U.S. Bancorp Pref Share Earnings Call Nuggets: Mortgage Banking Expectations and Average Deposit Growth

U.S. Bancorp Pref Share (USBPRA) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Mortgage Banking Expectations

Jessica Ribner – FBR Capital Markets: This is Jessica Ribner for Paul. Just a question, I guess on your mortgage banking expectations going forward. Are you looking for higher purchase volumes or do you see the same level of refis? I mean, we’re part of the way through the third quarter, what’s your outlook?

Andrew Cecere – Vice Chairman and CFO: Jessica, let me tell you first in the perspective of what occurred in the second quarter. From a production standpoint, repurchase activity went from about 71% of the book in the first quarter to about 59% in the second quarter. Applications were also down about 10 points in terms of refinancing. I would expect that trend to continue. I do expect, again, it’s early in the quarter, but given the current rates here I expect mortgage revenue to be down a bit, given the rates are today and we’ll continue to update throughout the quarter.


Average Deposit Growth

Jack Micenko – SIG: Looking at the slowdown in average deposit growth, I’m wondering on your perspective, and maybe this is a broader question around the whole loan demand question, but do you think that banks generally are exhausting really what’s out there from a deposit take, or are we starting to maybe see may be a little bit of cash being deployed on the deposit side into investment and business activities that could maybe possibly lead to an expansion of loan growth in the back half of the year, just curious as your observations there?

Richard K. Davis – Chairman, President and CEO: Jack, it’s Richard. I think it’s what you are predicting and so we’ve been saying for a long time, the first good movement we’ll see on bank balance sheet is customer using their own deposits and I’m happy to report our deposits while they were up, the number of customers with deposits was up as well. So if the customers who already have deposits that are using some of those to, we think employ them in some form of growth. After that, we would hope to see our lines of credit, especially on the wholesale side move from a utilization of 25% to anything – 26% would be great. We used to be like in the mid-to-high 30% utilization level, so there’s a significant amount of pent-up opportunity and customers are paying for those lines to have them available and to keep them current. And then, finally, there may be new lines of loans that will occur particularly on the large end when some transactions start to belie underlying growth. But I will say, we do read it like you do. I think that it’s a positive that it’s not growing any more than that as long as the number of customers are growing. And to follow our prior comments, I do think we are starting to see some of these green shoots that we mentioned 90 days ago as being real and sustainable and more green shoots. It’s not a rush to a huge recovery, but it’s absolutely and positively no longer a concern of going backwards, we’re just seeing customers being thoughtful, careful but one at a time they are starting to get more comfortable about their future and they are starting to invest, starting with their deposits, sometimes getting lines of credit with the intent to use and in many cases starting to make decisions that have long-term outcomes for the long view of the economy.

Jack Micenko – SIG: Then just the ratio of NCOs on the card book look like it walked up a little bit. I know in the appendix you talked about lower recoveries, obviously dollar amount down and the trend is good. Can you talk about what that means on the recovery side? What do you meant by lower recoveries? How do you think about that going forward?

P.W. Parker – EVP and CCO: This is Bill. Part of that is really that timing thing as we brought more of the collection activities in-house on the recovery side, not all of the recovery collection activities, but some of them. So as we do that, that delays the recognition of the recovery. So I don’t expect it to have a material long-term impact. So it’s really more of a timing issue.