U.S. Bancorp (USB) CEO Andy Cecere Presents at Goldman Sachs US Financial Services Conference (Transcript)

About: U.S. Bancorp (USB)
by: SA Transcripts

U.S. Bancorp (NYSE:USB) Goldman Sachs US Financial Services Conference December 4, 2018 8:50 AM ET


Andy Cecere - Chairman, President and Chief Executive Officer

Terry Dolan - Vice Chairman and Chief Financial Officer


Richard Ramsden - Goldman Sachs

Richard Ramsden

So I would like to welcome, Chairman and CEO of Andy Cecere and CFO Terry Dolan from U.S. Bancorp. USB needs little introduction given its very consistent performance over many years.

Andy joined the firm I think 33 years ago and over that period of time the return on equity is averaged well over 600 basis points above the industry average. Andy and Terry are going to give a brief presentation and then they are going to join me for a fireside chat. So guys thank you for coming.

Andy Cecere

Thank you, Richard and good morning everyone. Thank you for joining us this morning. Terry and I maybe referring to some forward-looking statements with risk highlighted on Page 2.

Let me start with a brief overview of the Company, I know a lot of you know U.S. Bancorp, but just as a reminder, we have just over $465 billion in assets, just over $86 billion of market cap, we are the fifth largest bank in the country and we think of ourselves across three dynamics.

First you can see on the left in the red our retail, our consumer bank presence. We are in 25 states from the Midwest to the West that is where you will see our branches and our ATMs. We also have some wealth management offices up and down the East Coast.

We are however a national bank as you think about corporate and commercial banking and investment services, we are offices across the country serving customers across the country. And finally from an international perspective, our largest business is [Merchant process] principally in Europe, we are at number five merchant acquirer in Europe and we also have a investment services capability in Europe with an acquisition that we did a few years ago.

And actually we are the fifth largest bank in the country, likely we are the largest non G set in the United States which gives us advantages from a capital and liquidity standpoint and you can also see from this chart that we are more valuable than we are big, you can see from on the left we are about one fourth of the size the bank above us but from a valuation prospective more than half.

And that is due to a couple of reasons. First and foremost, our business mix, if you go to next page, you will see that we have four pretty simple businesses, these have been the same business as we have had for decades consumer and retail banking being the largest one about 40% of commercial and corporate banking serving large corporate customers across United States. As I mentioned.

If you look at the right side of the chart, there I think you will see some unique characteristics, payment is a big business for us, [Alban] (ph) is one of those businesses. We also have retail card as well as corporate payment systems, it represents just under 30% of our pie, its great set of businesses because is not only capital efficient, but very high fee generating businesses.

And then on lower right you will see a Wealth Management and Investment Services, which includes another unique business corporate trust. We are a dominant players in United States another business that is strong in terms of gathering deposits, capital efficient and high returns.

Speaking of returns, which is the other factor driving evaluation. This is the third quarter of 2018, you can see from this chart as the compare ourselves to our peer group, which is essentially the top 10 banks in the country. We are number one in ROE, ROA and efficiency ratio. I will show you the third quarter of 2018 but slide - those facts would be the same for the last 10 years. We continue to lead the group because of that business mix and because of our strategies.

And let me simplify our strategies to four simple pillars. First, on the upper left, most trusted choice, the number one reason, an individual a small business to a large cooperation chooses the bank its trust and trust is a function of doing it the right way, making decisions for the benefit of the customers, protecting their data and those are things that we are very strong at and we will continue to be focused on in terms of retaining that lead against the peer group.

But overall the lower last you will One U.S bank, one of the unusual aspects of banks for those of you are not in the banking industry is we are typically the combination of acquisitions and those acquisitions, focus our business lines. So we built processes and products and services and capabilities and technologies, business line-by-business line.

And one of the objectives our management team has is to break down those sales and really think about all the things we can do from the perspective of the customer at the center of what we do and really surrounding our capabilities around those customers. So we are really focused on customer centric as across the business line centric.

If you go further the right you will see Simplicity. I think we have a great opportunity to make it easier to do business with us from a customer perspective as well as making it easier for employees to work at the bank and we have a number of initiatives to simplify processes, technology, customer service initiatives across the bank.

And then finally upper right the future is now. Richard mentioned I have been at the bank for 33 and I say this a lot to our team, I would maintain that more has changed and is changing in the banking industry in the last two years than the 31 years before. And a lot of that change is a function of technology and innovation.

U.S. Bank as we think about technology and innovation, we think about it across to dynamics both offensively as well as defensively. I think we have a great opportunity to really leverage technology innovation to serve our customers better, to grow market share, to offer products and services in a different way, in a different components and to serve them in a way that they want to be served.

I think we also have an opportunity to improve our processes and efficiencies using technology across the bank and we are focused on both of those items and if we think about the key components of technology its digital, B2B and servicing customers in terms of payment.

Let me talk about the areas of focus. We are really trying to do three things from a technology standpoint: number one is improving the customer experience. I talked about trying to serve customers when and where they want to be served in the manner they want to be served technology, digital first offers us a great opportunity to achieve that objective.

Expanding our reach. This is the opportunity to expand beyond our geographic footprint with the digital first strategy and I will talk a little bit about that in terms of our brand strategy and finally driving optimization. Lot of times we talk about technology from a perspective of opportunities from a revenue standpoint, but I think it offers as much opportunity from an expense standpoint.

So first let me talk a little bit about what we have done and then what were focused on in the future. First of all, what we have done from a digital standpoint. We have 14 digital agile studios that are currently in place focusing on our development processes.

Now a typical way development occurred at banks was very linear in nature and very long in terms of timeframe and we have changed that completely. We have now everyone across around the table. The business line, the operations group, the technology group, the risk and compliance group and importantly the customer.

So as we develop products and services, we are doing it all together, which really rapidly decreases the timeframe and offers a product and services as much more aligned to what the customer wants.

Two examples of that, in the left hand side is our mortgage application, we have partnered with a FinTech company to develop a mortgage app, which is currently used by 71% of the applications that are coming through the bank.

It's digital, much less paper, is faster, it improves the customer experience and importantly, it makes a better experience for the Mortgage Bankers, which it really can focus on the value added component of the relationship as opposed to the monotonous paper gathering, as you know in the mortgage process.

The second thing is our small business application, this is one now that we developed completely in-house in one of those agile studios I talked about. We have shorten the number of applications fields from 122 to less than 35, we have shorten the approval timeframe from 11 days to same day, often in an hour, which greatly improves the throughput opportunity as well as the customer experience. So this was some examples of where we use those studios to develop products and services to improve the customer experience.

As we think about the future, we have a couple of key initiatives. Number one is, as we think about branch delivery, we are talking about it from a consumer delivery from a digital-first standpoint.

Second is we are redeveloping our mobile app, you will see a new app in the first quarter of 2019, much improved opportunities from a sales and service perspective across the board and we are doing that again through that Digital Studio that I talked about.

And then finally, across every business planning of the company consumer, I talked about the app, commercial banking or treasury management capabilities, payments, CPS, wealth management, our digital capabilities in terms of investment management, these are going on across the entire company and you will see continued improvements around the ones that I talked about and additional opportunities going forward.

Here is the other big change in banking. Money movement. So as you think about banking traditionally has been loan and deposit taking. The entire migration of where people are starting to interact with the financial institutions migrating to money movement and payments and we particularly have a strength in this.

In our payments group, all of our merchant processing is going from a digital - from a financial transaction to an information transaction, and we are going to being part of the transaction to be integrated in the way people run their business. So you see our EPS acquisitions, a great example that going vertically and capabilities around municipalities and golf courses, integrating in the way that they do business.

Points is an example where we integrate into their accounts payable system and their payroll system to really become part of the way they run a business as opposed to an external transaction. So you are going to see more of that occurring across the board and B2C, this is where we are looking for payments on it and really leveraging the Zell capabilities that we already have.

So payments across the board, on the right side, you are going to see continued expansion of the use of data, integration and vertical capabilities in our payments businesses across the board. So as we step back and look at this, we are really trying to improve our digital capabilities not just to improve our digital capabilities, but to increase and improve the customer experience to create efficiencies within the baking group of across the board and driving optimization.

We really change the entire way we are doing things with the company, I'm very proud of what we have done and I think we have a great opportunity to the future as we continue to leverage the capabilities we have built.

I'm going to now ask Terry to talk a little bit about both our long-term objectives from a financial standpoint as well as given an update on the fourth quarter. Terry.

Terry Dolan

Thank you, Andy. So a couple of months ago, we ended up updating our guidance with respect to our profitability and I just kind of wanted to remind people in terms of what those changes were.

We ended up increasing because of Tax Reform, our return on equity targets from 13.5% to 16.5%, to14.5% to 17.5%, so we ended up bringing both into that range up about a percentage point and next year when we get to our Investor Day in September we may update it again, but for now that is kind of where our long-term profitability targets are.

With respect to the fourth quarter in terms of guidance, we really don't see any change relative to the guidance that we gave at the end of the third quarter as part of our earnings call. But just as a reminder, net interest income, we expect to increase in low single digits. Non-interest income or fee-based income low to mid single-digit growth in the fourth quarter on a year-over-year basis.

We do expect to be able to achieve positive operating leverage for the full-year, as well as the fourth quarter, full-year 2018. And our credit quality will continue to be stable. One thing that I would just kind of add with respect to positive operating leverage, most recently the FDIC changed its position with respect to the surcharge in other words it ended it. For us the impact is about $40 million on a quarterly basis and in the fourth quarter we expect about half of that to drop to the bottom line.

The other half we decided to accelerate some of things that Andy talked about accelerating the implementation related to our mobile banking apps as well as some work that we are doing around physical asset optimization in the agile studio. So again, about half of that will drop to the bottom line.

And then when we think about 2019 in terms of positive operating leverage, we have given guidance that we expect to see positive operating leverage of about 1% to 1.5%. We continue to follow that guidance.

The surcharge as we think about it and you think about kind of the revenue sort of environment, it provides us with a little bit more flexibility to be able to manage through a number of different environments and also for us to think about both short-term and long-term investment that we might want to make. So again, for 2019 stays at that 1% to 1.5% positive operating leverage.

Question-and-Answer Session

Q - Richard Ramsden

So perhaps Andy, just start off with how you think the economic picture changes as we head into 2019, so I guess the back drop this year is that we had obviously very healthy consumer, it looks like we are going to get full rate hikes. What is your base case for the operating environment next year and how do you think it’s kind of different from what we saw in last 12 months.

Andy Cecere

Thanks Richard. From a perspective of what we are looking at and what we are seeing is more of what we continue to see this year, which is strong consumer confidence, high-strength in the consumer standpoint, we are seeing that both from the merchant acquiring as well as the retail card issuing.

Business confidence is very high, activity is high, we have a corporate payments group that we are seeing double-digit spend in terms of both [indiscernible] as well as payables in our corporate payments group and just generally high activity and confidence, so it’s a positive outlook.

The only negative that this year was occurring was the implications to loan growth and that part of that could be attributable to the tax change that occurred, the repatriation of dollars, taking advantage of lower yield curve with issuance. But as we talked about in the third quarter call, we are seeing some acceleration of that, we are seeing reduced pay downs.

So generally speaking, we are seeing a very strong high confidence, high activity economic outlook and we continue to expect that into 2019.

Richard Ramsden

Okay. So you talked about the 100 to 150 basis points of operating leverage. Can you talk through some of the moving pieces that get you comfortable with that as we head into 2019? And can you talk a little bit about your ability to continue to meet that target if the revenue environment for whatever reasons has to weaken in the second half of next year?

Terry Dolan

So, Richard, like I said, with the surcharge, we certainly have some flexibility in a rate environment that may cause some revenue pressure, we will have to kind of wait and see how that plays out. But we have been able to kind of look at a number of different things I think as we move into more of a digital sort of world, we see efficiencies, business automation, efficiencies with respect to the back office, we have been pretty active with respect of physical asset optimization and we will continue to be that in 2019. So it's just a number of different things that we are focused on that will enable us to be able to get some efficiencies on the expense side.

Andy Cecere

Actually we have also seen the reduction of some of the headwinds and we saw this year with our mortgage business and refinancing activity as the penny not starting to normalize, our payments business, we had a couple of headwinds in all of our merchant processing and exiting joint ventures. We got past that as you saw in the third quarter and we are expecting the fourth quarter back to that that mid single-digit growth versus flattish. So a lot of positives occurring as we look today going forward.

Richard Ramsden

So at the last Investor Day you talked about 6% to 8% longer term revenue growth. I think since the Investor Day you are revenue growth I think has been closer to four, I appreciate you are going to update this in the next Investor Day, but I mean conceptually do you still think that 6% to 8% is the right range and what do you think it would take you through closer to that?

Andy Cecere

Yes, so one of the reasons we haven't achieved the six to eight is because some of those headwinds I talked about mortgage and payments were past those and the other single biggest factor is, if we just step back and look at 2018 verses our expectations from loan growth. And as I talked about, I think we expect loan growth has accelerated and we can continue to expect it to go forward. Our pipelines are strong, so under the expectation that loan growth gets more to normalized levels. I think we have that opportunity.

Richard Ramsden

So we saw an acceleration of non-interest bearing deposit outflows in the third quarter, not just for you, but across the industry. Can you talk a little bit about how deposit competition, deposit flows have trended in the fourth quarter? And is there anything in that data that is changing the way that you think about your asset sensitivity?

Terry Dolan

Yes. If you just kind of sit back and you look at third quarter trends and kind of what we expect for fourth quarter. On a year-over-year basis, I think we were down about 6% all of that was really related to one customer that had been acquired about 18 months ago by financial institutions.

So we knew those deposits were going to migrate off over a period of time. That is also true with respect to linked quarter growth. So we end up looking at the fourth quarter, we actually expect linked quarter growth in the fourth quarter in terms of deposits, although the year-over-year will still be negative because of that one customer that I just talked about.

Certainly competition with respect to deposits is getting more heated than it has in the past, and I think if loan growth does start to take off, which is kind of our expectation I think that that expectation of more competition will continue.

That translates into a little bit higher beta, but from our perspective, kind of relative to the rest of the industry, we have a pretty high mix of trust deposits and corporate deposits. Most of those are kind of at the terminal data level already. So I think the real issue is going to be more on the retail side and what sort of competition we see for our deposits on that.

Richard Ramsden

What are you seeing on the retail side specifically in the fourth quarter? Is that obviously a large number of digital offerings that are offering in quite attractive rates. Is that impacting how you are thinking about pricing on the retail side?

Terry Dolan

Yes. From a digital prospective certainly that is starting to become more and more kind of component of it, I don’t think I could say a major driver yet, certainly on the retail side we are starting to see this really with the June rate hike, we are starting to see the deposit data is getting a little bit stronger with respect to retail and we would expect that going into the fourth quarter and into 2019 as well.

Richard Ramsden

So you still got a lot of cash on the balance sheet, I think it’s about $20 billion, as we get further through the rate cycle how you think about the competition but also duration of the securities portfolio. And I guess as a follow-up, the Fed recently came up with a proposal that would change the LCR calculations, they would obviously remove AOCI from capital calculations. I appreciate it's just a proposal, but how would that impact the way that you think about the composition of your balance sheet.

Terry Dolan

Let’s take the LCR, I think number one it’s a very positive thing and something like that continues to move forward would be an opportunity for us to be able to kind of reposition things with respect to our investment security portfolio.

I think what we would look to be able to do is either to use that for funding loan growth as it runs off or there we have a fairly high level of - level one sort of securities and we would expect that we would have the opportunity to reinvest that in terms of level two, so we get some sort of yield benefit or opportunity with that.

I don't see us necessarily moving too much further out with respect to duration and we certainly wouldn’t change our credit risk profile with respect to the investment portfolio. So a lot of those continue to be governed back securities.

Richard Ramsden

With the exclusion of AOCI change the way that you think about your steady-state capital ratios.

Andy Cecere

Likely not Richard. We talked about having a CET one ratio of 9% or just above that. I think that is appropriate level for our company. We are in a good start, we think about our distribution being 60 to 80, 20 to 40 on dividends 20 to 40 on buybacks, we are in the low 30s on dividends, we are at the higher range on buybacks.

So I don't think we changed any of that, our capital distribution and our business mix is working well. The only adjustments tweak I would talk about is perhaps raising the dividend component to be more equally weighted with the buyback opponent which is something we would like to do.

Richard Ramsden

Okay. So perhaps you can talk a bit about the consent order, is there an update you can give us in terms of when you expect it would be listed and I guess that the key question is when it is ultimately listed, is there any submit you are going to do differently in terms of how you are thinking about running the back strategically.

Andy Cecere

Right. So as we mentioned, we completed our activity at the beginning of 2018, we completed a review process at June 30th, everything is on schedule, it now sits with the regulators and we are optimistic that we will hear about their ruling on that shortly. So we are in a good spot in the consent order.

When that does get lifted, I think the opportunity for us is in terms of branch optimization, Terry talked about that, we have been a little bit hand cuffed in terms of where we can open and/or therefore close branches and I think we have an opportunity to more optimize our structure across our footprint that I talked about.

But less likely in terms of a large deal that we haven’t been able to do or anything like that, I think it’s just more of the way we optimize, the way we have to optimize the branch system will allow us more flexibility.

Richard Ramsden

So you talked a little bit about loan growth. Could you talk a little bit more about loan growth in the context of the composition that you are seeing from the non-bank sector especially from C&I and on this CRE side. Do you think it’s a level of playing field. What do you think changes that and a number regulators have actually talked about systemic risks building as a result of non-bank competition, how do you view it from your perspective?

Andy Cecere

Go ahead Terry.

Terry Dolan

Yes. With respect to non-bank competition, we certainly are seeing more of that in the sectors that you end up talking about also in the small business where you have a lot of the unsecured. And that is not a typical when you get to this point in the credit cycle.

I think there is just always a lot of people that come in from a competitive standpoint and where the kind of rubber meets the road is, when you start to see the end of the cycle and credit risk starts to become more prominent.

And we have always managed our portfolio very prudently from a credit standpoint and we are not going to really change that. The commercial real estate, we ended up seeing, probably more so earlier in the year when people were taking advantage of the yield curve and the capital markets at that particular point in time. But I would expect it’s going to continue until we start to see the turn of the cycle.

Andy Cecere

And probably the biggest impact for us has been on CRE throughout 2018. We talked about the fact we had a lot of pay down, some of those pay down were a result of non-bank activity and that has slowed a bit as we go into the fourth quarter.

Richard Ramsden

Okay. So you talked about building the national deposit gathering platform around the exposures that you have got in your mortgage business, in your term business? How far along are you in terms of building that out? What are your aspirations ultimately in that business? And how do you see the competitive landscape unfold, because a number bank announced something Similar? How do you think the economics of that are going to translate just given the pickup in competition?

Andy Cecere

Right. So Richard, which we have tried and continue to try a number of different things. So one of the things we tried was to enter a new market where we don't have a presence with a digital only strategy. And what we found is that that was not optimal and that we either got a negative selection in terms of the customer base or we would have to pay up very much for deposits.

We are shifting out a little bit to focus on current customers outside of our 25 banks, our state footprint where customers already either have a U.S. bank credit card, a mortgage or an auto loan in their pocket, because we have millions of customers across the United States, because those are national business for us.

And our objective is to go into these new cities, cities like Charlotte, Dallas, perhaps cities on the East Coast to expand with a branch like footprint, so less than what would be typical in terms of newer branches for the digital first strategy, leveraging that current customer base and you will see more about that in the short-term but that is where we are focused.

Richard Ramsden

Okay. And then I guess, linked to that. Last year, you announced that you are going to increase the tax budget by $200 million to $300 million. What is the trajectory for tax spending from here? Do you think it will continue to grow at that type of rate? How do you calibrate the tax budget? How do you answer the question about your ability to compete with banks that are spending multiple - and What is your ability to from that, I guess, with changes to other forms of this [indiscernible]?

Terry Dolan

Yes. So, our tech budget is really kind of broken down, but half of it - it's about $2.5 billion. But half of that is OpEx, about half of it is capital expenditure that we end up making. We end up looking at a lot of different initiatives and projects across the organization and that gives us good insight with respect to what we think the level of spend that has to be.

Over the course the last five or six years has been probably more focused on defense and offense. So I think about AML and BSA and some of the investments we have had to make there and as we think about today and kind of going into the future, we are starting to see that shift and today its about 50/50 in terms offense and defense and we hope it gets to more like a 60/40.

But we feel pretty comfortable about the level of expenditures at this particular point in time. So we don't see that necessarily growing at the same step level probably more or so just in-line with growth for the company.

Andy Cecere

The other part of that Richard is our business, actually I talked about it being a pretty simple business mix. It's also principally domestic. So as you think about our investments spend, we can really focus it on the businesses we have and I think we have sufficient capital to allow us to be very competitive going forward. We have already seen the development that has occurred, that has been very successful because of that focus.

Richard Ramsden

So there is a lot of focus on digitization on the consumer side of the business. Can you talk about the opportunity for digitization on the commercial side of the business.

Andy Cecere

Yes. So I mentioned that a little bit in the presentation. One of the biggest changes occurring in many decades is real-time real team built by the clearinghouse in the banks and that is going to change the dynamic around a lot of activity and interactions on B2B transaction. So over 50% of B2B are done by check or paper-based.

So if you think about treasury management migrating to some of the corporate payments activity we talked about, we have a number of initiatives and use cases we are actually working on right now to take advantage management and/or allow for our customers to take advantage of that migration which I think will take place over the next couple of years.

Terry Dolan

That is a big market, Andy said about 50% of its paper-based, it represents about $12 trillion of opportunities that exist and I do think because we have our corporate payments business and virtual pay and a lot of different products that already exist out there, it gives us a little bit of the differentiation or an opportunity to be able to take advantage of that.

Andy Cecere

Virtual pay is a great example as Terry mentioned. So we have developed a product about two years ago, we have seen 15% to 20% growth in that product really migrating from paper to the virtual pay component within corporate payments.

Richard Ramsden

Okay. So let’s talk about our credit costs I mean that being running for the normalized for a long period of time. I guess two questions, the first is, are there any portfolios that you are watching more closely today than perhaps six to 12 months ago, we have seen a few I guess the negative surprises in commercial real estate from your smaller peers? And then secondly, what type of economic environment does it take for you to get back to normalized. So for example, is a 200 basis point pickup in the employment rate do you think enough to drive you back to close to normalize losses or would it take more than that given the changes in the composition of the portfolio.

Andy Cecere

I will start on what we are seeing today and then Terry can maybe comment on the economics area. So what we are seeing is pretty good just to keep it simple. So the businesses that we are in we are not seeing a lot of credit pressures right now, as you know we are running under 50 basis points of charge-off, which is about half of what we think is our normal through the cycle level.

The areas of pressure are in things that we are not in, subprime auto and subprime card we are not in those business. CRE has been a little bit aggressive in terms of underwriting characteristics were the function of some banks as well as in our banks, we talked about that, but that is why one of the reasons we have not been growing that as much, because we have been retaining our discipline in really doing business with long-term customers.

So from a prospective looking over the horizon here I would expect more of the same given those characteristics of our balance sheet.

Terry Dolan

And we have been very careful to make sure that we are not expanding our credit box even during these very good times from a credit standpoint and so we have been pretty disciplined and prudent with respect to from an underwriter standpoint. In fact, I would say in this particular cycle, mortgage underwriting is probably even much stronger than it was back before the other cycles.

So from a credit profile standpoint, I think that we feel pretty good about it. Our through the cycle sort of charge off rate we estimate is about 95 basis points, I think if we ended up going into a mild recession of course you never know exactly, recession is different but if we ended up going into a mild recession, we would start to move up from 50 basis points, but probably in the magnitude still below that 95, but probably in the magnitude of 25 to 30 basis points.

Andy Cecere

We have a few minutes left and if there is any questions from you audience.

Richard Ramsden

You talked about your competitive situation, you have some larger competitors who are spending considerably more than you are spending on technology. How you thank that does a design factor…

Andy Cecere

Yes, so Terry mentioned, we are spending about $2.5 billion in technology, about half on CapEx, half on operating and we really feel we have more than sufficient amounts of capital to spend in the competitive. And part of the reason for that is our simple business model. If you think about the businesses we are in, we don't have a lot of requirements for trading businesses or activities outside of the United States. So we can really focus on what we are doing.

I have to tell you, it's easy from a digital and a technology innovation standpoint to spend a lot of money if you choose to and sometimes you are spending that money against initiatives that don't come out in terms of successful outcomes. I think the focus and discipline that we have in the processes have in place allows to compete very effectively. So I’m not worried about $2.5 billion being not enough.

Terry Dolan

You have talked about, the fact that U.S. bank, anytime we go through an acquisition or an integration the past, historically, we have been very aggressive in terms of making sure that we integrate those systems, so we run on one loan system on the commercial side, one deposit system, one corporate trust system, one merchant acquiring system, internationally, across the entire globe.

And that gives us a couple of different advantages. One is, the complexity that Andy talks about, and so when you think about the amount that we have to spend in order to digitize those types of things and plug into those core systems. It is less expensive and more efficient for us to be able to do that.

But also, very importantly, it gives us a differential sort of advantage, because if you think about the whole move to digital, it's not just [Wiz bank] (ph) bank sort of mortgage or excuse me, the mobile app that you have in front of you, that is important. But it's the entire experience in terms of how that interfaces across the entire One U.S. Bank and our simple platform enables us to be able to do that in a much more effective way. So I think there was couple.

Andy Cecere

That is a great point, the small business application process is a great example. The front end was a component of it, and having a process that a customer could use and reducing the number of fields. But even more important was all the activity that goes on in the back end of the approval process, the loading process activity around the paper that goes from the front to the back. So the whole process behind the application is as important as the application itself.

Richard Ramsden

Do we have any other questions from the audience? Perhaps as a following. Maybe you talked about your interest in acquisitions and payments and trust in fund services? What is the type of skill set that you would look to acquire in an acquisition of that type and perhaps you can just remind us of you return hurdles for any acquisitions that you take?

Andy Cecere

Right, I will talk about the focus and Terry you can talk about return. So, you know I think the EPS acquisition that we talked about payments is a great example. So payments is migrating from financial transaction information, it's migrating to being a sort of component up to being very integrated into the business process.

So we would focus on opportunities that would allow us more vertical integration and more integration to the business process for payables to payrolls, or inventory management. And that is where our focus is, that is what we did on EPS and you will see us continue that.

On the corporate trust side, it's portfolios, I think we have done a lot, we have done a lot over 22 United States. We have an opportunity to do that in Europe, which I think is that place to U.S. was maybe two decades you go in terms of consolidation. Those would be two areas of focus.

Terry Dolan

Yes. Certainly in terms of returns or from a financial perspective, we expect it to be a creative to our return on equity within a reasonable period of time and from our perspective, we look at that time spheres for the timeframe in terms of it being able to be creative. So that gives you some sense in terms of what we end up. Again, we are pretty disciplined about the financial aspect of that.

Richard Ramsden

Okay, great. With that we are out of time. So Terry and Andy thank you very much.

Andy Cecere

Thank you.

Terry Dolan

Thank you.