U.S. Bancorp Earnings Call: Growth, Fees, and Risks

U.S. Bancorp ((USB)) has held its Q4 earnings call. Read on for the main highlights of the call.

U.S. Bancorp Earnings Call Signals Strong Momentum Despite Regulatory Clouds

U.S. Bancorp’s latest earnings call carried a distinctly upbeat tone, as management emphasized record revenues, double‑digit adjusted EPS growth, and broad-based business strength. Executives highlighted improving net interest income and margin trends, solid fee income, disciplined expense control, and better asset quality, all underpinned by clear forward guidance that points to continued revenue growth and positive operating leverage. While they acknowledged meaningful near-term pressures—from merger-related costs, regulatory uncertainty, and select segment softness—the overall message was that the bank’s earnings power and strategic positioning are improving faster than the risks are building.

Record EPS and Revenue Underscore Earnings Power

U.S. Bancorp posted adjusted diluted earnings per common share of $1.26 in the fourth quarter, up roughly 18% year over year, underscoring robust underlying profitability. Net revenue reached a record $7.4 billion for Q4 and $28.7 billion for the full year, with quarterly total net revenue climbing 5.1%. Management framed these results as evidence that the company is executing well on both sides of the balance sheet, even as it absorbs integration and investment costs. The combination of strong top-line growth and firm cost control is driving operating leverage and supporting attractive returns on capital.

Net Interest Income and Margin Trends Turn Favorable

Net interest income (NII) moved higher, a key point for bank investors focused on rate and spread dynamics. NII rose 3.3% year over year on management’s commentary, with fully taxable-equivalent NII at $4.3 billion—up 1.4% from the prior quarter. Net interest margin ticked up 2 basis points sequentially to 2.77%, a modest but important sign that pressure from funding costs is easing. Management pointed to mix improvements and balance sheet discipline as drivers, while cautioning that a large investment portfolio and lower long-term rates will moderate how quickly margin can expand from here.

Fee Revenue Delivers Broad-Based Growth

Fee revenue was a bright spot, reinforcing the bank’s status as a diversified franchise rather than a pure rate play. Fourth-quarter fee income rose 7.6% year over year, with full-year fee revenue up 6.7% and accounting for about 42% of total net revenues in 2025. Growth was broad-based across payments, institutional, and consumer fee businesses, reducing reliance on NII and improving earnings stability. Management stressed that this balanced revenue mix is strategic, positioning U.S. Bancorp to generate growth even in less favorable rate environments.

Positive Operating Leverage and Tight Expense Control

The bank delivered meaningful positive operating leverage, signaling that revenue is growing much faster than costs. Adjusted operating leverage reached 440 basis points in the quarter and about 370 basis points for full-year 2025, aided by nine consecutive quarters of largely stable expenses. Productivity initiatives and disciplined cost management helped absorb severance and other one-off items while still supporting technology and growth investments. Looking ahead, management expects to maintain positive operating leverage of at least 200 basis points in 2026, a key pillar of their long-term earnings story.

Asset Quality and Credit Metrics Improve Further

Credit performance remains a support rather than a drag on results. The ratio of nonperforming assets to loans and ORE fell to 0.41%, improving both sequentially and year over year. The net charge-off ratio improved to 0.54%, down 2 basis points from the prior quarter, suggesting losses are well-contained despite credit card and commercial growth. The allowance for credit losses stood at $7.9 billion, or 2.03% of period-end loans, giving management comfort that the reserve is appropriate for the current environment. Investors worried about late-cycle credit deterioration likely took some reassurance from these trends.

Balance Sheet Growth in Deposits and Loans

U.S. Bancorp showed healthy balance sheet momentum, with total average deposits up 0.7% sequentially to $515 billion. The bank reported record consumer deposit growth, while noninterest-bearing deposits rose both sequentially and year over year, holding around 16% of total deposits—an important offset to higher funding costs. Average loans climbed 1.4% quarter over quarter to $384 billion, led by strong year-over-year growth in commercial (about 10%) and credit card loans (roughly 15.7%). Those faster-growing categories now make up around 48% of total loans, helping support NII growth but also requiring tight credit discipline.

Capital Strength and Attractive Returns

Capital levels and shareholder returns remained robust. Tangible book value per common share increased 18.2% year over year, reflecting both retained earnings and balance sheet marks moving in the right direction. Return on tangible common equity was a healthy 18.4%, while return on average assets was 1.19% for the quarter—both solid figures for a large regional bank. The efficiency ratio improved to 57.4%, highlighting management’s success in extracting more revenue from each dollar of expense. Together, these metrics support a narrative of a well-capitalized bank generating strong, improving returns.

BTIG Acquisition Targets Fee Upside and Capital Markets Scale

The pending acquisition of BTIG was presented as a strategic bolt-on that deepens U.S. Bancorp’s capital markets capabilities and fee revenue potential. The two firms have already worked together on more than 350 deals over a decade-long partnership, giving management confidence in cultural and operational fit. BTIG is expected to contribute $175 million to $200 million of fee revenue per quarter once integrated, though current guidance for 2026 excludes this upside. Executives highlighted expected revenue synergies and the ability to offer a broader set of advisory and trading services to institutional and corporate clients.

Global Fund Services Delivers High-Growth Niche

Global Fund Services (GFS) continues to emerge as a fast-growing, strategically important niche. GFS total net revenue grew about 12% in 2025 and has delivered an approximately 11% compound annual growth rate since 2021. The platform onboarded nearly half of all new U.S. ETF launches in 2025, underscoring its competitive positioning. Beyond fee income, GFS is attracting operational deposits and money market assets under management, creating additional balance sheet and revenue benefits. Management portrayed GFS as a scalable, high-return business that enhances the overall growth profile of the franchise.

Merger Costs and BTIG Capital Impact Temper Near-Term EPS

While broadly bullish on BTIG’s strategic benefits, management acknowledged near-term financial trade-offs. They expect merger-related costs over the coming quarters to offset the initial pre-provision net revenue (PPNR) contribution, making earnings per share effectively neutral in the short run. The BTIG transaction will reduce the common equity tier 1 (CET1) ratio by approximately 12 basis points, modest but not immaterial as the bank balances growth, regulatory expectations, and shareholder returns. Near-term buyback capacity could be somewhat muted while integration costs flow through, though management framed these as manageable and temporary.

Regulatory and Tailoring Uncertainty Looms Over Growth

A key overhang discussed on the call was regulatory and supervisory uncertainty, particularly around capital and tailoring rules. With period-end assets at $692 billion—close to the $700 billion threshold associated with tighter Category Two treatment—management is closely monitoring potential changes that could affect capital, liquidity, and operational requirements. While no specific rule outcomes were predicted, leadership acknowledged that shifting regulatory expectations could influence how aggressively the bank grows, manages its balance sheet, and returns capital to shareholders.

Expenses and One-Off Items Could Pressure Margins

Noninterest expense rose about 0.7% sequentially to roughly $4.2 billion, as severance charges and other one-time items partly offset favorable FDIC expense. Management emphasized that strategic investments—in technology, infrastructure, and growth businesses—will ramp up in 2026. While the plan assumes revenue continues to outpace expenses, there is recognition that if top-line growth slows, these investments could temporarily pressure expense ratios and margins. Still, the bank’s track record of nine quarters of stable expenses gives management confidence in its ability to calibrate costs to conditions.

Policy Risk: Credit Card Rate Caps and Competition Act

Executives flagged macro policy risk, especially around proposals to cap credit card interest rates and the Credit Card Competition Act. Using a hypothetical 10% rate cap as an example, management estimated that more than 90% of their clients would be negatively affected, arguing such caps could restrict access to credit rather than protect borrowers. They view aspects of these proposals as materially negative for both customers and earnings, given U.S. Bancorp’s meaningful credit card exposure and growth ambitions in that segment. While still in the legislative and regulatory arena, these policy developments were framed as real risks that investors should track.

Mixed Results Across Payments Segments

Despite overall payments strength, not all segments are firing equally. Corporate payments, including corporate card and treasury-related activity, remained negative year over year and are expected to stay weak into the first half of 2026 before recovering. Management suggested that broader macro conditions and client spending patterns are weighing on this line, even as other parts of the payments franchise improve. Investors were encouraged to view these headwinds as cyclical and transitory, but they do add some noise to the otherwise strong fee growth narrative.

Investment Portfolio Size Limits Near-Term NIM Upside

The bank’s sizable $171 billion investment portfolio remains a swing factor in net interest margin performance. Management noted that the portfolio can flex depending on loan growth opportunities, but a larger fixed-rate book means more assets will reprice in 2026 at narrower spreads given lower long-term interest rates. This dynamic may cap how quickly NIM can expand, even as deposit mix improves and higher-yielding loans grow. For investors, the message was that NIM progress will likely be gradual rather than explosive, shaped as much by asset repricing as by rate cuts or loan growth.

Guidance Points to Continued Growth and Capital Returns

Looking ahead, U.S. Bancorp guided to full-year 2026 total net revenue growth of 4%–6%, with at least 200 basis points of positive operating leverage, excluding any benefit from BTIG. Management expects mid-single-digit growth in both NII and fees for the year, supported by projected loan growth of 3%–4%, led by commercial and card. For the first quarter of 2026, they see NII (on an FTE basis) up 3%–4% versus 2025, fee revenue up 5%–6%, and noninterest expenses up roughly 1%. Capital return plans call for increasing share repurchases from about $100 million to $200 million this quarter, on a glide path toward an approximately 75% payout target over time. They also reiterated a path for net interest margin expansion from the current 2.77% toward around 3% by 2027, though BTIG-related merger costs and a roughly 12-basis-point CET1 impact will offset some near-term benefits as integration proceeds.

In closing, U.S. Bancorp’s earnings call painted the picture of a bank with rising earnings power, strong balance sheet and credit metrics, and a clear plan to grow both interest and fee income while keeping expenses in check. Strategic moves like the BTIG acquisition and the expansion of Global Fund Services aim to deepen high-value fee streams, even as management navigates regulatory uncertainty, policy risk, and pockets of weakness in corporate payments. For investors, the story is one of solid, diversified growth with manageable near-term headwinds—making U.S. Bancorp a name to watch as it executes on its 2026 and 2027 targets.