USB - Earnings call transcript Q4 2021

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Operator

Welcome to U.S. Bancorp's Fourth 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 11 AM Central Time through Wednesday, January 26, 2022 at 10.59 PM Central Time. the Relations over U.S. and turn Director Jen now Investor of Economic will conference to call Thompson, I Analysis for Bancorp.

Jen Thompson

you, President morning, Andy good Officer. Dolan, Natalia, me Financial Thank are today our everyone. Chief Cecere, CEO; and With Chairman, and Terry our and

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

Andy Cecere

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

our and $X.X I earnings any quarter, share I'll PPP. related deposit $X.XX you have. X.X% we growth revenue total X. sheet will on forgiveness saw fourth per and prepared the Slide linked remarks, this questions grew excluding of begin balance loan reported with In of take strong billion. billion, the Following We of the of to quarter, growth generated or Terry X.X% loans quarter, $XX X% by compared including impact or over third Average quarter.

the conditions, supply net interest The support strategies improving as rate puts deposit asset and commercial positive inflows quarter tactical the margin client momentum both maintained ABS for in certain such by to outlook a given focused was strong income this Deposit the XXXX sheet quarter, liquidity significant sensitivity have fourth and cash that investment provided lending management and by we environment. strength growth us a We the position a encouraged and growth. for balance provided but in financing. favorable loan continued are sentiment the pressured in increase chain accretive future and interest to business portfolios, for growth opportunity and net for rising

fees. market our lines were and share trends Underlying a client sales to basis. and to Turning payment acquisition across improve business trends healthy continue year-over-year on

In million quarter, of reflecting loan see you reserves, record strong than we right can quadrant, $XX.XX totaled value a continued December share our including was $XXX that ratio. XX, released XXth. X.X% which credit per the loss This low at net higher quality, lower charge-off book September

X XXst. engagement. CETX loan for over key ratio two sales total for trends Our Digital performance XX% provides transactions digital at metrics. and capital was transactions now Slide highlights of account loan X total thirds XX% sales. digital account Slide of in

to over XX% to Slide with to our will customers we banking to by to with our and customers our banking services X, payments and business at few the grow believe XX% our products revenue relationships allow small and XX% Turning our continue years. connecting and next services, our us initiatives payment by products XX% related our aimed

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

Terry Dolan

Thanks, Andy.

$X.X at growth loan credit $X.X and balances lending. mortgages card strong the sheet Average rates. in primarily compared X.X% loans turn production At driven September start installment in balances, by to PPP December utilization trends. review X, a X.X% by increase quarter you higher a discussion Retail billion which was of earnings increased billion loans new loan from activity auto benefited quarter I'll improved with loans, totaled third of residential If Slide balance and commercial to growth by to fourth including driven followed business XXth. a compared XXst,

by grew loans average quarter quarter fourth a X.X% loans, linked on PPP basis. Excluding

Turning with compared the average Slide quarter. third Total by to X.X% increased or deposits billion $XX.X X.

noninterest-bearing time X.X% ratio shows with quality X.XX% to X.X%. shift favorable and at XXst declined deposits increasing of mix Slide estate while to by was higher with and XXth year cost deposits We The and credit a increasing by X.XX% X.XX% nonperforming trends. average see X a loans other September compared continue average assets by ago. savings X.X%, December real deposits at

ratio continued and fourth linked liquidity year-over-year charge-off on quarter net X.XX% a valuations repayment quarter and recovery stronger of and basis. problem to improved Our Borrower both support of loans. asset

release quarter, million reflecting this $XXX metrics. Our reserve was quality primarily strong credit

X.XX% quarter of of or diluted of September $X.X loans. million. earned XXXX, XXst allowance $XXX of summary. totaled provides credit In included as a share. XX earnings results $X.XX reserve we These Our Slide billion, an release losses for fourth the per

Slide partially million fees, million XX, decline interest higher interest a PPP earning to asset equivalent billion of $XX in taxable by the little growth. our net compared The and $XX decrease basis fully offset income came expectations. a driven third quarter $X.X Turning was an on by than in with

December. sensitivity ago, revenue, management net by the as Slide PPP banking related Slide late payment strong margin in fees, services exceeded X.X% capital and on income impact levels cash decrease reflecting income. quarter was a net linked seasonally lower to in gains noninterest securities year optimizing in related management from and deposit service XXXX. lower pre-pandemic interest fourth in rate some Omicron-related declined highlights X.X%, and and X loan and by fee margin interest reflecting fees by noninterest points in at basis our XX investment trust elevated revenue in into by declined aimed liquidity Our primarily revenue basis charges XX and of decline linked X.XX%. asset businesses. provides environment other each investment and three markets declining X basis mortgage going strategies on revenue. was from commercial On revenue, revenues trends information a quarter and growth and with interest our Sales quarter Compared portfolio XX expected. product The income basis, interest despite point the softness our noninterest volumes offset lower payments impact payments the to and as declined point more a than a businesses mortgage basis a

We expect continue and secular momentum lagging from such into T&E airline, e-commerce toward drive XXXX pre-pandemic investments continuous and benefit sectors to hospitality, recovery and cyclical our a year-over-year corporate in tech as as led multiyear payments growth improvements. levels, as

fees press the it smart business We customers, morning, As is saw not non-sufficient in U.S. but right January our do funds. effective this we eliminated believe certain for has this earnings only a Bank is to Xrd, for thing decision. release

contributed help of increased and charges, technology helped money, and been avoid to more process. at efforts overdraft simply customer using to easily digital next effectively our forefront move This customers latest For some time, which we step the the have our have satisfaction. their is customers the in manage has our

the trends. XX, increased higher increase medical typical compared or professional million Tax with expense highlights services line our and development quarter. employee with third noninterest expense seasonal XX was Slide driven Turning $XXX was expense marketing credit by and capital higher business in quarter expenses, in the higher X.X% fourth higher costs. by Slide to This claims position. within benefit also amortization

near with XXth, quarter. ratio capital compared asset the at end Our Tier and risk weighted slightly by equity acquisitions the driven which X December of impact growth was September the common completed decreased XX.X%, XXst of

beginning share suspended program we Union the agreed the a reminder, recent to announcement we due buyback to Bank. of have our at third acquire our As that quarter,

ratio expect acquisition, our We continue we X.X%. forward-looking the and XXXX. of expect be of ratio will the now target the guidance. that to closing program will until a deferred capital at provide share to After repurchase CETX half our I second between some operate

on both on net a growth year to interest quarters. as basis expected Under hikes, linked digit equivalent relatively subsequent stable interest expect case as interest at base basis taxable our a we quarter net increase single a basis full We net to expect be three a incorporates in taxable income mid scenario, equivalent on margin rate pace. well XXXX our with income which

to in expect Payments in first both digit in single by seasonally a revenue. the quarter. On lower and payments be slower corporate revenue basis, slightly at is market. year-over-year a driven with high increase in revenue basis revenue pace double first expect on a the processing total refinancing to in We the line revenue activity linked quarter mortgage quarter merchant growth we lower digit

as We prepaid lower digit expect basis, credit in year-over-year and be credit high by card card debit on stable single a revenue to offset growth is processing fees fees.

increase quarter. Excluding the will in rate the abate payment expect year-over-year a quarter, headwind to at revenue teen low on we basis first prepaid the after a total first which

XXXX. million course to revenue other per the expect over We approximate to quarter $XXX of million $XXX

quarter. fourth We to compared remains be strong. stable quarter the expenses first in expect the Credit quality relatively with

of as ratio to charge-off normalize expect the historical the next to few but time lower quarters, subside. Over effects levels, pandemic over will the net continue we remain than the

equivalent our the For be back comments. for full taxable closing approximately XX.X%. tax Andy it expect I will of to hand rate year XXXX, we to

Andy Cecere

from Terry. results good trajectory were feel environment. rate are Thanks, well loan benefit year businesses. about our rising and of expectations fee off momentum building with lending to are across line our in growth with starting quarter we the We Fourth positioned and and the

few has acquisition year Omicron believe sales business. from the weeks fee our to in we client In the exceptionally share for pace of and will good the businesses. payments account half drive growth somewhat be our slowed XXXX. the We year-over-year we saw past to across another gains second penetration expect growth particular, XXXX strong Due market in surge,

an if fluid will trends be way. is a than update rather you the we and along the and rates extended remain we'll speed continue to prove strong bump nonetheless to slowdown, However, monitor likely situation growth closely and this believe

look our in fourth and closed our higher money has paying solutions in operations Asset investments will PFM we off, that world. management, management more digital a we In provides their we expense quarter, but which assets are the increased Our tech-driven our businesses support the of a on for returns. to only niche fourth that and initiatives manage payments uses to acquisition in not drive under quarter, and Management, efficiently. enhanced of Also, acquired area continue position transformation market the the ecosystem help TravelBank, to FinTech technology travel within capital

to part we product customers our of and share shareholders We later over consumer benefits addition Union market, over of banking increase and Bank to are The the digital of million U.S. the capabilities only can will add market numbers to clients a X accrue our this improve demographically our strategic combination set. Bank tell financial previously Union acquisition and will this But year. scale, whom The leading our forward story. offer attractive XXX,XXX over and Bank of looking expansive closing years. our in business many announced

we what do. a things to will I start new to we important year, want do As we how continue as that as emphasize

closing, And make all like Thank in employees thing you every goal of customers, with helping for constituents. communities, to our us day come the for our thank XXXX well our the so in employees, the our I'd doing successful their to and future. a year position right who and for fellow

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

Operator

[Operator Instructions].

the Piper Scott of Your Siefers first from line is with question Sandler.

Scott Siefers

my Good Thank you morning, everybody. taking questions. for

Andy Cecere

Good morning, Scott.

Scott Siefers

Terry, some the of the could updated more discuss see. you the your Let's a in rate was please thoughts changes just in bit sheet detail given Maybe on balance fourth hoping quarter? in sensitivity,

Terry Dolan

Yes.

expectation, of that to advantage of we're utilized the duration able those same see to be quarter. long-term environment. short. take we in that Scott, also, to to flows of those in the we to time, And But to rate able securities rising terms rise, bit the fourth the rates unwind to the had hedging a keep opportunity be to deposit starting little is help strategies and both be purchases going now, to because the So of at invest we're relatively which able swaps when the

as So able going to much to that all as sensitivity we XXXX of could. we possibly asset fundamentally did maintain be into

Scott Siefers

Perfect.

as a through good. then the you. certainly Andy of just comment like or but Terry, see perhaps or loan you either a And Thank anticipated kind outlook, of constructive sounds consumer Okay, XXXX, maybe versus it? regarding growth thought commercial maybe kind just for composition of

Terry Dolan

Yes.

I'll maybe fourth kind So start quarter. just of with

we things fourth only the the talked the in C&I about portfolio of saw bit not we starting consumer little And actually to a that. continuing, One strong nicely. expand but quarter, very

some continue look going a strong continue we bit would credit little consumer very we credit And to that think portfolios. come lending to is I growth expect rates now also securitization, asset-backed continuing but starting to to saw shift card be like as was would down. story be the Auto that continues I the certain end XXXX, in utilization lending than to things we're that it be in mortgage expansion and of fourth the But and in the think saw as We're a But strengthen. moderate earlier nice So of residential portfolio C&I with that of payment real of segments, growing. nice the then loans see is more into respect to commercial at sorts those expect year. we see rates. quarter, may the a XXXX, we to we

that. it I to versus fourth like we would in basis on up December kind XX was points it almost average, third of And quarter, was think see but expect X.X%.

other say inventories. that their are rebuilding is the sentiment I I commercial would the side, think thing on people

chain still from think perspective, a supply I about concerns some that. they have

starting their to they're make cautious consumer spend in the they're XXXX. And making that that see about they being investments that they the think business think they economic growth of ahead run I able inventory that sure to I so have be to business. see And

Andy, what would add? you So

Andy Cecere

payment the points. secondly as is which card of the we helps quarter I think decline trends And mentioned, that this utilization seen the Number started two fourth And which number in Terry changes Scott. volumes. Terry, credit a a increase haven't you into hit high 'XX, one, in quarters. in for positive track rates, going in look rates,

positives two out well. are those I So as call

Scott Siefers

very right. much. Thank All you Perfect.

Operator

next Gerard of from Your with question the is RBC. Cassidy line

Andy Cecere

Good morning, Gerard.

Gerard Cassidy

the morning, the in delayed? the the obviously on U.S. just it over heads will getting the of update Fed regulatory that table us is update. be lot of back you benefits morning, a Good is to on maybe Bancorp. transaction with share big the Union guys Andy. the approval? to Good Terry. approval new Could at and coming What process? time, Can today Washington with There's delayed Bank uncertainty Andy, doing, in to you this regulatory being coming an the the bring the you are touched what other risk all obviously agencies

Andy Cecere

Yes. Thanks, Gerard.

acquisition with our submitted have working side working We've we questions well including integration process. we Bank the October. working business submission, been responding as And and and application technology well both the our the Union we've been on teams in normal of for in the this lines. of Union number early on which activities, So on Bank, regulators course as with side as is as a terms

half. half, or this continue but timeframe. close we So will that with be to may later late believe conversion continued first that's in belief September-October first in our the the in It a quarter third

be So timeframe. nothing would preparing to any have that that and different from us for believe that, we're it

Gerard Cassidy

Very good, thank you.

Andy Cecere

Sure.

Gerard Cassidy

of Obviously, there's being share But you sensitivity kind January call guys us I'm people about this today. from is what no, it talking 'XX than calls what discussion the revenue, a with for there getting underwriters in of and for we're best still 'XX. growth going aggressive you have terms credit is about to all asset seeing it other on generate of in some pivoting are loan industry. And I in year. be stood the looking call out on you underwriting competitors? the sense a about your outlook Can Are more of more conservative? be pretty or everybody's what get out moment, a of quarter your might fourth as to at lot the and And for

Terry Dolan

would cycle. of to we I I through think Gerard, kind way all. really changed what our credit from underwrite would at our We really the -- I it, haven't perspective, box the Yes. describe try

XX it's for decisions a the I industry the end growth years lot months. that competition you up today you been road. impacting know, to in or the as going are turns, when there And two think of cycle the you made that last has loan over down the three

is it to from through do an perspective I know the pricing think that both I can structure, competitive think more if there from it to get pre-pandemic, from it stretch credit to if underwriting but I I underwriting been So direction. will that an normalizes were with perspective where maybe that back that would quite go start loosening well we a there. as out little as as perspective, in don't but respect year. migrate a has say we we bit we'll

Gerard Cassidy

follow Terry, the to seeing to deals just exceptions more that about how credit exceptions? on up box And you quickly, get to Are underwriting done?

Terry Dolan

possibly Again, from approach. haven't on their in focused from their changed structures haven't think as all. our and our competitive they again, standpoint, competitive from really But we really of our as at a our pricing. changed underwriting their they're perspective, approach terms Again, perspective, I can we being and

Gerard Cassidy

color. always, the thank appreciate As you. I

Andy Cecere

Gerard. Thanks,

Operator

Your line Research. Autonomous with McDonald John next of question is from the

Andy Cecere

Good morning, John.

John McDonald

a dynamics Hi. about looking Good revenue at maybe space? as want the on level how and heading maybe that the year? of feel specific overall, that you're from thoughts morning, kind managing expense but does revenue thoughts to And might not high you're some kind Andy, just into your give the a of guys. perspective, and guidance, plan you expense operating you at this just on and on inflation how headwinds for looking tailwinds goal 'XX, leverage

Andy Cecere

talk year, little income Sure, interest on Terry statement. a gave John. guidance I for balance and the sheet And the income about but will full net

basis least X% single expect revenue earning about expect year. growth loan continue points looks positive the leverage asset at of XXXX. for talked mid momentum XXX We We as operating into That growth as XXXX. year a digit on positive X%, John, well that to going to for we basis of would full

John McDonald

question And just guide, a on it. the maybe NII Terry. then Got

Fed rule any the of NIM points everything mentioned might that? of Thanks. of helpful is thumb built for us? NII, cadence for what hikes. that the equal, What's or you've be on to basis one else there XX what three hike And You does in

Terry Dolan

Yes.

base case, three So year. quarter bakes hikes, we you as started expect as the in of through rest really the kind then second our of the in rate and said, might

back interest disclosures you income third standpoint. quarter, it just points about really changed net hasn't our end a X.X% shock is XX to go of basis a If lot. at the from

I So refer you would to kind back of that.

rate If about equivalency shock. you're on you probably a the think basis XX pace, talking kind of about hikes point of that about three

of math, So if of kind to the kind can you that. you're doing go

Andy Cecere

impacts those And, all income. of are numbers the net Terry, interest

quarter, about basis which XX rate and of addition, get John, In a XX% you at thirds waivers of our million points rate $XX the back of at second total hike first it and we have about about the that back hike. two

John McDonald

Okay, got it. Thank you.

Andy Cecere

Sure.

Operator

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

Betsy Graseck

Hi. Good morning.

Andy Cecere

Hi, Betsy.

Terry Dolan

Good morning, Betsy.

Betsy Graseck

Hi. A couple of questions.

Just of cleanups. versus that Is couple 'XX pace. 'XX, digit on full single or a the guide, Union XQ a NII, q-on-q Bank? for year that’s The year a mid full excluding

Andy Cecere

Union Everything to giving guidance that for And is be it's excluding Bank. intended the we're XXXX.

Betsy Graseck

Right.

So full year that's versus 'XX.

Andy Cecere

Full full yes. year versus year,

Betsy Graseck

Right.

environment on spend? a I'm when are just rate make of right, I is making of All you've from better leverage the positive least over the investment then a switch primarily sure. Okay. points, some kind Can this that's basis basically recently highlight, couple guess? XXX it of the wanted past that being been optimization about able of function operating side you thinking doing to you've what to leveraging the of obviously you from and of the or And also investments uptick years, the at been nice is that

Andy Cecere

been, but kind efficiencies And it's of we both. that we we have kind of matures, you would in some I revenue would side. expect combination significant expense that on as say, investment improving say certainly fully operating capabilities. investment making some digital helps see the of The environment as Betsy, a that, Yes,

continuous always -- through looking tech as trying of working our us a view, been kind well network to point branch modernization, that have which improvement we're operations. from helps the for optimize of as We and

both. I it's think So a combination of

Betsy Graseck

from course, on targeting would the that investment but here? of where Okay. in some be side, there'll And spend you investment Union integrating Bank, be dollars beyond

Andy Cecere

Yes.

of and the of our to continuing real-time that between a strong our but payments, investment side BXB when mobile ecosystem business and course, in be going on digital been think to we about technology is whole equation our the business money capabilities, important. our the think and And about we've mortgage have talking I focus banking. payments app our then, business movements, investments

continue there. we'll to so And make investment

basis, same going of last So the that a expect to themes we any I many continue continuation don't levels the we increase expect we've of really the think kind we it's that will a significant those investment year. over levels, had of maintain On in but core forward. investment

Betsy Graseck

it. Got

the Okay. on Thanks color for that.

Andy Cecere

Thanks, Betsy.

Operator

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

Ken Usdin

guys. morning, Good Hi.

Andy Cecere

Good morning, Ken.

Ken Usdin

couple A please. cleanups of NII

think you kind just mentioned bigger anticipated XX sequentially? previously XX which flat than first what at NII do that of wondering, million was outlook an for I'm have So decline, PPP million in decline was you to I PPP what had you million. XX that quarter still

Andy Cecere

Yes.

will of So fourth what significant. the because some higher most forward was expectation decline going XXXX got fourth had had was in kind that to into PPP occur baseline immaterial quarter million, a little is is we in a million. the we be of from the quarter. bit than first. $XX about that our Part to It to It's there what from third in expected actually expected. of $XX pulled decline fourth Currently very or

pretty insignificant. it's So

Ken Usdin

a we just like --? step last pretty much from that from there, there can or wind of where Okay. And kind trying the there's baseline is meaningful get out to down that to

Andy Cecere

at as Really, XXXX all being we past respects. PPP look in

would not first it's really our probably have. significant So we it's that into the again, the is down yes, that quarter incorporated And I agree step last and guidance.

Ken Usdin

Yes.

Okay.

to securities, yield XX-something-billion. obviously, like you a bit. did question, went little on buy down Second book the The decide looks it

at book help us you point? wondering buying the if understand runoff, you're where premium just front delta versus Just this Thanks. and and can book-back also

Terry Dolan

Yes.

step treasuries, earlier We deployment swapped deployment in lot. the about the a I cash. do portfolio short. we investment So while excess And quarter. It of that fourth did to in has made what We in it that it did with you're right. up talked we

But well see coming maximum as also rise, you to investment want yields did to as the rates portfolio expect the down that flexibility net kind we start because margin down. the we interest to related of in through coming long-term unwind XXXX. -- so would as coming as benefit are is that rates And why we

So we're of in positioned how that's it. kind

portfolio, overall of the was strategies. terms vast it hedging majority In the investment with term shorter and of the

Ken Usdin

that. to just on up follow And

say do when you ahead? or it, size and loans unwind the that of the do think you into about how So as at you'd mean it you're you balance earning right go the now Like mix see remaining? asset sheet you rather mix further you look

Terry Dolan

Yes.

As portfolio of we forward, be expect would fourth to go That's I will expectation. levels. flat our relatively that investment quarter our kind

vast of the areas. is is majority So growth than on it in side earning loan other asset more the

Ken Usdin

Okay, understood. Thank you.

Operator

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

Andy Cecere

John. Hi,

John Pancari

Good morning.

on we a some drivers indicator in the terms just that et loan a else heard aside above to continued better peer you than Is in strength or campaign attribute Any macro fair end separately, out in the growth calling growth of you strengthening end It’s anything lot you in side, quarter? of can color as then quarter on this cetera. the anything Thanks. efforts front, I a or good amount pricing the period saw call banks. you The front? on out? notable model period from commercial the that average. balances saw Just gave the came And the of your to of

Terry Dolan

growth end terms balances. period significant in you’re of John. see some of so Yes, right, did pretty We

to I with think us up well respect that XXXX. sets that

guess baseline We because have of bit pulling pretty strong. everything bit not a the the talk across the and don’t things, I all LIBOR of is The a momentum categories you end just actively their specific we’re is optimistic. kind or because we right. into pretty little our LIBOR doing. broad about and it They’re hard that some think, of across wasn’t things see we that significant geographies. was thing going customers, into it’s is But are whether those why were sentiment and that XXXX. XXXX, when forward is our growth think to we us, we when of inventories growth that But pretty building sorts period was people else across and One the one based know little balance again of you underlying It of I any for out transition, happening. underlying pretty thing segments,

John Pancari

Got level. Terry. separately it. payment on just the Thanks, then And side, That’s helpful. higher

intensely payments proposition can spend backdrop, if or clearly strengthening. in competitive continue value of characterize payments macro I value this to you T&E would as U.S. want in of your to you’ve if Bancorp’s see you been rebounds kind Thanks. reopening on elaborate Given how flagging, get as the business And the a customers? terms proposition we positioning for

Andy Cecere

Yes, John.

the So and the and business flows and other consistent running run the a proposition and our and to quarter on that trying basis. that with year. products really together their day-to-day made in manage to we’re manage we on their that’s banking cash of product our fact we’ve And flows Bento, talked third products they’re about acquisition payment set a basically businesses, a their way comprehensive is help made together our them weave to help the others value in that business customers That’s TravelBank combination that payments their in cash businesses banking earlier dashboard and basis. information easy-to-use we acquisitions, day-to-day the with banking

component to would to simplicity simplicity objective. on the a that’s that, highlight basis. that And navigation. focus use key real the is the I So of a on that. go-forward And of we’ll The continue

John Pancari

one And that, to Andy. follow right, it. Got then thanks. up All

have need think you need? strategy, think to side or that on bolt-on you anything to do you what do FinTech continue affect regarding the Just deals or you you that strategy

Andy Cecere

this as capability. we’ve in well investment, I lot a think acquisition organic made of as both

as We’re have offering. mentioned, We going simplify most the we continue we model to just Terry and think capabilities continue refine of to but focus the to on what it, or need. I

John Pancari

Andy. Thanks, it. Got

Andy Cecere

Sure.

Operator

Research. is from Wolfe Carcache the next Bill with Your question of line

Andy Cecere

Good Bill. morning,

Terry Dolan

Good Bill. morning,

Bill Carcache

number Hi. Good in I X. follow increase customers the a and relationships the that left, banking morning, are to wanted Slide was Terry. Andy up now of frame on there modest And high your you go? for at business us also that payments time? is XX% that grow revenue seeing light quarter. last of what to region continue over can benefit Can how customers from Within blue the

Andy Cecere

about of can talk number more Well, revenue $X.X penetration. that payments. is bucket total we movement of as we The both about think in on using get billion charts, payments again, about those using more additional that we capabilities banking the think customers. banking and customers We the

So working that’s base with. the we’re

Bill Carcache

of banking products? customers you Understood. receptivity some Just converting the alternative any blue also And And you that pushback who for give customer been of come then payment be the payments dark region users in a using so on far. color bit or business broadly be of from customers can the separately, maybe what banking curious those little has already only business solutions -- process to receptive? been base may customers across have has the

Andy Cecere

innings, that it’s I say would early Bill.

payments we’re Let weaving on. a banking And product standpoint. thought me which flows a dashboard start a offering, a simple, from easy of there. is the is one cash consumer fundamental think to their But product, receptive pretty in the manage -- and a products that’s use Again, banking receptivity that from the been it of I combination help simple them really focused payments focused that business And but customers or it’s of many what offering together that strong. for we’re has a on. have to

Bill Carcache

I it. then Got final could squeeze lastly, if one. one in And

much to of upward inflationary expenses of much pressures that of for and attributable pressure can was a you to parse On us competition how that the persist? and employee how versus greater benefits, out increase production expect in you’d function

Terry Dolan

was Yes. up stronger. we Certainly the example, in Capital what Markets business, for seeing, it ended

related production incentives, incentives also fair So some quarter overall of to by the it in performance-based the of it are fourth company. is driven that performance a is the of to amount related

certainly acquire out hiring sort you’re increasing and/or in space, you’re skilled But maybe technology to looking areas we able comment when mode, for certainly if paying And for want to certainly and and especially and I high order of did as well, see in would competition you’re is the payments talent say, is I So you development, digital for be dollar that there pressure competition the that. there. top in that’s out that. lot there. Andy think to is of talent a

Andy Cecere

I right, Terry. think that’s

Union longer more employees sometimes we this the that’s that And a And side. branch we of XXXX. having we And challenging to employment. been as level get in branch area is for to that’s the a all frontline and And positive. offered I which benefit little sometimes this is side this guidance that as on other incorporated reminder, we’re committing takes the the environment employees little entry is bit a but in us a And environment, expensive, talked it in think with Bank about, the in a combine positive. year,

Bill Carcache

Very Andy helpful. for you Thank taking my Terry. and questions,

Andy Cecere

Sure.

Operator

Your next David line question is James. of Long from Raymond with the

David Long

everyone. morning, Good

Andy Cecere

Hi, David.

Terry Dolan

Hi, David.

David Long

And related you have I targeting close look reserve to in I level. your remaining were guys think question last to The X% is if pre-pandemic, back you reserves.

in built the You’re you part do U.S. below just as pandemic is the for within And or the have reserves how your side, reserves much CECL of What now, below of maybe that here? Bancorp qualitative that? that. for on current right still Omicron level

Terry Dolan

kind David, go of upon of and we that right, uncertainty one so you’re up had shifted, I terms right believe we’re there’s would model that the economic it one. I is with in to back have started way we of of from credit day or mind going right based I it. at we’re end I just through with up to From guess outlook what describe your question, kind loan the to of would economy, provide way Obviously kind coming the -- is out. happens kind that’s adoption is But describe the of the the consideration -- what keep out right how mix pre-pandemic of the different at portfolio we still kind that the view, we CECL some reserving first on of you at respect and when at point for the that’s quality. growth end When to you last of say the in of what level about the we looking X%. a would Maybe CECL level and Yes, level? started into I and take scenarios that there certainly probably would we in

been all forecast we’re will start consideration going release to taken across bit of baseline grow our kind loan XXXX. that probably dynamic change again, as so reserve of that’s And the of industry, I a thinking portfolio into when And XXXX. think about into for

David Long

the you. Thank appreciate it. color. Got I

Operator

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

Andy Cecere

Hi, Mike.

Mike Mayo

operating Hi. not happen. Grundhofer even up combination in if Davis I’ve great for And than faster higher wind you you going back. said planning either Grundhofer question my this question know, positive leverage are I’m it I’ll was going some revenues things or in as Jerry give come back grow why time who or expenses, Jack to asked give XXXX? before. Richard But of the question a And you and then is I’ll and

the moved almost the when has last leverage. are negative And as you years, time, the half of guys and five year-end stock has market have banks during up barely operating For that had doubled. price

the So I think there’s between two. some relationship

you’re XXXX. So for positive guiding in it’s that good operating leverage

first would I to that basis. the you’d years on revenue for X% when year. a for achieve think growth six you’re think I X% in that this guiding be But year core

guess I seems So I to There’s growth, implies a it. get X% to still wage lot spending. expense X% of be pressures. which that

off. operating don’t that investments me to just the I the from which of means get question seems line. tech benefit they’re whether you the off positive paying it rates, aren’t can to leverage, paying So bottom

off those? operating higher investments are guidance? see You’re a have paying why in we But don’t can way the tech investors positive as And you trustworthy conservative, a that bank. leverage Thanks.

Terry Dolan

to going probably rate going total about the in mortgage rising is about that Mike, but of we’re a X%. the be And expect fact the are maybe drivers environment to range on see the income Earlier growing it, want fee in Well, above to that all components range. maybe little little at let below still the you of fee the sure in primary to When you a down going end we income up And just a coming even gains that shows higher the a term X% of of losses the in banking think probably same residual be end portfolio, is least coming range, will term with in revenue the or end in be talked about that then income. make because or to our lower growth page. other be at income, coming Yes. bit think to revenue XXXX we when start comments, we end I revenue me that at bit down. and will interest -- net be

think fee couple mute in that that there’s things So a will of I the income. growth

that’s overdraft drag The earlier in other some income. talked of thing our and fee in a terms of in is and have deposit overall service -- about we our that changes a of going bit a little to pricing, terms terms bit of charges

growth, that of range revenue is range. the So total of in XXXX again, for X% to terms in X%

kind So of guidance maybe respect or with expectations that our for sets our us to level revenue.

that expectation investment. target the be in, and we’re That’s very Andy to our kind is. deliver XXX have expectations is I’ll XXXX. operating terms but But kind in able being to long-term On expenses, points at of leverage positive what balancing and going weigh to or short-term of in least committed least of basis of at

you So, add the investment? regarding Andy, what would

Andy Cecere

we’ve And on you is I in about to digital successful overall, this our we to our and we’ve talked about just your and business focused be environment, that. on ourselves question capabilities been our in objective talked think Mike, the as position Yes, We payments to are. to investments comment and necessary making that.

in going starting start expense and we’re overall. as increase particularly as we to I a growth from both see position, revenue standpoint, efficiency see standpoint the secular the We’re to a an well as think benefits strong to trends

time the on positive at go-forward I think expense basis. But core investments to short-term on because some wide eyes a those made operating we opportunities you’re operating leverage those So balancing the of going open, very same see basis, investments. intentional,

Mike Mayo

a now So when increasing your And the are is Is your areas. we think investments, past investments to investments up building, on And was about revenue my for the follow level increasing? just foundation at that understanding technology non-revenue still were rate? it areas. part, of for slower

payoff, the tech So could you the in just to you those investing relative if in are of reaping terms where think benefits? terms of

Terry Dolan

Yes, Mike, we’re level off.

to continue past did in offense two, We one. think and to going we’re right I now, set years, investments. area not see defense now. increases XX/XX increases at some we’re we offense to migrated five level Number but number in So about right the those XX/XX see from

business capabilities, about. and we’ve revenue-generating talked are things digital other making So most for of we’re areas, the investments payments, banking the

Andy Cecere

of a that and U.S. Bank most in bringing really thing even the because, that’s see amount increase the need XXXX, fold. looking is, I systems about with into really shift other just to ours. Bank add of as we the and kind this more And would from into their investment, Union to a this talked maybe we’ve is of the is past, And just lift don’t

investment And their lot digital customer base. bring be making capabilities been we’ve leverage to and a that so of we’ll the to all able

Mike Mayo

Great. Thank you.

Andy Cecere

Mike. Thanks,

Operator

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

Andy Cecere

doing? you are How Vivek. Hi,

Vivek Juneja

A like quarter. couple think up I period Terry. X.X% Hi, Andy. was questions. Hi, linked of Credit only cards, your end

Any it Fed why for a the on weekly there, certainly you color saw on in slow You was what’s data. jump going bigger guys?

Andy Cecere

credit card of revenue? card revenue? Credit card terms and In debit

Vivek Juneja

end loans, loans. card credit No, period

Andy Cecere

the being high. bit a is really little quarter. least third the us still still was the peak It for what in at Yes, just relatively It is did quarter. came in fourth impacted rate payment down

So rates impacting until that’s I we up improve, measurably going card to see start to that think end credit loan balances. in growth

Our is payment start Vivek, migrate to nicely XXXX expectation rates though, those do as progresses. down

obviously think net margin loan growth. bit that we so help think as tailwind And net interest And for us to interest be do a about a income. will and of it I that’s going also

Vivek Juneja

Okay.

the too? that question, quarter-over-quarter, Omicron-related coming saw you there on going there merchant in processing fees in was or Second that December decline all else something was

Andy Cecere

so of pick to and is it to that as is a be sector, up than different continue travel Vivek. related in anything really more December. quarter, else, little see did Omicron. that’s of a sales to kind was there it’s a thing that that fourth mix rate a tends slow bit is Yes, that bit to really little third up what from very, very Really We in late is -- a of happening and little of

Vivek Juneja

right. All you. Thank Okay.

Operator

Your final UBS. Erika Najarian the question is line from of with

Terry Dolan

Erika. morning, Good

Andy Cecere

Hi, Erika.

Erika Najarian

your outlook so I’m positive the trying to for has stock leverage, given opened why figure out operating weakly.

a following step-down think I up question, in lower The had seasonal or much anticipated Street maybe lesser Vivek’s So on that payments.

So the interchange quarter? what’s the happened with in rate

Terry Dolan

little step of investment again overall, we so and usually making typically better we we’re a fourth quarter, time, merchant and merchant in depending at kind -- of seasonally is the me fourth amount saw third and of terms of and is both that than kind When just quarter of fundamentally think about particular debit card, lower is payments corporate. what business fourth that’s back. payments, upon quarter third in But credit to bit point in kind the seasonality Yes, corporate let usually from quarter.

Now corporate to by highest ends in up spend, tends be getting third which government the quarter. impacted

and You effect and that all to of to respect tends of sort down. that with the why impacting travel payments holidays That’s sorts things of get step thing.

of have seasonality would up ended businesses. terms we what So seeing similar is of fairly I in the think we what to the expected

Erika Najarian

And the lower there? interchange that on unusual that rate XX, anything that Slide mentioned was you

Terry Dolan

the up that impacted business. by I ends getting of Yes. the think Again, that mix

the travel at So narrower associated grows, in the merchant with and interchange margins that spreads. acquiring is business rates particular the as

And so is little ends impacting the up it margins recovering, as that a bit.

Erika Najarian

Got it.

income mix are what deposit do to the you there in actually rate quite change your corporate assuming? interest just you everybody net guide in guide hikes general, three betas has single But Okay. for aware your have I of cycle? your to take expect deposit think well sensitive. and NII And mid is 'XX, what very baked digit, that are another trust into kind your rate back, on what re-pricing step a 'XX rate for been you deposits since happen? And

Terry Dolan

Yes.

But early little deposits the right. The third hike. categories. trust at deposit that more get a stages of the betas are level, of rate don’t a is be trust lot in -- or see rates into maybe high in the second what as we different you a rising you to bit maybe corporate move So sensitive tend typically any

continues. in think expect progressively it. that when maybe how to And first that’s we basis a probably getting be deposit XX little about XX cycle would so that XX the to then stronger about And we points, bit we and think kind betas as range

we consumer Now, in at base of deposits equation of of ago, consumer say mix lot when of I a kind today had that where some strong versus we seen the the mix opposed XXXX was business we actually five looked of in say have to of have years as the growth we four, other a the let’s have would side have on the businesses.

And bit so deposit the than lower a the deposit beta little probably -- what betas the in are is past. in my stages early expectation we especially have experienced

Erika Najarian

one maybe it. a just for last And Got Andy.

conference growth deals expense something something this underlying in And the be achieved is standpoint. where, we you from about years, that inflationary environment with have XXXX is but forget achieve think a next can underlying an a I -- forward is that really as is low Is of the that As the think USB in what but only state, cost you three to 'XX, the environment XXs just steady in at said had that pending? what could mentioned you where an spend Mike, that investment company? efficiency going you your

Andy Cecere

revenue go-forward position We’ve are more successful. efficiencies the next well I of environment expense in would of part Erika, be with terms more assumptions. So, year, is also achieving that in below to in and investments made below to a starting revenue to growth -- the about again, additional result to that normal leverage, growth to investments that to well rates positive revenue that a growth to going as migrate but which getting we’re be ourselves be operations. revenue basis. on to back Those our we and achieve talked would I operating expect expect also importantly to us

optimized on those digital more effectively we’re going branch to and continue So and that. capabilities also more do efficiently, and to focus we’ve things network allow the us

for the current do. and to this and future, it’s So that’s of that’s the what what of we’ll Erika, invest done to continue optimizing continue sort we’ve to balance,

Erika Najarian

Okay. Thank you.

Operator

with We Research. John McDonald line do have a follow up of from the Autonomous

Andy Cecere

Hi, John.

John McDonald

changes Andy. customer-friendly be for well? cost OD work of Washington, and end making, and that quick people put Two are be approval you What’s just just NSF for approval, you to of the thoughts then, the impact And changes of thanks. that with getting one prep Terry, hold? a wondering, all worried if in the as basis for follow the quantify would that the kind that helpful. on both. And fees some ups, gets what Hi, the longer Terry, others on and this of waiting the And what the might Are kind organization? on organization? doing Thank one to go-forward you for you’re do is could process deal Andy, for dynamics a you year that about of the delayed. up cost you to lot

Terry Dolan

let so me Yes, the address overdraft.

these most XX% fee next -- waivers will million probably to I mention into If you impact a that up reports, of And with fee that in waivers $XXX on of a other from the about at probably -- I and we’ve things year. the change consideration, overdraft basis, both that. fee offset thing of is call implemented income sort looking would revenue is that up help think than fully that $XXX would of little end realizing XXXX, that our And just standpoint, that taken end X% of about were a our And that less fees we’re we of total we’ll or $XXX expect million. making million.

John McDonald

I Okay. or just does that year, -- next this mean --? Terry, year so

Terry Dolan

about we effect. realize the XXXX, In Yes. XX% full of would

John McDonald

Yes.

Okay.

Andy Cecere

of incremental a right of the we’re And not lot integration efforts. now John, expense incurring as part

nature. be that really the they’re working for teams impact. on it, we that’s principal you, in delaying have would We and would call the would a but delay impact of the takeouts and I projected not efficiencies cost be incremental what The

John McDonald

it. Got

Okay. Thanks.

Andy Cecere

Sure.

Operator

for back turn will the I call remarks. over any closing

Jen Thompson

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

Operator

fourth your Thank U.S. quarter XXXX you the This for earnings concludes Bancorp's conference call. participation.

now may You disconnect.

U.S. Bancorp (USB) 19 Jan 222021 Q4 Earnings call transcript