Q1 2024 US Bancorp Earnings Call

Operator: Welcome to the U.S. Bancorp First Quarter 2024 Earnings Conference Call. Following a review of the results, there will be a formal question and answer session. If you would like to ask a question, please press star, then the number 1 on your phone. If you wish to withdraw your question, please press star, then 1 again. This call will be recorded and available for replay beginning today at approximately 8 a.m. Central Time. I will now turn the conference call over to George Andersen, Senior Vice President and Director of Investor Relations for U.S. Bancorp.

Welcome to the U S Bancorp first quarter 'twenty 'twenty four earnings conference call.

Following a review of the results there will be a formal question and answer session. If you would like to ask a question. Please press Star then the number one on your phone if you wish to withdraw your question. Please press Star then one again this call will be recorded and available for replay beginning today at approximately eight a M.

Central time.

I will now turn the conference call over to George Anderson, Senior Vice President and director of Investor Relations for U S Bancorp.

George Andersen: Thank you Rochelle and good morning, everyone today I'm joined by our Chairman President and Chief Executive Officer, Andy subsidiary, Our Vice Chair and Chief Administration Officer, Terry Dolan, and senior Executive Vice President and Chief Financial Officer, Jon Stern together with some initial prepared remarks, Andy and John will be referencing a slide presentation.

George Andersen: Thank you, Rochelle, and good morning, everyone. Today I'm joined by our Chairman, President, and Chief Executive Officer, Andy Cecere, our Vice Chair and Chief Administration Officer, Terry Dolan, and Senior Executive Vice President and Chief Financial Officer, John Stern. Together with some initial prepared remarks, Andy and John will be referencing a slide presentation. A copy of the presentation, our earnings release, and supplemental analyst schedules are on our website at usbank.com. Please note that any forward-looking statements made during today's call are subject to risk and uncertainty.

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George Andersen: Copy of the presentation, our earnings release, and supplemental analyst schedules or on our website at U S Bank Dot com.

George Andersen: Please note that any forward looking statements made during today's call are subject to risks and uncertainty.

George Andersen: Factors that can materially change our current forward-looking assumptions are described on page 2 of today's presentation, our press release, our Form 10-K, and in subsequent reports on file with the SEC. Following our prepared remarks, Andy, Terry, and John will take any questions that you have. I will now turn the call over to Andy.

George Andersen: Factors that could materially change our current forward looking assumptions are described on page two of today's presentation. Our press release, our Form 10-K and its subsequent reports on file with the SEC.

Andy: Following our prepared remarks, Andy Terry and John will take any questions that you have I will now turn the call over to Andy. Thanks, George Good morning, everyone and thank you for joining our call I'll begin on slide three in the first quarter. We reported earnings per share of <unk> 78, which included 12 cents per share of notable items, excluding notables earnings per share.

Andrew J. Cecere: Thanks, George. Good morning, everyone, and thank you for joining us on our call. I'll begin on slide three. In the first quarter, we reported earnings per share of 78 cents, which included 12 cents per share of notable items. Excluding those items, earnings per share totaled $0.90. Our balance sheet remains strong, we are maintaining our through-the-cycle underwriting discipline and seeing the benefits of our multi-year investments in digital, technology, and payments ecosystem in the form of strong fee growth across our business. Importantly, we continue to accrete capital this quarter. Our CET1 ratio ended the period at 10.0%, and our return on tangible common equity ratio was 17.4% on an adjusted basis.

Andy: <unk> totaled <unk> 90.

Andrew J. Cecere: Our balance sheet remains strong we are maintaining our through the cycle underwriting discipline and seeing the benefits of our multiyear investments in digital technology and payments ecosystem in the form of strong fee growth across our business lines Importantly, we continue to accrete capital this quarter, our CET one ratio ended the period.

Andrew J. Cecere: At 10 points Euro percent and a return on tangible common equity ratio was 17.4% on an adjusted basis.

Andrew J. Cecere: Slide 4 provides additional performance metrics on both a reported and adjusted basis. On slide five, I'll provide some additional high-level observations for the quarter. Starting with the balance sheet, credit quality metrics continue to develop in line with our expectations, and we achieved healthy growth in tangible book value per share on both a comparable quarter and year-over-year basis. However, loan and deposit growth remains under pressure for the industry, and that dynamic impacted our net interest income this quarter. Our NII, on a taxable equivalent basis of approximately $4 billion, was within our guidance, albeit on the lower end of the range.

Andrew J. Cecere: Slide four provides additional performance metrics on both a reported and adjusted basis.

On slide five I'll provide some additional high level observations for the quarter.

Andrew J. Cecere: Starting with the balance sheet credit quality metrics continued to develop in line with our expectations and we achieved healthy growth intangible book value per share on both the linked quarter and year over year basis.

Andrew J. Cecere: Loan and deposit growth remains under pressure for the industry and that dynamic impacted our net interest income this quarter, our NII on a taxable equivalent basis of approximately $4 billion was within our guidance, albeit on the lower end of the range.

Andrew J. Cecere: We are seeing good opportunities for loan growth in targeted portfolios, and notably, we continue to see consumer deposit growth despite the impact of QT on industry deposit levels. Over the past few weeks, the outlook for potential rate cuts in 2024 has meaningfully changed as long-term rates have backed up. Client behavior across the industry is adjusting in response to the potential higher for longer interest rate environment that has impacted our deposit mix and pressured deposit costs. As a result, we now expect our NII for the full year to be lower than anticipated.

Andrew J. Cecere: We are seeing good opportunities for loan growth in targeted portfolios and notably we continue to see consumer deposit growth. Despite the impact of Q T on industry deposit levels.

Andrew J. Cecere: Over the past few weeks the outlook for potential rate cuts in 2024 has meaningfully changed as long term rates have backed up.

Andrew J. Cecere: Client behavior across the industry is adjusting in response to the potential higher for longer interest rate environment that has impacted our deposit mix and pressure deposit costs as.

Andrew J. Cecere: As a result, we now expect our NII for the full year to be lower than anticipated. However, we are taking a closer look at our expense base. Given these near term NII headwinds and plan to take actions to mitigate the impact of lower than expected NII to our overall profitability.

Andrew J. Cecere: However, we are taking a closer look at our expense base given these near-term NII headwinds and plan to take actions to mitigate the impact of lower-than-expected NII on our overall profitability. John will go into more details on these topics, but importantly, we believe this is a near-term phenomenon. Turning to slide 6, we continue to feel good about the momentum across our differentiated fee business. The revenue represents about 40% of our total net revenue, which stands to position us well in a lower interest rate environment.

Andrew J. Cecere: John will go into more details on these topics, but importantly, we believe this is a near term phenomenon.

Andrew J. Cecere: Turning to slide six we continue to feel good about the momentum across our differentiated fee businesses.

Andrew J. Cecere: Income represents about 40% of our total net revenue, which stands to position us well in a lower interest rate environment.

Andrew J. Cecere: Overall, we are encouraged by our current trends in client growth and penetration rates as evidenced by the continued strength we have seen across many of our foot revenue businesses this quarter. Slide 5, 7 provides an update on our differentiated payments ecosystem. Over the past few years, we have made good progress to both expand our business banking and payments relationships and grow related revenue associated with these relationships. You may recall we discussed an opportunity to grow small business relationships by 15% to 20% and related revenue by 25% to 30% a few years ago.

Andrew J. Cecere: Overall, we are encouraged by our current trends in our client growth and penetration rates as evidenced by the continued strength, we have seen across many of our fee revenue businesses this quarter.

Slide seven provides an update on our differentiated payments ecosystem.

Andrew J. Cecere: Over the past few years, we have made good progress to both expand our business banking and payments relationships and grow related revenue associated with these relationships.

Andrew J. Cecere: You may recall, we discussed an opportunity to grow small business relationships by 15% to 20% and related revenue by 25% to 30% a few years ago. As you can see on this slide we're making good progress and see even greater opportunity to further expand these relationships and related revenue in the medium term.

Andrew J. Cecere: As you can see on this slide, we're making good progress and see even greater opportunities to further expand these relationships and related revenue in the medium term. I now turn the call over to John, who will provide more detail on the quarter as well as provide forward-looking guidance.

Andrew J. Cecere: Now I'll turn the call over to John who will provide more detail on the quarter as well as provide forward looking guidance. Thanks Andy.

John C. Stern: Thanks, Andy. On Slide 8, we provide an earnings summary. This quarter, we reported diluted earnings per share of $0.78 or $0.90 per share after adjusting for notable items, including the last of merger and integration costs of $155 million following our acquisition of Union Bank and $110 million related to the anticipated increase in the FDIC Special Assessment. Turning to slide 9, total average loans were $371 billion, down 0.5% from the previous quarter as growth was impacted by slow industry loan demand in the current higher interest rate environment.

John: On slide eight we provide an earnings summary.

This quarter, we reported diluted earnings per share of <unk> 78.

John: Or <unk> 90 per share after adjusting for notable items, including the last of merger and integration costs of $155 million. Following our acquisition of Union Bank and $110 million related to anticipated increase in the FDIC special assessment.

John: Turning to slide nine.

John: Total average loans were $371 billion down 0.5% linked quarter as growth was impacted by slow industry loan demand and the current higher interest rate environment.

John C. Stern: Despite tightening monetary policy and ongoing pressure on industry-wide deposits, our total average deposits of $503 billion were stable during the link quarter, as we continue to see our efforts to grow consumer-related deposits materialize. End-of-period deposit growth was a little higher than we would typically see in the first quarter. Trust in corporate deposit inflows was seasonally higher at the end of the first quarter. However, the impact of holiday timing at the quarter end delayed planned outflows of institutional deposits, which resulted in temporarily higher cash levels.

John: Slight tightening monetary policy and ongoing pressure on industry wide deposits. Our total average deposits of $503 billion were stable linked quarter as we continued to see our efforts to grow consumer related deposits materialize.

John: End of period deposit growth was a little higher than we would typically see in the first quarter Trust and corporate deposit inflows are seasonally higher at the end of the first quarter. However, the impact of holiday timing at quarter end delayed planned outflows of institutional deposits, which resulted in temporarily higher cash levels, we expect a pause.

John C. Stern: We expect deposit outflows to move in line with more typical seasonal patterns. Importantly, we continue to proactively manage the balance sheet by prioritizing opportunities that exceed our cost of capital and further optimize our funding mix. We continue to limit our reliance on short-term borrowings and remain disciplined on deposit rates paid as we focus on relationship-based deposits.

John: Net outflows to move in line with more typical seasonal patterns.

Importantly, we continued to proactively manage the balance sheet by prioritizing opportunities that exceeded our cost of capital and further optimized our funding mix. We continued to limit our reliance on short term borrowings and remain disciplined on deposit rate paid is we focus on relationship based deposits.

John C. Stern: Turning to slide 10, net interest income on a taxable equivalent basis totaled approximately $4.0 billion, down 3.1% from the linked quarter, and net interest margin declined 8 basis points to 2.70%. Both net interest income and net interest margin declines were driven by continued unfavorable deposit mix shift and deposit pricing pressure, as well as slower loan demand. Slide 11 Highlights Trends in Non-Interest Income Non-interest income increased 7.7% or $193 million on a year-over-year basis, driven by higher payments revenue, continued strength in underlying capital markets activity, and stronger mortgage banking fees.

John: Turning to slide 10, net interest income on a taxable equivalent basis totaled approximately 4.0 billion down.

John: Down three 1% linked quarter.

John: And then interest margin declined eight basis points to 270%.

John: Both net interest income and net interest margin declines were driven by continued unfavorable deposit mix shift and deposit pricing pressure as well as slower loan demand.

John: Slide 11 highlights trends in noninterest income.

John: Noninterest income increased seven 7% or $193 million on a year over year basis, driven by higher payments revenue continued strength in underlying capital markets activity and stronger mortgage banking fees on a linked quarter basis noninterest income as adjusted decreased one.

John C. Stern: On a linked quarter basis, non-interest income, as adjusted, decreased 1.4%, or $38 million, reflective of seasonal declines in payments volume and previously discussed impacts related to the exiting of our ATM cash provisioning business, which pressured service charges, and lower tax credit syndication fees, which impacted other revenue. Turning to slide 12, reported non-interest expense for the quarter totaled $4.5 billion, which included approximately $265 million of notable items. Non-interest expense, as adjusted, decreased $10 million, or 0.2% on a linked quarter basis, and $117 million, or 2.7% year-over-year, driven by both cost synergies with Union Bank and our continued focus on operational efficiency.

John: 4% or $38 million reflective of seasonal declines in payments volume and previously discussed impacts related to the exiting of our ATM cash provisioning business, which pressured service charges and lower tax credits syndication fees, which impacted other revenue.

John: Turning to slide 12 reported noninterest expense for the quarter totaled $4 $5 billion, which included approximately $265 million of notable items.

John: Noninterest expense as adjusted decreased $10 million or 0.2% on a linked quarter basis, and $117 million or two 7% year over year, driven by both cost synergies with Union Bank and our continued focus on operational efficiency.

John C. Stern: Slide 13 highlights our credit quality performance, and asset quality metrics continue to develop in line with our expectations. Link quarter non-performing assets increased 20%, reflecting continued stress in our commercial real estate office portfolio and one idiosyncratic commercial loan. The ratio of non-performing assets to loans and other real estate was 0.48% at March 31st, compared with 0.40% at December 31st and 0.30% a year ago. Our first quarter net charge-off ratio of 0.53% increased four basis points from a fourth quarter level of 0.49% and was higher when compared to a first quarter 2023 level of 0.3% as adjusted.

John: Slide 13 highlights our credit quality performance.

John: Asset quality metrics continue to develop in line with our expectations.

John: Linked quarter nonperforming assets increased 20%, reflecting continued stress in our commercial real estate office portfolio and one idiosyncratic commercial loan.

John: The ratio of nonperforming assets to loans and other real estate was 0.48% at March 31, compared with 0.40% at December 31, and 0.30% a year ago our.

John: Our first quarter net charge off ratio of 0.53% increased four basis points from a fourth quarter level of 0.49% and was higher when compared to our first quarter 2023 level of 0.3% as adjusted.

John C. Stern: Our allowance for credit losses as of March 31st totaled $7.9 billion, or 2.1% of period-end. Turning to slide 14, our common equity tier 1 ratio of 10.0% as of March 31st was reflective of a 10 basis point increase from year end, which included 20 basis points of net capital accretion, offset by a Cecil transitional impact of 10 basis points. We remain well above our regulatory capital minimum requirements.

John: Our allowance for credit losses as of March 31 totaled $7 9 billion or two 1% of period end loans.

Turning to slide 14, our common equity tier one ratio of 10.0% as of March 31 was reflective of a 10 basis point increase from year end, which included 20 basis points of net capital accretion offset by a seasonal transitional impact of 10 basis points.

John: We remain well above our regulatory capital minimum requirements.

John C. Stern: I will now provide forward-looking guidance on slide 15. We expect net interest income for the second quarter, on an FTE basis, to be relatively stable with a first quarter level of approximately $4.0 billion. Full year 2024 net interest income, on an FTE basis, is now expected to be in the range of $16.1 to $16.4 billion. Our revised guidance reflects a shift in commercial client deposit behavior in a higher-for-longer rate environment and heightened competitive industry dynamics.

I will now provide forward looking guidance on slide 15, we expect net interest income for the second quarter on an FTE basis to be relatively stable with the first quarter level of approximately 4.0 billion.

John: Full year 2024, net interest income on an FTE basis is now expected to be in the range of $16 one to $16 4 billion.

Our revised guidance reflects a shift in commercial client deposit behavior in a higher for longer rate environment and heightened competitive industry dynamics.

John C. Stern: For the full year, we continue to expect mid-single-digit growth in non-interest income. Given the pressure we are seeing on net interest income, we are reducing our expense guidance for the year. We now expect full-year non-interest expense of $16.8 billion or less, which compares to $17.0 billion in 2023. I will now hand it back to Andy for closing remarks.

John: For the full year, we continue to expect mid single digit growth in noninterest income.

John: Given the pressure we're seeing on net interest income we are reducing our expense guidance for the year. We now expect full year noninterest expense of $16 8 billion or lower which compares to $17.0 billion. In 2023, Let me now hand, it back to Andy for closing remarks. Thanks John.

Andrew J. Cecere: Thanks, John. We have been preparing for a wide range of economic scenarios for some time now, and we continue to deliver industry-leading returns despite the current industry stress. Our diverse business mix is allowing us to differentiate in a competitive market, and we are seeing the benefit of the investments we've made and continue to make in our digital capabilities, our technology modernization, and our payments ecosystem. The message I'd like to leave you with is that we will successfully navigate the near-term challenges the industry is facing, but more importantly, we are well-positioned for the future and continue to manage the company with a long-term lens.

Andrew J. Cecere: We have been preparing for a wide range of economic scenarios for some time now and we continue to deliver industry leading returns. Despite the current industry stress our diverse business mix is allowing us to differentiate in a competitive market and we are seeing the benefit of the investments we've made and continue to make in our digital capabilities, our technology modernization and our payments.

Andrew J. Cecere: Ecosystem.

Andrew J. Cecere: The message I'd like to leave you with is that we will successfully navigate through the near term challenges. The interest industry is facing but more importantly, we are well positioned for the future and continue to manage the company with a long term lens let.

Andrew J. Cecere: Let me close by recognizing the many dedicated employees for all they do to support the constituents of our national banking franchise. It is because of our exceptional talent pool that we remain poised to execute on our capital efficient growth objectives and continue to deliver the financial performance our shareholders have come to expect. We will now open up the call to questions.

Speaker Change: Let me close by recognizing the many dedicated employees for all they do to support the constituents of our National banking franchise is because of our exceptional talent pool that we remain twice to execute on our capital efficient growth objectives and continue to deliver the financial performance our shareholders have come to expect.

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

Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Scott Siefers with Piper Sessions.

Speaker Change: Thank you.

Speaker Change: This time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Your first question comes from the line of Scott <unk> with Piper Sandler Your line is now open.

Scott Siefers: Morning, Scott. Thanks for taking the question. I was hoping either Andy or John could talk just a little more detail about some of the nuance in the tougher NII guide for the full year. So I guess at an industry level, we've got a couple of dynamics at play, whether it's the challenging loan growth environment or, of course, the impact of Hire for Longer on, you know, deposit costs and beta.

Scott: Thanks for taking good morning, Thank you for taking the question.

Scott: Was hoping either Andrew or John you can talk just a little more detail about sort of the.

Scott: The nuance in the.

Scott: Tougher NII guide for the full year, so I guess at an industry level. We've got a couple of dynamics that play whether it's that challenging loan growth environment are of course, the impact of higher for longer on.

Scott: Deposit costs and betas, so maybe the main one or two kind of pressure point too and you saw it and then I guess as the follow up.

Scott Siefers: So maybe the main one or two pressure points you saw, and then I guess as a follow-up, it doesn't feel like there will necessarily be a lot more pressure on NII. It's just that it might not advance in the second half. Is that the best way to think about it?

Scott: Does it feel like that will necessarily be a lot more pressure on NII, it's just that it might not advair.

Scott: Advanced in the second half so that the best way to think about it.

Speaker Change: Sure Scott Good morning, and thanks for the question. So maybe just take a step back just to.

John C. Stern: Sure, Scott, good morning. Thanks for the question. So, you know, maybe just take a step back just to answer your question. You know, in January, when we talked about our guidance, we, we looked at, we expected our 2024 net interest income to be in line with the annualized fourth quarter number, given that it was past MUB actions that we had taken throughout the course of the year. And so, to your point, we're one to three percent lower than that than new guidance with our new guidance here.

Scott: To answer your question in the in January when we talked about our guidance, we looked at and we expected. Our 2024 net interest income to be in line with the annualized fourth quarter number given that was past <unk> actions that we've taken throughout the course of the year and so.

To your point, we're 1% to 3% lower than that new guidance with our with our new guidance here and the outlook really speaks to changes or the dynamics that we have in the economy or the interest rate environment.

John C. Stern: And the outlook really speaks to, you know, changes or the dynamics that we have in the economy, the interest rate environment, the dynamics in the deposit environment, those sorts of things. The conversation, of course, has shifted. At the beginning of the year, there were multiple cuts.

Scott: Dynamics in the deposit environment those sorts of things.

The conversation of course has shifted at the beginning of the year. There was multiple cuts now we're shifting to more higher for longer than what we witnessed over that time is that our our client behavior, particularly in the in the corporate and mid market.

John C. Stern: Now, we're shifting to higher-cost deposits for longer. And what we've witnessed over that time is that our client behavior, particularly in the, in the corporate and mid-market sections, you know, have, have been shifting their behavior. And, clients are continuing to rotate out of low-cost deposits into higher-cost deposits.

Scott: Sections.

Scott: Have have been shifting their behavior and clients are continuing to rotate out of low cost deposits into higher cost deposits.

John C. Stern: And the pace of this action is slowing. We absolutely see that. It's just not slowing as fast as we would have anticipated.

And the pace of this action.

Scott: Is slowing we absolutely see that it's just not flowing as fast as what we would have anticipated so.

John C. Stern: So, to boil that all together, we, what we do see now with our guidance is that our second quarter net interest income will be relatively stable, and we should see growth in the second half of the year. And we've provided a range, given that uncertainty in terms of client behavior and things of that variety. And, and the final thing I would just say is that we recognize this up front, and we're taking action.

Scott: To boil that all together, what we do see now with our guidance is that we have the second quarter net interest income will be relatively stable and we should see growth in the second half of the year and we provided a range given that uncertainty in terms of client behavior and things of that variety and the final thing I would just say is that we recognize this upfront and we are.

Speaker Change: Taking action.

John C. Stern: We're, we're, looking at our expense base and taking action and pulling some levers that we have been looking at. And so, that's kind of how we think about the guidance from a big-picture perspective.

Speaker Change: We are looking at our expense base and taking action and pulling some levers that we have been looking at and so that's kind of how we think about the guidance from a big picture perspective, Thanks, John and Scott I would just add that we continue to look for opportunities to improve efficiencies, particularly in this half.

Andrew J. Cecere: Thanks, John. And Scott, I just want to add that, you know, we continue to look for opportunities to improve efficiencies, particularly in this higher-for-longer rate environment. So we benefited from the $900 million of cost takeouts from the Union Bank transaction, and we continue to focus on additional efficiencies in areas like procurement and third-party spend, our workplace management, and our properties and real estate. And probably the area of greatest emphasis is operational efficiencies as we centralize our operations activities and the technology investments we've made to really improve the effectiveness and efficiency of how we deliver our products and services. So that will continue to be a focus and a lens for us, and that's – those are the actions we're taking.

Speaker Change: Higher for longer rate environment. So we benefited from the $900 million of cost Takeouts from the Union Bank transaction and we continue to focus on additional efficiencies in areas like procurement of third party spend our workplace management in our properties in real estate and probably the area of greatest emphasis is operational efficiencies as we central.

Speaker Change: Our operations activities and technology investments, we've made to really improve the effectiveness and efficiency in how we deliver our products and services. So that will continue to be a focus and a lens for us and that's those are the actions we're taking.

Speaker Change: Okay perfect. Thank you very much energized you bet. Thank you.

Speaker Change: Your next question comes from the line of Ebrahim <unk> with Bank of America. Your line is open.

Andrew J. Cecere: Okay, perfect. Thank you very much, Andy and John.

Andrew J. Cecere: You bet. Thank you.

Ebrahim Huseini Poonawala: Your next question comes from the line of Ebrahim Poonawala with Bank of America. Your line is open. Hey, good morning.

Speaker Change: Okay.

Ebrahim: Hey, good morning.

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Ebrahim Huseini Poonawala: Good morning.

I guess, maybe just following up on <unk>.

Ebrahim Huseini Poonawala: I guess maybe just following up on NII, John, if we could drill a little bit into it.

Ebrahim: NII.

Ebrahim: John if we could drill a little bit into it.

Ebrahim: One.

John C. Stern: The Securities Yield The Securities Yield went down one basis point sequentially, just to remind us of the dynamic, both in terms of the security book and fixed-rate asset-free pricing that we should be mindful of going forward. And then non-interest-bearing deposits, I think, saw a big surge at the end of the quarter. Again, what's the right way to think about NIB balances and mix as we look forward? Thank you.

John: The securities yield went.

John: Went down one basis point sequentially, just remind us of the dynamic both in terms of the security book and fixed rate assets any pricing that we should be mindful of going forward and then non.

John: Noninterest bearing deposits I think its a big surge at the end of the quarter.

John: Again, what's the right way to think about niv balances and mix as we look forward. Thank you.

John C. Stern: Sure. So maybe I'll start with your first question.

Sure. So maybe I'll start with your first question on the on the Securities yield.

John C. Stern: You know, on the securities yield, it was relatively flat, down one basis point, as you cited. But this quarter is a little bit different. We had taken some hedging actions that actually offset some of the asset churn that we typically would see. And so I would view this as more of a temporary thing. I would look, as I look forward, at the typical churn that you see in asset repricing on that book. As a reminder, it's about $3 billion per quarter that is rolling off at the lower level and will be replaced. And so that's really going to be what we're looking at kind of going forward.

John: Was relatively flat or down one basis point as you cited this quarter is a little bit different we had taken some hedging actions that actually.

Speaker Change: Offset some of the asset churn that we typically would see and so I would view this as more of a temporary thing I would I would look as I look forward. The typical churn that you see in asset.

Speaker Change: Repricing of that book as a reminder, we it's about $3 billion per quarter that is rolling off at the lower level and will replace.

Speaker Change: And so that's really going to be what we're looking at kind of going forward. So I would just look at this as an anomaly.

John C. Stern: So I just look at this as an anomaly. On the deposit side, yeah, we did. I believe your question was about the surge in deposits. We did see a surge at the end of the quarter. There was a holiday in there.

Speaker Change: On the deposit on the deposit side, Yes, we did I believe your question was on the surge in deposits, we did see a surge.

Speaker Change: At the end of the quarter there was a holiday in there a lot of customers placed balances with us very much temporary a lot of those balances kind of hung on in and out here through through tax season, and so we typically have that it is higher than what we what we would typically see and for various reasons and so we as we mentioned in our comments, we expect that to get to more.

John C. Stern: A lot of customers placed balances with us, very much temporary. A lot of those balances kind of hung on in and out here through tax season. And so we typically have that. It's just higher than what we would typically see for various reasons. And so, as we mentioned in our comments, we expect that to get to more seasonal levels. And then just your follow-on was really on the non-interest-bearing side of things.

Speaker Change: More seasonal levels and then just to follow on was really on the noninterest bearing side of things.

Speaker Change: It's continued to trend down that that mix of niv versus total deposits.

John C. Stern: You know, it's continued to trend down that mix of NIB versus total deposits. We're kind of in that 17% category right now. As we're in a higher for longer, it's possible that that continues to drift lower just based on the dynamics that we're seeing in the marketplace.

Speaker Change: We're kind of in that.

Speaker Change: 17% category right now is we're in a higher for longer it's possible that continues to drift lower just based on the dynamics that we're seeing in the marketplace.

Speaker Change: Got it and I guess, just specifically around the outlook for fee revenues here.

Ebrahim Huseini Poonawala: Got it. And separately, around outlook for fee revenue, so I think Andy addressed that in his prepared remarks, but give us a sense of what areas you're seeing momentum on the fee revenue side and whether there's any room for sort of upside surprise if we get additional negative guide downs on NII. Thank you.

I think Andy against that.

Speaker Change: <unk> remarks, but give us a sense of any what areas you're seeing momentum on the fee revenue side.

Speaker Change: Sure.

Speaker Change: And with.

Speaker Change: There is any room for sort of upside surprise, if we get additional negative guide downs on NII. Thank you, yes, sure. So I mean overall, we feel very we're pleased with the quarter. One results. We saw good account growth for deepening relationships, we continue to see progress on Union.

John C. Stern: Yeah, sure. Overall, we're pleased with the Quarter 1 results. We saw good account growth. We're deepening relationships.

John C. Stern: We continue to see progress on union and the growth opportunities that we see there. Consumer spending metrics, all the underlying metrics are strong. Capital markets activities are strong, and that is supportive of our continual view on mid-signal digit growth on the fee aspect of things. Areas that we see growth in, you know, we particularly have seen that in the capital market space. We have extremely strong fixed income capital market activity. There was a lot of issuance that came to market, and our franchise absolutely benefited from that.

Speaker Change: And the growth opportunities that we see there consumer spending metrics all the underlying metrics are strong capital markets activities are strong.

Speaker Change: And that is supportive of our of our continued view on mid single digit growth on the fee aspect of things areas that we see growth.

Speaker Change: Particularly as you have seen that in the capital market space. We have been extremely strong fixed income capital markets activity a lot of issuance that came to market in our franchise absolutely benefited from that.

John C. Stern: Mortgage has continued to be strong in terms of even though applications and production have been lower on a year-over-year basis, we're actually seeing much wider spreads just given the areas that we're focusing on. And that's just a constant theme of how we're focusing on more return on equity or higher returns overall. And then, you know, the payments business continues to do well and be in line with our expectations. And so, that helps us support the payments ecosystem that we have and all the initiatives and investments that we've made over time. So, all that is very much coming together, and we feel very, very comfortable about our fee outlook.

Speaker Change: Mortgages continued to be strong in terms of even though applications in production has been lower on a year over year basis were actually seen much wider spreads just given the areas that we're focusing on and Thats just a constant theme of how we are focusing on more return on an equity.

Speaker Change: Your returns overall and then the payments business continues to do well and be in line with our expectations and so all that's just did that.

Speaker Change: That helps us support the payments ecosystem that we have and all the initiatives and investments that we've made over and over time. So all of that is very much coming together and we feel very very comfortable about our fee our fee outlook.

Ebrahim Huseini Poonawala: Thank you.

Speaker Change: Thank you.

Thanks, everyone.

Ebrahim Huseini Poonawala: Thanks, Ibrahim.

John Eamon McDonald: Your next question comes from the line of John Mcdonald with Autonomous Research. Your line is open.

John Eamon McDonald: Your next question comes from the line of John McDonald with Autonomous Research. Your line is open.

John Eamon McDonald: Thanks, Good morning, John.

John Eamon McDonald: Thanks. Good morning. What are you thinking about the outlook for

John Eamon McDonald: How are you thinking about the outlook for net charge offs and provision and just kind of the credit trends you saw this quarter. John you mentioned there was the one idiosyncratic commercial.

Terrance R. Dolan: Net charge-offs and provision, and just kind of the credit trends you saw this quarter. John, you mentioned there was the one idiosyncratic commercial. Other than that, you know, kind of what are you seeing? And you're still kind of thinking about a mid-50s kind of net charge-off outlook for this year. It would be helpful. Thanks.

Other than that you know kind of what are you seeing in so kind of thinking about a mid <unk> kind of a net charge off outlook for this year it would be helpful. Thanks.

Terrance R. Dolan: Yeah, John, this is Terry. You know, when we end up looking at credit, you know, credit generally is pretty strong. I think that we're continuing to see in non-performing assets that that will continue to tick up and did tick up in the first quarters, primarily related to commercial real estate office space.

John Eamon McDonald: Yes, John this is Terry.

Terrance R. Dolan: Let me take that question. So when we end up looking at credit.

Credit generally is pretty strong I think that we're continuing to see in nonperforming assets.

Terrance R. Dolan: That will continue to tick up and did tick up in the first quarter is primarily related to commercial real estate office space.

Terrance R. Dolan: And, you know, I think when we think about kind of the rest of the year, probably in the second quarter, it's going to tick up a bit more. But then that growth rate is going to really moderate quite a bit. You know, the thing to keep in mind with respect to commercial real estate office space is that we've aggressively reserved for that. We feel like we've adequately covered the lost content that's in that portfolio.

Terrance R. Dolan: And I think when we think about kind of the the <unk>.

Terrance R. Dolan: Rest of the year, probably in the second quarter, it's going to tick up a bit more but that growth rate is going to really moderate quite a bit.

Terrance R. Dolan: Keep in mind with respect to the commercial real estate office spaces, we've aggressively a reserve for that we feel like we've adequately covered the loss content that's in that portfolio, so even though.

And payers are likely to tick up we don't see that as a real impact from a P&L standpoint from a charge off point of view in.

Terrance R. Dolan: So, you know, even though NPAs are likely to tick up, we don't see that as, you know, a real impact from a P&L standpoint. From a charge-off point of view, you know, in the first quarter, that's principally driven by just credit cards. And, you know, our expectation is that that will probably also come up in the second quarter. But then, on a full year basis, the charge-off rate that we would expect in credit cards is probably going to, you know, move up a bit in the second quarter and then start to moderate downward again. On a full year basis, we would expect, you know, that charge-off rate to be pretty similar to the charge-off rate that we saw in the first quarter, about 425.

Terrance R. Dolan: In the first card is principally driven by.

Terrance R. Dolan: Just credit cards.

And our expectation is that that will probably in the second quarter also come up but then.

Terrance R. Dolan: On a full year basis.

Terrance R. Dolan: The charge off rate that we would expect in credit cards is probably going to.

Terrance R. Dolan: Move up a bit in the second quarter, and then start to moderate downward again on a full year basis, we would expect that.

Charge off rate to be pretty similar to the charge off rate that we see in the first quarter or about $4 25.

Terrance R. Dolan: Okay.

Terrance R. Dolan: Okay got it and then for the overall comp.

Terrance R. Dolan: <unk> kind of still kind of trending to that mid <unk>, perhaps on the charge offs yes.

Terrance R. Dolan: I would say mid <unk>, maybe closer to the 60 basis points and again I think that it's going to be at a little bit lumpy because of just timing of commercial real estate charge offs that will occur through the year, but again, we feel like we are adequately reserved for it.

John Eamon McDonald: Okay, got it. And then for the overall company, kind of still trending to that mid-50s, perhaps on the charge-offs?

Speaker Change: Got it okay, great and then have Andy how are you thinking about the expense Flex you mentioned offsetting.

Terrance R. Dolan: Yeah, I would say mid-50s, maybe closer to 60 basis points, and again, I think that it's going to be a little bit lumpy because of, you know, just the timing of commercial real estate charge-offs that will occur through the year. But again, we feel like we've adequately reserved for it.

The NII.

Andrew J. Cecere: I guess within reason youre going to flex the expenses, depending on the revenue environment plays out through the year.

Andrew J. Cecere: Yes, John So it is a.

Andrew J. Cecere: An environment that it's always important to look at efficiencies.

John Eamon McDonald: Got it. Okay.

Andrew J. Cecere: That's something we're very focused on and it is in those areas. We talked about will continue to flex where we see opportunities. We have centralized operations, we have other opportunities in Spanish.

Andrew J. Cecere: Great. And thank you for joining us.

Andrew J. Cecere: And then, Andy, how are you thinking about the expense flex? You mentioned, you know, offsetting the NII. I guess, within reason, you're going to flex the expenses depending on how the revenue environment plays out through the year?

Andrew J. Cecere: Companywide initiative, and we will continue to focus on that again importantly, though I want to tell you.

Andrew J. Cecere: John that we're still investing but we're looking at operational efficiencies as we deliver our products and services, while continuing investments because the investments. We've made is helping us with the efficiencies on a go forward basis.

Andrew J. Cecere: Yeah, John, so it is an environment where it's always important to look at efficiencies and we're, that's something we're very focused on and it is in those areas we talked about. We'll continue to flex where we see opportunities, we've centralized operations, we have other opportunities to reduce spend, it's a company-wide initiative, and we'll continue to focus on that. But, again, important, though, We're still investing, but we're looking at operational efficiencies as we deliver our products and services while continuing to invest because the investments we've made are helping us with efficiencies on a go-forward basis. You bet.

Speaker Change: Got it. Thank you you bet.

Speaker Change: Your next question comes from the line of Betsy <unk> with Morgan Stanley. Your line is open.

Speaker Change: Hi, Good morning, welcome back Betsy.

Betsy: Thanks, so much.

Betsy: Okay.

Betsy: So I just had a follow up on the <unk>.

Betsy: Comments around corporate behavior in the deposit shift from an IV I just wanted to understand two things. One is it shift do you see your corporate deposits shifting from niv to IV or is it more niv to MMF and then separately typically corporate Sir and Nibh because it's <unk>.

Betsy Graseck: Your next question comes from the line of Betsy Graseck with Morgan Stanley. Your line is open. Hi.

Betsy: Compensation balances for other services. So as this shift is going on does it suggests that we're going to see an uptick in say for example, treasury services or any of the other fee lines.

Betsy Graseck: Good morning.

Betsy Graseck: Welcome back, Betsy.

Betsy Graseck: Oh, thanks so much. So I had a follow-up on the comments around corporate behavior in the deposit shift from NIB. I just want to understand two things.

Betsy: Hey, this is John thanks for that so.

John Eamon McDonald: In terms of the behavior I think what we're seeing is the trends are slowing that rotation is is going maybe first answer your question more from niv into more IV and it's more of the that's the tradeoff for the for the client and what what we're seen really there is.

John C. Stern: One is, do you see your corporate deposits shifting from NIB to IB, or is it more NIB to MMF? And then separately, you know, typically, corporations are in NIB because, you know, it's compensating balances for other services. So as this shift is going on, does it suggest that we're going to see an uptick in, say, for example, Treasury services or any of the other fee lines?

John Eamon McDonald: Clients are just optimizing and being as as.

John Eamon McDonald: Just looking at their balance sheet looking at their balances, especially in this higher rate environment and now that they know it's going to be here for a longer period of time, they're taking a closer closer I do it and we're just seeing that more and more so the trends have been slowing.

Betsy Graseck: Hey Betsy, it's John. Thanks for that. So, you know, in terms of the behavior, I think what we're seeing is, you know, the trends are slowing. The rotation is going, maybe to first answer your question, more from NIB to more IB. And it's more of a tradeoff for the client. And what we're seeing really there is clients are just optimizing and being as, just looking at their balance sheet, looking at their balances, especially in this higher rate environment.

John Eamon McDonald: That mix shift is just taking longer than what we would've anticipated so.

John Eamon McDonald: In terms of compensating balances that those are the those are the things that.

John Eamon McDonald: On a case by case basis with the clients.

John Eamon McDonald: We look at at the ECR rates that we pay and customers with one and make decisions based on that and so those are kind of the trade offs that we see relative to that right now.

Betsy Graseck: Now that they know it's going to be here for a longer period of time, they're taking a closer eye on it, and we're just seeing that more and more. So the trends have been slowing that mixed shift. It's just taking longer than we would have anticipated.

Okay, So treasury services.

John Eamon McDonald: Potentially could see a little pop up in growth as.

John C. Stern: So, you know, in terms of compensating balances, those are the things that are on a case-by-case basis with the clients. You know, we look at the ECR rates that we pay, and customers will then make decisions based on that. And so, you know, those are kind of the tradeoffs that we see relative to that right now.

John Eamon McDonald: How do you pay for services changes or is that an overreach.

It's possible, but again the dynamics pretty fluid is kind of how I would describe it.

John Eamon McDonald: Okay and also folks are staying on your balance sheet as opposed to going off balance sheet into MMS right.

John Eamon McDonald: A lot of this is defending clients and making sure. We're there for them again, we view this as a temporary phenomenon. This is just a timing thing it's really just.

Betsy Graseck: Okay, so Treasury Services potentially could see a little pop-up in growth as how you pay for services changes, or is that an overreach?

John Eamon McDonald: The churn here is continuing it's just it's just been the pace of it is is taking a little bit longer for it to stabilize and then what we would have anticipated and thats really whats going on here and we want to make sure. We're here for the long run for our clients and serving them as we kind of transition through this rate environment got it okay. That's super House.

John C. Stern: It's possible, but again, the dynamics are pretty fluid. That's kind of how I would describe it.

Betsy Graseck: Okay, and also, folks are also...

John C. Stern: Yeah, a lot of this is defending the clients and making sure we're there for them. You know, again, we view this as a temporary phenomenon; this is just a timing thing. It's really just the churn here is continuing; it's just that the pace of it is taking a little bit longer for it to stabilize than we would have anticipated. And that's really what's going on here. We want to make sure we're here for the long run for our clients and serving them as we kind of transition through this great environment.

And then just.

Speaker Change: You know kind of 30000 foot question here just could you.

Speaker Change: Help us understand how you are currently thinking about the asset sensitivity of Usbancorp at this stage.

Speaker Change: Should we think about.

Higher for longer means for you for the whole organization.

Speaker Change: Yes, sure so I think in terms of.

Speaker Change: Asset sensitivity from a risk management perspective, we are as neutral as you can be.

Speaker Change: We've taken a lot of different actions to make sure because we just don't know where the rate environment is I mean, he was seven cuts at the beginning of the year. The market had now it's closer to zero. So we just wanted to make sure where we are prepared for different type of rate environments.

Betsy Graseck: Got it. Okay, that's super helpful. And then, you know, kind of a 30,000-foot question here, just could you... Help us understand how you are currently thinking about the asset sensitivity of U.S. Bancorp at this stage. How should we think about what Hire for Longer means for you, for the whole organization? Thanks.

Speaker Change: And so I think as we think about.

Speaker Change: The asset sensitivity that is really.

John C. Stern: Yeah, sure. So, in terms of asset sensitivity, from a risk management perspective, we are as neutral as you can be, you know, we've taken a lot of different actions to make sure that we just don't know where the rate environment is. I mean, it was seven cuts at the beginning of the year; the market had, and now it's closer to zero. So we just want to make sure we are prepared for different types of rate environments.

Speaker Change: How we're positioning ourselves as we think about higher for longer and what that means the.

Speaker Change: The drivers there are going to be clearly deposit betas and rate paid and all that sort of thing may creep up the offset to that is we're going to have asset churn on that on the loan side and as well as the investment portfolio side and over time, those things will will offset and in turn ultimately in our favor.

Speaker Change: But it is going to be it's going to be that timing that that's really going to matter in terms of one of those things move and shift overtime. So thats easy John said. This is Andy we've tried to narrow the corridor of volatility given the uncertainty in the outlook and so we are about as neutral as we can be.

John C. Stern: And, you know, as we think about, you know, the asset sensitivity, that that is really, you know, how we're positioning ourselves, as we think about, you know, higher for longer, and what that means, you know, the drivers there are going to be, you know, clearly deposit betas and rate and paid, and all that sort of thing may creep up, you know, the offset to that is we're going to have asset ch And over time, those things will will eventually be offset and turn ultimately in our favor. You know, but it's going to be the timing that that's really going to matter in terms of what those things are as they move and shift over time.

Andrew J. Cecere: Given all the puts and takes John talked about.

Speaker Change: Super. Thank you so much really appreciate it thank you.

Speaker Change: Your next question comes from the line of Andy.

Andrew J. Cecere: Of Jefferies. Your line is open.

Andrew J. Cecere: Hey, Thanks, good morning.

Andrew J. Cecere: Couple of questions on the fee side, one can we just talk a little bit through the payments businesses. It looks like the overall year over year growth rate was 4% I think you are aspiring for upper single digits. It looks like corporate was down year over year and maybe the rate in merchant slowed a little bit. So can you just talk us through some of those dynamics.

And then how you would expect that trajectory going forward.

Speaker Change: Sure, Yes, I think.

Speaker Change: Thanks, Ken I appreciate that we can.

Andrew J. Cecere: So Betsy, as John said, this is Andy. We've tried to narrow the corridor of volatility given the uncertainty and the outlook, and so we are about as neutral as we can be given all the puts and takes John talked about.

Speaker Change: Look at maybe I'll I'll take them in order merchants.

Speaker Change: Was was kind of in that 4% areas as you mentioned on the on the fee side of things.

Speaker Change: On that side this quarter, we saw travel being a little bit down, but the other underlying metrics really.

Speaker Change: Have strong growth we saw our tech led initiatives really continued to propel very nicely we saw.

Betsy Graseck: Super. Thank you so much. I really appreciate it.

Betsy Graseck: Thanks Betsy. Thank you.

Kenneth Michael Usdin: Your next question comes from the line of Ken Uddin of Jeffries. Your line is open.

Speaker Change: High single digit for virtually other all the other categories in that space. So we think the travel is just kind of a short term nature thing here and we're well positioned and continue to feel good about high high single digits. There on the on the corporate side, our corporate payments side as you mentioned.

Kenneth Michael Usdin: Good morning. If I could ask a couple of questions on the fee side. One, can we just talk a little bit about the payments businesses? It looks like the overall year-over-year growth rate was 4%. I think you're aspiring for the upper single digits. It looks like corporate was down year-over-year, and maybe the rate in merchants slowed a little bit. So can you just talk us through some of those dynamics and then how you'd expect that to project going forward?

Speaker Change: That is was it was negative over over this year over year basis, but we are lapping the freight weight that has happened over the past year and that will really churn there might be a little bit more on that in the second quarter, but we see.

John C. Stern: Sure, yeah, I think, thanks Ken, I appreciate that. We can look at them, maybe I'll take them in order.

Speaker Change: Strong momentum as we as we look again the fundamentals of.

John C. Stern: Merchant, you know, was kind of in that 4% area, as you mentioned, on the fee side of things. On that side, this quarter, we saw travel being a little bit down, but the other underlying metrics really showed strong growth. We saw our tech-led initiatives really continue to propel very nicely. We saw high single-digit growth for virtually all the other categories in that space. So we think the travel is just kind of a short-term nature thing here, and we're well positioned and continue to feel good about high single digits there.

Speaker Change: A business spend and things like that are continuing to be in case. So we feel good about high single digits and then on the card side.

Really strong fee growth good spreads payment rates on payments spend trends.

Speaker Change: Constructive for how we're thinking about it so all of that we feel good about all the underlying trends from a payment standpoint.

Speaker Change: Okay.

Speaker Change: Okay got it and then just in terms of some of the other lines corporate services and mortgage did a lot better I think you mentioned DCM in corporate and better gain on sale. Just wondering are those both sustainable or was there any pull forward on both of those areas.

John C. Stern: On the corporate side, corporate payment side, as you mentioned, that was negative on a year-over-year basis, but we are lapping the freight weight that happened over the past year, and that will really churn. It might be a little bit more than that in the second quarter, but we see, you know, strong momentum as we look again at the fundamentals of business spend and things like that are continuing to be in place, so we feel good about high single digits.

Speaker Change: In this quarter.

Speaker Change: I think I think it is.

Speaker Change: I think the underlying strength, maybe had a little bit of positivity here in the first quarter, but underlying all of that I think the gain on sale in the markets that we're playing is legitimate even though the market has been slower from an application standpoint, a production standpoint, it's still kind of double digit almost 20% down from year over year. So there's just there's a lot of.

John C. Stern: And then on the card side, really strong fee growth, good spreads, payment rates, payment spend trends, constructive for how we're thinking about it. So all that, we feel good about all the underlying trends from a payment standpoint.

Speaker Change: The volumes are lower but the spreads are wider and we anticipate that to continue going forward.

Speaker Change: Okay, Great and last cleanup, one just that ATM business. It didn't look like service charges changed that closed out I know, it's not a net profit I know, it's neutral net profit, but can you just update us on that thanks, yeah.

Kenneth Michael Usdin: Okay, got it. And then just in terms of some of the other lines, you know, corporate services and mortgage did a lot better. I think you mentioned DCM and corporate and better gain on sale. Just wondering, are those, you know, both sustainable? Or was there any pull forward on both of those areas this quarter?

Speaker Change: There was some of that in this quarter and so they'll kind of fully run off here in this in the second quarter.

Speaker Change: With an offsetting costs.

Yes.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Mike Mayo with Wells Fargo. Your line is open.

Speaker Change: Mike.

Michael Lawrence Mayo: Another one on net interest income.

John C. Stern: I think the underlying strength may have shown a little bit of positivity here in the first quarter, but underlying all that, I think the gain on sale in the markets that we're playing is legitimate, even though the market has been slower from an application standpoint, a production standpoint. It's still kind of double-digit, almost 20 percent down from year over year. So there's a lot of – the volumes are lower, but the spreads are wider, and we anticipate that to continue going forward.

Michael Lawrence Mayo: And I use the word temporary.

Michael Lawrence Mayo: In your opening remarks talking about.

The decline or the worst guide.

Michael Lawrence Mayo: Didn't know what you meant by temporary.

Michael Lawrence Mayo: So when we're saying Mike is that this pressure that as John described we believe is going to dissipate and has has dissipated as just dissipating slower than we thought and we expect a relatively stable in the second quarter and then growth in the back half of 'twenty four so thats, what I meant by temporary.

Do you have any expectations for 2025, and where the floor is for.

Kenneth Michael Usdin: Okay, great. And the last cleanup one, just that ATM business, it didn't look like service charges changed. Did that close yet? I know it's not a net profit. I know it's a zero net profit, but can you just update us on that? Thanks.

Michael Lawrence Mayo: Noninterest bearing deposits are.

Michael Lawrence Mayo: Any other color. So I would expect that 25, we continue the momentum that we've seen in the second half of 'twenty four we're not going to give a 25 guide right now because it's so volatile in terms of what rates could be but.

John C. Stern: Yeah, there was some of that in this quarter, and so they'll kind of fully run off here in the second quarter.

Michael Lawrence Mayo: Shortly Mike we see the second half of 'twenty, four or even in a lower rate cut environment and higher for longer to start to go up.

John C. Stern: with an offsetting cost. Yes.

Kenneth Michael Usdin: Thank you.

Michael Lawrence Mayo: Your next question comes from the line of Mike Mayo with Wells Fargo. Your line is open.

Michael Lawrence Mayo: And I know I've asked this before but it has to apply that the big picture here is you've got $900 million of savings in that Union Bank acquisition. So that's good for the expenses and the revenues.

Michael Lawrence Mayo: Morning, Mike. Hi, another one on the net.

Andrew J. Cecere: Andy, you used the word temporary in your opening remarks, talking about either the decline or the worst guide, and I didn't know what you meant by temporary.

Michael Lawrence Mayo: Highlight in your slide business banking is up one third over three years in terms of revenues relationships. You have mortgage you have capital markets you have payments. The revenues are working expense, they're working and then we look at the efficiency ratio for this quarter and the core numbers like around 62%.

Andrew J. Cecere: So, what we're saying, Mike, is that this pressure that, as John described, we believe is going to dissipate and has already dissipated, it's just dissipating slower than we thought, and we expect it to be relatively stable in the second quarter and then growth in the back half of 24, so that's what I meant by temporary.

Michael Lawrence Mayo: For a company that for so long had any safety ratio under 60% and I know you're investing a lot nationally we heard that in a bad conference, but it's just like.

Michael Lawrence Mayo: Do you have any expectations for 2025 and where the floor is for non-interest-bearing deposits, or you know, any other color?

Michael Lawrence Mayo: When do you get under 60%.

Michael Lawrence Mayo: Get the NII effect that distorts things, but you do have some peers that are under 60% now so how should we think about efficiency U S Bancorp.

Michael Lawrence Mayo: So I would expect that 25 would continue the momentum that we see in the second half of 24. We're not going to give a 25 guide right now because it's so volatile in terms of what rates could be, but importantly, Mike, we see the second half of 24 even in a lower rate cut environment and higher for longer to start to go up.

Speaker Change: Yes, Mike that's why we're pulling these expense levers and looking at continued great create efficiencies. So I feel very positive about our fee categories. We have a diversified set of business theres a lot of businesses that other banks don't have like payments and <unk>.

Michael Lawrence Mayo: And I know I've asked this before, but it still applies, I think. So the big picture here is you got $900 million of savings in the union bank acquisitions. That's good for the expenses. The revenues you highlight in your slide, business banking is up one-third over three years in terms of revenues and relationships. You have mortgages, you have capital markets, you have payments.

Michael Lawrence Mayo: Commercial products Fund services corporate trust that helps us drive fee revenue. That's the strength that we talked about that seven 7%. There are some headwinds on margin for the industry and for ourselves we will get past those headwinds and we'll continue operate efficiently and look for expense levers to get that efficiency ratio downward and that's an objective of ours.

Speaker Change: Alright, Thank you you bet.

Speaker Change: Your next question comes from the line of John <unk> with Evercore. Your line is open.

Michael Lawrence Mayo: So the revenues are working, the expenses are working, and then we look at the efficiency ratio for this quarter, and the core number is around 62 percent. For a company that for so long had an efficiency ratio under 60 percent. Now, I know you're investing a lot nationally. We heard that at the BAT conference, but it's just like, when do you get under 60%? And I get the NII effect that distorts things, but you do have some peers that are under 60% now. So how should we think about efficiency at U.S. Bancorp?

Speaker Change: Good morning, John morning, Good morning on the deposit growth in the quarter. The surge in growth you saw at the end.

John Eamon McDonald: Can you maybe size up the impact that was more seasonal and more tied to the holiday dynamic and how much of that could pull back and then separately also on the on your NII commentary you did mentioned the competitive landscape shifting just regarding the deposit mix.

John Eamon McDonald: Pricing or are you also seeing some competitive dynamic impacting you on the loan front. Thanks.

Speaker Change: Hey, John Thanks.

Andrew J. Cecere: Yeah, Mike, that's why we're pulling these expense levers and looking to continue to create efficiency. So I feel very positive about our fee categories. We have a diversified set of businesses, a lot of businesses that other banks don't have, like payments and commercial products, fund services, and corporate trust. That helps us drive fee revenue. That's the strength that we talked about, that 7.7%. There are some headwinds on margin for the industry and for ourselves. We'll get past those headwinds, and we'll continue to operate efficiently and look for expense levers to get that efficiency ratio down. And that's an objective of ours.

Speaker Change: Maybe to answer your second question first it's more of a deposit mix and rate paid it's not necessarily the long side I think actually on the loan side, we see.

John Eamon McDonald: Even though loans are soft at this point, we do see decent momentum on the on the commercial side. We saw good period end growth there spreads are good.

John Eamon McDonald: The asset churn is positive all there I think it's just again back on the deposit side of things in the mix and I would say even on the mix I would say on the commercial side. It's just a rotational thing the rates environment really hasn't changed in the commercial side on the retail side, sometimes rates go up sometimes down depending on geography and market and all those sorts of things, but we're.

Michael Lawrence Mayo: Alright, thank you. You bet.

John Eamon McDonald: We're competitive there and we want to make sure that we're <unk>.

Growing and we have been growing we've been growing consumer deposits as we as we mentioned back on your first question on the deposit surge.

Michael Lawrence Mayo: You bet!

John G. Pancari: Your next question comes from the line of John Pancari with Evercore. Your line is open.

John G. Pancari: Morning, John.

John Eamon McDonald: In the area of $15 billion to $20 billion that.

John G. Pancari: Morning. Morning.

John C. Stern: On the deposit growth in the quarter, and the surge in growth you saw at the end of the period, can you maybe size up the impact that was more seasonal and more tied to the holiday dynamic and how much that could pull back? And then separately, also in your NII commentary, you did mention the competitive landscape shifting. Is that just regarding the deposit mix and pricing, or are you also seeing some competitive dynamics impacting you on the loan front? Thanks.

John Eamon McDonald: That we received we get a lot of inflow at the end of the quarter as people prepare for all falling payments.

Ended the month type payments is our first of the month as well as fifth of the month and then sometimes they just hold it all the way through the tax season, that's exactly what we've seen here is that you get this kind of surge up at the end of the quarter and holds for the the duration through tax day, and then as it starts to wind down.

John C. Stern: Hey, John, thanks. Maybe to answer your second question first, it's more of a deposit mix and rate paid. It's not necessarily the loan side. I think actually on the loan side, we see, even though loans are soft at this point, we do see decent momentum on the commercial side. We saw a good period end growth, and their spreads are good. The asset churn is positive all there, but I think it's just again that it's not back on the deposit side of things in the mix. And I would say even on the mix, I would say on the commercial side, it's just a rotational thing.

John Eamon McDonald: It's been very seasonal it's just a bigger number than what we have typically seen.

Speaker Change: Okay. Thank you and then separately on the expense efforts that we're taking a closer look and you mentioned some of these areas are those measures that you're taking fully reflected in the updated expense outlook of 16.

8 billion for the year or could your efforts drive a somewhat lower number as you evaluate the opportunity.

Speaker Change: So John there are reflected in the efforts that's why we brought it down to $200 million in note Youll see that says 16 eight at least so we could pull additional levers as we continue to focus on this but it is reflected in the guidance.

John C. Stern: The rates environment really hasn't changed on the commercial side. On the retail side, sometimes rates go up, sometimes down, depending on geography and market and all those sorts of things. But, you know, we're competitive there.

Speaker Change: Okay. Thanks for taking my questions. Thank you.

Speaker Change: Your next question comes from the line of Vivek <unk> with JP Morgan Your line is open.

Vivek: Hi, good.

John C. Stern: And we want to make sure that we're growing, and we have been growing. We've been growing consumer deposits, as we mentioned. Back on your first question on the deposit surge, you know, it's probably in the area of 15 to 20 billion that we received. We get a lot of inflow at the end of the quarter as people prepare for outflowing payments, you know, end of the month type payments are our first of the month, as well as the fifth of the month.

Vivek: Good morning.

Vivek: And a comment that you expect net interest income to go up in the second half of 'twenty. Four can you talk a little bit about <unk>.

Vivek: What do you see as the drivers of that.

Vivek: I'm going to let John start now add on yes.

The drivers really.

John Eamon McDonald: Is that because we talked about the.

It comes down to the deposit side of things really first and foremost again, we're seeing the migration in rotation.

John C. Stern: And then sometimes they just hold it all the way through the tax season. That's exactly what we've seen here: you get this kind of surge at the end of the quarter, it holds for the duration through tax day, and then it starts to wind down. And that's been very seasonal; it's just a bigger number than what we have typically seen.

John Eamon McDonald: It's just again, it's just taking some time so eventually as that goes that will.

John Eamon McDonald: That will stabilize and then youre going to have the asset continual asset churn on both loans as well as massive portfolio things like that I would also say that we've taken a lot of action to enhance return on equity we're looking at capital efficient ways to grow that that those underlying teams continue.

John C. Stern: Okay, thank you. And then separately on the expense efforts that you're taking a closer look at, and you mentioned some of the areas, are those measures that you're taking fully reflected in that updated expense outlook of $16.8 billion for the year? Or could your efforts drive a somewhat lower number as you evaluate the opportunity? So, John, there are

The union growth opportunities that we see in loan spreads have been have been.

John C. Stern: So, John, they're reflected in the efforts. That's why we brought it down to $200 million. And in the note, you'll see that it's $16.8 million, at least. So we could pull additional levers as we continue to focus on this, but it is reflected in the guidance.

John Eamon McDonald: I have been favorable so those are kind of the reasons that we see.

John Eamon McDonald: The positive nature, and Ben to the noninterest income and Andy talked about.

John Eamon McDonald: So.

John Eamon McDonald: As John said, it's the re pricing of loans the expectation of the stabilization of the flow of deposits and the securities portfolio churn that we talked about.

John Eamon McDonald: And the hedge that you did which you said was an anomaly this quarter could you talk a little bit about that was that for.

John G. Pancari: Okay, thank you for taking my question.

John G. Pancari: Thank you.

John G. Pancari: That's it. Thank you. Thank you.

Vivek Juneja: Your next question comes from the line of Vivek Juneja with J.P. Morgan. Your line is open.

John Eamon McDonald: That's not going to have an ongoing impact was that just something that you put out of a capital protection or what was that.

Vivek Juneja: Hi Andy, just want to probe your comment that you expect net interest income to go up in the second half of 2024. Could you talk a little bit about what you see as the drivers of that?

Sure Yeah, so it really was more.

John Eamon McDonald: More to get our asset sensitivity to be continued to be neutral. So those are actions that we took.

Andrew J. Cecere: I'm going to let John start, and I'll add on later.

John Eamon McDonald: Kind of as a one time matter. So it's in the it's in the right and go forward, that's why I kind of I call. It as a as a temporary measure here in this quarter going forward again is the driver here in the investment portfolio is.

John C. Stern: Yeah, you know, the driver is really, you know, Vivek, as we talked about, it comes down to the deposit side of things really first and foremost. And, you know, again, we're seeing the migration and rotation slow. It's just, again, it's just taking some time.

The $3 billion or so that's rolling off at lower yields and.

John C. Stern: So eventually, as that goes, that will stabilize. And then you're going to have the continual asset churn on both loans, as well as the investment portfolio, things like that. I would also say that, you know, we've taken a lot of action to enhance return on equity. We're looking at capital efficient ways to grow so that those underlying themes continue. The union growth opportunities that we see in loan spreads have been favorable. So those are kind of the reasons that we see a positive nature and a bend to the net interest income that Andy talked about.

John Eamon McDonald: And we will be replaced at now current higher interest rates.

John Eamon McDonald: Got it because you had always said to you a neutral so that's what I was trying to understand what changed.

John Eamon McDonald: Change to me that you have to do to make it go.

Yep.

John Eamon McDonald: Those are part of the actions that we take to to get neutral and those are the things the team looks at on a frequent basis, we're actively managing that on a daily basis. We're looking at markets. We're taking actions and this is just the result of that.

John Eamon McDonald: Okay.

Speaker Change: And is that just receive fixed swaps you added are terminated or what did you do.

Andrew J. Cecere: So, as John said, it's the repricing of loans, the expectation of stabilization of the flow of deposits, and the securities portfolio churn that we talked about.

More specifically they were just they were pay fixed swaps that we had terminated they were shorter dated in nature, but it reduced the yield because the pay fixed carry was was had been gone, but that just neutralized our interest rate sensitivity.

John C. Stern: And the hedge that you did, which you said was an anomaly this quarter. Could you talk a little bit about that? Was that for something that's not going to have an ongoing impact? Was that just something that you put on for capital protection, or what was it?

Speaker Change: Thanks.

Speaker Change: Your next question comes from the line of.

Gerard Cassidy with RBC capital markets. Your line is now open.

Gerard Sean Cassidy: Good morning, Good morning, John Good morning.

John C. Stern: It really was more to get our asset sensitivity to continue to be neutral. Those are actions that we took as a one-time matter, so it's in the rate and will go forward. That's why I called it a temporary measure here in this quarter. Going forward, again, the driver here in the investment portfolio is the $3 billion or so that's rolling off at lower yields and will be replaced at the current higher interest rates.

John and Andy can you share with us obviously.

Gerard Sean Cassidy: A nice move up in your CET one ratio is now at 10%.

Gerard Sean Cassidy: And we all know the Basel III end game is coming nobody knows for certain when the final proposal will be in place, but it seems like for.

Speaker Change: For the category two and three banks at the unrealized securities losses will be carried through regulatory capital, which is not the case today of course, so with that as a backdrop can you update us on where you want the CET one ratio and historically you guys have been so good at giving back 75% to 80% of your Andrew.

Vivek Juneja: I got it because you'd always said you were neutral, so that's what I was trying to understand what sort of change you had to make to make it go to you.

John C. Stern: Yep. Those are part of the actions that we take to get neutral. And those are the things that the team looks at on a frequent basis. We're actively managing that on a daily basis. We're looking at markets. We're taking action. And this is just the result of that.

Earnings and dividends and buybacks and when do you think we could possibly get back on that kind of track.

Speaker Change: Sure Jerry I'll start.

Speaker Change: First of all just to give an update on the unrealized loss.

Vivek Juneja: And is that just the received fixed swaps you added or terminated, or what did you do?

Speaker Change: From a positive standpoint part of the hedging activities that we do that I just talked about in prior questions really help here because we have even though rates went up 30 40 basis points throughout the quarter, our <unk> was fairly neutral and so the impact to the OCI from the investment portfolio on pension right now is about 220 basis points versus the <unk>.

John C. Stern: Well, specifically, they were payfix swaps that we had terminated. They were shorter-dated in nature, but it reduced the yield because the payfix carry had been gone.

Gerard Sean Cassidy: Your next question comes from the line of Gerard Cassidy.

Gerard Sean Cassidy: Cassidy with RBC.

Andrew J. Cecere: Hospital Markets, your line is now open.

Gerard Sean Cassidy: Good morning, Andy. Good morning, John. Good morning.

Gerard Sean Cassidy: Good morning.

John C. Stern: John and Andy, can you share with us? Obviously, you had a nice move up in your CET1 ratio, now at 10%. And we all know the Basel III endgame is coming. Nobody knows for certain when that final proposal will be in place, but it seems like, you know, for Category 2 and 3 banks that the unrealized securities losses will be carried through regulatory capital, which is not the case today, of course.

Speaker Change: 10, 10 zero that we have on common equity tier one.

Speaker Change: You are right the Basel III endgame and all those sorts of things that along with I would call CCAR results for US are two important milestones we need to see before we we.

Speaker Change: <unk>.

Speaker Change: Grand declarations on what our capital ratios will be going forward in the meantime, we will continue to build our capital levels and.

Gerard Sean Cassidy: So with that as a backdrop, can you update us on where you want that CET1 ratio to be? And historically, you guys have been so good at giving back, you know, 75 to 80 percent of your annual earnings and dividends and buybacks. And when do you think we could possibly get back on that kind of track?

Speaker Change: We'll also do is focus on on a returns obviously the dividend is large priority.

Speaker Change: Additional priority is investing in the company and so we're pausing on share repurchases at this time as we build the capital overtime that will normalize back to kind of where we were but this is kind of a transitional period that we're in.

John C. Stern: Sure, Gerard. I'll start. First of all, just to give an update on the unrealized loss. So, you know, from a positive standpoint, part of the hedging and activities that we do that I just talked about in prior questions really help here because we had, even though rates went up 30, 40 basis points throughout the quarter, our ALCI was fairly neutral. And so the impact to the ALCI from the investment portfolio and pension right now is about 220 basis points versus the 10, 10-0 that we have on common equity tier one.

Speaker Change: Very good and coming back to stepping back for a moment.

Speaker Change: The Union Bank I assume is fully integrated and obviously that has been your focus.

Speaker Change: Since that acquisition can you share with us your thoughts about de Novo expansion, you had that expansion down in the Charlotte area.

Speaker Change: They are more to come now, but again the acquisition is behind you. What's your thoughts there as you look out over the next 12 to 24 months.

Speaker Change: Yes, Gerard we're focused on building, our core customer base and deepening our relationships with the customers. We have through the set of products and services that we offer we have we do that through a number of mechanisms. One of them is through our branch system one of them through our relationship managers and working together and that de novo effort.

John C. Stern: You know, you're right, the Basel III endgame and all those sorts of things that, along with what I would call CCAR results for us, are two important milestones we need to see before we, you know, make any grand declarations on what our capital ratios will be going forward. In the meantime, we'll continue to build our capital levels, and, you know, what we'll also do is focus on our returns. Obviously, the dividend is a major priority.

Speaker Change: <unk> is doing well, we also have partnerships with state farm, which increase our distribution base. So we'll continue to look at all those levers, but the bottom line is that we continue to focus on more customers deeper relationships across a diverse set of businesses that we have and a lot of the opportunity Gerard is is providing more services to customers.

John C. Stern: Additional priority is investing in the company, and so we're pausing on share repurchases at this time as we build the capital. Over time, that will normalize back to kind of where we were, but this is kind of that transitional period that we're in.

Gerard Sean Cassidy: Very good. And coming back to stepping back for a moment.

Speaker Change: <unk>, who already are customers of us bank could benefit from some of the other products and services that we offer.

Andrew J. Cecere: Now that Union Bank, I assume, is fully integrated. Obviously, that has been your focus since that acquisition. Can you share with us your thoughts about DeNovo expansion? You had that expansion down in the Charlotte area. You know, is there more to come now that, again, the acquisition is behind you? What are your thoughts there as you look out over the next 12 to 24 months?

Speaker Change: And Andy just a quick follow up on the deepening customer relationship that you just identified when it comes to your middle market commercial or your core commercial account.

Andrew J. Cecere: They only have a loan relationship versus one of your preferred accounts that have multiple relationships deepening you just mentioned what kind of profit differential would you estimate there is between a customer that only has a loan versus your customer that has multiple products, it's significantly higher the more relationship.

Andrew J. Cecere: You know, Gerard, we're focused on building our core customer base and deepening the relationships with the customers we have through the set of products and services that we offer. We do that through a number of mechanisms. One of them is through our brand system. Another one of them is through our relationship managers and working together. And that the noble effort is doing well. We also have partnerships with State Farm, which increases our distribution base.

Andrew J. Cecere: The higher the return the more revenue certainly so if they have alone only versus alone plus deposit plus treasury management, plus commercial products plus payments it all adds up.

Andrew J. Cecere: So we'll continue to look at all those levers. But the bottom line is that we continue to focus on more customers and deeper relationships across the diverse set of businesses that we have. And a lot of the opportunity, Gerard, is providing more services to customers who already are customers of U.S. Bank and could benefit from some of the other products and services that we offer.

Speaker Change: Yes, no I agree okay. Thank you I appreciate it you bet.

Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Matt O'connor: Our next question comes from Matt O'connor with Deutsche Bank. Please ask your question.

Good morning, there's.

Matt O'connor: Obviously, a lot of there's obviously a lot of puts and takes like as you think about the net interest margin over time.

Gerard Sean Cassidy: And Andy, just a quick follow-up on deepening that customer relationship that you just identified, when it comes to your middle market commercial or your core commercial account, if they only have a loan relationship versus one of your preferred accounts that have multiple relationships, you know, that deepening you just mentioned, what kind of profit differential would you estimate there is between a customer that only has a loan versus your customer that has multiple products?

Matt O'connor: But we've seen a number of banks put out kind of this medium term NIM target and wondering if you have any thoughts on what.

Matt O'connor: More sustainable NIM is for you guys.

Matt O'connor: Talked about the securities kind of cash flowing 3 billion I don't know if there's any kind of underwater swaps that.

Matt O'connor: Our chunky and roll off but.

Yes. The question is what do you think about NIM kind of medium term versus where you are right now.

Andrew J. Cecere: It's significantly higher; the more relationships, the higher the return, the more revenue, certainly. So if they have a loan only versus a loan plus deposit plus treasury management plus commercial products plus payments.

Matt O'connor: Yeah.

Start here Matt.

Matt: In terms of the net interest margin.

Matt: Obviously track net interest income overtime, but it may bounce around some of the drivers of that obviously can be some of the things you just mentioned the asset churn on the investment portfolio with the creep in on deposit costs and things like that but cash levels and liquidity mix and things of that variety can also.

Gerard Sean Cassidy: Yeah, no, I agree. Okay. Thank you.

Gerard Sean Cassidy: Thank you. I appreciate it.

Matt O'connor: Again, if you would like to ask a question, press star and then the number one on your telephone keypad. Your next question comes from Matt O'Connor with Deutsche Bank. Please ask your question.

Matt: Drive it as well so we don't really have a call or base, here's where our net interest margin were more focused on net interest income.

Matt O'connor: Good morning. There are obviously a lot of puts and takes as you think about the net interest margin over time. But we've seen a number of banks put out this medium-term NIM target, and I was wondering if you have any thoughts on what a more sustainable NIM is for you guys. You talked about the security of cash flowing $3 billion. I don't know if there's any kind of underwater swaps that are chunky and roll off, but I guess the question is, what do you think about them in the kind of medium term versus where you are right now?

Matt: Mhm.

Matt: And then are there any again.

Matt: Securities Book, you were pretty clear on the cash flow, there and I think thats fairly long duration from a cash flow perspective.

Matt: Any swaps that we should be mindful of that.

Matt: Could go either way looking out the next couple of years.

Speaker Change: I'm sorry, Matt.

Matt: Swaps. So we won't again you go ahead.

Matt: Wap activity that we have yes, so just as a.

Speaker Change: Our hedging.

Speaker Change: While we are very active in our hedging activities, we theres really no fundamental change we continue to focus on pay fixed swaps that have that.

John C. Stern: Yeah, you know, I'll start here, Matt. In terms of the net interest margin, it's going to obviously track net interest income over time, but it may bounce around. Some of the drivers of that obviously could be some of the things you just mentioned, the asset churn on the investment portfolio, the creep on deposit costs, and things like that. But cash levels and liquidity mix and things of that variety can also, you know, drive it as well. So, you know, we don't really have a call or a base of operations of, you know, here's.

Speaker Change: Hedge the investment portfolio.

Speaker Change: Obviously, we took some off that impact of that it's a temporary thing we still have well over 30% well over a third actually of our risk hedged on the on the Securities book and then we have been adding receive fixed swaps as well some of that spot some of that forward starting depending on the nature as the curve has come up here.

Speaker Change: And the curve has flattened and higher.

Speaker Change: Excellent opportunity for us to add some protection for the downside if and when that does occur and all of that adds up to be kind of net net neutral interest rate risk position that we're in.

Matt O'connor: Mm-hmm.

Matt O'connor: And then, are there any, again, the securities book, you're pretty clear on the cash flow there, and I think that's certainly long duration from a cash flow perspective. Any swaps that we should be mindful of that, you know, could go either way, looking at the next couple of years?

Okay. Thank you.

Speaker Change: Thanks, Matt Thanks, Matt.

Speaker Change: Your next question comes from the line of Saul Martinez with HSBC. Your line is open.

John C. Stern: I'm sorry, Matt. I didn't do it...

Saul Martinez: Hi, Thanks, good morning.

Matt O'connor: Swap, so we won't, again you go ahead.

Jim.

Saul Martinez: Another one on NII.

Saul Martinez: Guidance does.

John C. Stern: The swap activity that we have, yeah, so just as a, you know, our hedging, while we're very active in our hedging activities, we, there's really no fundamental change. We continue to focus on pay-fix swaps that have, you know, that hedge the investment portfolio. You know, obviously, we took some off that was impacted, but it's a temporary thing. We still have well over 30%, well over a third, actually, of our risk hedged on the securities book.

Saul Martinez: Assume some modest reacceleration of NII in the back end I think the second half NII is at the midpoint, 2% higher than the first half whats embedded in.

Saul Martinez: Can you be more specific about what's embedded in the path through the cycle deposit beta assumption and John you mentioned.

Saul Martinez: Noninterest bearing could continue to move down a little bit from 17% how far.

Saul Martinez: What's your best guess right now as to how much more deposit migration and where that ultimately could.

John C. Stern: And we have been adding receipt-fix swaps as well, some of that spot, some of that forward starting depending on the nature, you know, as the curve has come up here and the curve has flattened and higher, that's an excellent opportunity for us to add some protection for the downside if and when that does occur. And all that adds up to be kind of the net neutral interest rate risk position that we're in.

Saul Martinez: Good land at and what sort of embedded in the guidance for those for those measures.

Speaker Change: Sure salts John so.

John Eamon McDonald: On the on the beta side, specifically that has continued to slow I think we were only up one or two points here this quarter and.

John Eamon McDonald: Three of the prior quarter.

John Eamon McDonald: Clearly has slowed and as I mentioned deposit rates in the commercial side are very flat they have not changed retail bounces around a little bit but.

Matt O'connor: Okay, thank you.

Matt O'connor: Thanks Matt. Thanks Matt.

Saul Martinez: Your next question comes from the line of Saul Martinez with HSBC. Your line is open.

John Eamon McDonald: We're going to be competitive and follow the market there of course, but.

Saul Martinez: Hi, thanks. Good morning.

John Eamon McDonald: All in it.

Saul Martinez: I guess another one on NII. Your guidance does assume some modest acceleration of NII in the back end. I think the second half NII is at the midpoint, 2% higher than the first half. But what's embedded in, can you be more specific about what's embedded in through the cycle deposit beta assumption? And John, you mentioned, you know, non-interest bearing could continue to move down a little bit from 17%. How far could, what's your best guess for now as to how much more deposit migration there could be and where that ultimately could land at and what's sort of embedded in the guidance for those measures?

John Eamon McDonald: Higher for longer its going to it may creep up a point here too, but we feel like the low <unk> is probably the right place for that to be as we kind of as we kind of look forward.

John Eamon McDonald: Okay.

John Eamon McDonald: In terms of noninterest bearing and the total liabilities total deposits where it is.

I think that.

Speaker Change: I think yes, as I mentioned, a little bit on the on the noninterest bearing side, we're about 17%.

Speaker Change: Its customers are being more efficient and things like that it could go down a couple of points as we stay a little bit lower at.

John C. Stern: Sure. So it's John.

Speaker Change: This higher for are higher for longer type period.

John C. Stern: So on the beta side specifically, you know, that has continued to slow. I think we were only up one or two points this quarter, and, you know, it was three the prior quarter. So, you know, it clearly has slowed. And as I mentioned, deposit rates and the commercial side are very flat. They have not changed.

Speaker Change: Okay, Great and I guess, some follow up on just a clarification on the deposit surge in response to an earlier question on deposits.

Forgive me if I if I missed this but the 15 to 20 billion <unk> debt.

Speaker Change: As a normal surge in deposits noninterest bearing deposits I guess the question is what sort of the incremental too.

Speaker Change: Two the normal Serge.

Saul Martinez: Retail bounces around a little bit, but we're going to be competitive and follow the market there, of course. But, you know, all in all, if you're higher for longer, it's going to it may creep up a point here, too. But we feel like the low 50s is probably the right place for it for that to be as we kind of as we kind of look forward.

Speaker Change: What was incremental this quarter to what you'd normally see im just trying to get a base on which to forecast noninterest bearing deposits going forward.

Speaker Change: Sure. So in terms of the surge the surge in absolute terms was like it was about $20 billion or so is probably 10 or so billion dollars above and beyond what we typically see this type of the quarter okay.

John C. Stern: Okay, and in terms of non-interest bearing total liabilities or total deposits, where is it? Yeah.

Speaker Change: Alright Thats helpful. Thank you.

Saul Martinez: I think that...

Speaker Change: Thanks.

John C. Stern: University

Speaker Change: Your next question comes from Mike Mayo with Wells Fargo. Your line is now open.

Saul Martinez: I think, yeah, as I mentioned a little bit on the non-interest-bearing side, you know, we're at about 17%, customers are being more efficient, and things like that. It could go down a couple points as we stay a little bit lower at this higher for, higher for a longer type period.

Michael Lawrence Mayo: Hi, just.

Michael Lawrence Mayo: It kind of still a cleanup on NII just in very simple terms, if you're neutral to rates why the guide lower for NII I just want to make sure I have that right and something happened that you didn't expect or you werent fully neutral before this quarter.

John C. Stern: Okay, great. And I guess a follow-up on, just a clarification on the deposit surge, your response to an earlier question about the deposit surge. Forgive me if I miss this, but the $15 to $20 billion surge is a normal surge in non-interest-bearing deposits, but I guess the question is, what's sort of the incremental to the normal surge? What was it incremental this quarter compared to what you normally see? I'm just trying to get a basis on which to forecast non-interest-bearing deposits going forward.

Michael Lawrence Mayo: Yeah sure Mike It's John So the yes, we are neutral to answer your question to shocks to interest rates.

John Eamon McDonald: I think what we're what we're explaining is the behavioral aspect of it which sometimes can be a little more challenging to judge at that point in time, and so again, it's a little bit the pace of rotation is a little bit.

Slowing down just not as much as what we had anticipated so again rate shocks moving up and down we continue to feel very good from a neutral standpoint, it's just that behavioral aspect that we that we're we've been talking about here.

Saul Martinez: Sure, so in terms of the surge, the surge in absolute terms was like it was about 20 billion dollars or so. It's probably 10 or so billion dollars above and beyond what we typically see for this type of quarter.

John Eamon McDonald: And do you have a number for fixed asset repricing say through the end of next year, because I think thats whats driving your higher guidance for the second half this year and into next year. So you talked about $3 billion of securities, but by the end of next year, how much do you havent picks asset that should be priced like one grand number for that.

John C. Stern: Okay. All right. That's helpful. Thank you.

Michael Lawrence Mayo: Thanks.

Michael Lawrence Mayo: Your next question comes from Mike Mayo with Wealth Fargo. Your line is now open.

Michael Lawrence Mayo: Hi. Just kind of a cleanup on NII. Just in very simple terms, if you're neutral on rates, why is the guide lower for NII? I just want to make sure I have that right. Did something happen that you didn't expect or you weren't fully neutral before this quarter?

John Eamon McDonald: Well I think the way I would think about it as about half of our loan book is fixed rate <unk>.

John Eamon McDonald: Component the other half is floating rate component and spreads are widening. So you can you can see some of the floating rate components, perhaps improve over time, we're seeing decent growth in payments or excuse me credit card and so some of the mix is also working at play here.

John C. Stern: Yeah, sure, Mike, John. So, yes, we are neutral, to answer your question, about shocks to interest rates. I think what we're explaining is the behavioral aspect of it, which sometimes can be a little more challenging to judge at that point in time. And so, again, it's a little bit, the pace of rotation is a little bit, it's slowing down, just not as much as we had anticipated. So, again, with rate shocks moving up and down, we continue to feel very good from a neutral standpoint. It's just that behavioral aspect that we've been talking about here.

John Eamon McDonald: And so commercial loans are coming on and Theyre coming out on a wider spreads. So thats kind of how I think about that from a from a.

John Eamon McDonald: From a big picture perspective.

John Eamon McDonald: And then last one loan spreads I mean for a while there it looks like we're heading into the recession and loan spreads we're not widening now it looks like we're not having a recession.

John Eamon McDonald: Yes tight spreads in the capital markets and loan spreads are widening.

Michael Lawrence Mayo: Do you have a number for fixed asset repricing, say, to the end of next year? I think that's what's driving your higher guide for the second half of this year and into next year. You talked about $3 billion of securities, but by the end of next year, how much do you have in fixed assets that should be priced? Do you have one grand number for that?

John Eamon McDonald: Wire bond spread widening now I guess that would be an incremental positive.

Speaker Change: Yeah. So I think there's just different markets. So I think some of the some of the drag you're seeing on the commercial volume side is capital markets spreads have been in the access has been very good and we saw that reflected in our fixed income capital market fees and things of that variety and so but I think that has taken away volume to a certain extent in other <unk>.

John C. Stern: Well, I think the way I would think about it is that about half of our loan book is a fixed rate component, and the other half is a floating rate component, and spreads are widening. So you can see some of the floating rate components perhaps improve over time.

Speaker Change: Areas, where access to capital markets isn't as pronounced I would say there has been decent opportunity for for spreads there.

Michael Lawrence Mayo: We're seeing decent growth in payments, or excuse me, credit cards. And so some of the mix is also working in play here. And so commercial loans are coming on, but they're coming on at wider spreads. So that's kind of how I think about that from a big picture perspective.

Speaker Change: Alright, thank you.

Speaker Change: Thanks, Mike.

Your next question comes from the line of <unk> <unk> with Bank of America. Your line is open. Thank you Hey, John.

Speaker Change: Quick follow up to make sure we get this right.

Speaker Change: The surge deposits that came in I think you mentioned you expect about $15 billion to leave.

John C. Stern: And then last one, loan spreads. I mean, for a while there, it looked like we were heading into a recession, and loan spreads were not widening. Now it looks like we're not having a recession, and you have tight spreads in the capital markets, and loan spreads are widening. Why are loan spreads widening now? I guess that would be an incremental positive.

John Eamon McDonald: Is all of that going out of noninterest bearing so the 91 billion number does that go into the mid seventies, and we think about the second quarter.

John Eamon McDonald: Some of this is temporary so the surge that happens it can be a mix of both mark money market as well as an IV.

Michael Lawrence Mayo: Yeah, I think it's just different markets. So I think some of the drag you're seeing on the commercial volume side is capital markets. Spreads have been, and access has been very good, and we saw that reflected in our fixed income capital market fees and things of that variety, but I think that has taken away volume to a certain extent. In other areas where access to capital markets isn't as pronounced, I would say there has been decent opportunity for spreads there.

John Eamon McDonald: It may search the niv for a brief period of time, but it's not going to be material to the quarter. So even though.

John Eamon McDonald: The surge that we've been talking about it can be a mix of both.

John Eamon McDonald: Mix of both and so you do expect just some of the dollar balance standpoint, and maybe seeing north of $80 billion is that fair yes.

Speaker Change: Yes, I would expect as we said the rotation is continuing so I wouldn't expect growth necessarily in DDA deposits overall, we do expect to basically be stable.

John C. Stern: All right, thank you. Thanks, bye.

Ebrahim Huseini Poonawala: Your next question comes from the line of Ebrahim Poonawala with Bank of America. Your line is open. Thank you. Quick follow-up to make sure we get this right, the surge deposits that came in, I think you mentioned you expect about $15 billion to leave. Is all of that going out of non-interest bearing accounts, so the $91 billion number, does that go into the mid-70s as we think about the second quarter?

Speaker Change: And just a separate question given all of these questions on NII I think.

Speaker Change: Would love to hear the degree of conservatism baked into your NII outlook, because I guess the concern you are getting is whether we see another downward guide three months from now.

Speaker Change: Yes, so in terms of what we what would go wrong.

Speaker Change: In order for us to see another guide down on NII and for you to be space. Thank you.

John C. Stern: No, some of this is temporary. So the surge that happens can be a mix of both money market as well as NIB. It may surge the NIB for a brief period of time, but it's not going to be material to the quarter. So the surge that we've been talking about can be a mix of both.

Speaker Change: Yes.

Speaker Change: Look as conservative or aggressive it's just the range is just given the range that we provided just given the uncertainty that's just in the market given all the factors that we've talked about here today.

Ebrahim Huseini Poonawala: mix of both. And so you do expect, just from a dollar balance standpoint, NIB is staying north of 80 billion. Is that fair?

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: There are no further questions at this time, Mr. Anderson I will turn the call back over to you.

John C. Stern: Yeah, I would expect, you know, as we said, the rotation is continuing, so I wouldn't necessarily expect growth in DDA, but deposits overall we do expect to basically be stable.

Anderson: Thank you for listening to our earnings call. Please contact the Investor Relations Department, if you have any follow up questions.

Ebrahim Huseini Poonawala: And just a separate question, given all these questions on NII, I think I would love to hear the degree of conservatism baked into your NII outlook, because I guess the concern you're hearing is whether we see another downward guide three months from now. And yeah, so in terms of what would go wrong in order for us to see another guide down on NII and for you to be surprised. Thank you.

Speaker Change: Thank you. This concludes today's conference call you may now disconnect.

Speaker Change: [music].

John C. Stern: Yeah, Ebrahim, I don't look at it as conservative or aggressive; it's just the range, the range that we provided, just given the uncertainty that's just in the market, given all the factors that we've talked about here today.

Ebrahim Huseini Poonawala: Got it. Thank you.

Ebrahim Huseini Poonawala: Thank you.

George Andersen: There are no further questions at this time. Mr. Andersen, I turn the call back over to you.

Operator: Thank you for listening to our earnings call. Please contact the Investor Relations Department if you have any follow-up questions. Thank you. This concludes today's conference call. You may now disconnect.

Operator: Thank you. This concludes today's conference call. You may now disconnect.

unknown: U.S. Bancorp

unknown: [inaudible]

Speaker Change: Okay.

[music].

Speaker Change: Okay.

Speaker Change: [music].