US Bank 3Q15 Earnings Call Notes

Returned student loan portfolio to held for investment

“During the quarter, we returned our student loan portfolio from held-for-sale to held-for-investment. Subsequent to recognizing a market adjustment on the portfolio, related to disruption in student loan market.”

Loan growth is more of the same

“I would say just more of the same which is not pessimistic but it’s not uber optimistic either. I mean we’re seeing a nice transition to consumers getting more steady in their spending patterns. I think we’ll see a nice seasonal lift in credit cards in the fourth quarter. Auto loans as you know remain strong. Our Bank has been benefited by a strong home equity growth of portfolio and not having some other run-offs that other portfolios have had. So, you will continue to see I think all cylinders on consumer growth. And that will be a nice challenge to probably an equal growth we’ll continue to see in C&I and CRE as well as small business.”

Going to plan for some very small increase in rates next year

“The fact is that we’re going to put into our plan an expectation for very, very nominal number and size of rate increases which much less we’ve had in the years past, so nominal that it’s very small that to the extent that that occurs and in case nothing happens, we will struggle to get positive operating leverage”

Probably not going to do big bank deals next year, but we do love capital light businesses

“I don’t think ‘16 is going to be a year where you’ll see us jumping into big bank deals or big branch deals. But we do love the non-capital, the business of fees and trust”

Would probably start looking at more traditional deals in ’17

“‘17 probably becomes the time we’ll start looking at more traditional bank deals.”

I’m not attracted to other banks right now. We’re building value here

“I am not attracted to other banks right now. I just for all the reasons you mentioned — I mentioned to you before, this year positioning in this moment in time. It’s enough to carry your entire balance sheet across the goal line when interest rates are low and deposits don’t have value, but they are going to be valuable one day again and you’re going to be glad you have all of those deposit gather in place. ‘

We really want to see deposits start to flow out of banks

“We’re all going to have to get ready for this moment when deposits start to flow out of banks and we should celebrate it. You’re all going to want to measure the beta and who loses the most and what’s the retention factor, we’ll all be prepared for that. But we really do want to see customers use their deposits; they’re back up to a savings level now that hasn’t been seen in 12 years. That’s great for America but now we want them to use that.”

Deposits will start to flow out when competitors who have atrophied their deposit gathering operations realize they will need to pay for deposits

“it’s going to be definitely not before, not even at that moment; it will be later when either somebody has decided, they miss guided themselves in this quieter period and got rid of their deposit gathering options and need to go out and price up for it or there will be a bank or two to that wants to get clever and creative and try to get the market movement and do these laddering programs and these guarantees and things that we never did before and wouldn’t recommend in the future. But those kinds of behaviors I think you’ll see but they won’t happen now and they won’t happen even at the point of great increase. They will happen when people start to realize deposit start to matter again and they’ll have to decide to get hungry for an avenue they might have closed off.”

It’s better to sell rather than hold qualifying mortgages

“if it’s a qualifying mortgage Freddie or Fannie, we will sell that. It is a better financial decision from our perspective to originate and sell those mortgages.”

Deposits are our value. Someday interest rates will rise and that will be recognizable

“there will be a time when rates go back up. I know you and I are old enough to remember and deposits will be the governor on how many loans you can make. And that’s the benefit we’re always going to have on these interlopers who are coming in with these great lending ideas. They don’t have the deposits and we shouldn’t give up the one thing we have which is deposits which will be the key driver.”

We think branches are valuable for deposit gathering

“But we’re by and large a believer in the branch network. We think it’s the best core deposits; it’s best quality customers we get from a branch referred loan or credit line. And yet right now, it’d be a bad time to evaluate their value because at this point at the end of a long recession, they’re not very attractive.”

It’s a tortuously slow improvement, but things are not getting worse

“Undeniably it’s not getting worse. I mean things aren’t going backwards; people aren’t going in the direction of not investing; people aren’t afraid to buy cars; people aren’t afraid to use their credit line. I think for a more political discussion, there is the haves and have-nots right in the barbell of who is participating who is not as greater than it used to be. But being a prime only lender and being at a pretty high quality on the line of customers, we’re not impacted mostly by that and we’re feeling a small, slow, steady almost monotonous and I’ll call tortuously slow improvement over the course of time.”