I N D U S T R Y wN O T E

March 10, 2023

Terry McEvoy, CFA, Analyst
207-808-5025
Financial Services: Banks - Super-
terry.mcevoy@stephens.com Regional
Brandon Rud, Associate
Reason for Report: Industry Update
207-808-5902
brandon.rud@stephens.com
Super Regional Banks: SIVB Drops a Big Rock
Covered Companies Mentioned:
CFG $35.75 Into an Even Bigger Pond
CMA $61.91
FITB $31.69 INVESTMENT CONCLUSION:
FRC $96.01 The ripple effect from the SIVB news (covered by Andrew Terrell) sent
HBAN $13.74 shares of Super Regional banks lower yesterday, with RF the best
KEY $16.07 performer (down 4.2%) and ZION at the bottom of the list (down 16%).
PNC $137.87 We tend to discuss FRC as a "growth" financial services company,
RF $20.66
which likely contributed to the 21% sell-off. Pushing back investors'
SIVB $106.04
TFC $41.62
fears over deposit outflows, securities losses, and the potential for
USB $42.30 dilutive capital raises after yesterday is tough. Yield curve inversion
ZION $41.36 only adds to the negative sentiment. The Super Regional banks have
considerable government support and, post the GFC, have boosted
capital and liquidity levels, which doesn't mean these stocks can't go
down more. Exhibit 1 is a hypothetical scenario that shows adjusted
capital ratios assuming all securities losses (AFS and HTM) are
realized; the average TCE and CET1 decline to 3.9% and 6.0%,
respectively. Bank-specific securities portfolio disclosures are in Exhibit
2.

KEY POINTS:
Securities Portfolio and Capital: With heightened investor concerns
around the embedded losses within the AFS and HTM portfolios, we
analyzed several hypothetical scenarios at the Super Regional banks
to see the impact on capital if these securities were sold. The probability
of such an event is very low, but we have been getting questions on
this topic over the last 24 hours. Exhibit 1 shows the pro forma TCE
and CET1 using 12/31/22 data. ZION, USB, and TFC have the lowest
adjusted TCE ratios (below 2.3%). CFG and RF are the highest at
~5.5%. Securities yields range from low 2% to 3.4%, and the duration
of the securities portfolios range from 4.4 years to 10 years (Exhibit 2).

Deposit Commentary: Management teams this week at an industry

event painted a consistent message on deposit competition (it's
getting worse) and the mix shift into higher-yielding products (% in
DDAs declining). KEY raised their deposit beta outlook (link). SIVB's
comments increased concerns about the outflow of VC-connected
deposits. CMA and FRC are involved in this business. Lastly, FRC
recently raised the rate on an 11-month CD by 15bps to 4.90%.

Something Good to Say, at Least For Now: Recent commentary

on near-term credit quality trends from the Super Regional banks was
encouraging. Net charge-offs are expected to remain at the lower end of
historical levels. Reserve building will reflect loan growth and changes
in the economic outlook. We show exposure to office CRE for these
banks here.

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 Industry Note
March 10, 2023
Exhibit 1: 4Q22 Capital Ratios Adjusted For AOCI and Fair Value Of Securities
--- A B C D E=A/C F=B/D G H
Tang. CET1 TCE Adj. CET1 Adj. TCE
Ticker CET1 TCE RWAs Assets Ratio Ratio Ratio* Ratio**
TFC 39,098 23,979 434,413 525,347 9.0% 4.6% 4.0% 2.2%
USB 41,560 29,771 496,500 660,618 8.4% 4.5% 4.1% 2.3%
HBAN 13,290 9,839 141,940 177,181 9.4% 5.6% 5.6% 4.2%
ZION 6,480 3,388 67,125 88,480 9.7% 3.8% 5.6% 1.9%
KEY 14,779 8,164 162,471 187,072 9.1% 4.4% 5.7% 4.0%
FRC 13,920 13,595 151,777 212,421 9.2% 6.4% 5.8% 4.2%
PNC 39,685 28,889 435,537 545,633 9.1% 5.3% 6.3% 3.7%
FITB 15,670 10,127 168,909 202,368 9.3% 5.0% 6.6% 5.0%
CMA 7,884 4,143 78,871 85,004 10.0% 4.9% 7.1% 4.9%
RF 12,066 8,409 125,752 149,543 9.6% 5.6% 7.5% 5.6%
CFG 18,575 13,728 185,224 218,295 10.0% 6.3% 8.1% 5.5%
. Average --- --- --- --- 9.3% 5.1% 6.0% 3.9%
Sources: Company Filings, S&P Global Market Intelligence, and Stephens Inc. Estimates
Notes: (*)Adjusts for accumulated other comprehensive income on held-to-maturity and available-for-sale securities portfolios and the difference
between the amortized cost-basis and fair value of held-to-maturity securities; (**)Adjusts for accumulated other comprehensive income on the held-
to-maturity portfolio and the difference between the amortized cost-basis and fair value of held-to-maturity securities

Exhibit 2: 4Q22 Securities Portfolio Compositions, Yields, and Durations

Resi Comm. Other Gov. Securities Securities
Ticker MBS UST MBS Sec. Agencies Yields Duration*
FRC 13% 0% 20% 66% 1% 3.38% 10.1
TFC 89% 8% 2% 1% 0% 2.08% 6.7
CFG 67% 10% 10% 13% 0% 2.66% 5.8
KEY 53% 18% 18% 10% 2% 2.26% 5.6
FITB 22% 5% 51% 22% 0% 3.00% 5.4
CMA 61% 14% 19% 6% 0% 2.09% 5.3
USB 71% 9% 1% 13% 6% 2.42% 5.0
RF 59% 4% 7% 27% 3% 2.75% 5.0
PNC 54% 29% 3% (9%) 23% 2.36% 4.4
ZION 66% 2% 14% 12% 7% 2.41% 4.2
. HBAN 75% 0% 9% 15% 0% 3.27% NA
Sources: Company Filings and S&P Global Market Intelligence
Note: (*)Years

Stephens Inc. Page 2

 Industry Note
March 10, 2023

APPENDIX A
ANALYST CERTIFICATION
The analyst primarily responsible for the preparation of the content of this report certifies that (i) all views expressed in this report
accurately reflect the analyst's personal views about the subject company and securities, and (ii) no part of the analyst's compensation
was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in this report.

REQUIRED DISCLOSURES
The research analyst principally responsible for preparation of this report has received compensation that is based on the firm's overall
revenue which includes investment banking revenue.

Ratings Definitions
OVERWEIGHT (O) - The stock's total return is expected to be greater than the total return of the company's industry sector, on a risk-
adjusted basis, over the next 12 months. EQUAL-WEIGHT (E) - The stock's total return is expected to be equivalent to the total return
of the company's industry sector, on a risk-adjusted basis, over the next 12 months. UNDERWEIGHT (U) - The stock's total return is
expected to be less than the total return of the company's industry sector, on a risk-adjusted basis, over the next 12 months. VOLATILE
(V) - The stock's price volatility is potentially higher than that of the company's industry sector. The company stock ratings may reflect
the analyst's subjective assessment of risk factors that could impact the company's business.

Distribution of Stephens Inc. Ratings

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [OW] 236 57.42 42 17.80
HOLD [EW] 172 41.85 23 13.37
SELL [UW] 3 0.73 0 0.00

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