US Bancorp 1Q16 Earnings Call Notes

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Richard K. Davis – Chairman, President & Chief Executive Officer

Compliance costs have nearly tripled in last five years

“I will say, our compliance costs and FTE have really nearly tripled in the last five years. We did that review for our board just yesterday. And I would have said probably two-thirds of that would have been present anyway, consent orders or not.”

The second quarter is feeling robust for loan growth

“we already know what quarter two is starting to look like, and it’s feeling pretty robust. And it’s very much the same things have you seen. Commercial is still strong and growing at that same clip, particularly M&A transactions or balance restructurings by corporate customers. We have got nice growth in home equity. I know that’s a very rare thing, but we continue to grow our home equity portfolio I think against the comps to the other banks. Auto continues to grow. Credit card continues to grow. So we are on all cylinders on loans. Mortgages particularly are growing nicely as they – they didn’t a year ago”

Not seeing stress in card or auto in energy focused areas

“And, Paul, we look at secondary and tertiary impacts on particularly those markets, the Gulf Coast and things where we have auto loans, we might have credit cards and things and we see absolutely no impact at all at this early stage of the game. So no one who lives or works down there that has our cars our cards are showing any stress.”

Flattening of yield curve negated benefit of higher short term rates

“The second thing will be that we enjoy interest rate increases or a steeper yield curve. They are also both quite important, right? Because interest rates not moving up will harm some of the projections for the industry, but make sure you guys are watching the slope of the curve too, right? As the high end came up – the moment – the short end came up, the long end came down. And that has the same kind of impact on interest income that you would see on lack of rate movement.”

Interesting discussion of Neel Kashkari as head of MN fed

“our relationship is quite good. We are, by far, their most important client, and we’re, I think, more than half the entire Ninth District. As you all probably know, but I will remind you that the hiring of the President is left to a layman board, particularly, local leaders who have parameters, of course. But they do bring in people that have – in some cases, they are not economists, and Neel Kashkari certainly fits that bill. But he comes in with a zeal and a need to want to open the question again on too-big-to-fail. I have met with him. I knew him in the TARP program. As you recall, we were the last big bank to take TARP. I didn’t want to. We were the first bank to pay it back. I’m glad we did. I had long conversations with him over that period of time. And as soon as he showed up, Dick, here in the first of the year, Andy and I went to meet with him to introduce ourselves in his new role, and we had a very good conversation.” … “I don’t think he’s coming in with his gunsights on U.S. Bank. In fact, I’m sure he’s not. We have not – he’s not invited any banks to his symposiums yet. He hasn’t indicated yet when that will be, but I know we will have that opportunity. You might guess, I have private conversations with him routinely and with his team, so I’m not feeling left out of being able to offer my thoughts on some of his considerations. But at the end of the day, I’m going to take him to his word.”

Kathy Ashcraft Rogers – Vice Chairman & Chief Financial Officer

P. W. Parker – Vice Chairman & Chief Risk Officer

Reserves are 9% of our outstanding energy loans

“We did have continued improvement, particularly in our residential mortgage portfolio, so that did, in part, offset some of the increase to the energy reserves. You can see, we did build the energy reserves to 9.1% of our outstanding loans. We had a pretty conservative price stack that we used during the quarter. So we feel like we have got embedded in those reserves what we will need for the future quarters. So, that’s where we get that stable outlook.”

We have seen some stress in CRE in Houston

“we look at a couple of our markets that are energy dependent, the ones that we’re most focused on are Denver and Houston. Denver, there’s been little to no impact. It’s not that energy dependent anymore. Houston of course is. We do have commercial real estate down there. We also do home building in the state of Texas. So we are watching that carefully. We have seen stress in the office market. That’s obviously slowed in Houston. We do have four properties that we are watching, but it’s not a material amount. We underwrite to our sponsors, our client base, as opposed to the area that they are in. So we feel that we have good secondary support on all the credits that we have in Houston.”