U.S. Bancorp Sees Strong Quarter as Fees, Deposits and Capital Markets Accelerate

Key Points

• U.S. Bancorp expects a strong third quarter, with net interest income and fee-revenue growth tracking the high end of prior guidance. The bank also expects to finish the year near the top of its 7%–9% revenue-growth outlook.
• Deposits are projected to grow strongly—potentially faster than loans—while full-year loan growth remains targeted at approximately 6%–7%. Management cited disciplined lending standards and continued competition for deposits.
• Fee businesses remain central to the growth strategy: payments and capital markets are expanding, with BTIG expected to boost fee growth, while the bank is investing in branches, digital assets and technology. Share repurchases were temporarily paused to support capital needs but are expected to resume.

U.S. Bancorp NYSE: USB executives said the bank expects another strong quarter, supported by growth in net interest income, fee revenue and deposits, while outlining plans to expand its consumer franchise, payments capabilities and capital-markets business.

Chief Executive Officer Gunjan Kedia said the bank’s progress during her first year as CEO has been driven by a sharper focus on expense management, organic growth and payments transformation. She said the company made organizational changes, elevated revenue-facing roles and refreshed talent, with nearly a quarter of its top 200 roles filled by people new to the bank or new to their positions.

Kedia said the bank has operated within its medium-term financial guidance for four quarters and has narrowed its valuation gap with peers. However, she identified mortgage and auto lending as areas that have underperformed expectations because demand has remained muted amid less rate moderation than the bank had anticipated.

Quarterly Outlook Points to Higher-End Growth

Chief Financial Officer John Stern said U.S. Bancorp expects net interest income growth to come in at the high end of its previously stated 4% to 6% year-over-year range for the third quarter. Fee revenue growth is also expected to reach the high end of the company’s 12% to 14% outlook, and could exceed that range depending on the timing of capital-markets transactions.

Stern said expenses are expected to rise about 8%, in line with prior expectations, while charge-offs remain stable. Based on third-quarter trends, he said the company expects to finish the year at the higher end of its full-year 7% to 9% revenue-growth outlook.

The bank continues to expect full-year loan growth of approximately 6% to 7%, Stern said. While loan demand remains strong, particularly for capital expenditures and financing needs, he said the company has become more disciplined around return hurdles and exceptions after strong loan growth in the first half.

On deposits, Stern said the bank expects strong growth during the quarter, potentially exceeding loan growth. He cited another expected quarter of record consumer deposits and a return of some seasonal commercial deposit activity. He also noted that competition for deposits remains active, including promotional certificates of deposit and new-account incentives offered by competitors.

Fee Businesses Remain a Strategic Differentiator

Kedia said fee revenue accounts for roughly 44% to 45% of U.S. Bancorp’s revenue and remains a central differentiator for the company. The fee complex includes payments, trust and investment services, capital markets and consumer fees.

She identified payments and capital markets as the two largest future growth opportunities. Kedia said capital markets currently represents about 7% to 8% of revenue and could rise to 10% to 11%. The company’s acquisition of BTIG has provided a strong start in expanding its equity and investment-banking capabilities, she said, with management primarily focused on organic growth from combining BTIG’s products with U.S. Bancorp’s existing client relationships and balance sheet.

Stern said the first full quarter including BTIG will contribute about half of the company’s fee-growth increase. Legacy capital-markets operations, including foreign exchange, commodities and loan syndications, are also expected to produce low-double-digit growth, he said.

Payments revenue is expected to continue growing strongly, supported by consumer card and corporate-payments activity. Merchant processing, however, is expected to be roughly flat year over year for the next two or three quarters as the bank adjusts its go-to-market strategy and reduces some distribution partnerships.

Kedia also highlighted global fund services and Corporate Trust, which together account for nearly 10% of revenue. She said the businesses generate recurring fees and an estimated $70 billion to $80 billion in operating deposits. Growth has been aided by the bank’s share of new exchange-traded fund formations and by expansion in private credit, she said.

Consumer Expansion, Technology and Capital Plans

To support consumer and small-business growth, Kedia said the bank is emphasizing differentiated products, granular deposit pricing and an expanded branch strategy. She said the Bank Smartly product suite has reached $84 billion and serves as an integrated banking-and-payments offering.

U.S. Bancorp has been investing about $200 million annually in its branch network, largely to convert service branches and smaller locations into multi-product hubs. Kedia said the bank is now looking toward approximately $300 million of annual investment, with a greater focus on new branch formats and denser coverage in areas with higher household-formation growth.

The company is also establishing client centers in growth markets including Florida, Georgia and Texas, combining wealth, commercial real estate, commercial banking and mortgage teams. Kedia said retail branches may eventually follow in some of those markets, though the current focus remains on densifying the existing footprint. She said the bank has no philosophical opposition to acquisitions but currently sees substantial organic opportunities.

On technology, Kedia said artificial intelligence is already delivering measurable productivity benefits, while revenue-focused applications are still developing. The company also introduced U.S. Bank Digital Coin and completed an initial transaction with its Dublin bank. Management expects to introduce tokenized deposits early in the year and is building a Digital Asset Platform focused on bank-level compliance and controls, although Kedia said real payments demand for stablecoins remains nascent.

Stern said U.S. Bancorp expects at least 200 basis points of operating leverage for the full year, or at least 300 basis points excluding BTIG. The bank paused share repurchases during the third quarter because of capital demands including growth, the Amazon portfolio coming online and interest-rate effects on its available-for-sale portfolio. Stern said management expects the pause to be temporary and remains committed to a 70% to 75% payout ratio.

About U.S. Bancorp (NYSE:USB)

U.S. Bancorp NYSE: USB is a financial services holding company and the parent organization of U.S. Bank, a full-service commercial bank. The company provides deposit accounts, consumer and business loans, mortgages, credit and debit cards, payment services, and other banking products to individuals, businesses, institutions and government entities.

Through its wealth, corporate and commercial banking operations, U.S. Bancorp also offers investment management, trust and custody services, treasury management, capital markets support, equipment finance and other specialized financial solutions.

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