U.S. Bancorp Q2 FY2025 earnings call

• Earnings per share were $1.11 on net income of $1.8 billion; adjusted EPS grew ~13% year-over-year. • Total fee revenue grew 4.6% year-over-year with broad-based strength across businesses. • Delivered 250 basis points of year-over-year positive operating leverage, fourth consecutive quarter of revenue growth outpacing expense growth. • Efficiency ratio improved to high-50s, return on tangible common equity was 18%, return on average assets was 1.08%. • Fee income now ~42% of total net revenue; successful 7 consecutive quarters of stable adjusted expenses; self-funding investments in franchise. • Strategically grew C&I and credit card loan portfolios, divested ~$6 billion in mortgage and auto loans to reposition balance sheet.

In the second quarter, fee income represents approximately 42% of total net revenue. Core growth across diversified fee income businesses and continued expense discipline offset lighter spread income. Total fee revenue grew 4.6% year-over-year. C&I and credit card average loan portfolios grew 7.1% and 4.4% year-over-year respectively. Asset quality trends and credit metrics remained stable, capital levels were well above regulatory minimums.

• Third quarter 2025 NII expected to be in range of $4.1 billion to $4.2 billion; total fee revenue expected ~$3 billion; total noninterest expense expected $4.2 billion or lower; expect positive operating leverage of 200 basis points or more. • Full year 2025 total net revenue growth expected at lower end of 3%-5% range, assuming 2 rate cuts in 2025; expect positive operating leverage of 200 basis points or more on adjusted basis.

• Interest rate environment could impact net interest income; deposit pricing pressures and rotation into higher rate products could affect margin. • Competitive deposit environment and potential for unexpected changes in market conditions could impact funding costs and net interest income. • Regulatory changes or other external factors could affect business operations and financial performance.

Q: John, discuss NII dynamics and margin outlook.

A: Part of Q2 margin decline was transitory; expect sequential net interest income growth in 3Q and beyond due to strategic actions like loan sales, deposit mix remix, and C&I/credit card growth. • Q: On expense flex and investment concerns.

A: Expenses come from real estate, operational efficiencies, technology, etc.; investments in key areas like payments are self-funded and not preventing necessary investments. • Q: On C&I growth and deposit funding.

A: C&I growth strong, driven by various segments; focus on consumer deposit mix improvement (e.g., Bank Smartly product) to help NIM trajectory. • Q: On balance sheet RWA and ALM.

A: RWA increase due to credit risk transfer roll-off and commercial loan growth; ALM processes manage interest rate risk, with actions taken to position balance sheet for NII and strategic objectives. • Q: On stable coins impact.

A: U.S. Bancorp is ready to participate in stable coin industry but doesn't anticipate immediate revenue impact to businesses. • Q: On third quarter NII outlook and wholesale deposit costs.

A: Short-term borrowings used for security purchases will revert, long-term debt managed for balance; deposit beta and mix expected to improve with rate cuts and strategic deposit management. • Q: On credit outlook.

A: Credit environment stable to improving; net charge-off ratio expected to remain stable or improve, with card charge-offs lower in 2025 than 2024.