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CRE market across its footprint it noted some caution around the health of the market in Denver.

Chart 31: What is the primary reason keeping you from buying/increasing exposure in GWB?
40%
38%
35%
30%
25%
25%
20%
15%
10%
5%
0%
38%
Ag exposure, as the weakness in the farm sector increases credit risk
Stock valuation, see better risk/reward elsewhere
Cautious commentary around loan growth during 3Q16 earnings

Source: BofA Merrill Lynch Global Research

Ag portfolio offers unique opportunity, but management believes fears overstated. As of 3Q16, ag loans represented 25% of the total portfolio (36% in grains, 50% in proteins and 14% in other). Tied for first at 38% as a reason why investors are hesitant to increase exposure to GWB resonates from the bank's ag exposure. While lower grain prices may constrain cash flow on those loans near-term, Mr. Chapman noted that this is offset by stronger yields. Management also highlighted the relatively low losses observed historically in this portfolio given the significant experience within GWB's management ranks in lending to this segment, including in the 1980s the last stress period for the farm sector. That said, management remains committed to this business as it is key to GWB's footprint.

Management reiterated its commitment to actively manage excess capital. Although management is comfortable with its current capital levels (3Q: 9.5% tier 1 leverage), Mr. Chapman noted the bank's preference is to put its excess capital to work. Management reminded investors of the criteria it looks for in a potential target. While they continue to look for opportunities within their footprint, specifically IA and KS, they remain disciplined. In addition to its recently authorized repurchase program of $100mn, management believes a total payout ratio of 30% is maintainable.

IBERIABANK (IBKC), B-1-7, Buy

Focused on moving closer to its strategic targets: President and CEO Daryl Byrd and Senior Vice President John Davis were upbeat around the outlook for economic growth across IBKC's 10 state footprint as the bank looks out into 2017. While management has thus far not provided any specific guidance for 2017, we expect this to be forthcoming in conjunction with the announcement of 4Q16 results in January. Moreover, management sounded cautiously optimistic that pro-growth policies (if implemented) coupled with some relief on the regulatory front under the new Trump administration could lead to a much stronger growth outlook

Energy credit costs should trend lower: Management noted the overall energy portfolio should continue to trend lower but is expected to moderate as run-off in stressed energy loans (and loan payoffs) are partially offset by new energy loans, with management looking to selectively lend again in the sector. Moreover, with energy criticized loans peaking in 1Q16, management expects the criticized loans to trend lower barring any major declines in oil prices.

20
2016 Future of Financials Conference | 17 November 2016

Bank of America
Merrill Lynch

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