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US BANCORP \DE\ (USB) Q2 2025 Earnings Summary

Executive Summary

  • USB delivered resilient Q2 with EPS of $1.11, up 13% YoY and 8% QoQ, on 250 bps of YoY positive operating leverage and a 59.2% efficiency ratio; fee income strength and expense discipline offset NII pressure .
  • Versus S&P Global consensus, EPS beat ($1.11 vs $1.07*) while total net revenue was modestly below ($7.00B vs $7.05B*); management reiterated 3Q NII of $4.1–$4.2B TE and guided FY total net revenue growth to the lower end of +3–5% range, with ≥200 bps positive operating leverage maintained .
  • Mix shift advanced: USB sold ~$4.6B of residential mortgages and ~$1B of auto loans to fund higher-return C&I and card growth, while restructuring ~$1.25B of securities (−$57M realized loss; <2-year payback) to accelerate NII trajectory .
  • Credit remained stable to improving: NCOs were 0.59% (flat QoQ), NPA ratio fell to 0.44%, allowance coverage steady at 2.07% of loans; CRE office reserves remained elevated (~10.7%) and management expects card losses to be lower in 2025 vs 2024 .

What Went Well and What Went Wrong

  • What Went Well

    • Fee momentum and diversification: Total fee revenue rose 4.6% YoY, led by payments (+2.9% YoY), trust & investment management (+8.3%), and treasury/service charges (+4.3%) .
    • Expense execution: Noninterest expense fell 1.2% QoQ and 0.8% YoY (reported), enabling 250 bps YoY positive operating leverage; efficiency ratio improved to 59.2% .
    • Strategic remix: Management executed ~$6B of loan sales and securities repositioning to boost medium-term NII; CFO: “We expect sequential net interest income growth here in the third and fourth quarter… strategic actions … will help NII trajectory for the next several quarters.” .

  • What Went Wrong

    • NII/NIM headwinds: Net interest income (TE) dipped 1.0% QoQ to $4.08B and NIM fell 6 bps QoQ to 2.66% on deposit pricing pressures and temporary “gross-up” from asset sales (about half of decline) .
    • Commercial deposit competitiveness: Deposit pricing remained competitive, with rotation to higher-rate products elevating costs; management is remixing toward lower-cost consumer deposits (Bank Smartly) and operational deposits .
    • RWA growth and revenue optics: RWAs rose ~$9B QoQ on late-quarter C&I growth and rolling off a credit risk transfer; total net revenue of $7.00B was modestly below S&P Global consensus ($7.05B*), which, along with NII optics, weighed on sentiment pre-market per analyst commentary .

Financial Results

Summary fundamentals (oldest → newest)

MetricQ2 2024Q1 2025Q2 2025
Total net revenue ($B)$6.87 $6.96 $7.00
Net interest income (TE) ($B)$4.05 $4.12 $4.08
Noninterest income ($B)$2.82 $2.84 $2.92
Diluted EPS ($)$0.97 $1.03 $1.11
Efficiency ratio (%)61.0% 60.8% 59.2%
Net interest margin (%)2.67% 2.72% 2.66%
Net charge-off ratio (%)0.58% 0.59% 0.59%
CET1 ratio (%)10.3% 10.8% 10.7%
Avg total loans ($B)$374.69 $379.03 $378.53
Avg total deposits ($B)$513.91 $506.53 $502.89

Versus S&P Global consensus (Q2 2025)

MetricConsensusActualSurprise
EPS ($)$1.07*$1.11 +$0.04
Revenue ($B)$7.05*$7.00 −$0.05

Values marked with * retrieved from S&P Global.

Segment net revenue (oldest → newest)

Segment net revenue ($M)Q2 2024Q1 2025Q2 2025
Wealth, Corporate, Commercial & Institutional Banking$3,058 $2,947 $3,000
Consumer & Business Banking$2,326 $2,175 $2,249
Payment Services$1,766 $1,777 $1,846
Treasury & Corporate Support($283) $59 ($91)

Selected KPIs (oldest → newest)

KPIQ2 2024Q1 2025Q2 2025
Return on average assets (%)0.97 1.04 1.08
Return on tangible common equity (%)18.4 17.5 18.0
Total fee revenue ($B)$2.85 $2.84 $2.98
NPA ratio (%)0.49 0.45 0.44
Allowance for credit losses ($B)$7.93 $7.92 $7.86
Tangible book value/share ($)$23.15 $25.64 $26.52
Dividend/share ($)$0.49 $0.50 $0.50

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net interest income (TE)Q2 2025~$4.2B or lower Actual $4.08B Below prior guide
Total noninterest incomeQ2 2025~$2.9B Actual $2.924B Slightly above
Noninterest expenseQ2 2025$4.1–$4.2B Actual $4.181B In range
Net interest income (TE)Q3 2025—$4.1–$4.2B New
Total fee revenueQ3 2025—~ $3.0B New
Noninterest expenseQ3 2025—$4.1–$4.2B (or lower) New
Positive operating leverage (YoY, adj.)FY 2025≥200 bps ≥200 bps (maintained) Maintained
Total net revenue growth (adj.)FY 2025+3% to +5% vs FY24 Lower end of +3%–5% Nudged to low end
Common dividendQ3 2025$0.50 prior run-rate Planned +4% increase (subject to Board) Raise planned

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
AI/technology & productivityNamed focus area in cost-saves (AI/automation) and digital investments; 6 consecutive quarters of expense discipline Continued to self-fund initiatives; “AI…we are deploying…helpful” Improving deployment
NIM/NII pathMedium-term NIM target ≥3% with drivers (loan mix, securities repricing, funding optimization) NIM −6 bps QoQ; ~half transitory; NII growth guided in 2H; 3% target unchanged Near-term pressure, medium-term intact
Deposits & pricingEmphasis on pricing discipline, deposit beta in line, noninterest-bearing ~16% Competitive pricing persists; remix toward consumer (Bank Smartly) and operational deposits Favorable remixing
Balance sheet mixCapital-efficient growth focus highlighted in Q1 Sold ~$4.6B resi and ~$1B auto; grew C&I and card pipelines Accelerated pivot
Capital & CCARCET1 10.8% (Incl. AOCI 8.8%), strong capital build CET1 10.7%; SCB improved to 2.6%; planning 4% dividend increase Stable/improving
Credit/CRE officeStable trends; office reserve ~10.9% Stable-to-improving; office segment reserved ~10.7%; NPA ratio improved Steady/stable
Category II timelineNot before 2027 No earlier than 2027 (unchanged) Unchanged

Management Commentary

  • Strategy and performance: “We posted diluted EPS of $1.11… ROTCE of 18%… fee income businesses now represent approximately 42% of company-wide revenue… asset quality metrics held steady… capital levels remain strong.” — CEO Gunjan Kedia .
  • Expense and investment balance: “We are harvesting [digital] investments… self-funding… expense discipline will continue even as we invest in growth.” — CEO .
  • NII trajectory: “Sequential net interest income growth [is expected] in the third and fourth quarter… actions on loan sales and investment portfolio repositioning will help NII trajectory for the next several quarters.” — CFO John Stern .
  • Capital and dividends: “2025 CCAR preliminary SCB improved 50 bps to 2.6%; planned capital actions included a 4% increase to quarterly common dividend in the third quarter (subject to Board approval).” .
  • Payments momentum: Elavon moved up in Nilson rankings; embedded payments expansion and Elan/Fiserv integrated agent-issuance initiative support growth .

Q&A Highlights

  • NIM/NII path: ~3 bps of the 6 bps NIM decline was transitory (balance sheet “gross-up” from loan sales); management expects sequential NII growth in 2H and reaffirms medium-term 3% NIM aspiration .
  • Deposit costs and mix: Competitive pricing persisted; strategy is to lean into consumer deposit growth (Bank Smartly) with better economics and multi-service attachment, while managing down higher-cost institutional deposits .
  • RWA increase: RWAs rose ~$9B QoQ due to rolling off a credit risk transfer (~half) and late-quarter C&I growth; management views C&I pipelines as strong .
  • Balance sheet repositioning: ~$4.6B of legacy Union Bank-vintage mortgages sold near par, reinvested to add ~125 bps spread; ~$1B auto sold; ~$1.25B securities repositioned (−$57M) with <2-year payback .
  • Capital returns: Share repurchases held at $100M; with improved CET1 incl. AOCI (8.9%), capital return expected to grow over time, but near-term priority is funding loan growth; long-run target ~75% payout remains .

Estimates Context

  • USB beat S&P Global EPS consensus and was modestly below revenue consensus: EPS $1.11 vs $1.07*; revenue $7.00B vs $7.05B* . Values marked with * retrieved from S&P Global.
  • Drivers of EPS beat: Fee revenue outperformance vs internal guidance, cost control (−1.2% QoQ opex), and lower credit provision (−6.7% QoQ), partially offset by NII/NIM pressure .
  • Implications: Street models likely lift fee and operating leverage assumptions but may temper near-term NII/NIM, shifting mix of 2H EPS toward fees and expense discipline (vs prior NII-heavy recovery path) .

Key Takeaways for Investors

  • Mix shift is working: portfolio sales and securities repositioning plus C&I/card growth set up sequential NII improvement in 2H, with 3% medium-term NIM unchanged; near-term NIM noise looks transitory .
  • Fees doing the heavy lifting: Payments, trust/asset servicing, and treasury drove 4.6% YoY fee growth; expect continued momentum given product launches (embedded payments, Elan/Fiserv) and market-share wins (Elavon) .
  • Operating leverage durable: Seven quarters of stable adjusted expenses and four quarters of positive operating leverage (Q2: +250 bps) suggest sustained efficiency gains while funding growth .
  • Credit steady, CRE contained: NPAs/NCOs stable-to-better; elevated office reserves and admin-driven delinquencies mitigate downside; management sees 2025 card losses below 2024 .
  • Capital return path improving: SCB down to 2.6%; planned 4% dividend lift in 3Q (subject to Board) and potential for higher buybacks as loan growth needs are met .
  • Watch list: deposit pricing competition and institutional mix, execution on payments transformation, and NII sensitivity to the rate path and deposit betas .

Appendix: Additional context and notable items

  • Dividend declaration during the quarter: Board declared $0.50 per common share dividend payable July 15, 2025; annualized $2.00 per share .
  • Q2 2025 guidance versus internal expectations: Company delivered above fee guidance (~$3.0B vs actual $2.981B) and within expense guide; NII came in at the low end of the guided range .
  • Management on stock reaction: Analyst noted pre-market −4% on print; management emphasized sustainability and consistency toward medium-term targets .

Values marked with * retrieved from S&P Global.

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