US BANCORP \DE\ Q1 FY2025 earnings call

Key Points

• Acknowledged the loss of Terry Dolan, former Chief Administration Officer.
• Achieved year-over-year positive operating leverage of 270 basis points on an adjusted basis, with expenses disciplined for six consecutive quarters.
• Focus areas: Tight expense management, driving organic growth, and transforming the payments business.
• Expense management program is well underway, with investment spend shifting to growth-oriented areas and productivity driven through operations.
• Diversified fee-generating businesses, with core strengths in trust, investment management, and capital markets; headwinds from consumer fees and ATM cash provisioning sale are dissipating.
• Payments business has $42 billion in average loan balances, with target to align growth with market; merchant acquiring business in transformation focusing on five verticals (retail, services, travel, entertainment, health care).

In the first quarter, U.S. Bancorp reported earnings per share of $1.03 and a return on tangible common equity of 17.5%. Fee income constitutes 41% of total net revenue. Total average deposits were $507 billion, a 1.1% decrease from the previous quarter, in line with seasonal patterns. Average loans totaled $379 billion, a modest 0.9% increase linked quarter, driven by commercial lending. Net interest income was $4.12 billion, and non-interest income was $2.8 billion, up 5.0% year-over-year.

Second-Quarter 2025

• Net interest income expected in the range of $4.1 billion to $4.2 billion.
• Total non-interest income and expense expected to be $4.2 billion or lower, with positive operating leverage of 200 basis points or more.

Full-Year 2025

• Total net revenue growth estimated 3% to 5% adjusted compared to 2024.
• Positive operating leverage of greater than 200 basis points expected for the full year.

• Intense market and economic volatility.
• Uncertainties surrounding tariffs and macroeconomic conditions impacting credit quality and capital levels.

Q: Gerard Cassidy asked about the ideal interest rate environment and capital levels for share buybacks.

A: John Stern stated a neutral interest rate risk position on the balance sheet is desired, with a target CET1 ratio of 10% on a category two basis for share buyback alignment.

Q: Scott Siefers inquired about the balance between net interest income (NII) and fees.

A: John Stern mentioned mid-single-digit fee growth expectation and NII projections based on fixed asset repricing and loan book mix.

Q: Mike Mayo asked about differences from previous leadership.

A: Gunjan Kedia highlighted focus on expense discipline, organic growth, and execution urgency to restore investor confidence.

Q: Betsy Graseck sought clarification on payments market definition.

A: Gunjan Kedia defined the market as U.S.-focused, targeting a specific credit box with profitable margins in middle to high segments.

Q: Erika Najarian questioned balance sheet optimization for net interest margin.

A: John Stern discussed mechanical repricing of fixed-rate assets, loan growth, and funding mix as drivers for margin expansion.

Q: Bill Carcache asked about operating leverage exceeding 300 basis points.

A: John Stern noted operating leverage depends on revenue growth initiatives and expense program flexibility based on revenue environment.