U.S. Bancorp (USB) Barclays Global Financial Services Conference Transcript

U.S. Bancorp Conference Call Summary Company Overview - Company: U.S. Bancorp (NYSE: USB) - Date: September 12, 2022 - Participants: - Andy Cecere - Chief Executive Officer - Terry Dolan - Chief Financial Officer - Jason Goldberg - Barclays Key Points Financial Guidance - Revenue Growth: Expected to grow by 3% to 5% on a linked quarter basis [6] - Expense Growth: Anticipated linked quarter growth of 2% to 3% [6] - Mortgage Banking Revenue: Projected to decline by 30% to 35% from the second quarter [6] - Full Year Revenue Guidance: Total revenue expected to increase by 5% to 6% year-over-year [6] - Net Interest Income (NII): Expected to be in the low to mid-teens percentage growth [6] - Operating Leverage: Anticipated positive operating leverage of at least 200 basis points for the full year [49] Acquisition of MUFG - Strategic Fit: Acquisition expected to increase scale by 20%, adding significant market share in California [13] - Cost Savings: Projected cost synergies of $900 million, with a 20% internal rate of return (IRR) [14] - Integration Timeline: Conversion targeted for Memorial Day 2023, later than previously discussed [13][17] - Regulatory Approval: Anticipated in the second half of 2022, with confidence in approval due to strong compliance frameworks [19] Market and Economic Environment - Consumer Behavior: Strong consumer spending with credit card spend 10% above last year and 30% above pre-COVID levels [26] - Loan Growth: Strong momentum in loan growth, particularly in corporate and commercial sectors [28] - Deposit Stability: Deposits expected to remain stable, with a shift from non-interest-bearing to interest-bearing accounts [34] - Credit Quality: Charge-off levels and delinquencies at historic lows, with no early warning signs of recession [59] Regulatory and Compliance Issues - CFPB Settlement: A $37.5 million fine related to legacy issues, with no further implications for the acquisition process [22][23] - OCC Regulations: Ongoing discussions about regulations affecting Category 3 banks, with U.S. Bancorp positioned to manage any changes [21] Future Outlook - Interest Rate Environment: NII expected to continue growing, with some moderation anticipated as the Fed approaches the peak of the interest rate cycle [43] - Fee Income Growth: Payments segment represents 28%-29% of revenue, with significant growth opportunities identified [45] - Mortgage Business: Anticipated stabilization in gain on sale margins as capacity in the mortgage market adjusts [47] Strategic Initiatives - Branch Strategy: Reduced branch footprint to 2,200, focusing on digital-first strategies and partnerships to enhance distribution [55] - Investment in Technology: Continued focus on enhancing digital capabilities and payment systems to support small businesses [45][52] Capital Management - CET1 Ratio: Expected to be around 8.5% post-acquisition, with plans to return to 9% within a year to resume buybacks [69] Conclusion - U.S. Bancorp is navigating a complex economic landscape with a focus on strategic growth through acquisitions, maintaining strong financial health, and adapting to regulatory changes while ensuring consumer and corporate banking remains robust. The company is well-positioned to leverage its scale and technology to drive future growth.