U.S. Bancorp Q3 FY2025 earnings call

• Strategic priorities: Generating organic growth through interconnected solutions, maintaining expense discipline via process automation, and executing on payments transformation.
• Financial performance: Record net revenue, 18.4% y/y EPS growth, 530 basis points of positive operating leverage.
• Fee income: Broad-based strength across payments, institutional, and consumer; Impact Finance showing growth with tax benefits.
• Balance sheet: Total average deposits $512 billion, average loans $379 billion, investment portfolio $171 billion with average yield 3.26%.
• Credit quality: Non-performing assets ratio 0.43%, net charge-off ratio 0.56%, both improved sequentially and year over year.

In the third quarter, U.S. Bancorp reported earnings per share of $1.22, an 18.4% year-over-year increase. Net revenue was $7.3 billion, a quarterly record. Fee income grew 9.5% year-over-year, with broad-based strength across payments, institutional, and consumer businesses. Impact Finance, bolstered by the Union Bank acquisition, grew at a 17% CAGR from 2021 to 2024 and represented approximately two-thirds of total fee revenue this quarter. The deposit base is highly diversified, with consumer deposits now over 52% of total average deposits. Average loans totaled $379 billion, with commercial and credit card loans up 9.5% and 4.3% year over year respectively. The net interest margin was 2.75%, and return on average assets was 1.17%.

• Fourth quarter: Net interest income expected stable to Q3 level, total fee revenue ~$3 billion, non-interest expense in line, positive operating leverage over 200 basis points.
• Medium-term: Expect net interest margin expansion towards 3% by 2027, driven by fixed asset repricing, mix, and deposit pricing.
• 2026: Planning underway, expecting positive operating leverage with fee growth and prudent expense management.

• Macro uncertainties affecting credit quality.
• Seasonal dynamics in credit card yields.
• Impact of regulatory changes and market shifts on stablecoin and other payment-related areas.
• Dependence on macroeconomic factors for net interest margin expansion.

Q: What are you seeing for net interest margin trend in the fourth quarter?

A: Biased to upside but some seasonality in credit card.

Q: On positive operating leverage, confidence in 2026?

A: Expense management disciplines and revenue outlook support.

Q: Payments fee growth drivers?

A: Interconnected product models, uninstalled revenue, merchant and card growth.

Q: Card loss rate?

A: Expected to decrease, strong credit trends.

Q: Stablecoin impact?

A: Focus on custody and investment side, pilot transactions.

Q: Capital return to shareholders?

A: Building capital base, aiming for 75-80% earnings return.

Q: Other earning assets yield?

A: Tri-party repo volumes, netting balances, sustainable with market conditions.

Q: C&I NPLs?

A: Partially due to First Brands exposure, already reserved.