USB - Earnings call transcript Q2 2018

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Operator

Welcome to U.S. Bancorp’s Second Quarter 2018 Earnings Conference Call.

Following a review of the results by Andy Cecere, Chairman, 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. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately noon, EDT, through Wednesday, July 25 at 12:00 midnight, EDT. the Relations over for turn Director Jenn now Investor of U.S. will conference to call Thompson, I Bancorp.

Jenn Thompson

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

Andrew Cecere

everyone, you joining morning, for Good our thank call. and

per up leverage. and driven will operating Terry earnings remarks, X. prepared our by Following I’ll positive open to the record and start the quarter, share I income we record net and call second Q&A. revenue In Slide on reported record

disciplined last underwriting. our our Estate student even Commercial impact of loan remain picked compared Excluding sale, in quarter the growth up as we loan with Real

the that from second increased see you value by year-ago. in X.X% side quarter improved per On of book the right X, quality share can Slide and a our credit

results, the our in approved completed $X.XX economic returned ability a XX% earnings repurchase in profitable as buybacks. test results annual in adverse through in return share our XX% conditions. including the Directors beginning confirmed severely third on stock our its we and Reserve stress performance common to quarter, the second as increase to quarter, remain increase stress X, withstand share shareholders the and tests, best-in-class to again Based our well dividend equity. Federal the once During tangible In our the dividends of XX.X% common on a Slide XX% authorization. quarterly quarter of highlights our Board metrics, per a and

return Our all common and improved return year-over-year average and a assets, on on efficiency equity ratio, on sequentially basis. average

Now Terry, as quarter let on me provide the who well turn more to as over guidance. the detail call will forward-looking

Terrance Dolan

Thanks Andy.

X, earnings review I’ll a a and discussion sheet with you turn with start to balance Slide follow-up of If trends.

Excluding the X.X% linked-quarter mortgage saw supportive continued of student with a Credit and growth volume leasing. and this loans increased the a strength average was portfolios fee strong compared to quarter, grew robust such quarter of basis XXXX. on second transaction grew, retail retail card sold growth. the and as We loans in X.X% and

the strong growth. been rates revolve second However, loan muting growth in quarter. X.X% to Commercial reflective the base, have accelerated customer middle-market is a which strong quality and credit of economy balanced sequentially of our declining,

headwind commercial However, corporate paydown historical Line total be loan large to activity among lows. a continued customers growth. remains at utilization to

balances and improve, deploy optimistic, business grew. customers However, are commitments to starting to continued we are see and pipelines Clients investment. deposit to fund

financing. customers commercial our quarter, second not the paydowns and in and we support increased reflecting improved seek to M&A loan of in elevating the continue growth half While of year. unfavorable the Real closings Estate CapEx will expect moderating extend is more credit decisions on the to second that uncertain, loans terms timing activity Commercial alternative robust as declined paydowns

to XX basis loan point basis reduction XXX average Real contributed linked-quarter This Estate growth to year-over-year a a quarter, point growth. Commercial drag and

by stronger Also, Business earnings bearing the interest driven deposit Lower on have X. deploy customers to periods capital beginning credits to are growth rising to economic their Turning non-interest rates of balances reduced investments. deposits. maintain Slide conditions. to impact to relative deposit was fund prior need

balances second as XX.X% deposit pretax by migration X.X% the quality flows Notably, quarter for with a customers to growth, earnings quarter second and deposit XXXX. improved second increase X, expectations. income some asset interest alternative provides higher interest-bearing by is On of interest on in our was and earning an X.X% decreased mix. a with in growth in with net X.X% compared and to compared a yields. to assets liability quarter with income and These vehicles Slide in customer Slide income sequential conditions highlights indicates balances the including credit common. in higher supported the investment quarter results, of improving Slide that due resulting was of and non-performing increase rates which seek profile. deposits with loan net are declined shift asset our partially pressure linked-quarter X credit available offset there Finally, economic modeling paydowns first improved consistent year-over-year funding X

assets tax tax The the negatively second earning of the net quarter, reform, basis taxable expansion margin the on equivalent higher year-over-year assets. X linked-quarter, the compared equivalent points. adjustment interest interest margin by year-ago. exempt Additionally, taxable with which tax benefit X.XX%, with basis In impacted points by reduced but growth hurt net was X year-over-year was impact by a flat reform related to

rate our interest-bearing Our line the with betas few during in continued hikes. last deposit expectations perform to

betas commercial with expect their about XX%. rate basis, terminal estimated of which are trend to total our deposit on future represent level our occur, line in with level, trust will betas. continue a As half deposit beta toward deposits, XX% we and about compares which our current hikes The the

overall rising a trends movement in strong by partially base. that lower in margins. trust by the Treasury reflecting growth driven in and banking which investment mortgage declined, rate management and by payments refinancing fees in revenue revenue. primarily highlights deposit a be product gain had Mortgage consumer activity We affected sale commercial income. environment. was going the basis, forward in expect beta Slide impact in decrease we credit, earnings On on year-over-year revenue is management of and changes non-interest revenue, revenue XX will a our and typical lower

pace our a and reflecting growth card business year-over-year we growth growth driven performance quarter of over credit in acquiring to but sales will volumes. single-digit seven growth fee expectations. and sales Trust in continue at by and impacted our worth higher years. double-digit to corporate be each that XXXX. strong and the on our continue revenue best to closer debit payment Looking support growth revenue, we expect in processing investment the two payments payments in Merchant return continued basis, by market noting mark revenue it had volumes business third corporate exits Merchant revenue growth joint ventures by a mid It's favorable last growth that conditions. this growth, was year, quarter from our management products to

Turning due within maturity. expense non-interest to variable and X.X% declined expense merit a expense business from year-ago, to basis and on services expectation. increased growth to near year-over-year primarily compensation line support Slide fewer XX, our impact principally increased with Compensation Notably programs production. linked-quarter business and due to compliance compliance expenses, service consulting the as non-personnel related X% higher in professional increases a of programs, hiring on the basis to

through to We the year. cost expect continue moderate to compliance related

some to In declining compares our was to our XX June forward-looking approach Tier Slide economic III using addition, capital guidance. our standardized and target provide now X.X%. ratio estimated X at costs I due common This are position, X.X%. related of favorable mortgage XX, conditions. service equity Basel capital highlights the capital will

For income single-digit on in fully quarter, expect to the a taxable equivalent, net basis. range we year-over-year third the interest increase low

On year-over-year positive revenue basis, operating third single-digit we range a the in full-year year-over-year. quarter of to and We a leverage deliver expect expect in fee XXXX. for the low increase to

stable, quality compared We the with expect credit second quarter. relatively to remain

equivalent on is closing rate year-over-year to hand it XX%. estimated Our be tax I’ll Andy for back basis taxable to remarks. a

Andrew Cecere

Thanks Terry.

foundation head XXXX. revenues our focused team We half growing Number you goals, maintaining entire leave the as two second of and with a discipline. firm building while credit are one, into we management I'll our is on on

We risk is estate commercial sense, forego Risk competency, don't the to space. core corporate the in are dynamics certain revenue we will areas higher in not a real where mean, but this willing lending areas is risk-reward growth leverage growth. management or make like forgo

businesses best set a enable returns. to and allocate of dynamically broad capital and growth to that the enough have us adjusted expect We efficiently where we risk areas

wealth services, and paydown in and our lending future an while share merchant and and third investing is our in We retail to investment business two, and in positioning as in quarter we headwinds the pressure are fee be services, existing And gain corporate very and that we outlook to and building management time Number market good that Momentum are pipelines to point about commercial over our servicing both positive for optimistic feel retail market. focused leverage. Cyclical the revenue. the to team I the mortgage on evident. thrive facing growth mark trust lending. delivering are about ability mortgage expect purchase operating will abate will is payment inflection funded continue for businesses. share subside management

improving forefront us in at this investments As over leverage operating future. we and years. automation our discussed the in initiatives several company stepping previously, will digital-first the and are revenue for capabilities, enable business investment position drive as we up banking stay we enhancing business next the These to

work year However, are I’m our remainder I serving in I leverage closing, we for beyond. delivering results now your this That answer and and and manage formal our mindful are earning optimistic revenue to to questions. for trust every day. of I will this going be and their positive second happy remarks. look we environment with whatever quarter hard that want operating and Terry, we thank Bill their as committed to to our to in to need the and I employees forward. concludes am expenses are customers operating commitment year pleased In we and our out

Operator

John question first Instructions] with line [Operator the McDonald comes from Your Bernstein. of

open. is line Your

John McDonald

what Hi. XX looks expenses I quarter, is third would basis points little leverage. you expect increased And which Do of if Good magnitude improvement delivered was and ahead look ask be quarter, bit morning, the out? operating It leverage the would you a guys. fourth this widen about so, to operating to like of just positive that expect about drivers? you wanted wondering and to I operating and when an leverage? you

Terrance Dolan

part Thanks as of expect will the I we still is wedge operating and narrow. although think kind it for that revenue XXXX, toward Yes. which Dolan. I for Terry versus will get we growth the we and be we fairly long-term it will that X%, the be up narrow. of end expect We do a When quarter, relatively expectations, our XXXX that widen positive John, into into that to question. third deliver would leverage, fourth that and of XXXX looking of this to expenses balance growth is X% for but start to think

John McDonald

And the year X% get this for help you still in that point, better high-end closer change to the expecting Or Okay. year, expenses the FDIC the forecast that just the for X% Terry expense and for this for this of year? a this end than a of in you this include little the lower end year? quarter any range surcharge Does does came that expected. to on to in little

Terrance Dolan

as year. in expenses, with the really we're the the challenges And just with to of continue But to that revenue I tax through versus we balancing of industry respect to where the disciplined lower very at with looking year, digital to we're to managed of We're expectations areas second to revenue say and respect and spend areas be continue end that. We're I that result to respect to With in that respect respect growth. long-term and at respect so Yes. have to going balance the with long-term reform. have to some back would going capabilities growth and to we're just And quarter a we're we're coming be a like well say the discretionary definitely rest to and balance the period loan back that cut recognize as the I as to and – going to and to Andy short-term investments focus. kind our growth strategic point. to transitional with we pay expecting and charge, going those always of put would said, FDIC the make

John McDonald

Okay.

at year this kind then So looking the still X% expense year…? you X% of end upper are range to of next and

Terrance Dolan

of are No, we the the at range. lower end

Andrew Cecere

Lower end.

John McDonald

Got it.

end lower comes quarter in – looking year year this as are this you trend better, This good. so well? and Okay, at next then

Terrance Dolan

Yes.

John McDonald

it. Okay. Got Thanks guys.

Andrew Cecere

Thanks John.

Operator

Matt comes Deutsche with of Bank. next from Your question line O'Connor the

open. is line Your

Andrew Cecere

morning Hi, Matt. Good

Matthew O'Connor

and messaging when X% slowing on follow-up to and you year, that is working Or if can XXXX to XXXX. say that? the operating the in get Obviously you on be years working to you the that's that leverage Just Is are hoping a towards, next X% going to you leverage? growth mentioned on in I towards expenses. operating X% take the a positive try couple range that pinpoint and to to X% something – to

Terrance Dolan

Yes.

sequentially think I – to quarters I get be continued from for starting is us order would that, take something go improvement so expect in to narrow, going XXXX throughout able very we some we're that time there. that’s Matt. to it's as But in

Matthew O'Connor

Okay.

X%. and a process? XXXX to Is then maybe a to thinking like X% X% So that year leverage next thought the you're reasonable in X% operating

Terrance Dolan

That’s to overall. the positive. dependent growth and improvements. depend on loan going make outlook, to that to going to very revenue the economy continue going be is upon We’ll manage which We're

manage going to expanding that We’re to positive.

Matthew O'Connor

just then NIM as interest just if puts on but about think about And flat the just the and of linked-quarter. upward NIM going isn’t next being quarter, we trajectory through takes Okay. still separately leverage there what it the rates curve Is talk of think are to an the The quarters, helping, or margin. bias few up? next there Obviously, kind but not flat? there's net some and

Terrance Dolan

Yes.

to but expand quarter for of we else just out. a are were the second quarter. couple have by a points that basis again, that at we things during would would couple the expected flat So But of there equal, different being quarter, X.XX%, first point I

is of expecting. rates to were NIM up revolve and to First ended during card we in the but little fluctuate, tends kind a if lower the impacting it were credit and that space what quarter relative

in we points believe and loan hedge is impact had had that us, kind future. us we about about X third and to help a our opportunity think quarter expect that into LIBOR-based frame Second as took of some and bit portfolio, And little effect. it. basis and really expansion. a three We zero fourth the then represent time helps we student fix opportunity the that do that and to should or third the early things a that we the sold an hit for Those it is debt but think of so long-term quarter and there's the hopefully quarter, the NIM it,

to Our securities portfolio basis securities. we’re continues to be accretive in that points XXX basis XXX points replacing as

grow to well. that – that loans with loans we outlook as As is have of right and margin loans, loan would the and see mix loan outlook expansion will grow. we expect our And an that

do we think for So opportunity that. there's

Matthew O'Connor

Okay. you. Thank

Terrance Dolan

Thanks Matt.

Operator

line Morgan the Your with next Betsy from Graseck question comes Stanley. of

Your line is open.

Betsy Graseck

Hi, morning. good

Andrew Cecere

morning. Good

Terrance Dolan

morning, Good Betsy.

Betsy Graseck

credit outlook. clearly Couple you retaining I'm questions. very the One on growth loan hearing are quality. that

been box is in there the delivering? there impact? a an runoffs that potentially the so than you've of slightly book? And credit a outlook drive that other is, is box is Or In has the of to my narrowing – a has narrowing question that does loan slower credit that increasing words,

Andrew Cecere

this answer not Betsy, Andy. And your no. is to is the credit narrowing the question We're short box.

disciplined been, remaining we loan fact, growth and we We’re have as confidence accelerate. have will in that always

think impacts reform numbers strong from activity spend starting spend as Corporate are pipelines dissipate. high. long are The to consumer as T&E. is a and a we time. in high, The they've payment that been payables Our tax are

will there's actually, of out I accelerate. lot loan a think, and confidence growth So there,

Betsy Graseck

Okay.

opposed single-digit that So growth as year-on-year loan accurate? more to about low is the is NII up NIM

Andrew Cecere

the remember that a I both. is at mean think growing were I of you combination quarter, we in kind if X.X%. mean, I first of No,

improve. And Now I would that go in continue we’re moderately quarter. to at see to to X.X%. going expand going in hog to wild it's we're and quarter. But mean, third third that it's growing say going not be the we the

our expectation. of So that’s kind

Betsy Graseck

it. Got Okay.

of student over trimming edges, book saw I shrinkage or – some in in – Is So like the CRE. much the some that stage? we around of at mean, the pretty loan the

Andrew Cecere

probably numbers, we're continue and we're to and box, but becoming credit longer maintain have more an no the The we’ll is lag of not of disciplined or tightening more in the book in continue that's loan marketplace student to that been what disciplined actually. we Well, seeing because CRE that. will area historically,

Betsy Graseck

trim? Yes. on that question I get Or finished that with… about And Andy. loan my the really looking be piece, you more to student portfolios was would you other are

Andrew Cecere

the strategic nothing we’re long-term status runoff immediate we the have obviously different at portfolios we’re point there's horizon Betsy, especially things – looking that don't might right? would alternatives and is that look to benefit any Yes. and always company. on to at, in be that different But to,

Betsy Graseck

the of loan on the in that And Okay. the quarter part is C&I got growth from faster here? growth optimism you've this

Andrew Cecere

that’s middle remarks Terry true, up was just the on linked-quarter X.X% growth. mentioned in particularly a Yes, Betsy, market, what in his

We’re activity seeing there. strong

Terrance Dolan

markets Yes. And in that the paydowns is think this point about broad-based positive seeing that, growth really thing particular the we're was space is then time. of that fairly across I many other effect that at dissipated well. as And in

The quarter. that saw in other the that add markets would third. community some thing growth I to banking would continue the our expect second in We is nice

Betsy Graseck

so Thanks Okay. much.

Andrew Cecere

Betsy. Thanks

Operator

comes from John Pancari with of the question Evercore. line next Your

open. is line Your

John Pancari

Good morning.

Andrew Cecere

Hey, doing? How John. you are

John Pancari

right. All

of end-of-period a off better On balance the Is came where sustainable number grow we’ll of? loan growth level balance? back Is that side, terms the work in to average of? off commercial, to above that in

Andrew Cecere

looking talking up second certainly the little half second about, factors all bit to ending of more a we quarter the paydown that say to also in of I the starting the we the half what quarter. dissipate ended and when saw in we in up different second would that versus mean average, started John latter strength is I see Yes, you at end

that think of I good at is that loan growth the outlook. So way looking a

John Pancari

Okay, – good. on you’re tariffs any demand? then And seeing from commercial impact the that on

Bill Parker

is This demand. on Not Bill.

the have of read We papers, level. in we that industry in impact that the You specific but maybe the companies impacted, any really even the can not that seen any in seen kind of not have tariffs. –

So obviously don’t we we monitor really to it continue anticipate this at impact. if stays any closely. But level,

John Pancari

– flat deposit you down balance lastly deposit to on that quarter want right. get all side, the more a are then pick-up an the there And the color on there X% end-of-period see well that’s and deposits bit would average Is know starting in be anything the your as else impacting and growth moves the I basis. in shifts Okay, you saw, in a helpful? to on would just what is be outlook

Terrance Dolan

of expectations. what very the that. on would which side, Yes, line in betas not hasn't of much asset deposits, our growth when outflows it’s the and balances, bond side stronger that the in so We're I have in a seeing say we seeing because been gets rotation, fluctuate good sort lot. always consumer lot a we with just we're and its to modeling see. whether quarter seeing especially is turns of and whether the we are trust timing any fact, of said flow it's our way second And then think to payments of economy corporate unusual the thing deposits, corporate that I commercial to or again, will is We've there liability start deposit the that or been really see sensitivities, in

with really is So respect I to expectations. our it that track guess on where is I'd leave everything

John Pancari

got it. Thanks, Okay, Terry.

Operator

next the Ken Usdin from Jefferies. line with Your question of comes

Your line open. is

Kenneth Usdin

understand to sale NII how a small the you was student ones. Hey that fee couple gain? the Can loan in with much went line a weigh guys, help to Thanks other related and much us how lot.

Terrance Dolan

seen is student say impact you if premium very see that you've Yes, insignificant, don't I the loan gain sales, portfolio to a significant respect with would other and that.

back that overall small. can was So that into coming basis in very you around of of point standpoint, interest to mean points, kind income a And net the gain from back kind again my equation. I being third about X of

Kenneth Usdin

stuff Okay. pretty you And fees than would in – other you with big then the again, so say? outsize VC/PE means had that's but

Terrance Dolan

tends be category up everything. going to of and there's insurance a lot different terms revenue, of that retail lumpy Well, end product into pretty sales, that that sales, things insurance in product

any one it's caused the not that that move. in item particular really So has to quarter second

Kenneth Usdin

got Okay, it.

just question expect we've that the low of one I the third just benefit reform the inclusive your any kind that if understand seasonal side, Do tax comps, of and now bump and and about fees related tax into single-digit expense kind NII means upward operating in you single-digit couple the trend expenses that's you're gotten single-digit of expenses On up leverage in low tax post the changes. try quarter included the low that's in guide because to advantage expense? a quarters saying

Terrance Dolan

bump of particularly in Absolutely. seasonality and always third yes in of those credit been a the There completed it includes fourth projects that tax everything. particular a late will of because be business the quarter, up. and lot There but absolutely is quarter, fourth

Kenneth Usdin

– last go be? leverage? FDIC And think if you what operating one, size help you us so expecting in you are to it the terms can year end, will the Are by Okay. you expecting out of year

Terrance Dolan

it Well, point end going look back, particular the pull the continue they're it's surcharge, of but through FDIC to expect and XXXX, at going who this knows. as in I at least year that say they the into to we time,

Andrew Cecere

the been The change is giving FDIC. in not any we’ve guidance assuming

Kenneth Usdin

Right, okay.

the you. thank operating positive with Got that there. in leverage So staying there's even it,

Andrew Cecere

Thank you.

Operator

Bank next question the from Najarian comes Your Erika America. with of line of

Your line is open.

Erika Najarian

morning. good Hi,

Andrew Cecere

are doing? you How Hi, Erika.

Erika Najarian

being little the the quarters the to on of wanted activity corporate potential indicator for terms financing the your just rest indicator payments Is you’ve a lag one more about I Good. absorbed. of for side? corporate strongest of year sort a comments that ask that leading and of a and bit what's on in the leading

Andrew Cecere

capital on spend, that as especially corporate leading question. respect indicator basically a to at great that’s on side corporate to Erika, discretionary commercial as spend the both willingness as and And look with well confidence expenditures. a we items payments their

us future gives and into that think confidence of when grow have to business that expand growing, look loan and the they the we kind confidence is that's more of outlook. that as the continues the calculus part So is we fact that about

Terrance Dolan

to some XX.X% a were corporate and terms just from those sales of growth, year-ago activity to speak, so spend a doubled perspective. year-ago this numbers, And in give so Erika versus it's the were spend quarter the up you X.X%, numbers volume volume almost

Erika Najarian

That Thank was helpful. you.

On premium side, a I of the deposit card network, which your you know is available what outside corporate just talked sort observing is the and terms but and your growing consumer customer just with up of them, of card both consumer, the and you unusual Andy you competitive introduced premium that's positioned you're bit your base? us larger been in wondering space? confidence offering their what peers premium could how remind about has in little dynamics about take card about for one of your a think

Andrew Cecere

for We been already have core has premium is Altitude the and a customers principally full Card. Bank, uptake great array U.S. of then Altitude card card products, a The tremendous. with including we a Card It's the card. call that

One that and of the of attributes is mobile and has it card points rewards. multiple component the

is choice so been in digital wallet the intended the be to And mobile has your really very first positive. uptake or and it to

Erika Najarian

up sort competition an could on with if you've really observed up product comments here. deposit deposit or of lastly on wondering you potentially national the products update launching not picking consumer driving a with picking on you would what the and what earlier the to rates and side. retail about regards give us lead just And from pricing I’m

Andrew Cecere

Yes.

of where Erika. base. our the number We I'd have have to current trying is a positioning highlight initiatives we already customer But a one XX-state beyond branch extend beyond underway, geographic that really

well in lending We U.S. and where and the indirect mortgage other our to opportunities depository is. player Bank through as focus a our those a And with to or are we products through So our terms auto lending with that's the as is both bank of indirect national network. already expand have opportunity relationship in our our mortgage relationship include customers.

Erika Najarian

are – money to card, or directly that available clarify, you’re something that a on necessarily and to bankrate.com of have marketing client clients base, somebody account to not this to the national Just current for for going – your to and is already products XX-state shopping outside I’ll that’s your CD? a have or just was it's market geography similar

Andrew Cecere

They certainly could to in a It's relationship. that [leveraging] of customer or because It's typically growth single an U.S. do relationship. Bank. a our auto is with current bank have not focus already the terms loan a that. relationship base expand opportunities upon again, the product But typically full our a against mortgage they relationship, and

Erika Najarian

you. Got it. Thank

Andrew Cecere

Sure.

Operator

Your with Mayo of comes Wells Mike Securities. from line next the question Fargo

is line Your open.

Mike Mayo

as accelerating have one The payments very one correctly, Hi. I I the I cyclical as a guess, loan growth about economy. and be you heard question seem positive and you fast corporate to year-ago. structural question. cyclical think question, I spend and is twice

yield yield you curve debate saying with like curve? kind flatter downturn, it back the you to but that you the you're that will balance Or sheet? yield make up do it the movement that you investments go the So against view steepen? about curve, does think And the how the so do seems view, a big in position foreshadow opposite, recent given the of

Andrew Cecere

and is to Activity to from then So is Terry confidence economy add think confidence large up. ask to corporate, we start do I’m middle business up. to do Mike small on. going in I have the market

side is the the is and there up up activity of On consumer equation, too. spend

Things very and positive. So Credit as lenders to strong. they’re our confidence, customers. you we is are are talk their know. and talking leaders We our do good pipelines to very have

from there other there's those we're components all steepening not to to that different going be – the So that in are positive today short-term. differential. And indicators. Terry could and The does curve be that’s something positioning say that standpoint, yield driving assuming a a

Terrance Dolan

Right. exactly That's right.

our are the with at at as we et cetera, rate the assume forecast respect when interest growth we're looking looking remains end and continuing that to are flat rises. to revenue So short our curve modeling yield fairly

that up we're it's XX-year that and ballpark stay and expecting of at that, changing looking the in kind spread between going end two-year treasury, really perspective. you If not to

Mike Mayo

a Well, factors mean, conservative? imply assuming up [bulled] curve. would tactical stay disconnect. pretty you which still in Or are it's economy, you steeper the Or QE you a seem not just being yield on I place? are

Andrew Cecere

and Well, I the and think curve that be we see just think we're to be model we way going that until going to we're we view. the way point – I steepening, yield of think conservative about the forecasting, actually take

Mike Mayo

structural discussion. Okay. the question, follow-up line of the And last then to on

you XX mortgage succeed. it all opposite and XX-state the So Goldman like that doing your you strategy, this outside and the Minneapolis auto strategy pop seems of gives will states network what cross-sell tend JPMorgan, to every strategy everyone's bank to customers that of from and or confidence and most potentially national to states to could take of expand PNC, then. digital up now, to Citigroup, now that we a hear And that Sachs,

miles from backyard. are to thousand into Minneapolis in trying customers competitors these a cross-sell coming your to away So

customers a can guess, So do the that and where you other to your your question go is away your you how presence? to are to defend try steal customers branch ahead I think and how to have coming you don't backyard you banks do against those cross-sell

Andrew Cecere

wholesale and in not from will entrants. the So some tell new you seen start the customer base, these there. either Mike, we have markets, Minneapolis on in I’ll side or our movement I in of lost core or consumer

negative you continue the on going a to customer go as going into all states, we're base learn, different test, a price you if three, on to enter things. think I and market few, and can either or a could compete we're you you and Number selection. get focus to try product without while Secondly,

we already So bank, already as Bank products wallet, they have that a customers, that's because with on part expand with the why can relationship have who current think go and we of relationship U.S. to of speak, other so relationship. markets do and we're services, focused as who part their few way update forward. We the that's on and to a started we we're focused as we'll it, on you results again, continue the to out their

Mike Mayo

did this recent like… Is Okay. And you when start it initiative?

Andrew Cecere

year. starting We're it year. This this

Mike Mayo

Okay. All a Great. Thanks right. lot.

Andrew Cecere

Mike. bet, You

Operator

Barker next Jaffray. with Your line comes from Kevin question Piper the of

open. is line Your

Kevin Barker

morning. Good

Andrew Cecere

Hi, Kevin. Good morning.

Kevin Barker

outlook of expect you've revenue higher you is flattening to And curve? seen for yields what move any flattening deposit betas obviously, your already expect growth, within the continue asset the of In despite regards some do a and yield to curve, numbers? beyond acceleration yield to there you

Terrance Dolan

Yes.

to range ear towards The equation. in remarks, we so of said looking at will and those in are but – you the corporate commercial on at side, corporate world We feel or the and time? been which speak, we over some responsive when real Consumer that keep to our deposit of of move markets a there down kind we on a price lot the is It is terminal up too. rates of how on question consumer with an side, we've really we of they deposits the so side affluent move betas move. So that of end and as come what as to period kind up, the the more is more step narrowing and see of We quickly the would to you it. pressure of But haven't look migrate the really at The deposit. trust it seen their necessarily consumer XX% question typically ground kind beta wouldn't or different expansion we And pressure. is that. XX%. in is the lot block so But there.

the balance XX/XX. on we long-end asset both up about as On on past, in the talked side, benefit end – the we you our sheet, and the looking at if have our short-end

to move up, there. there's I opportunity that As continue rates think

The our we'll our assets with several to be quarters, would I portfolio mortgage of see longer-term rotates accretive many continue accretive to coming portfolio other and benefit And some again that residential for quarters. will – thing well. associated as the rotate, securities is back say as

Kevin Barker

Great. are you. quarter-over-quarter Thank show to go. now right a occurring pullback dynamics in question, mortgage given Are And market, you’ve that to share regards decision that origination numbers the let market space? I that to then you noticed conscious the the making mortgage to the from competitive appear banking

Andrew Cecere

up Yes. was In our about space, basis X%. app the a volume mortgage actually linked-quarter on

two, years that we There's of that’s toward in more in a capacity purchase competitive, share. tell margins good ago, like you thin. years feel will out taking a focus And to, there. think I three I we our shifted about lot continue ago. so We two are mortgages. that it's we're market very But pretty have spot started

the focused The be We better retail tend also in channel. on margins the channel. to retail

but from the well. really remaining about are I is margins seen side, been that people pulling pricing you correspondence what industry just where the in think and are. given We're standpoint. back thin of more where competitive, on kind the being prudent a We're and been margins have we're very as have

Kevin Barker

Thank Okay. very much. you

Operator

Juneja Your next JPMorgan. of from comes line question Vivek with the

is line Your open.

Vivek Juneja

Hi.

Andrew Cecere

Vivek. Hi,

Vivek Juneja

payments, Hi, the that spend questions talked corporate been A questions. I a Terry? past…? here, more the of taking know Andy, granularity. doing, and How's to little government wanted in I you've get thanks for couple

Andrew Cecere

second last spend is up up, year-over-year year. was X.X% down the Government spend compares also Vivek, or to quarter as relatively flat XXXX. in even That X% Yes. of

is also strengthening. that So

Vivek Juneja

of with Okay. And payments? does corporate fee the rate the that, how compare on rest Andy,

Andrew Cecere

The decline those. fees been There on both our substantial a hasn't fine. are in

both see for can have also vein. in the that you increased relative the revenue So same

spend was government XX.X% commercial spend the The XX.X%. and and were volumes up revenue revenue X.X%, XX%. So up was up was up

Terrance Dolan

Yes.

but the you the those long-term that remember tend term pricing and get Vivek, see contracts contract pretty side when a they very consistent. be during so the perspective, from pressure renegotiated, On stay generally the to government

Andrew Cecere

relatively comparable And they’re two. for between the that

Vivek Juneja

Okay.

from from is cards, you industry of increased think you in decrease coming this the the revolvers. talked price much in balances? promotional competition that Another one How do about just

Terrance Dolan

comes to the of gets with the little see they're those people's actually part reform, other tax to people confidence balances to as I ended what I think that we up up, down you goes wouldn't necessarily seeing the tend consumer stronger more and the much a when because and simply attribute bit, end revolve spend, economy but rate it that balances. to their a now have think pockets Then to cash in the capacity just that I able more and payments. right we reduce revolving opportunity little there's make be seeing are taking that is thing

probably So I anything. more than so it's think that

Andrew Cecere

add quality of nature portfolio. Terry, our And I'd high the

Terrance Dolan

Yes, for us. Yes.

Vivek Juneja

Thank Okay. you.

Andrew Cecere

Sure.

Terrance Dolan

Vivek. Thanks,

Operator

from the question next of Your line Martinez UBS. Saul with comes

is line open. Your

Andrew Cecere

Saul. Hey,

Saul Martinez

questions, deposit I betas, you guys. first Hi. around it expect your would that was on comments on you this XX%, mentioned Terry Good morning, so think A forward around couple going quarter. XX%, clarification

the So thinking saw basis XX this should increase should future in in magnitude we cost take meaning points or hikes you deposit quarter with that that about deposit more of be less increased as costs? sort terms of the we

Terrance Dolan

assumption, It’s a reasonable yes.

Saul Martinez

And in from – increase to that you consumer Okay. the already beta mentioned in XX%. XX% bakes that deposit bakes the in

the guess, and corporate terminal trust the already up I trust mentioned you mean You commercial – beta? already is

Terrance Dolan

Yes. I know that period currently, hike time? over of be I it'll say and would after The going continue. don't it's rate it’s that. the next in is XX% what to at question if

a standpoint. basis a movement will XX be Those going XX, point bit from of XX cetera, I but et for betas kind think. anymore it's it's basis to maybe to up little So timing don't not a move dramatic points

Saul Martinez

But you a from here, meaningful move Okay. starting think big don't point? from it's up the

Terrance Dolan

No, we don’t.

Saul Martinez

point it points there, X% point. down I points. know And range take to below based you X% doesn't a long points positive the growth XXX growth and to that's points? room manage X% basis you and XXX to basis to How basis – on basis basis long-term, that cost how revenue on that operating to materialize some growth X% that's of assumption XXX that revenue I X% discussion do XXX but XXX to to much keep X% to on to sustainable fashion? basis XXX expenses follow-up get of to extent your time think get in the the But then have Okay. leverage

Terrance Dolan

going think our of offer streamline opportunities be revenue to or is those only a standpoint, cost to basis capabilities, improve as not Yes. well. make Saul, or but would we way us as digital I structure to in investments are kind to about from able continue cost digital capabilities

it’s sides of have I or as three from both a the next So we kind really I to think about equation, everything – the think so. years it think of over

Saul Martinez

it. Got

the investments us don't I most Should materialize because have for you make does mean is of revenue banks? to saying or So of to that revenue cost meaning if that think take to model you be sort manage have that below just X% regardless X% need down doesn't probably within our is growth can you answer revenue environment? that growth most it and in the range backdrop I of going

Andrew Cecere

the the a extent, more the way to think because of Saul, it narrow long-term. about think wider in growth between and will To the growth the narrow be in that revenue a revenue be will the revenue that revenue just is I expense it's So easy wedge to is going the function growth higher wedge be.

Saul Martinez

Okay. All so it. much. Thanks Got right.

Operator

Your next Capital question Markets. comes from Cassidy with the line Gerard of RBC

open. is line Your

Andrew Cecere

Hey, Gerard.

Gerard Cassidy

down out morning, Good a guys underwriting the Commercial to commercial the standard. Real Can you you paydowns, more Estate due your loan Terry. Andy. give morning, book? are up little also to outstandings but not on us color that Good pointed Obviously, came that standards

C&I coming? went paydowns. some it had decline? commercial money was it equity underwriting loans is other you those said it Is the lending, And to also banks Where – carefully, due at market private how then taking is the in much the How paydown banking you lending, If outside industry? look or shadow standards? much I versus think you the

Bill Parker

Yes.

lose in and call in aggressive commercial is SO and really is that's banking of where and runoff. longer this or we we balances on the real that we've the standing mortgages gotten the the loans community Bill. of where seen rate. So term area terms terms estate, Many outside that's so what that's

The construction very, portion in other big active lending. is very CRE remain We there.

the on the we construction into to we’ve We of some but deals, very seen to lending. active, seen continue M&A the it’s for do that that's seen value end the haven't of really coming side, area But larger very markets carefully, relatively quarter. that's quarter – an It a clients. the hasn’t been runoff. this remain and good growth pipeline a really C&I but then add will watch a And more good into function – We – clients stable. great

market books. of anticipate middle in growth that activity to mentioned, core and our more should transactions – addition kind paydown was M&A in we So subside we that previously some community closed, see the of as as

Gerard Cassidy

being follow-up to of... that yet commercial mortgage we're as XXXX? terms used there that market, the Bill, you today to the it those estate your about Is real that, a stretched term types compare comments it in are not can XXXX, or

Bill Parker

I and think that not that the term length it’s rate people I it a – say offering. of more would it's function No, of are stretched, but

or Our not are there bank a in it's companies our the with That’s we’re can doing insurance well can – securitization whether fit and market accommodate but that interested just that. that – not XX-year so loans. specifically models, does fixed rate accommodate

Gerard Cassidy

on little strong as the of any horizon end don't we you you see the it officers seen you guys a X% And office see to with out that all be the in months range as is being bank X% Terry, managers? – labor guys in a as you hear loan industries. that a that that shortage or expense you lower the very – the nationally commercial maybe there Great. upon something to economy question, if see in growth lot us? And certain your employment any branch gave and you Do turns hope? you Have operating if the touched could then it, we nervous at markets of makes a certain XX general about situation, strong,

Andrew Cecere

Yes, Andy. I think – this is

I taking think longer what positions. we actually – it’s to fill

a it's happen. there's do and substantially say bit our not that But to now think could increasing but of fill impacting pay I It’s tightening would I market right longer that that's just positions. yet, hiring. a labor so And taking

Gerard Cassidy

Thank End that. Q&A you, Andy. appreciate of I

Operator

time. There to call Jenn this are no like Thompson. questions to at the further would turn now back I over

Jenn Thompson

to if questions. further any listening call. for have you Please Thank us you our earnings contact

Andrew Cecere

you. Thank

Jenn Thompson

Thanks.

Andrew Cecere

everybody. Thanks

Operator

you U.S. concludes We for earnings This call. your conference second thank quarter XXXX participation. Bancorp’s

disconnect. now may You

U.S. Bancorp (USB) 18 Jul 182018 Q2 Earnings call transcript