US Bancorp (USB) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 16, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• President and CEO — Gunjan Kedia
• Senior Executive Vice President and CFO — John Stern
• Investor Relations — Jen Thompson

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TAKEAWAYS

• Earnings Per Share -- $1.18, up approximately 15% year over year.
• Total Net Revenue -- $7.3 billion, a 4.7% increase driven by business line growth.
• Net Interest Income -- $4.3 billion (taxable-equivalent basis), up 4.1% year over year, supported by robust core loan growth and stable deposit pricing.
• Fee Income -- Up 6.9% year over year, with nearly 30% growth in capital markets and nearly 10% for trust and institutional fees.
• Average Total Assets -- $688 billion, up 0.7% from the previous quarter.
• Positive Operating Leverage -- 440 basis points achieved, with efficiency ratio improving by 260 basis points year over year.
• Return on Tangible Common Equity -- 17%; Return on Average Assets -- 1.15% for the quarter.
• Net Interest Margin -- 2.77%, flat from the prior quarter, reflecting offsetting effects of loan growth and tighter credit spreads.
• Average Loans -- $394 billion, up 3.8% year over year (5.3% excluding 2025 loan sales), with growth across credit card, commercial, and commercial real estate.
• Total Average Deposits -- Flat sequentially; record consumer deposits offset by seasonality in wholesale and investment services.
• Noninterest Expense -- $4.3 billion, up 0.8% from prior quarter; includes investments in technology and marketing alongside productivity gains.
• Nonperforming Assets Ratio -- 0.38%, improved by 3 basis points sequentially and 7 basis points year over year.
• Net Charge-Off Ratio -- 0.56%, up 2 basis points sequentially, reflecting credit card seasonality.
• Allowance for Credit Losses -- Nearly $8 billion, or 2% of period-end loans.
• Common Equity Tier 1 (CET1) Ratio -- 10.8%, or 9.3% including accumulated other comprehensive income (AOCI).
• Guidance for Q2 2026 -- Net interest income and total fee revenue growth each expected at 6%-7% compared to 2025; noninterest expense growth projected at 3%-4% compared to 2025.
• Full-Year 2026 Guidance -- Total net revenue growth expected in the 4%-6% range; positive operating leverage targeted at 200 basis points or more.
• Amazon Partnership -- Expected to bring $1.6 billion in loans and add $75 million–$85 million quarterly revenue, mostly to net interest income; 700,000 co-brand clients anticipated.
• Pending BTIG Acquisition -- Expected to close in the back half of the second quarter and contribute approximately $200 million in fee revenue per quarter, not included in official guidance.
• Capital Distribution -- Dividend described as "extremely important" and share repurchases increased to $200 million this quarter, with future increases anticipated.
• Business Banking Growth -- Segment represents 9% of revenues; client and fee growth each in the high single digits compounded over two years.
• Payments and Merchant Processing -- Card account acquisitions up double digits for four straight quarters; merchant processing fee growth steady in the mid-single digits.
• California Expansion -- Union Bank integration yielded $1 billion in expense savings and the region outperformed the broader franchise.
• NDFI Loan Portfolio -- Business credit intermediaries represent approximately 3% of total loans, described as well structured with overcollateralization and first-lien collateral.
• Expense Management -- Seventh consecutive quarter of positive operating leverage; strong investments in technology and marketing funded by productivity improvements.
• Branch Network Investment -- $200 million annual spend focused on densifying the franchise in key growth markets and updating to multi-serve branch formats.
• Guidance Exclusions -- Guidance for 2026 excludes effects of BTIG acquisition; Amazon and NFL partnerships fully incorporated.

SUMMARY

U.S.Bancorp (USB 1.58%) management confirmed that total net revenue, fee revenue, and noninterest expenses each exceeded prior guidance, with steady performance against medium-term targets. Executives noted that record consumer deposit inflows were offset by seasonality in wholesale channels, driving improvements in deposit mix quality. The Amazon (AMZN +0.30%) partnership is positioned as a significant small business banking entry, expected to deliver loan growth and incremental revenue, while also expanding the company’s national brand presence. Leaders communicated that the regulatory environment is becoming more constructive, potentially providing regulatory capital relief from pending Basel III proposals and supporting return to historical capital deployment. The team described their approach to category II transition planning as proactive, with high confidence in meeting future capital compliance while maintaining planned capital distributions.

• John Stern said, “On revenues, we have good momentum across fee categories. Capital markets have been extremely strong. Payments are improving.”
• Gunjan Kedia said, “There is a lag between acquisitions and when revenue shows up due to rewards and upfront incentives,” highlighting that elevated current card acquisition metrics may foreshadow further fee growth in future quarters.
• Management stated that expense flexibility remains high, with capability to adjust investments according to revenue trends while maintaining positive operating leverage.
• Executives explained that the BTIG acquisition will be “slightly accretive inclusive of those charges” with merger costs clearly identified in later quarters, pending regulatory approvals.
• Leaders highlighted the business banking segment as a long-term revenue opportunity, supported by recent investments and a distinctive integrated platform.
• Executives characterized the risk exposure in business credit intermediaries as limited due to risk frameworks and structural mitigants.
• John Stern said, “We are committed to positive operating leverage and to having it driven more by revenue growth as we look into 2026.”

INDUSTRY GLOSSARY

• NDFI: Non-Deposit Financial Institution; refers to loans and exposure to borrowers such as business development companies, CLOs, and credit intermediaries outside of deposit-taking banks.
• CET1: Common Equity Tier 1 capital, a regulatory capital measure reflecting a bank's core equity capital compared with its risk-weighted assets.
• BTIG: Refers to the pending acquisition of BTIG, LLC, an institutional broker-dealer, by U.S. Bancorp.

Full Conference Call Transcript

Gunjan Kedia: 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 in 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 remained steady in the mid-single digits, reflecting disciplined execution across three core strategies: software-led products focused on five verticals, and expanding direct distribution. And in corporate payments and prepaid, we are beginning to see growth rebound as pen levels normalize and installations of last year's strong business wins start to show through in results. I will 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. And 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.

John Stern: 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 will 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 with 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 remain stable, underscoring the resilience of our clients in an uncertain operating environment. As of March 31, 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 noninterest-bearing 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 2025. The growth was broad-based, centered around credit card, commercial, and commercial real estate. The ending balance on our investment securities portfolio as of March 31 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 robust loan growth, funding optimization, and ongoing benefits from fixed asset repricing. Slide 13 highlights fee revenue trends within noninterest 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, noninterest 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 nonperforming assets to loans and other real estate was 0.38% as of March 31, an improvement of 3 basis points from the previous quarter and 7 basis points from a year ago. The first quarter net charge-off ratio was 0.56%, increasing 2 basis points sequentially, driven by the seasonal nature of credit cards, while our allowance for credit losses of nearly $8 billion represented 2% of period-end loans.

On slide 17, we are providing a closer look at our business credit exposure within the non-deposit 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 overcollateralization, 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 31, 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 are 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 noninterest expense all exceeded our previous guidance.

I will now provide forward-looking guidance for the second quarter and the full year 2026. Starting with second quarter 2026 guidance, net interest income growth on a fully taxable equivalent basis is expected to be in the range of 6% to 7% compared to 2025. Total fee revenue growth is expected to be in the range of 6% to 7% compared to 2025. We expect total noninterest expense growth of 3% to 4% compared to 2025. I will 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% to 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, and we have a high degree of confidence in our ability to strengthen performance and build on these results. I will now hand it back to Gunjan for closing remarks.

Gunjan Kedia: 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.

Operator: At this time, as a reminder, if you would like to ask a question, press star then the number one on your telephone keypad. We will 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.

Scott Siefers: Good morning, everyone. Thanks for taking the question. John, I wanted to ask about positive operating leverage. You kept the 200-plus basis points target for the year, although you are doing significantly more than that now. It looks like it will be about 300 basis points in the second quarter. Maybe you could discuss how you are thinking about it. Would you sort of manage that level or maybe let some incremental revenues drop to the bottom line if they came in better? I guess the wording leaves a lot to the imagination, so I am just curious on your thoughts. And then on commercial loan growth, really good results — what are you seeing in terms of utilization rates?

And, Gunjan, you touched on customer sentiment toward the end of the prepared remarks, so maybe expand on what you are seeing there.

John Stern: Sure. Thanks, Scott. I appreciate that. We feel good about the outlook. As we mentioned in our guidance slide, we have a lot of growth opportunities. As we have mentioned the past couple of quarters as we think about 2026, we are really thinking about our revenues growing faster and that being the driver of positive operating leverage. We have a desire to invest some of the savings into things like technology and marketing — the things we have talked about in the past. It also depends on the nature of the revenues. If fee revenues grow faster, that is going to bring with it more expense by the nature of compensation and things like that.

Net interest income, of course, we welcome as well. So from an operating leverage standpoint, we have a lot of flexibility, and we feel good about our outlook. On commercial loans, we saw broad-based core loan growth across a number of sectors. On the large corporate side, food and beverage, energy, and health care were probably the top ones in our area. M&A for these customers as well as general CapEx are really starting to show through. Small business continues to be a very strong performer for us, and we expect that to continue.

We have talked about loan growth being in that 3% to 4% range, but I certainly think it is going to be higher than that — probably more in the mid-single-digit range — for the full year. In terms of utilization rate, we are a little bit north of 25%. That is probably a good level for it. It has been creeping up a bit; I do not think there is a lot more upside from that standpoint, but core loan growth has been really strong.

Gunjan Kedia: Good morning, Scott. What I will add on sentiment is it is 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 focused on the AI trade, data centers, and M&A-driven trades, but there was a real pause pending some resolution or clarity around tariffs. What we see in the loan pipelines going forward, which are quite robust, is people beginning to invest in core middle market expansion and CapEx. So the sentiment has stabilized quite nicely.

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

John Pancari: Good morning. On the funding and the margin side, given your loan growth commentary, how should we think about the pace of deposit growth? What are you seeing on deposit pricing, given some larger banks are flagging pressure from a competitive dynamic? And lastly, how should we think about the progression of your margin as you look out through 2026? And then separately on capital, your priorities for deployment and buybacks — and on inorganic opportunities, beyond BTIG, will you be active in building out capital markets, and any thoughts on broader bank M&A?

John Stern: A couple of things there, John. On funding, it is a competitive market, as always. We saw relative price stability across our portfolios. Our focus is growing consumer deposits — again, we saw another record level on the consumer deposit side and a $7 billion increase year on year, nearly 3% growth. On the wholesale side, we are focused on operational deposits that support a broader relationship and leverage into fees. We have been able to navigate the deposit environment as we typically do. On margin, it was flat this quarter. Positive drivers were good core loan growth and deposit pricing stability.

Offsets included tighter spreads on some larger-institution loans — still good returns, but at tighter spreads — and more mortgage refinancing activity, up nearly 15% to 20% year over year. Going forward, I expect the mortgage impact will abate, and the positives should stick — good core loan growth, deposit pricing stability, and an improving earning-asset mix — so we continue to see progression in net interest margin going forward. On capital deployment, no change. We will support client and loan growth, and then focus on capital deployment to shareholders. The dividend is extremely important, and buybacks — we went from $100 million to $200 million this quarter. I would anticipate we will continue to glide up.

Starting at $200 million would be my base case given the strength in the pipelines; it could increase from there. We will glide up as we get to our capital levels.

Gunjan Kedia: Thank you, John. I want to reiterate that we are very committed to long-term capital distribution targets of 70% to 75%, and we are keen to get back to those levels with share repurchases. We are very close to stabilizing our capital ratios in a Category II framework and are encouraged by capital rules that might accelerate that. On our bolt-on acquisition strategy, we are constantly looking at properties, usually not as big as BTIG. It would be unusual for us to do another bolt-on in capital markets right now because we are focused on closing BTIG and getting synergies from it, but we remain open.

Those tend to be small and immediately accretive, giving local scale in a product or filling a gap. On broader M&A, nothing has changed. We are excited about the organic growth opportunities and the momentum we have, so that is our focus.

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

John McDonald: Good morning. Thank you. John, a follow-up on your net interest margin comment. Do you expect the margin to continue expanding and maybe expand in the second quarter and move steadily upward? Are you still on a path to 3% sometime next year? And more broadly, on total revenue growth for this year — with loan growth looking better and fees starting strong — is the higher end of the 4% to 6% range achievable, and what are the big swing factors?

John Stern: Yes, we certainly still see a path to 3%. The margin is not always linear, and I gave reasons this quarter — the pluses and minuses. Underlying metrics are favorable: loan growth will help earning-asset mix, deposits are stabilizing, and our asset mix is improving. Think about the Amazon small business portfolio coming on in the third quarter as an example. Those things should help drive net interest margin going forward. On revenues, we have good momentum across fee categories. Capital markets have been extremely strong. Payments are improving; corporate payments will see the drag from last year’s government spend fall away after the second quarter, and we have good pipelines there. Our institutional businesses are doing extremely well.

So my bias is to be on the higher end of the 4% to 6% range on fee revenue. Total revenue guidance at 4% to 6% is the right range for us at this juncture.

Gunjan Kedia: And on NII, we feel optimistic about loan volume demand, and deposits have stabilized. There is, however, a heightened level of uncertainty around monetary policy and the rate path that impacts the resi mortgage book and credit spreads. So we are staying with the 4% to 6% on NII given that uncertainty.

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

Ebrahim Poonawala: Good morning. On regulatory changes — given you slightly crossed $700 billion this quarter, we have heard tailoring is a front-burner agenda for the Fed over the summer. If Category II moves to, say, $900 billion or $1 trillion in assets, what does that mean strategically and for capital allocation? Does it change anything?

John Stern: Sure, Ebrahim. From a Category II perspective, we are watching to see what the rules are and how those come out. Right now, we have to focus on the current rules, so we are focusing on our Category II level. With the regulatory changes, we showed on the slide the two proposals — standardized and expanded. Both are better than the Category II regime, giving us more flexibility. So that is helpful on capital.

Gunjan Kedia: The big variable is timing — when the rules either index in tailoring or the proposed Basel III rules are effective. If the index is forward-looking, it does not make a difference. If the proposed rules get implemented sooner than we think, then we are in good shape. Either way, we are very prepared for Category II with full AOCI in our capital. That is what we are counting on, and we are very proximate to that. So it is not a meaningful change to anything we would anticipate doing with capital distributions.

Ebrahim Poonawala: Got it. And on slides five and seven — California is super competitive, and then there is Amazon and the NFL. Are these needle-movers or just good logos? Can you frame the opportunity over the next year or two?

John Stern: On Amazon, we expect that to come online in the third quarter. The loan amount is likely around $1.6 billion, and about 700 thousand co-brand clients. It will probably add in the range of $75 million to $85 million per quarter, a majority on the net interest income side. This is all taken into guidance. We will take a reserve at the appropriate time, at about the same level as our card book.

Gunjan Kedia: On California, yes, it is competitive, as are other large markets, but it is very big and we are becoming a significant player. Growth there is higher than the rest of our franchise. On co-brand relationships, we built our digital platform to nationally serve co-brand card clients with banking services — first with State Farm, improved with Edward Jones. It is unique in the market today and attractive to partners because you can provide a full range of services under their user experience. The Amazon deal allows us to take that platform to small business, making it a big asset to attract large co-brand mandates. We have 1.4 million small businesses today as banking clients.

The Amazon deal will bring 700 thousand new small businesses to the co-brand side with the opportunity to attract them to the broader business banking relationship. It is a pathway to growth that does not rely on deposit pricing erosion or the usual ways banks grow.

Ebrahim Poonawala: And on State Farm and Edward Jones — can you grow cards or fees where you do not have on-the-ground presence, or is success converting those clients into core USB clients?

Gunjan Kedia: We think of it as an attractive value proposition for co-brand relationships first and foremost. That is the easiest value proposition to the partner. It is also a good front edge to build our brand locally. It does not compete in size with the bank’s traditional deposit-gathering engine, but it shows up as a unique go-to-market motion in cards and new client acquisition for a bank of our size. We are very well known within our footprint; these partnerships help us build our brand outside our franchise — and that is what the NFL deal is about too. It is idiosyncratic and economically lucrative.

Because the platform is built and we are expanding it to small business, it also supports our own product set — like Bank Smartly — attracting meaningful deposits along with card loyalty programs.

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

Mike Mayo: You have come a long way with CET1 over the last three years, from 6% to 9%. Positive operating leverage is relatively new — it is not the U.S. Bancorp of old in terms of efficiency. You mentioned the second quarter in a row of positive operating leverage — is this something you will track quarter to quarter? And on investing for growth, if you were to highlight your three priority areas, what would those be?

John Stern: You bet. Thanks, Mike. We have had seven quarters in a row of positive operating leverage, which we are very proud of, and we are very much committed to it. Last year was driven more by expense management and finding savings to become more efficient. We continue to do that, but now we are taking those savings and investing in projects — small business, marketing, technology builds — the areas we are focused on. We are committed to positive operating leverage and to having it driven more by revenue growth as we look into 2026.

Gunjan Kedia: Last year, we focused on expense management and fee growth — natural extensions of five years of heavy digital investments into a world-class product set, which did come with some sacrifice of efficiency in the past. Going forward, our business mix is very helpful to delivering consistent positive operating leverage, and we are committed to sustaining that.

Our growth priorities are simple: continue to grow our fee categories — we want to be known for a heavy fee mix driving strong returns; strengthen our consumer and small business franchise — all of the examples we have shared are toward that goal so the core funding mix strengthens; and return to our DNA of a simplified, streamlined cost structure — in the past it was automation; going forward, we are focused on becoming an AI-native organization.

Mike Mayo: A follow-up: you are saying credit card customer growth is 10%, but fee growth is 5%. Does that imply much better fee growth ahead?

Gunjan Kedia: Yes. There is a lag between acquisitions and when revenue shows up due to rewards and upfront incentives. Over the last six quarters we elevated marketing and acquisition spend across revolvers and transactors. We have always been strong on balances; on transactors we accelerated acquisitions. Faster acquisitions initially depress core revenue due to rewards, so you see acquisitions stronger now and revenue strengthening four to six quarters out.

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

Erika Najarian: A few follow-ups. On deposit costs — if the Fed does not cut, can U.S. Bank hold the line on deposit costs? And to clarify your response earlier: on fee revenue, you are confident at the high end of the guide, but you are keeping ranges for both net interest income and total revenue because while loan growth is strong, the curve is volatile?

John Stern: Thanks, Erika. On deposits, yes — we have seen stabilization in deposit mix. We are ultra-focused on growing consumer deposits and, on the wholesale side, on operational deposits. We have been reducing CDs and higher-cost institutional deposits and other less valuable, one-off types. On guidance, our bias is to the high end on fees given momentum and visibility in pipelines across payments, institutional services, and robust capital markets. On net interest income, we continue to expect mid-single-digit growth, reflecting uncertainty in the marketplace. While we have deposit stabilization and good core loan growth, new assets are coming on at tighter spreads, and the rate environment is uncertain — we are taking all that into consideration.

Erika Najarian: A capital follow-up. Under current rules, you would cross Cat II at some point next year. If you elect standardized or ERBA, is your understanding that a five-year AOCI phase-in applies, or does AOCI “cliff” once you cross over? Or does it matter little because AOCI will burn down by then?

John Stern: It is a good question and one we have for the regulators for clarification. We are unique in our proximity to Category II, creating a timing collision between when we would come online under current rules — sometime in 2027 — the effective date of ERBA, and potential index changes. A lot is moving. We are preparing for a Category II world and will be in compliance. We have the capability to go to standardized or ERBA — technologically simple for us. We will monitor and update you, but we feel prepared and have flexibility with the capital rules as they ultimately play out.

Erika Najarian: And on payout optimization — does timing of clarification impact your path to optimization, or is it more about RWA demands from stronger loan growth?

Gunjan Kedia: We believe regulators’ intent is to allow all banks a five-year phase-in on AOCI to take cliff effects away, but we are waiting for clarification. A very good outcome for capital distributions would be a prompt effective date for current Basel III proposals plus a five-year phase-in; in that case we would be well ahead of our capital needs even as a Cat II and would bring forward distributions. We are talking about one- or two-quarter changes — not material to our strategy — but timing could move by a quarter or two in terms of how quickly we step up.

Operator: Next question comes from the line of Ken Usdin with Autonomous Research. Please go ahead.

Ken Usdin: Good morning. On expenses, you held the line as expected in the first quarter. The second quarter guide moves higher. First-to-second quarter costs last year were down; as we move forward, should we think about 3% to 4% expense growth as a more regular pace tied to revenue-related investments, with flexibility if revenues do not materialize?

John Stern: Thank you, Ken. We have been operating at a pretty much flat expense base for several quarters. Now we are stepping that up, tied to our commitment to positive operating leverage driven by revenue. If revenue is at our forecast levels — for example, 6% to 7% in the second quarter — that calls for higher expenses to invest in the business. If revenues do not materialize, we have levers to pull. Our actions over the past years — and decades — show our ability to manage expenses. We are confident in achieving positive operating leverage.

Gunjan Kedia: You can be confident in our degrees of freedom on expenses. We have flexibility to sustain positive operating leverage and to flex expenses with revenue. The productivity we are observing is very real, not just squeezing expenses, which investors worry may be unsustainable. We are committed to positive operating leverage with the ability to flex as needed.

Ken Usdin: Are you able to pull forward investments if revenue is strong, while keeping near that 200 bps operating leverage?

Gunjan Kedia: It is a combination. Some items, like branch investments and big technology builds, are less flexible in the short term. But a lot of our expense is contra-revenue — for example, marketing for card acquisition or brand building — which is highly flexible. We also hear that investors would prefer more than 200 basis points. The opportunity set is attractive, so we are leaning in this year. Last year, we needed to put points on the board on operating leverage — we reduced the efficiency ratio by more than 400 basis points over two years. We still aspire to be a lean bank, but not at the expense of investing to capture growth opportunities.

Operator: Our next question will come from the line of Gerard Cassidy with RBC Capital Markets. Please go ahead.

Gerard Cassidy: Hi, Gunjan. Hi, John. On organic growth of core consumer transaction accounts — given consolidation in the industry, some peers are building out branches nationally or regionally to grow core deposits, complementing digital. Do you plan to expand branches to grow core deposits?

Gunjan Kedia: Good morning, Gerard. We agree physical branch presence is critical to deposit quality and deposits per account. Branch-based acquisition economics are very attractive. We spend about $200 million a year on our branch network. We are updating formats from legacy servicing-focused, smaller branches — often in-store — to multi-serve branches with small business, wealth, mortgage, banking, and loan specialists. We are committed to branch expansion, with a nuance: we are densifying parts of our existing footprint where our brand is powerful to become a top-three depositor in those geographies. We are building branches in places like Nashville, Phoenix, Reno, and other pockets of growth.

We also want to leverage the uniqueness of our payments franchise and digital capabilities to augment branch-based growth. Strategically, we are highly focused on building a high-quality consumer and small business franchise and improving deposit quality over time. That is why we track consumer deposits as a mix of total deposits closely and are focused on growing that mix.

John Stern: Well said. From a deposit standpoint, we have been growing those deposits. Refurbishing and leaning in where we have scale is where we are focusing investment and time. Once you have scale in markets, you get the deposit features you want — helping with stabilization and less rotation on the consumer side.

Gerard Cassidy: Thank you. A follow-up on NDFI portfolios and business credit intermediaries — what kind of scenario would you need to see for losses to show up in these types of credits, given the structures?

John Stern: Thanks for the thoughtful question. We added the slide in response to unique losses in the marketplace a couple of quarters ago and investor questions. More information and education help. Getting more granular — as on page 17 — shows the structure and why we think there is very low loss likelihood in these structures. For example, AAA CLOs historically have not had losses. As bankers, we never say never — that is why we have limits, underwriting practices, and risk management. It is hard to envision the trigger, but rigor and limits are there for that reason. We wanted to illustrate that on page 17 and in the appendix.

Operator: Our next question will come from the line of Saul Martinez with HSBC. Please go ahead.

Saul Martinez: Back to Amazon — you seem very excited. John, you gave some numbers — about $1.6 billion of loans and $75 million to $85 million of quarterly revenue. How big can this get in volumes, loans, revenues, and what are you doing to ensure the partnership enhances value for both parties? And on merchant acquiring, fees grew mid-single digits, but volumes were a bit soft the last couple of quarters. Anything to read into that — take rates, mix shift, consumer behavior?

Gunjan Kedia: We have a portfolio of co-brand partners, and growth depends on the partner’s customer base growth. Amazon’s ability to grow its small business base and aspirations in this segment give us optimism. On conversion in the third quarter, we expect about $75 million to $85 million per quarter of impact. Our intention is to have some of that show up in revenue and some reinvested in new client acquisition. The goal is to take payments to a more robust long-term growth trajectory, and this platform helps us do that.

John Stern: On merchant volumes, great question. The softness is basically one or two clients that exited and had no revenue impact. The underlying client trends are more reflective of the fee growth rate you see — roughly 5% to 6% for card — and about 5.1% merchant processing fee growth this quarter. Broadly, payment trends have been strong. Despite sentiment, spend patterns are strong across high and mid FICO, and discretionary versus nondiscretionary looks similar — broad-based strength.

Gunjan Kedia: Over time, we want to decouple from volume growth. This is a vast industry where a lot of volume comes with very little revenue and a lot of risk. We will be disciplined about focusing on revenue growth. We know there is less external visibility to revenue trends, but we are committed to a profitable business that grows modestly and not chasing big volumes with very thin revenue.

Operator: Our next question will come from the line of Vivek Juneja with JPMorgan. Please go ahead.

Vivek Juneja: A follow-up on payments. You have a new category now — payment and treasury management revenue — growth slowed to 2% year on year. You have the fuel card, which should have benefited from gas prices. Any color? And separately, on private credit exposure — beyond BDCs and CLOs — what is your exposure?

John Stern: Yes, we combined treasury management with corporate payments based on how we manage the businesses, as noted in the 8-K. The growth slowdown is on the corporate payments side, reflecting last year’s tariff announcements and a lot of focus on government spend. We are beginning to lap that in the second quarter and fully in the third quarter. We see strong pipelines, and by the third quarter, results should be more representative of the true growth rate. On private credit, page 17 largely reflects those exposures — CDFs, BDCs, and CLOs are representative of private credit components — just under 3% of total loans. Capital call facilities are included in the equity component of NDFI elsewhere.

Operator: Our next question comes from the line of David Schiabarini with Jefferies. Please go ahead.

David Schiabarini: Hi, thanks. The other “boogeyman” is AI disruption risk. To what extent could any of your fee businesses be at risk from AI, particularly payments, and what moats do you have?

Gunjan Kedia: We do not see any particular business exposed to mass disruption in terms of price collapse or volume transition. We are seeing rapid shifts in customer search behavior and discovery. Tools like search engine optimization are migrating to AI. We are building those capabilities and transitioning our approaches quickly, and there is a robust toolkit. We are watching trends carefully, but we are not seeing anything indicating a sudden discontinuity.

John Stern: I would add — we have complex operations in fund services and corporate trust. AI is an opportunity for us to go on offense, simplify operations, and leverage our deep knowledge faster than outside competitors or fintechs.

Operator: Our next question will come from the line of Chris McGrath with KBW. Please go ahead.

Chris McGrath: Is any of your optimism on loan growth tied to nonbank lending turning back to traditional banks? And given the optimism on growth, is the expectation that it is core-deposit funded, or will you need more expensive sources?

John Stern: I do not think private credit is turning back to banks in a way that explains our growth. Private credit has grown more in leveraged space like HLT, where we are less focused given our underwriting. The growth we are seeing is more in large corporate — food and beverage, energy, utilities — categories that have not shown up in recent quarters and are now coming online. On funding, deposits will generally grow in line with loans, though not necessarily one for one. Our focus is on consumer deposits and operational deposits, while limiting CDs and higher-cost institutional or one-off deposits. We will be nimble on deposit growth versus loan growth.

Operator: Our next question is a follow-up from the line of John McDonald with Truist Securities. Please go ahead.

John McDonald: A quick modeling question on BTIG. Understanding it is not part of the guidance, when you say accretive for the year, does that include any merger charges? So all-in accretive for the year? And timing?

John Stern: That is our expectation — slightly accretive inclusive of those charges. We expect close in the back half of the year, pending approvals. You will see a bigger expense base; it has less margin than most of our businesses, and we will identify merger costs as well. I would not expect much impact in the second quarter; third and fourth quarters would reflect it, pending regulatory approvals.

Operator: There are no further questions at this time. I will hand the call back over to Jen for closing comments. Thank you, everyone, for joining our call this morning.

Jen Thompson: Please contact the Investor Relations department if you have any follow-up questions. Regina, you may now disconnect the call.

Operator: This concludes our call today. Thank you all for joining. You may now disconnect.