Reserve releases are the platform shoes of bank earnings, but don't expect to see U.S. Bancorp (USB) disco dancing anytime soon.
That seemed to be the message from Richard Davis, the Minneapolis company's outspoken chairman and chief executive, when quizzed this week about whether it would speed up the pace of its releases.
In recent years, banks particularly the largest banks have boosted profits by giving back the reserves they built to handle credit problems during the downturn. Although the gains are short-term fixes, the earnings-focused market has rewarded the banks for strengthening their bottom lines.
U.S. Bancorp has been among those releasing reserves, but at a considerably slower rate than the others, and on Wednesday, Keefe, Bruyette & Woods analyst Chris Mutascio asked if the company had any plans to pick up the pace and join the pack.
"It has been pretty steady around $30 million, $35 million or so, but I had a bank yesterday that released more reserves in terms of taking the reserve ratio down in one quarter than you guys have done in four quarters," Mutascio asked. "And [Bank of America] now has a lower reserve ratio than you do. So I was kind of wondering given the continued improvement in credit quality, could the pace of the reserve releases pick up in 2014?"
Bill Parker, the chief credit officer of the $364 billion-asset company, told Mutascio it was unlikely. Then Richard Davis, the chairman and CEO, chimed in.
"One of the things I hope you guys like about us is we are not that interesting," Davis said. "And this is a great example. We didn't have anywhere near the same credit issues in the first place. We didn't have to build the reserves in the first place, and we've been very steady and methodical and thoughtful, all in line with regulator views and accountant views to make sure that we are not living on, and counting on, these reserve releases. And you shouldn't either because it's not sustainable."
Mutascio agreed with Davis, but said it is frustrating to see other banks rewarded by the market for their releases, while the "prudent" U.S. Bancorp doesn't get as much credit for the quality of its earnings.
"I hadn't noticed," Davis said sarcastically as he and his team laughed.