US Bancorp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Siefers - Piper Sandler & Co. - Analyst : Morning guys. Thank you for taking the question. Hey, John, I was hoping maybe you could delve in a little more to discuss the drivers of the 3% to 5% expected full year '25 revenue growth. In other words, sort of how much comes from NII, how much ends up coming from fees? And maybe -- and then I guess a little clarification. When you're talking about the 1Q NII guide, I think you're saying flat excluding the day count difference. So I just want to be certain, we're thinking it would be down on a reported basis, marginally just due to [a fewer days].

Question: Scott Siefers - Piper Sandler & Co. - Analyst : Perfect. All good. I appreciate all the details now. Thank you.

Question: John McDonald - Truist Securities, Inc - Analyst : Hey guys, I wanted to ask two strategic questions. Maybe the first one is for Gunjan. Just on payments, you reorganized the business yesterday or this week, you announced a new head to the consumer side. Maybe just kind of give us the plan for payments and what you hope the new organization and setup will do for the growth and opportunities there?

Question: John McDonald - Truist Securities, Inc - Analyst : Okay. Thanks Gunjan. Andy, maybe broader, just kind of where have you planted seeds for offense across the company. I think in the retail bank, you're looking in the Union franchise and maybe through your partners, Edward Jones and State Farm. But maybe just across the footprint, where are you excited about where US Bank has kind of invested for growth and you might be moving to the front foot? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call

Question: John McDonald - Truist Securities, Inc - Analyst : Okay. Thank you.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Hi, good morning.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : I noticed that it might in sound very ticky-tacky, but I just want to make sure I understand, what forward curve your NII guide is based on? And I think you mentioned today, but -- and the reason I ask is, as we all know, the forward curve has changed a lot between like beginning of December and today. So that's the first question.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Okay. Great. And can you help us understand how your projections would move in the event that you've got fewer rate cuts or the long end went up more? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : And as we roll through the year, can you just give us a sense as to that fixed asset repricing? Is it coming through kind of quarterly cadence the same? Or is there any acceleration or deceleration during the year that we should be thinking about?

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Okay, thank you so much.

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Good morning.

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Sorry if I missed this in your prepared remarks. When we think about the NII guidance for the year, your revenue outlook, what's underpinning that from a loan growth perspective, like, one -- so yes, what's the assumption of lower end deposit growth? And are we seeing any green shoots of a pickup in lending demand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Got it. And I guess maybe just talk about -- I think you addressed a little bit around the payments business. As we think about the fee revenue sort of category across payments, if you can sort of drill into expectations around that year-over-year in context of your overall revenue guide, and obviously, you brought in a new Head of Payments yesterday. Remind us of the market positioning, are we winning share, losing market share? And what the ambition is there going forward? Thank you.

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : All right, thank you.

Question: Erika Najarian - UBS Securities LLC - Analyst : Yes, good morning. You did announce that $5 billion share repurchase authorization during Investor Day, and I think the market got quite excited about that. In terms of the pacing of the buybacks, you did $100 million this quarter. I guess, I heard you guys loud and clear during the prepared remarks, but what are the puts and takes that you're considering in terms of thinking about that pacing? I know that you're looking for a modest pace to begin with. But if loan growth is a little soft and it seems like you have conservative guidance embedded in your revenue guide for balance sheet growth, what are the puts and takes in terms of the more modest start to buy backs?

Question: Erika Najarian - UBS Securities LLC - Analyst : And just as a follow-up here, and maybe this is for Andy. The way you laid out your projection on slide 15 in terms of the revenue guide and then positive operating leverage. If net interest income or payments swing one way or the other, either to the better or maybe softer, is the message here that there's -- you're now to a point where there is enough flex where regardless of the revenue environment, that 200-plus basis points is going to be sort of the baseline for what you can deliver in 2025?

Question: Erika Najarian - UBS Securities LLC - Analyst : Great. Thank.

Question: John Pancari - Evercore Group L.L.C - Analyst : Good morning.

Question: John Pancari - Evercore Group L.L.C - Analyst : Just appreciate the color, the breakout of the revenue growth outlook by fees and then your commentary around net interest income. Just behind that net interest income commentary, and some of the drivers you mentioned around fixed asset repricing and deposit normalization, could you give us maybe your thoughts around the net interest margin trajectory as we look through the year? And perhaps maybe even help us with how the -- where the margin could end up as an [at the as an exit rate] coming out of 2025, just to help give us a better color around what it means for the medium-term trends? Thanks.

Question: John Pancari - Evercore Group L.L.C - Analyst : Got it. All right, John. And then separately, back to capital. On the M&A front, I know post the Investor Day, you've been clear that large -- a whole bank M&A would only be more of a consideration longer term as you look at your franchise versus a near-term opportunity. I guess, Andy, has that, or Gunjan, has that changed at all? Or just given the election results and how comprehensively we expect a regulatory supervisory role change REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call across the different regulators? And then does it -- I guess another question would be what would change your view in terms of possibly putting M&A options more in the near-term view? Thanks.

Question: John Pancari - Evercore Group L.L.C - Analyst : Okay, great. Thank you, Gunjan.

Question: Michael Mayo - Wells Fargo Securities - Analyst : Now you're finally turning the corner on positive [orto] leverage. You said at least 200 basis points, I think, after, so long not having positive leverage. I think people are wondering -- it's kind of a show me story. I think you might understand that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call Under what scenario do you think you could have more than the 200 basis points guide? Some other banks are actually guiding higher today and you have some a lot of tailwinds in the industry. So how high could that go? Because the stock's down, people are questioning this. What would be your reaction.

Question: Michael Mayo - Wells Fargo Securities - Analyst : And then more specific question. The merchant acquiring yield looked like it contracted 70 basis points year-over-year in the fourth quarter, and the revenues didn't accelerate most the volumes. Was that expected? Was that a surprise? Is there a competitive pressure? What's causing that 70 basis points contraction in the merchant acquiring yield? Thanks.

Question: Michael Mayo - Wells Fargo Securities - Analyst : All right. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call

Question: Matthew O'Connor - Deutsche Bank Securities Inc. - Analyst : Good morning. I was wondering if you could talk about the trends in Commercial Products revenue. It was up nicely year-over-year, but was a little bit lower versus kind of the run rate you've seen the other quarters this year. Just remind us, I think there's a decent contributor of Capital Markets in that and remind us like what the drivers of the underlying businesses are?

Question: Matthew O'Connor - Deutsche Bank Securities Inc. - Analyst : Okay. And then separately on the deposits, the average deposits grew and I knew I noticed some seasonality on the period end. But they were down a little bit this quarter for the third quarter in a row. So maybe I just answered the question that there's too much seasonality to really focus on period end, but maybe just address that. And I think you did say you expect modest deposit growth. So anything to add to the narrative though that the period end was lower?

Question: Matthew O'Connor - Deutsche Bank Securities Inc. - Analyst : Okay, thank you.

Question: David Long - Raymond James & Associates - Analyst : Good morning, everyone. Just wanted to stick with the deposit theme here. And when I look at your average cost -- deposit cost for the quarter, it came down in line with what I'm seeing with some of your peers. And just curious what you're seeing in the competition for deposits and in pricing? And how do you think that plays out throughout 2025?

Question: David Long - Raymond James & Associates - Analyst : Excellent thanks, John, appreciate it.

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : Hi thanks. So a strategic question. Payments, there's been some discussion about that already. And it's a question we've talked on previous calls. Your -- I heard Gunjan's response, the [tech-leds] doing well, but the rest of companies to drag and that probably cut news into next year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:00PM, USB.N - Q4 2024 US Bancorp Earnings Call Given the business, given the pricing pressures, have you considered about whether you should get rid of this business and deploy the capital to other areas where you're doing a much -- where you're in a much stronger position, getting better returns. Why wouldn't you think of that?

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : Okay, thank you.

Question: Bill Carcache - Wolfe Research Securities - Analyst : Good morning. Thanks for taking my question. Your tech-led merchant processing service revenue growth seems solid at a time, there's still a perception that you're at a disadvantage to some of your fintech competitors. Can you take us inside of that 9% growth and discuss the breakdown between new additions and versus customer attrition?

Question: Bill Carcache - Wolfe Research Securities - Analyst : Got it. Separately, following up on your NIM commentary, I may have missed this, but where did deposit funding costs in the quarter end? And where would you expect the average cost to grow from here given your rate expectations?

Question: Bill Carcache - Wolfe Research Securities - Analyst : Got it. If I could squeeze in one last one. Can you discuss how much cash flow and fair value hedge notional is active? I guess, how that exposure changes as we progress through the year? And any color on versus receive rates for both?

Question: Bill Carcache - Wolfe Research Securities - Analyst : Thank you for taking my questions.

Question: Saul Martinez - HSBC Securities Inc. - Analyst : Hey, good morning guys. I think Vivek asked my question, but I'll maybe ask it another way. I guess I'm struggling to see how you differentiate yourself in the merchant [product business]. With the exception of maybe Chase, most banks have a lot of share over the years. There's enormous amount of innovation in that space, a lot of capital in that space. You see the shift in power to software providers and legacy merchant acquirers have lost share over the years. I guess like what I was going to ask you is whether you can make an argument that it's worth more to somebody else than to you? And I guess the answer to that question from your answer to Vivek's question is that it does provide value to the entire franchise to the entire business? Is that the answer? And I guess the adjuvant to that question is how do you measure success in the acquired business? Is this -- are you looking at just volume growth, revenue growth? Are there other measures? How do you measure whether you're -- whether this business -- you're succeeding in your strategy here and this business is adding value to the entire franchise?

Question: Saul Martinez - HSBC Securities Inc. - Analyst : Okay. That's helpful. I guess just a quick follow-up then on deposits, John. I guess we're closer to the end of the rate cutting cycle, although seemingly every day, there's a shift in what the forward curve is expecting. But remind us what the through the cycle, on the beta you're expecting? I hear mid- to 40%s in Q1. I think like -- I think high 40%s, low 50%s is what you -- is that the right through the cycle beta?

Question: Saul Martinez - HSBC Securities Inc. - Analyst : Got it. Okay. Thank you.