U.S. Bancorp

Q4 2021 Earnings Conference Call


spk_0: welcome to us bancorp fourth quarter twenty twenty one earnings conference call following a review of the results by and is a theory care mean president and chief executive officer and theory dolan by steer and t financial officer there will be a formal question and answer session if you would like to ask a question please pressed dar one on your touchstone phone and press the pound key to withdraw they've call be recorded in available for replay beginning today at eleven am central time through wednesday january twenty sixth twenty twenty two at ten fifty nine pm central time i would now turn the conference call over to jenn thompson director of and death relations and economic analysis for us bancorp
spk_1: in italia and good morning everyone with me today or and accessory or chairman president and ceo and terry dolan our chief financial officer during their prepared remarks and the terry will be referencing a slide presentation a copy of the slide presentation as well as our earnings release and supplemental analysts schedules are available on our website at us bank dot com i would like to remind you that any forward looking statements made during today's call are subject to risk and uncertainty factors that could materially change our current forward looking assumptions are described on page two of today's presentation in our press release in in are formed ten k and subsequent reports on file with the fcc on now turn the pall over the andy thanks john good morning everyone at thank you for joining arco falling are prepared remarks during i will take any questions you down
spk_2: what began as like three in the fourth quarter we reported earnings per share of a dollar seven and generated total revenue of by point seven billion dollars we saw strong bianchi she drove this quarter putting deposit growth of over eighteen billion dollars or four point three percent compared with the third quarter average loans grew by two percent when quarter for two point seven percent excluded the impact of loan forgiveness relayed to ppp we are encouraged by the longer of momentum and we have a positive outlook for twenty twenty two given improve his client sentiment and business conditions and continued strength and certain focus commercial portfolios such as abs lending and supply chain financing the significant increase in liquidity provided by the strong deposited blows his quarter puts us in a favorable position to support future bianchi growth deposit growth provided the opportunity for tactical investment in cash management strategies that pressured the net interest margin for the fourth quarter but was both a creative to net interest income i'm a and maintained assets sensitivity for a rising rate berman train obese underlying klein acquisition a market church runs across our business lines were healthy and payments sales trends continue to improve on a year over year basis this quarter were released a hundred and forty five million dollars long last reserves reflecting continue strong credit quality including a record low no charge of ratio in the lower right quadrant you can see that are book value for sure told thirty two down and seventy one cents or december thirty first which was one point five percent higher that september thirtieth or c t one capital ratio was ten percent thirty first slide for provides key performance metrics fight fight fight trend pilates trends and digital engagement digital transactions now account for over eighty percent of total transactions and digital loan sales a copper two thirds of total on sales turning aside six we continue to believe our initiatives aimed connect your banking customers with their payment products or services and are payments customers with our banking products and services allowed to grow our small business relationship by fifteen to twenty percent and related revenue by twenty five to thirty percent over the next few years now let me turn the covert terrier provide more detail on the quarter thanks andy
spk_3: return to slide seven i'll start with the bells she review followed by a discussion of fourth quarter or is trends average well as increased two point zero percent compared to the third quarter driven by a two point six percent increase in commercial laws which benefited from new business activity and improved utilization rate retail loan growth was driven primarily by higher credit card balances growth in residential mortgages and strong production of installment loads including auto lending a december thirty first ppp loan balances totaled one point four billion dollars compared to two point four billion dollars at september thirtieth
spk_2: exhaling ppp lows fourth quarter average loans grew by two point seven percent on a link quarter basis
spk_3: trained to slide eight total average deposits increased by eighteen point four billion dollars or four point three percent compared with the third quarter
spk_2: we continued to see if a verbal mix shipped with an average with average non interest bearing deposits increase in by five point four percent on average save his deposits increasing by four point four percent while higher costs time deposits declined by three point zero percent slide nine shows credit quality trends the ratio of nonperforming asses to loans and other real estate was zero point two eight percent at december thirty first compared with zero point three two percent of september thirtieth and zero point four four percent a year ago our fourth quarter net charge off ratio of zero point one seven percent improved on both a link quarter and your of your bases borrower liquidity and stronger as valuations continued to support repayment recovery a problem loans i reserve release was a hundred forty five million dollars this quarter primarily reflect in strong credit quality metrics or allows for credit losses as a september thirtieth or thirty first total of six point two billion dollars or one point nine seven percent of loans
spk_3: slide ten provides an earnings summary
spk_2: in the fourth quarter of two thousand and twenty one we earned a dollar seven per diluted share
spk_3: these results included a reserve release of a hundred forty five million dollars three and a slight eleven net interest and come on a fully taxable equivalent basis a three point two billion dollars came in a little higher than our expectations the forty seven million dollar decrease compared to the third quarter was driven by a eighty two million dollar decline
spk_2: in ppp interest and fees partially offset by early nasa growth
spk_3: our net interest margin declined by thirteen basis points on a limb quarter basis to two point four zero percent the net interest margin decline was related to a six basis point impact from lower ppp loan interest and fees and a six basis point impact from elevated illiquidity and related investment portfolio cash management strategies aimed at optimize in our acid sensitivity going into two thousand and twenty two slide twelve highlights trends and non interest income compared with the year ago non interest income declined buys
spk_2: zero point six percent as compared as strong growth in payments revenue trust and investment management fees deposit service charges a commercial product revenue was more than offset by a decrease in mortgage revenue reflecting the interest rate environment and lower our security is gays and other fee revenue
spk_3: on a link quarter bases non interest income declined by five point nine percent primarily reflecting seasonally lower payments and capital markets revenues and declining mortgage banking revenue as expected slide thirteen provides information on or payment services businesses sales volumes in each of our three businesses expect that exceeded of pre pandemic levels in the fourth quarter despite some ah our crime related softness in late december we expect year over year payments momentum to continue into two thousand twenty two as lagging sectors such as airline hospitality the corporate t any benefit from a continuous cyclical recovery toward pre pandemic levels and as or martha your investments and ecommerce and tech lead drive secular go growth improvements
spk_2: as we saw in our on his press release this morning effective january third us bank has eliminated fees for certain non sufficient funds we believe this is not only the right thing to do for customers but it as a smart businesses decision
spk_3: for some time we have been at the forefront of using digital technology to help our customers avoid overdraft charges and our efforts have helped our customers more easily and effectively manage their money which has contributed to increase customer satisfaction this latest move is simply the next up in the process turning to slide fourteen non interest expense increased by one hundred and four million dollars or three point zero percent compared with the third quarter this increase was driven by higher medical claims with then employee benefit expense can hire professional services expenses higher marketing own and be business development costs tax credit amortization expense was also higher in the fourth quarter in line with typical seasonal friends
spk_2: slide fifteen highlights or capital position or common equity tier one capital ratio at december thirty first was ten point zero percent which decreased slightly compared with september thirtieth driven by risk weighted acid growth and the impact of acquisitions completed near the end of the quarter as a reminder at the beginning of the third we suspended our share buyback program due to our recent announcement that we have agreed to acquire union bank we continue to expect that or share repurchase program will be deferred until the second half of two thousand and twenty two after the closing of the acquisition we expect to operate at a c t one cabaret so between our target racial oh and nine point zero percent
spk_3: i will now provides of forward looking guidance we expect both net interest income aren't taxable equivalent basis as well as our net interest margin to be relatively stable on a link quarter basis with growth expected and subsequent quarters
spk_2: with our base case under our best case scenario which incorporates three rate hikes we expect full year two thousand and twenty two net interest income tax will taxable equivalent basis to increase at amid single digit pace we expect mortgage revenue to be slightly lower in the first quarter on a link quarter basis in line with lower refinance and activity in the market
spk_3: payments revenue is seasonally lower in the first quarter on a year we are basis we expect total revenue to increase at a high single digit pace driven by double digit growth in both merchant processing revenue and corporate payments revenue we expect credit card revenue to be stable on a year of year basis as as high single to as high single digit growth in credit and debit card fees is offset by lower prepaid processing fees
spk_2: excluding the prepaid headwind which will a bit after the first quarter we expect total payment revenue to increase at a low teen raid on a year over year basis in the first quarter
spk_3: we expect other revenue to approximate one hundred and twenty five million dollars to one hundred and fifty million dollars per quarter over the course of two thousand and twenty two we expect expenses to be relatively stable in the first quarter compared with the fourth quarter credit quality remain strong over the next few cars we expect the net charge off ratio to remain lower than historic levels but what about will normalize over time as the effects of the pandemic continued to subside
spk_2: for the full year two thousand and twenty two we expect our taxable equivalent tax rate to be approximately twenty one point zero percent i will hand back to anti for clothing comments thanks terry fourth quarter results were in line with our expectations and we're starting off the year with oh man i'm building a prosser landing and be businesses we feel good about the trajectory of long growth and are well positioned to benefit from rising rain barman we expect klein acquisition growth and account penetration a dry market share danes across or fee businesses in particular we believe twenty twenty two will be another good year for a payments business due to the ya mccrone search your over your sales growth have slowed some within the past few weeks from the exceptionally strong strong pace we saw the second half the twenty twenty one however growth rate train strong and we believe this will likely proved to be a speed bump rather than extent of extended slowdown nonetheless the situation is fluid and will continue to monitor trans closely and update you along the way our investments in technology to support our digital transformation and payments ecosystem initiatives are paying off and we continue to look for uses of capital that would drive higher returns in the fourth quarter we acquire travel bank of intact to provides tech driven expense and travel management solutions to help businesses manage their operations more efficiently also in the fourth quarter we caused on the acquisition of pm asset management which not only increase their assets under management but as enhanced our position and a area within the money market world we're looking for deposing are previously announced acquisition of union bank later this year the addition of union bank will increase or scale improve our market share and a demographically attractive market and and over one million consumer clients and over hundred ninety thousand business banking customers to whom we can offer a leading digital capabilities and are expansive products at the strategic and financial benefits or this combination will true to shareholders over many years but the numbers only tell part of the us banks story as we start a new york one emphasize that how we do things will continue to be and for as important as what we do and saw opposing i like to thank our employees who come in every day with the goal of doing the right thing for our customers or communities their flout fellow employees and our constituents thank you for helping to make twenty twenty one exists esl year and position as well for the future we will now have enough the call the queue any
spk_0: ladies and gentlemen apple i'm please press star alibi the number one on a telephone keypad again that star one to withdraw your question press the pound key we will pass for just a moment to compile the candy rally there your first question is on the line of thought seafaring with pipe my family
spk_4: money or of i thank you for my got him let's see maybe a terry was hoping occurred please disgusting just a bit more detail your updated bought the rate of the don't even have that that changes in about it before for
spk_3: yeah he also you know we had the opportunity because the deposit to be able to both invest in our investment securities to help a little bit in terms of fourth quarter but we also get the same time utilize had strategies to keep the duration of that partner of those purchases relatively
spk_2: sharp and the of the expectations god is that you know when who are long term rates rise which were starting to see now that we're going to be able to unwind those us are swaps and to be able to take advantage of the are rising rate environment so we did all of that ah fundamentally to up
spk_3: be able to maintain as much as insensitivity going into twenty twenty two as we possibly can
spk_4: perfect
spk_2: after good thank you and then or perhaps either for and your terry maybe that i thought or comment regarding the anticipated i kind of composition of by longer the growth through twenty twenty two you know certain sounds like a a constructive outlook that maybe just got commercial vs consumer as you see it yeah so maybe i just cast i with fourth quarter you know with one of things we saw in the fourth quarter not only strong consumer continuing but the sea and i part follow actually started to expand very nicely and i we talk a little bit about that soil as we look into twenty twenty two you know we continue to expect that consumer credit as gonna continue to strengthen in a auto lending maybe a little bit more moderate than it was and twenty twenty two by the credit card continues to be very strong as payment rates are come down and then we also would expect that residential mortgage portfolio loans would would be growing ah but i think the real story is that we're now i'll starting to see a nice shift with respect to the commercial ah and the sea and i part follows ya we're continuing to see growth in certain segments like acid back securitization land in some of all sorts of things that we saw earlier in the year but at the under the
spk_3: in the fourth quarter the under the fourth quarter in a we saw a nice expansion of utilization rates as a goes like sixty basis points on average third vs fourth quarter but in december was up almost two and a half percent ah and deal we would expect to kind of see that i think the other thing i would say is of sentiment
spk_2: on the commercial side you know people are rebuilding their inventories i think from a supply chain perspective they still have some concerns about that until i think that they're been in a cautious about making sure that they have and muntari to be able to run their business and in i think the starting to make business investment ahead of that consumers penalties sila economic growth of they see and twenty twenty two so any what would you had to i think he had i points out in you know to track changes in trends in the fourth quarter that look positive going into twenty twenty two scott number one is terry mention the increase in utilization rate which we haven't seen for a number of quarters
spk_5: and secondly is this started to decline and payment rates which else credit card volume so those are two passes like cause well
spk_0: or back are you very much
spk_6: your next question is on the line at your art cassidy with rbc
spk_7: wenger aren't mine during any
spk_8: and he coming back to the big transaction then obviously you consume you touched on all the benefits the union bank will bring to the table to us bancorp of can you share with those would be updated on the regulatory approval process is a lot of our uncertainty in washington today and the fed and other regulatory agencies with their heads and new ads coming in overtime
spk_2: time you been updated could this be delayed is you a what is the risk of bitches been delayed getting the approval yeah thanks dragon so we submitter application in early october we've been working with our with union bank and we have a number of acquisition team sport on our side as well as a uni banks i work in i integration activities including technology and as well as the business lines and or we've been responding working with the regulators in terms of questions on honor on the up for us mission which is normal course for this process so we continue to believe that this will close in the first half i may be later in the first app a desk or continued belief with a with a conversion in now later the third third quarter up or or are certain rock october timeframe so nothing on tape
spk_8: i have us believe that it would be any different from that and damn and were preparing for that timeframe
spk_2: very good thank you answer obviously with is alone discussion on your call another calls about as insensitivity him with the i look in spanish year and pivoting for a moment i'm i'm kind looking at what we're all going to be talking about on the fourth quarter call for twenty two in january twenty three
spk_8: and i get a sense of might be more about credit than it is today and you guys have stood out as being summoned the best underwriters in the industry can you share with this what are you seeing out there it in terms of underwriting from your competitors i'm is or think of people getting more aggressive to generate revenue loan growth or
spk_2: or know everybody still pretty conservative yeah i died i think the when i went away i would can describe it your from our perspective we haven't changed our credit box really are at all or we we really try to underwrite through the cycle i think the there has been a lotta competition in the industry for long growth over the last twelve months and as you know are you know when the site
spk_3: or turns she nods his for decisions you made today that are gonna end up or impact a year in two or three years down the road so am i do think that your credit as the old normalizes we go through the year i don't know if we could i get back to where we were ah you know of pre pandemic but know i think i will start to migrate in that direction
spk_2: and yet i i would say that you know if there is a loosening from and under perspective maybe a stretch in a little bit more with respect to structure ah ai but it is it has been competitive both from an under a perspective as well through uprising perspective out there in and you said to follow up on their quickly terry how about exceptions are you seeing more exceptions to the corner underwriting box the good deals done
spk_3: ah again from our perspective we really haven't we really haven't changed our approach at all ah
spk_2: it all again i think from a competitive standpoint ah you know again they're focused on ah
spk_9: been as competitive as they possibly can in terms of the underwriting there are structures and that and their pricing sell but from our perspective we haven't really changed our approach
spk_0: as always the huge proceeds killer
spk_10: extract
spk_11: your next question is on the line of john mcdonnell with autonomy three ferrets he john
spk_2: i morning ice on the andy maybe from a high level perspective he might not want to give specific guidance but just kind of your thoughts about the revenue and expense dynamics that you're looking at heading into twenty two ah maybe some thoughts on the the revenue headwinds and talons a looking at and how you plan on managing inflation on the exp pence space you know and just kind of overall how is operating leverage feel as a goal for this year
spk_11: sure john and and know terry gave a little games or net interest income for the year but i will i will talk about them the the pope the full balance sheet and income statement we we continue to expect mid single digit earning acid growth for the year that loan momentum that we talked about alex positive going into twenty twenty two we would expect revenue growth of three to four percent john on a pull your basis ah as well as positive operating leverage of at least a hundred basis points for twenty twenty two
spk_3: got it and then on the or maybe just a question on the and i guide terry
spk_2: you mentioned three hikes are just what's the cadence of what you've built the in on that and is there any rule of thumb for what one fed hike of twenty five basis points does add to the name or and i everything else equal that might be helpful prospect yeah so in our base case a as i as we said a big three rate hikes really started in the second quarter and then you kind of as you might expect through the rest the year i'm what we if you go back to our to start of the a third quarter really hasn't changed a lot you know of fifty basis points shock is about three and a half percent are from and from a net interest income standpoints that i would kind of a free a back to that if you think about ill three rate hikes ah kind of on that pays you're probably talking about ah the equivalency of about a thirty five basis points shock
spk_12: in our savior kind of doing the math you can kind of got to that
spk_0: and terry ah those numbers are are the impact and that interesting come in addition we have our waivers which tunnel about seventy million dollars a quarter john and you get about two thirds of that back at the first rate hike a twenty five basis points in about ninety percent of it back at the second rate i
spk_3: okay got it thank you tour
spk_13: your next question from the line at that secret sick with morgan stanley
spk_3: i can morning about the community
spk_14: a couple of questions just on the guy a couple of clean up on the an eye on i met single digit pay is that a t y que from one cure that full year twenty two or three or twenty one excluding
spk_13: now that the everything is excluding union bag and it's sad that the in a big tended to be the games are were given for twenty twenty two
spk_15: right the that that thought oh versus player twenty one crop failure failure versus failure yell prior i attack or it may shock and and then when i'm thinking about that
spk_13: the that of offering leverage you know at least a hundred basis points
spk_3: that's obviously a knife attack from from what you've been doing recently can you are the past couple years ago
spk_2: can you can highlight is this a function of the rain barman been better primarily or is it also ah from thought the investments and that you've been making that you are leveraging and in and basically able to switch on the optimization of the investment and yeah busy the i would say it's kind of a
spk_1: combination of both i'm in love they approve in revenue environments early helps that but you know we have been as you say making some significant investment in digital capabilities and you know as that investment matures in a weekend a fully expect that we would see some are operating efficiencies on the expense side now we have been working through
spk_13: tech modernization what she'll that helps us sudden i know we're always looking for a kind of our from a continuous improvement point of view you're trying to optimize your the branch network as well as our operations i think is is a combination of both
spk_3: okay and on the and that for instance die there will be thought i'm and integrating union bank
spk_2: of course but beyond that in a where would you be targeting investment dollars from here yeah i think that ah i think that you know when we think about our technology investment in are continuing to have investment in our mortgage business and our our digital mobile app capabilities
spk_13: let a strong focus on a real time payments money movements and on the whole be be side of the equation is gonna be important and then of course we've been talking about the ecosystem between our payments business and our business back in the silicon t to make investment their ah yes i think it's kind of a continuation of many of the
spk_16: the same themes that we've had over the last year are you know we have on a core basis we really don't expect any significant increase in the investment levels by we continue to to our expect that we will maintain those investment levels going forward
spk_0: got it okay thanks a coroner
spk_11: expensive
spk_17: your next question on the line of can use thin with the jeffrey
spk_3: i go morning guys are great and like a couple and i clean up squeeze and so you mention that up ppp was an eighty million decline and which had think was bigger than what you had anticipated previously i had sixty seventy i'm just wondering what is in what kind of ppp declined you still have in that first call
spk_2: porter outlook for and i i flat sequentially
spk_12: yeah so i'm in the decline from thirty fourth quarter was the most significant it was a little bit higher the what we had expected part of that is because out some a while we had expected to occur in twenty twenty two actually kind of got pulled forward in the fourth quarter yeah currently in our our baseline or expectation is that there were
spk_2: will be a very of immaterial decline and ppp going from fort the first it's about it's about fifteen sixteen million dollars so it's pretty insignificant
spk_17: okay added that the last kind of meaningful step down from there is a pretty much wind out from they're just trying to get to like that baseline where we can you know media has to be that the said i the really i we look at twenty twenty two as being passed ppp and all respects oh yes i would agree that the first quarter is probably the last step down the we have an again it's
spk_2: not really significant and it's incorporated and are guidance yeah okay second question the a obviously you did decide to buy securities that affect thirty something billion that yield on the book went down a little bit i just wondering if you can help us understand up the premium and delta and also just you know where you're buying vs runoff from of back pocket this point thanks
spk_3: yeah so i you're right we did step up the investment portfolio allotted has to do with that when i talked about earlier and that the deployment of excess cash
spk_2: you know we we made that deployment in the fourth quarter ah and in a while we didn't treasury's we swap it short and so you know that is why you see net interest margin coming down as well the yields related to the investment portfolio coming down though he also did that because we want maximum flexibility as rates are as long term rates start
spk_12: to rise you know we would expect can unwind that ah yeah the benefit coming through and twenty twenty two so that's that's kind of our position in it
spk_3: in terms of the overall investment powerful vast majority of as shorter term out and went there with the hedging strategies
spk_18: and we just a follow up on to when you say you unwind did you mean that you'd you're at the right size now or you'd rather see ago and the loans were remaining like how do you think about the mix of the balance sheet and earning ass at next year as you look further ahead yeah illegal as we go as we go forward i would expect that our investment portfolio be relative relative
spk_0: lee flat to fourth quarter levels that's kind of our expectations so the vast majority of ernie nasa growth is more on the loan side than it is ah in other areas
spk_19: okay understood thank you
spk_20: lou
spk_21: your next question is on the line of giant pen party with evercore when john morning
spk_2: one just on the good even though some about laboratories on the court on the commercial thought it better of the and the period balances came in a fair amount above average is that a good indicator of remodel out and then definitely anything with you aside from just be you'd macro strengthening to the notable sprint and so on and a you growth this quarter a minutes better than a lot of the year your pure banks any calling efforts are pricey campaign or anything else to call out on that front thanks
spk_21: yeah so here you're right john we did see some priests significant growth in terms of and of period balances i think that that sets us up well with respect to twenty twenty two you know what the things it's a little bit hard you know because you have the of live or transition and everything else happening in our we don't know whether or not your some of that is just people pulling forward live or a little bit i'm into twenty twenty one but you know when we talk to our customers i guess you know that the thing that the that we see is that your the underlying momentum the line centimeters pretty strong know there actively out our building their inventories again it on and all us or thing i think is i you know where we think about kind of our baseline growth and into twenty twenty two why were pretty optimistic ah but you are right the and a period bells growth was a pretty significant for us it wasn't it wasn't because of an eight year one specific thing that we were doing it was pretty broad based across across segments across categories and i you know across geography is god dang theory that couple and then suddenly on the payments but higher level
spk_2: no clearly intensely competitive james backdrop when a typical and of elaborate on us bankrupt value proposition in the cayman clinton and such as we continue to get this this macro
spk_21: reopening or strengthening and at t any spend rebound as you been flag and how would you characterize your positioning in terms of have a proposition for customers that yeah chance however we talked about the fact that we're trying to really we together our banking products together with their pay me products and a comprehensive products that to help businesses business banking customers basically managed the way they're running your cash flows in their business on a day to day basis and i and that's or value proposition is that combination of payments and banking in easy to use dashboard information help them run their businesses and and mash of cash flows on a day to day basis that's consistent with the at the travel bank acquisition that we made in there in the third quarter and other acquisitions bento and and others that we made earlier in the here so that's the objective arm and will continue to the focus on that and i
spk_2: i would highlight the simplicity component that the navigation the simplicity of uses as a real key to that and i go forward basis
spk_4: died and i think than a month up to that he does regarding that strategy the big the open bills
spk_0: wearing it on the fit exile
spk_22: continuing fact that strategy and to get how much yeah i think we are we made a lot of investment our both organic as well as acquisition in this capability we're going to continue to a focus on it is terry mentioned but i think we have most of what we need would just continue to mama a refined the capabilities and simplify the offering
spk_2: gotta think thank the sure your next question is on the line a bill car cathy with all three carats
spk_22: rebel can you do by winning it it's area and one did a follow up and like fixed within your business bank relationship at the last there's a modest increase the number customers that are now though payment customers from last quarter to get frame for us with the revenue benefited is of of seeing that light blue region continued to grow over time time and yet hike and that twenty eight percent go again we we think that we can get down
spk_21: additional movement on both of those charts more banking customers using payment capabilities more banking using payments we talk about the number of customers the revenue in that total bucket is about a billion and a half dollars as we think about the penetration so that's that's the base we're working with
spk_2: understood and and then maybe separately get can you get loot little bit of color and the process where converting some of those business making customers that yo the business becky only customers in that that blue region
spk_22: it also be used as a peanut products just curious what them apart yea it's at a cost any pushback from customers may already be using alternative payment solutions or or as been the customer base been brothers that that
spk_23: yeah i would say that it's early innings a bellamy start are but i think that the fundamental of offering which is a a simple easy to use combination of banking payments products in one simple dashboard to have help them manage your cash flows is are receptive or thought from a from a consumer it from a business standpoint so
spk_3: ah and and that's really what we're focused on again many of the customers have a banking product or payments products but it's weaving together for that offering that we're focused on and and receptivity of that has been pretty strong
spk_2: got it up and then lastly if i could squeeze in a lot on final one hour and the increased and and expenses them to be to competition and employee benefits can you parse out for us how much of that was a function of greater production vs inflationary pressures and you know how much of that upward pressure you'd expect a person yeah it all an egg certainly where we ended up seen for example in the capital markets business it was a stronger saw some of it is related to production and santos ah you know a fair amount of it in the fourth quarter is also related to our performance based and centers that are driven by the overall performance of the company so you know we did we surly didn't see that you know i would say and and maybe and you want to comment as well you know surely there is a lot of competition for talent that out there and i think the pressure is especially when you're looking for and are high skilled areas and technology and development payments
spk_22: our and or digital sort of space ah you know you if you're if you're in the hiring mode a year your pain map top dollar nor to be able to acquire that that
spk_0: yeah that that dove competition for talent certainly it in our increase in and out there
spk_22: i think that's right here in and in sometimes it takes a little longer and sometimes for them more expensive but that's often incorporating the gains that we offer for twenty twenty two and and as a reminder you know we i'm the other area that is
spk_21: and challenging in this environment is is on entry level employees in the brand side and we we get the benefit of are having union bank a combined with us on this year which i think as a positive in as we talked about were committing to a frontline and in the brand side to employment in and in this environment that's a positive very helpful thank you for think my questions injured sure
spk_2: their next question if on the line of david longer with raymond james the morning i rode a david out the leave the last remaining course i have haven't risk related to your wrist or but what if you look back for pandemic
spk_3: i think the as retargeting cost two percent in reserves your your below that now just the that what is the right
spk_2: diesel level of reserves or us bank or pure and and within your current reserves i'm on a qualitative five how much do you have built in for you know maybe olmert runner or the pandemic still it still is part of that yeah david i'm probably the way i would describe the last one is you know is we still certainly believe that there's some level of uncertainty that's out there and the economy and so we take that into consideration when we go through the different scenarios that we kind of model out ah maybe kind of coming back to your first question ah you know what is the
spk_3: i love live in obviously that's gonna end up impact been of based on economic outlook and what happens with respect to credit quality but what i would what i would say and you're right we started up in all the a pre pandemic or at the adoption of he in about two percent when you end up looking at the mix of the portfolio and how it shifted work
spk_2: we're kind of right at ah you know we're right at kind of the level that we had started with i guess is where i would describe it
spk_21: we'll from a reserve and point of you'd kind of i would just kind of keep in mind from in terms of sea salt ah you have to provide for low growth on day one and so you know as as loan portfolio
spk_0: the to grow across the industry i think that that dynamic of reserve release will probably change of bed are going into twenty twenty two
spk_24: and again all that's been kind of taken into consideration were thinking about ah
spk_25: in all our our baseline forecasts for twenty twenty two
spk_14: gotta figure out for shit the color
spk_12: blue
spk_25: your next question on the line of my gmail with wells fargo securities and i'm i am i my my give the question then i'll give a wider not come back but my question is why are you not planning for even higher positive opry leverage and twenty twenty two and as as you know you're going back in time at the activated of nominate but gary run off or dacron author richard davis you said you grow revenues back than expenses great things happen and i've asked this question before last five years you guys that negative opry leverage and during that time the stock price had barely
spk_2: moved as of your and went back to bombers that the market has doubled so i think that come up relationship between the two so it's it's good that you're guiding up for a positive ip leverage and twenty twenty two i think that be the first year and six years and when you to achieve that on a poor bassist by i think you're going for seven to diapers that revenue growth for this year so i guess that implies six to eight percent expense growth which still seems to be lot of bending a get it there's there's wage pressures though it seems to me that just from the benefit of rates you can get positive up and average
spk_3: which means the tech investment aren't paying off to the bottom line made them and all question whether they're paying off your conservative trustworthy bang by our the tech investment paying off that way that we as investors can see those and why don't you have higher pot rotten average guy and thing
spk_2: yeah we'll it let let me start with revenue just because they want to make sure that we're all the same page you know in earlier in the comments we talked about the by the we expect total revenue growth in twenty twenty two to be in the range of three to four percent we think about the components of it make you know the net interest income is probably going to be ah at the higher end or maybe even lot but above their range the fee income is probably going to be growing at the lower and or maybe a little bit below that range and the primary drivers will you think about fee income ah you know we're still gonna see in a rising rate environment mortgage banking revenue coming down and then i don't know and least residual portfolio and of term losses will become an hour and a turn games will be coming down a bit and then shows up and other income so i think that there's a couple things that will mute the growth in fee income ah you know the other thing that we talked about little bit earlier is some changes in terms of our overall a higher overdraft
spk_25: you know bob pricing and as gonna have a bit of a drag in terms of deposit service charges in terms of fee income so your the range of growth again for for twenty twenty two and terms of total revenue is in three to four percent range so maybe that canning level sense as with respect to our
spk_14: guidance her expectations for revenue it on the expenses now have any kind of way in but i know at least at least one hundred basis points a positive opry leverage
spk_12: we know is is kind of what our expectations target as you know that's gonna be balanced in short term and long term ah you know expectations and terms of investment
spk_2: but you know we're we're we're very committed to be able to deliver least that are in twenty twenty two so any what would you add regarding the and but i'm i can just a the comment on your your question overall you we've been focused on making the necessary investments in our digital capabilities and repayments businesses we've talked about that we taught you about the and our jack to this the position ourselves to be successful in this environment in and i think we are we're in a strong position and i think you're going to start see the benefits both revenue growth standpoint as well as an expensive fish and see standpoint particularly as we see the secular turns thirty nine increase our overall so we may those investments eyes wide open very intentional at the same time bouncing some short term expense opportunities on the operating poor be basis so but i think i'll go forward basis you can see positive operating leverage because of those vestments the just a follow up on the technology part
spk_26: you know what we think about your low level of investment that still increasing as increasing at a slower rate and my understanding was your past that more were for foundation dot not revenue areas the now the of that or for reading area so you could just think in terms of the tech investing relative to the pay off
spk_27: where are you in terms of reading those benefit
spk_0: yeah mike we're were in level off so we're not going to continue to see increases in those investments we get see some increases in the past five years but i think we're at a level said oh area right now number one number two we migrated from about forty sixty defense and offense to sixty four do you op eds right now so most of the investments were making our for review journal
spk_28: rating or areas or does your capabilities payments business banking and the other things we've talked about
spk_29: the neil who that i would just add maybe his business is really more kind of looking into twenty twenty three we don't really see a need to increase the amount of investment i even with bringing union bank or into the you as bag full and as because as we talked about in the past most of this is just a lift and from their systems
spk_30: two hours and soul build a leverage all the investment that we've been making and bring a lot of digital capabilities to heal their customer base right thank you
spk_3: thanks mike your next question on the line of did they could you need out with a gp morgan it was like hey don
spk_30: hi andy hi carrie
spk_31: the couple of questions credit cards your over a period was up on the of and seems like one and a half percent link porter
spk_3: you saw a beggar jump and that certainly the fed weekly data any color on what's going on though you know why it was slow for you guys in terms of credit card revenue credit or debit card rev a little credit card no credit card loans paragon long oh yeah you know i i and done what was really been still impact at least for arses are your the payment rate is still relatively high did peak in the third quarter became down just a little bit in the fourth quarter in also so until we start to see that measurably improve ah you know that i think the that's going to end up impacting growth rates of credit card
spk_0: loan balances our expectation though the back is that the other those pay race to start to migrate down nicely as tweet tweet to those are your progress has so i do think that that's gonna be a bit of a tail and for us as we think about longer off
spk_32: and then allow for help or net interest margin and then obviously netted income
spk_33: second question the much and processing the client in fees that you saw
spk_34: quarter over quarter was that all only calmed related and coming in december was there something else going on that too
spk_35: yeah pro third from third or fourth quarter ah that's really amid very very little is really related to look how we did see a little bit of a swell up ah that was kind of late in december
spk_36: really what is happening there is that as sales continue to pick up and travel ah and and dad is in that sector that has to be a little bit of a different rater and so it's more of a mix thing that it as anything else ah the back
spk_37: thank you
spk_38: who
spk_39: your final question is on the line of eric than atari aryan with the u s
spk_2: rooney to erica outlook operating
spk_3: weekly
spk_40: mimi following up on next question
spk_41: am i think that
spk_2: you know much
spk_42: or lesser of that
spk_43: what happened with interchange rate
spk_2: ah yeah me so lemme lemme going to discuss the back when we think about ah kind of seasonality in the payments business overall usually from third from thirty fourth quarter credit and debit card depend upon the amount of investment were making up to her point time is usually have you know for cars a little but better than third quarter but merchant and corporate payments typically your fourth quarter a seasonally lower and that's fundamentally kind of what we saw both in terms of merchant carpet know corporate ends up getting impacted by governments and which tends to be highest in the third quarter in the you get the effect of holidays such an impact in travel on all sorts of things with respect to payments that sort of thing that's why that tells to step down so i think what we ended up seen as a fairly similar to what we would have expected in terms of the seasonality of the businesses
spk_3: and
spk_2: wow there yeah me they again i think that that ends up getting impacted by the mix of the business was travel grows the interchange raids on the margins associate it with up to their business in the merchant acquiring is that narrower spreads so as that is recovering ah you know it's and it ends up impact in the margins and all that
spk_0: and
spk_11: i or that
spk_2: everybody
spk_3: minutes
spk_2: i'd
spk_11: actually
spk_2: yeah so maybe at a high level ah you know typically while we see in the early stages of by rising rates is that your deposit been as don't move a lot in any in any of the yeah different categories but you are right that trust our corporate trust deposits tend to be a lot more sensitive as you get into maybe the second or third rate hike and so you know when we think about maybe that first fifty basis points you know we would expect deposit betas probably be enough fifteen to twenty
spk_11: i range and then progressively getting a little bit stronger as the cycle continues or the and that that kind of how we think about it now i would say that you know when we have looked at the mix of business we have had your of today vs on save up for five years ago in a we have
spk_0: have a strong mix of consumer base and where we have seen a lot of the growth in deposits in twenty twenty one i was actually on the consumer side of the equation
spk_1: as opposed to some of the other businesses and so he the deposit betas my expectations about a be the betas especially in the early stages of probably a little bit lower than what we have experienced in the past
spk_0: friends

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