U.S. Bancorp (USB) Earnings

Management highlights

### Core Financial Performance & Strategic Progress - Delivered strong results aligned with the firm's three strategic priorities, with 400 basis points of positive operating leverage this quarter, improved profitability, and strong credit quality and capital levels - All key profitability metrics (ROA, ROTCE, efficiency ratio, NIM) improved both sequentially and year-over-year, with ROTCE of 18.7%, ROA of 1.26%, and an improved efficiency ratio of 57.1%; tangible book value per common share exceeded $30, up 13% year-over-year - Common equity Tier 1 capital ratio was 10.8% (9.4% including AOCI), with strong earnings supporting capital distributions and loan growth despite the BTIG acquisition M&A & Integration Updates - Completed the acquisition of BTIG to expand U.S. Bancorp's capital markets capabilities; BTIG delivered its strongest monthly revenue in history in its first month as part of the firm, outpacing original expectations - The BTIG acquisition complements the firm's existing fixed income and credit business to create a full-service capital markets offering; management targets growing capital markets to more than 10% of total company revenue over the long term - The acquisition of the Amazon small business credit card portfolio is expected to close in mid-August 2026, with all related costs already embedded in the firm's guidance Consumer & Deposit Growth Strategy - Expanding annual branch investment from $200 million to $300 million annually, focused on densifying presence in 10 high household-formation growth markets within the firm's existing footprint, primarily in the Southwest, Tennessee, and high-growth areas of Utah and Idaho - Targeting reaching at least 8% branch market share to become a top four depositor in focused growth markets, shifting the branch network from small in-store locations to modern, multi-product hubs - Leveraging differentiated digital product offerings (Bank Smartly for consumers, Business Essentials for small businesses) to drive multi-client relationships and low-cost, stable consumer deposit growth Fee Growth Strategy - Accelerating fee revenue growth as a core strategic priority; fees now represent 44% of total revenue, providing more stable earnings and deeper, more durable client relationships - The firm has a diversified four-pillar fee business spanning capital markets, payments, trust and investment management, and consumer fees, with management expecting fee growth to outpace net interest income growth over the long term Credit Quality - Credit quality continues to improve, with the non-performing assets ratio falling 5 basis points sequentially to 0.33% and the net charge-off ratio declining 3 basis points sequentially to 0.53%; the allowance for credit losses held steady at $8 billion (1.94% of total loans)

Guidance

- Full year 2026 total net revenue growth guidance was upgraded to 7-9% year-over-year (5-7% excluding BTIG), up from the prior guidance range of 4-6% - Full year 2026 positive operating leverage is expected to hit 200 basis points overall, and more than 300 basis points excluding BTIG acquisition-related costs - Full year total fee growth is expected to be low-teens year-over-year, with approximately 4 percentage points of that growth coming from BTIG - For Q3 2026, management expects net interest income growth of 4-6% year-over-year (fully taxable equivalent), total fee revenue growth of 12-14% year-over-year, and non-interest expense growth of approximately 8% year-over-year (3.5% core growth excluding BTIG) - BTIG is expected to contribute approximately $200 million of revenue per quarter in the second half of 2026, with ~$60 million of total integration costs spread across the second half - The Amazon small business portfolio purchase will contribute $75-85 million of total quarterly revenue once fully operational, with ~two-thirds of that coming from net interest income and one-third from fees; half of this annual revenue will be recognized in Q3 2026, with full run-rate contribution starting in Q4 - A $160 million reserve build related to the Amazon acquisition will be recognized in Q3 2026 upon closing - Full year net interest income growth is expected to be mid-single digits, and the firm remains on track to reach a 3% net interest margin over time, with the speed of expansion dependent on deposit trends and the shape of the yield curve - Management expects to increase share buybacks and glide to a 70-75% payout ratio as the common equity Tier 1 capital ratio approaches the 10% target

Segment performance

Overall company: Record net revenue of $7.7 billion, up 10.1% year-over-year; EPS of $1.35, up 22% year-over-year; average total assets of $695 billion, up 0.9% linked quarter; average total deposits grew 2.4% year-over-year (flat linked quarter); average loans of $405 billion, up 7.1% year-over-year and 3.0% linked quarter. Fees accounted for 44% of total revenue this quarter, up from prior periods, with total fee revenue growing 13.2% year-over-year (9.9% excluding BTIG). Capital Markets: BTIG, acquired this quarter, contributed $98 million of revenue in its first month of ownership; excluding BTIG, capital markets revenue grew ~31% year-over-year driven by strong client activity in foreign exchange, syndications, and corporate bond underwriting; capital markets currently makes up ~7% of total company revenue. Payments: Total payment services revenue increased 5.7% year-over-year (up from 4.7% growth in the prior year quarter); merchant processing growth slowed during the quarter, but card issuing performed well and corporate payments saw a strong rebound driven by core demand and new business installations; payments makes up ~23% of total company revenue. Consumer Banking & Deposits: U.S. Bancorp serves nearly 13 million consumers via digital and physical distribution, plus 7 million customers via co-brand and partner card platforms; 42% of consumer clients are now multi-service, up 2 percentage points in two years; total consumer deposits reached a new record this quarter, with Bank Smartly checking and savings balances exceeding $84 billion; the new Business Essentials suite for small businesses was recently launched.

Risks & headwinds

- Net interest margin expansion depends on favorable deposit costs and the shape of the yield curve; unexpected rate changes or deposit competition could slow NIM growth - BTIG integration carries near-term integration costs, and contribution margins are expected to improve gradually over time rather than being immediately at peak levels - Merchant processing growth faces near-term headwinds from European macro softness and the loss of non-strategic European distribution partners, which will impact growth for the next three quarters - Sustained loan growth requires corresponding deposit growth to maintain balance sheet funding, and unexpected deposit outflows or higher deposit pricing could pressure margins - Future profitability improvements depend on continued expense discipline and successful delivery of expected revenue synergies from recent acquisitions - Capital markets revenue is dependent on overall market transaction volumes, which can be volatile quarter to quarter (June's record BTIG revenue may not be sustained in the near term)

Analyst Q&A

• Q: Why did management upgrade full-year revenue guidance, and what is the outlook for net interest margin amid rising deposit costs?

  A: Management explained the upgrade reflects stronger than expected first half performance, particularly in fee revenue ex-BTIG. The firm expects full-year net interest income growth to be mid-single digits (north of 5%) and expects NIM to grow over the course of the year, with no material change in competitive deposit dynamics that would alter the trajectory.

• Q: Can you confirm the firm remains on track for positive operating leverage, and what is the expected full-year contribution from BTIG?

  A: Management reaffirmed its commitment to positive operating leverage. BTIG is expected to contribute $200 million per quarter in the second half of 2026, with a 15% core contribution margin that is expected to improve over time; $60 million in total integration costs are embedded in guidance, and these near-term costs do not change the core operating leverage target of 300+ basis points ex-BTIG.

• Q: What is the long-term target for fee revenue as a percentage of total revenue, and how will you grow capital markets to the 10% revenue target?

  A: Management aspires to grow fee revenue to the high 40% range of total revenue, which supports more stable earnings and deeper client relationships that drive higher quality deposits. The 10% capital markets revenue target will be achieved organically via cross-selling BTIG's capabilities to existing U.S. Bancorp clients, no additional large acquisitions are expected to reach this goal.

• Q: What is the strategic opportunity from the Amazon small business credit card acquisition beyond the existing balance?

  A: The deal is strategically attractive beyond its current economics, as it provides a platform to expand the firm's partner banking model into small business, similar to the firm's successful consumer partnership model with State Farm and Edward Jones. Management expects to leverage the relationship to cross-sell additional banking products (including checking and business banking services) to Amazon's small business ecosystem over time.