Financial Sector Holdings Update

Robert Kost Lead Analyst Brandon George Associate Analyst

William C. Dunkelberg Owl Fund 29 January 2014

Matthew Rouet Associate Analyst

2014 Commences Down for Sector Holdings The beginning of 2014 as well as the spring semester has been off to a negative start, with the S&P 500 down over 3% with the S&P Financials Sector down over 2.7%. Likewise, individual holdings have been lagging the S&P, with BLK down over 1.0%, LNC down over 4.3%, and C down around 1.8% against the benchmark. However, DFS and FITB managed to outpace the S&P by over 1.8% and 4.3% respectively, with the Consumer Finance Subsector, which DFS is a major member of, expected to outpace the S&P 500 and the Financials Sector over the next twelve months. Sector Holdings Owl Fund Financial Sector Holdings Include: BlackRock Inc. (BLK), Citigroup Inc. (C), Discover Financial Services (DFS), Fifth Third Bancorp (FITB), and Lincoln National Corporation (LNC). BlackRock Inc. (BLK) Purchase Price: $189.19, Last: $303.69, Target: $331.00 BLK has outperformed the S&P 500 by a whopping 31.98% since inception. BLK recently reported earnings on January 16th, increasing profits 22%, as assets rose on the market, with investor deposits bolstering client assets and management fees. Highlights include a net income rise to $841 million or $4.86, from $690 million, or $3.93 per share a year earlier. BLK also increased their quarterly dividend by 15% to $1.93 per share. We expect to see continued growth in BLKs asset base as a growth catalyst as they continue to further their reach and attract new investor deposits, as well as developing new exchange-traded funds in a favorable macro-environment for asset managers. Additionally, BLK has remained largely unscathed from many of the regulatory scandals that have hit Wall Street over the past nine-months, costing rival firms a record amount in litigation and settlements. BLK currently stands to gain around 9% before hitting price target. Citigroup Inc. (C) Purchase Price: $50.02, Last: $49.60, Target: $60.67 C has underperformed the S&P 500 since inception by 1.98%, with risk in emerging markets as a key issue and risk exposure. Citi is exposed to many international areas of concern ranging from EMEA areas of Turkey and Egypt to the troubled Euro-zone nations and Asia-Pacific areas of Thailand and Indonesia, to name a few. The major risks is currency risk spreading into the normal flow of funds through an economy. Meanwhile in Korea, slowing growth and government efforts to pair back household debt have lead to writedowns for competitors, and will likely be a drag on Citis 2014 Asian-Pacific revenues. Current price targets however remain just below $59, with analysts hesitant to downgrade

Citi. However, if the condition in emerging markets makes a bad turn, those estimates will have no resistance in dropping. Citi is currently trading over 22.3% from price target, and is expected to report earnings mid April. Discover Financial Services (DFS) Purchase Price: $46.25, Last: $55.29, Target: $60 DSF has appreciated over 19.2% relative to the S&P 500 since inception. After hitting its original price target of $53.24, was reevaluated with a new price target set at $60.00, leaving room for an additional 8.5% price appreciation. DSF just recently reported earnings on January 23rd, rising over 5.2% after beating analyst expectations as credit card spending and loan demand grew top line revenue as the commercial banking sector grew. DFS is also gaining momentum in the student loan and mortgage space, which will help to drive revenue and margins along with continued credit card and loan demand in a recovering and strengthening economy. DFS operates within the Consumer Finance Sub-Sector, which is set to outperform the S&P over the next twelve months. Fifth Third Bancorp (FITB) Purchase Price: $14.28, Last: $21.30, Target: $21.80 FITB has appreciated 19.29% against the S&P 500 since inception, and is one of two current holdings to outpace the S&P year-to-date in 2014, by an astonishing 4.31%. FITB was another among our sector holdings to report Q4 earnings on January 23rd. Earnings highlights include per share earnings of $0.43, roughly in line with analysts expectations, down from Q# earnings of $0.47 per share. FITBs results were primarily driven by lower expenses and improved provisions for loan loss reserves; with a fall in their top line remaining a concern. Additionally, FITBs Net Interest Margin (NIM), fell 28 basis points to 3.21%. FITBs credit metrics slightly improved with net charge-offs 67pbs of average loans, compared with 70pbs in Q3, with their provision for loans and leases decreasing 30% and, their I Common Equity Ration decreasing 13bps YoY. Average loan and lease balances increased around 5% YoY, with deposits rising 11% from Q3FY2013. Currently, FITB stands to gain 2.35% before hitting price target, with competitive pressures and top line growth a concern, balanced by a diverse revenue mix and decline in non-performing assets in a favorable economic recovery in their regions of operation. Lincoln National Corp. (LNC) Purchase Price: $42.22, Last: $21.26, Target: $55.42 LNC has appreciated 7.99% against the S&P 500 since inception, reaching a 52-week high of $52.55 on January 15th. Shares of this Life Insurer jumped by 16% after LNC reported Q3FY2013 results at the end of October, with a positive earnings surprise of 8.9%. Tapering further allowed for stock price appreciation through the prospect of higher interest rates on securities owned in LNCs portfolio. Additional stock price appreciation has been fueled by improved core growth and a solid competitive footing. LNC remains undervalued relative to its peers, and has been returning value to shareholders through strong buybacks totaling over 5% over the last twelve month period, further validating LNCs value. LNC continues to trade at a discount to peers with a 15.89% appreciation left to hit price target, with earnings expected to be announced February 5th.