Release Date: January 16, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• U.S. Bancorp (USB, Financial) reported a strong fourth quarter with $1.07 earnings per share after adjusting for notable items.
• Net revenue for the quarter was $7 billion, contributing to a total of $27.5 billion for the year, driven by growth in net interest income and non-interest income.
• The company achieved 190 basis points of positive operating leverage on an adjusted basis year-over-year.
• U.S. Bancorp's CET1 capital ratio increased to 10.6%, reflecting strong capital management.
• The company delivered an 18.3% return on tangible common equity and improved its efficiency ratio to 59.9% in the fourth quarter.

Negative Points

• The quarter included $109 million of notable expense items, impacting earnings.
• There was a slight decline in the average yield across both the investment portfolio and loan book due to variable rates.
• Noninterest income growth was partially offset by lower mortgage banking and seasonally lower payments revenue.
• The merchant acquiring yield contracted by 70 basis points year-over-year, indicating potential competitive pressures.
• The company expects modest loan and deposit growth for 2025, indicating potential challenges in expanding its balance sheet.

Q & A Highlights

Q: Can you discuss the drivers of the 3% to 5% expected full-year 2025 revenue growth, particularly the contributions from net interest income (NII) and fees? A: John Stern, CFO, explained that the 3% to 5% revenue growth is driven by both fee and NII growth. Fee growth is expected in areas like Trust and Investment Management, Payments, and Treasury Management, despite some headwinds in prepaid cards and ATM exits. NII growth will be supported by better asset mix, deposit normalization, and fixed asset repricing, particularly with the curve steepening, which will allow for higher returns on investments and loans.

Q: What is the strategic plan for the payments business following the recent reorganization? A: Gunjan Kedia, President, stated that the reorganization aims to accelerate execution by aligning the payments business more closely with the consumer and institutional franchises. This structure is expected to enhance interconnectedness and execution, with new leadership focusing on leveraging strategic assets for growth.

Q: How does U.S. Bancorp plan to achieve positive operating leverage in 2025, and what are the key areas of focus? A: Andrew Cecere, CEO, emphasized the company's focus on maintaining flat expenses while driving revenue growth across all business lines, including Payments, Trust and Investment Management, and Commercial Products. The strategy involves leveraging interconnectedness across the franchise and managing expenses prudently to achieve at least 200 basis points of positive operating leverage.

Q: What are the expectations for deposit growth and competition in 2025? A: John Stern, CFO, indicated that U.S. Bancorp expects modest deposit growth, with competitive pressures easing slightly due to recent rate cuts. The company plans to remain competitive with new products and expects retail competitiveness to moderate, while institutional deposit competition remains stable.

Q: How does U.S. Bancorp view the strategic importance of its payments business, and what are the growth expectations? A: Andrew Cecere, CEO, and Gunjan Kedia, President, highlighted the strategic importance of the payments business due to its interconnectedness with banking services. The focus is on leveraging the tech-led segment and partnerships to drive growth, with an emphasis on profitable revenue growth and enhancing client relationships through integrated services.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.