20170421 Gator Financial Industry Presentation

Strictly Confidential.
Not for Public Distribution.
HAVE CHANGES IN WASHINGTON JUSTIFIED
THE RALLY IN FINANCIAL STOCKS?
April 2017

GATOR FINANCIAL PARTNERS
General Disclosures
This summary, which has been furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment
advisory services. This summary is intended exclusively for the use of the person it has been delivered to by Gator Capital Management, LLC, and
it is not to be reproduced or redistributed to any other person without the prior consent of Gator Capital Management, LLC.
Past performance generally is not, and should not be construed as, an indication of the future results. An investment involves a high degree of risk
including the possibility of a total loss. Returns represent the return history from date of inception to the date of this document. Performance
information is net of all fees and expenses including management fees and other expenses and includes the reinvestment of dividends and other
income.
Information provided herein is presented as of April 24, 2017 (unless otherwise noted) and is derived from sources the advisor considers reliable,
but it cannot guarantee its complete accuracy. Any information may be changed or updated without notice to the recipient.
Past portfolio characteristics are not necessarily indicative of future portfolio characteristics. Portfolio characteristics are based on notional long
market values. This document may contain forward-looking statements and projections that are based on our current beliefs and assumptions
and on information currently available that we believe to be reasonable, however, such statements necessarily involve risks, uncertainties and
assumptions, and prospective investors should not put undue reliance on any of these statements
PAGE 2
GATOR CAPITAL MANAGEMENT

Agenda
 Introduction & Background
 Overview of Financials Sector
 Possible Changes Benefitting the Financials Sector
 Investment Opportunities in the Financials Sector
 Five Stock Ideas
PAGE 3

Introduction to Gator Capital
PAGE 4
Investment Manager  Manage $70 million
 Based in Tampa
Long/Short Financials  Focus on the Financials sector
 Emphasis on off-the-run Financials
Long-only Small Cap  Manage a long-only Small Cap Portfolio
 Concentrated holdings with emphasis on Consumer, Financial Services and
Energy
GATOR FINANCIAL PARTNERSGATOR CAPITAL MANAGEMENT

STRICTLY CONFIDENTIAL. NOT FOR DISTRIBUTION.
GATOR OPPORTUNITIES FUND
Portfolio Manager’s Career Timeline
PAGE 5
Derek Pilecki has managed Gator Capital for the past nine years. Before launching Gator, he covered Financials for three
equity buy-side firms including Goldman Sachs. Prior to business school, he worked in the industry as an asset/liability analyst at
Fannie Mae.
’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ‘14 ‘15 ‘16
Duke University
1992
BA in Economics
Federal National
Mortgage Association
Analyst
1994 to1998
Provided interest rate risk
analysis for the
company’s mortgage
investment portfolio,
portfolio net interest
income forecasting, and
corporate strategy
projects.
University of Chicago
Booth School of
Business
2000
MBA with honors in
Finance and Accounting
Goldman Sachs
Asset Management
Analyst, Financials Sector
2002 to 2008
Analyzed, selected, and
managed equity
positions in Financials
sector firms for Goldman,
Sachs Asset
Management’s Growth
Team across various
sectors and all market
capitalizations
Gator Capital
Management, LLC
Managing Member and
Portfolio Manager
2008 to Present
Founded and manage
Gator Financial Partners,
LLC, a long/short equity
fund focused on the
Financials sector.
Burridge Group &
Clover Capital
2000 to 2002
Financials sector analyst
at buy-side firms in
Chicago and Rochester

STRICTLY CONFIDENTIAL. NOT FOR DISTRIBUTION.
GATOR OPPORTUNITIES FUND
The Financials Sector is more broad than Banks
 Banks
− Universal Banks
− Large Regional Banks
− Regional Banks
− Community Banks
− Trust Banks
− Savings & Loans
 Capital Markets
− Brokers
− Online Brokers
− Boutique Investment Banks
− Exchanges
− Trading Firms
− Asset Managers
− Alternative Asset Managers
 Insurance
− Multi Line Insurers
− Commercial Lines Insurers
− Personal Lines Insurers
− Specialty Insurers
− Reinsurers
− Insurance Brokers
− Life Insurers
PAGE 6
 REITs
− Office
− Industrial
− Malls
− Shopping Centers
− Apartment
− Lodging
− Healthcare
− Storage
− Timber
− Triple Net Lease
 Specialty Finance
− Credit Card Lenders
− Auto Lenders
− Mortgage Insurers
− Financial Guaranty Insurers
− Mortgage Banks
− Business Development Companies
− Mortgage REITs
− Payday Lenders/Pawn Shops
 Financial Technology
− Credit Card Processors
− Bank Processors
− Credit Rating Agencies

Financials – Investable Universe
 Over 1,000 companies in the Financial sector.
 Most our holdings are focused on the Bank, Capital markets, and Specialty Finance sub-sectors.
 Real estate has never been a large focus for us.
Source: Bloomberg
 Business models and products are stable.
 Micro Cap banks comprise >30% of all Financials.
PAGE 7
# of companies in Financials Sector
Total > $250 Million < $250 Million Long Short
Banks 600 250 350 9 24
Capital Markets 75 65 10 11 4
Specialty Finance 130 100 30 6 2
Insurance 85 80 5 2 1
Real Estate 160 155 5 1 2
Financial Technology 30 30 0 0 2
Total 1080 680 400 29 35
GFP Holdings

Financials sector Rallied after Election
PAGE 8
• The Financial sector ETF (XLF) rallied 17% from Election Day to year-end, while the S&P 500 was up 5%.
• Banks rallied 27% over this same time.
• The rally continued through March 1st.
• The sector has pulled back in the last seven weeks.
Source: bigcharts.marketwatch.com

Have the Changes in Washington Justified the Rally in
Financial Stocks since the Election?
 The short answer is:
−No.
 Optimistic answer is:
−Not, yet.
 Different perspective:
−Financial stocks were cheap and out-of-favor but poised for a rally, so maybe the election
was the excuse the market needed for Financials to rally.
PAGE 9

Ways Financials Sector could benefit from changes in Washington
 Taxes
 Regulations
 Higher Interest Rates
 Stronger Economic Growth
PAGE 10

Taxes
 Potential lower corporate tax rate benefits Financials:
− Large majority of operations are domestic.
− Mostly full tax payers.
 Repatriation could benefit Financials due to increased M&A activity and increased capital
investment domestically.
 Tax Reform seems to be pushed back to late 2017 or even 2018.
 Corporate Tax Rate may not go down as much due to lack of additional revenues:
− Health Care Reform stalled
− Border Adjustment Tax seems DOA
PAGE 11

Regulation
 Financials can benefit from less regulation. At least, it seems like additional regulation will stop.
− Think of financial regulation on decade-long pendulum.
− Deregulation for 2 decades up until 2008.
− Heavy regulation for 10 years until now.
− Deregulation for at least 10 years going forward.
 Many areas of potential deregulation:
− Bank Supervision
− Dodd-Frank
− Volcker Rule
− DOL Fiduciary
− CCAR
− CFPB
− Durbin Amendment
− Student Lending
− Non-bank GSIF
− GSEs
PAGE 12

Higher Interest Rates
 Fed has already raised rates twice since the election.
− Seeing the benefits in bank income statements.
 May increase rates 1 to 2 more times this year.
 Followed by reducing the Fed’s balance sheet.
 Many Fed governors seem to favor normalized Fed Funds rate of 2% to 3% versus current 0.75% to
1.00%.
 Recent rally in 10-year to 2.20% calls into question the market’s view of additional increases.
PAGE 13

Stronger Economic Growth
 So far, consumer confidence is up.
 But, Q1 looks to be weak.
− Retail sales weak.
− Auto sales weak.
− March employment was below trend.
 Are people taking a wait and see approach?
 ACA is still soaking up discretionary spending dollars.
Conclusion:
Financials have pulled back as the Trump Agenda has been postponed. However, many of the
proposed changes will still come eventually. Now, we have a better buying opportunity than
chasing the Financial stocks earlier this year.
PAGE 14

Financial Sub-Sectors with Attractive Opportunities
 Universal Banks – low valuations, strong capital return & beneficiaries of rising rates
− C, BAC & JPM
 Large Regional Banks – beneficiaries of rising rates, modest valuations & strong loan growth
− STI & ZION
 Brokers – low valuations, own the customer relationship & beneficiaries of rising rates
− MS & AMP
 Alternative Asset Managers – extremely low valuations, strong secular growth
− BX, ARES, KKR, CG & CLNS
 Life Insurance – low valuation, strong capital return & perceived to benefit from higher rates
− VOYA
 Specialty Finance Lenders – consumer in strong position, credit underwriting solid & low valuations
− ALLY, COF, OMF & SLM
 Mortgage Insurers – low valuations & strong credit
− NMIH
 Financial Guaranty – extremely low valuations, corporate restructuring & R&W recoveries
− SYCRF & AMBC
PAGE 15

Prospective Investment Themes in the Portfolio
PAGE 16
Long 1. Financial Guaranty Recovery(AMBC, FNMA & SYCRF)
2. Consumer Finance (ALLY, COF, OMF & SLM)
3. TARP Bank Warrants (STI & ZION)
4. Alternative Asset Managers (KKR, CG, BX, CLNS, & ARES)
Short 1. Shift from Active to Passive Investment Management (BEN, MORN & FDS)
2. Liability Sensitive Banks
3. Flawed Business Models (LC, FNGN & VIRT)

Current Idea: Ambac (AMBC) – Financial Guaranty Recovery
 Ambac potential 3x upside.
 Over-reserved for RMBS losses between $1.0 billion
and $2 billion versus $0.8 billion market cap.
 Suing RMBS counterparties. Peers have had
success in similar suits. Another $0.8B of potential
upside.
 Mitigating losses by repurchasing Ambac-
guaranteed bonds and surplus notes.
 Underfollowed post-reorg equity: exited
bankruptcy May 2013, one minor sell-side
research firm publishes research, not writing new
business, but obvious downside risks (Puerto Rico,
New Jersey, and Illinois).
PAGE 17

Current Idea: Ally Financial (ALLY) – Consumer Finance
 Ally Financial could rise more than 50% in next
twelve months.
 Auto lender trading at 75% of tangible book
value.
 Shares depressed due to over-concern about the
auto cycle.
 Self-help story with increasing yields on auto loans
and reducing funding costs by growing bank.
 Company has cleaned up capital structure over
past three years and is repurchasing 8% of stock
over next 12 months.
PAGE 18

Current Idea: Colony NorthStar – Alt Asset Manager
 Property REIT formed through the 3-way merger
between Colony Capital, NorthStar Asset
Management & NorthStar Realty.
 Owns many properties and also runs real estate
private equity funds.
 2017 will be a year of balance sheet restructuring.
 Market undervalues real estate and places
almost no value on private equity business.
 CEO & Management team is very strong.
 Pays an 8.3% yield.
PAGE 19

Current Idea: KKR & Co. (KKR) – Alt Asset Manager
 Top-tier private equity firm.
 Generating consistent AUM growth. Firm has
doubled in last five years.
 Expanding investment platform: real estate, Asian
private equity, Infrastructure, Energy, Leveraged
Credit, Private Credit.
 Stock trades ~$17, but company has ~$11 of net
investments on its balance sheet.
 Management fee business generates $0.70 of
earnings. We value this business at 12x or $8.40.
 This values all future incentive fees of KKR at $-2.40
per share. We think incentive fees should be
valued at $4-6 per share.
 This would make the stock worth $23.50 to $25.50.
PAGE 20

Current Idea: Citigroup (C) – Universal Bank
 Universal Bank trades at lowest Price-to-Tangible
Book of its peers.
− C is 0.9x
− GS is 1.2x
− BAC & MA are 1.3x
− JPM and WFC are 1.7x
 ROE is increasing. Will be >10% in 2019.
 Earning through its large DTA which grows
regulatory capital.
 Expect capital return of $15B to $18B in 2017-18
cycle. Greater than 10% of Market cap.
 U.S Cards and Int’l Banking are well positioned for
growth.
 Expenses finally seem to be headed the correct
direction.
PAGE 21

20170421 Gator Financial Industry Presentation

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