1、North America Equity Research04 April 2019U.S.Mid-and Small-Cap Banks 1Q19 Earnings PreviewDowngrading CMA,ZION,KEY,Upgrading SBNY as We Reduce Asset Sensitivity;Digital Banks Deep DiveU.S.Mid and Small Cap BanksSteven Alexopoulos,CFA AC(1-212)622-Bloomberg JPMA ALEXOPOULOS Alex Lau(1-212)622-Janet
2、Lee(1-212)622-Anthony Elian,CFA(1-212)622-J.P.Morgan Securities LLCSee page 178 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of inter
3、est that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Weve been bearish on bank stocks since we changed our sector view in early October 2018 and recommended investors reduce exposure to regional banks.E
4、ven though bank stocks are technically now much cheaper,particularly as compared to the S&P 500,our bearish call on the sector remains fully intact.In fact,for the remainder of 2019,we look for many of the tailwinds that helped bottom line growth for banks over the past several years to now more ful
5、ly start transitioning into headwinds.To this end,while our prior call favored asset-sensitive banks,in the aftermath of(1)a very dovish outlook being provided at the most recent FOMC meeting and(2)signs of a faster than expected slowdown in Europe,it appears to us that,directionally speaking,the ne
6、xt move from the Fed is more likely a cut than a hike(with the forward curve now implying two rate cuts by YE20).Given that the outlook for liability sensitive banks should likely improve over time while asset sensitive banks are likely to see NIM tailwinds turning into NIM headwinds,we would sugges
7、t repositioning portfolios away from asset sensitive banks while simultaneously increasing exposure to liability sensitive banks.With that said,we continue to recommend that investors further trim overall exposure to regional banks.We believe bank stocks are currently trading on an expectation of cr
8、edit quality remaining pristine in 2019 as well as 2020.Not only do we see little likelihood that credit quality remains pristine over the intermediate term,unlike many of our peers that believe banks are better positioned for the next credit cycle,we believe the next credit cycle could actually be
9、much worse than prior cycles.Downgrading CMA,ZION and KEY;Upgrading SBNY to Overweight.Given our recommendation to trim asset sensitivity,we are downgrading Comerica and Zions from OW to Neutral.In terms of increasing exposure to liability sensitive banks,we are upgrading Signature to OW.With that s
10、aid,with our overall call remaining to reduce exposure to regional banks,we are downgrading KEY from OW to Neutral.This Credit Cycle Could Be Worse than Prior Cycles.Although many believe that banks are better prepared for a credit cycle given stress testing as well as banks having significantly mor
11、e capital than in prior cycles,we believe a worse outcome than expected could be tied to a combination of(1)banks being desensitized to risk(with virtually no loan losses reported over the past several years)in tandem with(2)enormous pressure on management teams to deliver loan growth in a backdrop
12、of tepid loan demand while(3)seeing aggressive competition from nonbanks.Digital Banks Deep Dive:Rural Market Deposits Ripe for Disruption.As technology disruption continues,many local businesses are ceding market share to national challenger brands offering improved price and convenience.With banki
13、ng historically also a local business,while all deposits are at risk,we see a particular vulnerability for rural market deposits as a new crop of digital banks extend their reach to every corner of the US and fully pave over historical moats.Sector Positioning:New Fab Five with First Republic Now Ou
14、r Top Pick.Given the looming headwind for asset sensitive banks,SIVB moves into our#2 spot,with FRC now our top overall pick.Rounding out our top 5 long picks are SBNY(#3),WBS(#4)and FHN(#5).Although we are far less bearish on liability sensitive banks,given steep valuations,we continue to rate NYCB
15、 and BKU at Underweight.2North America Equity Research04 April 2019Steven Alexopoulos,CFA(1-212)622-Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateAmalgamated BankAMAL US494.6815.57OWn/c18.00Dec-1922.00n/cBankUnitedBKU US3,665.9634.31
16、UWn/c34.00Dec-1933.50n/cCadence BancorporationCADE US1,625.8219.50OWn/c21.50Dec-1922.50n/cComerica IncorporatedCMA US12,308.8376.89NOW79.00Dec-1989.00n/cCullen/Frost Bankers Inc.CFR US6,335.13100.58UWn/c98.00Dec-1999.00n/cFB FinancialFBK US1,013.2932.98Nn/c35.00Dec-1938.00n/cFirst HawaiianFHB US3,58
17、6.9126.55Nn/c27.00Dec-1927.50n/cFirst Horizon NationalFHN US4,587.4514.40OWn/c16.00Dec-19n/cn/cFirst RepublicFRC US17,189.38104.24OWn/c118.00Dec-19112.00n/cGreat Western Bancorp,Inc.GWB US1,874.9832.93Nn/c34.00Dec-1937.00n/cHuntington BancsharesHBAN US13,827.7913.21Nn/c13.50Dec-1914.00n/cKeyCorpKEY
18、US16,750.4316.43NOW17.00Dec-1918.00n/cM&T BankMTB US22,425.88161.88Nn/c170.00Dec-19180.00n/cMetropolitan Bank Holding Corp.MCB US297.1735.92OWn/c41.00Dec-19n/cn/cNew York Community BankNYCB US5,751.7111.73UWn/c11.50Dec-1911.00n/cPeoples United FinancialPBCT US6,192.3216.69Nn/c17.00Dec-19n/cn/cSignat
19、ure BankSBNY US7,135.12128.78OWN150.00Dec-19133.00n/cSVB Financial GroupSIVB US12,293.67233.78OWn/c270.00Dec-19275.00n/cSynovus Financial Corp.SNV US4,074.9935.17Nn/c37.00Dec-19n/cn/cTexas Capital Bancshares,Inc.TCBI US2,847.3856.72Nn/c61.00Dec-1962.00n/cUmpqua Holdings CorporationUMPQ US3,742.1316.
20、99Nn/c17.50Dec-1918.50n/cValley National BancorpVLY US3,231.459.75Nn/c10.50Dec-19n/cn/cWebster Financial CorporationWBS US4,842.8952.76OWn/c59.00Dec-1964.00n/cZions Bancorp NAZION US8,848.8047.18NOW50.00Dec-1953.00n/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 0
21、3 Apr 19.3North America Equity Research04 April 2019Steven Alexopoulos,CFA(1-212)622-Table of Contents1Q19 Sector Outlook.5Hypothetical Earnings Scenarios.15Deep Dive:Digital Banks 2.0.17The Road Ahead.35Summary of Revisions to EPS Estimates.37Portfolio Manager 1Q19 Macro Summary.38Mid-and Small-Cap
22、 Bank Trends at a Glance.39JPM vs.Consensus EPS Estimates.48Amalgamated Bank 1Q19 Preview(AMAL,OW).49BankUnited 1Q19 Preview(BKU,UW).53Cadence 1Q19 Preview(CADE,OW).57Comerica 1Q19 Preview(CMA,N).62Cullen/Frost 1Q19 Preview(CFR,UW).66FB Financial 1Q19 Preview(FBK,N).69First Hawaiian 1Q19 Preview(FHB
23、,N).72First Horizon 1Q19 Preview(FHN,OW).76First Republic 1Q19 Preview(FRC,OW).81Great Western CY1Q Preview(GWB,N).88Huntington 1Q19 Preview(HBAN,N).92KeyCorp 1Q19 Preview(KEY,N).96M&T Bank Corporation 1Q19 Preview(MTB,N).100Metropolitan Commercial Bank 1Q Preview(MCB,OW).104New York Community Bank
24、1Q19 Preview(NYCB,UW).108Peoples United 1Q19 Preview(PBCT,N).113Signature Bank 1Q19 Preview(SBNY,OW).116SVB Financial 1Q19 Preview(SIVB,OW).120Synovus 1Q19 Preview(SNV,N).126Texas Capital 1Q19 Preview(TCBI,N).130Umpqua 1Q19 Preview(UMPQ,N).135Valley National 1Q19 Preview(VLY,N).139Webster 1Q19 Previ
25、ew(WBS,OW).143Zions 1Q19 Preview(ZION,N).1504North America Equity Research04 April 2019Steven Alexopoulos,CFA(1-212)622-Table 1:US Mid-and Small-Cap Banks ValuationSource:Company reports and J.P.Morgan estimates.Prices as of 4/1/19.Price/Price/Price/2018APrice/DollarMRQCurrentDec 19TotalMarket2018A2
26、019E2020ECoreCoreCoreCoreTBVTangibleVolume BVDividendShort JPMSeniorLast PriceAssetsCapEPSEPSEPSEPSEPSEPSEPSPer Book30 Day MAPer YieldInterestTicker CompanyRatingAnalystPriceTarget($Bil.)($Bil.)(x)(x)(x)2017A2018A2019E2020EShare(%)($MM)Share(%)(%of o/s)AMALAmalgamated BankOverweightAlexopoulos$15.39
27、$18.00$4.2$0.511.210.89.0$0.50$1.38$1.42$1.70$12.92119%$0.7$12.920.0%0.9%BKUBankUnitedUnderweightAlexopoulos$34.41$34.00$32.2$3.410.912.911.8$2.30$3.16$2.67$2.92$26.64129%$27.3$29.632.4%3.0%CADECadence BancorporationOverweightAlexopoulos$19.30$21.50$12.7$2.59.38.67.9$1.48$2.06$2.25$2.45$13.62142%$30
28、.3$16.923.6%2.2%CMAComericaNeutralAlexopoulos$76.08$79.00$70.8$12.110.59.58.7$4.85$7.25$8.05$8.70$42.89177%$155.7$46.923.5%2.4%CFRCullen/FrostUnderweightAlexopoulos$99.88$98.00$32.3$6.314.614.514.7$5.50$6.86$6.89$6.82$40.75245%$27.3$49.492.7%3.1%FBKFB FinancialNeutralLau$32.60$35.00$5.1$1.012.412.01
29、0.7$2.12$2.62$2.71$3.04$16.75195%$1.7$21.121.0%1.4%FHBFirst HawaiianNeutralAlexopoulos$26.49$27.00$20.7$3.612.912.011.5$1.65$2.05$2.20$2.30$11.22236%$33.9$17.363.9%1.9%FHNFirst Horizon NationalOverweightAlexopoulos$14.44$16.00$40.8$4.610.39.18.4$1.12$1.40$1.59$1.71$8.80164%$40.1$13.433.9%6.1%FRCFirs
30、t Republic BankOverweightAlexopoulos$102.51$118.00$99.2$17.421.619.317.6$4.37$4.75$5.30$5.84$45.22227%$103.0$45.680.7%7.6%GWBGreat Western BancorpNeutralAlexopoulos$32.68$34.00$12.6$1.911.110.29.5$2.56$2.95$3.21$3.43$18.72175%$13.8$31.243.0%2.5%HBANHuntington BancsharesNeutralAlexopoulos$13.14$13.50
31、$108.8$13.910.79.79.3$0.99$1.23$1.36$1.41$7.29180%$221.8$9.164.2%3.0%KEYKeyCorpNeutralAlexopoulos$16.35$17.00$139.6$16.69.49.08.3$1.37$1.74$1.82$1.98$11.10147%$233.2$13.304.1%1.3%MCBMetropolitan Bank HoldingOverweightLau$35.80$41.00$1.7$0.311.710.89.4$2.50$3.06$3.30$3.82$30.34118%$0.7$30.680.0%0.4%M
32、TBM&T BankNeutralAlexopoulos$161.73$170.00$120.1$22.412.110.910.4$9.63$13.33$14.87$15.58$69.21234%$137.5$100.402.5%1.2%NYCBNY Community BancorpUnderweightAlexopoulos$11.79$11.50$51.9$5.514.714.614.3$0.67$0.80$0.81$0.83$7.85150%$61.7$12.835.8%9.3%PBCTPeoples UnitedNeutralAlexopoulos$16.72$17.00$47.9$
33、6.612.812.411.7$1.02$1.31$1.35$1.43$9.23181%$56.9$16.694.2%6.7%SBNYSignatureOverweightAlexopoulos$130.56$150.00$47.4$7.114.111.610.8$6.78$9.25$11.28$12.13$78.64166%$44.5$76.521.7%2.5%SIVBSVB FinancialOverweightAlexopoulos$230.74$270.00$56.9$12.312.711.39.7$9.89$18.22$20.34$23.85$97.29237%$109.3$92.4
34、80.0%2.4%SNVSynovusNeutralAlexopoulos$35.07$37.00$32.7$5.69.69.18.5$2.53$3.64$3.85$4.11$26.47133%$69.5$24.383.4%4.0%TCBITexas Capital BancsharesNeutralAlexopoulos$56.63$61.00$28.3$2.99.99.18.5$4.10$5.73$6.24$6.68$49.44115%$46.2$48.360.0%5.3%UMPQ Umpqua HoldingsNeutralAlexopoulos$17.07$17.50$26.9$3.7
35、11.010.39.5$1.15$1.55$1.66$1.79$10.19167%$30.6$18.184.9%2.4%VLYValley NationalNeutralAlexopoulos$9.81$10.50$31.9$3.212.010.39.5$0.70$0.82$0.96$1.03$5.97164%$20.9$9.334.5%5.2%WBSWebster HoldingOverweightAlexopoulos$52.68$59.00$27.6$4.914.012.511.7$2.62$3.76$4.22$4.49$23.72222%$24.6$29.052.5%4.2%ZIONZ
36、ions BancorporationNeutralAlexopoulos$46.72$50.00$68.7$8.811.310.59.6$2.76$4.12$4.45$4.85$31.97146%$120.0$36.362.5%13.5%Mid-and Small-Cap Bank Average11.510.89.6167%2.9%2.7%5North America Equity Research04 April 2019Steven Alexopoulos,CFA(1-212)622-1Q19 Sector OutlookWith Our Bearish Call on Bank St
37、ocks Fully Intact,We Further Now Also Trim Exposure to Asset Sensitive BanksWeve been bearish on bank stocks since we changed our sector view in early October 2018 and recommended investors reduce exposure to regional banks.Stocks in our coverage universe have declined 14%since early October,compare
38、d to a 2%decline in the S&P 500.Even though bank stocks are technically now much cheaper,particularly as compared to the S&P 500,our bearish call on the sector remains fully intact.In fact,for the remainder of 2019,we look for many of the tailwinds that helped bottom line growth for banks over the p
39、ast several years to now more fully start transitioning into headwinds.In terms of NIMs,while 1Q19 results should benefit asset sensitive banks from the December 2018 Fed hike,as earning asset yields stabilize beyond 1Q19,pressure on NIMs should mount as higher short-term rates work through deposit
40、costs and in the backdrop of very little benefit accruing to earning asset yields given the very flat yield curve.In terms of growth,we see loan demand further moderating in 2019 in tandem with slowing economic growth in the US(as well as abroad)with business and consumer confidence fading through t
41、he year(absent some type of fiscal stimulus being provided).In terms of credit costs,while our estimates continue to assume a gradual normalization of credit costs,for the first time in several years,there appears to be more risk that credit costs rise at a more rapid pace.To this end,however,bank s
42、tocks in our view are priced today for near perfection on the credit front.In terms of M&A,while the MOE announcement from BBT/STI could usher in a new era of bank consolidation(as larger regionals strive for increased scale in the digital age of banking),buyers may be more hesitant to stick their n
43、ecks out at this perceived late stage of the credit cycle.Not to mention that with large banks trading at discounts to smaller banks,traditional M&A remains more of a risk factor than an opportunity.A key tenet underlying our bearish call on banks has been a view that,with deposit costs resetting on
44、 a lagged basis,the industry was likely to see the worst NIM pressure in more than a decade in 2019.When the Fed raises the fed funds rate,banks typically respond,and almost immediately,by raising their prime lending rate.On the deposit side of the balance sheet,however,rather than banks sending out
45、 press releases that they have also raised the rates paid on deposits,market forces are typically needed to nudge deposit rates higher over time.In fact,we have estimated that it typically takes almost a year for changes in market interest rates to be fully reflected in deposit rates.To this end,wit
46、h the Fed having raised the fed funds rate 4 times in 2018,as well as shrinking its balance sheet by$373B in 2018,the impact of the Fed actions taken in 2018 has yet to fully work through deposit costs.Case in point,in the most recent quarter banks were paying 0.91%on interest bearing deposits,which
47、 compares to the current effective fed funds rate of 2.4%.With banks historically paying 20%less than the fed funds rate for deposits,this would imply that theres a 100 bps increase in deposit rates still on tap based on the hikes that have already occurred(with about half of this likely in 2019).Wh
48、ile the Fed may now be on hold,which will limit additional upward pressure on deposit rates beyond what is implied in the 2.4%current fed funds rate,we have continued to caution investors to brace for significant pressure on net interest margins in the quarters ahead,particularly with a very flat yi
49、eld curve limiting the ability of banks to offset the rising cost of deposits with improved yields on earning assets.6North America Equity Research04 April 2019Steven Alexopoulos,CFA(1-212)622-Given this potential pressure on net interest margins,it has been our view that investors would be best pro
50、tected by positioning in the banks with the highest concentrations of low cost and sticky deposits,which by definition tend to be“asset-sensitive”banks.In the aftermath,however,of(1)a very dovish outlook being provided at the most recent FOMC meeting(where the Fed officially abandoned its outlook fo
