USB - Earnings call transcript Q1 2021

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Operator

Welcome to U.S. Bancorp's First Quarter 2021 Earnings Conference Call.

Following a review of the results by Andy Cecere, Chairman, President, and Chief Executive Officer; and Terry Dolan, Vice Chair and Chief Financial Officer, there will be a formal question-and-answer session. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately 1 o’clock PM Central Time, through Thursday, April 22, 2021 at 10:59 PM Central Time. I will now like to turn the conference call over to Jen Thompson, Director of Investor Relations and Economic Analysis for U.S. Bancorp.

Jen Thompson

joining good Chairman, With Terry Officer, President Chief Officer. And Andy today Dolan, Jodi Kara. call Financial our the Chief Cecere, and Also Mark Richard; you, and morning, Chief Credit me everyone. are our are our Thank our on Officer, Risk Runkel. us CEO; and

presentation, release schedules their remarks, Andy as a available copy A and presentation. Andy. slide website assumptions prepared I'd and SEC. release presentation, referencing and at in analyst forward-looking are call risks uncertainties. During to subject like and you forward-looking that of in our our as are made well and Form could to reports the on page materially our earnings to our with call slide today's XX-K on during are that Terry will on file the supplemental over current today's our change described statements the usbank.com. subsequent be any remind I'll press Factors of turn now two

Andy Cecere

Jen. and joining call today. thanks good everyone, Thanks, our for morning, And

prepared first I'll these stimulus. billion on our X. of billion reserves pace $X the quarter. expected and on Terry, over Following of share loss the will and quarter. quality Based impact we little the significant earnings the several were $X.XX. the and In outlook totaled vaccine this rollout the government reported quarter, given per $X.X loan months, past begin the first ongoing released in of we of slide meaningfully economic Revenue over factors, you questions Credit Jody, take any than improved I trends remarks, have. Mark better has a

interest the decreased income fourth As quarter. with net expected, compared

peaked, activity In is accretive turn impacted for the economic asset business pre-pandemic first likely expect year Improved volume. trends, businesses, income. we which premium consumer progresses expect translating now quarter entertainment hospitality of will travel, low and securities and that and exceeded volumes, point that COVID each net sectors, spending grow a reinvestment be payments amortization driving first yields interest payments our levels. rates expenses are we better that quarter the as XXXX given is belief our improving to and in to However, into loans excluding

Our metrics. billion capital right of the compared and were you expenses relatively with dividends quarter, quarter. strong. fourth provides the to buybacks. the stable X the remained in And positions that shareholders see performance forms Slide returned In and key during $X.X our liquidity we lower can quadrant, share

XX% our quarter, through to higher very believe hand and now release. the ease-of-use nearly shows leading X with we to now which than of from satisfaction, year of transactions performance of In credit returns lower digital cost correlated of industry PPNR the chart, XX% less performance customer strong the is lower benefited Slide for account loan continue prudent channel. credit ago. see that closely. digitally, which Digital Digital tangible cycle performance, capital reserve consistent improved by management. and This equity pace returns migration and Longer we common we to on driven the deliver term, XX% will a transactions. sales than occurred right can now you more compares all service, measure uptake

more over on detail Now provide let Terry will call quarter. me turn the who the to

Terry Dolan

Thanks, Andy.

quarter first lower interest from Similarly, decline a liquidity government in impacted start loan negatively as commercial loans I'll rate first If up quarter, pay debt. continues with we earnings by average continued improving trends. as balance the impact with the quarter. balances. of and increased sheet X.X% as a stimulus M&A declined into impacted borrower and the review we rates pipelines late card discussion down followed we expect fourth behavior. as low in Elevated you paydown to activity pick building the growth environment quarter quarter XXXX. loan turn to revolve corporate slide to used X, activity real Average to Recently, consumer compared impacted Credit this refinancing programs activity rates excess balances to estate seen interest causing move loans inventory consumers contract have further to fourth

Turning quarter, financial the to level the X.X% slide fourth compared liquidity the X. Average with in deposits increased system. reflecting of

As seasonally first the typically lower the quarter our in year. deposits a are of reminder,

our trends, by favorable. XX.X%. additional better be which In increased declined bearing be time Our mix and stimulus our than X.X%, reflecting credit vaccine overall X to deposit our quarter, expectations, economic improving continue quality grew deposits non-interest the availability. continues deposits to first Slide while supported shows conditions,

quarter. In first $X.X $XXX of of quarter ratio the fourth to loans and fourth first quarter released the charge-off We and less compared the than $XXX first the ratio net of loan quarter commercial, improvement the our at provision net the credit X.XX% and The loss quarter. compared trends economic charge-offs expectations. X.XX% other assets the reflective reflects of totaled previous X.XX% our million real lower retail in at in card improving of billion this credit with was net versus with non-performing charge-offs. end or outlook X.XX% million. quarter, end total better-than-expected an estate The reserves negative was Our other

billion loan stimulus part the highlights government key category. loss X credit impact reflected driven or credit loan level the totaled portfolios allowance $X.X March loans. continued economic estimate and within changing best improving by X.XX% of underwriting unemployment breakdown metrics and Our in benefits of lower allowance our growth, our The programs. Slide of quality allowance of losses for XXst as of the by

a These earnings release given payment in XX, segments that to quarter the shows with the In diluted than to stable quarter. include reserve first an first $X.X X% to left certain of The earned provides results in Slide loans. billion. decline total we XX per continued the XXXX, less to $X.XX table current quarter compared of at-risk of summary. fourth share. slide meaningfully balances the programs environment customer included Turning exposures are relief

XX. to the the due loan fewer to of taxable X.X% on lower Net in average income Turning slide a quarter declined compared basis balances fourth days billion equivalent interest fully $X.X with quarter, net and net portfolio and a interest the X driven higher point expense, lower mortgage primarily rates by reinvestment decline in loan prepayments. margin was The interest margin. amortization decrease basis premium in

peaked, mentioned that in low income are first earlier, declined believe Also securities X.X% asset as income. XX expect in As yields quarter amortization rates progresses. higher Slide we a accretive loans and each will related a of has to volumes Non-interest the revenue. the by highlights be as grow is income, reinvestment to refinancing the net year year-over-year reminder drove point production mortgage year expect year. given revenue. quarter our production which that a for seasonally trends basis, first activity interest likely the primarily we from premium On strong and driven non-interest ago, typically lower now lower

adjustment coming debit However, XXXX In XX the in fee prepayments reduction Business in net in activity With ago. recorded since the to businesses value more payments revenue of on lower expect compares hedges, first revenue our a although we valuation year-over-year of with with the essentially compared a card government and a of market result year-over-year revenue favorable [ph]. would first XX.X% sales hedges which Services stimulus a XX.X% European into continued revenue more decreased due than first card the moderate. basis, be than trust shutdowns. increased of growth Credit government increased revenue year with declining, negatively XXXX. of services Slide revenue in from as underlying what deposit of XXXX. on quarter, ago, the mortgage Corporate as impacted investment declined year XXXX in Improving charges to MSR and Slide offset continued servicing indicates expected quarter. increase across declines to by spend million $XXX first prepaid the information of quarter, million segment volumes management rights, total higher changes payments XX $XX higher a levels. conditions speeds rebound value April consumer to driven which the future fair fees a COVID-related was flat travel Merchant fees, that was quarter to consumer was we were of sales management our fair growth of business, in more compared quarter America expected in product entertainment and X.X% programs. volume service and liquidity we provides our lag better interchange by revenue compared North with treasury the of normalized drove including bottoming and by strong had have sales payments revenue, a payment and stimulus. and breakdown commercial for net

partly and by to and a position. digital XX to linked on X.X% were in technology, Turning expected. by capital to incentive XXXX. costs related our in decline XX. growth in driven and quarter basis Non-interest business Slide COVID-XX costs slide mortgage Year-over-year markets capital a highlights the incurred was related delivery expenses future of investments first liability and was relatively stable production which expenses quarter a as of offset increased

target Our common of equity Tier X.X%. XXst CETX was at compared with ratio X.X% March X our capital ratio

conditions I'll previously forward-looking stock common economic part $XXX now the $X.X program. as some first bought in billion provide Given our we of repurchase million quarter, improving of announced guidance. back

with to we XXXX, the net increase second for income single expect low compared and loan quarter of the first equivalent quarter, the growth. For taxable look we fully modest digits in interest

impacted the to continue growth be We economic meaningfully COVID sequentially given as to continues second XXXX by revenue in environment. accelerate. payments expect activity fee year-over-year favorable comps rates improve quarter, will the to Starting

improving relatively in with two The We first with credit outlook improved the be environment. the expect quality the non-interest along for economic quarters, expenses past to compared quarter. stable has

charge-off to the quarter net the is X.XX%. level likely low that as first of think we However, ratio remain

into As levels. expect to we pre-pandemic we toward net ratio further the normalize move charge-off the year,

the the losses will assess as conditions credit adequacy to We allowance change. continue for of

be year full approximately XX%. to taxable equivalent Andy currently to hand the remarks. rate we closing back XXXX, it I'll our for expect For tax

Andy Cecere

we beginning were Terry. had a at economic stages downturn, of the pandemic-driven Thanks, year One which no precedent. ago,

our to has and ability our year. customers, in confident the with in we, are and changed our entire communities through faced the along the of A uncertain But a We support strength outlook. difficult employees lot an sheet time. industry, balance

recovered continues has quarter to fully lingering of Our impact heal, of to pre-pandemic that levels. first but not activity were an reflective results economy the

in about spending are payments business be our directly expect capture However, the to country business related the optimistic seen growth most across businesses. we increased from three what and we has our of consumer the economic well all this from here. we strongest We of benefit trajectory positioned to are lines, as many potential decades, to believe

expenses, serving their open for at aimed call Importantly, we have see experience any leveraging customers top investments Q&A. pay managing in this we us. that the to off well capital enhancing to such, employees and shareholders commitment now our at payments line upcoming as the growth, from our and customer integrity up credit all industry-leading We'll to they expect and invest thank our banking ecosystem, continue the payments mind. forefront the And interest come. the prudently to we I'd quality to while digital benefit share multi-year investments quarters. drive the And beyond in us of cyclical to with long-term come goal position and expertise revenue our like their hard gains in expect work. cycle. deliver and returns in the years In is through to for power many to will Ultimately, drive of These market best our to closing, with our

Operator

question [Operator Instructions] David line the Point. with comes Rochester Your first of from Compass

David Rochester

guys. Hey. Good morning,

Andy Cecere

Good morning, David.

David Rochester

was year we payment On I you mentioned guys was to a as hoping out of fee back year-over-year some heard you I year-over-year do kind back transaction can space you you into are what point? curious about should growth potentially just at just today, pretty think you on see range. XQ. activities growth, half move we of to are expecting. some - I the where in just guys more in year. of in what robust talk volumes the then, half the the as continue a other could normalized recover that frame we just And that look in income, persons versus

Terry Dolan

question. great a it's mean, I Yeah.

we because what strong, be when obviously, up, year-over-year XXXX. basis comparables in simply to happening kind the forward going going So a on is of pretty end was of

to first it Andy look at be overall, those depressed all revenue, let's – in non-impacted acquiring XX%. continue our that different of different to continue to components industries XX% kind was expect about quarter, an sort of And improve. all as non-airline, we of merchant XX% at you actually In As was down level. the said, take But as the saw the different XX%. kind up categories we do those example. things, But of know, airlines about we

looking time of by at to quarter end we revenues certainly or expectation categories Our time end fourth when the the kind payments by up total debit we very well the the total that credit businesses. merchant overall in XX back that levels will of of get on of across frame - to XXXX CPS as the early sort be a terms card, as basis in total pre-pandemic the acquiring, we

David Rochester

real that. great That's quick. appreciate Maybe NIM Great. color. switching I just to

You to prepays the book accretive are declining. new securities yields and mentioned are yield

expansion here. as know you NII [ph] securities also net So that Are you'll moving here some think margin you down expense. should I you bring well? higher premium saying mentioned from was get

Terry Dolan

of frame Yeah. kind Well, it. I the would here's way

NIM output occurring And there's is different dynamics how course, a of respect all, lot is an today. the with loan your balance that are of of sheet to of First portfolio kind changing. within

growth that's But from fact reinvestment the is a and a is which quarter, from steepening in offset little by around going the And be other dynamics of the to a factors. continue and expectation are of improving NIM that second loan pressure. much expanding yield probably really will balances, to it's the bit differential a It's of perspective that the reasonably a amortization. a portfolio. stronger be premium investment there. but driver of from because curve getting Our expanding And driver flat, probably rate

David Rochester

Great.

XQ, back half in the the expanding of in potentially? flattish year, So

Terry Dolan

Yeah. Yeah.

David Rochester

right. All Thanks, guys. Great.

Operator

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

John Pancari

Good morning, gents.

Andy Cecere

morning. good John,

John Pancari

Yeah.

guess, just And pipeline and about So inflection to you when talk you commercial growth? see I notable demand the do you I utilization? know the side; I side, can you expect a Thanks. talk about on you of in in also be the do just loan within do demand acknowledge the more And that near you are you as loans seeing drivers? that pressured what loan see guess can terms term.

Terry Dolan

Yeah. John, great question.

terms loan let's of So - just what in growth. are loan seeing about so we talk

As we've I example, expect be going expand, it's for still said do we in this there's start exist there's the in second that to pressure certain to mean but that modest. to - categories. quarter, will still,

most really On the most geography. commercial are across are is getting we seeing areas what side, stronger that pipelines in

to about And to really And to to into we will implications In I as just they with that's good. of that addition, year to and especially all inventory about system, second the of be is so I are M&A that, consumer are see stimulus And the respect more business would we optimistic. is becoming those capital and lot the much think a what when going half I activity loans, which thinking the thing about positive of good are They spend, the strengthen. expenditure. do all the believe thinking put second been develops. the second businesses is starting is, build there's the signs. are see for going more are think probably year think say, that C&I start half that the And that is we have

think have down, second that credit one But – the significant been of in industry We other which of to that and side have see increase as has down consumers a on reminder, debt up cards some looking be seeing. end typically impacting an do is quarter. you at rates Revolve come ends just balances. of we the categories, allowed things necessarily up the has if I stimulus paying the consumer the the amount in

factors And offset bit. will other a so each those

and strong, to expect strong. auto lending has continue would I will be that that, very Our been

in puts lending near-term, nice will back And – think bit I a and of of to are takes is it's starts but So thing come seeing we encouraging we a do well. the consumer and the green that lot consumer grow, spends as as I the expand think shoots. a

John Pancari

know Thanks, for right. side Terry. M&A by the if of both around could lot attention wonder a talk a regarding scale discussion – big you the little on the backdrop. All about scale, non-bank. given space Andy, the bank then, the potential I and out it. I certainly, Got within competitive a bank deals need and bit whole And there interest,

thoughts to us you just see that whole but updated front, the also So I want your if on give non-bank. both can Thanks. on side, obviously, bank

Andy Cecere

space And about and focus looking we're business, Yeah. opportunities in and saw view past partnerships in open in our a non-bank think or what in Thanks, expand our geographies. consistent on, to new active with needle with continue John. as acquiring as about particularly which to bank terms we we've the those And you or And talked to customers distribution. this I at are of our and this that looking meaningfully capabilities would are from traditional either move then ecosystem standpoint through areas the either think calls, in we capabilities we payments our M&A. payments adding is

John Pancari

Thanks, All it. Got Andy. right.

Andy Cecere

bet. You

Operator

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

Betsy Graseck

Hi, morning. good

Andy Cecere

Betsy. morning, Good

Betsy Graseck

questions. the the Hi. from corporate hear think just view. a not to are as and different do might Hey, excited different in you of of you a side, clients are One, thinking And to you I the you RTP. institutions especially like wanted a of about that one first what couple payments bit but side, the RTP dig on point offer have I'm on corporate on there can little

little to not? that's coming I next or a the over bit there's into mover a few needle years drill wanted that if So and see

Andy Cecere

Yeah, is Andy. Betsy. This

a there's opportunity here. think pretty significant I

currently of we're that industries. everything way the working daily of First with the managing But different I reconciliation. a you're way the of of across lot receivables a pay, There the for from use comes customers and payroll, is all, payables, with think request information that many that auto it, are opportunity. number do cases there number a

is understand want Now them gain there's want customers you're to opportunity. we And we time to that's that and a that why because their working we're required and the the to – zero over change in of rapidly lot fairly that a believe them do processes going investment our getting used the in years. investment we are with have and migrate change about and all for years, there's to And challenge to opportunity, checks with that next the coming opportunity. to the but few and particularly work get on years significant wires pretty payments business mechanisms that to I ACH and business

Betsy Graseck

And then Or associated? your is is hard monetization through deposits? fees there of that dollar increasing

Andy Cecere

allow will of a unlike And works how Part of it a will transaction it and not a it think of part you per allow to from be I the sheet both, payments part do combination structure it to just of to be RTP things that for as is business having opposed our is the might fee fee. fees. today. balance perhaps

Betsy Graseck

because question spoke NCO bps around right? classes. Okay. that over you of you in credit, a positive know meaning normalizing on Or asset had also XX pre-pandemic some NCOs, on net And during mean were follow-up Like negative, rate? about we – I lower had that pre-pandemic towards just net the levels you classes Does asset certain time. that had then something is the recoveries

you you're understand talking of pre-pandemic, number what to when about? kind trying just So say

Andy Cecere

And high will you the to in. level you question. is here the with add then give But Mark short is answer answer yes, us. your I'll Runkel

think about we point XX If were to basis range. XX you that in pre-pandemic,

what migrate than XX to a one level. time, of is period As and is would Terry lower probably to normal longer you would said back that add? Mark, I it expect over

Mark Runkel

closer time, we'll recoveries to more add point spot the basis you're exactly And much portfolio and not that's some back XX seeing over thinking that down. on. to those range. we're more Yeah, to potentially a that we'll just to level, start we'll see normalized get normalize There's of back come see

Betsy Graseck

next next what And that? frame through, just time how frame? we that's other XX a Is or XX that more like months you've given experience been months cycles or about as thinking your and many for some be should time

Andy Cecere

to environment, First it's tried any of time time all, in I've predict this been frames challenging.

we get of else. I great So year. claim this I latter level know as improvement to normal things But start any the back to to than more we think anybody see that in have half today, don't the

Betsy Graseck

Okay. Thanks.

Operator

of Piper question Sandler. Siefers next Your line Scott from the comes with

Andy Cecere

Scott. morning, Good

Scott Siefers

morning, Hey… Good guys.

Andy Cecere

Scott. Hey,

Scott Siefers

beneficial to PPP in premium so you maybe Thanks I in words, closure just where the able for little would the any to? the the previously? could In then quarter? an is So, in normalize – contribution from are going maybe to taking how the be Terry, now? more on margin, a figured question. for given a forward? than Where you it the out and nuance to from NII other margin the little the second amortization impact quantify margin have might quarter, just And on lumpier we the FDA first thoughts think decline window

Terry Dolan

Yeah.

of being take PPP sort two question see sort perspective, range, a come just the business a the book us Scott, range. for we to our to size of depend prepayment that four we what five as two basis on of basis of based originating. will first. way up the from part From on we basis and From ended second down. driver upon in kind start is a quarter-over-quarter me a quarter, points premium of that amortization that anywhere how speeds second a standpoint, do big of to kind sort it, And quarter that Let that quickly have of of first seen big thing up points upon don't versus

a what of expectation to continue then little to our April, an down the meaningfully linger will a hard in prepayment June. impact But you but in May start second to So exact kind it's quarter. is come little that, put in of know, higher in – the have it exact an and terms bit speeds

Scott Siefers

seems well. normalization, maybe second things Once a back state, here, payments clear Once sort of opportunity kind of you. part How in large of business there's steady Thank traditional get two And Okay. if Perfect. could of a – rate maybe, to Europe those the the US pretty of we – aggregate, we as it of thought of bank kind USB? both a to the then on to return for there? sort where the and it just as the in great. a I get That's the longer-term rest compare Maybe that to or of flushes just on growth out? trajectory back businesses the thoughts sort any it does normalize.

Andy Cecere

Yeah, Scott, I'll take that one. This is Andy again.

I cyclical said, back normal, the as we think, going for to both you consumers as and have activities short-term spending as positive corporate. occur to as that's businesses get well

I our talked about. we is think in that longer-term opportunity ecosystem

expanding define of X So we we a we XX% believe have XX% share banking of the And customers our the in fact we because in than business levels, we to as overall the million that banking even relationships revenue relationships, these and banking our have and next Because And believe a of just merchant addition, million of we business neighborhood wallet. product grow is can to the $XX lower an above. XX% number can of have over over revenue customers XX% overall the years. few XX% in customers product. grow merchant less business

them but it's data, banking and just about their it's there. I leveraging pretty flows, RTP, their a the the sort payrolls, lot think managing payables card upside solutions, category. there's helping So receivables, significant. is the run with business their talked of And about what And their of it's in like just not business. that's And opportunity cash I about

and I corporate think as well. opportunity there's in additional commercial

drivers forward. will that be So will our focus one and the going growth think be of I of that

Terry Dolan

merchant making e-commerce and space. tech-led merchant I of investment in becomes kind have add is help of continues to of that that business, And over that that course and that range. in been is bigger I that, we've The space. segment other months thing part that our bigger XX% XX% to our the significant XX a that our been sort XX, last growing acquiring the think acquiring might within capabilities fairly And as a of

Scott Siefers

appreciate guys you it. perfect. That's Thank I very much.

Andy Cecere

Scott. Thanks,

Operator

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

Ken Usdin

Thanks. Good morning, guys.

Andy Cecere

Ken. Good morning,

Ken Usdin

talk had side. you million first, business, the understanding just MSR through on adjustment for can some your on $XXX outlook fee just you mortgage Where can this if us Question guys I and share more the mentioned it those wondering side, detail puts quarter. down. was business sale do of Thanks. you go you think takes? the on takers the been have and from mortgage here gain some production obviously, the on coming But but

Andy Cecere

Yeah. Great question.

that think of We been last think equation. the the investment. we on about think several the share. still when course of we've side home that the So the on home focused sale years, capturing talked side equation, we opportunity that. significant business, from the the making about mortgages have been we've been originate that continue side We've fact market there's retail of mortgage to the why do origination the we And purchase and mortgage reason that the over that to here's

purchase So equation of ramp to re-financings able side come be the of capacity capability up do We down. and have mortgage the equation. home the side or even on the to sale as the the continue to

that, that think is opportunity. I So an

enable outpace market our technology to and I continues think to us that to share. digital capture the be able competition that capabilities

So that's all good.

right will to the You're will up. be and And expect made rates positive. capacity implications be impacts I and the that with of refinancing the to positive have we slow would the as there will to we on gain something that start starting that's respect move sale to continue that has gotten that been in decline stronger. have investments think as But system

that the still going It Did to So our business. be year. come help, down revenue is likely part while to a of mortgage during is Ken? good

Ken Usdin

do mean lower settle you of mean year from on basis, still Yeah. - XXX? a just full got is I where do kind where it started? that you we could on Or obvious to on was come which just we based a wondering, year the down

Terry Dolan

No, it's in $XXX adjustment. in million XXX the mind, latter. I'm sorry, valuation is the MSR XXX, the about keep

production while significant there, we it's when that back a still the you first when think And origination strong exclude pretty year. quarter. that, or bit down the - some through and you settle will So we take little still from it out revenue in saw pretty

Ken Usdin

Right.

Andy Cecere

and was And Terry, a forward. phenomenon, temporary that going that more expect we of continue wouldn't at MSR valuation that to level

Terry Dolan

right. right. That's That's

Ken Usdin

Right.

forward? - - banking just more a of So year, the obviously, tick have not again, was might was you it revenues but year more check full mortgage been be okay, a of on comp going top basis, it's tough for full going to to a this a it

Terry Dolan

That's absolutely Absolutely. correct.

Ken Usdin

Okay. Got it.

flattish question, Second just on you costs, year-over-year. mentioned

high in had number quarter it. with the seasonal The even comp a first really benefit

I And that, a just know and of number I much of but usual burden want the COVID cost how in well? in to sure And then adjustment off down, that comes as the Thanks. is that, still so said there? is make seasonal cost that you came much as

Terry Dolan

had Yeah. we with more costs respect Well, to COVID, year. last

cetera. example performance-based significantly the of part in We lower, we performance Part down being continue it incentives, continue things to again, year, still come an think while that that, is hasn't need people when have just to been seasonal. relative until we there it's et funded. some, to every back the like you on that's being know, that given fully and ago. the get going and do. have costs, those to an payouts of compensation also of be costs looking refunding costs. basis, end that year cleaning at to And our for end the at annual impact that a When up kind you of impactful up last to is I looking is And And change all reset you it office, so. year, We comfortable the have

Andy Cecere

stock-based a part of seasonal third the zero. it - quarter in is that's higher the the matter comp way talked that times Terry, the is first for higher is just the for at retirees because because And we you of all account about

Terry Dolan

come that second quarter. will And in down the

Ken Usdin

right. All Thank you.

Terry Dolan

Ken. Thank you,

Operator

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

Matt O'Connor

it are some the about, you and just outlook give costs do we the Hi. leverage? expense as you this I in side question talked think the on things want a does kind that can can accelerating about And some good. what feel give flat bloated. on and like to expenses. the the half of revenue Because maybe us year us from Ken's of But sense first is on you follow-up can the still for back operating to you you XQ comments looking of beyond? so Yes, think

Terry Dolan

settling we've revenue Yeah. that more them environment, flat, manage keep kind in. Certainly, said, always we're be kind Well, curve, a able a to a we Matt, as do just and yield as timing revenue your challenging that things of steepening up expect but in positive kind see either rising our of would to difficult get operation, still like expenses of space environment, payments especially which still get achieve of we we into around. as of we the a then is and mortgage best is being. where out to or goal the of to And have can normal the normalization head ends

the the of going into have end a XXXX. hard of up strong do year to associated very about rest though, we focus that. timing think to bit We and kind respect So with predicting as expenses, the with a little

Matt O'Connor

And then, some of metrics. and a broader maybe, segue like asking different little business a way bit into

goes would Thank that Investor Those years? helpful. financial efficiency update gotten which some the in as Day, Obviously, world has look two feel it high. out thinking to at targets I'm you And to kind targets kind you. if has ratio, the laid of stale. like XXXX. out three any you'd the be You be well then changed. of ROE And quite metrics back What would updated

Andy Cecere

Matt. Andy. This Thanks, is

a return on that talked I ratio. I'm we on to focus And to going XX.X% tangible common. XX% think about

feel of quarter, your reserve below the more point, credit higher to a spend to item. normalize we because repeatable in the know that, we was to normal but all a was economy to levels. to comfortable and continues back strengthen, we that's not continue get And it the in where this that the this rates think still going release, year, that normal environment, it's be and I While as about

to on higher it's and of XXs. get higher revenue. because normal about we continue And we ratio likely talked get right to focus to standpoint, to which still that number but From point get new again, as we later talked get we than think our on be the which things And building is dominator, this likely about, what believe an low normal expectation the now, get can to is more environment, we to all XX%. the Terry this same is that more is the levels, when and principally year, what will into So we XX.X% we - as call, our we to that get efficiency normal XXXX. to

Matt O'Connor

Okay.

- this That to been target or the the once XX sorry, you quarter said from XXs low the before? mid-XXs? in So I'm the have

Andy Cecere

The is long-term low the target XXs.

Matt O'Connor

right. All Okay.

to imply look, obviously would the needs outsized leverage. there. that Again, So operating be revenue

that. gets everybody think I

Andy Cecere

Yeah.

Matt O'Connor

driven I that revenue efficiency have it's rates people it's Obviously, higher X%, operating think like to outsized few that years lot by and loans, grows need meet mathematically concern expense if the think and of the X% leverage. have that growth being understand targets. you comp, there's that, against a driven mortgage things But and you of would by can't I But growth. a if expense

Andy Cecere

if where revenue you are, directly comp And Yeah. related. the they're about think less opportunities

closely. about Matt, way efficiencies margin example, to we've your the the growth for on than, the the that mortgage, for balancing we're all payments day-to-day and to talked managing making business a looking that expenses example, doing investments short-term for managing acquisition, get operations lines to and expenses customers, always basis, basis. and you, we're digital point. the we're and against a our have and on just meet we're structure And compensation very tell business We with different So, regular a

as area committee. for of well So as I entire the assure Terry that's focus, and you both, can an management myself,

Matt O'Connor

you. Okay. helpful. That was Thank

Andy Cecere

Matt. Thanks,

Operator

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

Erika Najarian

Hi, morning. good

Andy Cecere

Erika. morning, Good

Erika Najarian

past loud you is hear actually I'm to base in is, from XX% feedback we that discussion years. and I'm the the sort you betting normalized normalize. have the quarter be XX%, But really can results to between in the of some of reserve In clear the And the straight question is here? And get favorably. the of operating XXXX. range, also ROTCE investments wider throughout calls will fine, is what normalized at you rates the follow-up the a end have what's world but leverage XX% well, through Matt's made sort in top investor this see? in initiatives you I'm end, again, of when wondering, we responded other Matt's your My And less rates a where words, the but have hit And point are has to ROTCE stock short the - other is to or you normalization clearly, of call point, potentially actually releases. imagine I upside wondering, we're investments least have XX% where of short Andy, did the a guess, reset piggyback higher end the of and the top question. you off going. second This get

Andy Cecere

think the significant well the second - question So Erika And aware those today. income, I point think, Terry the tailwinds. I point, year, could for all for And margin let loan at I think do half maybe set all sure, think starts from be points kind think back. the the same a set particularly come headwinds these of, goes some headwinds. the for in particularly growth become about have I from standpoint, interest reasons you're low revenue And payments me is - I and component, parts. which take reasons the From to up net was of which the and talked had of are your two now a we business, XXXX

across revenue So the has think all bias categories. I positive

we step-up an leveled investing go now. were investment back I things. increased in think you a we to one that more in that of XXXX, off If is, right is and couple Number had digital capabilities,

So same the years. few you're you saw to increase not see last that going that

The business that thing and will of opportunity also and achieved, And will the with looking from the efficiencies acquisition, doing has is operating us business. operational us for but the closures in about component. which standpoint, years, last the which investments as reinvested, we've of only I from allow Matt, second some some then been we're it's way And from bottom of talked the of come gain we branch through also favorable. allows not run our to more to line. have And our we're tech a cost couple efficiently an some customer it those from over the be stack, will XX% - digital,

I things those questions all answer I to the up So do. add why

Erika Najarian

just And it. a Got follow-up there.

in ratio was efficiency achieved XX% when Your almost XXXX XX%. ROTCE you

we XXs, then guess a natural concluding is, the to XX%? do optimistic I are by that And you if more low so down too here in that rate could be question ROTCE environment your back the normalized above being dial

Andy Cecere

Yeah.

think return us our XX.X% about that that have XX% on I get projections would that level. is that to the we think tangible to it is modeling we the the and we way have and

Erika Najarian

you. Thank it. Got

Andy Cecere

Erika. Thanks,

Operator

comes the Your next of Bill Wolf Carcache Research. from line with question

Bill Carcache

dynamics demand the either gearing you Thanks. both there's about consumer morning, excess and you Terry. to discuss do they outlook across impacts they growth of side, pent-up think the it commercial businesses, - hand great? how more work and reopening? be how Can loan think you side, similar? Is Good where think you your sides could it and consumer Andy that how differ you into are pretty liquidity terms your is response, on if commercial And would in may

Terry Dolan

Yeah.

we at Let that's equation. then you up through system, consumer and that, can to ramp continue side terms And also driven to In see on other commercial, being year me the consumer really help by quickly. expect pretty I the that consumer it there help we'll to here us will the talked when the as end going progresses, into are that predictions think I of out the of side it we kind us in that projections do the fee loans, which in on do I at And of or least year. growth, about earlier. the that. the consumer GDP words, stimulus from add up of that been really on. and first, spend, take put the Andy But probably the think see end looking versus that's

that On demand, inventories us that holding continuing that will and the side, you able consumer investments, of of to many need are think do some say to I be and make build customers that, there will, the the commercial is been things just have their capital in like again, order off. to meet form to if in which

So that, of amount subdued of that more exist. - as a earlier bit a little liquidity and a is probably fair deposit is the the timing because fact said, of there you though, that simply balances

what went Similar saw through. that. And to we to burn through that so they we need cycle of the kind last

So robust and think the to see a second it's is year that growth. And why we're starting that's of balances those to see we really probably sort deposit more more happen. loan going then first that what utilizing of before starts to half

Andy Cecere

I much, add Terry. wouldn't

last think still back category T&E. not going down last are the to to is that's traveling XXXX We category I to to right come we’re think come with be all is corporate now, levels. and the experiencing XX% That I versus back. experiencing going be what category

Bill Carcache

you're book over earning I asset weighing very is average which that your highest with believe ask guys and this from securities it the we've it. helpful. quarter, commentary, grew I to relative that an there of liability Got if correctly. overall from Can to to your management grow On like XX% here, That's history, wanted relative how excess opportunity the sounds growing liquidity incremental perspective? you to just seen investment assets that to mix and you your OCI risk discuss just securities expect from if NII you heard I

Terry Dolan

one steepen when the to the up and yield of kind it, here. opportunity the to curve continues even having going things end near do about think term, at Yeah. weigh from is to I least guess, of the we that to further we're in

until kind of to growth demand make and loan really that we'll in where so we with pick starts to term points respect solidify. our I But think the investments. near And those

as curve That, lags to kind expectation a us, balancing move of are a I is the curve kind think inflows of and And based makes to of that just having shorter deposits take right, sense. you of of you act to that kind a upon the that up look our the end some end up, the we makes to see end the that it out probably at of continues bit. portfolio the ability low deploy investment sense. cost part into longer

Bill Carcache

as introduced Got with reality? could last uneven I like active in the small squeeze for playing discuss things you benefiting But many field one with regulators are in Or are players, is one field? Andy. just how unregulated a discussions a fintech the interchange, of is under of your little - debit bit can expectation for more competitive those obviously originally the from leveling it. landscape is a which Andy, If you not regarding this that bank any exemption particularly Durbin, of them. there for the the new playing were who

Andy Cecere

perspective. a customer's on safety think is and banking from the from soundness a focus I on that our perspective

a which about that's area and liquidity, We level the protection, of focus. there, makes there customers and for - banks that to of our of using industry. think other sure oversight are You want very that ensuring those all same is safe real data things, a some capabilities, make those customers those for that same deposits

Bill Carcache

Got my it. taking questions. Thank you for

Andy Cecere

Sure.

Operator

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

Andy Cecere

Hey, Mike.

Mike Mayo

Hi.

guess, and I Okay. one question one, question. positive have of I kind negative

at you You negative situation of start US can around with there's the negative first, you've right? one had operating stories but the have pandemic. heard, we the years regulatory So and there's and Bancorp, look, it, I six guess leverage

of You in which has you’re payments, have you're your been over-indexed undersized and some which a capital versus don't been hurt. record have larger peers - in markets,

but, reasons higher. certainly look cost there's you mean, linked at the I quarter year-over-year, if So they're here, or

the You year-over-year, quarter like at revenues they're lower. look

in given the clear, are know that at improve PPNR should just and saying I to a but So, you've be some guidance, crystal is you point here? low from quarter first

Andy Cecere

in we're end you be going up do positive terms income of and see net been to talking dynamics about, that going forward. about we've environment yeah, the Well, when what I think to I rate again, is the interest thinking going mean,

I think that, that is a tailwind.

look with I into into, and will us XXXX think as payments start especially to the XXXX. half the latter of tailwind to help that also we the respect exists

a quite there tailwinds bit actually create revenue think I number a a of standpoint So, do PPNR that from is help us a standpoint. that things from

Mike Mayo

least quarter. second And expenses, said also you at the in flat

do how the of investing we suspect Can So, like you any more I those or But is, haven't guess branch I negative you why yet. you when more become are that leverage. question that spending total can on you what know connecting like your ecosystem, payments market? a competitor? the trying customers elaboration It's with like the less generally, what build, [ph] there? with customers. little more closures kind of digital more seen share just you numbers, disclosed your Can addressable all the to think you your game and you're you where get you're investing? Just is? a in end infrastructure. payment much and operating haven't one commercial like had, square I you're What's

Andy Cecere

to negative answer rest answer positive your the answer, levels question short is Yeah, first Mike. the quarter the for of a year. And from yes, on PPNR with the

not as our XX% what segment, have side million believe it's that's of XX% I commercial corporate. we in revenue talked And one for in business including terms business growth to about XX% the investing, there's banking the opportunity, about I - XX% and In opportunity. we're - to business growth in we banking where about, in customers. just just And talked customer

that been fact experience customer the ability ease and is from think use lot exists. a ecosystem of that of Where where exactly the standpoint, not digital they're a utilizing to I in customer So reflecting a customers investing fashion, that's opportunity in acquire the we've branches.

reflecting as the place taking the talked taking there. site. we're place are They're So in closing digital about, investing branches, way, you on the digital that transactions

it the - said about well. and is that you correct, way as we're everything that's So thinking

Mike Mayo

All you. right. Thank

Andy Cecere

Mike. Thanks,

Operator

next the comes of with Stephens. Your line from question McEvoy Terry

Terry McEvoy

else do And questions. $XX portfolio? morning. that COVID-impacted anything industries wondering, loan one billion down million, my $XX a good Actually, on every I'm list or the my basis. with within for just here. left on The thanks up ratio taking CRE, that is Hi, percentage for class ACL something to just except

Mark Runkel

continuing some you longer to office of multifamily out potentially a COVID-impacted that on I'll to way but play that bit cycle. that. we those continue That's a we in an either I it think - will, to systemic area as This you add Yeah. some focused is if the could and ships, longer is be with play Mark. be There industries, as on little just there's very hit we're work longer and could the very then out our through that focused of bit little right.

Terry McEvoy

That’s great. Thank you.

Operator

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

Vivek Juneja

taking for Thank changing that. applaud on that for you of we questions, see your A importantly, thanks my but listening. call. for time couple not Andy, the questions. you It's Terry, more always I

outlook it, If you - continue me, still to products. Firstly, if move Pardon see you lots What drove the today. though in I I with I missed commercial And see you what do see repeat if there's I'm sorry calls been do as good that? there? you did I'll What the making growth? even as it. that of that, for that. growth drivers start

Terry Dolan

Yeah.

the on it of product is couple of a maybe commercial dynamics. So, Part side and of year-over-year. couple

could. XXXX of remember to refinancing in or of the later, last as opportunity really growth Companies that are that or about a into and given and year. their year, had capital debt year activities. outlook, First that a And quarters, seeing rising of quarter of environment rest about of are dynamics even some their liquidity XXXX, just of year-over-year the year of is we is that one are some trying build future the when much is lot the think out a as ago now was refinance we with from rebuild was terms structure there if economic right XXXX There's they companies help occurring. volatile after fairly then I probably basis. to the implications just a for think activity on you forward When rates will a have they lot thinking they what there pulling capital some markets. that a And the

that. so taking they're advantage of And

So, product kind of things are the that of related activities those revenue et up churn, some help kind to cetera, through year. going pulling it's commercial hold to forward,

Vivek Juneja

you Okay. to that XXX plan? range. you last a - noticed look expect much? quarter And question to folks. Is so. still - timing mentioned And shrink you the then that down branches for want you out? how of that the on that double-digit Andy, little if were I different branches a or in is And over had so, that the part as what's you

Terry Dolan

Vivek. Sure,

we're of So, if ago, years now at over branches, just couple closer X,XXX. you were look we X,XXX to and a

we're down XX%. I expect So, branches. the major wouldn't of changes additional about in number

some have You'll and appropriate. markets levels. a and puts additions takes; certain consolidation you'll in wouldn't But see subtractions some current some significant expect branch fact, where or from I change in

Vivek Juneja

All right. Thank you.

Terry Dolan

Thank you.

Operator

question o Cassidy Gerard f with line comes next RBC. Your from the

Terry Dolan

you Hey, doing? Gerard. How are

Gerard Cassidy

you How Terry? are

Terry Dolan

Good.

Gerard Cassidy

to up Can of that What that, earlier but half I level you up? Andy, it have in by go us basis you and of guys you answers would year? the this - low you know sustainable net through the identified. likely one not said guys to of this apologize cause talked I the this with share pre-pandemic to the can question would about creep the XX XX at and to have touch the more you I it see think if why year addressed charge-offs of to levels if start continue normalized points you you to remainder will second could that have quarter on is a this, not

Andy Cecere

the a checks Yeah, I'm and in spending money now, of have we're can lot or of going start Mark have some that the things. right stimulus in. things Gerard, cash, of because individuals to add seeing then not other occurred so either

that back to is and the our traditional charge-offs near start reason the our liquid record savings a All And they consumer And that things card, spending just talked low and levels over low So payment of continue balances. in Terry card that's to our more about we those we're to those normalize expect to credit that's that, very drive now, right as delinquencies. sense. level. rates get part to utilize just credit impacting in do in of time portfolio, money

low So a let then well things frame. we by talked Mark answer. is level on expect that's the on to the area that up that, expect. and I'll one we areas migrate delay little a as pandemic to start would impacted bit a at about, that the And Mark a there's we're the time to probably would going If longer of then that be for

Mark Runkel

Yeah.

is asset focus on other in The that seen area strong value. I might we've

So a We've February if alone, continues well the example, strong. at as estate increase in as in you look autos residential be been to has strong. Gerard for X% auto seen value, real

be back year. trends picking which normalize. continue to And liquidity the to point, to strengthen, starts we to come the be you these So normalized down, if I see through half to more would could levels. think up, we levels lead move kind those spending activity as of the But of back those start we lower to would Andy's - I at RV think, continue

Gerard Cassidy

commented don't earnings a Andy, what calls, And over and question And I asked for is type are good. update that to just bought. banks you've acquisitions? about expanding thinking you follow-up, acquisitions. often for that Very But not mergers the past as then today. I give an of on think But what were possibly through they're guys your sold, just depository know outlook you strategy? are about outlooks

Andy Cecere

months be the and up a the bank XX months I from a that geographic XX it Gerard. is was focus even be something to importance customer sense. continues from acquisition important did than earlier, do a or come standpoint is And value little meaningful ago. or Sure, would a ago more our scale but that of think traditional

would focused on capabilities are what very I already that on. we're related smaller on on. the deals focus the we've in to our the payment the payments focused distribution. So to M&A-related we'll we're ecosystem, that's technology deals, that or And are And side, then other and building call, business, something partnerships those continue building areas done

Gerard Cassidy

I Thank And you. apologize.

you answering second are Thank you you. think I know time.

Andy Cecere

No problem. okay. That’s

Operator

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

Jen Thompson

to listening any earnings out reach department, call. have Thank you, our follow-up the to Please everyone you Investor for Relations if questions.

Operator

today's concludes This call. conference

You disconnect. may now

U.S. Bancorp (USB) 15 Apr 212021 Q1 Earnings call transcript