U.S. Bancorp Earnings Call Nuggets: Loan Growth Outlook and Client Activity
Loan Growth Outlook
Erika Penala – Bank of America Merrill Lynch: Richard, your comments on your cautious loan growth commentary during the Citi Conference really resonated with the investor community. So I was wondering if you could give us an update on your outlook for the balance of the year.
Richard K. Davis – Chairman, President and CEO: Yeah, much as I wish it were more positive, I think we just need to be realistic in this environment and while you’ll recall that in quarter four, we grew our linked quarter loans 1.4%. We then suggested a month ago that while we want to be in the range of 1% to 1.5% for this most recent quarter, we’d be on the low end and here we are at 1%. My guidance for next quarter, which is as far as I can see, is somewhere between the 1% and 1.5% again. If we get the seasonal lift that we expect and we normally see in the spring time then we’ll be in the middle of that to high end of that range. If we see a continued cautious nature by our customers which we’ve now seen for the last few months, then it might be on the low end of that range but it will be somewhere in between. So I’m saying it is not going to be robustly coming back on all cylinders and that makes sense to us because there continues to be a withholding by both consumers and businesses in this uncertain environment, particularly now on the heels of both the higher FICO costs and what we all know to be some of the slow but eventual sequester impacts, the higher gasoline costs and the lack of any other catalysts for the business community to jump on, the need to take action any earlier now with the commitment of forward interest rates being low for so long. So, longer view second half of the year, I would hope we start moving into the higher end of the 1% to 2% linked quarter range, but for now I’m going to say we’re to be pretty stuck in that same kind of range about 1% to 1.5% linked-quarter until we see some catalyst.
Erika Penala – Bank of America Merrill Lynch: My follow-up question would be on the expense side, thank you so much on the color on — looking for a low 50s efficiency ratio, and but you also mentioned the word flexible in your prepared remarks. If we fall into the lower end of the range in loan growth and clearly mortgage banking is a big question mark for the rest of the year, is the main message here is that, there is still flexibility remaining in terms of managing the dollar number to keep the efficiency ratio in the low-50s no matter what happens to the revenue side for the rest of the year?
Richard K. Davis – Chairman, President and CEO: Yeah, for a couple of reasons, the answer is yes. I’m fairly comfortable that, as you know, we manage more to the operating leverage than we do the efficiency ratio, and we’ve promised that, as this year, it will be a harder year for revenue growth at least at the conservative manner in which we run the Company. Likewise, we’re going to be conservative on our expense growth and as long as revenue growth starts on expenses, you know that you have positive operating leverage and your efficiency ratio gets better. So efficiency for us is a result, not a goal, but because of that I can assure you it will stand in low 50s I don’t see any reason for that to be any different than it has for the last many years. I’ll also add you’ll recall that while we’re moving through this consent order and has substantially less cost in compliance for that purpose we do see the cost of compliance and operating integrity going up, but well within the range of the amount that we’re now going to be able to redeploy. So, even on a linked quarter basis for a company like ours well I hated all the money we were spending on the consent order it now serves as a backdrop for us to use for some redeployment for what I know to be higher expenses in compliance and audit going forward. So, we have really no reason and if loan growth were to stay slow as you know because of our 50/50 mix of spread income and fee income, as long as the seasonality continues to happen along with our trust and our payments businesses and some of the non-balance sheet items I also have confidence we can stay in the low 50s as an outcome.
Matt O’Connor – Deutsche Bank: I realized just a lot of seasonality in fees quarter-over-quarter and year-over-year you highlighted some of the declines obviously in mortgage and private equity, I guess just generally speaking it felt like fees broadly were a little bit weaker year-over-year as we looked at the service charge as a cash management, corporate areas, just some areas I thought would be grinding higher, I don’t know if there is anything unusual or it just happened all at once or is it just kind of sluggish client activity overall?
Andrew Cecere – Vice Chairman and CFO: Matt this is Andy. So first you’re right the first quarter is seasonally lower across the number of categories. In addition to the seasonality I’d highlight two things one is in our corporate products – corporate payments revenue we have about a 30% exposure to the U.S. government with a higher percentage of that related to the defense department and government spending is down approximately 15% to 30% depending upon the categories. So, that is a principal driver of the lower year-over-year and a little lower linked quarter growth that you see in corporate payments. So, that’s going to depend upon what the future is in terms of government spend, but that is an unusual item that you see there. The second category I bring up is our commercial product revenue. We have particular strength in our high grade bond underwriting. That’s doing very well and you’re reading the marketplace and how a lot of bond issues occurring. However, the marketplace is also indicating FX loan syndication and some of the more one-time fees are slowing down a bit because – somewhat because of that high bond underwriting activity. So, those are two things in addition to seasonality that I would call out.
Matt O’Connor – Deutsche Bank: Then just separately following up on the net interest income – or sorry the loan growth outlook as we think about the NIM component from here and the outlook comments on the net interest margin percent.
Andrew Cecere – Vice Chairman and CFO: Yes. So, we had indicated that we would be down 5% to 7%. We were down 7%. I will tell you, my expectation was that is the most it will go down this year. My expectation for the second quarter is closer to 4% to 6%. Part of the reason for that is, first quarter has seasonally lower loan fees and secondly, the compression of what’s coming on versus what’s coming off is dissipating. So, you’ll see continued improvement throughout the year and again, second quarter 4% to 6%.
Matt O’Connor – Deutsche Bank: Then when you combine that with the low-single-digit or low 1% loan growth, do you hold net interest income stable or can you get a little growth out of that?
Andrew Cecere – Vice Chairman and CFO: Relatively to perhaps a little bit growth.
A Closer Look: U.S. Bancorp Earnings Cheat Sheet>>