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

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U.S. Bancorp

u.s. bancorp

Welcome to U.S. Bancorp's First Quarter 2026 Earnings Conference Call. Following a review of the results, there will be a formal question and answer session. If you would like to ask a question, please press star then one on your phone. If you wish to withdraw your question, please press star then one again. This call will be recorded and available for replay beginning today at approximately 10:00 A.M. Central Time. I will now turn the conference call over to Jennifer Thompson.

Thank you, Regina, and good morning, everyone. In our boardroom today, I'm joined by Chief Executive Officer Gunjan Kedia and Vice Chair 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 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 in reports on file with the SEC. Following our prepared remarks, Gunjan and John will be happy to take questions that you have. I will now turn the call over to Gunjan.

Thank you, Jen, and good morning, everyone. I will begin on slide three. This quarter, we delivered earnings per share of $1.18, a year-over-year increase of approximately 15%. Total net revenue of $7.3 billion increased 4.7% year-over-year, with broad-based growth across each of our three major business lines. Net interest income on a taxable equivalent basis increased 4.1% year-over-year, supported by robust core loan growth in commercial and credit cards, and a second consecutive quarter of record consumer deposits. Fee income grew 6.9% year-over-year, reflecting improved payments performance and momentum across capital markets and investment services businesses. Capital markets performance was particularly strong as new product penetration with long-standing clients and favorable market volatility combined to drive strong revenue growth. We delivered positive operating leverage of 440 basis points in the quarter.

Strong revenue growth and continued expense discipline improved our efficiency ratio by 260 basis points year-over-year. John will provide more details on our financial performance in his opening remarks. On slide four, we are spotlighting our business banking franchise. This segment contributes approximately 9% of our revenues and represents a compelling long-term opportunity for us. We have been building out new products and operational capabilities for this segment. We have also expanded our client teams to build deep multi-serve relationships that are served in branches with direct bankers and exceptional digital experiences. That approach has driven high single-digit compound annual growth in both clients and fees over the past two years. Looking ahead, we are investing in integrated solutions collectively branded Business Essentials. These solutions offer banking, card, spend management, and merchant solutions that support small businesses at every stage of their life cycle.

Our recently announced partnership with Amazon is significant in size and will meaningfully expand our small business reach. This partnership is unique from traditional co-brand card arrangements in anticipating a clear pathway to broader banking relationships over time. On slide five, we highlight strong momentum in California, where we increased our scale and density with our Union Bank acquisition at the end of 2022. As previously reported, we realized merger-related expense savings of approximately $1 billion and are now focused on capturing the considerable revenue synergies offered by this acquisition. The map on the left illustrates our strong positioning in markets with a high concentration of small businesses. California is a powerful growth engine for us and is outperforming the broader franchise across multiple key dimensions. Moving to slide six. Within payments, we continue to see fee revenue growth consistently strengthening across all segments.

In our credit card business, new products aimed at affluent transactors, along with significant increases in marketing, have resulted in double-digit growth in account acquisitions over the past four quarters and a strong start to the year. Merchant processing fee growth remains steady in the mid-single digits, reflecting disciplined execution across three core strategies, software-led products, focus on five verticals, and expanding direct distribution. In corporate payments and prepaid, we are beginning to see growth rebound as spend levels normalize and installations of last year's strong business wins start to show through in results. I'll close on slide seven. In capital markets, our organic product expansion, as well as our pending BTIG acquisition, are expected to drive sustained revenue growth.

In payments, the Amazon partnership will meaningfully accelerate credit card revenue growth by the end of the year and expand our banking opportunity with the small business segments in the future. In our consumer franchise, we look forward to building Financial Edge, a program to better serve the needs of NFL athletes and their families, and to build our brand nationally, both in partnership with the NFL. Let me now turn the call over to John.

Thank you, Gunjan, and good morning, everyone. First quarter results showcased another quarter of strong business momentum and ongoing execution against our medium-term financial targets. If you turn to slide eight, I'll start with some highlights, followed by a discussion of trends for the first quarter. We reported earnings per common share of $1.18 and generated $7.3 billion of net revenue, representing 4.7% growth year-over-year. Improved revenue trends reflect strong loan growth in areas like C&I and credit cards, along continued momentum in fee-generating businesses like capital markets, investment services, and payments. Average total assets increased 0.7% linked quarter to $688 billion, reflecting steady client activity across the franchise. For the first quarter, ending assets were $701 billion. As a reminder, the Category II transition requires four quarters of average assets to be $700 billion or more.

As expected, credit quality metrics remained stable, underscoring the resilience of our clients in an uncertain operating environment. As of March 31st, our tangible book value per common share increased more than 15% on a year-over-year basis. Slide nine provides our key performance metrics. We continue to operate comfortably within our medium-term targets for profitability and efficiency. Disciplined balance sheet management and strong returns drove a return on tangible common equity of 17%, while return on average assets was 1.15% this quarter. Net interest margin was flat linked-quarter at 2.77%, as core loan growth and stable deposit pricing were offset by elevated mortgage prepayments and somewhat tighter credit spreads. Turning to Slide 10. Over the last two years, we have increased our tangible common equity 31%, while continuing to deliver high-teens returns on tangible common equity, given steady and improving earnings growth.

The sequential step down this quarter reflects normal seasonality, along with the impact of continued AOCI burn down rather than any change in the underlying earnings or profitability trajectory. As we look ahead, we remain confident in our ability to deliver high teens returns on tangible common equity. Slide 11 provides a balance sheet summary. Total average deposits were relatively flat on a linked-quarter basis, as record consumer deposits were offset by typical seasonality in our wholesale and investment services businesses, improving our deposit mix. Our percentage of non-interest-bearing to total average deposits remained stable at approximately 16%. Average loans totaled $394 billion, up 3.8% from the prior year or 5.3% when adjusting for loan sales in the second quarter of 2025. The growth was broad-based and centered around credit card, commercial, and commercial real estate.

The ending balance on our investment securities portfolio as of March 31st was $174 billion. Turning to slide 12. Net interest income on a fully taxable equivalent basis totaled $4.3 billion, an increase of 4.1% on a year-over-year basis, driven by a robust loan growth, funding optimization, and ongoing benefits from fixed asset repricing. Slide 13 highlights fee revenue trends within non-interest income. Total fee income increased 6.9% on a year-over-year basis, supported by nearly 30% growth in capital markets, nearly 10% for trust and institutional fees, and ongoing momentum across our payments business. As a reminder, our capital markets business is focused on fixed income, foreign exchange, and derivatives, including our commodities business. Our pending BTIG acquisition adds equity and investment banking capabilities in the future.

During the quarter, we also made updates to a select number of fee categories to better align our disclosure with how we manage the businesses. Prior results were restated for these classification changes with no effect on total fee revenue. Turning to slide 14. Non-interest expense totaled approximately $4.3 billion, up 0.8% linked-quarter. On a year-over-year basis, ongoing productivity and continued expense discipline helped us fund strong investments in technology and marketing. Slide 15 highlights our ability to effectively manage our expense base while driving top-line growth. Disciplined expense management has become foundational to how we operate, showcased by our seventh consecutive quarter of positive operating leverage. Looking ahead, we see opportunities to build on our strong operating leverage story, supported in part by the ongoing deployment of AI and other automation tools to improve efficiency. Slide 16 highlights our credit quality performance.

Our ratio of non-performing assets to loans and other real estate was 0.38% as of March 31st, an improvement of three basis points from the previous quarter, and seven basis points from a year ago. The first quarter net charge-off ratio was 0.56%, increasing two basis points sequentially, driven by the seasonal nature of credit cards, while our allowance for credit losses of nearly $8 billion represented 2.0% of period-end loans. On slide 17, we're providing a closer look at our business credit exposure within the non-depository financial institution loan portfolio, given the increased attention on this segment. Business credit intermediaries represent approximately 3% of total ending loans, and these exposures are well structured. Our risk framework includes meaningful over-collateralization, clearly defined industry concentration limits, and first lien collateral. Importantly, this reflects U.S.

Bank's long-standing approach to risk management and underpins our comfort with both business credit and the broader NDFI portfolio. Turning to slide 18. As of March 31st, our Common Equity Tier 1 capital ratio was 10.8%, or 9.3% including AOCI. On slide 19, we wanted to provide some initial thoughts following the updated Basel III proposals. We're encouraged by the initial proposals and expect to see meaningful RWA relief under both methodologies, particularly in areas like mortgage and investment-grade corporate lending, providing additional flexibility to support clients through disciplined balance sheet usage. While we await final outcomes around key elements such as the AOCI phase-in and the effective date of the new rules, the framework as proposed supports our return to historical capital deployment ranges under both scenarios. On slide 20, we provide a comparison of our first quarter results to our previous guidance.

For the first quarter, net interest income, fee revenue, and non-interest expense all exceeded our previous guidance. I'll now provide forward-looking guidance for the second quarter and the full year 2026. Starting with the second quarter 2026 guidance, net interest income growth on a fully taxable equivalent basis is expected to be in the range of 6%-7% compared to the second quarter of 2025. Total fee revenue growth is expected to be in the range of 6%-7% compared to the second quarter of 2025. We expect total non-interest expense growth of 3%-4% compared to the second quarter of 2025. I'll now provide full year 2026 guidance, which is consistent with our previous guidance. We expect total net revenue growth to be in the range of 4%-6% compared to the prior year.

We expect to deliver positive operating leverage of 200 basis points or more for the full year. Our guidance excludes the impact of the pending BTIG acquisition, which is expected to contribute approximately $200 million of fee revenue per quarter, with an anticipated close date in the back half of the second quarter. The impact of the Amazon Small Business Card and the NFL partnership are fully contemplated in our guidance. Turning to slide 21. First quarter results represent another consecutive quarter of operating within all of our medium-term targets. While we are pleased with our continued momentum, our focus remains on delivering consistent, sustainable, and industry-leading returns over time. We have a high degree of confidence in our ability to strengthen our performance and build on these results. Let me now hand it back to Gunjan for closing remarks.

Thank you, John. As we look ahead, the macroeconomic backdrop remains constructive despite some softening of sentiment recently. Consumer spend, core loan demand, and credit delinquency trends all indicate relative stability. The regulatory backdrop is becoming more helpful, giving us greater capital flexibility over time, and our execution has strong momentum. All of that gives us confidence in our ability to continue building earnings power and creating long-term value as we move forward. With that, we will now open the call for your questions.

At this time, as a reminder, if you would like to ask a question, press star, then 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Scott Siefers with Piper Sandler. Please go ahead.

Morning, everyone. Thanks for taking the question.

John, wanted to ask about positive operating leverage. You kept the 200+ basis points target for the year, although you're doing significantly more than that now. Looks like it'll be about 300 basis points in the second quarter. Maybe it was something you could discuss how you're thinking about it. Would you sort of manage to that level or maybe let some incremental revenues drop to the bottom line if they came in better? I guess the "or more" leaves a lot to the imagination. Just curious on your thoughts.

Sure. Thanks, Scott. I appreciate that. Good morning. No, we feel good about the outlook, as we mentioned in our guidance slide. We have a lot of growth opportunities as we talked about. As we've mentioned in the past couple of quarters now, as we think about 2026, we're really thinking about our revenues growing faster, and that being the driver of positive operating leverage. We have a desire really to invest some of the savings that we have into things like technology and marketing, some of the things that we've talked about in the past. It also kind of depends on the nature of the revenues. If fee revenues grow faster, as an example, that's going to bring with it more expense just by the nature of the compensation and things like that. The net interest income, of course, we welcome that as well.

From an operating leverage standpoint, we have a lot of flexibility and we feel good about our outlook.

Terrific. Okay. Thank you very much. Maybe Gunjan or John, really good commercial loan growth. Maybe if you could touch on sort of what you're seeing in terms of utilization rates, and then Gunjan, you touched on customer sentiment a bit toward the end of the prepared remarks, but maybe just some thoughts on what you're seeing there. Maybe if you could expand upon that a bit.

Yeah. No, absolutely, Scott. I'll start. The commercial loan side, we saw broad-based, good core loan growth really across a number of different sectors. On the large corporate side, food and beverage, energy, healthcare, were probably the top ones in our area. M&A for these customers as well as just general CapEx really starting to kind of see its way through. Small business also continues to be a very strong performer for us, and that we expect that all to continue. We've talked about loan growth to being in kind of that 3%-4%, but I certainly think it's going to be higher than that. It's probably more in a mid-single-digit range from a broader loan growth perspective for the full year. I think there's just a lot of momentum.

In terms of utilization rate, we're at on the 25% or so, a little bit north of 25%. That's probably a good level for it. It's been creeping up a bit. I don't think there's a lot more upside from that standpoint, but just in general, core loan growth has been really strong.

Good morning, Scott. What I'll add on sentiment is it's turning to more core demand which we find to be very healthy. If you compare this time last year when the tariff discussion was very present, the demand we saw last year was very focused on the AI trade data centers, some M&A driven trades. A real pause pending some resolution or clarity around tariffs. What we see with loan pipelines going forward, which are quite robust, is people beginning to invest in kind of core middle market expansion and CapEx. The sentiment has stabilized quite nicely.

Perfect. All right. That's great. Thank you both for the color.

Our next question will come from the line of John Pancari with Evercore ISI. Please go ahead.

Just on the funding and the margin side. I appreciate your loan growth commentary in terms of what you're seeing. What does that imply in terms of how we should think about the pace of deposit growth? What are you seeing on the deposit pricing side? We've got a number of even the larger banks that are flagging some pressure still in the deposit pricing side from a competitive dynamic. Lastly, how should we think about the progression of your margin here as you look out through 2026?

Yeah. A couple things there, John. On the funding side of things, the deposit equation. We're seeing it's a competitive market, right? It's always been that way on the deposit side. But we saw, relatively speaking, price stability really within and across the portfolios that we have. Maybe just as a reminder, our focus is really going to be, and has been on growing consumer deposits. Again, we saw another record level on the consumer deposit side, and we've seen a $7 billion increase year-over-year, nearly 3% growth. We've seen a focus for us on operational deposits on the wholesale side. Really utilizing deposits that can help us along with the broader relationship and leverages into fees and things of that variety. That has been where our focus has been on the deposit side, and we've been able to just navigate the deposit environment as we typically do.

On the margin side of the equation, just as a reminder, I mentioned the margin was flat this quarter, and we gave some color that the positive drivers were really good core loan growth as we talked about, and then the pricing characteristics I just mentioned on the deposit side. On the other end of that, though, there was some of the loans we brought on were at tighter spreads. Still good returning, but these are larger institutions that trade at tighter spreads. And so that was a little bit of a drag as well as the impact of some refinancings on the mortgage side. We had more refinance activity of nearly 15%-20% more than we did prior year. Those were kind of the puts and takes. Going forward, I expect that the mortgage stuff will abate, and the other things to stick.

Meaning the good core loan growth, the deposit pricing stability, our earning asset mix, all improving as we think about the future. We continue to see progression in our net interest margin going forward.

Okay. Great. Thanks, John. Just separately on the capital front. If we could maybe just talk a little bit about capital allocation priorities, how you're thinking about the buyback expectation, and then as you look at inorganic opportunities. You've done the BTIG deal. Should we expect that there'll be a more active effort to continue to build out the capital markets business, potentially inorganic? Of course, Gunjan, I got to throw the whole bank M&A question at you as well. Sorry to ask it this early in the call.

Maybe I'll start on the priorities of capital deployment. Really no change to our thinking here, John. I think from a capital deployment, we really focus our client and loan growth. We certainly saw that this quarter. We're going to support our clients as needed. We're going to focus on the capital deployment to our shareholders. Certainly the dividend is extremely important. The buybacks, as you know, we went from $100 million-$200 million this quarter. I would anticipate we're going to continue to glide up. I think we're going to start at $200 million would be my base case, but because we see such strength in the pipelines, but it could increase from there, or that would be our intention. We're certainly going to glide up as we get to our capital levels that we need to get to.

Thank you, John. I do want to just reiterate that we are very committed to a long-term capital distribution targets of 70%-75%, and we are keen to get back to those levels with share repurchases. We are very close, John, to just stabilizing our capital ratios in a Category II framework, and of course, very encouraged by the capital rules that might accelerate that. That's the backdrop. On our bolt-on acquisition strategy, we are constantly looking at properties. They are usually not as big as the acquisition we did with BTIG. It would be unusual for us to think about another bolt-on in the capital markets world because we are focused on closing the BTIG deal and getting synergies out of that. We stay open to that. Those tend to be quite accretive immediately.

They're small deals that give you local scale in a particular product to fill a gap. On your broader M&A question, nothing has changed about our strategy. We are very excited about the organic growth opportunities we have in front of us and the momentum we have. That is our focus.

Our next question will come from the line of John McDonald with Truist Securities. Please go ahead.

Hi, good morning. Thank you. John, maybe just to follow up on your net interest margin comment. Just to clarify, you do expect the margin to continue expanding and maybe expand in the second quarter and move steadily upward, and are you still on a path to that 3% sometime next year?

Yeah. John, thanks. Yeah, we certainly still see a path to that 3%. The margin is not always linear. I gave kind of the reasons why this quarter, the pluses and minuses, of course. I mean, if I think about just the underlying metrics, just to repeat, we feel like in terms of loan growth is a good indicator that will help in terms of the earning asset mix of how we think about the loan growth driving the balance sheet sizing. Deposits are stabilizing, as I mentioned, and then our asset mix is improving. If I think about just the small business Amazon acquisition that'll come on in the third quarter as an example. It's things like that that we will continue to focus on that should help drive the net interest margin go forward.

That 3% target, is that still a good target for next year timeframe?

Yeah. We certainly feel there's a path in 2027 to get to that level.

Got it. Just maybe broader, your thoughts on the revenue growth guidance for this year. With the loan growth now looking a bit better and fees starting off strong in the first quarter, is it fair to say you're starting off the year feeling like the higher end of that 4%-6% range is achievable? Maybe just some thoughts on what are the big swing factors for the low end versus the high end of that 4%-6%?

Yeah. No, good question. We certainly have good momentum on a number of different areas in the fee categories. As we've listed out, capital markets has been extremely strong for us. You see that growth. Payments, we've been making a clear inflection there and things like the corporate payments after the second quarter, the drag of government spending from last year, that's going to fall away. We have good pipelines in that area, and our institutional businesses are doing extremely well. I would expect, yes, my bias certainly is to be on the higher end of that 4%-6% range on the fee revenue side of the equation.

I was thinking also on the total revenue guidance, is it also the 4%-6%?

Yeah, total revenue is $4-$6. We feel like that's the right level for us to be at this particular juncture.

John, on NII, we are feeling optimistic about the volume demand for loans and the deposits have stabilized. It's just the Iran war has a level of uncertainty around monetary policy and rate path that does impact the resi mortgage book and credit spreads. We are staying with the 4%-6% on the NII just because there's quite a heightened level of uncertainty around the rate path.

Our next question will come from the line of Ebrahim Poonawala with Bank of America. Please go ahead.

I had two questions. One, I think on the regulatory stuff or the regulatory changes, just talk to us because I think given you obviously slightly crossed $700 billion this quarter. We have heard tailoring is front-burner agenda for the Fed over the summer. If Category II moves to, I don't know, $900 billion, $1 trillion in assets, what does that mean for you strategically, capital allocation-wise? Does it change anything? Does it not change anything? Would love your perspective there.

Yeah. Sure, Ebrahim, thank you. I think from a Category II, certainly we're watching to see what the rules are and how those come up. Right now we have to focus on just kind of what the rule set is. We are focusing on our Category II level. Of course, with the regulatory changes, we put the slide in on the two different proposals in terms of standardized and expanded versions. Both of those are better than the Category II regime. That's going to be more of a help for us, and in the end, it's just going to give us more flexibility. Those are going to be kind of the helpful nature of the capital areas.

Ebrahim, the big variable is timing of when the rules, either indexing and tailoring or even the proposed Basel III rules are effective. To the extent that the indexing is forward-looking, it doesn't make a difference. If the proposed rules get implemented sooner than we think, then we are in a good shape. Either which way, we are very prepared for Category II with full AOCI in our capital. That's what we are counting on, and we are very proximate to that. It's not a meaningful change to anything we would anticipate doing with capital distributions.

Got it. Clear. Then on your slide five and seven, I'm just trying to size the idiosyncratic growth opportunity for USB. In slide five, California, super competitive. You have a Canadian bank that's also trying to gain share in California. Then on slide seven, where you lay out Amazon, NFL, I'm not sure if that's going to be a needle mover or it's a good logo to have. If it's possible to frame what the actual opportunity could be on both those as we think about the P&L over the next year or two, I think that would be extremely helpful. Thank you.

Yes. Thank you. These are quite needle-moving. John, why don't you give some color on that and I'll add on.

Yeah. On the Amazon side of the equation, we expect that to be coming online in the third quarter. The loan amount is going to be about a $1.6 billion area, and it's going to be about 70,000 co-brand clients. It's probably going to add in the neighborhood of $75 million-$85 million per quarter. A majority of that is going to be on the net interest income side of the equation. Again, this is all taken into our guidance, of course, as I mentioned on our prepared remarks. We're going to expect to see that in the third quarter, and we'll take a reserve with that at the appropriate time. That's about the same level that our card book represents.

I'll add on California. Yes, it is competitive, as are any other regions that have a big opportunity. It's a very big market too, and we are becoming very significant as a player there, and we are seeing the growth be higher than the rest of our franchise. I'll say a word about what is the significance of the new co-brand relationships we are doing. We built our digital platform to nationally serve co-brand card clients with banking services for the first time with State Farm. We improved that platform with Edward Jones, and it's unique in the market today. It's very attractive to partners because you can provide a full range of service to your clients under sort of your user experience.

The Amazon deal allows us to take that platform and then expand it to the small business side, at which point it becomes a very big asset to attract big co-brand mandates. That's a lot of revenue. We have one point four million small businesses today. These are banking clients. The Amazon deal will bring 700,000 new small businesses to the co-brand side with the opportunity to attract them to the business side. It's a pathway to a very different type of growth that doesn't need to come with sort of deposit pricing erosion or any of the usual ways banks grow their business. We are very excited about these possibilities.

on the State Farm and the Edward Jones, because it is idiosyncratic what you're doing there.

Is the view that you can actually grow cards or grow rev fees in markets where you obviously don't have a on the ground presence or is the success there determined by converting that State Farm client into a core U.S. Bank client? What determines success?

We think of it as an attractive value proposition for co-brand relationships first and foremost. That's the easiest value proposition to the partner because they like to provide the banking services. We think it's a good front edge brand build with the local client base on the ground. It does not compete in size with what the deposit gathering machine of a bank generally is. The results show up here in a very unique way to go to market on our card business, on attracting new clients. For a bank of our size, that's the fifth largest bank, and we're very well known within our own franchises, but trying in a very disciplined way to build our brand out outside of our franchise. That's what the NFL deal is about too. It is an idiosyncratic approach. It has been very economically lucrative for us.

Because the platform is now built and now we are going to expand it to small business, it also supports our own product sets, like the U.S. Bank Smartly product set that is attracting very meaningful level of deposits along with the card loyalty programs.

Our next question will come from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi. You certainly have come a long way with your CET1 when you highlight over the last three years.

Going from 6%-9%. The days of "are you going to be issuing caps?" are long behind you. Still, when you look back over time, the positive operating leverage is something relatively new. It's not U.S. Bancorp of old in terms of the efficiency ratio. John, you mentioned this is the second quarter in a row of a positive operating leverage. Is this something that you're going to kind of track quarter-to-quarter-to-quarter? Then on the other side of that, I'll contradict myself a little bit here. I think everybody wants to make sure you're investing for that growth, and you've highlighted all sorts of growth initiatives from partners to California to small business to middle market to payments. If you were simply to highlight your three priority areas for investing for growth, what would those be? First, the operating leverage, if you would. Thank you.

You bet. Thanks, Mike. Yeah. We've had seven quarters in a row of positive operating leverage, which we are very proud of, and we are very much committed to positive operating leverage. We are tracking that. We will continue to track that. We're going in with the mindset this year of, while last year was more driven by expense management and finding savings within the company to become more efficient. We continue to do that, but what we're doing now is we're taking those savings and investing in some of these projects that we were talking about, and Gunjan will highlight some of the priorities here in a moment. The things like the small business area, the more of the marketing, more of the technology builds and all that sort of thing are really what we are very much focused on.

We are very much committed to positive operating leverage and having it more driven by revenue growth here as we look into 2026.

Thank you, John. Mike, what I'd add is last year we were very focused on expense management and fee growth. Both of those were natural extensions of last five years of very heavy investments digitally into a really world-class product set, and the product set is very good, and it came with some sacrifice of efficiency ratio in the past. Going forward, our business mix is very helpful to delivering consistent positive operating leverage, and I want to just reiterate that we are very committed to sustaining that over time. The priorities in terms of growth are very simply to continue to grow out our fee categories. We want to always be known as very heavy in fee mix, driving heavy returns for us as a bank. Our second real focus is to strengthen our consumer and small business franchise.

All of the examples that we are sharing here are towards that goal so that the consumer franchise and the core funding mix continues to strengthen over time. We do want to go back to our DNA of being a very simplified, streamlined cost structure, which we think we can do. In the past, it was very much around the automations, and going forward, we are very focused on what AI can do it. That's the priorities, fee growth, strengthen the consumer franchise, and go down the journey of becoming an AI native organization.

All right. That's clear. Then just one follow-up. You're saying you have credit card customer growth of 10%, but you've only had fee growth of 5%. Does that imply you expect much better fee growth ahead, or it doesn't work that way?

No, it does work that way. There is a leading gap between acquisitions and when revenue shows up, and that's just the reward structure and the upfront rewards of transitioning the book. If you see what we have done really over the last six quarters is elevated our marketing and acquisition spend, and we track that very closely across the two big types of segments, the balance revolvers and the transactors. We've always been quite strong on the balance side. If you look at our APR, it has consistently exceeded H.8 data. It was the fee side, the transactor side, that we really accelerated acquisitions. Faster acquisitions are actually negative revenue on the core revenue pipeline. You see this measured balance between acquiring new clients and it showing up in revenue.

You see the acquisition numbers be much stronger, and they will lead to stronger strengthening revenue growth about four to six quarters out.

Our next question comes from the line of Erika Najarian with UBS. Please go ahead.

Hi. Thank you so much. Just a few follow-up questions for me, please. Just on the forward look for deposit costs, if the Fed doesn't cut, John, do you think U.S. Bank can hold the line on deposit costs? To that end, some investors were asking for clarity on your response to John's question. Just wanted to make sure we were taking away the right thing in that fee revenue, you're confident you could be at the high end of the guide, but you're keeping your ranges for both net interest income and total revenue because while loan growth is strong, the rate curve has a little bit more volatility in terms of the forward look.

Yeah. Thanks, Erika. On your first question on the deposit side of the equation, yes, I think the short answer is yes. I think we've seen stabilization in our deposit mix. We are ultra focused on the priorities that I just mentioned in terms of consumer deposit growth as well as on the wholesale side of the equation. What we've been doing, maybe just to add a little bit more color, is we have been doing a lot of work to reduce, and you'll see this in our numbers, CDs and higher cost institutional type deposits and things like that have less value, maybe are one-off type transaction as opposed to multi-service. That's really where our focus is on the deposit side. We do see that.

Just to repeat what we've said, our bias is really on the high-end of the range for fees, just given the momentum we're seeing in all those categories. We have that visibility because you can see the pipelines of the businesses that are coming online. You can see in all the different categories that I just talked about, including payments, including institutional services. Then capital markets just has been continuing to be robust. On the net interest income side, we continue to expect mid-single-digit growth in that area. That's a reflection of just the uncertainty in the marketplace right now. There's a lot of puts and takes that are occurring. While we have deposit stabilization, while we have good core loan growth, those are all good things.

Some things are coming on tighter spreads, and the interest rate environment is uncertain, and we just are taking that into consideration here.

Got it. The second question is just a follow-up on the capital discussion. Under the current rules, obviously in theory, you'll be crossing CAT 2 at some point next year. If you do elect to be ERBA or enhanced risk-based approach, is your understanding that is the five-year phase-in going to be the overarching sort of guide, or does the AOCI cliff once you cross over? Or to Gunjan's earlier point, does it matter very little because of the timing issue and your AOCI would burn down by the time that's valid anyway?

Yeah. It's a good question, Erica. It's one we actually have for the regulators in terms of just clarification of it. We're unique in that we have proximity to Category II. There is a little bit of a timing collision between the Category II timing of when we come online, which is we expect that would be under current rules sometime in 2027. The effective date of ERBA and when does that occur. Then of course, Ebrahim, I believe had the comment about is there some rules that will change on the index. A lot of things are moving. What I will tell you is that we're preparing for a CAT 2 world. That is what we have been ensuring that we will be in compliance with. We have the capability to go to standardized or ERBA. Technologically, that's very simple for us to execute.

I think overall we'll monitor and we'll update you as we go. We feel prepared, and we feel like we have a lot of flexibility now with the capital rules and how that ultimately will play out.

Yeah. Just a quick follow-up question in terms of what Gunjan's saying with regards to optimizing the payouts. Does the timing of the clarification impact sort of the path to optimization? Or does that really have to do with sort of the RWA demands from stronger loan growth in terms of timing of capital payout optimization?

Erika, I would say that we believe the regulator's intent is to allow all banks a five-year phase-in on AOCI to take the cliff effects away. We are waiting for that clarification. A very good outcome from a capital distribution side for us will be, let's say, a very prompt date to have the current proposals of Basel III be effective and for us to get a five-year phase-in period. In which case, we'll be well ahead of our capital needs, even as a CAT 2, and we will bring forward the capital distributions. We are thinking here one or two quarter changes. That's why I say it's not that material to our strategy or our timing. It can move by one or two quarters in terms of how quickly we step up.

Thank you so much for indulging me the extra question. Thank you.

Our next question comes from the line of Ken Usdin with Autonomous Research. Please go ahead.

Thank you. Good morning. Just one question on the expense side. You did a great job holding the line as you'd expected to on year-over-year growth in first. We can see in the second quarter guide that it's as expected moving higher. Just wondering first and second quarter costs last year were actually down. Understanding the year-over-year growth goes up a little bit. Kind of tied to the prior points about operating leverage and magnitude. If we get back into this 3%-4% growth, is that how we kind of think about it as we just move forward on a regular basis? That the investments that you're making and revenue related leads you to that decently higher expense growth rate than what we had seen in the first quarter, which I don't think people thought was going to be the baseline. Thanks.

U.S. Bancorp (USB) Q1 2026 Earnings Call Transcript

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