U.S. Bancorp Q1 FY2026 earnings call

• Earnings per share $1.18, up ~15% year-over-year. Total net revenue $7.3 billion, up 4.7% year-over-year with broad-based growth across three major business lines. • Net interest income on taxable equivalent basis up 4.1% year-over-year due to core loan growth and record consumer deposits. Fee income up 6.9% year-over-year with improved payments performance and momentum in capital markets and investment services. • Positive operating leverage of 440 basis points in the quarter, efficiency ratio improved by 260 basis points year over year. • Business banking franchise contributes ~9% of revenues, with new products and operational capabilities being built out. • California franchise: Union Bank acquisition realized $1 billion in merger-related expense savings and focused on revenue synergies. • Payments: Fee revenue growth across segments, credit card account acquisitions up double-digit, merchant processing fee growth steady, corporate payments and prepaid seeing growth rebound. • Capital markets: Strong performance with new product penetration and favorable market volatility driving revenue growth. • Focus on building out business banking franchise with new products and client teams. • Continued expense discipline and revenue growth driving positive operating leverage and improved efficiency ratio.

Business Banking Franchise: Contributes approximately 9% of revenues. Building new products and operational capabilities, expanding client teams. Business Banking has seen high single-digit compound annual growth in clients and fees over past two years. Spotlight on California: Union Bank acquisition in end 2022 realized $1 billion in merger-related expense savings and now focused on capturing revenue synergies, with California outperforming broader franchise. Payments: Fee revenue growth consistently strengthening across all segments. Credit card business has double-digit growth in account acquisitions over past four quarters. Merchant processing fee growth steady in mid-single digits. Corporate payments and prepaid seeing growth rebound. Capital Markets: Performance particularly strong with new product penetration with longstanding clients and favorable market volatility driving strong revenue growth. Net interest income on taxable equivalent basis increased 4.1% year-over-year supported by core loan growth and record consumer deposits. Fee income grew 6.9% year-over-year with momentum across capital markets and investment services businesses.

• Second quarter 2026 guidance: Net interest income growth on fully taxable equivalent basis expected in range of 6 to 7% compared to second quarter of 2025. Total fee revenue growth expected in range of 6 to 7% compared to second quarter of 2025. Total non-interest expense growth expected 3% to 4% compared to second quarter of 2025. • Full-year 2026 guidance: Total net revenue growth expected in range of 4% to 6% compared to prior year. Expect to deliver positive operating leverage of 200 basis points or more for full year. Guidance excludes impact of pending BTIG acquisition, which is expected to contribute ~$200 million of fee revenue per quarter with anticipated close date in back half of second quarter. Impact of Amazon small business card and NFL partnership fully contemplated in guidance.

• Macroeconomic backdrop softening of sentiment could impact consumer spend, core loan demand, and credit delinquency trends. • Regulatory backdrop uncertainty, including timing of final outcomes around key elements of Basel III proposals such as AOCI phase-in and effective date of new rules. • Interest rate environment uncertainty impacting net interest margin, including factors like mortgage prepayments and credit spreads. • Exposure to non-depository financial institution loan portfolio, with potential risks if there are unforeseen scenarios affecting the well-structured exposures. • AI disruption risk, although currently not seeing immediate impact on fee income businesses but monitoring trends.

Q: Scott Seifers with Piper Sandler asked about positive operating leverage, how they're thinking about managing to the level and flexing on expenses.

A: John said they feel good about the outlook, revenues growing faster is the driver of positive operating leverage, and they have flexibility with expenses as some are short-term flex like marketing expense. Gunjan added on the flex side of expenses with some ability to pull forward investments and the franchise has productivity and flexibility.

Q: John Pencary with Evercore ISI asked about funding and margin, deposit growth, deposit pricing, and margin progression.

A: John said on funding, focus on consumer deposits and operational deposits, deposit pricing relatively stable. On margin, positive drivers like core loan growth and deposit pricing stability, with some factors like tighter spreads and mortgage refinancing impact, but expect margin to progress going forward.

Q: John McDonald with Truist Securities asked about net interest margin expansion, revenue growth guidance.

A: John said still see path to 3% margin, bias to be on higher end of 4% to 6% revenue growth range.

Q: Ibrahim Poonawalla with Bank of America asked about regulatory changes and category two.

A: John said watching regulatory changes, both proposed Basel III rules are better than current category two regime, and they are prepared for category two with full AOCI in capital.

Q: Mike Mayo with Wells Fargo Securities asked about operating leverage and growth priorities.

A: John said seven quarters of positive operating leverage, tracking it, and priorities are fee growth, strengthen consumer and small business franchise, become AI-native organization.

Q: Erica Najarian with UBS asked about deposit costs and capital discussion.

A: John said confident in holding line on deposit costs, bias to high end of fee growth range, and they are prepared for category two and monitoring regulatory clarifications.

Q: Ken Huston with Autonomous Research asked about expense side.

A: John said committed to positive operating leverage, expenses will be elevated with revenue growth, and they have flexibility in expenses.

Q: Gerard Cassidy with RBC Capital Markets asked about branch presence and NDFI portfolios.

A: Gunjan said committed to branch expansion in existing footprint, and John said NDFI portfolios are well-structured with low loss likelihood but monitoring with risk management.

Q: Saul Martinez with HSBC asked about Amazon partnership and merchant acquiring business.

A: Gunjan said Amazon partnership will meaningfully expand card growth, and John said merchant acquiring business has underlying strong trends with some clients exiting having no revenue impact.

Q: Vivek Juneja with JP Morgan asked about corporate payments and private credit exposure.

A: John said corporate payments growth rate slow due to lapping last year's factors, and private credit exposure is under 3% of total loans.

Q: David Chevrini with Jefferies asked about AI disruption risk.

A: Gunjan said not seeing immediate disruption, but monitoring customer search behavior trends.

Q: Chris McGrady with KBW asked about loan growth and funding.

A: John said loan growth in large corporate space, and deposits will grow in line with loans but more nimble on deposit side.

Q: John McDonald with Truist Securities asked about BTIG impact.

A: John said BTIG is slightly accretive to results inclusive of integration charges, with back half of year expected for impact.