US Bank 2Q15 Earnings Call Notes

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Credit quality remains strong

“Credit quality remains strong. Total net charge-offs decreased by 15.2% from the prior year and increased modestly from the previous quarter. The increase from the previous quarter is a result of lower recoveries. Total non-performing assets declined compared to both the prior year quarter and on a linked quarter basis.”

53% efficiency ratio

“Our efficiency ratio for the second quarter was 53.2%, lower than the prior quarter. We expect this ratio to remain in the low-50%s going forward as we continue to manage expenses in relation to revenue trends driven by the economic environment while continuing to invest in and grow our business.”

I’m actually more optimistic on revenue

“I’m actually more optimistic on the revenue for the second half because things have turned the corner and I think you’ll see, with NIM flattening out”

The cost of compliance has erased a lot of benefits from cost cutting

” Expenses will come down as we watch our nickels and dimes, but I will tell you the cost of compliance has erased a lot of the benefits I would otherwise hope to have gotten a year-and-a-half ago when we started this”

People are using home equity lines to make improvements on their homes

“home equity, as I mentioned in my comments, are also strong. That’s up 4.1%. And interestingly enough, these accounts are now coming at larger line sizes; people are using their home equity for home improvement and home repairs, some debt consolidation, but mostly improving the property. And they’re using the balances now more than they did even a year ago.”

Cost of compliance is at its high watermark

“it’s not coming down, so let’s put it that way. But I don’t see any material increases either. What’s happening here is the cost of compliance is at its high watermark.”

We are interested in parts of the GE Capital portfolio

“we’ve indicated an interest in the GE Capital, or part of their portfolio and we are in the due diligence with that. So we will keep finding an interest in asset purchases.”

I like to take a position

“I’ll probably be right in the middle and that’s not like me, I like to take a position.”

Corporate trust generates 15% of core deposits, is stickier

“And I have to remind you because of our corporate trust, we will have at least 15% of our core deposits are in a different category as much as they’re contractual, and they don’t have the ability to move at the vagaries of rates or even consumerism”

There is still improvement in the non-performing side of the residential book

“I think the one area is still in the residential space, so there is still continued improvement there. It’s already getting low so the dollars aren’t going to be huge at this point”

Homebuilders still feel comfortable with the housing market with 200 bps increase in rates

“I was, a couple of weeks ago, in California with our homebuilder business. They were there for our national conference and we had a large gathering. And I asked them, what interest rate level in terms of a mortgage rate would cause them to worry about the impact of future homebuilding? And they all were comfortable that 200 basis points doesn’t move anybody’s needle on either the affordability or the belief that they could still get into a home that they want. And that’s a pretty nice range of safety for a while because I don’t think any of us think rates whenever they do move up are going to move 200 basis points real quick.”

There is debt consolidation showing up in home equity, but people are more prudent about how they’re doing it

“Debt consolidation for the first time, Kevin, is starting to show up again in home equity, which I guess, it makes sense later in the cycle as people want to reset one more time, but they are much more prudent than they were before. And because the quality of loans we do, we don’t do debt consolidation home equity for people who are desperate. They’re simply being more efficient in the way they handle their cash flow.”

The economy is the same as it has been, slow and steady

“I think it’s same as it has been, which is still slow but steady progress, right? So it’s not going backwards. There’s no inertia to jump it forward.”

Given your question we’ll talk about breaking out I bank

“We – it hasn’t been material enough so we haven’t, but given your question, we’ll look into that. I mean if that’s valuable to you all, given that we’re continuing to make progress and our momentum has been really good here, we’ll make that a to-do for ourselves.”