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"Founded in 1863, U.S. Bancorp is a comprehensive financial services holding company operating in the United States. The company’s operations are divided into several key segments: wealth, corporate, commercial and institutional banking, consumer and business banking, payment services, and treasury and corporate support. 
U.S. Bancorp offers depository services including checking accounts, savings accounts, and time certificate contracts; as well as lending services including traditional credit products, credit card services, lease financing, import/export trade, asset-backed lending, and agricultural finance. U.S. Bancorp’s corporate and institutional services include capital markets, treasury management, and receivable lockbox collection services. In addition, the company offers asset management and fiduciary services for individuals, estates, foundations, business corporations, and charitable organizations. 
The company extends its portfolio with investment and insurance products, primarily within its domestic markets. It also provides fund administration services to mutual and other funds. Corporate and purchasing card services, as well as corporate trust services, are part of U.S. Bancorp’s extensive offerings."

Q2 2026

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Q4 2024

U.S. Bancorp (USB): Company Profile, Stock Price, News, Rankings

legacy

U.S. Bancorp

u.s. bancorp

Welcome to the U. S. Bancorp First Quarter twenty twenty five Earnings Conference Call. Following a review of the results, there will be a formal question and answer session. This call will be recorded and available for replay beginning today at approximately eleven a.

M. Central Time. I will now turn the conference call over to George Anderson, Director of Investor Relations for U. S. Bancorp.

Thank you, Julianne, and good morning, everyone. Today, I'm joined by our President and new Chief Executive Officer, Gunjan Kedia and Senior Executive Vice President and CFO, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release and all supplemental analyst schedules can be found on our website at ir.usbank.com. Please note that any forward looking statements made during today's call are subject to risk and uncertainty.

Factors that could materially change our current forward looking assumptions are described on Page two of today's earnings presentation, our press release and the reports on file with the SEC. Following Gunjan and John's prepared remarks, we will be happy to take any questions that you have. I will now turn the call over to Gunjan.

Thank you, George, and good morning, everyone. As we begin the call today, I want to first take a moment to acknowledge the loss of our friend and colleague, Teri Dolan, who most recently served as our Chief Administration Officer. We have truly appreciated the outpouring of support we have received from the investment community since his tragic passing last month and our thoughts remain with his friends and family. If I could turn your attention to slide three. In the first quarter, we reported earnings per share of 1.3 and delivered a return on tangible common equity of 17.5%.

We are pleased with the progress we have made on our strategic priorities and achieved year over year positive operating leverage of two seventy basis points this quarter on an adjusted basis. Our continued discipline on expenses, good momentum across our fee businesses and modest margin expansion all contributed to us achieving our third consecutive quarter of revenues outpacing expenses on an adjusted basis. Importantly, our credit quality and capital levels are strong. This quarter, our net charge off ratio improved modestly and we continued to build capital. We are in an environment of intense market and economic volatility.

However, our management team has successfully navigated through a wide range of conditions over the years and we are prepared for a variety of possible scenarios. Our consistent and deep culture of risk management will continue to be a competitive advantage as we go forward. Slide four is a snapshot of U. S. Bancorp today.

As the largest non GSIB bank in the country, we operate at considerable scale in the markets we serve. Our franchise is quite unique. Fee income represents 41% of total net revenue and is driven by an extensive and diversified product set. Today, two thirds of our businesses operate nationally through an optimized digital and physical distribution model. Our client franchise of almost 15,000,000 clients has strong loyalty and depth with us.

These advantages are important to our unique and ongoing growth story. I'll turn you to Slide five. As I step into my role as Chief Executive Officer of U. S. Bancorp, I want to reaffirm my commitment to our medium term targets.

The macroeconomic backdrop has shifted since our Investor Day in September, and I acknowledge that there is still considerable uncertainty to the outlook. However, a wide range of plausible forward looking macroeconomic scenarios still support our targets. I have three immediate strategic priorities to achieve our goals tightly manage our expenses, drive organic growth across our business and transform our payments business. It is important to emphasize that while we are focused on organic growth, we remain deeply committed to high returns and a disciplined risk management culture. Slide six gives you more color on our expense management program.

We have been actively focused on reducing expenses since early twenty twenty four. Our investment spend has stabilized and is increasingly shifting to growth oriented investments. In addition, we are structurally driving productivity through all our operations. As the chart on the left shows, we have now delivered six consecutive quarters of expense discipline on an adjusted basis. This has been an important funding mechanism for organic growth and a significant driver of the positive operating leverage we have delivered.

On the right are our four expense programs. These are well underway. These initiatives are designed to improve sustainable productivity and balance that with high quality client service and operating effectiveness. Notably, we have additional levers we can pull and are watching the revenue environment closely to appropriately balance and flex our expense programs. On slide seven, our diversified mix of fee generating businesses is truly a competitive advantage for us.

On the left, we are disaggregating the dynamics of our fee growth last year. Confidence in our medium term fee growth targets is supported by the strength we have in our core businesses like trust and investment management and capital markets fee businesses, as well as the execution momentum we have across our other organic growth initiatives. Headwinds around consumer fees and the sale of our ATM cash provisioning business are also dissipating and support stronger fee growth going forward. We are focused on leveraging a broad range of products and digital capabilities to deepen relationships with our clients and expand our reach through partnerships. I'll move to slide eight.

We have an opportunity to do better with our payments businesses. Money movement capabilities are critical to anchoring client relationships and we are committed to building a vibrant payments franchise. Our payments business drives both fee income as well as net interest income with $42,000,000,000 in attractive average loan balances. Net interest income is an important part of our payment story. And as you can see on the left, we have grown our average loan balances in line with or better than the industry.

Our loan growth has benefited from a range of competitive products that offer quite attractive value proposition, especially to borrowers. Total purchase volumes across all of our payments businesses were at $925,000,000,000 this quarter for the trailing twelve month period. The growth here could be stronger and our target is to be more in line with the market. We have a greater focus on the affluent customer and products like BankSmartly were designed specifically to target this segment. As I look ahead, with two new leaders in place since the start of the New Year, we actively redeploying expense saves to scale up our execution, our sales and marketing efforts and payments.

Some areas of focus are California, where our acquisition of Union Bank has given us access to a large and affluent consumer and small business base and the expansion of our Elan franchise, which currently serves over 1,200 financial institutions across The U. S. Finally, while our merchant acquiring business contributes just over 5% of total U. S. Bank revenue, it is a unique part of our portfolio and I know one that garners a lot of attention from the investment community as it is a key differentiator for the company.

We are in the middle of a multiyear transformation here to reposition this business in three ways. The first is greater interconnectivity across the bank. The second is a sharper focus on five industry verticals. And the third is a strategic shift to a tech led operating model that is more consistent with the buying behavior of consumers today. Tech led represents over one third of total merchant processing revenue and most of our revenue generation is now concentrated in our five targeted verticals.

We have most recently moved up to number five in Nielsen's twenty twenty five report ranking for processing volume and we do have more room to grow here. Our medium term fee growth targets for the overall bank expect a mid single digit growth rates for payments with more upside beyond that time frame. Finally, before I hand it over to John, I want to highlight a simpler management structure on Slide nine. We are very fortunate to have a deep management bench, and I'm confident we will execute with urgency on our priorities. Now let me turn the call over to John who will provide more detail on the quarter as well as forward looking guidance.

Thanks Gunjan. If you turn to slide 10, I'll start with some highlights for the quarter followed by a discussion of first quarter earnings trends. In the first quarter, we reported earnings per share of 1.3 with year over year top line revenue growth and disciplined expense management. On the right hand side of this slide, you can see that most credit quality metrics and capital levels improved both sequentially and year over year. This quarter a more favorable portfolio mix and improved asset quality resulted in a small reserve release of $10,000,000 The allowance this quarter also included some incremental qualitative reserves to reflect increased tariff induced macroeconomic uncertainty.

Our loan portfolio is well diversified and we are appropriately reserved and prepared for a wide range of potentially adverse macroeconomic conditions. Our CET1 capital ratio increased 20 basis points to 10.8% this quarter as we continue to balance ongoing capital accretion with modest share repurchases. Our tangible book value per share was $25.64 at March 31, up 13.8% year over year. Slide 11 provides key performance metrics. Our return on average assets and net interest margin improved linked quarter from solid financial performance, continued expense discipline and efficient balance sheet management.

Slide 12 provides a balance sheet summary. Total average deposits decreased 1.1% on a linked quarter basis to $5.00 $7,000,000,000 in line with seasonal patterns and continued prioritization of relationship based deposits and pricing discipline. Both our mid-40s cumulative deposit beta and percentage of non interest bearing to total deposits of approximately 16% remain in line with expectations. Average loans totaled $379,000,000,000 a modest increase of 0.9% on a linked quarter basis driven by commercial lending initiatives that were partially offset by higher paydowns within our commercial real estate and portfolio and continued runoff of auto loans. At March 31, the ending balance on our investment portfolio was flat at $171,000,000,000 This quarter, the average yield across both our investment portfolio and loan book were impacted by lower short end rates, which more than offset the benefits of fixed asset repricing and improved asset mix.

Turning to Slide 13. Net interest income on a fully taxable equivalent basis totaled $4,120,000,000 relatively stable to the fourth quarter after adjusting for two fewer days as expected. Slide 14 highlights trends in non interest income. Non interest income totaled $2,800,000,000 an increase of 5% on a year over year basis driven by payments and trust and investment management fees. Linked quarter revenue was impacted by seasonal declines in both payment services and other revenue while our decline in trust and investment management fees resulted from less favorable market conditions.

Turning to slide 15. Non interest expense for the quarter totaled $4,200,000,000 stable with adjusted non interest expense in the fourth quarter and consistent with our previous guidance. Continued expense discipline and operational efficiencies partially offset seasonal increases in performance based incentives and merit as well as a higher charitable foundation contribution. Slide 16 highlights our credit quality performance on a linked quarter and year over year basis. Our ratio of non performing assets to loans and other real estate was 0.45% at March 31, an improvement from the previous quarter and a year ago.

The first quarter net charge off ratio of 0.59% improved one basis point linked quarter and our allowance for credit losses totaled $7,900,000,000 or 2.07% of period end loans at March 31. On Slide 17, our common equity Tier one capital ratio increased 20 basis points to 10.8% as of March 31 net of distributions. Our CET1 ratio including AOCI was 8.8%. During the quarter, we completed $100,000,000 of share repurchases and moving forward, we expect the level and pace of buybacks to remain modest as we balance continued capital accretion with distributions and further evaluate broader macroeconomic conditions. Turning to slide 18.

We wanted to provide some additional clarity on our projected balance sheet trajectory and the drivers of net interest margin expansion. These drivers are supportive of our medium term target. As the slide shows, we do not expect to become a Category two bank before 2027. Further, we expect that our trajectory will benefit from an improved asset mix, fixed asset repricing and continued optimization of our funding mix. The timing and ultimately where we land within the range provided will depend on several factors including the path of interest rates and loan growth.

Moving to slide 19. Our first quarter results met the guidance we provided in mid January. We are monitoring the ongoing discussions around tariffs and recognize that uncertainties remain. I'll now provide second quarter and full year 2025 forward looking guidance based on our current expectations. Starting with the second quarter twenty twenty five guidance.

We expect net interest income for the second quarter on a fully taxable equivalent basis to be in the range of $4,100,000,000 to $4,200,000,000 Total non interest income is expected to be approximately $2,900,000,000 We expect total non interest expense to be $4,200,000,000 or lower in the second quarter. And we expect to deliver positive operating leverage in the second quarter of 200 basis points or more on a year over year adjusted basis. I'll now provide full year 2025 guidance, which is consistent with our previous guidance. Total net revenue growth on an adjusted basis is estimated to be in the range of 3% to 5% compared to the full year 2024. We expect to achieve positive operating leverage of greater than 200 basis points for the full year.

Slide 20 shows that we have made measurable progress toward achieving our medium term targets. Compared to the first quarter of twenty twenty four, we have improved both our profitability and efficiency ratios and have continued to enhance our capital positioning and operating leverage trajectory. We have more work to do, but we are pleased with our progress to date. I'll now hand it back over to Gunjan for closing remarks.

Thank you, John. Let me close on slide 21. I am excited to lead our exceptional bank into the future. Over the last two years, we have been focused on integrating our Union Bank franchise and then swiftly building back capital after the banking failures of 2023. We are now focused on organic growth.

And our momentum on expenses is timely as we navigate a highly uncertain environment and that gives us strategic flexibility. Moving forward, my top priority is to restore investor confidence in our story and our execution. Finally, on behalf of our U. S. Bank team, I want to sincerely thank Andy Sessary for his forty plus years of thoughtful, dedicated and steady leadership.

We all wish Andy well in his retirement. With that, we will now open the call for questions.

Our first question comes from Gerard Cassidy from RBC Capital Markets. Please go ahead. Your line is open.

Thank you. Gunjan and John, before I ask my question, on behalf of all of the bank analysts and the investment community, I really want to offer our sincere condolences about Terry's tragic death. Not only will he be missed by his family and all his colleagues at US Bancorp, he'll be missed by everybody on this call and throughout the investment community. All of us will keep him and his family in our thoughts and prayers. On the question, John, can you go back to your comments about the yields in the portfolios, how you referenced that the earning asset yields came down for the quarter and you pointed out I think on Slide 12 in your comments that the impact of lower short term rates more than offset the benefits of the repricing of fixed rate assets.

What's the ideal interest rate environment for U. S. Bancorp in your view?

Sure, Gerard. And first of all, you for those comments. They mean a lot and we appreciate that very much. On to your question on the yields within the portfolio and ideal positioning and things like that just more from a technical standpoint the investment portfolio about half of the AFS book or about just over a quarter of the book in total is floating rate in nature. Of course, we have that a lot of hedges in place to protect from shocks on higher rates to protect capital in that sense.

So that's the positioning for it. That positioning along with how we manage the rest of the balance sheet provide us how we think about interest rate sensitivity and how we want to position the bank from interest rates shock. So today even though the investment portfolio has some mix towards floating rate, we have other things that can offset that such as receive fixed swaps on the commercial loans as an example. And so when you put it all together, we have a what we'd like to have is a neutral interest rate risk position on the balance sheet, neutral to shocks. Now ideally, we would like to see a more upward sloping curve that will be more beneficial to us.

Lower short end rates would help our funding position and longer term rates will help with the repricing of our fixed rate assets. So those are kind of the puts and takes as we think about the balance sheet.

I appreciate that John. And then as a follow-up, you talked about your capital levels, CET1 ratios especially including the AOCI at 8.8 which of course is well above your required level. And you're still being cautious on the buybacks. Historically, as you all know, you folks have traditionally given back 70% to 80% of annual earnings and buybacks and dividends. What kind of environment will we need to see for you guys to be comfortable to get back into that kind of 70% to 80% return of earnings to shareholders and buybacks and dividends?

Sure. So I think as we talked about at Investor Day, we talked about our capital ratio and where it needs to be. We targeted approximately 10% on a category two basis, which you just cited that the ratio where we're at right now. And we still are awaiting capital rules and things like that. Obviously, there's more favorability there with the regulatory environment.

But we are as we get closer, we would anticipate that we would increase our share repurchases as we approach and achieve that approximately that 10% capital level. And the numbers that you cite that 70%, eighty % that's a number that we provided to you on a full payback in our Investor Day and that is consistent with our thinking.

Great. And Andy, luck in retirement and wish you a lot of future success.

Our next question comes from Scott Siefers from Piper Sandler. Please go ahead. Your line is open.

Good morning, everyone. Thanks for taking the question. I guess, first of all, I'd echo Gerard's sentiments and thoughts as well. Maybe, John, within the 3% to 5% full year revenue growth target, any change in sort of the expected balance between NII and fees? I know you'd talked previously about sort of mid single digit fee growth aspiration for the year.

So maybe just within your response, if you could sort of speak to any updates on main fee drivers throughout the year with like a particular emphasis on the payments momentum that you would see developing if possible?

Sure. So thanks, Scott. First of all, you're right, no change to our guidance. 3% to 5% is our expectation. We acknowledge of course that the market is uncertain.

There's things in the tariff discussions that everyone is watching. We acknowledge that. But we still feel good about our revenues and our ability to execute. On the net interest income side, we shared a slide in terms of how we see a path of how net interest margin will grow and that starts with fixed asset repricing and better mix in terms of our loan book. On the fee side of things, we still believe the mid single digit is appropriate way to think about fee growth for the year.

Gunjan commented on the payment side of things and we have good initiatives beyond that as well as in other parts like capital markets and trust and investment management and all these other sorts of things. And then importantly, I know you didn't ask, but expense we have a lot of levers there as well which will help us achieve operating leverage that we have talked about in terms of 200 basis points or more for the full year. So we understand the market has changed but our clients are resilient and we have a lot of confidence in our ability to execute.

Okay, perfect. Thanks for that. And then maybe sort of a top level one. Can you all sort of address what you're seeing just in terms of some of the consumer spending patterns? I mean for your size just given the payments business you see sort of an outsized amount of spending.

Just curious what changes, if any, you've seen since this all this uncertainty really ramped up and if there's been any change in particular since early April when things really began to hit in a bigger way?

Scott, let me start there. We saw a modest pullback in consumer spending early in the year and that was very weather related. And it has stabilized towards the March. We are watching the downward trend in consumer sentiment, but not seeing that in our spend patterns. Our mix does tilt towards the more affluent customer and towards non discretionary everyday spend patterns.

So that could be an explanation. But we are seeing steady consumer spend patterns in the first quarter.

Perfect. All right. Thank you both for all the color.

next question comes from John McDonald from Truist Securities. Please go ahead. Your line is open.

Hi, good morning. Gunjan, I wanted to ask you a little bit bigger picture on the payments business. You've acknowledged it's been a little bit disappointing relative to what you see as its potential. Did we collectively have too high expectations for payments the last couple of years? Or it a question of needing to get further along in this shift towards the tech enabled in order to better align the business with the industry dynamics?

Good morning, John. It is a very good question. It's not anchoring too high. The industry is quite attractive. The way we manage our business is quite focused on margins.

So I think the right way to think about our personal aspirations is to have a very nice balance of margin and growth. What we are seeing here is that the balance sheet side, the NII side of the payments business is actually very attractive and it is tracking with the industry. And our product offerings historically have been quite attractive for the borrower segment. So we like that. We want to continue that.

We are leaning in on also the affluent transactor segment with a new lineup of products that is attractive to them, so we can also augment the fee growth. So our expectation would be that we would be in line with the market on volumes and we'd maintain our margin and it will be a very healthy accretive sort of trajectory for the overall payments business for us. And then of course, I always want to remind you that the reason we are in the payments is not because it's a standalone attractive business. It's a very, very attractive product to anchor our client relationships across all banking products. That's sort of our expectation for payments.

Okay. Great. And then John, a question on expenses. You can put this in the category of no good deed goes uncriticized. You've done a great job keeping quarterly expenses flat for a bunch of quarters in a row now.

Can you just remind us why that still enables you to invest enough to play offense against some aggressive payments competitors and a bunch of offense minded banks that are expanding throughout the country?

Well, I think the beauty of our expense programs is we've been able to take a lot of the savings that we've had and invested in and continue to invest. John, we talked at Investor Day about how our investment has over the years has gone more from defense in building out all the infrastructure needed to more offense or more two thirds offense versus one third defense when we think about our CapEx levels which is in that kind of $1,250,000,000 We have OpEx and tech or total tech amount in that kind of that 2,000,000,000 to $2,500,000,000 on an annual basis. And so we continue to invest in all the products and capabilities that Gunjan has been talking about. And so we feel really good about the levers that we have and that's been part of our plan is to take savings and continue to invest and be offensive minded about it.

Our next question comes from Betsy Graseck from Morgan Stanley. Please go ahead. Your line is open.

Thank you. And I also thank you, Gerard, for saying that. And team, I will always remember Terry's big smile and warm embrace. And Andy, so all the best for you in your retirement, and I hope you enjoy every moment of it. Back to

the last question. When we think about the market here that you're trying to match the growth rate of, maybe you could give us a little bit of an understanding as to what market we're talking about. When I speak with investors on this topic, I hear many different thoughts on what the market is. Is it pure play merchant acquirers? Is it other banks in the payments ecosystem, of which everybody is obviously, or leaders in that regard?

It would just be helpful to understand what your definition of market and market growth rate is. Thanks so much.

Thank you, Betsy, and thank you for your remarks for Teri and Andy. So first, we think of market as being U. S, not global, because the growth rates are different. We have a credit box, a very specific intentional range that we target. So we think about that which is not sort of super, super, super prime and it's certainly not subprime.

We're very well positioned sort of in the right mix of yield versus charge off rates in that middle to high segment. And then the third is we want profitable margins. So we do actually in our internal thinking, think of the big, big e commerce large box retailers as a different growth rate because we're very committed to high returns. And that market is big enough and growing healthy enough for it to be a very vibrant business for us.

Okay, great. And then just a follow-up is on lending in general, and I noticed your C and I lending was quite strong this quarter. Anything in payments there? And I did notice that your C and I lending commentary in the press release had to do with a majority of that coming from non bank or non depository financial institutions. So could you give us some color on that?

And is payments a part of that and DFI? Thanks.

Yes. Betsy, I'll start with that. So on commercial side, in commercial loans, we did see nice growth there. There's really three drivers as I think about it. We had some growth in ABS lending, which is what you were referring to that obviously was a driver.

We had greater utilization rate and that was across the board and throughout the quarter. It wasn't just at the end of the quarter it persisted and it hit and it was all markets and we were up 50 basis points. And I'd say we're getting closer to kind of our long very long term normal rates in terms of utilization which is good to see. And then the third thing is we've been seeing nice growth in our middle market loans particularly in expansion markets where we have been growing as we've on one of the pages that we have we signify where those expansion markets are. So those are the three things that we saw during the quarter for the growth that you mentioned.

Our next question comes from Mike Mayo from Wells Fargo. Please go ahead. Your line is open.

Hi. It's well said by Gerard and Betsy on tragedy. Gunjan, you're now CEO of U. S. Bancorp, I guess, as yesterday.

And you did highlight some changes in management to make it more simple, interconnected, focused on the five verticals. You said your number one priority is to restore investor confidence where you can see by the stock price, it's not the valuation it once was. You said you want to have better expenses, organic growth and payments leading the way to better returns and always superior risk management. So hopefully, I summarized that okay. But and I I said at Investor Day, like, Andy, I I I love you, but unfortunately, I didn't love the stock price performance.

And and so restoring investor trust with getting that confidence back to the company, which should lead to the stock price. So, Kunjan, I mean, sometimes you have all star teams or often you have all star teams that lose regular teams. And so you can have a lot of good players, it just doesn't work out. So I'd say it just from a stock price standpoint, it hasn't worked out over the longer term. So Gunjan, stylistically, I know you're doing a lot of continuation, but what are you doing differently now versus Andy?

I know you're next to each other and your partners and all that, but I want to know how you're different that might evolve U. S. Bancorp to better performance that would lead to higher stock price and your number one goal, restoring investor confidence? Thank you.

Good morning, Mike. So let me just start by acknowledging that I'm not happy with the stock performance as well. And so we feel the urgency and we hear the message. The priorities that I have laid out do reflect my observations and what we need to do differently. So the expense discipline, which was very core to the US Bank story needs to come back, and you've seen us make very strong progress there.

That allows us to not just deliver the positive operating leverage and the efficiency ratio targets that we are aiming for, but also invest in organic growth, so it's a sustainable performance trajectory. The second thing is, as you know, U. S. Bank's history has been to grow through a series of acquisitions and then in more recent times since the GFC to outperform through risk management. We do need to build out the organic growth muscles.

So the focus on taking a very exceptional set of businesses, because our portfolio is very attractive And amplifying their performance, especially in payments, are all the priorities that I think say things need to be done differently. And finally, just comes back to a culture that will show a very different level of urgency around execution. So again, I'll close my remarks by just acknowledging your comments that we have an exceptional franchise, and we're very confident that the results will be better going forward.

I appreciate that. When you look at the five verticals it might be the first time you mentioned it. What are the five verticals? And you said that's most of revenues. And what's the opportunity to move the human bank franchise up to the U.

S. Bancorp levels? Because it seems like those would be some organic growth opportunities. Thanks.

That is indeed very it's an important organic growth opportunity. And here you are talking about our merchant businesses. And just a reminder, the merchant MPS business is about 5% of our overall bank, but a very important differentiator for us. It's a very competitive space. And the reason to think about focusing on the five verticals is you can build stronger tech led value propositions for each of the verticals.

They are very large verticals. So they are retail, services, travel, entertainment and healthcare. And the more we have focused our acquisition efforts and our organic growth efforts on those verticals, the deeper and the better execution we have. And today about 90% of our revenue focuses on those verticals.

And Union Bank, the potential to move that up to your level?

So Union Bank is a very affluent franchise, a very attractive franchise, more than a million plus clients, 200,000 small businesses. Where we are there is about two thirds of the penetration on the consumer side relative to where we are on the rest of the franchise and less than half on the small business side. So getting those to U. S. Bank levels in the medium term is a very important growth opportunity for us.

Now you didn't ask, but let me just talk about a second one too, which is our Elan franchise. We serve 1,200 financial institutions in a white label way across The U. S. That platform has really improved. Just last year, we have made some very nice enhancements to the user experience in the core platforms.

And that's another growth engine that we are very excited about.

Our next question comes from Erika Najarian from UBS. Please go ahead. Your line is open.

Yes. Hi, good morning. My first question is for John. Just wanted to unpack on Slide 18 your comments of a medium term net interest margin of 3% plus medium term representing 2026, '20 '20 '7. So I quickly looked at your so typically when we've seen this kind of uplift from the $270 s it's because there's some sort of some hedges that are rolling off and I'm looking at your C9 CRE yields and I compared it to peers that aren't super hedged and there doesn't seem to be a mismatch there.

Your bond yields are a little bit lower than peers. I'm wondering and I couldn't really tell from your swap disclosures at Investor Day what could be optimized. But beyond rates, what is the balance sheet optimization plan to get you from the 2.7% to 3%?

Sure. Thanks, Erica. So a couple of things there in terms of the hedges and just how we're progressing here. What we're signifying there is the loan growth and investment portfolio mix as well as the repricing. So a lot of this is mechanical in terms of the repricing.

I mentioned before, we have 5,000,000,000 to $7,000,000,000 on average per quarter that roll off on loans, fixed rate loans that will reprice 150 to 200 basis points better. And then an investment portfolio of $3,000,000,000 on average for the quarter. And so that those at the same levels as well 150 to 200 basis points. So those things will help drive up net interest margin over time and as well as how we think about the mix of our loan book. So repositioning to things that have higher yield, better returns, those sorts of things.

The other component of it then is on the deposit and funding side. And that is going to have a little bit of market attached to it. So to the extent the Fed cuts and funding costs go down that will accelerate our trajectory on net interest margin if we stay at a flatter rate or inverted like we are today on the short end of the curve and that it could take a little bit longer. And that's just contemplated within this with this guide here. And so those are the things that we are considering.

U.S. Bancorp (USB) Q1 2025 Earnings Call Transcript

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