USB - Earnings call transcript Q3 2018

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Operator

Welcome to U.S. Bancorp’s Third 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, Eastern Daylight Time, through Wednesday, October 24th at 12:00 midnight, Eastern Daylight Time. the Relations over for turn Director Jenn now Investor of U.S. will conference to call Thompson, I Bancorp. Please go ahead.

Jenn Thompson

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

Andrew Cecere

joining Good you morning for our everyone thank and call.

remarks, up be I and call to the Q&A. prepared will our Following Terry opening

our loan continued on supported a pickup growth. three. loan by quarter, begin with earnings consumer per leverage. growth the commercial record operating third we third share in accelerated the by revenue quarter, expectations, record me lending Let slide line in In driven net In in reported income and strength and and positive

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

and tangible shareholders Slide XX% earnings equity. to share highlights on best-in-class return including a we of quarter, our common returned through third metrics the performance buybacks. During XX.X% four our dividends

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

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

Terrance Dolan

Andy. Thanks

in If the balance on start five, to a of loan with follow-up and retail such saw excluding a quarter. with student as of you X.X% discussion per leasing. trends. We active and on basis slide mortgage retail year-over-year Average the the portfolios impact supported turn in number second loan Credit the growth increased basis X.X% a I'll growth earnings linked-quarter accounts in both sales sale sheet of and continued review portfolio and loan by grew expansion active account. the was card

good seeing are We momentum digital across platforms. acquisitions in

in year. growth accelerated quarter half M&A in strong of our investment modest and among are and first seeing growth loan third the commercial CapEx following activity expected, the the As Pipelines corporate remain we companies loan sources during to clients. Alternative than capital cash but need balances last the to are clients' markets, markets own the such extent, limiting access as the the quarters. lesser a several funding and

extend as spending we real companies reflecting several and to traction tax terms pay to worked cash credit loan Consistent past through As their estate alternative customers and investment quarters, continue to as our decisions expect continued gains commercial improve. financing. the unfavorable seek and commercial declined growth loans not downs with balances repatriation,

and excluding commercial a growth. drag loan sale, basis loan contributed XX quarter, year-over-year of a This to basis linked-quarter estate a reduction impact real to the point point growth student XXX

continue. intensity a remains activity and trend expect down pay is in headwind, it to While the gradually we diminishing

driven expected of large of About fourth to customer the on represents decline. included of linked-quarter of Turning within saw increase some the to retail support by declined in a a business the corporate business This balances are and our business decline about in basis. half consumer deposit deposits. and migration financial the moderate migrating investment average commercial growth non-interest-bearing the where the six, we are This are customers our impact balances merger anticipated deposits, a banking, deploying this banking X.X% linked-quarter business drove a X.X% balance slide quarter. related half quarter. in of which client, and line our balances deposits X.X% to balance vehicles. impact an Within alternative to deposits increase This to is

earning linked-quarter to points. related and tax margin interest compared growth Year-over-year with expansion was net the equivalent reform tax credit Additionally in our non-performing liability higher ago. of X.XX%, compared improving and income distribution adjustment economic flows equivalent of a an third year-over-year saw net third corporate trust by conditions with our Slide balances reduced year assets quarter our share The by the and one two per asset consistent growth two indicates was These diluted due seasonal quarter, customer pay assets downs including deposit receipt and quarter mix. improved the benefit in declines quarter the declined was but X.X% the On modeling resulting offset balances, funding deposit basis. with loan deposit Slide of in with seven up interest the are linked-quarter profile. nine, year-over-year and was assets. and compared taxable interest funds. with business timing eight by second basis exempt quality negatively earning that improved credit of associated with to impacted highlights net third which rates expectations. results in third earnings provides earnings on interest reform the increase pressure supported X.X% basis partly a the In shift and a Notably linked-quarter quarter taxable the by margin XX.X% growth and asset in impact points of point on which basis slide decreased XXXX. tax

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

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

margins. trends consumer in We had base. Slide and in revenue payments deposit growth the forward XX investment movement income. revenue, product will strong we in by that trust offset driven to partially a in by a primarily banking beta and management in decrease decline basis, highlights our and On treasury expect non-interest headwinds, syndications. activity in year-over-year going commercial revenue overall be mortgage quarter. the pressure affected revenue, lingering and management we gain by and product revenue underwriting lower expect on fourth Commercial reflected dynamics the loan market was moderate in banking revenue market revenue fees. bond refinancing corporate mortgage sale year-over-year Despite lower Mortgage

a a to purchase robust market. well-positioned as waning refi We mortgage transitions market are more

We origination and a are in treasury this optimistic The excess business environment. as rate typical leaves reflects that which the have gain fees management is stabilized the expand in credits of in decline capacity market. impact changes rising on earnings sale margins in will

to Turning each payments business, volumes. in higher strong growth credit sales revenue our corporate card growth payment we and revenue debit double-digit reflecting had in and

continues have ventures quarters, the the we second to revenue joint XXXX. merchant been Merchant volume acquiring growth several we from signaling the sales of to exit in As promising for in be strong. return the lapped impact quarter as of third mid-single-digit quarter base

business strengthen and fourth XXXX. market expect of growth to well in to continue quarter merchant conditions. revenue favorable Trust management We as revenue investment driven growth the processing as by was

to to as deposit equity production. in September maturity a to projects of Notably expense to related merit capital basis, reflecting compliance X.X%. highlights business higher Basel moderate target a tax market. and the looking from ratio our non-interest through related increased seasonality the consulting lower due credits X.X% declined tax fewer position. services I'll X we III related expense well reduction increased At near estimated XX, guidance. standardized continue advantaged a year-over-year within slide a to primarily to expense variable the decreased X.X% we basis. using on compares cost partly typical to principally and capital XXth, increases, This programs, some due litigation due declined our support insurance cost X.X%. forward compensation provide in our linked-quarter was to ago capital common of ago hiring compliance growth where Other and as as Tier Compensation Turning to costs on expenses, as professional XX syndicate expect programs now secondary expense impact business compliance services non-personnel and approach Slide the year. year year from

quarter taxable on from For low net the fourth interest the basis rate. we strengthening equivalent growth income expect quarter, the fully third a in increased year-over-year single-digits

in to for we of to expect expect positive On core the year-over-year increase operating on a XXXX. quarter the year in basis, the a year-over-year. mid-single-digits revenue fourth fee to leverage low deliver and full basis We

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

Andy to back it remarks. hand closing I'll Now, for

Andrew Cecere

Thanks Terry.

building second and on the as half we is as of year. XXXX of had is end our businesses up core head we anticipated The shaping into the momentum

are in expense We continue growth corporate our good in managing to means manage expect expenses payments two we to corporate and revenue the accounts strong wealth accelerate XXXX. management grow all benefiting balancing environment capabilities. payment investment are for on in continue company on year committed Merchant businesses that digital retail for positive term while approach continue objectives. remain trajectory. in and leverage and our investments long-term to XXXX from growth firing a accelerate the be enhance fee services, investments cylinders. to our but with even financial services, are diligent loan on We the full our operating In is we market and make management, and upcoming our other fourth payments conditions This remain will issuing in revenue of we the operating the our delivering momentum businesses new we and quarter benefits acquiring whatever businesses, to quarter to traditional as for the focus prudent our We and reap shorter gaining market favorable card trust. we and and are position in

in terms In will less a investments, for York application we for an over weeks banking take on apply large and within the often where On space for area loan receive of in new fully industry. be to improving existing more than The New have expansion a a funding hour, of of small of time credit. commercial middle-market we capability recently that years front, team able platform. the digital the and the process presence a businesses line corporate the to metro traditional technology announced or innovation XX is our can leverage that strong and announced creation of a we

which forefront the acquired the banking. government our banking we drive improved next leverage our at investments banking and municipality quarter, software We business. During within Transaction years. several industry and commercial the our the Electronic into and within shareholders our we It our expands relationships stay merchant integrated can in investments third enable the future processing over new enhances us Systems, will where we capabilities customers. vertical These for for the value us to understand starts operating value leverage will create we create corporate with

day, closing, to industry customers each I'd we every questions. be data, and I your to continue As stakeholders. our technology to era If of for customers' of evolves thank privacy. outstanding the make promise team look to new of it at lives the U.S. for concludes in win, innovation same will we on shareholders. and U.S. we to more for formal their information, our and their Terry digital now to our while it happy our the our ways right game A banking our to will In productive financial Bank, protecting country Bank simpler their right, capabilities, remarks. That win, personal deliver do our and this and bringing their results and the answer driving do and time across work members employees One like use

Operator

from And Bernstein. comes Instructions] McDonald ahead, John open. with your you. go is Please [Operator your Thank first line question

John McDonald

positive like leverage Hi XX good looks nice about operating about morning leverage, little this operating on a guys. ask points. you basis to print bit positive Wanted quarter, a the had

X% to next to of from reversals And quarter then of and as wondering see and some think you year, gap what do range into on mentioned? that year the X.X% you you help you've expense shooting leverage more for that any next you got you I other talked next that about Just the year the operating talked about? this accelerate for as importantly how look one-timers out drivers much accrual line to

Andrew Cecere

I'd ask Terry to start, in. then jump I'll

Terrance Dolan

kind end of the Yes, John, areas. of talk around at focus we're looking me about bit of the let being to different positive operating leverage. focused expenses, we question deliver that expense Again a is at able lot had. that little on But our a

big is You very of mentioned the litigation overall accruals, that the a change. driver actually not

-- on when costs us is about think year reform year. related this versus think production that and basis, tax one having about drivers haul. you is the are revenue biggest tax tax last lower with believe you sustainable it amortization is is a over lower to the tax year-over-year which that's in credit tax If And something generate to also syndication, through reduce tax allows expenses, credit the fee capacity us credit amortization credit generate both that our long both but we that and we

costs cetera, FDIC think be servicing that come if kind costs, we about related mortgage our mortgage has just as lower insurance would et foreclosure The we've our expected second is bit a of we talked than we thing refi the changed, cetera. and type servicing little et to continue what market then the of down about, and costs,

On those basis, on the tax of represents -- the biggest linked-quarter quarter a So, credit are the the change. drivers. amortization a majority probably

So, would on. those are things focus I

Andrew Cecere

John, And Andy.

at As couple look year, I we would things. next highlight of a

As to X%. the revenue we've about, that's and payments the you that talked saw issue growing merchant lapped we've

headwind accelerate revenue to which that come year. start and a as has been a think, into in I will expect to continue bit next to go quarter We little industry, back. Mortgage the we next of

economic loan acquisition. We market we're accelerated are growth, continued our share and then across growth, all seeing seeing in increase and business, customer

those opportunities that positive all I things was So, XXXX for revenue. are

John McDonald

the you a here a kind for? XXXX you're X.X% now that X% for the look Okay. quick sit still of and as And Andy going target to Is good leverage operating out to just follow-up. shoot to

Andrew Cecere

is. it Yes,

John McDonald

fourth the And you then the of the of have Terry. And Okay. the The later surcharge one that driver fees FDI quick year? was stepdown lower mentioned, next coming follow-up still in insurance that? what a end you quarter from

Terrance Dolan

about as biggest risk surcharge. that's much driver the I our are And And you to rate question a rate biggest of getting then second from anything. related we profile, kind the really standpoint, was make we as kind really is and capital if Yes. and The your think things the think decisions FDIC driver. as other FDIC an then of benefit probably

about be about to the surcharge think -- until you If think expect so ends, to quarter, continue fourth expect surcharge, the it you going the continue to and we to there. it if we're

us about for related The we'll wait a million surcharge. decision. on is So, to that to impact quarterly $XX basis that

that of kind of sense you terms the of some well So future. as the size gives as that in it you're for thinking about

Andrew Cecere

goes operating And surcharge John, away assuming importantly, about not we XXXX. as we're in think leverage that positive

John McDonald

Great. Thanks guys.

Andrew Cecere

Sure.

Operator

Your with is next line ahead, John Pancari Evercore. question your go comes Please from open.

John Pancari

morning. Good

Andrew Cecere

Good morning.

Terrance Dolan

John. morning Good

John Pancari

way is for that acceleration changing the down demand? pay about good finding Or What in is outright bond you're I its you're that loan Thanks. is going out? to in growth it On growth next just the quarter. back abatement think Or to more we're quarters, on flow front, that the continue? is market expectation Is bank to see What about market? some more your release loan really going coming view? the calling you driving heard the that

Terrance Dolan

discretionary payments actually I our of M&A been business think Yes, of things I about We've getting been stronger. all pipelines by been I picking in the about both combination those spend fact corporate we've it's and you has in and getting that seen stronger think it. have up. our businesses mean, activity talking mean a the CapEx

in to in and year, part moderate. saw seeing still downs They we're the of the second late is at half first this also think So, they that what are I continuing, the demand, pay are but we we of in those in -- I are moderating. seeing. do XXXX I think starting it least, terms --

a I a of it little so, activities. -- combination end market that also is And think up, as all kind bit. the moved has opportunity the has changed of curve dynamic of those spaces within long different capital that the the

little it's that all quarter those think I into the different expect move quarter And So, X.X%, as -- as linked-quarter think we of and get XXXX well. was think fourth third about a as get we up stronger stronger we we combination will things. to the a of

John Pancari

XX, inflection these the that down. of you And you mean that, to related expect that some are I seeing slide trends, line signaling despite that it you're should quarter? start to trend is utilization -- next still on an we see

Terrance Dolan

I for so down. think of We guess ends equation -- well, that up the there's up do about looking up part Yes, as are that we you think optimism thinking let's we when opportunity up of utilization kind what that, do it are that seeing, and kind rates. about of we end kind that of believe and to a to expenditures capital I say. stable the utilization balancing end and expand that's as I the think

John Pancari

And all Terry how on we the this should level then flagged, growth thanks. about should deposit think forward growth that on the you've you've total and merger flagged the Okay. from volatility forward? customer I about thing overall just how but know going going last from think trends deposit one deposit trends? we side,

Terrance Dolan

Yes.

So, those, me about on things of is reiterate. I They basis. to are just One they and think growing. and really a linked-quarter grew that talked deposits our it's just three kind some nicely year-over-year point both consumer grow let of of -- but kind I

are a that's is related So, been the of large half market you of, and we're migration we year-over-year and that that on going known and pretty was I good be anticipated a and decline we've a basis, that standpoint, to, combination, that know to The basis that nearly good. of seeing XXX% part balances us some that business or is that give timing. customer think that. in from to understand customer prices what occurring. that the But financial migrating kind that feel kind to about -- about fact with that tells of that that and those good the customer perspective, linked-quarter customer is represents On working we've we've

into in able know about So, when actually going be to that the we we we again. consideration, quarter. to in we that and we deposits fourth moderate at to think moderate When kind take it's XXXX of fourth think us quarter, grow look going the allow to particular, that's

John Pancari

it. Thank Got you, Terry.

Operator

with your O'Connor Deutsche from ahead, comes question next Matt Bank. is go Please open. Your line

Andrew Cecere

Matt. Hey

Matthew O'Connor

Good morning.

few Another pay loan in one quarter a more can because different an growth idea couple than one the business accelerating you're slowdown downs way a growth Is it peers that this and and seem of of be? loan to the banks seeing of is have had on lumpiness Any bit acceleration. a others. and maybe optimistic you're other your the mix in or something that there pointed just why the

Terrance Dolan

be could I Yes, it's things probably of maybe a in different of been have -- banking think mean that We're having competitors We markets. lumpiness. describing. a bigger much other some I end combination up than community again the market

probably put So, combination a we not things. that it necessarily can kind It's let's one of that pinpoint, it is thing of way.

Matthew O'Connor

on Okay. XQ, loans quarter? X% And you annualized the then had third XQ kind you about that about were X% when up versus the are that in of Or you loan in in versus only were XQ? basis growth year-over-year accelerating talking talk a growth is

Andrew Cecere

number a that, is accelerating on were higher Andy. to basis. linked-quarter this the about talking We Matt, a X.X%

Matthew O'Connor

Okay, right. Thank got it. All you.

Andrew Cecere

Thanks Matt.

Operator

go line your Jefferies. Your is Please comes Ken open. Usdin with from ahead, question next

Andrew Cecere

Ken. Hey

Terrance Dolan

Good morning Ken.

Kenneth Usdin

betas balance quarter? up go harder morning that question it's of on of about just How and sequential repricing to getting the basis on of you Good so how of expectations what change saw you points, are talk characteristics, would expand. in costs talked had so rate per of terms that guys. XX deposit this And previously characterize you? to that might forward NIMs se, the how you context in First about in terms the your continuing sheet the

us dynamic understand within? that So, can help you

Terrance Dolan

Yes.

next ends it of looking So, your you portfolio we up deposits through changing funding as think up of creative step we vast a the to of function always reasons, let end well, balance We things. is will maybe be how as or about that course, there's we a me mix expands, couple our year. Certainly margin, see sort kind how other costs, kind I what have, interest et roll-off of loan sheet back, continues much majority at investment a continue least and net cetera. think better, at as of of how of

side couple I there's So, think of asset a that's the things on positive.

and to in much it's betas, pretty about next the XX% really I corporate up will side, the whether And about our rate and they that slowly our deposit think talked We this wholesale at at pricing -- that deposit migrate XX%. it's On they deposit but this, moving direction. are terminal think level. is hike or trust following, we've

the of move really betas fast little are we but the in that a particular more space, consumer of it bit greater. be is So, And hasn't significantly in. how the function movement to competition deposits been a going deposit more and seeing maybe

function of it's think just kind of a I all different things. those So,

Andrew Cecere

And deposit happening. consistent been have Terry beta assumptions what's with our

Terrance Dolan

exactly. Yes

Kenneth Usdin

yield? Yes, that on you back you on talk were to the that also little to asset help expecting also fair. also side, the of can us to loan Terry And dig increase, growth that's in you you mentioned the accretive book, the loan to types about is yields? existing Can see types book, securities And us front stuff Thanks. bit? the of a point

Terrance Dolan

Yes.

portfolio our investment the it So, if you on four a equation, of is investment we've our duration about. -- the which talked has of years around about think what portfolio, side

talked about roll-off able securities and to We some portfolio. amount to of so be that points, opportunity basis low with yielding what respect that quarter types gives those The seeing last -- treasuries pretty XXX a to rolling are with that is now are particular significant accretion continually XXX that that the at see fairly you consistent a off. we accretive that its of to

in that the growth again, and seen kind products. we of nice nice card fact consumer on in and mix in growth Now, our side, would future And the as seen residential I would type that type the and anticipate that we've be we to to our look continue. point and beneficial expect will of credit we've us to loan of

Kenneth Usdin

Okay, Thanks it. guys. got

Andrew Cecere

Thanks Ken.

Operator

Erika Bank Please America. your Your next with ahead, from Najarian of question is line comes open. go

Erika Najarian

Yes. Thank you. Good morning.

Andrew Cecere

Good morning Erika.

Terrance Dolan

Good Erika. morning

Erika Najarian

is the follow-up on commercial. could to us competition The -- non-banks equity And competition market sense if brought firms, that's private for a you I'm posing a equity-backed like competitive private exposure question of add-on how to first aspects much bond up, was transaction? give sheet but an my So, how balance Bancorp? that. to and U.S. as to much leverage What is lending on your syndicated broadly wondering

Andrew Cecere

You there start second question.

Terrance Dolan

Yes.

to never is something had have sheet, in amount significant in of with particular our terms of So, space. leverage lending we any balance respect that lending, really that

managed that kind our reflective pretty of and credit area of an tightly profile. again, risk it's So, it we is

of So, next view. as lending good pretty downturn, point about spot think like a the we we from we'll in feel leverage a be

Andrew Cecere

I say equity on then now the private question categories. is your some wholesale evident would non-bank on of competition, Erika in And that you're or bank in

estate abate I we think our marketplace. it's because fourth his that competition third category starting we quarter. the as the real coming into are downs as where as occurring in here the said pay Terry in of come of most into to But and that said are probably non-bank some and commercial is remarks prominent

Erika Najarian

I make sure run for in expenses. to it. the Got side. question wanted the And Ryan understood follow-up other I another particular on expense

$XXX other earlier? think and good the about And quarter. all or for was $XXX in is $XXX of for year three million whether we I it you that And were wondering that expense million not about. I that the to run right am the average quarter expenses, to average sort tax tax rate I'm think is million an Terry, to line rate $XXX a last us that's this think million the and as amortization need consider? So, if credit is that discussing offset there about

Terrance Dolan

when think of because tax the think already tax what that in have about be. for we you Yes. entire Well, tax the into to is production it's you rate your about incorporated year your establish terms the going credit year, when rate you

a low So, it's already tax rate.

about that's to think Here's that it to I the Erika. would do also it going I going it. a something quarterly the it's going an opportunity, be tax has to credit amortization way cycle think continue, to but be is that

happened production more the quarters your tends The and credit be associated with impact and tax so dramatic fourth third amortization fourth third strongest the and to quarter. in quarter to it, be and

So, there's think might seasonality. bit I little range, of guess it, at a million bit of lower but end if the I a be on that $XXX little were a the I looking reasonable.

Andrew Cecere

fourth the And quarter, quarter. actually third Terry, is higher the than

fourth we'll bit of in that a the an because So, see that. of increase little -- in quarter

Terrance Dolan

of $XX about this amortization. Yes. tax that went up Last because just close year it's it year million, probably to million $XX increase credit it will

Andrew Cecere

to quarter quarter? fourth Third

Terrance Dolan

Yes.

Erika Najarian

for question follow-up just Andy. it. Got you And the

the lately reflect some concerns than seemed in stocks rather have concerns for XXXX. credit revenue bank that performance think I to

on in Although, quarter on X% of message is what growth course, you that bucked loan your and positive leverage the this I'm trend wondering X.X%. to operating

technology it's this company XXXX? terms leverage Where operating let's talk whole to not environment -- is spend? of robust a I for you guess two-part than industry example. So, about So, be if traditional that investment question. less for revenue the in positive is we'd able for the the still deliver less hope, is will And

Terrance Dolan

yes. is your is The to growth credit answer the done our but do we Credit added the reserve. have good we is added loan quality that we reserve as in reason to is XX its charge-off we expect this very quarter. loan and basis question underlying The points Erika Short past. in be continue to only have stable, favorable, answer to to growth, so we longer

as about well revenue, side both quarter. have of we manage as year think talked some momentum in like the said see of about did the as we've less fewer As businesses. But of consistent -- positives headwinds equations, the earlier. as we'll continuing we I revenue certain we combination sort we also in this in next It's what from terms expenses with

and expenses prudently. year think, we're So, in mind. managing we happen opportunity as we'll we expect doesn't to manage continue expenses the accelerated If revenue more next that with revenue

Erika Najarian

That's helpful. Thank you.

Terrance Dolan

bet. You

Andrew Cecere

Erika I of And one kind that that. add thing maybe to would just

I base think et of this just end future. differentiates things to we the the continuing one strong mix, business spend business when I in think having that get the our stronger, the up mix and sort and with cetera is that as businesses that consumer payments, past, as so us something you the talked looking see about of fee we've about

Operator

with line ahead, open. Siefers your next from question is And go Sandler + your Scott comes O'Neill Partners. Please

Scott Siefers

the for Thanks guys. taking questioning. Morning

Andrew Cecere

Scott. Morning

Terrance Dolan

Hello Scott.

Scott Siefers

to dynamics Just for wanted deposit second. to go a the back quick

went make large you just than understand deposits? deposits the the move category customer First about just migration total right, a within rather out of deposits, from that talked sure of I

Terrance Dolan

Those under are something outflows if well another our we our that year. of think and institution to it's they NIM by over been part financial the company a about bring acquired and anticipating, was liability those have been wanted modeling that's for their sheet. from deposits you a deposit it process Yes. And balance and asset

Scott Siefers

categories. guys a you for just money same and for of But Thank coming out you seen that. And the other others. is I've okay. directional of within trend categories in magnitude seemed others which versus little you the larger non-interest-bearing then into guys order Yes, of that sort

just you maybe mix? how element there's given play But trust of in guess from how just And a of unique walk more of you apples-to-oranges. a I an move could that bank? for given I if importantly, will your example, forward dynamic then out flush sort corporate briefly uniqueness you business just or the guess, typical mix out here one we business So, little as guys terms of like differ through guys with there, so are in

Terrance Dolan

is they is within of the non-interest-bearing though structures interest-bearing is is can Yes. so really as our something is on to uniqueness much within that There be that we within mean terms structure sticky yield the a look for focus that operational migrations very up, those that as of business in kind portion gone and anticipate opportunities continue Well, in nature to structures get non-interest-bearing. I those from we the and again and of expected. mean end trust yields thing I up they corporate have and to to able as

will I it been occurring, the So, while past. if been be as Andy, could--? you continue has that in whether as strong don't to know migration that has

Andrew Cecere

the gathering but environment a Terry two will to the trust is business, nature between because so And only a continue the and there's it great occur to regardless components great occur it, business. not great fee -- flow deposit operational as the is rate flows bond holder. issuer the that Yes, of business mentioned, it's bond and is corporate a one

short-term where expected that's more The second investment I volatility, but more seeing as and investments environment of we particularly call it's we're new is would this component and the or what opportunities think it's rate lumpier didn't little We're second that to that we so it's Scott, with we present of anything because bit I themselves, component, but anticipate. don't bottom-line line what a be going expect. in in

Terrance Dolan

that is total may even our as higher, of business, bit the corporate of funding total little total funding competitive are be our that though me. very deposits cost the of pricing the thing a other percentage excuse trust our costs a Now because deposit size our

Scott Siefers

then for And Thank perfect. tic-tac sort guys you that's color. I can ask last if the one of Okay, question.

You call that revenue loss back, a sale any have weeks that look of business? from as unit few like you that we announced or XXXX you guys into had the out impact expense Elan the would

Andrew Cecere

Yes.

ATM that I so debit card sale the back just Maybe impressed. little related is so mean I also very our network MoneyPass sale and our step and can to So, is it's processing That business. specific to not bit. it's a of payments third-party

a there I that confusion bit I little actually-- early, that want so to As make on just was sure knew of

Terrance Dolan

It bank. rolls consumer to actually up

Andrew Cecere

then business company around was million ratio rest slightly the company. that million. XXXX of efficiency on would but so to was similar annualized third the our basis kind for that the maybe to an a believe I dimensional, -- end it basis, the revenue business of up a $XXX higher, pretty And On of revenue similar our pretty $XX Yes. the of and rest quarter, quarterly

not to and kind close quarter information, that So, perspective, just November October, and will some end in can if approval. we the upon sale of see of if you end and fourth get then kind the but have in of fourth terms at based quarter now a of XXXX. sense, wait right we From that the take you of regulatory both anticipate October,

Scott Siefers

guys Okay. All much. very Thank That's you great. right.

Andrew Cecere

Thanks Scott.

Operator

Betsy from comes ahead, question open. Stanley. next Morgan your is with Graseck go Please Your line

Betsy Graseck

Hey morning. good

Andrew Cecere

Betsy. Morning

Terrance Dolan

Morning.

Betsy Graseck

line different back talk what's you but on can got there? Andy year? know about through in when side, that a the we're thinking you've bit for kind talked already, next levers little pocket the you your items operating of expense about the revenue leverage I

Andrew Cecere

commercial business we we of is businesses. our of talked an our traditional capabilities expansion investing both as Well, it. of activity a about in that the digital on one we did an third about about and are the more mobile you expand the as focus the application. a talked our our in sales we we in well banking digital investment application, things And little on on quarter to as from as are everything We terms about acquisition in of talked payments capabilities as continuing standpoint bit think

continue. will that So

have opportunity We of our which optimization the across of this across in and so terms company continued we of space in forth. optimization terms are we processes working different are where business branch and structures in

we done we're describe And do or we working a past of to number future So, as can lesser. a would a the recognizing the of invest of things, that things number do actually some initiatives level, at while it high have in the better that in on. we've continue I

Betsy Graseck

billion, that right I tech that am accurate? is investments around your is And in it's thinking spend, $X.X

Andrew Cecere

probably Yes, I past, in related have billion. that so the billion. related and as the operating to our about CapEx talked expense about And another is technology $X.X Terry $X.X

the billion, two, $X.X you talked combine if over but So, just about $X.X CapEx we is the that billion. it's

Betsy Graseck

it. Got

Okay.

so And with occupancy in, that's of in headcount but these you're or associated the about pullback line then the line talking kind that things items? the push-pull holds other

Terrance Dolan

we've that the years, numbers year for half, two and a just fair that's to think a today. that's we so be way in what it. at clear been level spend about a to reported And about Yes, as think we

Betsy Graseck

shift a but next how give some into sure from year, so Got the it. little XXXX, thoughts going around parallel I'm it maybe I an just XQ look until ask perspective? us play can not about and know that's for then you're prepping I thinking to CECL. gears you thoughts early you're and bit it as can coming And

Terrance Dolan

I you parallel as Yes, XXXX it. kind of the our is dimensioning said year. mean we're still in kind of of process

is in If that part you their refining anticipate have better across cetera, the size year. as to of of around that closer that really process up get the is outlook use that to of it. as of of of is I respect would what that models adoption comes into your this one industry, play is of et economy, they'll process. dimension course the And entire industry later end what entire looking the kind the with the you the we'll factors

moving we're adopt So, lot about track. able being but We in at position of feel that terms in the lease parts, on good us we're of to it.

Betsy Graseck

because look right wondering of is are we've know the areas I'm back opposed there's you which ratios low giver also there's a to reserves could little because a got taker? be of of parts these it a high. now, portfolio as net think give Part you losses of pretty but very if some there And some

Terrance Dolan

to going have that's of going longer in bigger tend construction of It's dependent going The have a terms a have thing come total the get of mortgages impact the a negative of that type in to bit like little product look But to a product, terms of those actually and to the what to that kind on at extent little you're be. To estate company, me especially site within longer but duration impact you benefit. one play. dynamic. the interesting of the very a really it it's moving commercial reserve bit kind Yes, the to a increasing about real or CECL, assets is it's you is live into little of or we that's -- of -- counterintuitive, area mix. where of

Betsy Graseck

Got you. it, Thank okay.

Andrew Cecere

Thanks Betsy.

Operator

question line open. next with comes Mayo Please Mike Wells your is Fargo from ahead, go Securities. Your

Andrew Cecere

Mike. Hey

Mike Mayo

Hi.

correct the of You customers if it the other customers that customers, million you've annual that's percentage I the of reports. XX digital banking and tell you think online percentage disclosed to be give mobile not us, large all that -- have in sometime peers disclosed you if the five future? quite could your this then mentioned prior digital banking? you bank use a bit for in great and platform; Can that us now,

Andrew Cecere

can I give you to now. it

customers, exclude -- customers. customers, XX customers million I XX and market total million were call our would so million If full what our XX of who mortgage some customers card have they of customers, about our platform. XX% single digital about we indirect So, banking service use and outside

Mike Mayo

And mobile? how many -- percent what

Andrew Cecere

is mobile. The majority of that

Mike Mayo

well not Okay, so -- great. one on you've doing follow-up got doing wish. for my And I one price those issues. got two price other for and well just

when to it comes still growth, look doesn't So great. year-over-year, when it we look deposit

of that guess I seasonal neutralize So, kind the aspects. would

forecast deposit or and next deposits Maybe so merger there then lost I your client there? other outs, in just else going what's year anything one-off growth for -- over so? the And on is the the get some and ins

Terrance Dolan

I But growth, to we of about. in and It growth I again, kind be mean that related basis, to dynamics I we we think tied deposits that'll XXX% think are that any of On kind single-digits. with Consumer that there's the dynamics expect taking do will we a place. When be cetera. we've I decline the are all is think XXXX, part covered unusual don't deposits customer. our talked low year-over-year growing. consistent sort of Yes, kind of think et this of haven't -- about economic

Mike Mayo

risk? loan and or characterize more simply you are the better main to on growth of Or kind the that. it questions what's positive were is main I'm more lot cautious. commercial are side, trying get growth, the And executing that, I loan takeaway, Okay. if taking just the noticed of -- a lot mix a been -- Then you to you on

Andrew Cecere

clear real be thing on it's risk. any to want one more I not Yes, taking

Our all. credit for that is around has we've disciplined been and and at box at not strict changing all prudent changed a not time long very and and

geography, about. going it talked we're expanding customer those gaining a diversified And it's feeling we things our the all it's not It's market why of in one area all function a our any things. It's base, good forward. share, that's portfolio. of it's function about think pretty or I

Mike Mayo

And that's getting you that offices are office some other traction up with commercial? in York that Are new area. helping open a the newer New there

Andrew Cecere

in that south, thinking building we've this like up in Yes, same, consumer about it's market. doing We'll have. typically York. south base few And and the a expansion New we about other leveraging customer and southeast we a presence already opportunities our already that the the -- talked have the the opened at also the offices look and Dallas area that we

Mike Mayo

Great. Thank right. you. all

Andrew Cecere

Thanks Mike.

Operator

your Marty Mosby is next comes line with open. go ahead, Please from question Sparks. Vining Your

Marty Mosby

at Thanks. Two questions. One growth processing, if you merchant of look kind the rates. it's anomaly in an

last X% over at look year, its growth you quarter-over-quarter. If

looks If it's the you at there. like so annualized, an only look But look if at year-to-date, X% growth, X%. you growing sequentially acceleration it's

finally momentum on but economy purchases in of is those are there So, getting how lift all for been here some retail we're that -- so kind from the we're we've waiting sales same-store essence and strange and really working, up kind of long? what is numbers it's we seeing three the seeing picking

Terrance Dolan

Yes, are spending seeing been lift dynamics. at stronger. a certainly the looking consumer getting We have from we

investments biggest we've and then Our sort in to to overlap really bit going ventures revenue. accelerate in year joint about kind the variety a sales that starting in But we of issue be the think both started how us to of different the of future is is capabilities, continue been to of verticals, had expand things -- overall volumes that kind been a have about. some I enable we year-over-year able which business kind talked we've think will. as making terms The industry of to growth of you both terms of little the kind of quite strong we're that X% it on fact if ago, range to

Marty Mosby

value the portfolio towards year peers mark-to-market the get into taken rates. going Any market's between We and saw then realize in that that net points take since tangible of book restructuring to the that's years. accelerate know portfolio that of from difference consideration you one the next to what it of in an couple kind of already there the being securities the out you market loss basis your of this anyway actually yesterday XXX of announced to XXX and was ahead benefit you -- in and you over just what go accelerate essence extraordinary give the

Terrance Dolan

don't short have we portfolio Yes, our investment plans time. any to really answer I is this restructure mean at

Andrew Cecere

And we've along, right? been optimize it managing to all

Terrance Dolan

Yes.

Marty Mosby

capital you you and locking capital, months benefit excess fallen six kind accelerate that the and actually from -- in that have you while have it all a opportunity excess the you somehow of to lose temporarily it now sudden window. so Have given have rates. way is We deploy back down, wake up or rates of that

extra rates wouldn't in already you you curious that higher those lock got something was capital them? if you marked and just since anyway, couldn't that why I it's to be got So,

Terrance Dolan

any Well, do it so. necessarily I particular plans to said, have Yes. we like don't

Marty Mosby

Okay, thanks.

Terrance Dolan

Yes.

Andrew Cecere

Marty. Thanks

Operator

next your comes from line Barker Jaffray. ahead, [Operator Your question open. Instructions] is Piper Please with Kevin go

Kevin Barker

Good morning.

Andrew Cecere

morning Kevin, Good

Terrance Dolan

Hey Kevin.

Kevin Barker

balances commercial deposit do of and income specifically fee the of offsets movement have a the Just of flows follow-up some around on off you deposits, of on treasury could the out non-interest-bearing of around some some specifically deposits come any as income deposits? the deposit mentioned, you fee the that increase questions non-interest-bearing management

Terrance Dolan

people I to point and I kind our being lot really necessarily looking don't a mean end a of environment, would and about rate about do management kind something I that of I of the core up -- but compensating is is when up Yes. drag nothing can't X% that little that treasury rising specifically under end you talking I that. -- think the point to offset related Kevin. to I growth mean but whatever, or there's balances necessarily as like

Kevin Barker

then just the And Okay. to expense side. follow-up on

and year-over-year think below obviously takes accrual and associated growth the X% X% below basis, see the expense year was a your the expense in full the maybe you into possible long-term long-term Your long-term when amortization. first you target year and puts I it's to could you future? year out run about you pointed But there's look target on to and half for some XXXX, target maybe tax this think your with over on quarter and of growth foreseeable XXXX

Terrance Dolan

Kevin side the equations. the a bit it revenue of depends on

leverage about we're as for the So, company and opportunities. think expenses managing positive revenue we'll with manage consistent operating it the we

So, the revenue going relative aren’t to numbers to going to specific, on the side. we be what it's think be

Kevin Barker

Thank I you. Okay, all right. That's had. all

Terrance Dolan

Kevin. Thanks

Operator

JPMorgan. is Vivek Please with open. Juneja ahead, next your Your question go from comes line

Andrew Cecere

Hey Vivek.

Operator

is Juneja your ahead, Vivek open. line please go with JPMorgan,

Vivek Juneja

Yes. me? Sorry. Can you hear

Andrew Cecere

Thank you. hear can you. Good we morning. yes Yes,

Vivek Juneja

Sorry. Thanks.

go to the question. back Sorry to expense

it should a legal Terry, up but -- a go about is that anything that $XXX mean run that's we forward, here I this the million Andy the about understand we as for to of think so think accrual to there is good is increase, base? you anything $XX million million, need going that seasonal like as -- -- $XXX trying Just will I rate or know really changes, you talked like unusual we factor new XXXX, there beyond in the so

Terrance Dolan

are or mean expenses. -- little kind I think associated what and other terms little talked businesses be foreclosure a reserves, lumpy. Erika those upon foreclosure, averages costs how I bit depends a of types Yes, to expenses those mean in bit I of are other growing, tends about changing. things It of with the

associated you future, that the look expenses really of the when kind million -- is so it. on So, the way at of is a And at lower kind I would reasonable $XXX with the about of think probably looking other I end probably say that to band. averages think

Vivek Juneja

other one side. Okay, great. income on Similar the

number equity look above $XXX if you which to rate private run out million. like also that's what's gains, was set is called $XXX Again of quarter million equity think running and private six also a average, is of good it or much You about? that more last how -- at

Terrance Dolan

of be we stronger. and the will stronger; was third in quarter to syndications credit more And quarter. little so the bit that a were to tax it to little do tend Yes, able those the third quarter, really the be a to related tend in that again bit fourth

and syndicate be we think credit of use strong fact we basis we very of production capacity to them, option because don't base of of to if about to the the that able to the because have we them. have we that we tax a a to full opportunity do and good the have year kind be a able have all can't -- Now,

when a the of a lumpy about basis, there but bit think little step-up think in third little it, when I you So, a of associated kind be full tends to production is year just with a of quarter occurs. fourth the that timing the on of it and -- because

Vivek Juneja

Okay.

At thing. last Barclays tax long-term When math basis by common the on One to points. the do reform your you basis target great. XXX the you points. on benefit, XXX we Conference, benefit return raised equity is average the Okay,

on points a some plan So, XX is at basis there that point? catch-up to additional

Terrance Dolan

and payments announced we some spend and At improvement so the the high on step-up particularly of related level digital forth. announced the in that tax to we fourth quarter XXXX, also the activity,

that numbers now. both of the about -- is that we equation incorporate talked which is seeing right So, sides what the we're

Vivek Juneja

All Thanks. Okay. right.

Terrance Dolan

You bet.

Operator

comes Martinez go next is from Saul open. Your Please with line your UBS. question ahead,

Saul Martinez

Hey good morning guys.

Andrew Cecere

morning Good Saul.

Saul Martinez

-- quick questions. couple of Two

the for on seeing the gears get well? bit. like XXX as complexity a has prudential banks, how you of that the to relief billion for regulations indicated and do billion that size, preference environment based regulatory to quarreled $X once we But for that you you could see very to of recently. asset you some size your highlighted proposals feel little changing ask you're Just more Want be complexity way the out banks

Andrew Cecere

our like trading medium-sized business are large those which bank regional about is mix, regional Saul, money sheet, our or banks. all I like minimal, know book the more profile, center think risk I'm characteristics there our as bank you hopeful a balance smaller our

that XXXX So, hopeful if think tailoring about about [ph] relief. as based know risk the you occur I'm and talks we'll on tailoring some shall get you characteristics,

Saul Martinez

Okay.

lower the tax talked you lower changes think the mentioned Okay. right your the reasonable amortization should million of of range question; am I and and be. would sort just expense Terry be it that $XXX is credit think been recent business, right seen historically? what it understand the But to lower bit I to just some make end range But changing sure past maybe $XXX FDIC I of it's in on And the a than about to saying which horse I want right. little that be I I a in a than at million reasonable other average guess in should dead hate beat about you gears just the But the reasons should be you also what is for we've way about lower range whatnot. surcharges that that that what the

Terrance Dolan

I the ends to mean taken your assumption getting surcharge kind think mean of programs mortgage we're I other on where is got and though. focus that different I'd things. managing with whatever variety of risk the servicing in respect is and the expenses I up just expenses. mean the that overall opportunity wouldn’t with and to Yes, respect your I on point We've the future, impact. a plans whole how focus that's I well

put there's on horse know I wouldn’t -- just So, I been dead. way. that I expenses, be other focus my and it think let's might

Saul Martinez

point Thanks No, taken. a lot. right. All

Terrance Dolan

Okay.

Operator

question Please line Cassidy comes next from RBC. is with your Your open. Gerard go ahead,

Gerard Cassidy

morning Andy. Terry. morning Good Good

Andrew Cecere

morning Good Gerard.

Gerard Cassidy

to to to long -- you at guys XXXX you they the cycle Can a some to pretty bank total held Andy, periods? time with XXXX to periods? deposits obviously give us both your with in to share color? think in deposits. similar to back non-interest-bearing tightening know XXXX tightening Particularly those and comparisons deposits in share you much time really or the -- didn't you you those of even during when been you've we can you XXXX, some look XXXX-XXXX the in Do mix your maybe I non-interest-bearing Can us lose time, is have cycle, constant. us go

Andrew Cecere

were periods, in don't years all Yes in corporate that we have many midst the we think because in our they think trust that growing acquiring acquisitions deposits I is -- do activity XX the over that were years, in corporate them in trust Gerard, you of those describe. different. the the impacted businesses I mix time the done of we've

in So, be comps. factor that may a the

Gerard Cassidy

can you Very on regulatory. then just update done issues; up everything good. guys where that BSA/AML required on us an from know I you And give stands now? have following your

Andrew Cecere

standpoint our verification XXth our and have. our We on and We from June we're with internal hopeful. consistent It completed activity regulators an with now schedule. the sits

Gerard Cassidy

securities duration question. Okay. the What's portfolio? of one just And quick the

Andrew Cecere

years. about is duration the four Yes,

Gerard Cassidy

much. so you Thank Great.

Operator

& your comes Bruyette Your Brian with Please Woods. open. next from question line go Keefe, ahead, is Klock

Brian Klock

Good morning.

Andrew Cecere

Good morning Brian.

Brian Klock

is that of promise won't look time period saying headwinds actually and at growth abating, is commercial So, going there average your talk about expenses. end but if the you sort some be might the about point you're I just of since I quarter overall of I anything the page right, like forward. estate other headwinds of of industry, XX real estate have end XXXX. that in the it of I this basis, inflection have pay that seems real grown the third like it and downs of others growth loan I'm about the guys commercial -- maybe ask those sup, know think loans period seems I'm you seen even anything loans, the first balance when or wondering of you first end period sort on

Terrance Dolan

certainly particularly Yes. strong. said, that looking The it It’s downs a we hope commercial is. good real pay estate were We question. of end as at

and of capital market they lot then taking things lot their in lot developers the down were had off of the space. reform, were derisking, real a tax table to off be -- the commercial of paying a a chips and they uptrend Before estate

headwinds. definitely So, some were those

still a structural anything We're changed our from not haven't necessarily standpoint. with respect box. haven't credit we're to changed crazy We -- we not -- doing

optimistic are to is big point at started no, year part the slow. we it that earlier inflection an that just have really and we of the So, pay and it is downs in saw

Brian Klock

the guidance third? Got it. a implying you seems but continued back big Thanks least to for haven't gave the my I model that. it -- yet, And quarter, fourth triangulate like at for it just tried it's picture NIM to put trying flattish quarter than in I really you don't that that NIM. fourth could -- assumptions even fair to with upward give guidance, NIM know be assumption in the the trend but your the upward is beta better a through the

Terrance Dolan

mean we to for we expand, as opportunity the think NIM for still expansion. Yes. when there's Well, said, I think about we opportunity

Brian Klock

for Thanks Great. your time guys.

Andrew Cecere

Thanks Brian.

Terrance Dolan

you. Thank

Operator

questions no the And closing the there presenters call turn over remarks. are further at will for back this time. any to I

Jenn Thompson

contact department listening Investor our you concludes Thanks the for That and please follow-up have any questions. Relations call. earnings if

Operator

And call. ladies gentlemen, conference and concludes today's this

disconnect. You may now

U.S. Bancorp (USB) 17 Oct 182018 Q3 Earnings call transcript