USB - Earnings call transcript Q3 2017

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Operator

Good morning. Welcome to U.S. Bancorp's Third Quarter 2017 Earnings Call.

Following a review of the results by Andy Cecere, President and Chief Executive Officer; and Terry Dolan, U.S. Bancorp's Vice Chairman and Chief Financial Officer, there will be a formal question-and-answer session. Eastern will approximately and through noon, XX XX call beginning for Wednesday, This at at today Eastern midnight Instructions] be available recorded replay October [Operator Time. Daylight Daylight Time, Relations turn now to of conference I for will the U.S. Jen over Thompson Investor Bancorp.

Jen Thompson

presentation Andy like statements referencing here risks any questions. you assumptions a the subsequent X are would on third analyst presentation Thank file could to call. Factors with presentation, turn to release U.S. remind earnings good Bancorp's and made forward-looking today's XX-K to me Andy results will over joined prepared and I and A today's your and and subject described the our as and available our Dolan be Melissa change Page Form remarks. will forward-looking website answer to everyone their slide today Terry now call you, in and to has Terry are Bill as on quarter uncertainties. to who materially reports the schedules our are SEC. call morning Andy. our Cecere, Parker are supplemental during copy slide release of and review our that press of with that usbank.com. current during on at our I in well

Andy Cecere

with and your Slide you joining Terry take and call. start provide in our forward-looking I that, morning, for third the Thanks X you Good discuss quarter thank presentation. I'll Jen. results and everyone guidance, questions. will of we'll some after

per $X.XX billion income net quarter Third $X.X share. or totaled diluted

quarter XX.X%. return equity Slide tangible per third year-over-year revenue of basis. return the common our record profitability X average common on improved metrics, the share in on The equity highlighted and was and and performance linked return was for XX%. both Our earnings on was net which assets key quarter and each highlights X.XX% was by on our income

the I right our that leverage our we year-over-year on call, ratio XX.X%. will far see improved you quarter the in of deliver a operating chart on told we efficiency You can did. earnings On basis and to that quarter third the second positive

investment beginning place. expect company's inflection We've deliver and basis And world to to before. prudent in quarters. was fourth Our we'll in strong compared third growth quarter primarily rate the X.X% to we've expenses year-over-year which The expense quarter issues over in we emphasize, I overall AML timeframe rate. to in significant to however, needed that to expense order. these dropped our these substantially that want address remained and costs have a above while incurred continue year-over-year leverage processes address expense growth at normal on to changing faster revenue people our a make is The are in with point business that a past rate is the the experienced year-over-year to operating consent and normalize XXXX. the in the the positive pace growth reached to improvement tied growth towards several never over growth

We of are behavior. customer reality embracing change the new evolving and constant

technology leverage growth will drive our of Our ability and to fundamental be innovation and component improve efficiency success. to

some now operating to well is environment banking we positioned and the evolve, the balance is leverage. Terry provide growing. we into in winning quality summary, continues businesses year heading looking on the market ahead and strong are are to our will In end our of While we sheet Credit quarter. details share the XXXX. stable, positive and are delivering

Terry Dolan

Thank you, Andy.

Commercial the increased If from loan grew earnings basis of year on discussion and trends. a and the you to X.X% review turn loans quarter with Average sequentially. quarter a X, Slide balancing I'll X.X% ago. with by start linked grew third X.X% follow-up

reflects customers estate lending X.X% market robust funding. across as reflects decline growth gain preference market real pay lease rate. down secure activities growth. share shifts real customers at in financing to growth long leasing. businesses, and share time to and growth rate impact interest as for market took term commercial mid customer this Strong supported at retail interest manufactures. a our commercial Retail estate loans to to for toward continue loan retail quarter by installment low, commercial large decline relatively loan and This extend our The maturities in our in as total of dealers lending in prudent advantage we continues refinance and some bond of corporate low gains well While benefited leasing preference outlook was business capital with issuance loans

other increased Turning business, to quarter asset X.X% in X, the basis deploying balances managers a trust We decline saw on deposits into total trust well investment partly X.X% bearing year-over-year. as deposits and reflect third noninterest seasonality our cash categories. quarter average linked Slide in as normal X.X%

previous deposit to and our Our expectation. similar quarters with bearing interest line is total beta in

As X, see quarter, On quarter declined have and stable can basis. future XX% in non-performing quarter net as average charge-offs the beta a linked we loans will in points the X.X% third Slide you toward level. trend quality basis expected credit hikes rate a a by the on assets were the XX occur, percentage would relatively of gradually was

the third the credit assessment related Our within to do provision in areas, the well earnings billion was the provisioning of second quarter loan X I'll as we versus After exposures now recent occurred impacted two an income expect affected any normal to comparable which of results with periods. potential as for growth, $XXX markets for losses third the quarter. not $X.X of credit quarter the X.X% up reflects credit billion On fully hurricanes net taxable higher income basis expense impact million provision quarter third versus by the XXXX. future billion, X, and Record net quarter with same on higher a to the Slide compared and provides slightly highlights quarter net earning higher in interest was losses results. quarters. X.X% move year-over-year. year linked six totaled quarters basis quarter, Revenue quarter, increased X.X% record In a compared $X.X ago. the $X.X guidance. on the equivalent up up in of both quarter interest a benefited and points our third X.X% a than X.XX% linked up X.X% Slide asset interest basis third to rates. in growth and X.X% Comparisons margin from third

linked third credit year-over-year than debit and grew refinancing increased quarter and highlights strong year-over-year. XXXX, X.X% muted business by ago. quarter The revenue recoveries year-over-year was processes on third growth increased income debit X.X% Slide year benefited X.X% management two X.X% compared by conditions. basis a impact cycles higher core contributed a Credit that XX revenue activity interest and processing revenue in primarily margin from sales on trends down and revenue volumes. was asset from basis. linked points in basis year-over-year. down Lower card which quarter ago noninterest Merchant on approximately X.X% quarter a fewer previously higher a acquired card of year basis, favorable mortgage On reflecting and a expected growth and was of market and revenue the with portfolio. lower somewhat on Trust reflects

comparison. two of exit year-over-year recent joint and ventures the our discussed previously we negatively linked affected As

related adversely impacted third hurricane In the addition, in and sales recent quarter. volume the conditions revenue

a third processing Excluding conditions year the revenue impact expected. from as of essentially quarter, flat the ago merchant the was during weather

expenses compared XXXX. capital X to professional I were noninterest quarter up the target highlights by second to position. legal some compares the will was of equity offset lower Basel higher third now X.X%. estimated At expenses. XX guidance expense if Turning XXXX, the our quarter. increase X.X% costs XX, the approach was capital our capital as provide a our year-over-year and September Slide forward-looking Slide X.X% Tier partially and standardized basis, implemented with versus ratio X.X%. This common III of quarter On fully personnel of for fourth using XX, to marketing

quarter average linked third to loan grow total at to growth expect the pace similar rate. We

We growth. be cycle. fee interest in basis flat to to our the With net which the two to high included for highest for third business interest quarter the is related recoveries revenue, seasonally quarter to period respect points unusually quarter expect this third that essentially margin

basis expect year-over-year a linked to We on on revenue flat quarter fee be a basis. essentially and

operating As year-over-year and a in fourth by deliver positive expense in we X% leverage Andy quarter XXXX, growth basis on in the supported will the range. discussed, X% to

in credit expense reminder, fourth is impacted the growth by linked timing expense. amortization of the tax quarter a quarter higher As seasonally services and professional

it comments. We to expect remain credit stable. I'll quality for to Andy hand back closing

Andy Cecere

its consistent history improve. I ahead is that the time future a its always am for a are performance. core is remarkable ways company is to simple looking But and Terry. about relatively business. look .At to for the we high banking Thanks optimistic This very This has

product and and manner. in winners The demand anticipate differentiator. the be services and be will banks preferences industry execution efficient the those customer that anything a in with As most convenient this would they deliver

Towards that is end, in leader this focused on two every mandates. single company

First, customer their US the center walk deliver by through. on which of door the putting customer promise and of at Bank every decision the every discussion regardless one

is of parameters deliver it's If how framework And most a happy only industry answer out and next now way Figure formal That everything I'm confident and that what the or efficient company the future returns. but the will services leading am the results its the distribution figure which banking evolution. then considers I quality to deliver we the execute risk out current truly Second, improving Supported customer do and industry. to believe most this and to looking will optimize results management team we'll, be to your those optimizing the it. Terry, environment. the model of to questions. forward within in concludes whether the valued the do relationship. and both I remarks. effectively, product our I we Bill we highest experience, customer not best the phase leading

Operator

from with Instructions] Your Matt is first question Deutsche Bank. [Operator O'Connor

Matt O'Connor

bit terms talk a was the the Good you pricing down migration noninterest bit that on type if morning. noninterest deposits bit wondering on basis. a out could deposit end on buckets? interest bearing into other the about just just in side you trade more average of And linked what were a quarter of both basis, the seeing and are little bearing strategy little comments I of

Terry Dolan

so Matt. this is Terry, Now

Then always activities a third so little see type saw for those bit because simply business. the of kind custodial that's of some of out quarter and bit. corporate also -- a trust little bit be seasonal talk a in core Let couple balances the we you it different million change first. Where did relatively is really the we balances about little about really saw deposit working principally end areas occur up decreases stable. that went at of little a we they balances When $XXX to to that decreases our second deposit the a tend really tied fluctuate me

time were related Our some and because decisions was of a to little deposits principally customers. up large that

We relatively quarter. expect that the those to to early be and for fourth flow short in out term

looking reasonably lot of relatively but been time a and the we experienced me we looking So balances, at deposit retail a pricing we've just unchanged end the haven't during up pressure that. to about let are stable they quarter. deposit particular competitive beta essentially pricing at don't core up they talk end seen We see standpoint, past. were of The the in when at deposit lot of this deposit with in respect or it, kind change what you point

little looking Coast essentially competitive stable also bit the to wholesale well. highly West can competitive widespread trust I'd to to and the up. those Our York our but if we lot and side that deposit marketplace tend being those be at be as starting But deposits, a and are of bit a you say seeing. pricing rates corporate are wholesale the responsive pressure in we New that area up in not fairly go little are certain end in operational on on and the just markets pricing,

So mind that keep and in too.

Andy Cecere

you Terry focused end given being on could relatively the And any period core because be average stable deposit volatile trust. day very

Terry Dolan

Exactly, yes.

Operator

from Scott Partners. from Siefers is question O'Neill Sandler & next Your

Scott Siefers

and well. in just sort had as given for the sort you the outlook you I quarter fees them Terry year-over-year guess then flattish fourth guys. morning, of as of see Good

you what on just the you how major just the as see exit in appreciate those and are in thinking but And sort are activity progression about the as the the business In think and other words particular, Just comment what payments you hurricane nuisances JV in that of about both the are guidance? puts businesses? takes?

Terry Dolan

lower a up end little it's banking, in quarter. different typically seasonally you looking typically is Yes, to in from and the Sure. seasonally a fee a that income down And fourth when from the variety standpoint at comes categories. bit flat market quarter. of Mortgage fourth

payments space. seasonally payments businesses little are a in Our especially corporate typically down the

that are of So kinds down. of flat be to categories number a tend to there

to a revenue in down typically product flat because little quarter. bit market is as commercial capital little slow tend Our bit fourth a to activities well the

So place. there that seasonal areas of impact a where you number are see different taking

kind me three payments tell which that. let really businesses talk is -- keep second kind revenue. And we that of you you the Let part are mind your to little bit question me on that have of a in

perspective to the sales and that's credit processing that cycle if First quarter process and is one transaction one days, you in processing on is will. up X%. year-over-year based cycle was about because about quarter bank we to something X.X%, credit without been business card X.X%. it's have how US card a impacted card reported any fewer that's the third That would and those debit unique fewer Sales have processing about growth and upon a on by the were best basis, happened

consistent bit pretty When that would probably have by past. of I that that what revenue X.X% about think in can little revenue we've particular about. expected quarter, a mid about And talked terms processing impacted fourth digit you in cycle that on because that seen processing that's the about card a because growth about That when with the day. of we rebound single of percentage So we to year-over-year think of point is business credit one basis. kind think we

that as we the that as joint three X% the of when the we to know X.X%. And joint And be X.X% ventures. about talked we that ventures, impact of really merchant is expected flat. at we and about fact revenue earthquake growth variety in in category quarter happened like and revenue impacting to and had quarter but the exited the about last up other things different a thing we Second that essentially look acquiring that Mexico you end by hurricanes the

fourth As merchant of come is number online. the continue they have about think significant that either kind we the are have hurricanes slow as of continue. still to We impact to or relatively quarter, going offline sales of a

CPS. really probably a fourth our we we think then we is great so quarter about And think year-over-year. merchant the be to business when CPS is And last quarter had that going acquired flat and revenue in business

quarter. the continued a business. quarter really starting quarter year-over-year a that and in typically strength linked to a basis. up little a If talked And are we some a when was X.X% lower at within would the but on total about virtual that years is investing X%, we've you area some know revenue couple investing fourth nice end in Then on particular in up basis, basis it but expect and in ago. dividend looking look in And or of momentum particular we -- CPS about other business year-over-year you we been over a X% were we in see and basis see it to on a growth pretty things pay we sequential significantly,

Operator

next question of Najarian Bank America. from is with Your Erika

Erika Najarian

Could fourth XX in am because just sense of Hi, in fee are good completely year-over-year. you that also wondering expected follow appreciate that But leverage be fees I a that seasonality wanted the us how to to that's quarter through outlook line And but drive the give trend next you early seeing months the clearly the outlined the you quarter. puts over probably you year? flat on of wondering next up big and on the growth could takes are the I the fourth too morning. am XXXX. I walk I behind Scott's similarly commitment to deposit for operating give questioning.

great. trend the So just would big be

Terry Dolan

level, Yes. At again Terry. this a very is high

as so was the think then from acquiring the terms factors. year of And into year, merchant rate that effects we that related biggest relatively or I making of within we one should major joint was to see of you starting biggest there. continue been to else second some next the to think business, drags I really and has And Andy area grow growth that mortgage that want ventures the probably hurricane strength. had in anything this add been continue the other look of quarter XXXX, because some in year-over-year the of and revenue kind that of is lapse of the investments banking in strengthening see to we see one stable we'll when we've those we the to here?

Andy Cecere

The would that only reached that point their on What to we've I in quarter that we've growth prepared in talked rate comments, consistent of an with thing that the about. X% this X% side seen saw past. equation as I higher in expense more your we is the terms think to you mentioned question add we our is inflection Erika the

with will and articulated So expense Terry balance sheet together leverage. the that give positive that growth us operating income more growth normalized growth

Erika Najarian

continue in you. robust but as to and enough that. to in Thank outlook been if is, whatever the ratio for efficiency wondering very you operating follow flex investments There revenue the expense is prepared positive make a the has in next because am the for seemed deliver the is I wide there you rate we not early of expense of a terms And swing expectations outlook the think just that still year remarks now. up to that as you base to side referred could leverage. September from Andy equation, to rate committed in of just the And

Andy Cecere

of leverage. to To assumptions and market about we And what positive the of in that that extent the next then doesn't operating and both we increases discuss has set always sure Erika December make in balance as making talk have projecting and using terms are can rate are that's like So, year. best long-term have manage the well we can we in we as to continue short-term result we forward. growth the expenses going to as investment have the for we'll happen, sure businesses the for as

So that's always to we'll do. continue something and done we've

Operator

Evercore. is John Pancari with question next from Your

John Pancari

Good morning.

you the third On the growth what that in mentioned should fourth in loan know similar you quarter that be growth I quarter. side, loan the saw to the average in

and about than where that factors we macro there all a Is of assessment pickup as what about to annualizing are Thanks. any really less are to -- could to see XXXX or even about bring then you rate. trending that So really need so. X% that long, of fair into a be should growth X% they growth strengthening see outside so in

Andy Cecere

John I'll Bill start some then ask and to more add color.

sometimes first lower than of term long So couple lower low and yield bank of curve the one lock over is things. expected us. seeing impacting and of it activity is Terry are our we to issuance taking what mentioned we and Number with what are pay lending dead rates, either in down advantage all would customers the is

So that's one.

principally of growth we related much core And and of and expansion. for CapEx seeing policy. is I the a more when Second tax waiting are function think loan and around M&A that XXXX tax of of growth that more bit little call I that that's accelerated would is clarity policy driver a clarity and around I will there certainty tax is key be rates. And think in

have also let talk within Bill some category about. me We ask nuisances so to

Bill Parker

back then certainly uncertainty holding our the our of refinancing and customers real right, are natural of activity, that estate. low was Yes. some activity And the make. rate factors affects The or C&I Andy factor number investment macro cited will that commercial

very our share is continued That the two said, those all base customer probably of market in which across the prime biggest on be customer retail our categories. are we drivers. amongst aggressive So to terms being base

we I stayed that exited never in that. home loans could cycle see that had our prime growing mean grow there. So the from steady so we the that, we unique the we benefited never and from lately. equity turn we that growth cards, you in super we Credit in backed thing, somewhat Retail been that. in Auto same those space throughout are leasing, loan, we've off did down we

us have So the loan basis. going in we regardless to space do a that on prime give growth what's of levers continues macro

Andy Cecere

about normal. mention John I'd a I commercial say points And XX% utilization revolvers, below is that also right what rate -XX% around our on are revolvers XX that's still would

So we commitment. still are growing

the level. but are We continues at low market to taking utilization share be

John Pancari

you, in that seeing, on just much consumer side, And I Thank bit auto want quarter your storm right. offs up on you how a a versus color All related and credit Andy. are Thanks. separately credit not? little delinquency and trends then charge is the card the and were

Bill Parker

that. started of did reaching now. out application; early put in to it that That's storm related already Well, too is providing We programs loan for process. for none we've customers,

losses a really But underway. the was kind not well for as shown expect that's but that of the that's reserve that future has mentioned to we build storm So up. result be what of credit

within just I increase portfolios years. think you several performing in effect, over and cards, auto so that are those our significantly to the really the the the past seasoning This referring have is are they seasoning fairly expectations. grown natural it's fact that

Andy Cecere

And their Bill portfolios, the cycle are so stream is of XXX are -- credit. leasing that nothing they prime on terms down going again in side average they

John Pancari

it. Got

deterioration thank nothing starting in of So terms -- you. okay, got underlying it,

Operator

Morgan from with Your is next question Betsy Stanley. Graseck

Betsy Graseck

over in on comments used. compliance on side few next the is presentation were accelerate you it's give the you the going just so there? sounds good dig program close and think made nearing as little the It words bit the wanted like coming a the we that in maturity just Hi, in to you pull should to back to I to I expense sense Could are quarters see morning. BSA. us your a AML

Andy Cecere

the overall, processes few technology to we have we are the much Betsy, saw releases our the a about rate technology and down regard So that go overall first by expect in to technology the place people normal a not related once what sustainability this on call With the start we intended have end them -- which those towards will XXXX. levels expense then is the go spend, the expect that what which the of as almost they XXXX rate. we by consent people They a to order in place working the X% to and mode expenses have to them of and continue the would that of the a processes pretty but that we've you story into year. I migrate are we'll that that the to we to year. talked part beginning have X% expense compliance more place, has and and And will component and I expect proving quarter. the more as back I'd because of of will that changed. bulk don't in I'd growth that before place but maintain see is flow of be normalize like what into end normalize it back middle

Betsy Graseck

for the Okay. or into or next M&A. important that that you And you test, one how comes the that reengage is to light of the a then just there once you us to looking or cycle are in here give an you sense get it from Could kind is the just gravy is you cores is green up? opportunity over that passed as regulators something of planning

Andy Cecere

not deal been hasn't because M&A do traditional our this. been to we really activity that by to we been hasn't Betsy, wanted that bank able of do consent the impacted order. There

Both been take would and But emphasis it capabilities we deals a on increasing forth. card as we our which do, order a and core If it and have not it's exit we share to we states current we've our that a trust as today. the significant our see traditional payments but like our are disadvantage banking, that categories businesses be market after continue focus criteria consent forward having expect portfolios, looking at causing I'd able to to services. an been will to is customer that opportunity for well fund on look yes, continue Our look M&A meeting our focused in deals. be so those going that at has and on

Betsy Graseck

advance Okay. at? guidance they And product look then the that Is just their now would that something changed are allowed not deposit before separately, again. OCC allowed on you right,

Andy Cecere

a we the something are over and maybe looking So at over next next pursue few Betsy in quarters that we products that of the year. number category different

Betsy Graseck

Okay. the you kicked give you as online sense you are to of how partnership, are from relationships us could your those lastly on sense product And give couple lending, then relationships? us new just a recently. Could progressing and what a a these have expectations off and

Andy Cecere

Yes.

It exceeding So mortgage is expected mortgage well I think and is the customer a which of one mobile that's but thought tool, is perspective of doing of which with application application expectations, doing online Blend terms tool from our as very partnership in highly very terrifically. is importantly both our it's well functioning also the originator.

a in add terms more able the to the of in really and value simple digital customers So consultation. it they of format do is a real things are some because positive to

very that and continue has to So grow that been successful XXXX. into expect to we

Betsy Graseck

X the down. Okay, percent-ish that last deposit product. I just like your all you to business fee think when advanced then on And right. That wind was had of

your business your type it you type model that this is back could over getting space? of back into time level of So revenue stage build that into at that expectation of

Andy Cecere

Likely probably again and back what as probably fee not, not If we right. historically. Betsy. saw will would it certainty comes it different size a be at same with is the it there come much not that back level And

Operator

Jefferies. Usdin next with is Ken Your from question

Ken Usdin

to to I come side the mix. equation back of think about the and morning, NII Good just balance Thanks. sheet wanted guys.

progression mixing the of a and given wondering AEA we've I the flows and how do think is loans how balance might about this bit did from that think in of and slower, So you size loans you look might overall fourth be you are just seeing just are then and sheet some But for deposit of versus quarter of and beyond? here? slowing the to seen growth ins that going some natural as beta. outs you these and mentioned temporary, be kind all relate to think out

Andy Cecere

long is those of are Yes. about growth we so driven for When time what kind standpoint of to looking they really the do core categories going a a always to to we to But able that take are good to mean we've and end some be to you loans as be we anything. be we going think in deposits think to growth from fluctuation a like period here perspective, talked when deposits stable, sheet balances. for going loan that. in with up are is deposit good looking opportunity will demand I what are. Obviously what core bit little grow opportunity deposit is respect from going balance have From much to see just I as term a really

Ken Usdin

that lot Okay. to has term you will more willing And be mean of funding. your of short started market based the that's cost increase type borrowing would too. a to actually -- will I assume

more that for And is is in outlook of and so forward we wholesale past quarter. the kind does that more on if towards how margin the mix a that deposits weigh the mean that see there fluctuations fourth

Andy Cecere

have either anything. and more that's seeing level in from needs, the balance term is don't sheet. what order standpoint of we basis end think shift of up in to how probably are the need cash just an you a end ends order you going to what I requirement or in that significant mean so liquidity what the sort funding to than in month you up happening place are I average Yes. meet see on a short

Operator

is from Martinez Saul next Your UBS. question with

Saul Martinez

assuming low guys corporate detail I quarter like have have you last is questions the you past I feel tax couple can something secondly the and blueprint taxes. there. of the indicated lines quarter expectations think get benefit. along And be to And rate? Hi, on specifically lack said FTA I you in out good tax your you for the reform Any of XX%. is rate think in adjusted seem the of did going housing Obviously But in updated no details protect income to of devil credit. the there in your thoughts of on changes tax terms on morning. XX%

in that thoughts can and tax much you the from updated you curious So feel you garner reduction see any how of yourself how terms corporate from is any of benefiting if in like tax there reform rate?

Andy Cecere

we I'll first which the how the fourth think is so Well, about quarter. question really take Yes.

similar I think pretty what the fourth was. third in quarter would the be quarter rate the tax to

So that's our of expectation. kind

in there tax honest, kind In don't going impact our I of the really we some going be still the to framework there quite changed be moving in in and what's be though lot on of reform that terms recently associated company the to But what view has it. think even here with were reform, are terms ultimately of a around that are of Washington forward. bill, might tax

So we a wait and in mode of see honesty. in all are kind

Bill Parker

quarter. fourth the in XX% About

Andy Cecere

fourth quarter. XX% in the

Saul Martinez

that just fair. FX it, finally Got And see Elavon? I impact? that's there any didn't in then the on release. Was

Andy Cecere

of impact FX in the third The Yes. quarter. was very insignificant

Operator

is Your next question from Foran Brian Autonomous. with

Brian Foran

Hi, morning. good

items we payment line the see four that department term. they there merchant been think I past. there I the the items show in is piece has those you back percent has issue, the think significant appreciate FX kind was P&L. the business on what growth been of enjoyed now line lots but some of rate so of that processing momentum all of little for to And maybe to the bit and more but puts JVs about takes that normal really and headwinds, assume of there takes the get There Just longer more it take face is biggest do

Andy Cecere

at volumes up is you end a maybe hurricane term a single we've acquiring bit from Yes. there of impact things have fairly a some where Puerto amount we is having standpoint to so going quarters. Rico are think quarter to there merchants or who through that two. up The things and we seen digits beyond business, I than get that. on to kind to for when business we be the have a mid venture seeing merchant and And four is are effect. of effect Well, their what kind several work over hurricane stronger next as think face other a of in we've in wildfire hurricane we significant we a an as little -- longer going example, few end the do I and think well, I think the now earthquake we stronger the basis of sales some that looking are One of or joint the as hurricanes

platforms, year focused I forward. to talk we've in add normalized probably we sort remind and mid conversation terms e-commerce it So lap is investment capabilities on a at services continue of about going been this as we historically an of it our it for and our next really innovation, and value an area capabilities. particularly in invest terms be that us back area added also I'd couple look an data on we'll get around be timing of and processes we business an focus platform, we we the because will to I before you continued area level and because to have to Brian ventures. growth those investment and And and we joint of so relates international principally focused great continue merchant dynamic to of in currency emphasis

Brian Foran

specific maybe that of seeing pricing? in of stabilization used used car shoots dealers then are business. kind talk there April leasing very of you in strategy in anything appreciate forward two, One, the high. pricing are it back geographic with helpful some the place car kind so been citing as and have comments more was believe are even recovery and or you gain the mean just you green And still that the by today, partly and price in commentary, I And But does you And saying turn into outlook? that? or auto auto customer kind to growth car all is some rates that are driven you how gave overdone expansion prime the then your market I this just like you think about shares are it in are growth could used the you leasing overall maybe Totally of preferences. -- is feed into pursuing roll

Bill Parker

are bullish on Bill. still So leasing retail our we No, this is portfolio.

So it in car cetera. has up that picked prices pickup been more a increased good part business the or remains et even because a Used hurricane good demand of actually have for business.

and of in alternative we competitive some of old So manufactures to captives. space, are we after the that go very expansion, in terms an different provide do

rates continue up. So hard it's very an keep growth area work to we that to the

Operator

question next Fargo is Wells Mayo Securities. from Your with Mike

Mike Mayo

Hi.

big commercial estate real more mentioned loans it's a bit of chunk You little caution, at your company.

a well. above foe So others homebuilders or crisis one levels could you case back maybe is or home can commercial for some I guess on estate prices friend and or pre do hand make the a real

have On competitive do retailers hand you a on environment. the Where and come that? out other more you

Bill Parker

estate a So commercial real is friend.

great client banks, appropriately rate fixed There but We are term in are always very we are -- sources lending in active back construction customers insurance We've of are something that continued are offering. we with the long our downturn, did in exit are grown nicely. the that's not space base. our CMBS better the for of remain we've some -- that for seeking or financing cut banks I low but with in our rates not active very been company, at we think market space. after We this and smaller -- active lot

extended Texas that but with we as more going Some had growth very disruptive we active our been to really Lot base happened mortgage, market. our client in will back. construction a the little little client. has been more nice the space, by and people pulled just what Residential cautious we is hurricanes in And out of of have that's come in are so Texas, multifamily, little growth that the into in that. never well. cautious gotten of be that, obviously That's they for

estate very we we are the active business. like overall lender real and So commercial

Mike Mayo

up. So just one follow

in So look and at experience, is is in When do of decades you one aggressive cycle? the conservative. we is are this, terms look being you at XXXX -- past X of own couple where and over is that's being if your out you X we look the great average where think XXXX, CRE are

Bill Parker

I kind side. stick different or cycle. the concerns way we underwriting retails. are industrial a think that been consistent because mentioned don't our of asset with of Well, spaces so with classes we And for really that's you it good different throughout criteria the the

growth nice in seen we've activity. industrial So

and balance of activity stick So we flows, but provide there a we our customer is it's business and that its base with. ebbs

Operator

with Your Marty is next question Mosby Vining Sparks. from

Marty Mosby

market. mortgage continuing Thanks. Good and is at second at of owned been your residential the and a When grow. originate portfolio it's enough and at it kind look of When to morning. mortgage am portfolio, from business, I originate largest in now loan loans we there category banking the look shift looking you total you has sell just because to the don't in and growth the sense

are but business is we it? have more way to that think to not we in kind grow to to. like track of about so fee from banking income. kind income loans on So Is is pretty going heavier maybe that just net interest mortgage a from those not of you side which squeezing And used rational out kind a continue that going of if income a to contribution we fee get back is

Andy Cecere

done originate as area for Marty, we've that the for just those jumbos typically servicing us to which both customer not portfolio core our be that always growth balanced And are sell the qualified we and market a component. base. I'd which well are we and say it's continuous as in

So other. you expect I growth the or I expect Bill, the both categories way anything and would to in major wouldn't add would one shift that?

Bill Parker

mortgages to stack, that channels And see --. No. the along so platform look broker if high mean qualified from can activities extremely quality at portfolio retail originate in jumbo growth low we value the we a I will portfolio you so category. the and through loan national and through continue are with so to

Marty Mosby

of the about was a to little I of things seemed been you kind earnings but think net was $XX that not in bit that's was hurricane charge handed I -offs non-performers down, that build because going make in million Bill going with related that down doing sure to have kind of ask quarter you this two the you and what took past. be to going out the want

foreshadowing and that expected the that XX% rate, quarter, what related then was than next and X.X% big losses this to that's and tax forward then that quarter you higher also of about So been. to have the portion going hurricane the

in the just for allowance and the the build curious why tax I things. So rate those up was step and two

Bill Parker

related I'll growth. build this build the the We modest related allowance, was Yes, hurricanes. doing some to to been entirely that very loan had we've do some modest is Bill. and --

related We the but will to directly continue do to was loan definitely bump up hurricane. that the

Andy Cecere

And our -- is expectations that

Bill Parker

That sufficient cover is to

Andy Cecere

Sufficient what in thus far situation California. in wildfire know including we and the

Terry Dolan

is uncertainty there renewal and of within the comes related issue in and the lot all really around kind tax reforms of When rate, that pricing of lot there. with the back change of tax of some tax you associated the conversations things. to again and a And back low had credit lot income, credit. to market a pull tax is sorts There of energy

the just the up have as So earnings part credit are will going tax lower market as you level driven is you as cause much that of up tax go reasons as the the get production it rate a bit is seeing marginal well. of and rate effect why which then had on anything stronger and to little

Operator

Barker Piper your from question Jaffray. Kevin is with And next

Kevin Barker

over years here are well the or inflection credit your cycle. over several good even losses below -offs past after and of somewhat may for actually given we in cycles. and running charge at we've to point charges- maybe part into target XXXX losses where higher strong When credit still seen moving the several better you even good normalized are and what being going your And look of what to card and to up your of we are start it's years regards what In been end credit, where off than last in pretty XXXX, expectations think we would morning. card obviously term be. an good long Hi, see very

Bill Parker

to gone the up be normal around conditions. rate seasoning stable sort rate the stabilize that during X% economic have we of they natural due due would sort them seasoning, to that's rate of sort to portfolio. the But do growing through cycle normal -- expect that's not So of but and

Andy Cecere

Current environment X%.

Bill Parker

Yes.

Kevin Barker

would outlook about incrementally grows X% in continue is And where you to higher? it is it or the to something when where think plateaus something you it see move

Bill Parker

No.

think will in the condition. plateau it X% will this of around kind We economic

Kevin Barker

prices in on decline some do auto, on industry, decline charge-offs the fall outlook Okay. And to used seen you with the and the obviously pressure of given and John's to the resiliency questions, across some delinquency follow car slow in rates we've frequency a rates prices in development of of and seen in on slight expect up we've here to then given frequency? little bit car positive XXXX start the used

Bill Parker

necessary wouldn't say decline I think -- right now. would I say stable are but I they pretty

So now. I where right say they about are would

Operator

Cassidy question Your from with Gerard next RBC. is

Gerard Cassidy

of that's morning. energy you a Good credits? that bad heard you two? said part earlier that how recoveries interest was the in the on was make point Andy, to points the basis recover margin, the correct of had correctly it you credits. the Could Hi, to net you? talking on are I that the Terry, And think or call if sector had in due maybe about I some you some sure couple basis you improvement

Terry Dolan

Yes.

many two XX in was quarter that it to ago. as occurred basis points actually and this as these loans were recoveries impact up probably charged relate interest So years recoveries from that

it were to for quarter. two But So the we long they not why back in repeat. part ways they went and it's is something was that about points unexpected which would And so expect unusual. basis

the basis points another will basis of go six core are So you interest fourth up because be quarter think the really But core we in the recoveries. this up from expecting went four flat two there. and of basis we and our it

Gerard Cassidy

Good.

clarity. guys the have Management any reported guys are you segment? the their talked then the betas second, betas banks about commercial really of and consumer see some the What in thank the Wealth that you the business. see high, other the of that Management of within for did not deposits area. but in about have you traditional that you for part Wealth business? And and how Okay the that Some that pointed rising out are Did

Terry Dolan

we we seen into of next up may anything when hike. we've the broader that yet that's this consumer end see point. area at In start seen not one rate we when get business sort although to wealth Yes. that the we category the the management haven't looking But at

Gerard Cassidy

with obviously, Okay, give and good. the services Are some then the you them environment. to rising reflective for rate rising credit And rate them those or they environment rates, with a not guys the pay in commercial credits you raise balances, is for will compensating of yet? your of receive customers starting

Terry Dolan

we what's the -- overall to not rates as raise up. yield short don't to bit would relative rate yet move as well little A it's and material on expect as going curve term I and continue with but Yes.

Gerard Cassidy

is down that noticed And way up management we in was treasury Okay. if the that don't show the fee that sequentially. was that? or would I bit does not. see But know line? seasonal I little where more it

Terry Dolan

Compensating balances nature. as in show the but said balances there up credit Yes. compensating you the and decline for more seasonal was

Operator

Next is question Stephens. with McEvoy Terry from

Terry McEvoy

commercial specific Is share quarter. the that Hi, good and fourth markets standout? targeted business it will expand Could morning. that some It you or lending behind sounds some was mentioned on earlier gains? industries that those bank US like is in continue gaining it specifically in likely the here what's

Terry Dolan

Terry. is This Yes.

even expect in I occurring space space market kind kind recently across the markets. see seen of in are would broadly in pay watching. good of seeing some to our share so although it's say middle market we the to would are of that we most we Just down middle loans And and we've market something growth continue

Bill Parker

products the build national over corporate several to we strategy. Yes. last our It really years out the in old that relates

area bond but or for I capabilities market grade non the our investment providing the investment kind also for market in customers. underwriting think only capital middle So not of grade

come bank full to more they service that's to providing us a the growth. a fuel can and lot of So and

Andy Cecere

is highlight product. that area which customer to the which the to that customers that system market we Bill, middle above point currently that one is the taking at are the but that and pay product using of that is I drivers base one product that virtual squarely growth well additional of targeted is other payment is And seeing have corporate as

Terry McEvoy

And a gains see or up these in for you given I what you those just were quick within that run investment believe year-over-year, any type of talk could to the of gains corporate question equity Terry $XX good would then quarter? you, just nature and the lines about typical That's million, rate hear.

Terry Dolan

typically of et from little detail and they're with because I bit a Equity kind tend quarter-to-quarter including equity guidance giving simply of be don't so to get lot respect really away We to there cetera. choppy it's I other stay of from Yes. things respect going incomes investments a to different investments. a into next be with what the to think is lot quarter

Operator

the Ladies for I'll Q&A. time reached and the remarks. over we allotted turn presenters to call for gentlemen, now closing have the

Jen Thompson

Thank any to our us call this call for comments you up listening or have you questions. if Please follow morning.

Andy Cecere

everyone. Thanks

Terry Dolan

you. Thank

Operator

call. conference concludes This today's

You may now disconnect.

U.S. Bancorp (USB) 18 Oct 172017 Q3 Earnings call transcript