USB - Earnings call transcript Q2 2022

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Operator

Welcome to the U.S. Bancorp’s Second Quarter 2022 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 11:00 a.m. Central Time. the and to Investor turn of Thompson, now Finance Corporate Relations will call Jen over Head I for U.S. Bancorp.

ahead, go may Jen. You

Jen Thompson

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

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

Andy Cecere

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

prepared $X.XX and Terry to MUFG per Slide you on planned will I I second have. of remarks, share Bank. which Union and take related acquisition begin questions In $X.XX, included we of any reported will share the quarter, integration earnings charges per merger X. of our the Following

this items, Excluding revenue billion. We totaling quarter $X.XX. net these we record $X notable reported earnings of per achieved share

trends rates fee robust Revenue in as and rising net our underlying Second quarter growth income by growth the by results credit were customer driven activity strong and good and as earning benefit interest driven strong highlighted revenue acquisition business growth was and across by well fee businesses. assets revenue of stable quality.

investments technology of off digital in the efficiency. growth line are Additionally, form paying and and enhanced multiyear our strong top in payments

risk our to million $XXX through-the-cycle to approach loan our reflecting added strong loss loan we quarter, management. growth and reserve, consistent This

the At us capital preliminary our withstand metrics early unchanged announced provides believe in that remains from which our published seeing Our stress June on severe capital ratio subject balance any leading not that is Federal economic and results We ability industry in of our performance current cause credit to of to strong our quality Slide CETX the level. stress demonstrate X that sheet trends a and expect XX, a was the test Based quality to risk. concern. Reserve’s managing we metrics. we and stage be a X.X%, of diversity buffer to our results XXXX June, X.X%. are we were to prudent approach downturn, strength, key the testament

Excluding our items, XX.X%. return return X.XX% notable was was assets equity on our on average common and average

We was highlights to return X Our drive complete our and X. digital years. the a common return our now on several on believe XX.X% tangible trends core Slide meaningful will I competitive capabilities profit turn our digital over ecosystem company next payments Slide will are engagement. that and differentiation for equity basis. advantages and

expand created digital valuable our branch our our but while allowed optimizing distribution more customers, have and state-of-the-art not to for beyond experience have infrastructure they only us capabilities Our physical reach our a network. effective existing

in loans cost On effective having of for the our trends, the real-time small see which are Farm of driving strong XXx The XXXX we the State our are business simple, that the the needs partnership, midyear will the saw on easy-to-use you payments payments in highlights than are to functionality, of our gaining customers, the allows we more to right, through we in in number a transactions, form which a the and their entirety left format the XXXX. in uptake middle platform that total provide the And side, customers of with point-of-sale see will higher more a manage banking is more dashboard. talech success way. which transactions you and chart momentum we the deposits

lines, We like I’d business but X are all excited like – highlight initiative, gain area one banking traction. starting about the I’d Slide to secular is business of we on see growth but to really is opportunities across our which our

the right payments, progress will On And growth still making products over and our with with in connect are services the expanding and noting, the our banking and banking early customers on accounts left has previously XX total chart, growing both in our relationships you in outpaced and and opportunity worth The see we chart customers innings. payments have wallet that months. discussed the it’s with Growth to we shows and share. the the products our services. meaningfully are past relationships banking payments products we

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

Terry Dolan

Thanks, Andy.

the loans driven quarter, a increased loans. balance trends. both continue the will growth If growth to earnings and to middle-market good increased X.X% growth loan portfolios. card share and retail credit portfolio, with compared balances, growth market and spending activity of large mortgage corporate commercial Pipelines quarter reflected lower to Purchase gains third X.X% by across start you strong are discussion growth. first turn capital seasonal activity sheet credit mortgage remain working growth typical into needs by in X, loans, balance prepayment X.X% mortgage the rates second in quarter and we in and elevated. residential Slide I Commercial support in strong review Average and a higher utilization going reflecting trends. X.X% In card saw followed business activity

XX interest by total Growth be June the impact compared XX ago. X, than at more non-interest-bearing loans quality at offset of Slide with portfolios. increased and interest-bearing rising our quarter. estate deposits Total credit X.XX% was the environment. assets XX across of a year of non-performing increased which X.XX% X.X% trends, ratio to Slide lower deposits, shows loan reflecting rate real balances the year deposits The a March ago. with continued deposits to compared strong in Turning X.X% with X.XX% first average average to compared by other and

versus improved of quarter On continues late-stage first compared our performance XXXX charge-off to be portfolio. slightly Credit and across portfolios Our linked strong. delinquencies quarter of for commercial of second second level X.XX%. lower the quarter decreased net retail both total and and level the with the a of was X.XX% quarter early ratio basis, X.XX%

acquisition period-end Our allowance quarter, diluted integration the provides for summary. of share, credit we Slide $X.X charges per totaled excluding second of planned XX MUFG and Union Bank. to related reported earnings billion $X.XX X.XX% losses share In $X.XX as June XX merger of or an loans. of per the

strong trends compared Slide interest second market which normal a total revenue equivalent quarter, we by provides In margin. was a taxable business credit increase activity. $X.X with driven highlights a increased card making. banking net mortgage trends point three continues in totaled XX, volumes activity lower X.X% income ago strong mortgage income. but the offset payments and banking increase businesses. growth believe interest revenue was revenue our representing of payments ago. card earlier, net grew quarter growth are businesses, to X.X% refinancing investments cyclical on as reflecting for underlying lower first earning income a Credit of year and other linked in environment. growth application prepaid payment offset trends increase better reflected XX in as indicator by than a Non-interest to X.X% linked related more by from in fee XX billion, The increased of X.X% debit the from basis compared higher businesses. year-over-year on primarily impact in the basis, year nature underlying Turning we a pressure the in by lower fully Slide total decline the quarter gain-on-sale a the non-interest the a XX by strong supported volume declined of performance quarter fee on Because performance revenue our X.X% margins. debit are Linked a year and year-over-year revenue and Slide card basis with and and quarter trends basis business X.X% an asset year-over-year

Excluding the revenue credit over card the by of card XX.X% second have government continue prepaid card revenue rates growth of and would the credit the in quarters increased quadrant. revenue Year-over-year card with the provide prepaid decline negatively quarter card prepaid as revenue, debit revenue stimulus upper be revenue fee benefit – and to past in hand XXXX. has debit impacted on five dissipated. detail We right compared

revenue in approaching over run-rate through the half basis, is year-over-year XXXX. growth several quarter impact a slide year-over-year and a on both end last While revenue card processing comparisons payment debit and of linked quarters. strong corporate fee bottom rates The card of revenue credit merchant it the the the past illustrates prepaid will

current rates believe revenue a corporate both payment levels, additional on to our While information continue payment we businesses. and a year-over-year in post-pandemic the credit we from at on basis provides expect processing a can Slide growth to environment. pace high grow some single-digit that XX year-over-year and moderate fee merchant services

partnerships. tech-led strong In that acquired growth slide, add can In merchant trajectory we XX% A second to the of year quarter, of second that period. revenue total are than acquiring partnerships we acquiring XXXX X.Xx new merchant our growth higher was and continue XXXX see baseline. momentum higher comparable tech-led for On the for and entire have we business. is within seen you year totaled quarter, the than right the distribution side the that new partnerships a XX% which the new of key strong number customer of tech-led we in XX% the to seeing the ago merchant to the tech-led the revenue, accounted revenue, in

expense merger was change capital highlights business Slide quarter increased linked in tied lower our expense, well The pending non-interest by compensation marketing expense seasonal Bank. expense by basis, other categories. merit expense acquisition integration to benefit X.X% expenses partially day on expense associated driven higher in additional X Slide quarter and excluding compensation XX, and of as other the compensation offset the and a Union The by by with non-interest growth. position. of costs was Turning revenue expense and driven increases variable development the as impact to higher employee XX and

June Our capital X.X%. at X was ratio common XX equity Tier

Union the of pending at of beginning of operate at a of third Bank. capital buyback to to a the share due expect After program closing our the X.X%. CETX acquisition acquisition, the we approximately the of quarter we suspended As reminder, ratio XXXX,

our guidance basis. impact We share does from for following I some not now Union the until X.X% provide be On close. U.S. expect forward-looking guidance program ratio reaches will a standalone Bank deal Bank. XX, potential our This repurchase any Slide on will to continue deferred that include CETX pending

with Let the me start guidance. XXXX full year

rate We have interest consistent with expectations the expectations. our be updated to market

XXXX. with compared X.X% increase to revenue net total expect to continue We

interest low our expect assumptions, previous in interest income X% equivalent XX%. to taxable Given rate we with mid-teen revised net of now compared growth our to estimate

which We fee XXXX lower stable. application previous year would expect rates than to our expectation anticipated, We compared higher revenue. be the that more of banking to mortgage our volumes impact mortgage negatively will now slightly expect pressure fee income full with previously be for revenue

continue with the Union expect of excluding XXX at of impact operating in integration-related leverage We merger Bank least points transaction. XXXX, associated the positive and to basis costs

year full approximately our of equivalent be tax expect the rate XXXX, XX%. For taxable to we

guidance the Now, for provide third I will quarter.

transaction. for total expect quarter we excluding third the integration-related linked a quarter, merger to quality X% and Bank costs quarter to on the revenue prepare X.X%, growth expense non-interest In Union of X% basis. remains We strong. as linked expect Credit we grow

remain few loss than reserve and in levels, normalize next growth we the to but loan to time. continue ratio the changes reflect to Adjustments in the lower expect near-term Over net our charge-off the outlook. will economic historical quarters, primarily loan will over

Slide entered you had our that to provide In September Bank. of into definitive core announced an of Union XX, turn acquisition If XXXX, franchise MUFG announced to agreement a I of on update acquire will the we pending Bank. Union previously banking regional we

continue make we the approval. for await closing while half We to significant second regulatory of in XXXX, planning progress the deal in

timing the the approvals the deal. within of you the regulatory company’s may As know, closing and are control impact of not

to early deal after The first financial days XX system close, U.S. a fourth to is of close the expect As the Because date remain quarter approval. shift intact. on granted it timing would reminder, likely or conversion prudent the XXXX. regulatory believe a merits this indicate approximately quarter half of deal we late we to the being third

continue well Andy we back internal accretion generate EPS acquisition hand to remarks. unchanged original return the rate Our estimates it and of will are for closing of of above XX%, cost capital. to approximately which estimate our will I an is

Andy Cecere

Terry. Thanks,

payments by supported lines of well like modernization. well we Bank I activity they we all fee shareholders. the as operating I’d In into transaction to initiatives, business business our we to quality continue relationships and we thank even banking head and were the as employees our welcoming in positioned will that second benefits strategic prudently confident capabilities our technology meaningful account second invest look financial this the for our to deepening strong Our in results to closing, solid as company. Credit digital quarter we and our are the our and growth, remains employees and of and to in our do customers, and Union forward existing our as year. across communities expenses merits our of and manage accrue strong remain half

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

Operator

from Piper Instructions] Siefers [Operator question Sandler. Thank first you. comes from Scott Our

now is open. line Your

Scott Siefers

question. Good morning, for the taking guys. Thanks

Terry Dolan

Scott. morning, Good

Scott Siefers

I remarks, deposits guess, – so go you how a forward, are nice to but expect and costs? I I the just this was was if maybe seeing missed change apologies mix the mix you a what in is would bit. any you on but on as – changing of overall see any pressures of major hoping go as with thoughts overall it prepared forward, balances funding bit The pricing sort what in up deposit on we might thoughts

Terry Dolan

even fairly with at think industry tightening a our the rates the us. expectation, in or be deposit near-term, taken will respect the least overall But for balances Certainly, the in Scott. Yes, bit. be little stable place, deposits to that relatively quantitative stable with maybe growth will I is that’s down

is market on would what in of both seen balance and and mix have – a mix you trust We deposits, and From change money the sources funds starts standpoint, and the expect corporate sheet. of lot the have us our when that rise. including as industry between for our a our to mix we rates our

of mix we part, so have interest-bearing for of next etcetera. seeking because see shift between today of a to higher starting ago, sort change balances out is the a and as are interest into start people categories we see our than will XXX two expecting, are into sort basis at so with which X And balances non-interest-bearing hikes to points, if reflection of looking non-interest-bearing is that fact, to yield. bearing good in for But next we it’s relatively have or rate outperformed is expectations, when think been mid-XXs our when you years did, ballpark. which – pricing, deposit about for hikes X rate we cycle first level us, market or that in that get we seen. example, then deposit betas consumer that of we the actually rate the in probably And we it’s have in low And think about to kind expectations, the be the low and

Scott Siefers

question, ramifications any certainly just changed updated Maybe transaction? can of credit pending possible rate on the of very separate a capital sort terrific that’s from appreciate walk guess terms And I the Terry. has thoughts you that. Okay, a you lot Thank color. I environment. both in much, and through

curious so to hear able that as in have Just to far while thoughts it’s you still any pending. given you’re

Terry Dolan

Yes.

had I close modeled rate deal. think bit maybe more the that we certainly, line, original it the rising income But fast. is in are environment, mark-to-market capital accreted than back once that what now, with implications in a the you little pretty into right a transaction,

of at said, the closing. Our that as CETX X.X% somewhere expectation, is be around will I time

accretes particular dependent the course, time. that upon in transaction rates point are quickly. pretty be But that where Of will at

what transaction. the do expect capital and would grow So to Andy, continue to you add? accrete we after

Andy Cecere

The talked now conversion that was – comments, we last talked we’re of We add, as going second it we in is making Terry, the significant expect closing your and in time the – be only I’d Day. to thing Veterans in and second half about for as a you process and half. now about, talked planning we the targeted – which deal,

little weekend. Given later moving now conversion coming that to Day we’re date upon the President’s we’re close,

of the initially planning still targets what articulated And although intact, assumption So that for Terry next is weekend. working our our are mentioned, this. about, on are the that’s timing And different, the as financial X-day cost all talk share. little $XXX be environment, you we given teams a That’s the that Terry, accretion synergies might the million. savings the can still maybe rate earnings per dilution

Terry Dolan

very Obviously, the we about ability accretion, to comfortable of feel respect all Yes. of earnings the the when things. affect accretion, different the synergies think with expected in to XXXX. we still our achieve a timing the in share you cost X% Again, XXXX, will accretion that couple per

so the offset And that XX% revenue XX% talked to we what’s million year. our next achieve with Andy the of will to environment, offsetting that is rising that. going about, that probably But that rate is stronger $XXX help will of expectation to we’re see

Scott Siefers

That’s Great. and much. you very Terry, Andy perfect. thank

Andy Cecere

Thanks, Scott.

Terry Dolan

Thanks, Scott.

Operator

Thank you.

question from comes Pancari Evercore. John next from Our

open. line now Your is

Andy Cecere

Good morning, John.

John Pancari

Good morning.

the do payments to you merchant a single-digit pandemic. but the you basis those post you revenues here, high year-over-year revenue, I moderate indicated as on see know year-over-year and is reasonable growth that On had revenues expect

single-digit of the little to to in just put coming growth that in be see, quarters as range? moderate? going lower a in is than over next that you volumes quarters So year-over-year single-digit that several moderation going that you to terms expect understand you payments that more quarters, range Or to high coming that the do high

Terry Dolan

Yes.

to high growth get sort is of more normal a environment the single we have digits of when would expectation rate. our So that payments

in rates digits. really is occurred. from payments So cyclical terms of single that post the recovery pandemic the moderating business. the talking very we’re high single growth continuation saw – we the rates The it’s think growth But high year-over-year that as of a in of about

John Pancari

Okay.

it. got – So

then moderation, the characterize takes you help So type reasonable hold? do way the of quarters coming the as think what maybe a you is in moderation level is can there in

Terry Dolan

Yes.

part a part of more normal it to will growth of ‘XX in see into start environment. think getting kind I to ‘XX from terms moderating of rates, is it the we of

So I high in probably certainly, think XXXX, that to we we I a quarter the into about get think that think quarters, of near level the it’s higher a as bit third moderates but digits. or still it single little when

John Pancari

front, certainly thinking a perspective? here And talk bit maybe Okay. CECL to are clearly, from I the about credit on guys standpoint. generally got the how given assume Got the to loan the little can the on How reserve a conservative historically loss in you particularly then scenarios, here you – you’re you it. it. worse get just you’re more As more dialing are economic scenarios Fed actions. have incrementally were going

So see reserving standpoint from a and you how here impacting that do your CECL the just requirements? scenario given

Terry Dolan

we Maybe scenarios at we look worse as up Yes. when from a more a to looking different reminder, as to as recession. a scenarios, something severe that’s slightly and maybe five at baseline end better that’s potential severe, something

So about I range. think that

time, we baseline, more when assumptions, really Ukraine about a been end into waiting up we’re take little Relative think consideration. downside to a and of now. you And trying For we the an economic situation are some uncertainty economic bit the scenario. those if is that there looking we to different weight to at

in thinking would loan think, think it. – I about terms that will loss John, by the in And at in more I year, the near-term, probably half the changes, of reserve else. how spot are pretty So this growth anything like good second we or what in of driven say, be growth loan about I in feel a least we’re than is

John Pancari

Okay. Got it.

based you’re see don’t an you the the to the economic build at necessarily, outright couple forecast backdrop upon that next looking over related quarters, now? So of

Terry Dolan

driven not scenario will be I loan think by measurably growth our least worse. getting worse, weightings it than more at

John Pancari

right. Right,

reserve begin banks to. Okay. the – about Would moderate, economic build had may built another were competitors think And not we the just be that, the to way related reserves and any draconian? reserve help pandemic-related levels just to levels to one you mean, to that about a as then with intensify think I applicable pandemic-related where pandemic-related I mean you more if talk us that. the just your magnitude? longer-term do probably does guess how the one of overly agree I scenarios

Terry Dolan

exactly Yes. kind as to where was economy It was going. the pandemic, went through was you of the it hard know

level I were at builds so the of and pretty based think we do that what reserve in that upon, time aggressive rightfully particular So point knew.

see sorts again, we those of of kind the I economic and things. try through is cycle. we our think John, as manage And strong the to underwriting all recession that next develop,

build So think result reserve don’t of while there be it of what it’s I as be was pandemic. to certainly from point near will anywhere economic an outlook the going view, a

John Pancari

helpful. Got it. much, Thank you so It’s Terry.

Operator

you. Thank

comes Cassidy from from Our next RBC. question Gerard

Your line is now open.

Gerard Cassidy

morning, Good Terry. morning, Andy. Good

Andy Cecere

Gerard. Hi,

Gerard Cassidy

annualized reserves of in Terry, start when you, the us rates discomfort? rate quality, to to you loans, color guys XXX an anybody can decline get XXX But I’m quarter Any follow us, for second during the you to in and don’t stress with had what XX.X%, with it rate share had XXXX basis over guys give little commercial credit on or ever customers pandemic certainly, a there? do testing I you the can of with needing to what rate in we the rising unemployment at variable point share up went you really see higher? to on to Is do points your GDP or XX%. close

Terry Dolan

have... you Yes, I if know don’t

Andy Cecere

for activity defense think scenario what growth think rate if you higher underwrite anything loan about think terms standpoint, variable to drives I than is from in the And rate rate side, I credit the of economic environment loans. GDP. think more Gerard, I we and a a risk,

we’ve the we putting think we rate taken those I cash book. think different under into look as account. And flows on loans at about that already So scenarios

point. I economy growth I’m about impacting credit. rising less will we’re impacts – So impact the rates rising as think some less that at concerned do loan rates

Gerard Cassidy

No.

sticking ‘XX, with in – was like credit, as we many there on the into going seen fair. lead time. this was gradual of aggressive downturns, cycles, of follow-up, and a excluding have ‘XX ‘XX, us have Very past could it I lending I going or And Okay. a ‘XX We into think then, to XXXX, seems guess, ‘XX. the don’t in seem what into ‘XX going that

if color any So is wall can us on concerned it brick seems further give know hit so can or XX you that what thoughts that guys further going cliff market on you months. – were there? so X I off is go the to what – like about a banks to a don’t it credit possibly in Any

Andy Cecere

fear think will all reflection I customers translates do Yes. people think to of bank I rates I we’ve into a a the of a customers reasons go way. things investments. you’re all rates are prudent when before. that extent careful impact of the we going lot think that the we’ve talked up had he think and to been lot about. being up. – scenarios, terms impacts career. probability and talked think uncertainty out that while that’s as waiting for seen – us. before, there occurring, outperform. Gerard, about this of are go those just their events there, of never usually recession scenario that seeing wide it’s recession other stocks, we range And bank all it’s is my I’ve into any we’ve a banks They rates in of I it I’ve for and different uncertainty for Bank preparing And says, And and that inputs because stocks little a why I stocks probably in And the are talked up, the the for I bank the are serve ever about, of The going as

Gerard Cassidy

And still shape tightening customers gone customer is good businesses, your already terms in are speaking? clear generally slowdown still their that’s from the are any – on? seeing with is of that, of in the it Or evidence pretty the

Terry Dolan

continues fuel standpoint, strong. a – obviously certainly the of from balance would consumer now lot watch, Maybe a pretty is also of food less spend spend that and and terms a They it things that of have we deposit overall I purchases are from where Yes. in that It’s say were certainly spend is that what sheet mean very But on strong. to occurring. I probably is service-related is retail the still It discretionary, away of consumer a things. be of couple and different it’s excess of of is activities. businesses bit From shifting still shifting type types non-discretionary more consumer that pre-pandemic. are where they the those strong. balances a toward level in seeing

card I think for And that’s credit continue. on part, then consumer down to as lines on in willing allowing draw spend least that well. their to at the are average they to

inventory side, On the business characterize builds. the would way that continuing see to I it as we’re

Andy experiencing or increase. bit something trying acquiring XX%, I of rate I inflation terms get growth XX%, inventory as today maybe businesses The just that thing a economy middle I ahead it would loan space, might to today, XX% seeing of to cautious that like that are think have And in the say though, a that Gerard, to we’re in range the of more of one part opposed it strong especially possibilities what a back business today. owners, wide. comes said, the think is market is but that very seems

that consideration take people they And are think their into trying about business. when so to running

Gerard Cassidy

much thank the closing second half. in you and good deal always as luck the very on Fellas,

Andy Cecere

Thanks, Gerard. it. Appreciate

Operator

Thank you.

Najarian Erika comes from from UBS. Our question next

is line now open. Your

Andy Cecere

Erika. morning, Good

Terry Dolan

Erika. morning, Good

Erika Najarian

interpret that first quarter? fourth low terms questions Can Terry, could beta Or the clarification have cumulative because cumulative first the be beta Does account one. the be be than range will the that take XXX. we in mentioned next we into by by in that of mean that does that beta that that the for quarter? fourth Just the quarter mean to you would a new cumulative my lower the deposit we mid-XXs beta by to for XXX? fourth

Terry Dolan

be mean, average lower. I be less. obviously would will It the

in really in would reaction to and deposit rate two So I’m what talking betas the is we see terms next hikes what so... about that, of

Erika Najarian

reported I’m be outperform the like mentioned it. beta it XXs today, in math, could think that And to by on I that just they you based would appear the the cumulative it sounds low comparing that. Got also year-end.

Terry Dolan

terms of deposit has in expected. than first Certainly, what been experiencing, we we lower hikes are the betas the rate had what in

I and lower. of us, betas were where the least, for think terms starting the just at in industry been from from have we

Erika Najarian

Got it.

market Okay. And a of some recession. see a the balance of market accepts back that with? alluded the The of quality Clearly, And recession to taking as you in worried of U.S. there. market to put something of market to begin generally amount time industry sort share an you Gerard has a the industry spent U.S. question relative resilience non-banks, the very a – specifically? building Andy, I that more lost credit coming to was Bank back and back Or of step the clearly, is do in share sheets and and underwrite is, that to some you wanted bank you on has their like my the potentially to, asking banks one of first maybe think never books about quality Bank that about best coming question. share. guess corporate out to the market of that lot

Andy Cecere

a question, It’s Erika. good

bit seeing little you’re is competitors. the I already some what occurring think a non-bank there shift a of of and in

credit defensive than test, results saw includes last we well terrific a you And of think and the of a U.S. things, little Bank. from are our were banking a during very underwriting aren’t well much through I all, in from are that’s credit better our just in models our think sometimes when industry which discipline. liquidity capital when that traditional going things performing work all in downturn shape work showed reflection us do standpoint, First things is stress I cycles, those challenged and going models And very including diversity a new environment. stressful so the the more well. credit a of

and underwriting credit those multiple and But will ways And U.S. do we that new will have work in through cycles. banks models I so how doing been see proven new think downturn. certainly models Bank’s this of

Erika Najarian

credit there the debate for weak subscribes be secular of idea Street I in outcomes U.S. to is downturn. get is, now payment and is should think the about question consumer winner that the a third surprises the clearly worried is my how And about Bank. most a we that in payments, Bank. if of And But on spend we right do range how have going with activity consumer does really Nobody U.S. recession? in think a the to a

Andy Cecere

They have that Erika, we lot is, as cushion have still savings what alluded $X.X it versus recession pre-pandemic seeing we of severe excess is very depends is good Yes. But of trillion consumer a Terry the a in certainly. position. are how to, levels.

we’re For U.S. deposit X Xx Bank, at level. still to

over past are they have years. are spent few as know, still And they So unemployment numbers not that very good. the dollars the you spending

from that there activity, different do think enough least And think goods I Terry mentioned, spend continued as a certainly that is So I near-term, cushion. allow to categories, that more that’s seeing bit strength bit the albeit, comes cushion little outcomes how we’re for at And in will about little still there. that talked of ultimately terms in that pretty those a I depend out will of non-discretionary, again, upon wide. services range and but

Erika Najarian

just Did than you on XXXX. income lower much? And said fee the guide, you one last how quantify one

Terry Dolan

I related to sorry, what? am

Andy Cecere

and in is that income quantify quantified So to X%. if asking X% Terry, the we total she fee guide, we revenue

Terry Dolan

– exactly. did yes, We

Erika Najarian

much am too going. I Sorry,

Okay.

Andy Cecere

problem. No

Operator

Thank you.

comes Mayo Our from next Mike Wells Fargo question Securities. from

Your line is open. now

Andy Cecere

Good morning. Mike. Hi

Mike Mayo

Hi. Good morning.

that’s business versus of And this the is at am growth, I line So, customer and green that squinting effort. the March banking at I XXXX. XXX, indexed payment at look big number and am look line, at relationship a starting joint blue your – looking I trying have Slide you at by that, to on X, and and

my And guess Is year-over-year banking X% are the splinting you up, that so with and here, you both payments. I growth are up in accounts correct? use you that from

Andy Cecere

That’s Mike. right,

for squinting, the Sorry but yes.

Xx to under back green what and we products which that’s imply almost below total the banking single index relationships you if line. combined payments XXX, relationships, those up are on would just just just that relationships are So, have service and X% both that

Mike Mayo

much growth I mean Slide had your to in is how contributing this XX. And Okay. growth? payments, you outsized

loans, outsized X. have commercial Slide in had You growth

the of to and to this So, the payment percent onboarding growth is environment, this? due business is Like of can of what just how post you due disassemble pandemic? banking economy much And initiative? kind the the

Andy Cecere

both. think it’s bit a of little I

this. mentioned, focus this services rates, going innings the the is customers comprehensive And segment. more current you, of I this think Mike, seeing meaningfully providing I top services think a still, Banking top and acquiring are It’s it’s into tell offering tremendous growth I as to priorities. to banking business important Business that the that weaving well And corporate the it a all my to together products early both payment in both in activity. one Commercial on be the lines. as I segment We of as have our you growth priorities are will of concept we And customers. is across do activity business driving well and But many one on both of as the company’s as and

Mike Mayo

charging strong. pricing mean And the might loans? like lending credit then an be seems the markets, between for much more unrelated loan is nearly bank disconnect as much. capital question. a very but and And there which commercial like such markets, not charging just on growth what’s which is more I It growing so the is commercial

Terry Dolan

Yes.

in still the view. of Mike, of think I corporate pricing commercial it’s side, that, – from side competitive the a loan point equation, the pretty

of people spreads again, seen loans kind loan more, type yet you to expectation if are – credit looks at it’s think And credit widened today, spreads expected tend good. as have to time. haven’t we are particular comes though. might of outlook not would we be mean that the back point to have it growth sense our I at? looking of to what widening it my much widening this And economy the of those I in and pretty is this expect kind in so would as spreads agree you economic expecting, maybe and part But be that I

Mike Mayo

the I you based that several of credit does agencies, mean So, thing. in – industry that are spreads, on the metrics, rating sort most conservative bond all bank

So, with the into forgo lending, that landing? as some any industry, this assumption plow in going do the you are does hard among largest, or just most not the ahead sort we mean bank do of of conservative that you the

Andy Cecere

Mike, good it’s question a as well.

a are loan leaders myself being and on about and I what you our will it a that had are very but either wasn’t we putting have appropriate standpoint, growth, heck certainly that putting a not deals are strong are tell we from or Terry spread not it been could lot credit our a So, disciplined we a while stronger, those from or because of standpoint. balance sheet. return standpoint And

good grown growing we are didn’t. more, we we have So, could but loans,

Terry Dolan

And auto a looking last not competitive, quarters, although end in have two at to example, the willing rising the And give returns quarter been of you that be, are as been environment. over up volume rate because some spreads there, us they up simply environment. current for given we should not they as to Yes. the growth fact or lending if the perfect the very of responsive the have are strong

example of the So, discipline talking that would an about. we are be

Mike Mayo

you. Okay. Thank

Andy Cecere

Mike. Thanks

Operator

you. Thank

from Our next Matt Bank. Deutsche O’Connor question from comes

Your now line open. is

Matt O’Connor

morning. Good

Andy Cecere

Matt. morning Good

Matt O’Connor

flip about below deal. as ask are that would maybe marks essentially marking of hard aggressively, think have the credit portfolio maybe course, book reserves done I a to in that landing. CETX was we spreads just down means get do to discussed. the a marks more UB is wanted if risk even pending Obviously, X.X%? be? that related then I side, meaningful just that bit if how there and might frame just you building you widened the little are kind And that more on And of the Is the

Terry Dolan

with pretty mean it’s expected. pretty strong. performs a had we mark credit maybe from Well, I portfolio Yes. what that standpoint, I consistent think

depends the we point a view, than into of in a it And, income pretty higher little time I that mark-to-market day us. had – time. what originally from But we Matt, rate really little that. with little as CETX bit It be a for higher. to bit upon in as synergies, of talked timing about rates lower It the back than this I put it’s not significant accretes also, point system earlier which that, where closing at or particular cost of X.X%. being do a still little we we bit quickly. but out. modeled point a modeled, are mentioned certainly lower mark-to-market benefit just one kind around you at ratio a will offset concern maybe expect than the say, the will think, is of terms be the little That it might what pressure, conversion In had so of back the synergies a related the to but moving of on bit

comfortable earnings accretion we X% very So, from of an XXXX. view, still very still in overall point – feel with

Matt O’Connor

we the seeing summarize, think to seeing It’s credit markets. credit macro so you by portfolio kind as what more impacted markets just what the in forecast then and public actual marks in about And we are aren’t the are really of themselves?

Terry Dolan

of lot what Yes. obviously, this haven’t particular in I changed outlook point consideration earlier, yet an those point I assumptions as mean But our from to view. are into take have we economic a mentioned time. at

here is It’s particular the it between the this of what closing then. at in again, performing the the and so time point timing so… well, good. upon quality depends at happens is But least And portfolio etcetera, and of

Matt O’Connor

And little from know are getting of doesn’t book servicing bit as banks, guidance. the full And are of of we then not some Is sale be weaker fees servicing seeing the kick slower then we Okay. your mortgage the about feel book, I than delay the can are gain still the on some margin of a we overall. the benefit expected look you across full like the just there in? there separately, talked But a prepayments. for in benefit industry that. stabilizing? it to being in we seeing any that Obviously, year signs

Terry Dolan

Yes.

of couple things. a So, different

revenue. because do We I be things, probably of the be As rates. we it that’s equation think on will to about in there to third little revenue mortgage think pretty Matt. combination But pressure volume rising that that continues side pressure fee to to talked going quarter there be of bit the of continue basis, on quarter. of a simply second on a earlier, to quarter area a going be similar is linked banking the

at us, starting seeing, the gain on little least for sale are bit. improve We and stabilize a to

the improves a go that of fair coming out Our rest XXXX. the that’s industry. of through and it as the system, There is expectation of of out capacity into year the certainly we is amount

point that from will that up end From help of our that, in values view. servicing think improving because and at least I – hedge how standpoint, probably is on terms try the gain to opportunity I there we management tightly. servicing a expect terms of of point And are of so income MSRs pretty of rates. do of Obviously, because we – from the MSR valuations And sale. in of

Matt O’Connor

Thank you. Great.

Andy Cecere

Thanks Matt.

Operator

Thank you.

Our next Wolfe Research. Bill from Carcache from comes question

open. now is line Your

Andy Cecere

Thanks. Good Bill. morning

Bill Carcache

Good Yes. morning.

you fall before unemployment your Does to reserve increase act more increase rate what in point Assuming period the that you could on it? and higher reasonable be because your to lead CECL? you under hikes us need slower and growth have visible under would Fed required can historically, unemployment would cycles it at just understand to eventually forecast many as supportable hiking help be

Terry Dolan

Yes.

I actually is there which out of to in think a lot going it’s uncertainty go. direction there

the for weight more some and kind look at I waiting to been, about what outlooks of the then have bit economic think have around the of that them there of different past. little because talking variety earlier, and just we certainty Bill, outlook Again, we is. needs we expecting what back period mentioned we a been I a on whole be more in to of kind time, downside, uncertainty economic coming them that of

will time. have a that hits, but adjust at it, consideration to take to something we’ll if have into that’s recession So, we

Bill Carcache

have Understood. view an day already. And was fall impact as today as XXXX. reserve currently? favorable below it rates is their had of on that, following their January X, overlays are much management there the one would Many how say maybe up a that And you outlook is banks not on levels macro having

what are being which the used them? to you Just to curious using extent consider to extent overheads

Terry Dolan

couple what reserve today, versus can’t change on I speak today different people looking other one mean to I factors, years. we X portfolio ago, high an of what last will the an that have mix is the of asset, the where at was quality of very over the have as speak couple where we day of also rate the a that of quality. quite really for in is of I over What ABS end terms couple the Yes. growth Securities, it principally it’s the probably is versus years. security as last years both in but the example, if a seen of example, you up That’s lending, bit are but seen growth doing.

it’s lot probably perspective, of for it And downside one, the to certainly then. on much say so economic a than was mix as day it’s relative from us anything. as more an I would

by speak I to doing, other – can’t again, mean it’s I it’s what people for driven us. but mix really So, are

Bill Carcache

And can last squeeze one. one in helpful. if That’s I Understood.

risk You you could a commercial maybe and greatest and both specifically guys the and like us commercial Maybe given for your recession mild USB? on unique depth then you you consumer what have where consumer look of the within side price view the think businesses. see would out

Terry Dolan

Yes.

sort But about. change We every our month, the I good last did continue as shift to starting spend discretionary that’s the will I moderate for single and that talked flattening of we the starting the see And on more that one be X where base to will I you, consumer checking from think the that balances, savings are nondiscretionary. have seeing every and there. see – think greatest in we we spend you impacts be talked where impact tell inflation what continues the there month. already last an will in risen income X.X will balances and of we months. account that’s as low see and and years, levels a about impacts customers most, as some are

moderating sure. that’s for So,

spent. certainly be and but that So growing, to is flattening not starting of it’s some excess savings

So, at go least the I few but next think is as that cushion to continues, that out. starting months, provides into a cushion that as flatten we

again, prime reminder, a only. things portfolio don’t we the And are are those is our have seeing. we So, – as

customer high quality. Our is base

early I early our indicators think impacts some sheet. in So, be those of or not will balance seen

Andy Cecere

side, get just an That’s then Yes. corporate have not we that we the area little leverage And lending. into. very on

investment-grade Our corporate good customers are customers.

So, recession. certainly ability withstand have mild the to they especially a

Bill Carcache

the Andy, still coming in super kind of high, lead significant you and Fed to in maybe high curious thoughts could inflationary liquidity contributing that to think maybe of to have your of bit, perhaps that hiking, the itself spending back how of is level That’s sort have the to just consumers helpful. down your and that? around just and is do a that’s and going in the potentially on something but the it’s little And strength that be terms more comment

Andy Cecere

Yes.

I think that or we talked wildcards that’s one about. the factors of

seen of or We are other haven’t seeing them. in I things is in that recessionary today’s we downturns this environment impacts. And one think

$X.X So, spend balance up had of that we built unemployment, And a stimulus, number trillion government they fact for cushion savings. that now that that’s and spending of above us, cushion. out. is environment the up that of because the before given are because pandemic of I levels levels, impacting spending that money of $XXX, well pre-pandemic certainly a every so excess you dollars of still from are zero little trillions higher already some high impacts And a is level people to quarters it. weren’t for $XX,XXX, and years And cushion have. rate using they the people and $XXX provides that we see to time, flattening certainly $X,XXX think deposits, that this certainly And to start are seeing across of to it bit but

Bill Carcache

Thank you so much.

Andy Cecere

you. Thank

Terry Dolan

Yes. Thanks Bill.

Operator

our America. from Bank Ebrahim Poonawala And you. comes question from of final Thank

line now Your is open,

Andy Cecere

Good Ebrahim. morning

Ebrahim Poonawala

Good morning.

companies on means strategic the terms last the on breakdown when to XX? about But medium share? on might next Should kind think how the have right And the gain XX, provided in of question anticipate Slide you over the longer quarters. the years any I relative pie the evolve Terry, Andy just the made payments and we are digital business a you. what this now. payments in of you helps quick happen What business, talked should talk just few few and of we further you market thoughts. lot investments to your in then struggling in about the that you Thank term, one your Just us, M&A so, footprint would hear love native the to business that chart Slide within business? to

Andy Cecere

acquisitions, such. So, talech made banking being entire of I receivables, movement, this think thinking a payments. cash what companies money capabilities another and about their we a from built about flows activity have one helping we is standpoint, talked our lending a building that manage and TravelBank of have capability, this ecosystem, being them, and number business And already smaller payable

to great build relationships build that seen that acquisitions driving what that, and us within So, opportunity that’s the you digit coupled that have is growth. think is made we of those that, us what’s driving revenue do high-single the a relationships, to exactly have make with investments to articulation we Terry’s and

Terry Dolan

I we or pretty of trying a a where be specific of Yes. say view, And it something at honestly, are now. point to good would Ebrahim, that have will feel a an if acquisition But we near-term, that quite we from we that’s in very product right are capability fill the terms to in. in focus

Ebrahim Poonawala

would on year am would something disruption risk that that’s share that then to in relative And the hear to X over are be years, to progress, the business? out would like do you is you mind I you seems the but to had market good share medium-term today. handicap your or it expect where to the gaining And next trying market of what love over And you investors. if just making business. It’s draw think about you how are

Andy Cecere

Yes, opportunity. I have do the think we

have opportunities. our – is capabilities don’t yet, slew of a payments I have and We banking half That’s customers another think don’t our we banking. on we our One great have we of customers. big have payments chart. two have

to to one. have to And given opportunity customers. have we great number more which ecosystem those capabilities the products take opportunity building, acquire will number two customers, share. this we a in That’s the are we believe and we provide services more So, is,

Ebrahim Poonawala

Thanks.

Andy Cecere

you. Thank

Operator

at speakers, back And turn this questions Thompson. I further have time. will call to the we no Jen

Jen Thompson

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

Operator

conference. Thank you, ladies Thank for you today’s concludes and gentlemen. participating. This

disconnect. now may You

U.S. Bancorp (USB) 15 Jul 222022 Q2 Earnings call transcript