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With regard to growth in the energy book management expects balances to stay
relatively flattish as new growth is offset by pay downs and deleveraging.

Chart 44: Where do you see TCBI's provisioning in 2017 relative to 2016?

50%
47%
45%
40%
37%
35%
30%
25%
20%
16%
15%
10%
5%
0%
Lower, given the stabilization Flat-to-higher, given credit Uncertain, as volatility in oil
in oil prices which should lead normalization in the rest of the prices could lead to an
to reserve reversals book elevated level of provisioning

Source: BofA Merrill Lynch Global Research

■ Mortgage growth to continue despite a downshift in activity: Management was
optimistic on the outlook for both its mortgage businesses – warehouse lending
and MCA businesses Management expects both these portfolios in aggregate to
total 28-33% of average total loan portfolio. Management tried to debunk the
perception that the MCA business was cannibalizing its warehouse lending business
and noted that two business were complimentary in nature. Moreover, while initially
the vast majority of the MCA customers were the ones that TCBI had a relationship
on the warehouse lending side, it noted that that number had fallen to 50% and is
likely to move lower over the coming quarters. TCBI has a dedicated sales force
prospecting for the MCA business.

■ Next rate hike to give a bigger boost to EPS: Management noted its high asset
sensitivity with most of their loans tied to LIBOR and prime and its expectations for
an increase in funding costs to remain relatively tempered. With strong demand
deposit growth during the year and a $1bn reduction in loans with floors (from
$3.1bn to $2bn), TCBI has become more asset sensitive relative to last year, when a
rate hike led to a $4mn increase in spread income. Management expects a Dec rate
hike to boost spread income by more than $4mn a quarter.

■ Remains cautious around CRE lending: Management noted that it intends to grow
CRE more slowly as it de-risks the portfolio and until it sees a turn in the cycle.
However, management is optimistic on the credit quality of CRE, particularly noting
that trends in its Houston real estate portfolio (Houston special mention loans are
1% of Houston CRE) continue to be fairly benign.

US Bancorp (USB), B-2-7, Neutral
• Strong growth outlook across the business spectrum. CEO Richard Davis
provided an upbeat view around the outlook for the economy across the business
spectrum ranging from small businesses to large corporates and noted that
businesses could drive the economic recovery vs the consumer side.

30 2016 Future of Financials Conference | 17 November 2016

Bank of America
Merrill Lynch

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