Copart FY 4Q15 Earnings Call Notes

Jay Adair – CEO

ASPs declining thanks to lower scrap metal prices and strong dollar

“We did start off the year with significantly higher ASPs, or average selling prices, of cars and we saw those average selling prices come down from Q1 to Q2 all the way to the end of the year. So there were some unanticipated headwinds that we faced in that because as vehicle sale price sells for less we end up generating less revenue on a per unit sold. We believe the primary driver of this was the decrease in scrap and the lower scrap prices basically caused buyers to pay less for the cars that we were auctioning off. In addition to that we would throw in the strengthening of the U.S. dollar that took place during the same time frame in the last fiscal year, again making it harder for international buyers to pay as much at auction for vehicles that we were selling.”

5 teslas were sold to buyers in Ukraine

“We had five Teslas that we sold this year to buyers in Ukraine. I thought that was interesting that they are buying those types of vehicles and it just really speaks to the power of VB3 and our technology and our ability to drive results even in the face of those headwinds that we talked about in the form of low scrap prices and the U.S. dollar.”

Average age of vehicles they are selling has been increasing

“the average age rather of vehicles that were selling in 2008 that average vehicle age was 8.6 years, in 2011 it’s grown to 9.7 and it is currently in 2015, 11.4. We believe that’s going to drive additional unit volume as it has in the past as vehicles are ageing”

Carnival FY 3Q15 Earnings Call Notes

Arnold W. Donald – President and CEO

Public relations effort is outperforming

“Our public relations effort continues to outperform. We generated positive media impressions in the first half of this year that almost equalled our positive impressions for all of 2014, which were already well above the historical highs. In the first half, our brands generated 75% of the entire cruise industry’s positive coverage, and as that even includes the recent announcement regarding Cuba, another industry first by our Company.”

Brands separate but synergistic

“So the reality here is, our brands are very different from each other, they compete in different typographic markets, but they can learn from each other and common itineraries and common regions of the world and intelligence in terms of what’s happening with booking curves and reactions, especially since they all tend to extend chasing newer cruise than chasing different newer cruise individuals because of the typographic profile, but they are all chasing newer cruise. So we’ve had benefit to date which is why we have had some of the outstanding operating results we’ve had and this too will allow us to capture even more benefit, regardless of the environment.”

Book now if you are thinking about booking a cruise for next year

“I think the simplest statement we can make is for those who are considering cruising next year is, better to book now, because this is the best time for them to book.”

China yields may be down, but we’re growing our capacity

“China yields may come down a bit but they’re going to be return accretive because of the significant increase in capacity.”

No falloff in demand related to the stock market

“We did not see any falloff in demand related to stock market or general economic fluctuations, none whatsoever.”

No plans to change energy hedging practices

“At this point in time we have seen no advantage to unwinding those collars or anything to that effect. When we looked at it once earlier this year, we would take them and then if we had done it, we would have lost on both ends, unwinding and then setting new collars. And so at this point wouldn’t have any particular plans to change but we review it constantly.”

David Bernstein – CFO

Expecting a good year in 2016

“I want to provide you with some color on 2016. Although it’s early, 2016 appears to be shaping up to be another good year. We are forecasting capacity to increase 3.7%. For 2016, we are expecting to see constant currency net revenue yield improvement. I will provide guidance on the December call when we have more visibility.”

Europe is probably the most challenging region currently

“Overall, Continental Europe is probably more challenging. When you think about all of the economic difficulties and the geopolitical issues and the growing refugee concerns, that’s the area that has had the most challenges in terms of pricing for 2016”

Darden FY 1Q16 Earnings Call Notes

80% of guests are interacting with tablets at tables

“We also continued the roll out of our table-top tablets. The tablets are now on more than half of our restaurants, with 80% of the tables choosing to interact with the devices in those restaurants. We continue to see the same benefits, as we saw during the tests, higher add-on sales, faster dining times, and overall higher guest satisfaction scores. We are pleased with the progress of the rollout, and we expect to complete it by the end of the second quarter.”

Intend to separate 488 properties through sale lease back

“We now intend to separate 488 restaurant real estate properties through the sale leaseback of 64 restaurant properties, and a REIT spend that will include 424 restaurant properties to create an independent company called Four Corners Property Trust, which was discussed in its Form 10 filing last month.”

Beef prices should be much better in 2017

“On beef, as I have said in the past, beef year-over-year comparisons have a lot to do with when you contracted last year. We believe that we are going to start to have some positive advantages in LongHorn, as the beef market starts to weak, and especially, we expect to see some significant improvement in the back half of the year. But as we move into 2017, we think that the beef market is going to be a much better market for us.”

Comps get a little more difficult, but still easy

“although the comparisons are a little bit more difficult — they are a little bit more difficult on the sales side. We still had some weak guest counts in the back half of last year. So I think that we will continue to outperform the industry, as we move forward.”

Wage pressure is a problem

“Wage pressure continues to be a problem. We will continue to monitor it, as we monitor the different states and the different cities and what they are doing with minimum wage. The job market is improving. We are seeing in certain markets today, becoming a little bit more difficult to hire help. So that will eventually put some pressure on our average wage. But right now, I believe that we are managing this very-very effectively.”

JS Earnings Call & Investor Presentation Notes 9.22.2015 – AZO, JPM, GIS

Autozone (AZO) William Rhodes said the company continues to focus on the “do-it-yourself” auto retail segment while also growing it’s commercial garage business

DIY remains our number one priority. Our DIY business continues to grow, remains the largest portion of our sales, and continues to generate tremendous returns.  We also see significant opportunities for new store growth and improved productivity in our existing stores. As our commercial business continues to grow and is intertwined with our retail business, we’ve continued to identify opportunities to optimize our inventory placement and distribution strategy in order to respond to the ever increasing challenge of parts proliferation in the industry.”

Despite robust sales and profitability growth over the last decade, he said the company can still improve and often missing out on sales opportunities due to inventory being out of stock

To this day, it surprises me how often we’ve to say sorry, we don’t have that available. Even with our new part additions too many customers leave our stores without their needs being met. In this spirit to help the customer we continue to make significant systems enhancements and to capture data about our customer shopping patterns across all of our platforms.”

And the company continues to benefit from the tailwind of increased mileage by drivers

As new vehicle sales are reaching all-time highs and gas prices on average are down year-over-year, vehicle miles driven continue to increase.  This trend is encouraging.  We continue to believe that lower gas prices have a real impact on our customers’ ability to maintain their vehicles, and cost reductions help all Americans, we hope to continue to benefit from this increase in disposable income.”

And the company’s management team restated their “return on capital” mindset as opposed to “grow sales at all costs” mindset

We should also highlight another strong performance in return on invested capital, as we were able to finish fiscal 2015 at 31.2%. We are very pleased with this metric and is one of the best in all of hardline retail.  Our primary focus has been and continues to be that we ensured every incremental dollar of capital that we deployed in this business provides an acceptable return, well in excess of our cost of capital. It is important to reinforce that we will always maintain our diligence regarding capital stewardship as the capital we invest is our investor’s capital.”





JP Morgan (JPM) CEO Jamie Dimon is taking the long view on his economic outlook for China

“Our view of China is in 20 years it will be a large developed nation probably housing 20% to 25% of the global Fortune 2000 or something and that’s where we are keeping our eye on. We know that between here and then, they are going to have some serious bumps in the roads in a couple of ditches and maybe even a rough like we had in 2008 or 2009. And I think they are very bright, the reason for that though is, they have a lot of lot of issues they got to deal with and they are very open about these issues.”

JP Morgan (JPM) CEO Jamie Dimon said it doesn’t matter when the Fed raises interest rates

“It’s a lot of chatter about nothing. I don’t want to add to that chatter. Let the Fed decide when they want to raise rates and wherever I go I ask businesses, consumers, small business, large business, will it affect you if rates go 25 basis points? I haven’t found anyone who says, Oh my god. By the way, if someone says oh my god, I’m in trouble.”

He went on to say the bank’s returns have come down but they expect them to go up in the long run 

I mean, when you look at a business, if you add just one checking account and in the old days the NPV of that was 25% or so, the IRR is 25% and you do it today and the IRR is 12% or 8%. Would you not open that account? Of course, we open the account because that will change over time and as spreads go up. So we’re looking at – we’re keeping our eye on the long haul here and not the short one.”

JP Morgan (JPM) CEO Jamie Dimon said the bank has no acquisition plans 

We are not the acquisition business right now unless it was kind of a small fit in something. And obviously we can’t do a bank here and I don’t think we are going to try a bank overseas right now. There is no reason for JPMorgan in getting a fight with regulators around the world what we’re trying to do and distract us from our mission at hand. I believe we’ll grow organically for a long time.  We are legally not permitted to buy banks in the United States.”

And he explained to what degree the bank will become more profitable in a higher interest rate environment

So we make a disclosure in our 10-K that if rates go up 100 basis points, we will make little over $2 billion more. More of that’s in the short and long end, but obviously how they go up really matters and how fast they grow up really matters, but in general rates going up, all things being equal will do better. “   





General Mills (GIS) CFO Donal Mulligan said the company has implemented many cost savings initiatives in hopes of reducing expenses

“In addition we are making good progress on our incremental cost savings initiatives, including Project Catalyst, Project Century, Project Compass and the changes to our administrative policies and practices. Taken together these initiatives remain on track to deliver between $285 million and $310 million in annual savings this fiscal year and more than $400 million in fiscal ‘17.”

General Mills (GIS) CFO Donal Mulligan stated that the company is using the Proctor & Gamble focus strategy of prioritizing its most profitable and popular brands

We are prioritizing what we call our Power 450 SKUs. These are our 450 best turning national items. In fact they turn at a rate that is nearly four times faster than the other items in our portfolio. These products represent three-quarters of our U.S. Retail volume, but less than 20% of our SKUs. More importantly we have on average less than 350 of these 450 items on the shelf. That’s almost a 25% distribution gap and a significant growth opportunity for our largest and most profitable brands.”

General Mills (GIS) Senior VP Shawn O’Grady said E-commerce is one of the fastest growing sales channels for the company’s products

On the e-commerce front, in the U.S. food sales that are going through online are between 1% and 2%. Now that’s changing pretty quickly, meaning moving from 1% to 2%. If you said what does it look like out four or five years ahead, all the projections I’ve seen are in the 5% to 6% range. So it’s going to be a high growth area. Obviously Amazon is leading some of the thought there, is investing a great deal to make sure that they and utilizing their stores to make sure they are competitive. And that really is causing all the players in the marketplace to one of the actives in the e-commerce space.  We have only to look at other markets where we do business like the UK and France where, for some of our categories our online sales are approaching 10%. So it’s pretty clear that we’re going to move in that direction very rapidly in the U.S. and this is an area that we’re investing in at General Mills to develop our capability.”

Factset 4Q15 Earnings Call Notes

Added most users ever. 62k total now

“Our net user count increased by 3,210, which is our highest ever increase in a single quarter. Net user count of FactSet terminals totaled 62,205 at quarter end, which represented a year-over-year growth rate of 14%”

Portware opens up opportunities on trading desk

“I am very excited about the acquisition of Portware. Strategically Portware will be a platform to expand our presence in large global asset managers by becoming part of their trading ecosystem. We expect to combine our leading expertise and portfolio analytics with Portware’s innovative suites of trade automation solutions and cross-sell the solutions at FactSet’s blue-chip global buy-side client base.”

Strategy is to become more multi asset

” our strategic focus, as you’ve seen has to become more as a multi-asset class solution for our clients, and we’re excited about the fact that Portware is a multi-asset class solution and gives us more flexibility and opportunities in that area.’

Volatility creates opportunities for us

“clearly volatility in the market is something that we watch we talk to our clients a lot about it. The thing about volatility for us as well is it requires better data, and more analytics and better information in general which plays right into our sweet spot so with the volatility comes opportunity for us. We feel really good about the opportunities out there across both buy side and sell side, our growth has been very broad based across our regions and our client base. So we feel good about the opportunities going forward.”

No signs that volatility has impacted hiring trends

“We haven’t really seen any of that indication we clearly stay close to our clients throughout this volatility. It is felt still fairly healthy as we look at the sell-side graduating classes that we just saw were reasonably healthy, and attrition rates were nothing of know so, we haven’t seen anything that alarms us in that space so far.”

We’ve noticed some froth out there in acquisitions, but not in this one

“we certainly noticed some froth over the last year or two as we’ve looked at strategic acquisitions, but I would not say that the froth played into our thinking in terms of the pricing for this acquisition. We feel like we paid a very fair value for the asset.”

SNL built a great business with a lot of depth of data

“it’s a great question I mean they have built a great product. They go credibly deep in some sectors. We go deep as well. We don’t go quite to that level of depth within particular industries and when we’re evaluating our investments each year we think about that is one of our options, but we sit side-by-side today with SNL quite happily in a lot of our client bases, a lot of things that FactSet does that SNL can’t provide.”

user growth was wide spread, a little heavier to the sell side

“was very wide spread. Sell-side was a little bit higher in the overall number than buy-side was, not surprising. We do see good growth in that sell-side workstation this time of the year as the new-hire class has come in, but it really was just good growth all over the place and an estimate to our salesforce and client service group who are out there and they were doing a terrific job and it showed.”

General Mills FY 1Q16 Earnings Call Notes

Sold Green Giant to B&G

“We’re selling the Green Giant and Le Sueur brands of frozen and shelf stable vegetables to B&G Foods for $765 million in cash, subject to an inventory adjustment closing. ”

Structure of sales organization

“we employ around 1,700 sales professionals across the U.S. Our organization includes cross functional teams that call on customer headquarters, a retail organization that make sure our products are merchandised in stores and stocked on shelves and a centralized support group that provides advantaged capabilities to our sales teams. We have expertise in 25 categories, that span all three temperature states and we manage an average of 690 General Mills items in distribution.”

We’re the third largest natural and organic foods manufacturer in the US

“Natural and organic retailers have also experienced strong growth as consumer preferences change. We’ve been selling to these retailers for more than 15 years but the acquisition of Annie’s has opened up new growth avenues and increased our capabilities. We’re now the third largest natural and organic food manufacturer in the United States and this enhanced scale combined with our dedicated stewardship of our brands has made us a significant and credible supplier to natural and organic consumers.”

e-commerce is the fastest growing food channel

“E-commerce is the fastest growing food channel and our customers are testing a wide range of business and distribution models. We’ve established an e-commerce Center of Excellence to provide leadership for the virtual shelf by serving as food captain and we engage in annual collaborative business planning with our key retailers like Amazon, and other pure play e-commerce retailers.”

Challenging economic conditions impacting emerging markets

“Challenging economic conditions are having an impact on our categories and our businesses in emerging markets. First quarter net sales increased 3% on a constant currency basis for the Asia-Pacific region, but it was a mixed bag across our portfolio. In China, constant currency net sales were down 1%, driven by a decline on Wanchai Ferry dumplings. ”

Revising currency headwind higher

“it’s about $0.05, I think it is. I think we had $0.04 in July, it’s $0.09 now. So about $0.05 swing. And obviously the U.S. dollar strengthens, the Canadian dollars, the A dollars, the Euro, the Brazilian Real. So yeah we see more of a headwind on our reported results from currency.”

People ask us why we don’t do divestitures and the reason is that we have nice cash flowing brands

“we’re often asked why don’t we do — why aren’t we more active from a divestiture standpoint and one of the things we always come to is we have very profitable cash generative brands. And so Green Giant has a little under $600 million in sales last fiscal. Its margins were in the upper teens and that’s going to be lost income this year.”

5-6% of US food sales could go online

“U.S. food sales that are going through online are between 1% and 2%. Now that’s changing pretty quickly, meaning moving from 1% to 2%. If you said what does it look like out four or five years ahead, all the projections I’ve seen are in the 5% to 6% range. So it’s going to be a high growth area.”

Carmax FY 2Q16 Earnings Call Notes

Customers want to do more and more of the transaction from home

“what we are trying to do is make sure our customers can do as much of the transaction as they want to do from home. We’ve definitely seen the sentiment shift where customers are looking to do more and more research, more and more pieces of the transaction from home, and in some cases the entire transaction from home”

High lease percentage means used cars coming to auction with more predictability and organization

“When it’s a very high lease percentage, it’s kind of more predictable, so if there’s a bunch of leases going out now, if it’s almost 30% of new cars sales, two years out, three years out we’re going to see a lot of leases coming back. They tend to be a lot more organized at the auction, maybe even a little bit easier for us to have access to.”

The volkswagen thing only relates to the diesel product

“the Volkswagen, which just came out so we’re really still just evaluating it. It only relates to diesel product. We have about– I mentioned earlier we have about 50,000 cars online. We have only a couple of hundred diesel products, Volkswagens or Audis, so very, very small.”

More demand for SUVs with lower gas prices

” what I’ve seen in that product is prices have gone up because there’s more demand, so I think the lowering of gas prices has caused some higher prices when you’re looking to buy those cars at auction, but not something that caused it to move meaningfully one way or the other in terms of our sales”

No change in aggressiveness of tier 3 lenders

“we’ve seen pretty consistent behavior from our Tier 3 lenders, and when I say consistent behavior, it doesn’t necessarily mean what percentage of sales are getting done by Tier 3 because they are impacted by what is actually flowing down through the channel and that they’re able to see, so if there is a change in credit mix or if our other Tier 2 lenders are becoming more aggressive, it changes the nature of what they are seeing. What we look at is their behavior on how many of the applications that they see, they approve, and if they convert, and on those bases we’ve seen pretty consistent behavior.”

The market is still extremely fragmented

” the market is extremely fragmented and the fact that all of those cars are online doesn’t change the fact that when the customer goes and actually goes through the process, they still have to go through a process in a way that makes them uncomfortable.”

Lennar 3Q15 Earnings Call Notes

Homebuilding market continued to improve at fairly consistent pace

“Our results reflect the slow but steady growth in the overall homebuilding market. This year, summer season and the spring selling season before it confirm that the market is continuing to improve at a fairly consistent pace.”

Balance sheets are starting to be repaired

“A growing number of individuals’ balance sheets that were impaired by the economic downturn are starting to be repaired as the economy improves and as time passes and U.S. population continues to grow.”

Supply is limited but this market could not support a strong increase in production

“Even though supply is limited as demand is building, we do not anticipate a surge in production. Frankly, I don’t think that the current market conditions could support a strong increase in production. A combination of land, labor and mortgage availability are simply put limiting factors to a surge in production.”

A shortage of entitled land

“Limited capital for land and land development has left entitled lands in short supply while growing demands has driven up land prices. In most major U.S. market, the ability to grow quickly is limited by the available land, and the market’s ability to bring new land to entitlement is limited by a constrained capital market for land developers…Land continues to be the most challenging competitive environment in the homebuilders universe today.”

Labor has also become a limiting factor

“Running a close second, labor has also become a limiting factor. The slow and steady recovery in housing did not signal to the labor market that it was time to come back to work in the sector, and many found work elsewhere. Today, the entire labor market has tightened and rapid growth in housing production will be limited by available labor.”

Regulatory environment for mortgages remains tough

“Finally, the regulatory environment for mortgages remains challenging and limits the number of entrants for the for-sale market. QM and QRM rules together with the ATR, that is the ability to repay rules, continue to restrict qualified purchasers from accessing the mortgage market.”

Don’t want to equate this to the last cycle. Labor environment much different

“one thing I don’t want to do is start equating to the last cycle, because this recovery is very, very different in its composition. We highlighted that there are some interesting and somewhat unique limiting factors. I highlighted land. I highlighted labor and I highlighted mortgage availability. And while land had been constrained in prior cycles, the labor constraint today is a limiting factor that is somewhat different than we’ve seen in the past and mortgage availability is clearly a very different overlay in this cycle.”

Houston is still decent overall energy corridor has been hit though

“Well, this is Rick, I’ll talk about Houston. I would say that the Houston market is still overall a pretty decent market. Clearly with the decline in oil, the energy corridor there has been hit which is pretty much the far west side of the market.

Higher price points have been hit harder than lower in Houston

“Now, if you look at that, it hasn’t been across all price points. The lower price points, let’s say, sub-$300,000, $350,000 are performing pretty well. It’s just when you get up in that $350,000-plus, the price point sales has been impacted and have slowed. Those would be the big master plan communities that are on the west side of town.”

TRID is implemented October 3

“October 3rd is the date that TRID is implemented for new applications, and our team has been very focused with the software vendors and with training to make sure it goes as smooth as possible.”

The land market is capital constrained

“I think that the land market is constrained in lot of levels, not the least of which is the capital constraint. The traditional lending avenues have remained close to the land asset as a basis for opening doors to lending. And so as production is really being forced to expand to normalize, land is behind the eight ball, and the enabling factor – that is, the access to capital – is continuing to constrain the ability to entitle new property.”

JP Morgan at Barclays Conference Notes

Jamie Dimon – Chief Executive Officer

It’s been a challenging three years

“Certainly lot, it’s been a challenging three years. We’ve had lots of new rules and regulations and all the banks I know has been a tremendous amount of time writing code, getting people in place, pushing down capital liquidity, the products, clients, countries, adjusting their business models et cetera.”

The economy is still tugging along

“The economy itself which is far more important is still tugging along and I don’t know I think anything changed it that much.”

We think this is a speed bump for China

“In regard to China, I think we’ve been fairly consistent. I think we just saw is speed bump in China and not that bigger deal. China, our view of China is in 20 years it will be a large developed nation probably housing 20% to 25% of the global Fortune 2000 or something and that’s where we are keeping our eye on.”

The Fed is a lot of chatter about nothing. This isn’t even a tightening

“It’s a lot of chatter about nothing. I don’t want to add to that chatter. Let the Fed decide when they want to raise rates and wherever I go I ask businesses, consumers, small business, large business, will it affect you if rates go 25 basis points? I haven’t found anyone who says, Oh my god. By the way, if someone says oh my god, I’m in trouble, okay honestly you’re not paying attention, they’re going to go up and when it goes up September, October, November it isn’t it’s a psychological thing, folks. It’s not a economic thing, it’s not really in my opinion tightening. They could raise rates – tightening in the old days meant you’re taking cash out of the system.”

The system doesn’t even work the same way that it used to. They’re not taking money out.

“by the way the system doesn’t work the same anymore. In the old days if they said they want rate of x, they would buy treasuries that would create reserves, presumably banks would lend them out with some kind of money multiplier and they can do rates that way. The reserve banking doesn’t exist anymore because all those reserves bank have – I’m going to call them – they are not required under old reserve requirements, they required an LCR, so that – it won’t work that way, but they can set IOER, which the rate they pay us if rates go immediately there and it’s not necessarily taking money out.”

The American consumer is doing fine

“the American consumer is doing fine, I wish the economy is going faster, but I think it will take good policy have that happen.”

The next issue is not going to come from credit

“I don’t think it’s going to be credit. I mean if you look at the credit, it’s being written out mortgage, it’s pristine.”

But I do expect credit to get worse

“I don’t see something out a horizon credit that’s terrible. But I do expect it will get worse. So don’t misread this as being good for this long. Never seen it stay this good for 20 years. I will be this good and then it’s going to charges will go up and the economy will change obviously.”

We don’t run the business with expense initiatives

“We don’t run the business that way and they are not expense initiatives. We run the business that you think the way you want to do, you invest what you got to invest, you built the systems you need, you open the branches you need.”

I would love to acquire into new markets but we’re not allowed

“we are legally not permitted to buy banks in the United States. We are at the 10% FDIC limit. So, if I could buy 50 branches I’d go do that, but we have to build them instead. So, it is a lower return way then – I mean you would buy the branches if you could, if it was even at reasonable premium you buy them, it would be more effective way to go to market.”

There is nothing like what happened in the last cycle going on in banks today

“The last crisis obviously the heart of it, the nucleus, was mortgages in the banking system, outside the banking system, mortgages, and Fannie Mae and Freddie Mac; it was mortgages; that was the corruption that caused the whole crisis. I don’t see anything like that in banks, zero, nada, nothing, zilch.”

Non banks are not big enough to pose a systemic issue

“Non-banks, they are not big enough to pose a systemic issue. Now there might be a systemic issue five or seven years from now, so don’t quote me today if there’s been a change.’

The one thing I worry about a little is treasuries, because so many people in this business have never seen interest rates go up and the biggest buyers are reversing course

“the one thing I do worry about a little bit by the way is treasuries. I mean, there has been – interest rate has been so low for so long, there is an oracle, a paper that I kind of wrote it, but it was kind of funny that not only that the traders have they never seen interest rates go up, but their bosses have never seen interest rate go up. Anyone into this business since 2006 has never seen interest rates go up, they saw a little bit of a crisis here, but they never seen interest rates go up”

“And the biggest buyers of treasuries were central banks, foreign exchange managers effectively and banks. And all three of those are going to reverse. So I wouldn’t be shocked to see 10-year treasuries, when rates are going up, people change their mind, they change direction, that they will be vitally volatile and go up much faster than people think. I’m not predicting that, I’m simply saying in the back of mind, I think that’s a possibility and we will be prepared for that.”

I’m not afraid about leverage lending business for banks at all

“I’m not afraid at all about the leverage lending business, zero.”…

Leverage in the middle market is coming from non-banks

“If you go to middle market lending, all the leverage – and not all, but a big chuck of leverage lending in the middle market is now non-banks. Now one of the issues again with that is, we will lend to our clients in bad markets, markets will not lend their clients in bad markets and all hedge funds. So if you are a client, if you are the middle market client who bought hedge fund or private equity in making that loan they will not be there; in bad time, they can’t. So that’s the market to market right away and that will be a huge hit. You can’t make a loan and then have an immediate 20% loss.”

I don’t want to retire

“I don’t want to retire. So I don’t know, I mean as long as the board wants me and I could still do the job and I have my other stuff like that and I want to work hard.”

US Bank at Barclays Conference Notes

Richard Davis – Chairman, President and CEO

Largest non G SIFI bank in America

“we’re the largest non-G-SIFI bank in America, that’s a new designation I call, us we’re just a small little bank from Bloomington, Minnesota [don’t you know]. But this company is growing to be a really perfect sweet spot at $400 billion, we’ve got a really good breadth and depth and also have this ability to I stand at the radar screen in terms of some of those G-SIFI too big to fail issues that some of our brethren has to deal with.”

Efficiency isn’t a goal, it’s an outcome of growing revenue faster than expenses

“We are focused on efficiency never as a goal. In my time as CEO I don’t think we ever been above 54% but we’ve also been as low as 50%. It’s never been a goal but it’s an outcome. But it’s an outcome that usually gets better because we grow revenue faster than expenses and we’ve not done that in the last year more than we ever had in the past and we’re concerned about that. ”

Credit wont be a concern for a while

“We continue to see credit is a not a concern for us but you should worry about it because you would know about it for three years anyway, so I can be doing some cavalry and risky things right now you wouldn’t see it for a while and so one of the things you should be checking with us on our one-on-ones and you look at the quality of the portfolio its really what are you doing in credit quality, what are your focuses today or things like energy, stocks, China, non-precious metals, commodities those are all the right questions to ask because the percentages of the portfolios but they are an insight for you to ask what kind of credit disciplines do our companies have at a time when credit hasn’t talked about for a while and frankly won’t be for a while.”

Credit problems aren’t going to come from recession they will come from higher rates

“when the next downturn will happen or when credit quality finds itself at harmsway. By the way it won’t resession, it’s going to be higher interest rates and its probably not now, not for a while but if 300 basis points to 400 basis points above where we are there is stress in the credit quality based particularly on consumers but sometimes corporations as well and that’s where this next thing will start showing up.”

Tried to sell a large student loan portfolio in April and the market broke on them

“in April of 2015, we moved our $3 billion student loan portfolio both public and private into the held for sale with the intent to sell the portfolio. It’s in a trading portfolio, I declar we would stop originating student loans in April of 2012, it just seemed to me to be a category that more hazard future around it and we simply didn’t want to be involved in that business.

As we looked at it, it was in a trading portfolio so if the market would bare it and we thought it would let’s go ahead and move those assets off and sell them. In my entire career when I look back on it, there’ll be a couple of moments I’ll look at, they were just luck, something you just can’t control. This will be one of those bad luck moments that will turn into hopefully good outcome. But in the early months of our being out to bid, things are moving along swiftly before we put the portfolio to bid one of the largest rating agencies started downgrade a couple of the FFELP portfolios and then others started to follow. The pricing margin started to gap and in the very two weeks we’re in the market getting the bids, I even use a phrase that isn’t official but the market broke, there literally wasn’t bids, in fact I wish there weren’t any bids but they came in at very-very low levels and you know at that point you’re stuck with the decision of whether or not you’re going to take the bids, sell at a loss or remarket the portfolio put it back on.”

There is some remarkably bad behavior in commercial real estate markets

“commercial real estate cap rates, commercial real estate right now the cap rates are probably reasonable. The pricing is probably reasonable, here what’s not. There are some remarkably bad behaviors in long term 10 year deal and in some of the non-recourse deals and I’m tellign you, I’m calling it out it’s a worry and I’m saying commercial real estate in certains markets”

CFPB hasn’t changed much about how we operate

“CFPB is what four years old now so they’re not the new kid anymore. I am happy to report they really haven’t adjusted anything significant for us, but for the fact that they are very watchful on anything consumer like think complaint. And so they’re tracking complaints very closely and one of the things that I have just asked is, every complaint isn’t equal but now apparently they are”

Credit quality isn’t too good to be true, but it is too good to last

“it’s not too good to be true exactly what you would expect, it’s just too good to stay this way and that’s important because it is very fundamentally ease to watch it’s transparent. I would say two things, the regulators are much more on the scene than they were last time, so you will not see the kind of big surprises I don’t think in any category anyway that you did in the last 20 years.”

Listen closely for banks growing in subprime and near prime. That wont be sustainable when rates go up

“Energy China non-precious commodities all those are things worth you’re asking to get insight for the way banks are thinking. The one thing you want to listen for the milestone as whether or not they’re going to take advantage of moments in time that might not be sustainable. Sub-prime, near-prime are great examples. It’s easy to do right now. Even thinking non-banks they can get in, do loans and look like they’re good because they’re all paying off and when rates go up, they’re going to have a lot of charge off.”

Non-performers are the canary in the coal mine

“remember non-performs is always the [canary] in the mine before charge offs so non-performs should be very interesting to you guys going back up because they’re a tell teller whether or not there is a structural problem or some reason that we’re having to restructure the deal even if it will never be a loss. That’s well in advance of probably six months to a year of real charge offs and that’s the way to look at it.”