-$5 billion in assets (as of the last 12 months)

Despite Lagging its Peers Metro Has a Valuable Franchise

Potential Acquirer

(Ticker)

Cost

Save

%

Deal Price

to Cost Save

Adj. 2014 EPS

Acquirer’s

Marginal

EPS

Accretion

DEAL

PRICE BUYER

CAN PAY

FNB Corp. (FNB) 30% 11x-12x 30%-40% $28.60 - $30.80

Fulton Financial (FULT) 35% 10x-11x 40%-50% $27.84 - $29.83

National Penn (NPBC) 35% 10x-11x 40%-50% $27.01 - $28.94

Susquehanna (SUSQ) 35% 10x-11x 20%-30% $27.98 - $30.32

Tompkins (TMP) 30% 10x-11x 30%-40% $26.53 - $28.57

Community Bank (CBU) 30% 11x-12x 60%-70% $27.35 - $29.06

Northwest (NWBI) 30% 10x-11x 100%-120% $26.10 - $28.70

WesBanco (WSBC) 30% 11x-12x 20%-30% $27.55 - $29.84

Likely Deal Price: $27 - $30

32

Source: PL Capital, LLC

PL Capital Believes that One or More of These Buyers Would Pay More than

These Projected Amounts

Potential Acquirers’ “Ability to Pay”

Even if Metro (METR) Delays a Sale the Projected M&A Values and

IRRs are Attractive

The upside potential and IRR1 is attractive even if METR waits to pursue a sale

(particularly if interest rates rise)

METR believes they will grow loans >10% per year (without the need for a capital raise)

If interest rates rise METR’s EPS and TBV should exceed the amounts projected below

33

(1) IRR based upon a buy price of $20.41 (recent price) and a 6 month period between announcement and closing

(2) 2013 (Actual); 2014-2015 (street estimate); 2016-2017 (PL capital estimates); assumes no dividend paid or capital actions

Deal

Announce

ment

Date

Projected

TBV/Sh

EPS

Est.2

PL Capital’s

Estimated

METR

M&A Value

Upside

Potential IRR1

3/31/14 $16.49 $1.20 $28 +37% +74%

3/31/15 $17.70 $1.21 $30 +47% +29%

3/31/16 $18.99 $1.29 $32 +57% +20%

3/31/17 $20.39 $1.40 $34 +67% +16%

3/31/18 $22.04 $1.65 $36 +76% +13%

Small-cap Bank Stock Investment Idea:

Horizon Bancorp (HBNC)

Potential R2000 Delete Worth Owning Whether They Get Deleted or Not

Valuable, high performing bank in Indiana and Michigan

Consistently ranked as one of the top performing community banks in the US

One of only 6 Nasdaq or exchange listed banks between $1-$5 billion in assets that earned over 15% ROTCE in both 2012 and 2013, yet it trades at only 148% of tangible book value vs. 318% for the other 5 high performers (see page 36)

Not widely followed by analysts or owned by institutional investors (excluding PL Capital, inst’l ownership is only 25%)

HBNC has been a disciplined M&A acquirer which could become a M&A seller if they cannot continue to find growth

Worth $30+ in a deal if they decide to sell

PL Capital is supportive of HBNC’s management and business model (13G position—PL Capital owns 6%)

Buy HBNC regardless of whether it gets deleted from R2000 and add more if it gets deleted (at current prices HBNC is not likely to be deleted but that could change)

34

Recent

Price

Shares

o/s

Mkt.

Cap.

Total

Assets Location

2013

EPS

2014

EPS Est.

2015

EPS Est.

12/31/13

TBV/

share

Price/

TBV

Div.

Yield

NPA

%

Avg.

Daily

Volume

$21.83 8.6 mil $188 mil $1.8 Bil IN, MI $2.17 $1.94 $2.09 $14.94 146% 2.0% 1.2% 20,739

Source: SNL Financial, LC and PL Capital LLC

From a Recent Horizon (HBNC) Presentation

35

Horizon (HBNC) is the

Lowest Valued High Performing $1-$5 Bil Asset Bank in the U.S.1

36

100

150

200

250

300

350

400

450

15 16 17 18 19 20 21

Pri

ce/

TB

V %

2012 and 2013 Average ROTCE %

HBNC Price/TBV = 148% vs. 318% (average) for the Other High Performers

Source: SNL Financial, LC and PL Capital LLC (1) Includes NASDAQ and exchange listed banks/thrifts between $1-$5 billion in assets with over 15% ROTCE in both 2012 and 2013

Horizon will likely not

trade at the same levels as

its high performing peers

(average 318% TBV), but

it should trade in line with

other banks with similar

ROTCEs.

Horizon’s 2014 estimated

ROTCE is 13%. Banks

with 13% ROTCEs

currently trade at

approximately 180-200%

TBV (or $27-$30 HBNC),

a 24% to 37% increase

from HBNC’s recent

price.

Small-cap Bank Stock Investment Idea:

Intervest Bancshares (IBCA)

Potential R2000 Delete Worth Owning Whether They Get Deleted or Not

“Wholesale” deposit gatherer and CRE lender with branches in NY and FL (lends in numerous states)

One of only 6 Nasdaq or exchange listed banks that trade below 100% of tangible book value (IBCA=85%) out

of all banks/thrifts with over $1.0 billion in assets and over 5% ROTCEs (n = 99)

IBCA’s net interest margin and EPS should continue to improve as higher cost deposits roll over, legacy credit

costs subside and low yielding excess liquidity is invested in higher yielding loans

Most of the NPAs are TDRs which will not have significant losses

Equity capital is more than sufficient and TARP was repaid in 2013

No research analysts follow the company

IBCA is a franchise that will likely not be sold nor will IBCA be an acquirer

Family run/partially owned by Dansker family

PL Capital is supportive of IBCA’s management and business model (13G position—PL Capital owns 7.4%)

Buy IBCA regardless of whether it gets deleted from R2000 and add more if it gets deleted

The projected R2000 cutoff is approximately $165 million (IBCA market cap is approximately $163 million)

37

Recent

Price Shares o/s

Mkt.

Cap.

Total

Assets Locations

2013

EPS

2014

EPS Est.

(PL Capital)

12/31/13

TBV/

share

Price/

TBV

Div.

Yield

NPA

%

Avg. Daily

Volume

$7.42 21.9 mil $163 mil $1.6 Bil NY, FL $0.61 $0.65 $8.99 83% 0.0% 3.8% 54,295

Source: SNL Financial, LC and PL Capital LLC

PL Capital Group1

Contact Information and Description

38

John Palmer, Principal Rich Lashley, Principal Curt Thompson, Managing Director

The PL Capital Group The PL Capital Group The PL Capital Group

47 E. Chicago Avenue 67 Park Place East 47 E. Chicago Avenue

Suite 336 Suite 675 Suite 336

Naperville, IL 60540 Morristown, NJ 07960 Naperville, IL 60540

630-848-1340 973-539-5400 312-560-2675

630-848-1342 (fax) 973-539-5404 (fax) 630-848-1340

[email protected] [email protected] [email protected]

www.plcapitalllc.com

(1) The “PL Capital Group” includes PL Capital, LLC; Goodbody/PL Capital, LLC; PL Capital Advisors, LLC; Financial Edge Fund, LP; Financial Edge-Strategic Fund, LP; Goodbody/PL Capital, LP; PL Capital/Focused Fund, LP; Richard Lashley and John Palmer; Lashley and Palmer are managing members of PL Capital LLC and Goodbody/PL Capital, LLC; PL Capital, LLC is the general partner of Financial Edge Fund, LP, Financial Edge-Strategic Fund, LP and PL Capital/Focused Fund, LP; Goodbody/PL Capital, LLC is the general partner of Goodbody/PL Capital, LP; PL Capital Advisors, LLC is the investment advisor to all four LPs

Documents

9th annual Spring value investing congress