USB - Earnings call transcript Q2 2019

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Operator

Welcome to U.S. Bancorp's Second Quarter 2019 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]. time. recorded Eastern for July daylight XX:XX Eastern be at beginning XX, will midnight, noon, approximately time, daylight call and replay available today at This through Wednesday, to I Jen for will the now conference U.S. Thompson, of Investor turn Director Relations over Bancorp.

Jennifer Thompson

their Jack, review to everyone and answer quarter and U.S. Andy supplemental be prepared slide our will and Bancorp's our are referencing of who's as with presentation during available usbank.com. here your A a morning Dolan to the Terry remarks. second and are Terry presentation good questions. me our you, slide copy joined earnings analyst on call. well as Thank at release website Cecere today and Andy to results schedules

any are Form in today's that today's Factors call X file the with made I'd presentation forward-looking the and our uncertainty. Page our remind forward-looking subject and subsequent over could risk are press like I'll call Andy. our turn materially change reports now assumptions of to SEC. on XX-K in that and current you during to on statements described to release

Andrew Cecere

Jen, Thanks, morning, you Thank joining call. good everyone. our for and

remained while by prudently our and X%. strong we driven for to account manage that a your Following compared seen the and with per future. Despite In and Terry prepared leverage businesses will I'll results has time, investing challenging revenue saw interest reported by Credit volume continue financial I operating more growth delivered growth. we X. supported improved and the our across our momentum first on positive industry Loan begin in expense, the share for Slide quality the take and and banking we remarks, quarter, top $X.XX. second trends line questions. appropriately earnings of of stable, environment deposit operating we rate broad-based quarter, some key

management. capital to Turning

a X.X% ago. per book year by value share increased from Our

our the submission, dividend not of to XX.X%. share we Reserve of dividends we earnings CCAR and to June, shareholders returned a the buybacks. our which During and XX% did In Federal included increase our the quarter, received of plan, through capital object results

provides X common XX% return and of return X.XX%. of delivered In a on key the Slide performance average second equity average we a on quarter, assets metrics.

Our XX.X%. return equity on tangible was common

Our linked-quarter year-over-year efficiency improved ratio both on and a basis.

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

Terrance Dolan

Andy. Thanks,

If basis X.X% you the loss earnings of balance turn the reached FDIC-covered of and to and that linked-quarter XXXX had discussion sheet period. coverage quarter Slide follow-up sale the on end X.X% the second a increased year-over-year, with loans grew the of loans Average I'll with X, quarter excluding start review trends. fourth

credit and both reflected loan Solid partly corporate middle-market installment in year-over-year lending, while capital growth and cards in strength solid loans markets. trends, related growth commercial loan by offset paydowns consumer mortgages, active supported large to

remained business paydown likely although sequential year-over-year a Real New Estate Commercial decreased elevated a and on healthy, and to choppy pipelines term. remain basis. near loans activity is

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

consider we growth in Commercial dynamics expect to continue pressure we be to what Given this Estate to Real unfavorable certain lending, areas in of paydown portfolio. risk/reward restrict

was wealth Balances has of will prior quarters. in and client. in balances. Commercial noninterest-bearing customer Corporate The trust increased deposits. stabilized X.X% related from future This impactful financial a the be Deposits the X. yielding Slide banking growth balances with to period, to Compared and also corporate a and to migration balances decline time migration deposits Corporate part in were merger offset affected savings migrate year and management Turning by business less X.X% large to lower and by and basis consumer on year-over-year. higher linked-quarter continued in Commercial

the matter loan Slide that and were is as quality be a ago. were versus X.X% XX.X% related in stable a second expected Nonperforming to administrative the in XX-day decreased in the period X result elevated without a down first assets quarter was the credit indicates same to credit relatively quarter. single year delinquencies of customer and an resolved this a third quarter quarter Commercial loss.

Slide $X.XX per compared XXXX share the of the a second We reported $X.XX year per in quarter X highlights ago. quarter earnings of of earnings results. earnings with share second

fully and a X.X% from quarter impact by Turning to growth, increased with Slide expectations. flatter compared a benefited by quarter Both loan with year-over-year, income Net offset our grew X.X% interest which and yield year-over-year X. first taxable in comparisons the basis of line linked on equivalent was by curve.

quarter and also growth corporate payments in revenue and investment growth the highlights trading business market growth And and and a driven X.X% interest additional growth volume was higher year-over-year trends sales corporate credit and higher commercial we an Trust saw revenue revenue, management quarter fees due higher bond partly XX lower offset grew debit by X.X% Slide reflected each merchant in income. mid-single-digit fees. in fees by noninterest favorable basis, product day revenue in card in driven by On processing revenue conditions. category. recoveries. Linked to and syndication

which revenue. over were servicing our the tax and credit the year-over-year XXXX. the net in unfavorable The equity deposit of decline partly fourth will revenue increase activity. syndications investment of a quarter mortgage third-party related of inclusion of was of origination as Mortgage sale by the an other charges in in decline higher this services time of as Strong driven in income hedging basis. revenue impact transition valuation by the year-over-year The and change well volumes the ATM origination offset business decreased from sale, the service rights, servicing on sales reflected

costs reflecting growth increase Slide related assessment lower was to and business and in primarily expense expense Turning personnel costs. to expense -- by tax-advantaged professional This lower noninterest XX. services and offset decrease to a reflected costs FDIC in other technology partly The higher initiatives. tied partially year-over-year projects

capital This target our highlights common our forward-looking At capital of Slide approach, will Basel X.X%. X equity position. I estimated to some our ratio, the XX, using compares guidance. June was now XX provide III Standardized Tier X.X%.

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

in mid-single revenue expect a basis. digits to on We the increase year-over-year fee

We deliver full expect to previous XXX positive for XXXX, with line the of year our operating basis XXX points leverage in guidance. to

reflective XX% be provision Loan expense quality to We compared rate taxable loan growth. the remain Credit continue growth approximately tax basis. expected to be stable expect continue will year a full equivalent quarter loss second our in is third quarter. relatively to the with on of to

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

Andrew Cecere

well economy and Thanks, related market U.S. consumer healthy, jobs remains favorable spending, and remains supportive robust Terry. the is parent investment. The as the consumer confidence business as business of

and being in volume is a will flattening accounts transient philosophy by needs consistent businesses which of new and a navigate. more in yield puts has relationships, growth us Fundamental existing rate which expansion risk the interest we relative for importantly, curve challenging key strong driving position environment, mix interest and healthy deposit are from management While turn our our created core deposit strong growth. fueled franchise, major are in

our the in a commercial little share had our market as second came ability across consumer in better growth to are in confident portfolios. loan quarter, anticipated win we well and we Our than as

digital focus. future the in a investing are key initiatives with We

XX, our sourced Slide channels. can sales see increasingly digital loan you on are through As being

expectations. digitally. this our a with meet experience, growth to trend improved and We success our of Currently, customer mortgage continues operational loan better the higher are program expect continue volume completed exceed or The XX% all to expected mortgage of and applications account efficiency. outcome digital over

lending where Small is meaningful digital business another migration is occurring. area

the As fall used drove is been formal like X% well second ago. our year I'd and as work came same book their XX% this a loans we to for loan customers thank the consumer category $XXX,XXX we concludes and our entirely, which these digitally second positive. and to results. expected, of portal half digital our of this volume in [indiscernible] applications quarter In And extremely into as about reaction year. up we launched remarks. versus a a head June, for and portal. summarize, of loan That for in fund business to reminder, To a that has we hard small dedication, size are the last positioned period employees year-to-date, allows up apply the

will the Q&A. call We for open now up

Operator

Instructions]. [Operator

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

Matthew O'Connor

given if some and sorry basically this of missed other I been thought, growth the around I more earning little here. But I'm this, but jumping a the we've securities margin asset have assets, would lower-yielding bucket. quarter and like things than just resilient was

you resilient what gave even seemed line guys and you a drove wondering and the NIM then that if had more was in NIM what outlook. So was with said, just any it though little

Terrance Dolan

Yes. is This Terry.

mix where part we loan So resiliency loan so -- is that of just and end seeing up of a growth. of that I think growth kind

I one quarter. with The think curve yield of to little very the bit respect have portfolio accretion drivers. a was that change and in we in investment -- course, continue the came major of the of late the to

think digits has in the it. net outlook, half net for okay? drivers curve like that: think think single in a you in So a during Then income. about of to July decline decline rest the staying the no And the long one in two interest just on result September. if X-rate going with impact the expectation one that. the think margin of for to there's is, and And going I a number end you is forecast margin, reasons margin, the of some kind respect pressure it the the of year, interest current and one first the of of quarter, to quarter, are as about XXXX, When assumes high our that, where see our our of third interest we net for third the really about -- the end we're essentially there second if

And a about talk bit that. me let little

securities European us, similar policy the of through to our half It but constraint the policy borrowings will change the European growth the that'll rates. purchasing impact have we this have LCR HQLA regulatory binding the restricting is industry-wide ratio. because funding increase of balances and regulatory is while of for has by ability change position agencies, due sort liquidity by a a in to in our to that effect in LCR these an regulatory So is -- include a

So earning interest in the grow, margin. offset the of assets impact and will half of will about change net that

to The margin decline long-term now. are in related the right -- as well of decline expectation of because as the interest will where yields half other directly net our rate

Andrew Cecere

think regulatory not good just It's change income. we that given a single basis, be rate that So a talked reiterate we're we in margin that all little very of of done And by set when half the a rate digit expect is decline about. I impactful up the expect year. higher income net talked in declines in range that on interest little at about to and half the net interest offset interest And low you summary, to to year-over-year due that Terry. and just lower about, second all here, as Terry to net asset that

Matthew O'Connor

kind Okay. fully the is kind if I similar in there's XQ? of but call, rates And should as we in moving obviously, that get on about, run rate is October think a here stop Or there And pieces some XQ? in liquidity of that in rate about could I between impact in NIM, the be building core XQ we another decline the September? be the cut we just in fourth mean think of impact NIM quarter then of -- to a the say, going and the

Terrance Dolan

Yes.

question first let So the first. answer me

to fourth fully July that build related us X. the because becomes be it run for the the in on in So really quarter will effective rate liquidity,

So executing kind of that. we against are already

rate. run be that'll the in So fully

fourth As then third The quarter, of will will in see the in see we cut July at a we rate think about -- the we September. and fourth expect quarter to -- we quarter. end the

come down will deposit -- assets pricing down price time. will immediately kind so obviously, over start -- of deposit and And that to will

that more with to pressure the kind just continue you're of I interest balance see dynamics net sheet. in to that's the to So fourth of expect would going quarter, margin, respect the and

Matthew O'Connor

one last squeeze in. just Okay to

ex also of the are flat are that And rate well? down guidance to rates little rates that bit? NIM just stay stable comment of more Is a banks would environment done. of you liquidity. on I'm stable Or if if Some giving stable, kind -- the kind as a

Terrance Dolan

relatively where Stable I it relatively interest is the mean to hear. flat. to that think I quarter, Yes, we essentially, second in think about -- income relative again, stable being net

Operator

John Pancari with Evercore.

John Pancari

expenses thinking growth your expenses? impact how expectation 'XX. year, you expense had the or before so expenses. a the how you year you're know I at flat full And little Given on the X% outlook saw for that two be your that impact pressure all? also, expected of then for to bit for up to Does I this end full -- cuts of year does know the about quarter

operating separately, XXXX, are So about curious how has for how expectation changed. leverage that about look you you And growth that? then as thinking

Terrance Dolan

Yes.

again, So is this John, Terry.

at a So side when net will help think fee of we interest second least that. the clearly think is about offset be of we're to amount to which pressure income there's year, the the on I the of the some things that, good half on fair I one seeing income, equation, momentum think but of of going

think growing occurring you early payments in consumer normalized. year, issues that businesses. about are the The of our it, we or half seeing the they in really acceleration kind momentum were if spend of So

have we're with that banking You to in that quarter, would year-over-year third our start quarter. and momentum this good mortgage to point expect inflection hit we revenue, the -- respect point while grow to X was about seeing down percentage it and

continuing think in think rate respect I I momentum, help. I that, that the momentum, third quarter the and We're corporate with I you'll will think formation, decline investment and respect with trust to the good see to seeing securities, fund more trust. in think with environment,

some fee pretty in strength you point my all see nice categories, our look So we when that that. across of is

think that's some that Andy? of the on offset diversification side pressure of And side that help I question. we net our model. the the have that fee equation the revenue of one benefits tends the of business the to of interest on kind of is margin income

Andrew Cecere

continue still [indiscernible] full of to And of we'll we to revenue expense environment. The revenues operating continue reflective the X% expect at X.X%. be your end to question, lower the John, leverage that specifically to And that year manage in range. that will

John Pancari

helpful. tougher would part How from it, Got But could backdrop about follow-up. assuming again, you other -- obviously if XXXX? very still get And that's one go for top as much the leverage of a we think that's I'm it. line. just operating we

So about how attainable what's in do you think XXXX?

Terrance Dolan

Yes.

up we that decisions XXX environment, of I we needing our XXXX, XXXX think, points. have manage that lower the we'll We'll goal, having of the investments goal to So the long-term that to continue achieve. to have see at to we'll continue our in basis that may continues -- end we to end versus this how expansion through be term to rate But to year, end as up making to stay as Where short revenues XXX based upon about have just range. were what conditions that But course, make. we think more expect saw of might a beginning at more the develop. in

Operator

Autonomous Research. with McDonald John

John McDonald

John's on Terry. up follow to wanted question, I

you the the of year, of lower half end the in towards first the year the For operating this X%. leverage came for

I takes the wondering, what the the the to second X.X%? the think that get maybe some the puts maybe second to closer year, of the we're are half, in towards of range half you of getting kind middle things Just and in mentioned better

Terrance Dolan

Yes.

cetera. second go our the revenue respect it the year. the businesses, again, half interest as how again, I acceleration fee And -- be that, think our mortgage harder payments we strong the equation, second nice growth seeing side banking achieve. think I of think again, mean income I just the for into will environment I income et -- the the us and to net the upon with given half we're to of year But in depends that on is of

going that's So kind there. to be of wildcard the

Andrew Cecere

this John, is then, Andy. And

and with that revenue to things expense expense drive environment. those of invest side the of a and managing business our initiatives, will optimizing the that at current the On of I take the to equation time growth the structure, while X digital consistent continue we're side, low think so we importantly, and number the the in put technology same

John McDonald

just of to basis there equal? Okay. a much And on then how point size hurts Is Terry. in NII NIM, or XXX some the questions, way terms else everything a of NII cut follow-up

Terrance Dolan

Yes.

again, million think impact kind us. -- sort upon to liability asset of if some a short our but So do to on of the of a basis and XX you based probably $XX million can you only end math disclosures, point $XX of has cut

it. a dimension the to of I across -- be we guess, how million would that the $XX of cost of kind curve. end on the if looking of then -- that's basis $XX up kind you if at And shock So million will, you

John McDonald

million like a would $XX parallel? be Okay.

Terrance Dolan

Yes.

John McDonald

Okay. yes, reinvestment a the current that's investment I kind so is, breakeven-ish? And dilutive long then it, now the of yields just for yields right other the where point the guess like are -- end current of accretive, are

Terrance Dolan

Yes.

we about that come terms is We opportunity amount So our there's of quarter, the expectation, the XX XX accretion portfolio. have. that certainly it on of points to accretion in the you when down third investment of basis for still think think has

I think that. that some term in going see the premium respect short amortization with offset to to may pressure we're though,

John McDonald

kind you Okay. as next pressure of NII to some terms mentioned Got that you of for of accretive? -- are you But on plan the of the those that in -- put quarter, it. thinking securities are the those those

Terrance Dolan

as position of regulatory We're in the and liquidity specifically? thinking the those of terms issue,

John McDonald

Yes.

Terrance Dolan

Yes.

interest that's perspective. that, is a think -- that neutral income So net we from

John McDonald

NIM a little Got bit it, it. got And the to hurtful percent.

Terrance Dolan

but net neutral respect to with be NIM, hurt it'll interest it'll income. Yes,

Operator

Stanley. with Graseck Betsy Morgan

Betsy Graseck

when positive premium So but it's it amortization the understand goes neutral make I sure, for quarter, flip away? just does to coming

Terrance Dolan

of You portfolio? the mean terms investment in

Betsy Graseck

Yes.

Terrance Dolan

happening curve. depends again, on respect with kind what to of And yield ends up it Yes.

a little would impact. if neutralize, amortization a of have So bit it positive to premium starts

Betsy Graseck

Right.

wanted significant bit quarter this ask rest Obviously, business. little year? the out the give -- in mortgage tail I Does you to quarter sense pickup tail over do feel throughout you left? rest applications? to to like the there's this And there. you're how that thinking will a us you reflect strong ramp of then year? And a only the just around plays close, Okay. a when Or continue Can the little the as of

Terrance Dolan

Yes.

through -- reasons. I think beneficial and rest be different to continues year it of couple the it for a the of

refinance curve. activity because our be long of of of XX% volume. the to in refinancings continue But Some the the only because -- about is benefit on the the end the of overall change of

for So pickup a more the side that because we've the in investments think, fact investment we've driven side margins investments we've digital retail terms our of -- the side to the the versus lot volume expected channel things the of us, of made by of the of the retail I channel, on that the is corresponding made like And of improve. to equation. equation, start that in

So the because of been we're volumes also the mix have on equation, very strong. margins of of going of higher to benefit purchase but the see side that business,

see continue. half to second the the and So start -- expect a we in pick up to

Betsy Graseck

And that could you then about quarter? Okay. how talk a in spending? And the bit consumer you impacted little

Andrew Cecere

is to Andy. back. this Betsy, come So That's starting

to a a we've X% in range sequential X%, X.X%, still little bit to 'XX, and each the but As XXXX to that starting about seen that back get to below we But first which quarter is levels. month, early normal weaken now last talked of year, in late into improvement little closer it's bit. started

Terrance Dolan

X%. which side And and the to if about X.X%, about, about merchant talked you base, payments but closer on that think that's our X% Andy

Andrew Cecere

[indiscernible]. Merchant acquiring volumes

Terrance Dolan

That's really than confidence the types in strong. some up. integrated that making still more to equation Merchant been investments on payment of it's was the hold volumes ago, cetera. so on software sales give of acquiring those respect us tied continue And of where it's well. range, business I of the to think volumes. but with in the is then economy the as solutions, And it a kind the the et X% lower things we've is some that year corporate again, the to side And quite

Betsy Graseck

That's interesting.

pickup Just forward growth, to paydowns will the you Commercial I you have linking nice here from Q-on-Q. have the some is, mentioned in that I and have I loan you accelerate XQ? paydowns, had question at that know all seen impact a look guess

Terrance Dolan

to a not of Yes. growth I say the loan would respect terms with acceleration quarter, lot in paydowns. second that of in

We continue Commercial in equation. see of Estate side it Real the to the

again, be developers based we when And think is Commercial from their if that. loan that you space sort the there's And Real growth of -- at across we're just will come okay, GDP upon the so where about really we're projects. Estate. up be is in increased continues I to strong. of, of most can't in economic upon we're Estate spending pressure, But good outlook really more going regions market, those middle think of of holding where fine. kind Real refinance I we in paydowns market kind think with to unemployment in capital seeing because and think The consumer the Commercial cycle, guess say I where our it's standpoint, based I -- fine activity country. a And terms

would there's cetera. to et we that growth M&A think is activity going just that signs of So suggest that, a lot loan pipeline, continue, that

we're where right we at confident about fairly now. So feel

Betsy Graseck

manufacturing the particular trade, macro or And seeing accelerate better. data, on the regions I'm area, wondering had of pullback me the some agriculture. ag should look any at just we say, last for I question in if transportation, side we've doing middle-market as one because in industries you're those some

the from?" one from strength things "Hey, don't folks I on any if share of with have can you coming know us things been is, getting So you C&I that in that. where's this I've

Terrance Dolan

equation, the X-plus basis, commercial a just percent. growth on of was -- of core our side middle-market if you C&I, the about kind it think on again, And Yes. linked-quarter

of was where exposure there we financing, offset little farming We agricultural drag that lending and that our's is an a ag just time. kind bit farm not really for of because -- more the economy land is operations, did to of it particular the significant. don't or to is of think have. that's And I a the really do tied lot this point us at again, in

up I industries continues us, for and So reasonably middle-market diversified across the It entire footprint. is our across in than what lower the it's hold bit but well. think a to pretty business be our may different been -- past, little many manufacturing

what So we're would now, continue based seeing right upon that we expect to hold. to

Operator

Erika America. Bank Najarian with of

Erika Najarian

you on points? the Thank of on give interest rate wondering of sensitivity if to repricing how lag much relative insight cuts. XX thinking about us and for net basis margin you're some so both magnitude detail could to I'm each deposit repricing in terms a

Terrance Dolan

Yes.

So a reminder. kind again, just to give of

the think If lot deposit moment is respect trust to imagine. of base, tended you you our of corporate to pricing in and inelastic, about be with a didn't wholesale there. can so corporate fairly our and see about more of you our deposits half retail sensitive, deposit But And much as is was deposit the up movement about betas and half trust. it it retail

occurring, going betas think going trust declining deposit you to come down fast much a rate you're rate are respect when So about believe just are we reasonably cuts corporate environment, retail. to see world not as with to but the as that in

Erika Najarian

I the and corporate Perfectly trust than think in higher expected. fair, betas were but

rate or assuming it on a pricing in of margin an curve So net where I actually stays face Is that book about we the XXXX, opportunity assume and to is. like even stability the XQ either think just 'XX seems of year it that relative rate cuts, conclusion? XX% as interest too of optimistic full for if accretion there's

Terrance Dolan

Yes.

are out pretty well. if on perform cuts think corporate up trust XXXX I to end rate that and basis, our occurring, that assuming the a think and you are mix wholesale, you're of because to we, I of comparative going looking

So come that's to is be more quickly and going to [indiscernible]. deposit in price going sensitive more down the

Andrew Cecere

and what think, to the that. like you be said if they come corporate continue I trust for was high something down, wholesale will betas Terry,

Terrance Dolan

absolutely. Absolutely, Yes.

Erika Najarian

previously, range Got -- been it. -- those And the to slowdown comp, the that expenses wondering even think annually we despite about X% wondering noticed the pace if really an had comp always is in X% it as growth? of is environment. trending in X% opportunity only of year-over-year. change the X% it of or And and rose this I'm I between mean levels that that we how growth comp of rate the think I It's to I'm the existed X%? should about rate

Terrance Dolan

Yes.

I if of when of think to X% investments really compliance range, with you a about areas business. risk that we mean in the time building was respect that So compensation different were our in period and

level certainly think I of to X% can X% us. we extended sort we unusually an think of certainly XXXX. was about a moderate compensation that kind And -- to that XXXX, kind XXXX late of that within that So help range, we've manage started as for in said think When of is period I normalized. high. of will time, and think I that has all that

is example, would equation, be of sort areas. thing. that of somewhat what we the capital some upon space good the But compensation -- P so of of streams or that to the side dependent but obviously, for market management tied in it'll Some revenue, the revenue on a see be wealth

Operator

with Ken Jefferies. Usdin

Kenneth Usdin

couple the going understand magnitude of I'm you the So of ask that up clean just to a help last? NIM ones. came us interest relative Can this to through quarter recoveries the

Terrance Dolan

Ken, I that recoveries always occurring. are have Yes. we interest mean,

that simply where -- an whether period late the of cycle at to just given at highlight why end bit the business -- been will or time, extended continue. the at has because just for is of a and I credit don't want we're know we think we the that we're reason not

a bit trying cycle. highlight at just to of more in the that business where little because it's So of we're

Kenneth Usdin

Okay.

always -- Or normal? above above was it the was So -- mean it normal I even? -- you you that have

Terrance Dolan

cycle. maybe it business high given I normalized, we're would in little was kind bit of where the say a at but

Kenneth Usdin

Got it.

Okay.

the been to is in elevated that strong other, income other harvesting opportunities Should equity continue you You a the especially line are as we also successfully as -- be mentioned where had do you some you've concerned? relatively see and income of far gains, other fee cycle? front, that some -- in lot on

Terrance Dolan

It a that indication Yes. I our some tax go includes that dissipate as lot revenue transition start continue of through things. other to we through it sale will And mean XXXX, -- conversion. revenues, but leading of different ATM of ATM it'll sales includes to our the income related includes the business.

On equation, still we side there. equity opportunity think the there's the investment of

Kenneth Usdin

as talk front, tailoring just opportunity get all? where point those Okay. hopefully you're at formalized? just the seeing some business of have And can through they then last rules Or ahead one, finalized wait be Feds do you the get you potentially can some And closer the to making of you the we at sets? till get or anticipating any to to on

Terrance Dolan

either tailoring at X.X% today. the that rules, back security management we about we're redeploy the we're about target. to to decisions, down $XX $XX or capital and -- billion expect with clarity have a the Certainly, respect managing On a from to past in once with to wait or of think make until to respect clarity bring and us And that wait to We adoption that X.X% the capital help both we and as be would the really the because investment have talked that Yes. going it going then side we'll the have We've portfolio. to that'll closer that around -- kind of, opportunity there's of billion and on benefit think range HQLA CECL well. AOCI side, we we by then, capital the down until and there's are liquidity management standpoint, LCR. to management

Operator

Mosby Vining Marty Sparks. with

Marlin Mosby

you a the was side. premium management's maybe is start you I there's about actually we've question very most Had We'll accounting well What When and headwind a accelerated. one specific you kind some accounting they heard talked with curious how about about big strategic headwind, about talked of question. calls coming. said amortization, other had the of talking

going are I kind kind rates pay what to So from of and a or you can so the more you? an go just I get the pay you do think how curious around really estimate you're of of you accounting estimating can, premium. know you whipsawed amortizing amortization go. you or as that of as you to Are in rates standpoint, kind are was move, you when sense you

Terrance Dolan

consideration certainly to premium we're what do Well, we rates expect to into taking amortization.

is bit occurring -- anyway, in is us little late lag. Most of just the change that think -- a significant most very of there a June. for the of I

end so end in that really second know end accounting it, the for for way it so we way And than we it. it'll just up the was accounting more the up I through the quarter up third quarter, coming

Marlin Mosby

lag and more just it's it? quarter So anything than that's a else,

Terrance Dolan

in is kind that's that impact's what to And forward. going assuming terms rate it where Yes. stays again, going of the be the curve of

Marlin Mosby

end and And stay quarter's no then in and if fourth don't rates you into go the impact you at, anymore? that change the happens quarter rates that kind with third where the that's behind of since they're in

Terrance Dolan

hoping. what That's we're

Marlin Mosby

the All other right. All right. And was trying then to at thing was merchant get I processing.

merchant X% competitive you been of processing? the right to to sales up maybe about at X% back like You are growing with going of competitive environment as the seems do momentum environment do but picking the revenues It the X% share and you're for when is you've a processing bit market were growth X%. that kind the looking How growing there, in some talking like or you little be feel of now? gain? same-store kind envision you're How in merchant

Terrance Dolan

Yes.

between of in have you the the two business. book the churn difference certainly, that the is So

continue growth comes I from think business to -- board. Our so rate that that we'll new X.X% as accelerate do or will on

and have that of side foreign you effects rate the are things growth is of dampening exchange that other thing revenue the equation. other The on that

of when you it's strong. a So think and accelerating, we the just think business, we about of underlying kind But it's think dynamics. there's number

Andrew Cecere

I of terrific our add, that business components vendor our as accelerating of our banking capabilities a full has job other I'd and capabilities have software the the team that capabilities think done customers. a products small we greatest with can and so And importantly, integrating as well and offer middle-market we omnichannel set

the driving very also So a way. those I in positive growth are, think, activities

Operator

Chapa Antonio with UBS.

Saul Martinez

is UBS. This Martinez at Saul

So of questions. a couple

trajectory X-quarter think and together, cut. difference between we retail get starts corporate your when of of First all the But lag how fully to historically, I of cost of to overall a trust on do bring deposits? that all, Fed deposit question there's wanted Because on the deposits interest-bearing when just trajectory of to a about sort Erika's deposits. follow-up the of X- if of decline the typically between and cost and and to cost start

interest-bearing couple think we as quarters So about -- it benefit see Or Or Or XQ? come all or from, -- start start we of in later XQ, you XQ, costs XQ? should X.XX% I'm the cut? July it to starts that in to does immediate see July XXXX cost an for to to that in should take filter start say, down -- or a deposits sorry, a is hike? to

Terrance Dolan

Yes.

or wholesale of trust quick of terms fairly July cut. the take in let's That'll the So equation. corporate rate side be the

Some side the a on to so of just that probably But for of there able the trust happen little the the the of end it be incorporated month. our process. into cut There's getting the a that is is in process, timing of to the of opportunities in pretty July kind -- us terms bit fact incorporate always but be it would of rate corporate equation, the of lag quick. it'll at

third. the in stronger in certainly than benefit the be fourth the will quarter So

Saul Martinez

-- Right. In in the your assuming cost -- you XQ from we that overall are come are guidance mean levels? assuming deposit I

Terrance Dolan

Yes. Yes.

Saul Martinez

All on Right, little Okay. strategy. XQ. your in right. branch gears Change bit, a

of now years. a couple reductions to XX% highlighted You've branch I guess, over, XX%

over -- think about thinking what that's doesn't you've the branches. it it's number. like aren't to community I'm and are which take if bank surface, X those your to is a which X,XXX, like right XXX on XXX huge On that And little the being X,XXX a you about branches, past to in-store on would branches, seem But if I subject really X,XXX about X,XXX rationalized. the cumulatively in said branches,

your you're urban if existing effectively, is markets, branches my huge amount of Metro in logic your So markets, right. a cutting

of like markets. your Something to XX% XX% Metro

I or it to exclusively repositioning going Are like guess be right? first, the cuts I are this? X,XXX network? like so branch a Because which driving Metro what's am And substantial branches? pretty about markets, seems your is of that thinking -- my First question almost exclusively the in

Andrew Cecere

Yes.

sort branches, we're communities. just X,XXX X,XXX and not segments said under in-store three Metro. outside just exit over in in or and of going is We What community, to have X,XXX we

branch we for branches not community markets in to or going market but standing true and the opportunity that's those together, also So currently no and have are consolidate particularly, to the we in, that close are in-store. we're community exit do some in rationalize have

in only focused not Metro. is it So

to is that, so net number. X better markets a forth. That mentioned other like in new XX% moving I a The thing is entering XX% we've you that to to branches optimization, includes location, Charlotte, announced

all categories. that's net number So across a

Saul Martinez

considering gets a big open Charlotte, urban is But even Okay. like in like vast there seems that number occurs assume proportion existing should majority it the branch Metro in-store especially rationalization banking that's of the branch pretty Because a -- you'll rationalized in seems community your in -- Dallas, community rationalization net branches, whatever. of Atlanta, It if the of markets? branches we markets. some in and network

Terrance Dolan

example, there's significant think X where of at or respect community our at believe networks. fairly et as do branch mean No. in some We're cetera, includes markets across We optimization Yes. sizable Omaha, I with categories. really [indiscernible] that about like the opportunity all we do to categories. branch an have it looking all It's network. [indiscernible]

all the it be will will it'll all markets. across So Metro we markets, but of of tilt include our --

Operator

David Instructions]. [Operator with Long Raymond James.

David Long

is areas guess the I to last that branches talking to just you're add some pursuing question, -- that about have in guys are how where plays how follow-up of into this the curious and rate strategy? looking backdrop you a aggressive You but

Andrew Cecere

the is think impactful directly backdrop don't to I rate it.

in employee base products a Bank X to that is we we're customer, relationship rate would X full to and already don't trying have new or that customer where things markets I or data other banking valuable wallet, using their environment. trying U.S. large that that, and the think that a what that to the X extend have but enter relationship do base, have a regardless be of

Terrance Dolan

Yes.

it's relationship I about building then really a the overall this mean And so think with it, the strategy. customer you when about long-term and is

consideration So one the point. current on data rate is environment only

David Long

and loans at a was had talk I into and where question second then may point your that may And appetite related CECL the can to impact it. your be to Are certain on impact you categories? make also what the reserve overall you Got levels guys about have.

Terrance Dolan

Yes.

-- to you reserve, that's think we've until even we've in to quarter, probably third parallel range, I run. talked said about we'll through the a And it's quarter with time. said substantive XX% kind closer and going we a implications of to that we're But point What that XX% that be range So associated to do what kind sort of the we'll assessment. with particular kind think the wait XX% yes to I going have And probably -- past of XX% so in better and I think get the can third have increase of XX%. the in is math. in of we respect more insights through

have that of we'll certainly driver And better like. will process. think I course, with is thing other in The that's visibility economy what look respect to the a

the the allowing emphasize of are products decisions profitability accounting than we're making or we a deemphasize, of about to model influence, really we'll and economics upon thought more we've decision. different the As product what sort based that the

So particular really point at we're going time, we approach. haven't this in to said that change

Operator

with Cassidy Capital Markets. RBC Gerard

Gerard Cassidy

guys and -- can on think? what white give thoughts color your that do, announcement the read us a And going you is us give to Can paper you obviously, of you payments seen your you important business try model. what guys and Libra some they're part on the to we've very have

Andrew Cecere

discussions a it. number and We have white read of the on had paper, we've

optimizing the the reals of not of stages, time but used that only moving company. payments across on think we have and to activity going early time The the the real -- number all the in so that's side consumer the new the built migration to a cases been really activities treasury occurring. to payments. real have out impact immediate used are corporate management and a being but number initiatives trying impact, it's don't with understand think but there's impact, I Gerard, We're of that I our

environment, we're in of around component a payments something substantial very impactful one is it on. that's focused change more is which is So occurring and very which overall, the much

Gerard Cassidy

well months And you next you good. is transactions years, thinking right successful that if as in up? other XX, the view XX you the happen depository obviously, maybe making been nondepository your as well opportunities Can nondepository came interested or acquisitions then on give back, have over that acquisitions. depository coming very what Very on the could as Are as guys transactions? us you're over something

Andrew Cecere

Yes.

recent capabilities, of think be trust, a transactions either technology will most as that been And that current been our continue have sort, to for us. focus of I payments you know, So things capabilities. portfolio's nondepository. They've

but we entering about, it's working in without concept digital-first are on branch-light new we an acquisition, a markets As talked of strategy.

It I be that the paying and So premium to think occurs might a that more effectively market. is having new a a efficiently and big attrition after without back. enter way

have meaningful. it be So businesses also about at wait that across substantial, would And now company many from to if the we all across right it a were of the would and and we'll perspective. looking look the at think momentum anything larger, be have that long-term to transaction it have opportunities, great to we'd we have against

we'll new do our that. all expect to wouldn't but other with us consider acquisition, those things, market a I a to small enter depository So given opportunities

Gerard Cassidy

launched or can Andy, that you any the opportunities, is Or to early these that other guys the seeing of you into too the early speaking have what digital redid early tell? it are strategy guys And from on results? markets

Andrew Cecere

starting, Gerard. just It's

in the next game to the after will fact, -- we'll so in we have will and the others come too So are -- branch early -- we in there tell. that, month, it's first the

Operator

There to are to for like call the over now at further presenters time. final back would questions the this turn I remarks. no

Jennifer Thompson

Relations call this our follow-up earnings Thank you listening the any department to morning. if contact Investor Please you for questions. have

Operator

your Call. U.S. you the thank concludes Second Earnings participation. We Conference for This XXXX Bancorp's Quarter

now You disconnect. may

U.S. Bancorp (USB) 17 Jul 192019 Q2 Earnings call transcript