The paragraph is a transcript from the U.S. Bancorp Third Quarter 2024 Earnings Conference Call. It begins with the operator introducing the call, mentioning that it will be recorded for later replay, and handing it over to George Andersen, the Senior Vice President and Director of Investor Relations. George introduces key company executives, including Chairman and CEO Andy Cecere, CAO Terry Dolan, President Gunjan Kedia, and CFO John Stern, who will make prepared remarks alongside a slide presentation. Forward-looking statements' risks are noted, and questions will be addressed later. Andy Cecere reports a diluted earnings per share of $1.03 and $6.9 billion in net revenue for the quarter, highlights strong net interest income growth, fee business momentum, and expense discipline leading to positive operating leverage. The return on tangible common equity was 17.9%.

The paragraph discusses the company's financial performance and growth strategies. Revenue growth was driven by improved spread income, asset repricing, disciplined liability management, and strategic investment actions. Key financial metrics such as non-performing assets and delinquency rates remained stable, while common equity Tier 1 capital ratio increased to 10.5%. Tangible book value per share rose to $24.71, with notable improvements in return on average assets, efficiency ratio, and net interest margin. There was significant growth in fee-based businesses, including commercial and investment products, driven by capital markets activities and client relationship enhancements. The paragraph concludes with John Stern set to discuss the balance sheet and quarterly earnings trends in more detail.

In the recent quarter, average deposits decreased by 1.0% to $509 billion as the company focused on relationship-based deposits and maintained pricing discipline. Average loans slightly declined by 0.2% to $374 billion due to lower commercial balances influenced by capital market headwinds and low utilization rates, while retail saw improved credit card loan balances and revolver rates. The company restructured part of its investment portfolio to boost net interest income and strengthen capital and liquidity, resulting in a slight decrease to $167 billion with a 3.20% yield. Credit quality remained stable, with a slight reduction in commercial real estate office exposure, a flat ratio of non-performing assets, and an increase in the net charge-off ratio to 0.60%, aligning with expectations. The allowance for credit losses stood at $7.9 billion, with future net charge-offs anticipated to remain stable.

The paragraph provides a financial overview, highlighting that changes to the loan loss reserve are expected to stem mainly from loan balance growth and mix. In the third quarter, earnings per diluted share were reported at $1.03, impacted by $119 million in net losses from investment portfolio actions, which were largely offset by favorable tax settlements. Net interest income increased to approximately $4.17 billion, with a net interest margin of 2.74%, benefiting from asset repricing and disciplined deposit pricing. Non-interest income was $2.7 billion, including the mentioned net security losses, with growth seen in areas like trust and investment management. However, service charges declined due to the exit from the ATM cash provisioning business. Non-interest expenses remained stable at $4.2 billion, slightly lower than the previous year.

The paragraph discusses the company's financial performance and future expectations. In the third quarter, the company saw a linked quarter increase of $16 million in expenses due to higher performance-based incentives, while experiencing a $42 million year-over-year decrease due to efficient expense management. Their common equity Tier 1 ratio improved by 20 basis points, and they plan a modest share repurchase soon. The company expects stable net interest income for the fourth quarter, with full-year 2024 income expected at the upper end of their projected range. They anticipate mid-single-digit growth in non-interest income and an adjusted non-interest expense of $16.8 billion for the year. Overall, the results highlight the company's resilient business model and commitment to steady growth and expense management.

The paragraph provides insights from a company conference call, where executives discuss positive financial performance and strategic positioning. As industry conditions improve and investments in digital and technological advancements yield benefits, the company aims to leverage its scale and management capabilities to achieve its objectives. John Stern, responding to Scott Siefers' question, attributes better-than-expected net interest income (NII) to a favorable portfolio mix, growth in credit card loans, asset repricing, and beneficial Federal Reserve actions that allowed advantageous deposit pricing. The commentary highlights the contributions of their 70,000 employees and opens the floor for further questions.

The paragraph is a discussion about the expected financial performance in the fourth quarter, specifically focusing on fees. It highlights anticipated strong performance in various core business components such as Trust, commercial products, and Mortgage, with expectations for growth in them despite some challenges like exiting the ATM business and issues in the payments sector. This overall performance underpins confidence in achieving mid-single-digit growth in fees. John Pancari then asks about a partial securities repositioning undertaken during the quarter, seeking further details on what was restructured and the yield implications.

In the paragraph, John Stern discusses a securities repositioning action where they incurred $119 million in losses out of a $10 billion transaction, with an expected two-year payback. The impact on the quarter is estimated to be around $10 million, with some additional benefit expected in the fourth quarter. There are no similar actions planned for the future, as this opportunity arose due to falling interest rates. Separately, John Pancari inquires about the positive operating leverage demonstrated this quarter, which is expected to continue into the fourth quarter. Andy Cecere confirms this, reporting approximately 30 basis points of positive operating leverage in Q3, and discusses the prospects of achieving 150-200 basis points of operating leverage in 2025 as anticipated by The Street.

In the paragraph, John Pancari discusses expected positive operating leverage of over 1% in the fourth quarter of 2024, with further expansion anticipated into 2025. Andy Cecere and John Stern respond to Betsy Graseck's questions about the company's expense guidance of $16.8 billion for the fourth quarter, which is more precise due to their position at the end of the third quarter and their confidence in their net interest income. Graseck also inquires about the impact of rate changes on the net interest margin (NIM), to which John Stern indicates a positive pass-through effect to the depositor side and considers potential changes in NIM if rates decrease.

The paragraph discusses the effects of rate cuts on a company with a balanced deposit base between institutional and retail. They are able to quickly adjust institutional rates, with an initial beta of 30% for the recent rate cut, expected to rise to over 50% as the cycle progresses, aiding their future trajectory. Betsy Graseck seeks clarification on whether the percentages mentioned are based on total interest-bearing deposits, which John Stern confirms. Erika Najarian from UBS asks about the details of a $10 billion sold notional and its yield, as well as whether the increase to a 50% beta from 30% would be smooth or rapid in the fourth quarter. Andy Cecere and Operator assist in communication issues during the exchange.

In the paragraph, John Stern discusses their strategy with the securities portfolio, highlighting an effort to improve liquidity by repositioning some lower-yielding securities. He mentions a gradual increase in terminal beta to 30%, gaining benefits from both institutional and retail sides, which will eventually lead to a 50% target terminal. Andy Cecere confirms that this approach supports a stable net interest income projection for the upcoming quarter. Erika Najarian then questions Andy about the muted investor response following their Investor Day. She seeks clarification on their positive operating leverage, Southeastern expansion, and plans for a $5 billion capital authority, given current capital-building and stagnant loan growth.

In the paragraph, Andy Cecere discusses their company's strategy presented at Investor Day, emphasizing controlled expenses, operating leverage, and revenue growth through interconnected businesses. He notes that they are meeting these goals and expects continued success into the fourth quarter and 2025. They are not prioritizing large bank mergers and acquisitions, focusing instead on organic growth. Gunjan Kedia adds that the company is concentrating on deepening client relationships, enhancing product connectivity, and expanding digitally. Regarding capital, Cecere mentions the possibility of modest stock buybacks soon.

The paragraph discusses the factors influencing a regional bank's capital and growth strategies, including Basel III regulations, capital rules, loan growth, and considerations from credit rating agencies. Erika Najarian questions the bank's cautious approach ahead of regulatory revisions and its impact on investor confidence. Andy Cecere responds by expressing confidence in the bank's capital position, accretion ability, and plans for share buybacks and capital distribution. He emphasizes that the bank will continue to assess its strategies based on these influencing factors. Mike Mayo from Wells Fargo then begins to ask a question.

In this paragraph, Andy Cecere explains that the current market environment is too uncertain for mergers and acquisitions (M&A), and thus the focus should be on organic growth opportunities, which are deemed more important and tangible. Mike Mayo asks about the operating leverage concerning expenses versus revenues. Andy responds that the focus is on increasing revenue growth while managing expenses, with the aim of ensuring expenses do not grow faster than revenues. Gunjan is mentioned as being responsible for the go-to-market strategy, with the expectation of seeing positive results from this strategy in the future.

The paragraph contains a conversation between several individuals discussing the company's revenue drivers and deposit pricing strategy. Gunjan Kedia mentions that the company's transformation is in its final year, and they are seeing positive results, particularly in consumer deposits and relationships with multi-serve clients. They have benefited from capabilities in managing deposit pricing, contributing to positive operating leverage. Gerard Cassidy inquires about the industry's loan-to-deposit ratios, asking if it's possible to lower deposit costs given current ratios. John Stern responds that the company doesn't specifically target these ratios but focuses on serving clients with the right mix of deposits and loans, noting that loan growth has been flat.

The paragraph discusses a bank's strategy regarding branch expansion and digital reach. It highlights the importance of branches for deep client relationships and brand recognition, and states that the bank is focusing on increasing branch density within its current high-growth areas rather than expanding beyond its footprint. The bank leverages strong digital capabilities and partnerships for national service delivery, allowing for a capital-efficient expansion into new markets. Additionally, the bank is growing client centers for its national institutional businesses in areas where it currently lacks presence.

The paragraph discusses U.S. Bancorp's corporate payments and merchant payments performance, addressing a question from Vivek Juneja of JPMorgan. John Stern mentions that the expected benefits from lapping last year's trucking-related fees were delayed but should fully materialize in the fourth quarter. He notes strong corporate spending momentum observed towards the end of the third quarter. Gunjan Kedia adds that despite some disruptions, like those in freight post-COVID, payments remain a solid growth area within client relationships, contributing to enduring connections and core growth in several categories.

The paragraph features a continued discussion between Vivek Juneja and John Stern about the relationship between net interest income and expenses, clarifying that there is no direct linkage between the two in terms of compensation. John Stern emphasizes that they are focusing on precision with expense levels, specifically comparing them to the higher end of their net interest income range. The conversation then shifts to Ebrahim Poonawala, who asks about the potential for fee momentum to accelerate into the next year, independent of loan growth. John Stern mentions that their performance metrics, as discussed during Investor Day, target mid-single-digit growth.

The paragraph discusses the company's performance, highlighting growth in various business areas such as commercial products, mortgages, and corporate trust, which are benefiting from loan growth and new product offerings. The company anticipates mid-single-digit growth in the medium term due to these developments. Gunjan Kedia notes the advantage of having a diversified fee mix, with strong performance in capital markets and wealth due to favorable stock markets. The varied business portfolio allows the company to adapt to different macroeconomic environments. Ebrahim Poonawala inquires about a 7 basis points net interest margin (NIM) expansion, with bond book restructuring contributing approximately 1 basis point.

The paragraph is a discussion between John Stern, Ebrahim Poonawala, and Andy Cecere about future financial expectations for their bank. John Stern explains that they anticipate relative stability in net interest income for the fourth quarter due to flat earning assets and offsetting asset and liability repricing. He emphasizes positive momentum in asset remixing, deposit repricing, and slowed deposit rotation, which should lead to growth and continued expansion. Although Stern cannot specify when a 3% net interest margin (NIM) will be achieved, it aligns with their medium-term guidance. Ebrahim Poonawala asks Andy Cecere if there are any constraints on loan growth, particularly about becoming a Category II bank by 2027. Andy Cecere responds that there is no constraint on their loan growth.

The paragraph discusses current loan growth, highlighting that it aligns with market demand and is consistent with industry expectations, without any constraints on assets or the balance sheet. The conversation shifts to seeking a new head for the payments division, with the company looking externally for someone who can potentially continue the existing strategy or re-evaluate certain areas. There is a suggestion that the company could enhance its payments offerings, given the industry's revenue opportunities. Gunjan Kedia expresses excitement about finding new leadership to further develop and integrate their payments franchise with customers' daily lives.

The paragraph discusses a company seeking a talented individual with a payments perspective who embraces interconnected solutions for clients. It highlights a smooth transition plan with the current person, Shailesh, giving ample notice. Matt O’Connor questions whether the company is open to strategic changes in payments. Gunjan Kedia asserts that they are committed to their current strategy, emphasizing the importance of accelerating execution and staying updated with digital capabilities. She believes payments should be central in managing day-to-day lives and integrated into every product and relationship. Matt O’Connor acknowledges this, and the discussion then shifts to Mike Mayo from Wells Fargo Securities, who has a question about the benefits of scale and AI.

The paragraph features a conversation between Andy Cecere and Mike Mayo about the company's approach to AI and digital strategy. Andy Cecere explains that their company invests $2.5 billion annually in technology and is focusing on a center of excellence model for AI initiatives, including both traditional and generative AI, although the latter is still in early stages. Mike Mayo seeks clarification on their digital strategy, particularly their partnership with State Farm to extend market reach where they lack physical branches. Andy Cecere emphasizes that success in this strategy requires strong digital capabilities, a partner needing banking products for their customers, and alignment on execution.

The paragraph discusses the success and expansion of partnerships by a company, notably with State Farm and Edward Jones, to offer core banking products like checking and savings accounts beyond their traditional market. Gunjan Kedia highlights the company's experience with partnerships through their white-label credit card service, Elan. The paragraph notes good early results in newly expanded markets such as Charlotte and emphasizes the company's developed capabilities in digital and operational services. The dialogue concludes with acknowledgments and an invitation for further contact with the Investor Relations department.

This summary was generated with AI and may contain some inaccuracies.