US Bancorp 2Q16 Earnings Call Notes

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U.S. Bancorp (USB) Richard Davis on Q2 2016 Results

lower long term interest rates will have an impact on 2H results

“The lower long-term rates will have an impact on our second half results, if the rates remain at these low historic levels. We would that given the current yield curve and expectations that the short-term rates will remain flat for the near-team, that the interest margin — net interest margin will decline on a linked basis in the range of 3 to 4 basis points.”

Still not seeing organic growth we’d like in wholesale, on consumer side all areas are moving slowly but surely

” on the wholesale side, we’re not still not seeing the kind of organic growth we’d like to see, but we are pleased as we said in our comments that we have a fully capable capital markets business in order to take the benefit of what would otherwise be some activities we didn’t use to have in the company when customers moved outside of the lending market and into the capital markets. On the consumer side we’re seeing all areas moving slowly, but surely and nicely, favorably from autos to RVs to credit card to home equity. And then we particularly have good story to tell in the mortgage business as we continue to be a bigger player in that area.”

Positive operating leverage is getting harder

” We’re not giving up on positive operating leverage, but it’s getting a lot harder. And I’d rather just tell you guys that we’re going to stay at the same current level and we’ve been there for a couple of quarters now of efficiency. Because what I’m saying is we already are under a pretty steady and measured expense control program.”

If we can make it through these times, we can manage through just about anything

“As we woke up this morning, you know that the call for interest rate increases is 21% for September, 36% for December. Better than zero worse than it was when we talked last time. So we’re not going to bet on any of that, but to the extent that any of it comes back would be terrific. Also the 10 years above 150 again thank god. That is helpful to us as interest rate increases. And you know there is an equal impact on the income statement based on that. So if we can manage through these very worse time which is continued zero interest rate increases and very, very low tenure. We can manage through just about anything which is how we’re building the lower for longer kind of term around the company.”

Banks do best when corporate America is confident

“I think really turns on the dial for banks is when corporate America is more confident and I don’t mean the original old unconfident we’re always uncertain. But things with a Presidential Election in the offering things like Brexit uncertainties we don’t need any of the things like that to continue to give corporate America a reason to just wait and but for M&A and for restructuring their balance sheet corporate America is not organically doing big things at least not needing banks in that process.”

We’re not seeing things go backward but we’re not seeing the wholesale side of the business piick up in the old fashioned way

“I’m going to say two things that Fed is it has a different lens on this. They are looking at different things and looking usually later than we are. But on a real time basis, which we live in everyday, we are seeing a slow recovery. And it’s a small nuance on a word, but a recession as things are going backwards where people are starting to feel worse and not taking actions that they might otherwise have taken before. We are not seeing that. On the other hand, because we’re balance sheet companies and because we’re highly levered and because half of what we do is in the wholesale business, we’re all, I think, spending a lot of energy talking about how we’re waiting for the wholesale side of the balance sheet to pick up in a real organic, old-fashioned way, and we’re also not seeing that. But they’re not going backwards, so just taking this long, long, long period of time to restructure, evaluate their best options when things do pick up.”

Kathy Rogers

6.5% organic loan growth compared to prior year

“Thanks, Richard. Average loan and deposit growth is summarized on slide seven. Average total loans outstanding grew 1.6% on a linked quarter basis and increased by over $20 billion or 8.1% compared with the second quarter of 2015. Excluding the recent retail card portfolio acquisition and student loans that were carried in the held for sale in the second quarter of 2015 loans grew by 6.5% compared to the prior year.”

Credit problems in energy portfolio declined as loans paid down

“During the second quarter criticized commitments within this portfolio decreased $509 million while nonperforming loans decreased $54 million principally driven by pay down. Finally credit reserve associated with the energy portfolio declined by $45 million, reflective of reduced loans which resulted in an 8.8% credit reserve for our energy portfolio compared to 9.1% in the previous quarter. ”

P. W. Parker

We feel like we’ve got the energy issue behind us at $50 per barrel

“Yeah it’s pretty — very stable really across the board. I mean, if you look at each of the asset classes C&I is surprisingly low in this quarter, we had — we felt we were very got out ahead of the energy issues in the first quarter, and this quarter we had no material energy charge-offs, in fact we have nice recovery on one of our credits. So we feel like we’ve got the energy with $50 a barrel anyway, that we have the energy issue behind us. And if you look at the other asset class, it’s all very stable.”