The document provides an overview and analysis of the financial services sector. It discusses the industries that make up the sector, including banks, capital markets, and insurance. Key metrics like market capitalization and performance are presented. An analysis of the business cycle, Porter's 5 Forces, and supply and demand is given. Economic factors that influence the sector like interest rates, GDP, and unemployment are examined. Financial projections and the valuation of the sector relative to the S&P 500 are analyzed. The recommendation is to remain neutral given the sector's underperformance but lower relative valuation currently compared to its median.

1. MIKE RAINEY
MITCH SALSBERY
MIKE SHAVER
MADDIE SHIRK
Financials Sector
Presentation

2. Financials: Overview

3. Overview
Industries:
● Banks
○ 3.91T
● Capital markets
○ 1.25T
● Consumer Finance
○ 251.54B
● Diversified Financial Services
○ 533.60B
● Insurance
○ 1.33T
● Mortgage REITs
○ 69.34B
● Thrifts & Mortgage Finance
○ 93.00B

4. Financials Overview
● Market Cap: 7.56T
● % of S&P 500: 14.01%
● SPY 1 year: +13.54%
● Financials 1YR: +12.61%

5. Largest Companies
 Berkshire Hathaway
 471.65B
 JP Morgan Chase & Co
 366.134B
 Bank of America Corporation
 296.679B
 Wells Fargo and Company
 268.398B
 Citigroup
 170.284B
 Goldman Sachs Group
 83.163B
 American Express
 83.421B
 US Bancorp
 81.844B

6. Performance
YTD 1 Year 3Year 5 Year
Financials -1.71% +12.99% +35.61% +71.86%
Banks -2.18% +15.34% +35.58% +80.88%
Capital Markets +3.58% +20.75% +27.31% +71.54%
Consumer Finance -2.70% +19.78% +14.94% +38.66%
Diversified Financial
Services
-3.85% +11.42% +40.01% +83.93%
Insurance -5.01% -1.04% +22.34% +53.26%
S&P 500 ® Index +3.75% +14.00% +32.06% +69.23%

7. Financial Sector
1 Year vs
S&P500
5 Year vs
S&P500

8. Financials:
Business Analysis

9. Business Cycle
● Financials show top performance during growth and maturity phases
● High interest rates improve outlook
● As cycle progresses, financials lose due to lower spending

10. Porter’s 5 Forces
Barrier to Entry Moderate Difficult to raise necessary capital to gain entry
Highly supervised
Small banks able to offer more
Supplier Power Moderate Policy has large impact
Customer can change very easily
Buyer Power Moderate Buy and supplies capital
As rates increase, may increase power due to more
competition for money
Substitution Moderate Many small companies taking aim at segments
Increased competition and low rate products
Rivalry High Highly competitive
Small banks have different regulations
Fees a big topic
Similar products

11. Supply/Demand
● Consumers are people, companies, governments
● Drivers:
○ Interest rates
○ Inflation
○ Economic conditions
○ Government regulations
● Overall financial sector is second largest

12. Financials:
Economic Analysis

13. Factors of High Influence
● Economic Conditions in US (S&P 500)
● Interest Rates
● Consumer Confidence
● US Gross Domestic Product
● Unemployment
● Regulations, Policy and Taxes

14. S&P 500
A strong economy drives personal and business investing

15. Interest Rates
Changes in interest rates drive how investors function
Increased rates are good for lenders

16. Consumer Confidence
High confidence leads to more investing and purchasing

17. GDP
Economic growth trends towards more lending and borrowing

18. Unemployment
A fully staffed workforce means increased business investment
Historically low rates raise questions on the trend’s outlook

19. Analysis and Projections
S&P 500 = Financials
Interest rates = Financials
Consumer confidence = Financials
GDP = Financials
Unemployment = Financials

20. Financials:
Financial Analysis

21. Financial Projections

22. Key Financial Overview – Income Statement

23. Key Financial Overview – Balance Sheet

24. Key Financial Overview – Balance Sheet

25. Key Financial Overview – Cash Flows

26. Key Drivers of Financial Performance
● Tax law changes
● Interest rates
● Frank Dodd executive action

27. Financials:
Valuation Analysis

28. S&P 500 vs. S5FINL

29. S&P 500 vs. S5FINL

30. Sector Valuation

31. Industry Valuation

32. Portfolio Breakdown

33. Recommendation
● Recommendation is to remain “neutral”
● Current position is overweight
● Previously underperformed the S&P… BUT
○ Current relative multiples are lower than their median
○ Current S&P multiples are higher than their median
● Expect the financial sector to outperform S&P
moving forward