USB,USB.PH,USB.PA,USB.PM,USB.PP - Earnings call transcript Q2 2021

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Operator

Welcome to U.S. Bancorp's Second 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 11 AM Central Time, through Thursday, July 22, 2021 at 10:59 PM Central Time. I will now 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 Ashley, 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 X

Andy Cecere

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

remarks, share prepared in released million any the by which begin in quarter, I been In quarter. will earnings Slide our you has second loan and we loss have. totaled supported better-than-expected. Following quality Jody, I'll of Mark questions on the reported pace we reserves second Net this the our billion of economy, on X. $X.X credit outlook Terry, The $X.XX. quarter continued improvement per and take metrics. Revenue and $XXX

systems Notably, businesses, debit consumer of time above volumes fee XXXX beginning for income and since first the our June, total each payment the businesses improving sales were levels the from and card, while as three interest quarter, late in of our As net payments corporate acquiring pandemic. and grew of expected, business the merchant credit spending trends. for benefited second

first relatively compared with were stable the expenses quarter. Our

June value XX, $XX.XX book than per which was share our higher at March XX. totaled X% capital, to Turning

of we share earnings XX% quarter, form dividends and of in the the our buybacks. During returned to shareholders

Reserve's June, dividend in approve provides payable our highlights late results trends the return the increase announced Slide common on in XX.X%. our third Board a of management of the Federal October. recommend X Following quarter key metrics strong that Slide stress that in of in Directors digital a in will tests common X.X% continued we activity. tangible including equity X

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

Terry Dolan

Andy. Thanks,

quarter by growth loans compared line by to our first I'll level for C&I with partly of at pay stable increased strong discussion If offset X.X% liquidity. and lending, loans, asset-backed second high trends. while other drove Slide demand the remained loans as downs. a review C&I other retail you in loan X, earnings rates were were in start Average Strong with quarter our expectations. down balances followed increased growth increased consumer significant quarter We by pay turn downs saw activity balance loans stable payment reflecting with of in categories. Average supported a decline card continued in XX%, first a sheet loan installment mortgage a the credit the compared pay residential with

of basis as However, some activity the increased linked end X.X% period on end a in toward quarter. balances quarter the pickup we saw

X.X% liquidity compared X. of level a the with reflecting grew the Turning quarter with to the financial Slide X.X% compared by first year-ago, Average and system. deposits increased in significant

better of account with which credit non-interest second be the deposits X.X%. to trends quarter, Our grew overall The total linked while deposit In be Slide expectations. a now for quality continued shows time X favorable. our quarter, deposits X.X% year-ago. by compared mix time deposits to bearing XX% continues X% declined deposits than

quarter second the was compared of in quarter. ratio quarter at and X.XX% Our real ratio compared trends of a on loans end better-than-expected the X.XX% with the this nonperforming reserves X.XX% in quarter, credit of with X.XX% second other at to The the outlook reflective and estate assets quarter. first We continued of constructive first term the the net end million $XXX the of economy. released charge-off totaled

provides losses summary. net compared income June with of $XXX impact loan partly equivalent billion credit XXXX, favorable Slide credit volumes and we allowance the for of best earned quarter, allowance in and second In changing higher and Our economic These securities portfolio Slide quarter share. the or XX per and reflected as offset yields of taxable fully loans. quality billion, asset the totaled shifts, $X.X basis release a million. of earning by interest portfolios. $X.X our funding of primarily improving lower first the reserve mix our the level yields. on include growth The an X.X% investment XX, of results increased X earnings of $X.XX diluted X.XX% within estimate by driven

increased each linked mortgage a XX.X% consumer margin -- net XX.X% and banking XX quarter and year-ago hedging relatively Slide Slide rights product slower first activities. revenue of by non-interest basis payment was banking mix by non-interest XX payments treasury Each points driven in change management mortgage XX.X% offset income second amortization higher higher interest service our information by programs. than volumes trusted business. revenues XX the provides the of are net on prepaid broad a revenue impact higher investment by and income. Compared stronger servicing was indicate our a revenue growth the primarily by of trends, end was impacted credit non-interest increased linked businesses favorable link services revenues quarter in sale deposit Certain income payments related fair quarter businesses quarter activity. and strengthening In lag, revenue versus the charges. as based business June, quarter. highlights of Slide reopenings mortgage basis of negatively revenue, economies. with are compared year-ago, was impacted processing revenues of XX.X% mortgage loan a with on card stable revenue, basis, quarter, local year-over-year impact as of value total on bottom activity which our quarter the of On a basis X.XX%. corporate both portfolio trends Our payments card investment the revenue and of driven higher saw a reflecting expected composition driven premium slowing stimulus economy year-over-year and the on volume charts margins. year-over-year government strong of volumes increased decline both of lower exceeded T&E. gain primary Linked XXXX by reduced spend sales spending and levels. fees three and payments funding to comparable in that The the by and refinancing activity to of was as debit were Both driver and total the linked management the favorable The a well continue pandemic expense. a growth payments lower in more to yields categories Credit reflective across shift spend commercial XX.X% X activities Sales encouraging. three on and particular, increased sales offset card as increased in

has expected, consumer the and spend accelerated in than and are weeks bit. pace hospitality However, recent of a travel volumes faster we improvement rebounding

was linked on relatively basis XX, XX to non-interest stable Turning Slide our a highlights as Slide capital expenses quarter position. expected.

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

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

we the quarter. For the quarter relatively equivalent fully third income expect be net of taxable to compared stable XXXX, to second interest

payments to quarter, the to to continue favorably compared stable be We relatively second a but on revenues expect we'll year-over-year basis. track total

to our we While growth decline the are each improve to of in businesses sales payments dissipates. sequentially, pre-pandemic card expected stimulus volumes toward as three volumes impact of continue prepaid expect government levels to

stable quality We be Credit remains relatively quarter. expenses second to expect the compared strong. non-interest to

to than few expect net next the ratio we Over charge-off lower normal. quarters remain the

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

Andy Cecere

Terry. Thanks,

improve. as trends reasons results been consumer quality the our activity recover head have back towards year. to into and continues come pre-pandemic months Credit of expected second bit many positive surprise. as ago. to And and continues payments the Our levels activity faster optimistic than economy a came business half a few are spending The as in a the as-expected we second there are quarter we volumes have and we recently

cyclical for we well-positioned the over are out next quarters. We play the expect to that several recovery

comprehensive our our over and employees their distribution thank equity we and and throughout and importantly, several banking industry-leading by the quarters, digital and given are growth payments I'd supported well-positioned More capabilities. business deliver our work on world our to mix, hard dedication like on to year. the next class holistic expansive model for capabilities, superior returns

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

Operator

your [Operator first Graseck And with question from Morgan comes Stanley. Instructions] Betsy

Terry Dolan

Betsy. Hi,

Betsy Graseck

Hi, good morning.

Andy Cecere

Hey, Betsy.

Betsy Graseck

discussion in guidance little the payments bit the wanted a just I of to some to dig around Hi. and the business.

accelerate that mentioned expected. payments came would that you in a payments XQ. think you than were revenues know I the I expecting in faster little

think that to but that. to just So, down slowing is but you've acceleration you than that in here, because think for are be it it rate a Q-on-Q, it guide then came flat flat wanted XQ? you're with I expecting, being you expecting little mentioning the the into faster got you're or Is I conservative dig

Andy Cecere

to of payments, sales I to and maybe exclude in of in the lagging, things Airlines the talk about the you to total. and volume bit payments things, of especially think of is it's airline be again, And a of a keep kind continue by combination T&E but little I that in very are be overall, Yes, stronger. getting mind just three sort when continues strong, think terms T&E momentum activities. kind and Betsy, businesses

starting any airline is quarterly of and fact, of you business up nicely. pretty sort results, travel if pick really leisure listen is to the In back levels travel pre-pandemic the to to

at quarter, volumes as look to sales area a and maybe it thing area, slightly sales we that highlight XX%. down is let take or bit, credit sales we debit maybe just about travel components. entertainment. particularly card lower XX% in talk the but quite the sales again, T&E say would what first you it about expected. about would just The say credit I a is a revenue, is is three an faster are The are I still a me that example, and would credit continue exclude strong card but to than when maybe bit corporate improving we little be other the continues Debit in expect little are rate, one area one bit that If second had

that expect though, but peak a of The respect of we So and And to been what that normalizing, is of I to third momentum that prepaid to thing quarter with type would has third the revenue. card we expect would kind really be continue. that the was was year be back processing closer say second quarter particularly strong, one to level. quarter normal slowly last

going to invest in second impacting and card The that end quarter third debit taking the is credit growth. up is thing that opportunity we for are to revenue the

some So up we're customer be generate order near-term growth to account opportunity able in giving acquisition. to

that's normalizing be on that XX% the would revenue and plus I it's credit XX% category. fairly second a to from going to And investment to revenues maybe that perspective, overall a card it card The relative other payment about that normal overall the represents just basis the to of debit cause factor stable prepaid thing really of mention quarter.

Betsy Graseck

Okay.

that's offsetting the as even really is is T&E really you've go the that ramping, XQ, So you into conclusion? that prepaid got though

Andy Cecere

right. that's Yes,

Betsy Graseck

space, overall Got And to thinking right. how could the a All loan card credit box only little about bit that the maybe Okay. not with book? it. then and talk about the you you're regard but

Andy Cecere

Yes.

product I last we now we across on quarter, this a to that all but credit mentioned back think categories. So pre-pandemic the had fundamentally box really the we're level

Betsy Graseck

consider C&I PPP. the I was especially your good, if And

So saw going strength generate you to on there in what's the just quarter? wondering the

Terry Dolan

asset-backed that strong, mentioned been We improve. things. lending and has different been continuing to of securitization couple a there's Yes, it's

the the the the one environment, seeing pay are that think that's occur. that is of things or simply The we're to payoffs, activities fairly markets that's to one thing be take C&I amount And it's to bit that because continue of strong. I because though I for develop customers generate. in think particular rate to going continued liquidity to we the that downs that category. continuing little are watch time and have a also simply continuing And capital of to

Betsy Graseck

it. Got

Terry. Okay. Thanks Thanks, Andy. so much,

Terry Dolan

Betsy. Thanks,

Operator

you. Thank

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

Matt O'Connor

Good morning.

Andy Cecere

Matt. Hey,

Matt O'Connor

last last flat the different as loan you similar pick you fees and you one in kind give quarter. if quarter growth beat plan outsize you would for thought kind operating the the third costs there's by quarter And last up, as that up, leverage? even you pick good to of picks you thematically, fees So see quarter, operating a hope. and that outsize could you to while hope was don't as But investments in though rates guidance and quarter leverage and know but had of beyond out, the payments I to guided make, that up? is case get the can revenues rise to formal hopefully still

Andy Cecere

refinance especially the business, toward that nice away it's many toward that made in mortgage. some Yes. I -- whether we categories the as investments business, benefit, We've have mean, very purchase we to mortgage refinancing expectation. starts within certainly the shift across our from different see

be Our capabilities there digital will very beneficial.

we growth investments, where sort auto of with starting management the in strong payments end pay example, and that to made that respect is we've term off. think to see to like treasury gains, things continue of for I that, capabilities businesses

the So yes. is answer

going that very about making confident investments we been nice some fee us are to think growth as generate that allow the think to we I we feel future. the have

Terry Dolan

operating And, and to the revenue, have like we loan a challenged, Matt, in margin in flat a positive expenses to relatively revenue but then being little headwinds manage stable continue about growth environment this bit more environment. with leverage we're talked in flat you will and manage normal curve we yield and the going

Matt O'Connor

sold USB. ago, a And announced company years then just to I had to Maybe acquire owned into deal Okay. XX management And exactly this PFM. is that myself, separately, you part how -- you recently just it FAF. an think asset of remind you what that does I had about fit

exit get into a management a So in is of certain this investment a wealth back part segment? kind the different business or of

Terry Dolan

a referenced, ago, we you sell did business. like so bond but equities Matt, Yes, was that few years and

fact billion the We have in about of retain to continue money and management. business market assets under $XXX

this focus it business base pools. government the around banking nicely business. so with that particularly on our which and very doubles particular And treasury investment or our is fits space a And government, into corporate essentially trust management, government

in on So acquisition. that it's nice us a additional we're scale add gives business on a already customer to

Matt O'Connor

you. Okay. helpful. That's Thank

Terry Dolan

Sure.

Operator

with John Pancari next Evercore Your question comes from ISI.

Andy Cecere

Good morning, John.

John Pancari

morning. Good morning. Good

see side, growth back about you -- the as reasonable that What the how well? you out, the of a On just like business a continue are as year. the flagging rebound various couple play It any out that long-term the to in on years guess how viewing payments then of separately, rate Thanks. and a you're expect than intensifying And seems space view to certainly payment we dynamic competition business? perhaps you beyond I can growth this potential think you it's differently today help -- ago? do view is so as the us

Terry Dolan

Yes.

on just longer Certainly me think single be for that when we we businesses, about to basis. maybe how about good mid the us term a is target let talk particular believe in able think a achieve about that payments to digits space. we So

merchant represent revenue acquiring pace as growing been making within I today Elavon, some tech-led some nice it's our have at Elavon revenue. space said, the acquiring or investments. We about of merchant overall fees XX% example, for about that And really --as well. The

to have space the to a for or and are of think RPS BXB XX% XX% type nice payments investments But as what real And of -- overall legacy digital opposed all to So, treasury our going I in treasury account as represents made go. as different management to today those types we've real we revenue an are in example. at tech-led about investment that investment our opportunity growth the time it's forward grow going half will revenue digital in investments And management products. products on of clip. do business that leaning to then they acquisition a call I would and that contribute the

single real opportunity that think mid So there's for are some digits Andy? ballpark in anyway. I that

Andy Cecere

said, our would I XX% agree, point weaving Terry. the together I reminder, comprehensive the current just to you and million addition sort is than focus this have a over penetration. into to what which I set. think banking a on and banking with business product of in of payments less And banking, case, And a as capabilities we customers business

we've to talked the the we next lot base presents of fact revenue few that I And opportunity. expect a over XX% grow years. think to XX% about that it

talked in So addition Terry opportunity what to I think additional an about. that's

John Pancari

right. separately in ratio pace with type target the capital and the migrate All still factors Great, level internal X.X%, -- Thanks. migration towards front that target? towards we the should back timing down how think or CET that X.X% what your helpful. are of at at that terms Then That's about thanks. on you sit of influencing

Terry Dolan

It's Yes, we And under think our capacity have far. billion thus buyback have about that program. $X we I of half question. about and program purchased a currently great

Then top then we product or present the dividend, extent and organic that about look continue various growth to replace that opportunity have in the sort of program. expand We or and Andy to then to under future. program. we'll about it as buyback really the themselves of being buyback might deploying So along priorities utilizing priority at to the And talked sort we earlier. be that of they purchase the the kind capital certainly able think opportunities capabilities, the or inorganic

just an from how sense of it it. So, continue back standpoint, shares. opportunistic market when we're in think that's we're timing end to buying From be to be I kind economic to makes a to standpoint, prioritizing both up going the we but watch going

John Pancari

Terry. Got right. All Thanks, it.

Operator

with Scott comes Siefers Your from Sandler. next Piper question

Scott Siefers

Good question. taking morning, guys. for Thanks the

Terry Dolan

Sure.

Scott Siefers

I to the positioning of Was competitive payments. of in revisit sort this of hoping notion sort

I I it's of of the aren't USB versus some vis-à-vis lot trends volume payments as other of just businesses, think the hear that competitors such that is things banks, one much now. work fintech the on and wonderful positioning what but we'll the differentiator on them your it of sort -- doing big A of like you're think newer a but and to as that, you just might your well. need hear -- sense. curious stuff some makes sort competitive do are overall, be thoughts would conversely so companies well, especially But striking

Andy Cecere

put And as talked on the front run good their are as capabilities payments about is digital we us set think in strong we great I and strong combination, payments fact companies Scott, the product like I together, the and that these Andy. -- important. think, the weaving is I important capabilities has banking that so I businesses We the Terry to particularly have banking So, I this capabilities more how referenced tech-led, software we're growth that of And customer current differentiate acquisition think investments more and into a capabilities even and customers, this a rates. earlier two at think help spot. to to really is going making to higher One extend But the comprehensive achieve to and the is it's ourselves. banking fronts. around current importantly but on payments

focused where on. that's So we're

Scott Siefers

them inflows sort if Perfect. you. Terry banks [technical sort the Thank to all of maybe All of own about like thresholds which Okay. maybe given at away their degree the you're you seeing then related, deposit to talked And right. institutional difficulty]. turning and separately, maybe largest

side of there's the in the customer kind And necessarily there immediately particularly loan about for but sort area, when to way potential those ton thinking there? growth what's robust of institutional funds utilize so a the acquisition the deposit not of on what you’re

Terry Dolan

side. our a on et has that exactly then up institutional and end us. actually segment coming strongest at banking are other occurring, that think that liquidity strategies, been question. growth down of the great It's the or that on business where the implications it consumer when is customers staying side the rates even The has hard a and institutional rather Yes, to our consumer acquisition being maybe But and what on than we strong that the flat offered, of growth because really is of cetera. and actions relatively are know that's little upon is coming I looking sort from our growth But really probably have. capabilities digital the based customer

Scott Siefers

you perfect. for much All guys questions. taking Thank Okay. very the right,

Operator

Bill Your next comes Research. with from Carcache question Wolfe

Andy Cecere

Good morning, Bill.

Bill Carcache

and just more for thoughts made Hey, Andy a follow-up the and for bit and supply a growth of to maybe moving potential good commercial inflection, greater us on could look little outlooks juxtapose and to sort around, in consumer talk all and hear the and you seeing Terry. each of wanted businesses ask that maybe parts the and if that. other. the the I to you we're morning, you specifically, the little pent-up at of bit about where your given kind you dynamics all see demand as those chain all We'd love liquidity next comments

Andy Cecere

Yes.

strong the pre-pandemic the payments weaker Bill, about still to back continues card be recovery than entertainment, Terry even all occurring the while of the rapidly. coming trends talked particularly travel and and levels I economic the in think strengthen categories, across and things payments consumer on lower, opportunity spend, and like side, three that's the So,

we the banking was that side, which talked and I positive. then is combination sort in have And that's secular of a So about, of trend business. this the payments business which

business And be would the would two secular economic the so I those on the recovery side and consumer areas, focus the side, the on emphasize.

Bill Carcache

to it I hoping thoughts give Thank could their to making you. of order transaction to executive take And and by cheaper it. banking data Biden's competitor. to them with switch on allow was aspect Got banks requiring customers financial open the your easier then banks you that

you high thoughts curious level if any had Just that? broad on

Andy Cecere

human finance in digital, think complicated, our in all digital is and want customers. having best digital people I the of to combined be we these with And element in addition capabilities that the we're terms critically of one to because reasons -- is Yes, to have capabilities serve the important. investing and very great

to what on. compete going how we're that's focused we So think run in long and we're effectively that's

Bill Carcache

I in one Got it. could And squeeze if last one.

Andy Cecere

Sure.

Bill Carcache

credits? being any talked sort tax elevated, there's like to And the this -- payment child the guess dynamic been stable, of Is you recovery, tax concern but thoughts credit the there child Does I and maybe payments of revenues better. rates that? extend the push with whole but improving around further you -- improving get they how about that out? it are Or on guys viewing hope sort any

Terry Dolan

be Yes, tax it when maybe think great I one spread is in kind a end getting paying terms to quarterly gives of lump it throughout of And on lifestyle of more maybe year, bit a I effectively the or it the their ways the to about up think big in just little to think that basis opportunity sum. sort typically people more you they utilize child credits, now of out the bills. able

I do as timing think don't I as Andy, in have anything, a it perspective? So change but driver. terms is think of might I -- much you don't don't different major -- necessarily a

Andy Cecere

XXs in also quarter, lead I of XX% the growing obviously will Terry. we've for payment card It and high -- the We spend, or on combined talked pressure being in next think perhaps few the but the quarters stabilization rate on side. card on with quarters balances, to agree, growth the put a has increased that rate number I payment which second about stabilized. was but actually it's

Bill Carcache

Thank for questions. taking it. you Got my

Andy Cecere

Sure.

Operator

from John Autonomous next question Research. with McDonald Your comes

Andy Cecere

Hey, john.

Terry Dolan

John. Hey,

John McDonald

on for if you unpack bit interest just Terry, next net a outlook could wondering I good as takes thoughts income. kind was at morning. the stable the quarter margin of and Hi, versus on puts NII volume little you for look outlook

Terry Dolan

rates growth let part part really big had have driven investing kind of particular just in step a growth had the quarter. that we we of was mean, mean of me at point of to when in that by second back, in XX-year that XXX quarter and the we opportunistic that But work some cash put I what We portfolio the a in investment Yes, done. the is in I in that was range time. nice terms kind were

We our or we of -- also bit bit, stronger we quarter saw the expect than going are end puts second, is and expense to modestly the but relatively is next the the in being growth When that I the -- premium loan quarter. basis associated up amortization lower. that the the quarter, about expectation but flat, linked be curve little I much a then, comes long to not benefits little maybe some takes be margin what We is think think relatively the with the second a saw we stable. on and think

then when continues of strong. combination about that card very they So, elevated high continue And I of in the the consumer be think, think consumer of when in lending I growth, up think nice spend taking seeing are talked kind have of bit balances hit, place. at payments we a are the all the also end maybe securitization of timeframe. things. they'll levels, loan the it's as help be are well. not increasing, asset-backed about a to Loan credit down we will about think be think kind end growth, that of card it, And space. of growth effects get credit to different how lending. We looking those may We really of that's kind I at the various little rates activities a little And types a it bit some Andy we the we that think components it. do because stronger, right expect June saw lending at we auto to while coming

John McDonald

on thoughts yet, Okay. near-term, any And it not volumes revenues banking touched in mortgage the on but sure if you outlook the for Terry? and

Terry Dolan

slowing because what mortgage we to the of hit Mortgage simply of refinancing year. But would today purchased, When and first sort purchase that of And business, been versus quarter have that XX% its kind of been it's about refinancing banking, coming refinancing. I has over the quarter are that Yes, time. last level influenced second think by about it revenues then fourth fourth the down in the in XX% is banking of refinanced. high of the been we obviously, activities in back XXXX, mortgage of -- banking quarter ballpark. saw mix call pre-pandemic kind XXXX, it

banking and actually in that we've think compete. business, will help the kind things capabilities, pre-pandemic level sorts all that of mortgage us digital is our mortgage our those I made to and back So, investments of retail, that

I mortgage beneficial. We in purchase equation, think market have all of taking the side of the been share, especially that's kind

John McDonald

Okay. Thank you.

Andy Cecere

John. Thanks,

Operator

from Jefferies. comes with Ken question Usdin next Your

Terry Dolan

Ken. Good morning,

Ken Usdin

Good guys. morning, bring in can you just of I release, what released I type PFM. of et pre-tax I if to but about think follow-up know Hi. earnings, cetera, contribution the on us and revenues it help could use the weren't was capital? might income, press wondering details And

Terry Dolan

we usage haven't insignificant. capital mean, Again, disclosed I it necessarily of from that. perspective, all would relatively Yes. a be

time thinking upside up that the the about been of waivers may one acquiring experiencing, the start some think fee how business particular to if business that of has recapturing ended be acquiring benefit of benefits when the we of see in rates, that's we at that is I do it. all point rising this we to were

it a investment gets nice because for pool So, local government that acquisition us market. again, us into

But, overall, asset We one space. market complimentary management a particular that market that we to have. in a company will just business perspective, money have share number the it's from

Ken Usdin

core waivers do how changed in have should quarter management trust might you improve? second that were your point, Terry, much and know investment And what and sequentially that business? the on And fee

Terry Dolan

QX. was be And think QX, a up the peak. million $XX bit I going $XX million is from to little

Ken Usdin

Right.

Okay. Last one.

how just what -- that in the helped higher as on that fees. any release And much quarter mentioned a you loan loans quarter? wondering, you was was NII was if You I'm have press of the PPP color you. Thank also in quarter NII helper? the second exit just the by delta first

Terry Dolan

quarter, about Yes, going fee example, to when or in for second first I we significant that third significant. of, be to quarter mean, don't And the delta we wasn't is recognition. second think terms think

Ken Usdin

specifically? PPP For

Terry Dolan

For PPP yes. specifically,

Ken Usdin

quarter? And second the loan meaningful in were Okay. fees

Terry Dolan

that, with little but really. you -- bit no nothing of Not mean, have benefit of a significance. mean, I recoveries, associated you I a have anytime

Ken Usdin

Thanks, Okay, understood. Terry.

Operator

comes next Raymond Your James. Long question from with David

David Long

Good everyone. morning,

Terry Dolan

David. morning, Good

David Long

I your split loan growth portfolio making vehicles? can loans strong. new auto been color versus some to vehicles if you used in for the has on wondering provide pretty The just growth between

Andy Cecere

it's Most used I There our new some there, say new. of mostly in finance from majority business, our activity. but is is dealer would activity is and

David Long

it. Got

as Okay. mortgage the banking, it And amount quarter? then do relates impact have to from adjustment the of MSR the second the favorable in valuation the you dollar

Terry Dolan

net to $XXX in I'm ballpark. think I the kind of impact Yes, first trying was in quarter, million, the remember about that

we ended would be So of that seeing. that up benefit the kind

million first was So and -- it's it differential. million it probably the about of was $XXX quarter $XXX

Andy Cecere

second it's I Yes, I million quarter the $XX about $XXX think and guess. in first negative that's right. quarter, Terry, about in the million

Terry Dolan

Yes.

David Long

Got it. Thank you.

Operator

Your next from JPMorgan. with question comes Vivek Juneja

Terry Dolan

morning, Vivek. Good

Andy Cecere

Vivek. Hey,

Vivek Juneja

Terry. Hi, Couple questions. of Andy. Hi,

giving in card your be you'd due investments mentioned, would near-term about for the growth? why up you you how what one, First growth Can little and slow bit some to down investments. long? talk card that side a And

Andy Cecere

as line. well cetera, as your acquisition revenue account residuals, et customer both rebates, part that sorts things your are through are costs, going expanding, you're acquisition the volumes anytime of all of card Well, Yes.

that just that at particular opportunity sales point how those ramping momentum, strong just given it's the in thing the think It's investing investments, to mean, point much the the always in quarter make it's extent growth. so, moderate right sort to we're up do. We we're going investing -- to at I just think particular relative time any next, sort business. kind this to of time. we from that the constantly is of of in one And quarter-over-quarter Vivek,

Vivek Juneja

third quarter, standpoint from how fourth quarter, the from we think then is should that then a hurt timing out in the we standpoint, a flip be comparison a other that Terry, about drag that, should not that but way or as would model And quarter-to-quarter?

Terry Dolan

I the fourth quarter that don't amount but that’s the Yes, right. in of think the relative to third drag quarter, the increases

Vivek Juneja

where you a and you it said, quarter. can compare pre-pandemic. versus MBS Okay. was Different lower color amortization premium Any in helped second are topic, how of little we what

So much room more down? how come that to for

Terry Dolan

linked third over and between Yes, to X we amortization I basis. in And reduction quarter margin the basis a it quarter on expect second will quarter. points, premium be up going mean, of time was was similar impact kind kind would X that as I in somewhere in what of the the saw

third So, fourth I for expect starts late the It get quarter. think into to that kind moderate out dissipate XXXX. benefit you of kind and in, sort of of could example, that into as or same we

Vivek Juneja

Okay, great. Thank you.

Andy Cecere

Thanks, Vivek.

Operator

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

Terry Dolan

Mike. Hey,

Mike Mayo

Hey.

Your tech spend is numbers. up XX% year-over-year, if you look at the year-to-date

much more what combining you on on? you spend banking is, this are expect, bones And the payment year? So how any you'll the can spending and the you think meat increase give on businesses. question What you do do percent

Terry Dolan

Yes.

spend, So of maybe expenditure, that of about rate, if I capital run talked is we is overall -- what a call kind will. fact billion technology $X.X kind that an from make half of half broadly. that of but investment the would of Well, in about you tech we from

is run little been you're get that to investment, increase of forward have seeing, would we really a the -- time. a will. making at expect bit time tech takes of amount going running The for change that about I We that And kind spend those some you period you're we it level when a as lot. the anticipate that Mike, if for of it will think into don't rate, --

we focusing think what end the think time. I -- has changing been on I up over

-- our were defense. modernization, tech step defense. related to back as sorts things ago, those to stack offence offence years I XX%, it initiatives, digital less if example, For it's opposed of was today X playing probably to having XX% around more X, play And

as go shift And -- think the good, it's I is because ahead, think forward I'm leaning generating more defense. opposed to of sort sorry. I So more activities and revenue

Mike Mayo

bank versus to the you'd like is bank, the just clarify, XX% I now the And run change change bank? run XX% the say, bank,

Terry Dolan

Yes, I of good describing it. think a that's way

Mike Mayo

this And the to you question it vest. -- every guys I ask close you be playing Okay. to then quarter and very seem

give go or think on time, as concept. have call customers? not after And for serve but bones as like been releases any look don't you lot existing more clearly on the time businesses one a meat banking more the and combining the give be us I investing you to said -- payments to Can the in You but for? that then going better, I more when what look should capture to You where external we're to also we it? lot to the or you in when new know far is, want the clients strategy said a specifically, see

Andy Cecere

of give earnings spending lot the end the in that more deck year Mike, Yes, the tell you in We're it's I'll of and Andy. on this. time something we're information going by a what, you to release to put on internally

looking are one on at it priorities. our basis. We top a It's regular of

and the both think to I it's a well more before year. current give this as customer you penetration a acquisition, from of end opportunity huge increased we'll customers on the as

Mike Mayo

it. All you. right. I'll to forward look Thank

Andy Cecere

Sure.

Terry Dolan

you. Thank

Operator

from comes Piper Sandler. next Your question with Scott Siefers

Terry Dolan

The [indiscernible].

Scott Siefers

[Indiscernible].

Just the on some last curious, Biden's executive order President regarding week, in bank scrutiny transactions. language increased

you come any on ramifications how change if of thinking opportunities curious have early that calculus your Just on up? or not any might sort or it might about thoughts might

Andy Cecere

Sure, Scott.

we any will best comes what's So about, how would all consistent mean bank to M&A make with we and have about order we to about sense be and and look and be will the for by it. need as and we're ultimately that and guidelines. will But we've And thinking additional -- for executive to it be strategic that decisions driven M&A. that's deal believe our financial would been disciplined attention at I stakeholders think talked when opportunistic want

Scott Siefers

right. you All Thank perfect. very Okay, guys much.

Andy Cecere

Sure.

Operator

with Gerard from comes question next Cassidy RBC. Your

Andy Cecere

Good Gerard. morning,

Gerard Cassidy

Hi, Andy. Terry. Hi,

Terry Dolan

Good morning.

Gerard Cassidy

levels, mentioned what continued touched you loan it you growth problem this the for categories. offset elaborate like borrowers your able don't extra activity where which which pay many they the dealers, comments you? down on commercial may down about contributing may not could C&I and have be to growth C&I and all inventory, accelerated XX months, customers the to on they chain the Is on to get to therefore asset-backed be just driven increased type know by and telling this pay your question the But the other lead out partially of it have was in loan this. auto, by they're just flow you just are The example, slightly down the of in cash supply chain can is then issues paying have further for to We in X Terry, companies, lending, and the activity. next change your with about as demand. that supply commercial opening but elevated liquidity ironed starts auto

Terry Dolan

demand up. will pick mean, I Yes, to commercial start I on do think that

to ago. are than a least I and see example, the liquidity, the, And does occur. that of I across they term mean start sort just And that. they for I -- actually at that -- that timing, excess longer translates when that. have matter we're markets, think that or they optimistic to those starting when into customers I we And even two quarters to making talk investment. today think usually some through I a get they do that that capital more middle -- think of it's making certainly it's think our much or expenditures, were business also need quarter of market

we'll I in is think of time dissipate think I that impact. that. continue think to to that over that's I the transitory, I But that -- think that terms we’re so, impacting kind that see will some think extent. I more chain do of And do supply

Andy Cecere

Terry, I strong, they've think right left the And sheet. awash balance other companies liquidity. They sheets, agree. our in balance -- I and on balance many is more would have the reflect are becoming only which efficient factor been the of deposits are key strong in on side sheets their the

that's think factor. I another So

Gerard Cassidy

Are what's be this that inflation? what follow-up about they're discussions able as customers, not you've with been them? And customers to going their on view pass that to color to with that your to means on in and for discussions customer it are the having about commercial any customers, their just or they guys a concerned higher up these prices inflation picking you outlook these

Terry Dolan

Gerard, of a manufacturing supply think, well. are passing increased in it factor I the on their a some in recognizing number our particular pricing and as companies costs Yes, is that they're of

right this this think it And lot around is is I some that of it's how I how now, is So passed a being of think lasts, sure. long can tell on, impactful, on. often one question not it's is, I But passed debated. do being you I'm it transitory

Gerard Cassidy

helping the deposit touched then about side. Andy, And just the good. Very a on liquidity follow-up. you as

been oriented that materially haven't Fed, than their quantitative We also that their all folks, you banks, place, the of more of so maybe system. folks. the banking maybe the because deposit understand impacted be and wholesale end that may you you tapering by year, has part easing what let's pressure done growth in takes or the that's deposits there more probably when Do really on hitting think by the for you of quantitative easing some to say, monies

Andy Cecere

money balance market have funds or sheet out off again have industry but deposit This think some as also point I on standpoint balance I would see also certainly Bank, or we go benefited that. opportunity this off that this deposits, sheet. I diminish, think to do moved U.S to sheet any sheet. and don't that also have growth we some think there's have the mix So is Fed from of I that dispute deposits balance you'll some because a starts the impact we either to in balance around funds. in

some sheet So to migrate on that balance the more component in might might environment. --

Gerard Cassidy

Very good. Thank you.

Andy Cecere

Sure.

Operator

Mayo Your question next Wells is with from Securities. Mike Fargo

Mike Mayo

Hi.

Andy. question, picture follow-up. big Just A a

operating year-over-year from the You tactically while X best reasons quarter-over-quarter still else. and pandemic guess this you've negative is it not of And like all it investing had everything positive it's regulatory seems. But it's the a ahead the in leverage. going a negative little And the the that, negative. we leverage know had seems to on years and for operating I to

turn a X wait too fast sure. know are of or that it seems kind I’m It getting negative expenses. and that I go, ahead leverage revenues of year event? early or the where of be be in willing you call a operating for long want next but growing So you is there, to it's is might not may like years to I'm been a but you

Terry Dolan

Yes, Mike.

is before, I a flat is and flat this things challenging forth. this so normalization function and yield curve talked returning we're low like travel So and revenue environment of we going And still and expenses about, growth environment. mentioned in of is challenging to normal I manage than the loan like revenue function which to think the entertainment lower the things

normal get revenue then get leverage That's we start normalized the to until we when how positive flat and environment. company. more operating we're managing So to a

Mike Mayo

Got it. Thank you.

Terry Dolan

You bet.

Operator

Research. Your with Bill next Wolfe is from Carcache question

Bill Carcache

Good morning. you. ask to follow-up. I wanted one Thank just

historically have guys You your about been very to of value. M&A create deliberate use

for ahead, has helpful. of without an or win there same infrastructure traditionally? markets example, and into new is look having would look you customers is expand bank of that differently, think by the M&A existing thoughts franchise the sort likely be opportunity As to taking to your strength acquire to as it legacy branch topic to Any around

Andy Cecere

Bill. Yes,

about factors. the we've talked So

consumer to business that making on. core acquisition ways a that One grow progress great is continued initiatives on and acquisition standpoint. our with organic continue Here's a retail which few from focusing we're and expand around we and digital

The leveraging this branches Charlotte, first of have were in we light we've really capabilities. digital and second expansion North fewer branch digital is like Carolina, concept data doing and where

what's of are agents opportunities is we've the those our It's M&A, be in third just upon traditional to our deposit really who more us. refer done what partnerships, products. card XX,XXX all Farm. extension would and with working The fourth we State an of And at and capabilities. like nationwide front depending look

Bill Carcache

it. taking Thank very Got much my questions. you for

Andy Cecere

Sure.

Operator

are for I no back closing now hand time, further call the this questions. remarks. will there At

Jen Thompson

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

Operator

you conference today's Thank for participation. call. your concludes That

disconnect. You now may

U.S. Bancorp (USB) 15 Jul 212021 Q2 Earnings call transcript