IBKC market outlook and M&A interest; JPM commercial banking optimism

- Ready for M&A: While a depressed valuation (due to the volatility surrounding oil prices) had kept IBKC out of M&A, given the recovery in valuation it noted its desire to pursue potential deals across its footprint. Management also noted that while the recent move in equity markets had pushed up valuations for potential publicly traded sellers, it sees significant opportunity among the privately held banks that may look for a merger partner to gain liquidity and monetize the improving sentiment surrounding bank stocks. From a size standpoint, management did not rule out larger deals. This is not surprising given that IBKC has not shied away from pursuing relatively large sized deals previously. + Rate increase to boost the margin: In terms of its interest rate sensitivity, management noted that it retains an asset sensitive balance sheet, with a potential 25 basis point move in the Fed Funds rate expected to add 5c to quarterly EPS. That said, management recognized that slower mortgage activity due to rising long rates could temper the revenue outlook for its mortgage business. Chart 32: What is the biggest factor that prevents you from owning or adding exposure to IBKC? 60% 50% 40% 30% 20% 10% 0% Energy exposure Potential that the bank will Valuation, see better enter into a large M&A deal risk/reward elsewhere Source: BofA Merrill Lynch Global Research JPMorgan Chase & Co (JPM), B-1-7, Buy Pent up demand from macro uncertainty offers growth opportunity. Doug Pento, CEO of JPM’s Commercial Bank, sounded optimistic around the opportunity within commercial banking from the pent-up demand in the market that was constrained by the uncertainty surrounding the election. In addition, he highlighted the increased opportunity generated by JPM’s expansion into 44 new markets since 2008, specifically in LA. This coincides with 62% of the audience polled who believe top-line revenue growth is most important for the stock to continue its outperformance. Bankof America isa Merrill Lynch 2016 Future of Financials Conference | 17 November 2016 21 HOUSE_OVERSIGHT_014335