US Bancorp 3Q16 Earnings Call Notes

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U.S. Bancorp’s (USB) CEO Richard Davis on Q3 2016 Results

We can grow revs even in a low rate environment

“Our industry continues to face challenges from the low interest rate environment. However, we remain confident that we can continue to grow revenue even as we prudently manage expenses and strategically invest in our businesses to create value for both our customers and for our shareholders.”

3Q was a pause in C&I lending

” we think quarter 3 represents a pause in C&I lending, meaning that it was strong in quarter 2 and we expect it to recover in quarter 4, in part based on what we believe is the vagaries of quarter 3, where we had some of the Brexit activities move things up into quarter 2 and perhaps some of the uncertainty around election and other things moving things into quarter 4. But we see that returning, nonetheless.”

Anticipating 2017 continued improvement

“We like C&I, we like CRE, we like all consumer categories; but we see actually a little slightly stronger 2017 than 2016 based on nothing more than the fact that the world gets better a little bit, slowly but surely and because we’re taking market share. I haven’t talked about market share in a number of quarters, because I know it’s a hollow category when all banks are doing well and everybody talks about it, but you know, we really are — $28 billion in deposits in one year, the kind of loan growth we’ve had consistently, 10% commercial loan growth year-over-year, we’re taking market share”

Selling isn’t bad

“As long as we have something they want and it’s for services rendered and fees benefited, we’ll be happy to provide that. I want to make sure it’s clear, though, for this industry, selling is not bad. It’s not bad anywhere, as long as you’re selling to people’s needs and you’re making it clear what advantages you have to provide them at the time that they want them. So, yes, it’s tough on the industry. But it still always go back to people love their banker, they like their bank, because they made those choices. They don’t so much like the industry. We’re sadly years away from getting that right. But if every bank and every banker does a better job, despite what happens on occasion in one location or another, we’ve got a fighting chance to bring this thing back.”

This is a noble profession and it’s easier to show when things are healthy as they’re getting today

” when times are good banks are doing more positive things. People are healthier. The economy is moving more quickly. People want us and need us and we can say yes more often. When the world gets a little bit better, we can just say yes more often; we’re more popular and we’re more effective. When times are tough, actually we move on to defense and we’re there to protect people from things that could get them in harm’s way. That’s a less attractive position. People don’t like to watch defensive games either, because it’s low-scoring. At the end of the day, at the very end, it really does matter. So I do think it’s a noble occupation. I’m very proud of what we do and very proud of the people that do it across this country. It’s one of the most important things that we have in America and it’s what makes us unique.”

Regulations are pretty well set no matter who is president

” I think if we’re a nine-inning game, we’re probably in the eighth inning. We know most of the conditions. We know the condition on the field. We know the umpires. We know the fan attitude. We know the weather. We know the ball speed. There’s not a lot here new. And there will be some adjustments to the election, but as you know, most of these positions are not tied directly to the election or directly to the President’s term. They have different term timetables; and think the FDIC and the OCC to name two. So I think the philosophies and the general sense of what regulation looks like for banks is pretty well set. I think we understand most of those rules and what we’re dealing with now is nuances, why certain speeches make so much attention, because we’re trying to read tea leaves and figure out if they changed anything systemic. I don’t think there’s anything major to change.”

The new president is likely to create some variation but perhaps one more than the other

“I also think a new President which is undoubtedly going to happen, has a slight variation one way or the other. I won’t talk about which one I think does which, but one gets a little more uncertain and causes us to stand back a little bit and wait to see how things settle. The other one is a lot more of the same and probably, whether we like it or not, is something we can manage because it’s the devil we know. Either way, I don’t see any circumstances where bank regulation gets easier or lightens. I don’t see a significant place where it gets any tougher or gets a lot stronger.”

Andy Cecere

M&A took a bit of a pause

“And finally M&A activity which was a driver of strong growth in prior quarters, took a little bit of a pause here in the third quarter, either delayed or deferred to future quarters. So those factors all come into play and that’s why we think it was more of a pause and that will come back a little bit as we [indiscernible].”

Are expecting a rate increase in December

. Incorporated into our guidance we’re assuming that the rate hike does occur in the December time frame; and that in and of itself would have a positive impact with respect to margin, probably maybe by a basis point or so. But one of the things that we anticipate, John, is that the cash balances that we saw an increase in, in the third quarter, we think are tied to money market reform. And that is going to have an impact in terms of net interest margin at least probably through the fourth quarter.”