USB - Earnings call transcript Q3 2019

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Operator

Welcome to U.S. Bancorp’s Third 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]

recorded PM for XXrd Eastern Midnight Standard be at beginning at will Eastern XX:XX approximately through Time. call and replay available today XX This Wednesday, October

Director conference to the U.S. turn now Relations for will Jen I Thompson, of Investor Bancorp. over

begin. may You

Jen Thompson

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

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

I’ll over the call to Andy. now turn

Andy Cecere

everyone morning and you our call. for Good Jen. Thanks joining thank

Following prepared remarks, your I Terry take our will questions. and

stable. momentum earned Slide our continued challenging levels on deposit begin net of quarter, across Credit share. $X.XX reported we remained In more and the Despite and a I'll key by interest per we healthy third driven environment, income, rate X. record and growth revenue quality loan businesses.

buybacks. book value shareholders of during to management, share our our and XX% share the a dividends to Turning returned ago and through XX.X% we capital per increased from quarter, year earnings

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

leverage linked-quarter a equity was on drove a efficiency basis. our tangible operating return ratio year-over-year and Our on both improvement Positive XX.X%. in common

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

Terry Dolan

Andy. Thanks

by followed start third earnings with a X, trends. quarter review the If balance sheet to I'll Slide discussion you turn of

excluding average coverage quarter reached linked-quarter sale As FDIC-covered X.X% year-over-year of period. the fourth on loss increased X.X% of had expected, a XXXX the that grew loans the end basis and loans

Strong grew robust and and loan a activity card sequentially capital both X.X% performance. conditions. loans year-over-year the credit the and industrial mortgage reflecting growth picked linked-quarter and market X.X% Commercial basis. third on year-over-year in residential and rate quarter, primarily up environment Paydown supported

activity term. remains near business is to although at New healthy, activity elevated paydown likely continue levels

and basis. Real Commercial Estate sequential decreased a on a year-over-year loans

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

deposits year-over-year. Turning increased linked-quarter basis to slide X, and X.X% X.X% on a grew

drive non-interest-bearing up Compared helped continued to interest-bearing with savings migration divisions, from deposit Corporate the migration momentum and in and X.X% period, Commercial we along Banking both That year-over-year. our to see with Management Wealth prior accounts. deposits growth average

As you with quarter, assets on non-performing X, increased quality compared X.X% year see X.X% second On credit basis, the decreased can by slide dollar but remained versus ago. a stable.

quarter and loans The basis second XX year-ago. improved compared owned stable modestly other was estate non-performing assets at with XX a to ratio of versus points points plus basis the real

third highlights earnings $X.XX reported year a earnings quarter X Slide with compared results. per $X.XX share of ago. We

our interest compared X, slide which to income a taxable expectations. declined is by quarter X.X% net year-over-year, and basis equivalent in X.X% on Turning the fully by increased with with second line

loan yield declining of the benefited flatter offset growth, Both a rates impact and by year-over-year from linked and healthy quarter curve. comparisons

by reflecting related line expectations. changes points higher Central in deposits margin in by to with basis the cash Our the XX decline basis quarter, X balances, Bank. versus net policies of the second to About our was interest European declined points due primarily

and credit and merchant income. the processing volumes. three payments Slide driven products, higher payment was each in non-interest card, growth year-over-year XX lines, Middle-single-digit by of in fee highlights corporate sales trends debit

As several year drag days credit versus In a comparisons fourth quarter, in and year-over-year will two card debit growth. revenue the on will be XXXX. fewer revenue up ago in benefited the growth processing days reminder, additional year-over-year quarters a processing day In end third affecting account growth. quarter, three a

to continue growth due bond ago, card credit from of and the strong markets for related We debit fees low-single-digit capital higher full to XX.X% a revenue product revenue year corporate trading fee year. Commercial activity. and expect primarily revenue increased to

growth. volume strong volume on increased origination production with XXXX, Mortgage increased and quarter mortgage banking by XX.X%. revenue revenue by application third the Compared and XX.X% mortgage year-over-year sales increased of XX.X%,

about quarter of linked-quarter. the decline XX% XXXX. of compared our sale to servicing fourth year-over-year third represented The applications in deposit impact quarter. XX% in third the about activity reflected charges in of the of the Refinancing of of quarter represented in XXXX the service the business ATM third-party production Refinancing XX% in

decrease other increase was The revenue, investment a gain well equity income sale assets. higher will the of of revenue in the over services as time, by on partly which inclusion related as transition and driven

the mortgage Turning compensation costs. the higher to personnel XX, business lines markets increased capital related banking partly variable well to and slide due cost, business as reflected to as in non-interest expense year-over-year medical higher increase production within

primarily in risk primarily was other Professional A initiatives. expense while programs, to technology business related expense primarily projects expense lower cost. to growth and increased costs due management services investments lower to tied FDIC assessment business tax-advantaged in and higher reflected decrease growth enhancement

XX, ratio standardized common III Tier Slide estimated XX position. and the using our capital X At this Basel compares target equity our to was September X.X%, X.X%. capital approach highlights our of

by the the to rules to has goal promulgated were Federal Reserve. previously had adopting once and related clarity closer the final been level CECL capital As capital manage target our we discussed, to our

rules, plan equity final release ratio begin Federal our reducing enable X.X% the our the to make us a X.X With to program -- X common X.X%. of we recent to repurchase share the request to approximately Tier increase from Reserve to to

looking I'll guidance. now provide some forward

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

fee on basis year-over-year. growth We core a mid-single-digit expect income – middle

deliver our to on operating in for XXXX the expect full basis line We previous leverage core guidance. year positive a with

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

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

Andy Cecere

well-balanced record rate management Thanks Terry. the our and to a in more model, discipline. a results competitive advantages that quarter, business testament environment our The challenging and we despite delivered returns risk industry-leading our numerous interest third is

gain our franchise. to about we As we head share good in our and and continue deposit market feel across to final of XXXX, trends quarter loan our the ability

are on trends. indicated we good update seeing XX, As digital slide

operational As loans we volume customer experience, expect through higher sourced increasingly are our and and channels, improved account growth digital efficiency. better

businesses and form results are delivering Investments of fee core in sales in made performing the mortgage few over improving years anticipated past our payments the Our volume well. lines are business and growth.

is our and new management trust driving fee Investment differentiated service business and win strong scale which Our asset helping Services existing is under relationships model us in business and expand and growth.

deepening as to U.S. are relationships Bank our one and our bring power customers of the of we we Importantly, each entire consumers. business franchise, across

that portfolio are quality stable any in Credit concern. early not we seeing causes our and indicators remains

long-term downturn we experience However, box a defined we strategy environment. disciplined our remaining -- at competitive industry credit regardless in that credit remain our point will are of and mindful and the of of origination terms some within our quality

to a message Day. like I'd Investor closing, recent I In the reiterate delivered at

leverage We are to strength we will in competencies advantage to where and that of are us and today. position a continue the competitive core carry

deliver we employees the to and return adjusting that changing rapidly are that hard the and I'd to is they However, our expect job growth the our industry-leading from us. work world their and commitment so future, investing continue for thank for can to to every to shareholders day. bring the -- like come we

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

Operator

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

Andy Cecere

morning, Good Matt.

Jen Thompson

Matt. we're not not hearing, hearing. Polly, We're

Operator

line your open. Matt, is

Jen Thompson

to next go and caller maybe the Matt in can again. can dial We

Operator

your And Autonomous of line comes the question Research. Okay. next McDonald John from with

John McDonald

Good morning. Hi.

Terry Dolan

John. Good morning,

John McDonald

capital I timeframe I -- increase, wondering on the wondering was could might the a give what X.X% the over just little Terry. to more you do looking to over if what or? Hi, that request tailoring, color for, I the was down months -- think, X%? you a and CECL be the was for or mentioned? you it of the what looking was again, couple of Is a And, course you're clarity just you gave year

Terry Dolan

rule that so relatively about with talked we respect a we've for Investor second think, it's the think comfortable good Day. then, obviously, Well, that is couple of I consistent still with the feel coming and And outlook range, Yes. we the out and solid, we parallel have to through and I what economic part, at is now helpful. final a standpoint run quarters, from an different been

accelerated. be won't it standpoint, timing a From

bringing during the it second XXXX cycle, by think of end to the I CCAR X.X% down will X.X% quarter. be really the so that

John McDonald

Okay. Got it.

the it So, it next is by year. second do for quarter this cycle to of

Terry Dolan

Yes. Yes.

John McDonald

Okay. rate Got of guys I what's your positive to be proving it. more in wanted of And to ask difficult leverage environment. terms a more then, broadly kind operating just in just outlook, about generating -- you difficult

is goal? talking at tougher And a had basis the bogey of points you're targets. Terry turn your you As still? kind you a is that corner year Investor into was that mentioned XXXX a Day XXXX, three-year And about XXX that when

Terry Dolan

Yes.

John McDonald

might Day little also, is of you --you your Terry, give a could part Investor clarify, interest follow-up that? you income on your could just thought outlook maybe grow and color faster than fees if think, of maybe net at kind And I that said you

Terry Dolan

Yes.

were there. a think, kind lot years, basis always a a XXX from I between today be positive year. where last in long curve, -- I is almost I Certainly, end challenging interest leverage, I points rates Investor operating act So take that where balancing ago. XXXX, is it of a versus of different said XXX and of at terms year into the going was are to XX of certain long-term where we they the Day, of consideration. it's it mean, think as because year, questions down

that relative So, the guidance has when out. changed came certainly landscape to

try a transform we digital is Derek we XXXX we continue talked now, on the that kind think you kind respect our our and a of volatile of, a with so things will beyond do-it-yourself much hard quarter certain When rates, sort lot I it’s different think different things of going we I think prudently do about is positive to add leverage, up that end a to I the But we're of to as know we outlook, I take know, just what is we perspective. it really initiatives, know, part pretty think, right into outlook from can to to fact with is consideration can. as to achieve in now, as to a that's that an -- looking a it's basis, you expenses order and to of quarter right manage focus, operating mean, happens that interest about as having -- in tough.

once income fees I think of years focused Coming we I now the think really that's rate starts that growth back to net is beyond those starts from, and comments come that where we are where that stabilizes and interest going is either XXXX, guidance, up, think right, between to come three going around the between or an interest part is versus what normalize from. environment of part that process out assumption so to get come thought that to mix to and and

Andy Cecere

in to reiterate hold theme long-term. continues Investor at Investor about Day short-term that which talked about at just for delivering – I’d that John we the while investing is the Day talked the And

understanding So of the long-term time manage positive operating growth deliver talked rate same in environment the short-term we the performance, we're leverage investing that seeking. in but about we're economic but on what environment, for going terms the to on at

John McDonald

it. Got you. Thank

Andy Cecere

John. Sure,

Operator

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

Andy Cecere

Good morning, Betsy.

Betsy Graseck

deposits I Hi. you morning. that? non-operating I'm LCR your benefit your the impact get does to the ability that you tailoring you're we the reports a – And under competitive benefit There's any could or either on calculate good rule. follow-up also and One from carry and hood that Hey, about more because for, portfolio you loans how can holding know, or how be maybe wondering, on value other the to that a that think around there loan that cash any on? think have

Andy Cecere

of up to was all our Yes, And I bit. duration game that but be of so it the the to possibly – essentially really remixing you both enhance rules in out, free related that with think of $XX at order in formulating talked, yield LCR to able the the XX% kind ballpark. coming an of know, as and we're to we'll look a And, it extend you it $XX little the know, of to still kind what in level. we’ve probably reducing billion kind investment range plan XX% to is, billion our kind liquidity helps portfolio

net look at – level it's would wholesale I beneficial be a going reducing in of the those We markets, may be number the and to to debt think basis our points, it's change and kind to major based company, things. not et of actions different in that we're is, just terms interest the where going upon be of I a yield sorts think at all looking of income cetera, but curve

Betsy Graseck

Every bit little that. so. get I helps And Right.

Andy Cecere

does. It Yes.

Betsy Graseck

impact And to regard it all the not with commercial does or really? competitiveness lending

Andy Cecere

think so. I don't

Betsy Graseck

Okay.

Andy Cecere

that impacting pricing lot. driving in competitive we the mean is I marketplace. from end up I don't what upon based it the And just a a see standpoint

Betsy Graseck

Okay.

Terry Dolan

position of funds our already in good our And pretty cost we're and pricing. loan debt low a given regarding our rating

Betsy Graseck

Got it.

Investor any showcase thinking is offering do offering And year you your some understand either you understand acquiring et just to you've kind hospitality, do or I about of with that that take there tech the restaurant got there's think just verticals got what that the you Okay. really can you've then more can expand to so? things you've had separately want on adjacencies sidebar verticals? Services? where Or to And cetera how other adding your past and Day, you for more other that and there interesting been merchant over the of to Merchant that to at you're if

Terry Dolan

a it's continued we ISVs over it is, to in continue going the which good last focus on One three-pronged year, think focus progress strategy. and I e-commerce we'll forward. Yes, made on

focus is on Secondly the certain verticals.

merchant thirdly hotels, and industry, You combination airlines, probably may with and healthcare. and and of products services of And together and have a biggest products services. couple banking, the just opportunity importantly is

those to all many a The that helps customers run our in I potential. small them and areas merchants to think think our their focus comprehensive of one need where the information customers of products see the and bank, our key we most the ability set and a weave a provider, business fact give put our is merchant need business and of the I is together

Betsy Graseck

primarily U.S. have it in it is also you is I And or this footprint more Europe? a global know business.

Terry Dolan

banking U.S. the and across processing Yes, the board, so combination the principally be would would that first be global two merchant in of

Betsy Graseck

Okay. Thanks.

Terry Dolan

You bet.

Operator

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

Terry Dolan

morning, Ken. Good

Andy Cecere

Hey Ken.

Ken Usdin

sure on about how outlook officer fourth are doing? loan you fee a terms and for equation obviously, mortgage on to the you're Hey into follow-ups, what was of growth, your you gain there? Just much through very good the talk more How morning seeing banking guys. couple but side mortgage pipeline in of the you built strong quarter just can and outlook pull sale the side of just the and expect I'm

Terry Dolan

the up mean if obviously, very banking, thinking When so I where end mortgage refinancing. about very we dependent upon about think long-term there are. from quarter, quarter fourth rates strong a Yes, you was it's

coming acting bit year-over-year little it rates I be a it in not from third up is little application kind perspective. The a good quarter. think recently, probably But With strong banking was a as of most mortgage story will It volume strong. still production. will in or strong the a the be

that see We continue to momentum.

investment and the those loans and The it able good high about about be officers other making helps fee those get has to customers booked. equation, ability application in our to service and just talked side the time we and helps over digital that very this; of Ken platform capture -- market been a we percentage The because to thing on we've is the that retail of that. loan mortgage talked enhancing

of would competitors in and the certainly our and experienced to those went what what processing of and were short times cycle last We through I say relatively the refinancing all because it's compared have investments. past we

Ken Usdin

the you inside gains well. PE agreement always And time-to-time, the as number? PE I We in the question, help that comparison the not basis magnitude but ATM Can a the of there gains know you other, know just are is us it. on Got a this even the from comes understand up if there. mentioned that second

ATM and is work revenues that then And the going in how Terry. expenses forward? just services Thanks does also today how that much and --

Terry Dolan

Yes.

break up category. piece revenue, of So, is it up equity we But overall what's and down various if it a of increase of it's year-over-year one of it ends and the driving upon categories. is things combination of of revenue in at to it. a then transitional and different is that I terms other a this the going and to It on of It a related XX% kind half kind related are about investment it's down end lumpy includes other depending of of investment things like equity would looking up within basis, the that. happening lot about of lot kind just services

when about I this when a question bit is we other think So, know little we about think revenue, there this. out it, we because talked about

quarters. $XXX that be take. And the quarters, a at up on little how basis $XXX ballpark up range some in a end is think from little $XXX that's and anywhere or we Over a million quarters as to eight bit we of high that bit give what and million core million down it about It'll is reasonable a in last level ranged other looking when has it. course quarterly as

Ken Usdin

well of ATM, growth expense And as decent -- you that the the is a on could side agreement? expense the just the on side services then the of part

Terry Dolan

from so to end start and service associated making That revenue standpoint taking is. And the transition cost to the to of that and to was we’re with agreements agreement similar will that timing as that order conversions are cost go the is between really the away fairly cover negotiated service able a place in it generating. Yeah, be level XXXX. now

Ken Usdin

Got it. you. Thank

Terry Dolan

Yeah.

Andy Cecere

Ken. Thanks,

Operator

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

Andy Cecere

Mike. Hey,

Mike Mayo

Hi. XXX or what and how I I a back-office know of growth still you talking you you so last year, guess you give but digital a about I positive deposit by office in digital question. through closed are we growth, metric that channels, like front have are guess office can just had leverage, operating decent your sort the The I so Investor the branches transformation, some driven Day, it's getting front us? question, a much

the then us applications the mean, anything when, you what you of inside to the metrics Can now back-office, or harder retooling you're centers, else the percent your expect of And about data the you migrate I peak you too? company. public like retooling go, are where question, the to or them to give internal expect any where the cloud

Andy Cecere

Mike can I'll then on. add and start Terry

sales digital think to as app connect So part perspective of as our secondly, from areas, and a deck about it's with the the ability that you a one and is the activity insights see the capabilities the provide the focused customers. it's focus the the initiatives, we sales call. our on some of improve improving we and stats couple in of on digital ability loan of to revamping But also earnings the

as continued a sales I activity the time, quite if to deposit activity backroom. think I allow expense that and Well, think side sales already for will the but over opportunities both activity, about transactions you digitally, you will channels of equation, know as movement our and is tell on is more sales more the activity you of from digital as we continued rapidly high growing a loan see well perspective which

Terry Dolan

Yeah.

in back is it the the goes even – it it really around I as behaviors digital XX% our of branches XX%, customer branches the are in to roughly of less employees, today. of to amount of of fact significantly channel it through the in XX% and our in part branch is where kind customers, branches room The decision transaction of reinvestment obviously, in a was and the closures our big well changing. was that's activity than is digital intersection and happening related mean, or So, the people the was

sales So, the And of that's size branch -- a oriented to the numbers that changed reconfigure focus much opportunity something network us from gives of to service really more to in the terms type and/or advice et cetera. either and but both focus. also location

trends metrics. have And specific those so going I think, necessarily I are continue, to don't

Derek the from digital sales for and about at still opportunity I know of to had Day from opportunity think say get a overtime. we you deposits that when should place. you that this the to deposit take the sales customer that, get a are to side, to -- On while the It'll there and continue in that And has that include grow. because XX% is deposit would perspective think, from room us said, of closer would Investor you percentage to take I for know perspective XX%, us the adoption there

Mike Mayo

far Okay. you do you apps the as company? the expect And the give as else of inside to data back-office, on anything cloud just the then, any many how number or Or of public centres? on migrate metrics to

Andy Cecere

cloud both of but We number development well which offers new continue you I But our advantages about Investor bit cost our a and number the cloud activity Day, Von haven't will tell little Mike, as Gillern that migrate centres. occur we Jeff in to in activity spoke the -- at capacity in Jeff as of of to disclosed most a development. as will the data

Mike Mayo

Thank you. right. All

Andy Cecere

Thanks, Mike.

Operator

And your Sandler next question comes with O'Neill. Scott Siefers from

Andy Cecere

morning, Scott. Good

Scott Seifers

my taking questions. Good morning, for Thanks guys.

on fourth the some transitory may in the that be quarter? some should third the margin, given Terry, Just quarter, from in be the presumably updated of thoughts the noise stuff settling

million own your -- to million some we from forward, up I just cut? rate and $XX there? if additional all of go one, will when any impact as cuts you have you we baked still these sort thinking apologies rate of this, then, outlook kind And when said guess; into do $XX

Terry Dolan

points. of of get Yeah. these Well, And kind let our kind will some guidance. me your bit kind of little to of a hopefully about talk

at guidance market rates really where in our where implied they're digits is October. couple to at the looking kind of in with terms of weeks respect first of So of the low-single

of kind to an and going is December think to in it occurs. is October XX in assumption still that that, decline rates that And and in assumption cut And December. are basis in there our will is as be implied point I you both question know

we of it's The right that it long of assuming the roughly kind now. are curve, end where is

So, perspective that's kind of into net income. of the or assumptions kind our baking that margin regarding we're interest

margin From supporting that's a about down X a perspective, points related points balances. about really it's linked-quarter. basis There's basis on XX balances to those the cash

we when of of expect X so, range which net fourth core margin would we And but our decline, points. X the basis quarter, think about the interest to in is to kind that level

Scott Seifers

Okay.

in X X decline points the quarter? margin So basis fourth to of

Terry Dolan

In -- was an the about you that, think, end average third XX think quarter. although long quarter, basis perspective, actually interesting, Yeah, if points, third XXX. just is XXX short-term I rates the about it's down points, thing of about are kind little a from the XX quarter other over fourth basis up

the that and the that XX quarter, points. would on XX a is in kind short down, down XXX points basis of first basis range fourth long end the quarter the to In of the is when be end basis, year-over-year

end people into will the to become industry, expect would at. go quarter into we as quarter the looking challenging in are XXXX. it why So fourth that's And and more

Scott Seifers

new, or of of want that, sort as so would sort look moderates then, that that rate with we And with cuts understanding additional a presumably that so new at price I make that, X X understand is that? of basis I'm to sure, kind Okay. that I is just to points

Terry Dolan

out right rates don't going where take say would the know I the that, we given and that quarter. fourth mean, that I so Yeah. are now fact look really a volatile it's beyond

Scott Seifers

All right, very thank enough. Fair you I it. appreciate Okay. much.

Terry Dolan

Scott. Thanks,

Operator

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

Erika Najarian

morning. Good Hi.

Andy Cecere

morning, Good Erika.

Erika Najarian

X% up even to fee of quite Payments and are follow-up John's questioning, mortgage on so the X% year-over-year, up wanted outside trends of X% investment income targets, trust fee and back over period, clip line strong. tie management year-over-year, I is revenue three-year your long-term income with I'm thinking? or optimistic as what that wondering, line a about we to in too you're that

said the October curve over fees the because, probability any the -- guess, forward is two on focusing is the reason changed has I curve like, nobody mean, right? what Terry, past I'm like look going on of to I hours. you idea

So on about follow-up contribution fees. the balance I'm growth. trying of And I to think sheet have a

Terry Dolan

kind depend upon and again, just of a ties and of that. mean, terms of for with income, maybe, Well, bit takes in Day guidance Investor some The part, Yes. the perspective. rates. to little puts kind mortgage will to this associated what of, outlook fee kind with a happens from and what the I a of rate all happens with function so banking respect in

of we've like all have will of position in particular markets think, a to of that strength trust when we’re confident in continue those, of capital both we this our we think that we and and at feel business, about I But, space the making payment our time investments the business been capabilities, carry. corporate and point momentum some the digital

in wouldn’t game. It the will into short-term, the anything and anybody's kind depends continues up where I happens ends Consumer puts strong. don't in spend that get I is turning, to be of mean, takes. be there upon see what but We XXXX, environment.

Erika Najarian

with get fully sheet into current customers, If growth doesn't bank delivering balance in the curve to challenging. on going revenue current necessarily contribution those to And worse rate doesn't but there growth. you XXXX your acknowledge loan long-term the of what's normalize enough terms as the of Is targets, in than all expectation. to regards think, the is opportunity be the

In yield or volatility, need help potentially lack to some period that margin in other words, me to three-year rather. of mitigate of implies order curve that mid the would we net that single-digit over loan growth from interest the

Terry Dolan

when as of I third-year. into target respect we we you But our will that compounded tried that's growth that in and years get think sheet challenges The clear necessarily because over we with maybe right of to based are the rates about a expectation going things. couple are to XXXX second to balance the upon the it's that think now. Yeah, be set when kind -- end the happen be of and we XXXX. where rate a up three not the not

I upon policy economy continues bit to be and or And and happens continues because of depend predict, think the and strong, but a this hard of tariff kind is sort all to again, little think strong, that's in policy, business trade it's consumer to generally, solid. activity I of thing what the confidence think consumers economy but moderated somewhat that spend I be

some trends XXXX the about And from of when we thinking we loan think continue. year third achievable. core will end a on we that think X.X% up loan we're we And seeing of basis, a quarter that's growth that as this about growth talked, perspective,

think funds I from of things. able of to the from be U.S. type perspective the advantages a have that cost us bank's the industry those some enable competitive will and we pricing in we And have to lowest perspective, achieve

I reasonably confident. feel So

Andy Cecere

Yeah. look And, you earning -- if Erika, at you if the our growth just third step and X%. under back think was quarter, asset

about growth year-over-year X%. deposit was Our just

in sheet think So right. the thinking about it’s that I mid-single-digit, balance growing about

Terry Dolan

Yeah.

Erika Najarian

Thank it. Got Great. you.

Terry Dolan

Yeah.

Andy Cecere

Sure.

Operator

Juneja your next JP from And Vivek with Morgan. question comes

Andy Cecere

Vivek. morning, Good

Terry Dolan

Hey, Vivek.

Vivek Juneja

morning. Good Hi.

making I'm Sorry, if we've you apologizing, been jumping on I'm repeat multiple calls. something.

sort any give you of that what's reasonable? about income, run way seems of other The the to rate think sort did

Terry Dolan

from end Yeah. We that basis, on maybe little reiterate, bit it, $XXX and quarterly million about up million. gone we a a about end just when looking we to at and level the anywhere to think $XXX it's at that, talk did looking back up we

plus that minus investments, a And about categories kind that is across $XXX we cetera. a exists of within that, were as et when the the a of level kind to income But million, of lot basis, think of is where of – that we lumpiness I different kind core or of on if believe reasonable quarterly a including equity function range.

in I remember kind you million, if between And in and that's said, had the $XXX million somewhere and past $XXX that of ballpark.

business, end at tied growth XXXX you away that's but the servicing the for when during so up goes half that tied transition to looking over the when is related So, ATM time quarter, to conversions those that of occur. agreement to and year-over-year third the

Andy Cecere

Together expense. with the

Terry Dolan

to related view. similar the the And agreement transitions service pretty Together to expense revenue increase is from with the a the point expense. of

Vivek Juneja

is leverage. And operating then, which another one positive

to do XXX going previous going year you on XXXX still you've basis to mortgage Is rates got to have but points other everything have gone closer used Are given higher, on then NII or it's obviously – positives full think banking, the harder XXX. guidance that's which Your to you you XXX, thinking to? softer? to where income running get XXX given went be it to

Andy Cecere

We're Day, positive Vivek, but operating somewhat with about Investor is basis talked below we consistent still which leverage. what points, XXX

Vivek Juneja

you. Okay, great. Thank

Andy Cecere

you. Thank Yes.

Operator

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

Terry Dolan

Matt. Hey,

Andy Cecere

Welcome back, Matt.

Matt O'Connor

Hi. Thanks.

about before. Sorry that

question. back stepping bigger whole a of picture this leverage Just kind operating

that years got growth also of is like the It working ago? best like of is get X%. growth on highest. a You've revenue some to there year-to-date up guess the doing business is big And the wondering few you conceptually expense in growth of still something think growth, that about just that's I the the seems like or cost catching I I expense or are revenue banks am the infrastructure you terms much need that

something Or is revenue cost help bit the growth ahead much good revenue some you growth revenue future. but specific higher, look a the to obviously, okay and generate much And and would kind for that is growth the drive numbers, of at get I'm it people not there was might to growth. say, but conceptually, in of that looking just expense really just to trying

comment on So something maybe like you that. could just

Andy Cecere

and start will So Matt I will Terry on. it add

puts three Number room initiatives of saves all the are and back delivering way positive. picture takes. big will operating to the we from we're standpoint, The standpoint, continue things from a we’re for going operation a So to one because those in first number the allow products some services. and an and big way optimize is that's

Secondly, we we are Investor to bit of the with to more, Day, so about to going already digital the that's initiatives going continue cost long-term. a In the that’s lot in rate. run talked invest

of them couple at one of reasons growth, little specifically have third a revenue mortgage there and and that related you of associated were missions to was expense expenses areas growth. markets specifically higher that with capital look the If for quarter the a though,

Terry Dolan

Yes.

we capital continue see of in continue from talked at back-office maybe I with of mortgage of see think know associated -- you and because standpoint. in the but there specifically, in but perspective kind think add that markets standpoint, just and from optimization customer some I look to we that an that going would we to may digital to optimization. -- from is as that that front happens customer we in lockstep accelerate it's I Day Investor a platform how the we I very think that, to this office is staying then to changing about will branch said, that with opportunities what are and and And as there making both increase activity move a focused terms on behaviors a know or I tight sure we are opportunities you be

And look all to was making that the kind of and digital this for businesses because so. investments talking lines in and of back will about, the to we're short-term that continue it's our to us other long-term we both thing Andy gets as want then do important in of well activities important to

Matt O'Connor

that’s Okay, the works lot think is -- absolute revenue we're on with math X% of the is just just bps revenue matter with of than the leverage growth sometimes leverage of growth leverage XX I and X% operating plus a operating X% focused also I way the better fact operating level so. helpful.

Okay. Thank That’s right. you.

Terry Dolan

a different XX And right. XX -- is X.X efficiency positive -- operating that’s lot ratio No, on X% Yeah. that XX. on than leverage

of all -- it's of part starting things, So, the it as those point.

Andy Cecere

Matt. Thanks

Operator

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

Saul Martinez

Hey, good morning, guys.

of even growth the just you that. So, terms X% not core balance X% going absolute the was commercial loan commercial mix addressed declining an of I basis you sheet a which with ask with but than pronounced some and speak faster to are pretty the only end-of-period consumer level on a to going to of my for growth, in home equity even guys trends -- lot questions.

I exogenous function is to the growth much environment related maybe how of you that used a continuing is macro deepen and things to you're a though relationships growth strong on of much at how can doing a of of level company whatnot? analytics So, adjust parts guess -- couple factors? Or dependent is

I lending lives term a are lot of average in by growth question is impact segments cards. to -- whether higher my around guys going CCEL though in growth of of because that CCEL guess content longer in and longer this the occurring the addressing is And like second even loss -- consider -- to impacted do the part you be CCEL when you disproportionally guys weighted

in mentioned migrate that Terry ratio ALLL higher have to with will ALLL -- Investor is but and hey you you is the matter noise the think over do activity of that this that to continue upwards will that Day you I you life this doesn't that's same, the just yourself And about more, and think loan, that accounting mix something economics at loss. lending guys the have or ratio, guys you maintain to is say really provision of the loss ALLL the it shift

and we terms kind of think the growth should impact about it? just something think in So, on is CCEL guys of about your how -- whether modeling you

Andy Cecere

-- growth of about kind a focus where and when it past, loan like Good this company. we from talk about in think and the within question. we the And comes kind our bit little of

have an than think for company more that You we accounting. occurs respect noise But One all the what different on talked in to of a happens every reasons. basis own the is is already about their forecasts economic economy a to do that about. it things lot accounting do I with lot think there's the of we that CCEL and on within going

economic think standpoint. about So, we really more from it an

that strong good still again solid very in should spend is is tend consumer what it while and terms today growth business from things strong for In seeing loan back see a what growth, be business. consumer and it's that just moderate, perspective. side and of may on terms of we the Even we're comes those today consumer happen to a

So of longer-term driven some macroeconomic, out of it on other think is by as we is initiatives. kind a especially driven by basis

significant have We of there ago, is a opportunity merchant us this started of the and and Andy ABS merchants about both. we focus year and it, a and build the to sort but platform talked equation leverage for businesses lending small side

we begin initiatives. So our tighten also think to when about you of loan growth, some

Saul Martinez

Okay. That’s helpful. Thank much. you very

Terry Dolan

Thanks.

Operator

the And your comes RBC. final from line Gerard with Cassidy of question

Terry Dolan

Good morning, Gerard.

Andy Cecere

Gerard. Hey,

Gerard Cassidy

Good morning guys.

Estate us markets. good Commercial part seeing You you management there out products? that products. the lending that have building what's guys very banks of Real hear deal that from commercial increased Are that of smaller you sharing different competition at going many in and We they're in customer the the base gives treasury loan in us with guys with commercial any been on competition

Terry Dolan

than I the would say would different we've probably is any to it's Gerard, say occurring I management. change treasury not historically. seen

that the migration You continue a really been case products forward as that. is new is and and to see it use payments the developed the the going real-time result have of services and

think rails you're together continue have is change about new payments, going that capabilities been changing and that to our I combined be and developed. our as I in coming treasury those with corporate think to a think So, things to this to with you management see going continue

Gerard Cassidy

on basis to possibly think Andy, PXP -- and speaking Zelle that will goes on a a go Zelle as that think role And do do BXB? a from you forward a you play

Andy Cecere

new two, use aspects are has as Well, for used lot in Zelle, a rails and there things mechanism, of sure start Zelle and Zelle we’ll I their is side. different for Number cases, think a request that’s of payment growth there component for in to also those other the one. opportunity

side see So going the on real-time rails. business to changes to business related you’re to the

some Zelle together and migration and of small to a at changes business some enhancement and bit. come may continued particularly related little those going point, the to on see things side consumer You’re

Gerard Cassidy

Great.

Terry Dolan

for focus we and area an us. the the is real-time the where the been who has rail or it’s our to thing Gerard, -- of proposition where value would just going the area very And challenge make to a the investment Zelle based made customer. or focus case able that's that that, landscape one upon used is rail of the or really the I other connecting to creates and the investments is is be Yeah, that is competitive important, think customer case I say in around to

Andy Cecere

you. That's absolutely Thank right.

Gerard Cassidy

of then on today but X% construction in just year-over-year National $XX.X about is in the conservative a the pivot, And been your you there have you. very housing, to a basis, guys be under Thank recently lending; resurgence Association billion to down, seems of portfolio market markers your seems there for capture there you guys seeing and to and some you consensus and are that any Are bidding of there rose Home pickup Builders recently in in some growth? here. that to index activity be opportunities

Terry Dolan

Gerard, -- that Coast have are is doing and well principally and South on and that builders is focus West a seeing home we that our -- focus good is, area where there does there we business growth housing group capital growing. on

we're other the of a Commercial that our really and the seeing to that credit declines Estate of function are aspects of we're some move competitors not of seeing components you're Some Real some comfortable the with. of

we participate customers core have the So negatives and we but sticking with yes, within box some some our we're positives, and that credit in.

Gerard Cassidy

Appreciate you so it. Thank much. Great.

Terry Dolan

All right. Thank you.

Operator

are And further audio any there no there questions. closing Are remarks?

Jen Thompson

questions. you concludes call call. if for listening Department have our the Investor any call earnings Relations That you please Thank follow-up and to Yes. our

Operator

Ladies concludes call. Thank gentlemen, for your this and thank participation. And you today's you. conference

You may disconnect. now

U.S. Bancorp (USB) 16 Oct 192019 Q3 Earnings call transcript