The U.S. Bancorp First Quarter 2025 Earnings Conference Call is being hosted by George Andersen, Director of Investor Relations, with contributions from Gunjan Kedia, the President and new CEO, and John Stern, the CFO. They will discuss the company's earnings results and reference a slide presentation available on their website. The call acknowledges risk factors associated with any forward-looking statements. Gunjan Kedia pays tribute to the late Terry Dolan, former Chief Administration Officer, and mentions support from the investment community. In the first quarter, U.S. Bancorp reported an earnings per share of $1.03 and a return on tangible common equity of 17.5%.

The paragraph discusses U.S. Bancorp's recent achievements and strategic priorities, highlighting a positive operating leverage of 270 basis points on an adjusted basis. The company has managed to keep expenses lower than revenues for the third consecutive quarter, with credit quality and capital levels remaining strong. Despite the volatile economic environment, the management team is confident in their ability to navigate various scenarios, thanks to a strong risk management culture. U.S. Bancorp, as the largest non-GSIB bank in the U.S., boasts a unique franchise with significant fee income and a loyal client base. The newly appointed CEO reaffirms commitment to medium-term targets, acknowledging the uncertain economic outlook but expressing confidence in meeting targets under various scenarios.

The article outlines three strategic priorities: managing expenses, driving organic growth, and transforming the payments business. The focus is on achieving high returns and maintaining disciplined risk management. The company has effectively reduced expenses for six consecutive quarters, funding organic growth and enhancing operating leverage. It has initiated four expense programs to boost productivity while ensuring quality client service. The revenue environment is monitored to adjust these programs. Additionally, the company benefits from a diverse mix of fee-generating businesses, supporting confidence in medium-term fee growth. Challenges from consumer fees and the sale of the ATM cash provisioning business are diminishing, aiding future fee growth.

The paragraph outlines the company's strategic focus on enhancing its payments business to deepen client relationships and expand through partnerships. They aim to strengthen their payments franchise, which is important for generating both fee and net interest income. The company has seen growth in average loan balances and total purchase volumes, particularly targeting affluent customers with products like BankSmartly. They plan to increase their efforts in key areas like California and expand their Elon franchise. The merchant acquiring business, while a small part of overall revenue, is highlighted as a unique and significant aspect of the company's strategy.

The paragraph discusses a multiyear transformation strategy for a bank, focusing on greater interconnectivity, industry-specific focus, and transitioning to a tech-led operating model. These changes aim to improve merchant processing revenue and achieve growth targets. The bank has improved its ranking in Nielsen's 2025 report and expects mid-single-digit growth in fee revenue. A simplified management structure is highlighted, and John Stern is introduced to provide more details. John then reports first-quarter earnings, noting $1.03 earnings per share, revenue growth, disciplined expense management, improved credit quality metrics, and a small reserve release. Incremental reserves were also added due to macroeconomic uncertainties.

The paragraph outlines a financial update for a company, highlighting a diversified loan portfolio and a 20 basis point increase in their CET1 capital ratio to 10.8%. Their tangible book value per share rose by 13.8% year-over-year to $25.64. The company's return on average assets and net interest margin improved, boosted by strong financial performance and disciplined expense management. Average deposits decreased by 1.1% to $507 billion, reflecting seasonal patterns and a focus on relationship-based deposits. Average loans rose by 0.9% to $379 billion, primarily from commercial lending, though offset by auto loan runoffs. The investment portfolio remained steady at $171 billion, with yields affected by lower short-end rates. Net interest income was stable at $4.12 billion, while non-interest income increased by 5% year-over-year to $2.8 billion, driven by payments and investment management fees.

The paragraph discusses financial performance and projections for a company, highlighting key aspects such as a seasonal decline in revenue, stable non-interest expenses, and improved credit quality metrics. The company saw an increase in their common equity Tier 1 capital ratio and completed $100 million in share repurchases, with future buybacks expected to remain modest due to capital accretion and macroeconomic considerations. Additionally, the paragraph outlines an improved balance sheet trajectory leading to net interest margin expansion, driven by improved asset mix and optimization efforts, with no expectation of becoming a category two bank before 2027.

The paragraph outlines the company's financial guidance and progress for 2025. For the second quarter of 2025, they expect net interest income to range between $4.1 billion and $4.2 billion, with non-interest expenses at $4.2 billion or less, aiming for positive operating leverage of over 200 basis points. Full-year 2025 projections include a 3% to 5% revenue growth compared to 2024, with positive operating leverage above 200 basis points. They have made progress toward medium-term targets, improving profitability and capital positioning. Gunjan Kedia, the leader, expressed enthusiasm about the bank’s future and mentioned past efforts to integrate Union Bank and rebuild capital after 2023's banking failures.

The paragraph outlines a U.S. Bancorp conference call where the focus is on organic growth and managing expenses amid uncertain times, with an emphasis on restoring investor confidence. The speaker expresses gratitude to Andy Cecere for his leadership, who is retiring, and opens the floor to questions. In response to Gerard Cassidy from RBC Capital Markets, John Stern acknowledges condolences for Terry's death and discusses portfolio yields, noting that lower short-term rates have offset fixed-rate asset repricing benefits. He mentions that about half of the Available For Sale (AFS) book is floating rate, providing technical insights into the bank's investment portfolio.

The paragraph discusses the bank's strategies to manage interest rate sensitivity and maintain a neutral interest rate risk position on its balance sheet, using hedges and swaps to counterbalance rate shocks. It also mentions the bank's desire for a more upward sloping yield curve to optimize funding and asset repricing. Gerard Cassidy inquires about the bank's capital levels and cautious approach to share buybacks. Historically, the bank has returned 70% to 80% of annual earnings to shareholders. The bank is awaiting clarity on capital rules before resuming such levels of shareholder returns, maintaining a target capital ratio of approximately 10%.

The paragraph discusses the company's financial outlook and plans. They anticipate increasing share repurchases as they approach a 10% capital level and maintain their revenue growth target of 3% to 5% for the year, despite an uncertain market environment. There is no change in their guidance, and they still expect mid-single-digit fee growth. Additionally, they outline strategies for growing net interest margin, including fixed asset repricing and an improved loan book mix. The conversation also includes well-wishes for someone retiring.

In the paragraph, Gunjan discusses the company's initiatives in various areas like payments, capital markets, and trust and investment management, highlighting their strategies to achieve more than 200 basis points of operating leverage for the full year. Despite market changes, they are confident due to resilient clients. When asked about consumer spending patterns, Gunjan notes a modest early-year decline due to weather, which stabilized by March. While consumer sentiment is down, their clientele tends to be more affluent, focusing on non-discretionary spending, resulting in steady spending patterns. Scott Siefers thanks Gunjan for her insights, and John McDonald from Truist Securities is introduced for the next question.

The paragraph features a discussion between Gunjan Kedia and John McDonald about the payments business's performance and expectations. Gunjan acknowledges that while there may have been some disappointment compared to its potential, the industry remains attractive. The company focuses on maintaining a balance between margin and growth and is adapting its product offerings to appeal to both borrower and affluent transactor segments. Their goal is to align with market volumes and sustain healthy margins, viewing the payments business as a crucial anchor for broader client relationships across banking products. John McDonald also briefly notes the company's successful cost management, maintaining flat quarterly expenses.

The paragraph features a discussion about a company's investment strategy amid competition from aggressive payments competitors and expanding banks. John Stern explains that they have shifted their investment focus from defense to offense, using savings to fund these investments. They maintain a robust CapEx level of around $1.25 billion and OpEx and tech costs between $2 billion to $2.5 billion annually. Betsy Graseck from Morgan Stanley then asks for clarification on what market the company is targeting, seeking understanding of the company's definition of the market and its growth rate.

In the paragraph, Gunjan Kedia discusses the company's focus on the U.S. market rather than a global one due to differing growth rates, targeting a specific credit range that is neither super prime nor subprime, and aiming for profitable margins by focusing on large e-commerce and retail sectors that promise high returns. Betsy Graseck then inquires about the company's strong commercial and industrial (C&I) lending growth, particularly noting the contribution from non-bank financial institutions, and asks if payments play a role in this. John Stern responds by explaining that the C&I lending growth is driven by asset-backed securities (ABS) lending, increased utilization rates, and growth in the middle market, emphasizing that the utilization rates are approaching normal long-term levels.

In this paragraph, Mike Mayo from Wells Fargo questions Gunjan Kedia, newly appointed CEO of U.S. Bancorp, about her strategies for improving the company's stock performance and restoring investor confidence. He acknowledges management changes aimed at simplifying operations and focusing on core verticals. Mayo highlights the company's goals of achieving better expense management, organic growth, enhanced returns through payments, and maintaining superior risk management. He notes the company's struggle with stock price performance despite having strong personnel. Mayo asks Kedia to explain how her approach will differ from her predecessor, Andy, to achieve better company performance. Kedia responds by expressing her dissatisfaction with the current stock performance.

The paragraph discusses U.S. Bank's need to reinstate expense discipline to achieve operating leverage and efficiency targets while investing in organic growth. Historically, the bank has grown through acquisitions and risk management but now aims to enhance organic growth, especially in its payments business. Emphasizing a culture of urgency in execution, the bank is confident in its strong franchise and better future results. Mike Mayo inquires about the bank's five verticals and growth opportunities, specifically regarding the Union Bank franchise. Gunjan Kedia highlights the importance of the merchant business, which, while a small part of their operations, is a key differentiator.

The paragraph discusses a company's strategy to focus on five major verticals—retail, services, travel, entertainment, and health care—to enhance their tech-driven value propositions and improve execution, resulting in 90% of their revenue being concentrated in these areas. Gunjan Kedia highlights growth opportunities, such as increasing consumer and small business penetration at Union Bank to match U.S. Bank levels and expanding their Elon franchise, which supports 1,200 financial institutions with a white-label platform. Enhancements have been made to this platform, presenting another potential growth engine. Erika Najarian from UBS inquires about the company's medium-term net interest margin projections, noting that past increases have coincided with changes in hedges.

In the paragraph, John Stern addresses Erica's question about optimizing bond yields to increase net interest margin. He explains that loan growth, investment portfolio adjustments, and repricing fixed-rate loans are key strategies. Loans and investments will reprice 150 to 200 basis points higher, aiding net interest margin improvement. Additionally, Stern discusses the impact of deposit and funding costs, noting that lower Federal Reserve rates could accelerate net interest margin gains, while current flat or inverted yield curves might slow progress. He clarifies that hedges have no significant impact on net interest income.

The paragraph discusses the financial strategies concerning swaps and stock buybacks. It explains that the pay fix swaps in the investment portfolio offset the received fixed swaps on the commercial loan book, resulting in negligible impact on net interest income. Erika Najarian asks about the company's stock buyback strategy, initially unveiled to be $5 billion with a modest pace and focused on improving the CET1 ratio excluding accumulated other comprehensive income (AOCI). John Stern responds by stating multiple factors are considered, balancing distribution with capital building, and despite economic uncertainties, they have been effective in increasing their capital levels.

The paragraph discusses the company's financial goals and strategies. They aim to increase share repurchases and maintain a balanced growth in capital while considering factors like loan growth and the macroeconomic environment. Gunjan Kedia emphasizes a committed approach to achieving long-term distribution targets prudently. John Stern clarifies that they plan to achieve a three percent managed margin by 2026 or 2027, depending on factors like the curve shape and deposit environment, with modest loan growth expected in the current environment.

The paragraph is part of a Q&A session discussing financial management strategies, particularly focusing on expenses and operating leverage. Ebrahim Poonawala asks Gunjan Kedia about the possibility of maintaining flat to lower expenses amidst revenue growth opportunities in the bank. Gunjan Kedia emphasizes that their goal is to deliver positive operating leverage by adjusting their expense base according to revenue conditions, while also investing in growth. Bill Carcache then inquires about the potential for positive operating leverage to exceed 300 basis points, considering fixed-rate asset repricing advantages and past expense trends. John Stern responds to this question, indicating an acknowledgment of the current situation and its complexities.

In the paragraph, John discusses the company's strategy for achieving positive operating leverage by potentially growing revenues through various initiatives while adjusting expenses according to the macroeconomic environment. They aim for over 200 basis points of positive operating leverage, with possible fluctuations each quarter. Bill Carcache then inquires about credit risk related to tariff policy changes, to which John responds that, although it's too early to detect significant impacts, the company has a strong credit risk management team monitoring the situation.

The paragraph is part of a discussion during a financial call. It addresses the impact of tariffs on supply chains and how it's essential to understand each client's unique circumstances. John Stern discusses their current forecast, which includes two Federal Reserve interest rate cuts expected in the summer and fall, with long-term rates remaining stable. Ken Usdin inquires about the payment side, specifically regarding prepaid card impacts, to which John Stern confirms that the prepaid card adjustments were completed and had a modest effect on their numbers this quarter. Overall, it discusses preparing for tariff changes and expectations around interest rates and prepaid card impacts.

The paragraph features a discussion about the capital markets business and its growth prospects. John Stern expresses optimism about this area, citing a growing client base in both high-grade and high-yield sectors, as well as strong pipelines in foreign exchange and derivative businesses. He attributes this success to market volatility and emphasizes the momentum in the business as they progress through the year. Ken Usdin thanks him and John Pancari from Evercore ISI follows up with a question on fee growth. Pancari inquires about the specifics of the anticipated mid-single-digit growth in fees, particularly focusing on the card sector, which saw only a 1.5% increase year-over-year despite stabilizing card spend in March.

In the paragraph, John Stern addresses concerns about achieving mid-single-digit growth despite macroeconomic challenges. He explains that the growth target applies to the entire key complex, not just the card segment, which was affected by a prepaid item in the first quarter. He anticipates growth in payments, trusts, and capital markets once temporary issues like weather effects subside. Stern mentions that other revenue is expected to hit the upper end of a defined range ($125 million to $150 million). Regarding card business growth, he notes a 4% growth rate, indicating a positive trajectory. John Pancari raises concerns about potential weaker revenue across the industry and inquires about cost-cutting levers that could be utilized if necessary.

In this paragraph, there is a discussion involving John Stern, Gunjan Kedia, and John Pancari about the strategies for managing expenses and investments in the company. John Stern mentions that the company has various expense programs that can be adjusted based on the revenue environment and that they have control over several areas such as real estate and automation. Gunjan Kedia adds that the company is focused on how much of the expense savings can be reinvested into the business. Saul Martinez from HSBC then asks a question regarding slide eighteen, which details projections for net interest income based on $700 billion in average earning assets by 2027. He calculates that with a 3% NIM (Net Interest Margin), net interest income would be over $19 billion, representing a CAGR of more than 5%.

In the conversation between John Stern and Saul Martinez, Stern discusses projections for growth and net interest income from 2024 to 2027. He notes that their forecast suggests low single-digit growth, particularly for loan growth, unless the economy changes significantly. Predicting net interest income by 2027 is challenging, but Stern shares insights on how the net interest margin may evolve, focusing on loan and investment portfolio repricing and remixing, which they believe will be beneficial. The funding component will also be influenced by market variables. Stern emphasizes that their presentation aims to outline their thoughts on future net interest margin developments.

In the paragraph, Saul Martinez is trying to understand the net interest income projections for 2027 by using the provided net interest margin (NIM) and asset figures, but John Stern clarifies that these projections are based on the company's internal view of asset repricing and deposit optimization. John explains that various factors, including an upward sloping curve and investor day projections, influence their modeling. Later, Vivek Juneja from JPMorgan asks about revenues from merchant processing and corporate trust in Europe, with John Stern estimating a third for merchant revenue and less than ten percent for trust services. Vivek then inquires about the partnership with Edward Jones, noting an article about Edward Jones wanting to establish its own bank. Gunjan Kedia acknowledges awareness of Edward Jones' plans.

The paragraph discusses a partnership where one party focuses on a limited-scope bank application while relying on the other for broader banking capabilities. Vivek Juneja inquires about the other income guidance of $125 million to $150 million, to which John Stern responds that it is expected to be on the high end, around $150 million. The conversation shifts to a new credit card with a zero percent interest for two years. Gunjan Kedia explains that there is an initial investment to build a loan pipeline, but it doesn't significantly affect fee growth and helps future pipeline strength. Matt O'Connor also asks about the net interest income guidance for the second quarter, noting it is expected to be relatively flat.

In the conference call, John Stern discusses expectations for net interest income growth in the second quarter, acknowledging the volatile market environment and uncertainties. He mentions an additional day contributing approximately $20 million to net interest income. Matt O'Connor acknowledges the explanation, and the operator concludes the call, inviting follow-up questions through the Investor Relations department. George Andersen thanks the participants before ending the call.

This summary was generated with AI and may contain some inaccuracies.