U.S. Bancorp (NYSE:USB) Q2 2023 Earnings Call Transcript

Terry Dolan: Yes, great question Ebrahim. And so, let me maybe unpack it a little bit in terms of the different types of actions that we are likely to take. One, as an example is, we’re going to be kind of winding down a cash provisioning of business. So, that’ll have very minimal impact from an earnings perspective because it’s not that big of a business, but it is a pretty significant user of capital in terms of risk-weighted assets. So, that’s one area and one example of how we still think that there is low to neutral sort of opportunity in terms of enhancing or improving the risk-weighted asset position. We’ll continue to be focused on reducing our MSR, our mortgage servicing right portfolio over the course of the next several quarters.

That’s an area that again it has some impact, but it’s not significant. And probably more importantly, it allows us to rebalance the size of the mortgage exposure, mortgage portfolio relative to the overall size of the business. We’ll continue to look at kind of similarly mortgage loan sales out of the Union Bank portfolio. Again, that reduces our concentration in California and should have minimal sort of impact kind of on a go-forward basis. And then there’s just a number of other things, similar sort of structures that we’ve done. But the other thing that we’re working on between now and the end of the year, which will kind of position us well to be able to continue to improve on a risk-weighted asset basis is setting up some securitization programs related to some of our other balance sheet asset positions.

Ebrahim Poonawala: That’s helpful. And just one follow-up. Strategically, I think the one question is, this environment should be ideal for USB to take market share. Competitors are under pressure. Clearly, your balance sheet holding up quite well. Give us a sense of just how much of a constrained capital levels are today as you think about getting new customer growth, picking up market share, adding – sort of maximizing the Union franchise, just how much of a restrictive factor capital is to accomplish all of those.

Terry Dolan: Yes, go ahead Andy.

Andy Cecere: So, Ebrahim, I wouldn’t say it’s a constraint. We’re focused on profitable growth. We have a diverse set of business products and services that allow us to grow in a capital efficient way. I mean, I’ll give you a couple of examples. The Union Bank customer base, about 80% of the consumer small businesses are single service customers. Their penetration on credit card is about half what ours is across the legacy US bank. So, we have a lot of opportunities to deepen relationships in a very capital efficient way, given the broad product set that we have. So, that is an opportunity that we’re very much focused on, looking forward to, and not feeling constrained.

Terry Dolan: Yes. And many of those single service on our balance sheet today, deepening the relationship will be as much focused on fee-based sort of businesses, which are capital efficient, as Andy said.

Ebrahim Poonawala: Got it. Thanks. Thanks for taking my questions.

Operator: And next, we’ll move to Ken Usdin with Jefferies. Please go ahead.

Ken Usdin: Hey, good morning, guys. Hey, a really good fee result this quarter. I just wanted to ask you, as I’m looking at the payment slide on Page 19, it does look like the year-over-year growth rates did all slow versus the first quarter. Can you just talk about what’s going on across the payments with regards to just where the consumer is and how you expect corporate spending to trend as you look ahead, given the potential for a slowing economy?