U.S. Bancorp (USB) 15 Jan 202019 Q4 Earnings call transcript

Welcome to U.S. Bancorp’s fourth quarter 2019 earnings conference call.

Following a review of the results by Andy Cecere, Chairman, President and Chief Executive Officer, and Terry Dolan, U.S. Bancorp’s Vice Chairman and Chief Financial Officer, there will be a formal question and answer session.

If you’d like to ask a question, please press star, one on your touchtone phone, and press the pound key to withdraw. recorded pm for XX Eastern midnight be at beginning at will Eastern. XX:XX approximately through call and replay available today XX:XX This Wednesday, January

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

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

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

I’ll over the call to Andy. now turn

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

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

Slide per will detail of per reported We which included few moments. which $X.XX, a in $X.XX I’ll earnings discuss on share begin items X. notable more of share Terry in

Excluding these for notable items, we quarter. reported earnings $X.XX per share the of

client new very across relationships deepening driven all portfolios, and was growth. deposit strong delivered wins and loan growth we by Loan our

ago. We businesses. and book increased our see a X.X% share continue account stable was fee Credit value quality to strong our year growth volume and per across from

returned of stock to plan billion through Reserve to share of earnings $X shareholders dividends for existing in authorizing authorization In and quarter, $X.X the million our November, In the incremental an Fed we common fourth from share the approval addition billion. of $X.X buybacks. our to of we repurchase up purchase received

As trends indicated strong. remain uptake on digital Slide X,

will well higher continue experiences to of both up off as more volume. We customer interactions transaction our and drive the on as wrapping DIY and digital launch app, are more that digital significantly mobile the

provides tangible X the common core a On we return in on XX.X% fourth Slide metrics. delivered quarter. key an performance equity basis,

For the core common was tangible year, equity XX.X%. our on return full

it as turn quarter guidance. detail to provide on I’ll the Terry as Now to forward-looking over well

Andy. Thanks

overall If X.X% earnings followed C&I residential start driven by X, activity trends. down turn a you to commercial I’ll quarter a X.X% capital real muted the conditions. with environment fourth linked mortgages, year-over-year. quarter, reflecting sheet and Slide primarily grew quarter on pay card estate, loans growth growth markets strength fourth Linked robust of and balance loans. was a increased quarter Average in in basis rate The review discussion and credit by the

a a continue is stable. be New likely commercial down healthy; headwind activity is diminishing however, business to that pay assuming interest near the to term, headwind albeit is activity rate environment

banking. Turning increased in X.X% services, commercial linked Slide XX.X% across-the-board by Notably, deposits average year. deposits and by wealth driven grew X, grew quarter banking, consumer X.X% to over basis growth investment year management savings on and a

XXXX, billion in previous a with no our which December CECL, line has accounting quarter Slide to plus $X.X compared non-performing The basis. We as commonly X quality known became adoption adjustment for of XXXX in a X, dollar of credit The approximately owned a CECL linked stable effect January related will that assets assets the ratio On our quarter. year-over-year. effective in basis, non-performing with to losses impact and and guidance. real standard year-over-year result both Turning our on was to losses, fourth quarter to results. linked improved cumulative XX% also allowance and estimate credit on estate loans XX, is a loan declined new the other

reported We per results. earnings notable quarter $X.XX, fourth by items share. earnings share earnings $X.XX included highlights of which per X several reduced which Slide

share. these of per earnings $X.XX reported items, notable we Excluding

notable Slide results included and an fourth Visa quarter severance items earnings increased previously certain company. charges, asset XX derivative by including restructuring lists related Fourth impairments, that notable for XXXX affected the to XXXX the items the and quarter XXXX. and sold of liability shares

related accrual As business, company’s notable tax estimates net was a impairments, in of the from items reminder, of several sale the of legal asset covered as favorable of per XXXX, quarter deferred the certain during impact XXXX to matters. impact and majority reform, loans, of Along we ATM our notable gain recognized the the as increase a the with sale share. items $X.XX tax on related well and fourth including for of of changes charges severance, in an assets to the liabilities servicing an

the and referencing in remarks for the call remainder incurred fourth will of XXXX XXXX. excluding results My quarters items of be the notable

of in a impact Slide more the to growth our yields taxable by line the curve yield reinvestment securities income year-over-year, of Turning flatter higher XX, as a net declined deposit was expectations interest by offset of on impact mix. X% on and equivalent and loan with than basis fully funding

in the basis curve attributed of offset Our was by mix, and the About the the third XX of declined basis be four deposit asset margin yield points investment compression The to partly premium to pressure securities net decline higher quarter. can remainder versus earning amortization due lower points portfolio. interest by the expense costs.

interest compared net fourth to stable quarter the the with margin quarter. first expect We the be in

income. saw trends in revenue volume we year-over-year merchant in non-interest a Slide acquiring driven XX highlights and basis, growth by account good On improvement.

XXXX. days to XXXX. look card revenue declined and of mid-single debit credit revenue and in for As We to the X% expected, to return growth digit quarter pace due credit processing debit fourth year-over-year in the fewer card

volume revenue Corporate declined and a the mid-single management growth has volumes; investment favorable growth market business growth sales payment returned commercial business rate. past products by growth driven digit X.X% sales in lower few weeks, and conditions. reflected however, to Trust

fees decline sale fees management year the in treasury changes the in from management company’s of of on quarters recent impacted fourth of fourth the ATM third credits, raising of in in servicing XXXX. quarter treasury of the were a effect the the and in targets impact declines Notably, ago of by service linked increased business a environment residual rate Deposit interest The XXXX. reflective XXXX. earned a reflected the quarter basis, rate

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

the in of the Refinancing activity quarter. quarter. about in represented to represent in [indiscernible] the Refinancings quarter XXXX compared applications XX% fourth XX% fourth of linked approximately

of app utilized all November, our of being was applications. digital As mortgage mortgage about by XX%

year-over-year growth. higher expense, expense reflected increased expense, occupancy non-interest and personnel and actions communication expense, XX, net Slide X.X% equipment increase to the to business and in reflecting support technology Turning higher

our position. was equity our Slide ratio capital common XX Basel X At XX, capital X.X%. Tier estimated using December highlights standardized approach X the

some guidance. provide forward-looking now will I

of for For decline linked net relatively digit expect taxable fully count. day but income the equivalent to a XXXX, quarter at quarter be single low first interest we flat normalized to pace year-over-year,

We revenue year-over-year. growth in fee expect mid-single digit

full rate the We to basis. on quarter expect to expenses is digit expect quality a our equivalent XX% tax low the compared single taxable stable Credit we growth in expected in quarter, year approximately be and on fourth to basis. a remain non-interest first year-over-year

Andy to back it comments. for closing hand I’ll

Terry. Thanks

interest to in the as industry, rate the took as environment our the operating and the dynamic this position well actions are facing company We quarter’s future. environment a better we entire impact of results challenging for reflected

a our into as financial as head However, and on in we we a indicate, the position ended we XXXX. core metrics year solid are note strong

balance a sheet as share headwind ability rate environment manageable businesses. confident interest We our gain view and the market our in we grow are prudently in our fee and to

Fee XXXX. growth by headwinds several was negatively impacted in

in revenue In as debit more refi-driven market, interest a we As credit in a gains. several year. rate the discussed, the growth years expect in become the shifts this to past market Terry the of a investments our mortgage increasingly market form normalized environment, over have will return we business evident to share stable purchase-driven and made card

looking the We think, we we way are financial ways strong the consistent and way to we business. our but improve. the track and we are we record, means do of changing are way proud That always work, for

agility and our will our for increase optimizing same investment operation while we the future. the at fund beyond, move time market workflow core to speed to services into XXXX and for As we and products to continue

Our complete and efficiencies, our ability and satisfaction, customer to ecosystem leverage payment capabilities returns. digital and the of lead our combined rapidly improving will higher revenue growth to power ultimately stronger improved

[indiscernible] In our managing this remain we pathway to the term company on for customers. by our to I’d and we value accomplished commitment delivering employees to while future. thank work the hard creating their year, like for summary, supported all long for this focused

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

[Operator instructions]

please, ahead, from from Your line the open. your is Pancari comes Go of Evercore. line John first question

Morning.

know given expectation. you can comments there type talk operating you but full the see? positive if see chance about what could get--you for challenge that had on Just magnitude the the to the around be bit a of XXXX, leverage that it wanted wanted operating you year, to see your could updated rate to etc. operating thoughts a that, get leverage I previously a got backdrop, you your full quarter, leverage, that I is indicated positive little attain could and for I year

Yes John, thanks.

our full growth low on of XXXX, reminder, leverage we positive that expense our As did in goal had about single to digits. remain for to basis target expect XXXX, a When operating leverage operating objective continue is year. positive and to the in think achieving we a we and core a we those

have of to we terms that levers pull think optimization. at a continue we I and number in of look

in asset system, this things. our goal, different a activities, branch of physical of with point back our continue and at our time. that’s objective We number office optimization the That’s our

is in I said be able simply happens etc. interest thinking of That’s we’re to a part said, what That outlook, the how with based you think respect difficult XXXX year to because achieve revenue rates, going and it. as question, it upon to is of really about your more being

Okay, it talk terms momentum change your other that about you items. in some look great. couple to was at build Thanks. underlying impacted where expect progression, do you as the as impacted well accounting XXXX? businesses know headwinds you there an the of as a I of fee fee just Can had Then in that

at looking end Yes, think looking income, things end fee different we that of up at. a when I number up we there’s

stronger accounting we particular card well as that as mid-single we pretty item was revenue talked impacted about. about credit slow by digits both is in the which line think think and item - as next quarter, a I year, XXXX first again, had an

of get think of back the little a year, I and slower decline continues expect weeks the to digits that kind there; in category come has well. saw of accelerate expectation CPS quarter spending, digits we and our commercial mid-single revenue, we acquiring because is the then in so a strong, while and fourth merchant mid-single first the in several that as

sale of Deposit been XXXX, this in business ATM services that a is in or has charges normalizes at of drag least of XXXX. because the flat so the kind year

management so better than while treasury of up is would linked XXXX. revenue expect would has it’s think a it year-over-year down area hit point, and I expect on basis, that that is kind inflection we quarter a another be an basis we on to

different there’s think of number things. I a

I think we drag was to of that the strong mortgage quite in XXXX couple of bit think in when if the first mortgage, about about particularly several we it talk offset quarters. quarters, a the but has a also last mortgage, been is

I rates, interest think depending positive again, with So happens in that environment continues a the story. to what current be on

a there’s of think different areas. I number

helpful. you. Thank Terry, Okay that’s

the question please. of Bank comes next line Your of from Najarian ahead, Erika from Go America.

open. line Your is

Yes, good morning.

this are how doing morning? Erika, Hey you

growth your seems loud and geography the last I trying Is I’m how of if though three with statement expense of years you. terms you I’m change technology. initial just expecting continuing that along that risen to and compensation seen thank have putting - heard is consent and for charges transform wondering experienced that we the you’re lead of XXXX? geography wondering up Good, order, we’ve that increased really over could which growth. back and growth, a should terms at to part looking different clear back could in to the I’m your if expense the you the to some severance coincident single low in that the that on headcount, of expense business underneath in take growth front, expect digit the Andy,

technology invest description, optimizing not but but and I think that’s we’re unfair the just future. doing an not technology, way people It’s in to business the Erika. continue it’s it’s to

last been continue the X.X% it’s XXXX, you that growth optimization periods, year-over-year and in that I and same XXXX. time digits during expense investing couple expect consent would items take-out low Our expense - the the higher single know, was of while future, for years, order at technology in notable includes but and and in the people the as including into to

from I amount the setting it’s our up if wondering like of whether feels you’re seems putting rationalization, into or it that to optimization like severance that guess I’m related is that speak, dollars again itself. the takeaway behind charges headcount the further and it’s future, for because you’re accelerating and are so to that you, technology that

to so about to make of from expectation reinvesting behaviors when business but which bit type I costs. in Yes, our transition the branch couple think a fair over we the the the customer optimizing comment, more spend as But investments same been that I support transformation, to is is to time digital the maybe to of think a last we’re environment, we network, a back we of think have a digital I being and the making what technology call of that’s shift at Erika, again years. that shift office by would the little technology and in impacted are continue that compensation XXXX that

Thank you.

from quarter, it for or Just NII outlook XQ the be expect the one could deposit of in. and from quarter, costs and to XQ more, increase outlook first trends year here, for continues you quarter squeeze cost the if levels? over what rest downXX if for wondering also stabilize net curve interest I’m were potentially basis the underneath could points I margin the stable Deposit

is of Yes, the the upon premium on pretty point fourth the if expectation at time. be possible curve. we’ve depending kind the it net our continues happens for with environment XXXX our positive That’s margin flat that in what and well quarter amortization stabilizing quarter where rate certainly the that and is reason bias long that today, the this end third particular would experienced process, of some thought is to is the fourth in interest

and on about When those the the come happens on short we bringing will terms have deposits as deposit a deposit end of have in of function responsive and pricing down, think I those, rates both down been costs, be institutional pricing, of curve. on think deposit here we out, pretty re-pricing competition the what from

thank it, Got you.

[Operator Instructions]

Go Siefers from ahead, Scott comes line is question next of Our the line please, your from Piper open. Sandler.

for the Morning question. taking guys. you Thank

curious if loan might offer to be level on Just overall you able any and growth top comments of the overall demand. pace

HX seeing customers up given side, consumer different data, to of If the at, a been surprising little your curious the look supported in the the of I’m growth held level. the you top it’s slowdown and a however. definitely by very just what types it’s or see commercial on you franchise but look at you’re breadth been side, at

outlook there what in a high at feel Yes, economically I very is. optimistic the again of pretty we level, terms think

markets components consumer driven continue quarter, pay you that our and a reasonably little curve of with significant activities, and the the of we third good lending, the think area growth pretty in moderate. downs I we while would lending. long down saw in function end the of loan and will we the saw stabilizing, in was fourth and strong we that quarter that some place to downs I into softer capital that taking respect was quarter. space that pretty first continuing growth, a to the by or pipeline principally were If corporate expect the think With end at to pay that’s bit the coming up saw strong, that’s while and be C&I production of The our fourth really looking

been perfect. any thinking you. that billion Okay, of on I Any thoughts LCR have think talking how billion you on about free-up. just Thank Then updates liquidity you’re about rules? from the $XX to additional dynamic? ramification $XX updated guys

of--what is in ballpark respect to LCR. the in amount that’s of the Yes, the terms with impact

duration which agency and in it to more I it is it look bit, of a thinking be investing But bit dramatic. little securities, different bit better will mortgage-backed and margin think continuing possibly at little a alternatives, the a about be yield. We’re provide part won’t would anything little on extending

perfect. that’s Thank much. you very right, All

queue this over no further remarks. back call are the I’d turn There to to questions Thompson at time. in for closing like Jennifer

Oh, it your open. please, Chase. Go looks question. like line question do Juneja JP from is of line from we We did get Vivek Morgan have one a ahead, the

Andy, Thank Terry. you. hi Hi

Just on wanted in from card there impact reversal and is XXXX? to processing your base? How clarify that for fees, two a does what credit-debit should--what do, the was

impact Yes, digits a low to but extra it up good really because our me of in to X% to that maybe middle an question. is that little taking day I ended relative fee helpful. was from think quarter. is XXXX, income There just XXXX the two in that one days negative There fourth bit single let dissect

looking was in is rate occurred an When by that, ended up the it that really One effect, quarter up there rates end growth XXXX XXXX, at different depressing growth impacted first the things. of in for because was lapping XXXX. the of accounting change you three that

we and digits target a concerns basis, remember as fourth good in terms a full think quarterly the kind for results second, in you a was we lumpy, addition, low really mid-single unusually was us think and digits XXXX terms be of lower good the can In stabilized, at of quarter to days, mid know, but come the volumes. consumer for is of that up. consumer processing the you That quarter estimate significantly in been has about when an level the around Then of and on level, and year spend the first course us. spend in as that sales has economy third in if single back getting

the you sales it about several pretty consistent range, Our a over when quarters on day-adjusted that think volumes from been in to and it’s quarter. been quarter last have basis,

So think will XXXX, digits for day be of year, but results we’re will a when the good little we lumpy, help little I bit quarterly is Again, how it. in that’s mid-single that there kind and one is a more but bit, about XXXX, a thinking think about estimate.

at back to this prior When was growing I you you’d of sort look X% ’XX know, when like line at of the over years, ’XX. more item to look couple X.X% had--you

been the has mid-single contracts, is digit Going Terry, this a slowdown of to level any What, run driving reduction single the pricing, there digit is that in digits, that high or shift reward to rate? mid-single in kind higher expense? the from

Yes, lot we some so rates during were frame, some feel been there other particular that pricing, of a influenced pretty that - We XXXX with pricing. to XXXX the respect more we that. of than hasn’t in so compression in good time about portfolios factors, about growth were because respect acquiring think when

so And to way number rewards the have digit XX a good been factor. mid-single a relatively think is that actually isn’t That months. next about flat,

Okay.

other in As down I at Any that little revenues, the--yes, quarter. on a color of when treasury you was bit that, It’s that, because said management know this and fees, softer good. let Terry, you I’ll fee Corporate you Andy look that. terms think I card actually just answer be should also year-on-year.

first saw to January a the the the we mid-single in digits, two almost activity higher few digits. of did see spend That been fourth of in and a flat, a back first in Terry bit the weeks quarter, pick-up running that we the saw his little remarks, quarter prepared in in half mentioned because the as Vivek, mid-single quarters. impact to slowdown Fourth corporate slowed. Yes last the of is had

to have seems was attributable that slowdown, So but come it to that back.

for were of had rates then that the think uncertain and the was about tariffs. hangover is about moving, yield where were there to the respect think one you concern that recession, if of economic people I you reasons data, with curve--how a

the looking on I better. corporate sentiment think side to appears the be

is that trade alleviated, that discretionary signing be commercial the some and we has believe, agreement China equation so its pretty to might of impacting one, been with have going US-Mexico-Canada terms feel uncertainty been way, I the agreement of so well spend think phase on the that I in good. in today, side We’re of

your you last you I a doing Terry? talk provision want Day - Andy, could little CECL expense, what to one confirm thing see about bit X, that to

but it’s what X about we’ve in as how provision kind X is volatility CECL things The X.X%, we’ll Day is and X% that I investor basis. thinking to on one end of part versus quarter is and kind more we’re in the about the loan be it, and talked certainly quarter of to to Day think will terms net providing what think going that of portfolio day. increase. charge-offs Yes, level looking We of related of at stability overall the there’s just up doing a are growth,

All right, thank you.

question the Usdin another of Ken We line do please, your have from with open. ahead, is line Go Jefferies.

is on for HI Larsen Ken. Amanda everyone, this

are Yes you Amanda, how doing?

thanks. Great,

in that more operating I in the revenue term headwinds, saves? wondering, slowing ’XX. you day pace the investor negative at to related spend to think related an trends it’s I’m out before investment aberration still actions could of positive negative be creating achieve or that how ’XX long but you’ll will operating growth be do strive understood set that leverage likely you XXXX take versus leverage But to

we earlier, positive target again mentioned and operating leverage for Terry As XXXX. expect

the have number of the and future. optimize to We continue about the targeting operating while to investing levers we to of is organization leverage, that Amanda, a optimizing pull in company. to a positive that how balance future think way managing continue in we’re and the that’s invest structure always the we current today

capability medium and term? add position in U.S. you the ecommerce see Bank’s Sage evolving the Thanks. how arena the payment can talk Okay, of guys great. Then, you about Pay over

to rest about be to ecommerce that Ireland, within very the and a It the the the opportunity leader excited we’re U.K. into is in of Sage able Yes, Pay. and extend we Europe. space have also

that across about footprint Europe, so we think pretty big year. pretty about next a have as excited We

of last of that up out course in we of gives capabilities that capabilities in being sort the so of advantage months XX the here to ended similar over ecommerce terms able the believe to future. We XX domestically, ecommerce more take rolling us

thanks. Awesome,

your Your McDonald Go John of comes ahead, question with line from open. next is the Autonomous. line please,

Hey guys.

Sorry, the expansion, on how an on Andy, to Charlotte that’s for give update you new I retail jumped and going whether late. Did a side? year bit you’re and on targeting this expand the little areas

John. Good are customer about well. going We’ve morning, Charlotte new growth the up. ago. acquisition is three had months opened branch We Employees and current fired customers.

a targeting XX. up are year branches still opening be We number this that to number of new and targeting of

We’re investment. learning that a from lot

first to We is in and measure continue to to track new Charlotte. us our that continue expect our would in and our number target to expanding markets, activity but expand I focus

a clean-up on NII. Got things just Then you, Terry, couple okay.

I work relative kind you’re money think year and those Then slightly the are the amortization rolling you the is stabilizes XX-year this where that the accretive, today mentioned roll-off putting or early right? portfolio to to - of in breakeven today, is what’s where bond rates, off?

Yes, maybe be the margin going the to for we first we little when of positive to think a net relative so in quarter, it’s interest first, does bit stabilize question relatively with so flat, year, The so based fourth expect bias basis quarter so of still your is are rates securities XX points today. or premium accretive, about upon the that reinvestment respect we where addressing would about think to XXXX. amortization second the

the standpoint, last where so is sales from relatively year? for started comps the though, the you year I just of NII tough stable? a Okay, sequential down guess

Yes.

Okay, thank you.

to for no are call there that, turn over With questions in closing queue. remarks. the I’d Jennifer back further Thompson like to

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

conference This call. concludes today’s

disconnect. now may You