U.S. Bancorp at Barclays Conference: Strategic Focus on Growth and Stability

On Tuesday, 09 September 2025, U.S. Bancorp (NYSE:USB) participated in the Barclays 23rd Annual Global Financial Services Conference. The company outlined its strategic priorities, emphasizing expense stabilization, organic growth, and payments transformation. While the financial outlook remains optimistic, with stable expenses and strong fee growth trends, the company also acknowledged challenges in reaching its full-year revenue target.

Key Takeaways

• U.S. Bancorp has maintained stable expenses for seven consecutive quarters, enabling investments in growth.
• The company anticipates reaching a net interest margin of 3% by 2027.
• Investments in technology amount to approximately $2.5 billion annually, focusing on both offensive and defensive strategies.
• U.S. Bancorp is cautiously exploring stablecoin transactions, with pilot programs underway.
• The firm aims to increase share repurchases to 30% to 40% of earnings as it approaches a Category 2 regulatory designation.

Financial Results

• Third Quarter Guidance: U.S. Bancorp expects net interest income to be at the high end of the $4.1 billion to $4.2 billion range. Fees and expenses are projected to perform favorably.
• Full Year Guidance: Revenue growth is reaffirmed at 3% to 5%, with expectations at the lower end. Fee growth remains targeted at mid-single digits, and positive operating leverage is expected to exceed 200 basis points.
• Net Interest Margin: Sequential growth in NIM is anticipated for the third and fourth quarters, with a target of 3% by 2027.

Operational Updates

• Expense Management: The company has reported stable expenses over the last seven quarters, attributed to productivity gains and digital investments.
• Organic Growth: Strengthening fee growth trends are observed in payments, trust and investments, and consumer fees.
• Payments Transformation: U.S. Bancorp is committed to transforming its payments franchise, focusing on merchant services and card issuing, with a new suite of products introduced.

Future Outlook

• Strategic Priorities: U.S. Bancorp remains focused on expense stabilization, organic growth, and payments transformation, aiming to deepen client relationships.
• Regulatory Path: The company expects to cross the $700 billion asset threshold by 2027, moving towards a Category 2 regulatory designation.
• Stablecoins: While cautious, U.S. Bancorp is piloting stablecoin transactions, recognizing their potential in cross-border payments.

Q&A Highlights

• Expense Management: The company is willing to spend as long as operating leverage is maintained, focusing on a diversified fee-intensive model.
• Credit Quality: Credit quality is stable, with no significant concerns in current areas.
• Capital Return: U.S. Bancorp aims for 35% to 45% on dividends and 30% to 40% on share repurchases, aspiring to increase buybacks.

In conclusion, U.S. Bancorp’s strategic focus on growth and stability was evident at the conference. For a detailed account, readers are encouraged to refer to the full transcript.

Full transcript - Barclays 23rd Annual Global Financial Services Conference:

Jason, Analyst: Moving right along. I’m very pleased to have U.S. Bancorp with us from the company, Gunjan Kedia, CEO. Became CEO in April of this year, so not that long ago. John Stern, Chief Financial Officer, thank you for being with us. We’ll put up the first ARS question that we’ve been asking all the companies. Gunjan, maybe start with you. You know, five months on the job, certainly as CEO. Maybe just start off by catching us up on what you’ve been up to since mid-April. Key lessons learned so far in your new role?

Gunjan Kedia, CEO, U.S. Bancorp: It’s been a privilege to step into the role of the CEO of a wonderful company, and thank you for having us. I think we have passed over the fire alarm, a good sign. Jason, as I stepped into my role five months back now, we had come off of two years of quite intense focus, first on the Union Bank integration and then on building the capital back up again. This time last year, we had built on that and articulated financial targets for the medium term. That was the context in which I had stepped into my role, and I articulated three key priorities to achieve our medium-term financial targets, and that was expense stabilization, organic growth, and payments transformation.

Your question on what I’ve been up to for the last five months has really been putting in place a very talented leadership team, not just at my level but a level below, and rewiring the organization for more urgent execution. That’s sort of been my focus for five months. I’ll tell you, as I have spent an enormous amount of time listening to all our stakeholders, I am very encouraged by how well our brand and our culture resonates with our clients. Our thesis that we have enormous opportunities to deepen these client relationships by interconnecting our products is very strong and real. I’ve also spent a lot of time with our investors, and there we have some work to do to just consistently deliver.

Unidentified speaker: I’ve been investigating the cause. If the cause is in terror, you’ll be notified. May I be a passenger, please? May I be a passenger, please? An alarm has been resumed. We’re investigating the cause. If the cause has been in terror, you’ll be notified.

Gunjan Kedia, CEO, U.S. Bancorp: I think we’re safe because if the hotel was burning, we’d be being rushed out.

Jason, Analyst: Good. I guess as a follow-up to that, you talked about these three strategic priorities for the near term. Maybe you can just update us on those and the kind of the progress you’ve made.

Gunjan Kedia, CEO, U.S. Bancorp: Yeah. The first one is expenses, and we are really in very strong shape there. We’ve now reported seven straight quarters of stable expenses, and that has allowed us, Jason, to both deliver our positive operating leverage targets and invest into organic growth. We have runway with expenses. That program is executing very well, so we’re in very, very strong shape there. The second priority was organic growth. Our fee growth trends are strengthening quarter by quarter, so we are very pleased there. What’s very important to us is how the mix has evolved over time. We are really a fee-heavy franchise.

We were at about 42% last quarter, and it’s very balanced across these three pillars: payments, which has been a historical overweight on fees, our trust in investments and capital market-related fees, which we are really doubling down on growing, and then consumer fees, which remain strong, but we don’t have as much dependence on them because they’re more volatile and have some regulatory pressures. The fee growth story is coming along very, very nicely. Last quarter, we took some substantial actions to reposition our balance sheet, so that has set us up for much better NII growth. Organic growth feels well underway as well. The third priority is payments transformation. We’re very differentiated. Our payments franchise is quite unique and quite difficult to replicate either through acquisition or organic growth elsewhere. We are focused on transformative strategies there.

We have two leaders for two parts of the business, and they are executing to that agenda. We feel very good. We measure our success on those three priorities by our medium-term targets, and quarter after quarter, the progress we are making. As you saw last quarter, we’re just really, really delivering strong progress there.

Jason, Analyst: Got it. Maybe put up the next ARS question. I guess as a follow-up to what you just said, you mentioned organic growth and expense management, both strategic priorities. You mentioned seven straight quarters of stable expenses, which I guess on one hand is good. On the other hand, I don’t know, any kind of impact on revenue growth from kind of focusing sort of expenses? Just how do you balance the two?

Gunjan Kedia, CEO, U.S. Bancorp: Yeah. We’re not at a point when we need to balance the two because the expense stabilization is not a matter of trade-offs right now for us. It’s very much real productivity. Jason, you’ve been following us for a long time. You know we have spent an extraordinary amount of investment dollars for the last five or six years in building out a wide array of digital capabilities. That gives you a lot of opportunities to drive real productivity. Most of these capabilities are being adopted. The operating processes around them are being designed to drive productivity. You add to it some of the new tools available, like AI, like transformative. I thought he was going to come on.

Unidentified speaker: The cause of the alarm has been determined to be a broken pipe in our garage of the hotel. Sorry for the inconvenience. May I be a passenger, please? May I be a passenger, please? The cause of the alarm has been determined to be caused by a broken pipe in our garage of the hotel. The elements will be back momentarily.

Gunjan Kedia, CEO, U.S. Bancorp: If any of you have a card in the garage and you need to run right out, we will fully understand and not take it personally. The expense question, let me keep plowing on here. It is very real, and I don’t think you need to worry at all about the trade-offs. In fact, we are generating enough expense savings that not only are we delivering sort of a stable trajectory, we are investing a fair amount, and you’ll see that show up in various business lines as well.

Jason, Analyst: I guess one of the things that we learned in Ambassador Day was spending about $2.5 billion a year on investments. Have we kind of reached a tipping point there? Where is most of these investments going? Is it more offensive to drive growth, more defensive? How should we think about that?

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah. Just to piggyback off of what Gunjan just said, the tech investments are a very important story for us in terms of our spend levels. That level you cited, $2.5 billion, is our annual run rate that we spend. The sweet spot for us in a couple of different paths, Jason, because on one hand, it’s two-thirds offense, one-third defense, to use the words you used, offensively to create products, enhancements, and things of that variety, defensively to have system maintenance and the like. The other part of it is that cost is embedded in our run rate. Part of the reason that we have had this seven quarters of flattish expense and working on an eighth is that we have these opportunities to invest in the business and get that productivity that Gunjan mentioned. We’re really focused on a number of different areas. We’re focused on simple architecture.

How do we utilize the cloud to help our mainframe and hollowing out the core and all those sorts of things? The second thing is about product development and making sure we have all the right digital apps and capabilities available to us. The third that is really a differentiator for us is the reusability. We think the reusability of technology is a very important concept. We use it a lot in our businesses, such as Elan, such as our co-brand, our partnerships with State Farm, with Ed Jones, those sorts of things. A long way of saying this is the long-term investments we’re making in technology is helping that productivity, and it’s a meaningful player in how we’re gaining positive operating leverage going forward.

Gunjan Kedia, CEO, U.S. Bancorp: Can I add one other point, Jason, to it? There was a time five or six years back when we really needed to focus on the digital capabilities and that $2.5 billion of capital expense was very important. I also want to point out we invest a lot of operating expense into growing our franchise. Just to build off of what has already been built, you will see us investing more in sales, marketing, building brand, building distribution presence, being more front-footed with partnerships. There are lots and lots of ways of investing in growth on top of the $2.5 billion, which was very specifically focused on an agenda of catching up and surpassing really the quality of the digital products and capabilities we had.

Jason, Analyst: I guess maybe just talk to payments. It’s like a quarter of the revenue, so clearly a differentiator versus other regional banks. We haven’t seen consistent year-over-year growth that we’d expect from some of those businesses. Maybe just update us in terms of your payments transformation progress and what we’d expect to see there.

Gunjan Kedia, CEO, U.S. Bancorp: I’ll start. Let me start with our sort of strategic commitment to the payments, which is very strong. We think of it in two ways. One, it’s a standalone, very attractive product set in a growth business for us, very high returns, fee-oriented. It’s also the first set of products that today’s young customer uses to interact with the financial services system. If you think about how our kids, they don’t start with a checking account necessarily. Years before that, they’ve started using some kind of a payments mechanism, a P2P vehicle, or a credit card. We have this view that in the fullness of time, as you’re trying to evolve your client franchise to a Gen Z or a different type of audience, the payments products will become the more real anchor point of loyalty, longevity, more frequent connection with the bank.

Our philosophy is payments need to both be embedded in every other product set we have as a way of interacting day-to-day with our clients and be a business unit that delivers very good financial returns. Deep commitment to the franchise. It is two very separate things. I’ll start with merchant because I have discovered that most people think of merchant when they’re thinking of payments. That’s about 6% to 7% of our revenue base, strategically very important to a small business franchise. The heart of the American economy is the small business, a very important segment for us. There, the transformative strategies are about narrowing our focus from what used to be a broad-based global acquiring-only horizontal business to a more software-led business that creates a lot more value, so less commodity. We’re focused on five verticals.

The reason for the focus is that these software capabilities are very unique to the needs of the end customer. You have to really think about their operating models and embed your payments products into their front office. You don’t want to be dilutive. These are five very large sectors of the economy. That focus is creating some very meaningful reacceleration of the business. More than a third of that business now is the software-led, and the growth rates there tend to be 5 to 10 times the rest of the acquiring-only business. The margins, the pricing holds up. The last thing I’ll say about merchant is I have heard from the investors some amount of misconceptions about the business. It is not an unprofitable business. It’s not a loss leader. We actually run it for a very high margin and very attractive set of margins.

Perhaps that is the trade-off with the volume growth that most people think about. The second thing is that business is one of the core beneficiaries of the build-out of the digital capabilities. We intend to continue investing in the business, but it’s in the run rate now. It’s neither a disproportionate user of profit margin or investment. Very sustainable franchise. It really anchors many, many parts of our banking franchise, and we’re deeply committed to that business. That’s sort of merchant. On the other side, we have the larger of the two businesses, which is a card issuing business. This is credit cards for small businesses, U.S. Bank, and Elan, which is our white-label platform for 1,200 small banks. Let me just start with Elan. Elan’s digital technology and product was materially upgraded and rolled out December of last year.

The user experience has skyrocketed from some very modest numbers to a very world-class experience. We have new leadership in place. We have built out that team. We expect that to really start to perform at much, much higher rates than the past. That’s one strategy. The bigger strategy is just the U.S. Bank branded cards. Historically, our product set was designed to drive loan growth because it was a balance sheet play. It’s a very attractive set of products for revolvers. Our loan growth there has been very attractive, at par or better than the industry. What we are doing now with this transformation is augmenting that with a new set of products that is equally attractive to transactors. Now we are competing not at the highest level of affluence and wealth, but really at the young affluent and connecting our banking products with our credit card products.

This is a suite of products called Smartly. As that rolls out, and these pipelines, we are seeing the increase in active accounts and the revenue follows, you know, four or five quarters after that. That build-up, and that’s the transformation to go from a revolver-heavy mindset to a revolver and transactor-heavy. Very good progress there, very differentiating franchise. You’ll see some real acceleration of that business over time.

Jason, Analyst: I guess maybe as an adjunct to that, stablecoin has been coming up throughout the conference. Do you think this could be a disruptor to the overall payment ecosystem? Just how you think about using them? I’d just love to get your perspective, given your kind of role in the payment space.

Gunjan Kedia, CEO, U.S. Bancorp: I always start by asking where the client need is because it’s a very fundamental way to think of prioritizing investments and focus. I will tell you, Jason, I’m hard-pressed to find one single client who’s saying, "I just really need stablecoin from a bank right now." The demand is not present and real with consumers. Where there’s interesting conversations is global corporates with cross-border payments. Most of the use cases are anchored around that. Most very large companies actually have very efficient cross-border payment systems because they are not feeling the big cost of cross-border payments. It really has become, in our minds, a new payment rail, one that we expect to participate in. We are expecting to pilot some limited edition stablecoin transactions yet this year. We are doing both a pilot U.S. Bancorp stablecoin and also a sort of a partner-led.

There’s quite a lot of capability available in the market to be able to do that quickly so that we are ready as and when the market develops. The underlying protocols of what the payment rail is going to look like is a collaborative effort in banking along with our industry partners. In many ways, it could be a more efficient disruptor of the institutional cross-border payments type of business, which is a very small footprint for us today, perhaps an opportunity for us going forward. What we really don’t see yet is a path either from a market structure or adoption with everyday retail payments, especially in the U.S., which is sort of our bread and butter. All I can say is it’s quite interesting. It’s a lot of conversation around it.

We are very front-footed in learning, in experimenting, and putting pilots out, but yet not seeing fully the economic models and how they might evolve.

Jason, Analyst: Got it. We’re at the halfway point, so I’m obligated to ask. Two weeks left to go in the quarter. John, I guess this is you.

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah.

Jason, Analyst: You may provide us an update on kind of business loan growth trends. You know, what are you hearing from customers regarding the operating environment?

John Stern, Chief Financial Officer, U.S. Bancorp: Sure. When we look across the board, there’s just been a lot of activity, renewed activity, and it is very helpful from a loan growth perspective. We’ve seen, in particular, on the C&I front, M&A is picking up. Pipelines are strong. Small business loans are growing. Utilization rate is hanging in there. All the things are pointing to strength in the C&I categories. I would also say that payment trends continue to be strong. There’s a lot of payment activity, both on the consumer as well as on the business side of the equation. What I would say there is that the payment trends, particularly in the consumer, are helping loan growth there as well. Those are the positives. There are some components such as commercial real estate and auto loans that continue to drift a little lower.

All in, our loan growth should be in that industry HA data range. We are seeing that growth, which is positive. The other thing I would say is we are watching the employment situation. We’re watching the labor markets. We do acknowledge a softness, but importantly, the unemployment rate itself is favorable. There’s no concern from a credit standpoint as a result of it. The economy is resilient. Our clients are resilient, and we’re excited to see them pull through here as we look through the third quarter.

Gunjan Kedia, CEO, U.S. Bancorp: Compared to April, you know, right after the tariff discussion started, the mood has shifted, Jason, to sort of a sense that our clients can get their arms around what is happening. Some of the extreme caution that we saw in the April-May timeframe has given way to sort of more front-footedness with clients, so optimism there.

Jason, Analyst: I guess maybe before we delve further into the drivers, you guys give that earnings guidance slide in your deck. It’s kind of a bunch of 2025 and 325 topics. Does it all remain intact? You talked about revenue growth for the year growing at the lower end of up 3% to 5%. Is that still the right way to think about it? Any updates you want to provide?

John Stern, Chief Financial Officer, U.S. Bancorp: Sure. There’s no change to our guidance for the third quarter or for the full year, but maybe just to give some color to the third quarter, we gave a range of net interest income of $4.1 billion to $4.2 billion. We expect to be at the high end of that range given a number of different variables I can get into. The fees as well as expenses are coming in favorable as well and as expected for us. That all leads to very meaningful positive operating leverage for us in the third quarter. On the full year, as you mentioned, no change to that on the revenue guide, the 3% to 5% still intact and on the lower end, as you mentioned.

Jason, Analyst: Got it. All right, because if I guess if 3Q and AI fees and expenses are all doing a little bit better than expected, any chance we can get that revenue towards the middle of that 3% to 5%?

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah, I think the lower end is the appropriate amount, but importantly, we’re going to be in the high end of the range from a net interest income standpoint. A lot of it has to do with the favorability we’re seeing on the asset side. We’re seeing some of the strategic actions we took in the second quarter helping out in terms of the loan sale and the investment portfolio movements we did. The loan mix favorability is improving. I mentioned C&I loans and credit cards improving, and that’s really helping the mix side and yield side of the asset side of the equation. Our fixed asset repricing just continues to be favorable, a little bit more better than it was in the first half of the year. All those things kind of lead to the improvement we’re seeing on the NII side.

Jason, Analyst: Got it. Maybe talk about deposits a little bit. Last quarter, you talked about some competitive pressures on the commercial front. Is that moderated? It kind of felt like that maybe U.S. Bancorp is a bit more than peers and just, I guess balances mix kind of what we’re seeing on that front.

John Stern, Chief Financial Officer, U.S. Bancorp: Sure. The deposit portfolio that we have, we feel very comfortable with it. We actually feel better about it now with rate cuts very much coming in in September here. It looks, you know, from a market standpoint, there’s going to be several cuts moving forward. That’s all beneficial to us. We benefit more from rates coming down and a steeper yield curve. That’s all coming together nicely. The one thing I would say about deposits is that if I just step back, we utilize deposits as a really important part in our client’s relationship. It really anchors those clients. When you get into situations like we did last quarter where there’s some competitiveness, we’re going to protect those sorts of deposit holders because they have multiple services and products with us.

That shows up in our fee categories such as corporate trust, fund services, treasury management, things of that variety. We’re not shy about the deposit profile. We still optimize it for cost, obviously, but we’re going to protect it from a relationship standpoint as well.

Jason, Analyst: I guess you touched on this, but you know, the Fed, I’m told, is going to cut next week and maybe, I would assume, again. You know, on the way up, you had one of the higher betas. As the Fed begins to cut, do you expect kind of the same beta as you laid out at Ambassador Day or just how you’re all thinking about that? This cycle has been a little bit different.

John Stern, Chief Financial Officer, U.S. Bancorp: Sure.

Jason, Analyst: It’s like a nine-month pause.

John Stern, Chief Financial Officer, U.S. Bancorp: Exactly. It’s been a very different cycle than when, you know, a year ago we were talking about all these sorts of things. When I was looking at our beta performance, I was actually pleasantly surprised. We were right from a peer group standpoint, we were on the upper end on the up-rate cycle. Actually, on this cycle heretofore, we’ve been on the upper end as well, or the better end of it as well. I think that’s a testament to the business model that we have and how we operate on our deposit side of things. I agree with you that the cycle is very different than what we would have said with the pause that we have here versus the three or four cuts that we had prior to last year.

If we get sustainable rate cuts from here on out, then we certainly see a path to getting to that beta that we talked about last year.

Jason, Analyst: Maybe put up the next ARS question. Right, no good deed goes unpunished. You pointed to the higher end of NII for the 3Q guide. I guess as senior citizens start to think about, you know, 2026, you’ve talked about this 3% NIM at some point. It was 2.66% in the second quarter. Maybe just talk to just, you know, how you’re thinking about next year, that NIM improvement story, and just how kind of rate cuts play into that.

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah, maybe just to start with the current quarters, we expect sequential growth here in the third quarter, as I mentioned, and the fourth quarter as well. We haven’t given guidance particularly specifically on 26%, 27%. However, given where we’re seeing the rate environment evolve to, we definitely see a path to getting to that 3% net interest margin in the 2027 area. That is where, and the speed in which we get there is really going to be dependent on what the cuts look like, what the curve looks like. Importantly, for us, more cuts in a sustained manner is beneficial, along with an upward sloping curve. I always look at SOFR versus the five-year Treasury. I think that’s an important data point for us and how our balance sheet is constructed. Those are kind of the puts and takes.

It’s really because we get the benefit of that fixed asset repricing that we’ve talked about. Our mix of assets are changing and improving to more higher growth, higher yielding in terms of card and/or commercial and industrial type loans. Those are the things that are going to benefit us as we move forward.

Jason, Analyst: Got it. Maybe on the fee side, you know, Gunjan, you talked a lot about the payments businesses, but maybe there’s obviously other fee categories that have done that contribute to capital markets. For example, I think you’ve talked about mid-single-digit growth. I guess John maybe alluded to it a little bit better than that. Maybe just kind of flesh out the fee story.

Gunjan Kedia, CEO, U.S. Bancorp: The premise of the fee acceleration is deepening our client relationships. Our approach here has been, Jason, to see where we are deploying balance sheets and sometimes deposits to support our client relationships. The relationships are healthy, and they would do more with us if the product sets were there. Those areas would point us to doubling down on expanding our capital markets capabilities. We are definitely underweight our fair share of that fee line relative to the size of the balance sheet. We expect to see some healthy growth there and very good progress there. Treasury management is another one that has seen very good growth, and that comes from just the product set having been strengthened quite materially over the last few years. We are seeing good growth in treasury management. California is beginning to deliver very nicely for us from a regional standpoint across all products.

Payments in particular has been a very consistent story of taking a very attractive, very affluent, very small business-focused customer base that we acquired from Union Bank and beginning to deepen there. That is a growth area. Partnerships where we’re very unique. We talked about Elan and how good we got with providing these white-label credit card services. With State Farm, we developed the banking multi-partner platform. Now with Edward Jones, we are standing that up. Many different products in terms of product expansion, but the bigger lever is really sort of deepening of the client relationships. The number that we shared was just above 40%. That number should be much higher given the strength of the brand and strength of the franchise. Those are the areas that you’d see publicly reported outside acceleration, but of course, internally, quite a lot of momentum in all categories.

Like trust and investments, just to give you, that fee category has done very consistently. The macroeconomic environment has been favorable and market share gains have been. That’s our private credit focus. We have a lot of conversations around the balance sheet growth parts of private credit, but with that comes a lot of our corporate trust business, a lot of our fund services business. That is sort of an interconnectivity at play right there. Another one is health care. Last year, we bought a small bolt-on acquisition called Salukro, which gave us some very good merchant capabilities. That’s been a traditional sector, very, very compatible with the bank’s culture and data privacy rules, and that creates momentum as well. Many, many areas of sort of driving fee growth.

John Stern, Chief Financial Officer, U.S. Bancorp: One thing I might add as well is it’s in the other revenue category, but our impact finance business, which is really more about tax credit syndications, transferabilities, things of that variety. That has been a meaningful driver for fee growth as well. It’s in the other revenue category, so a little bit harder to see. We’ll try to provide some more color on that going forward.

Jason, Analyst: You talked about $3 billion for the second quarter and kind of this mid-single-digit growth target over time. Is that still the right way to think about it?

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah, on the fee side of the equation, yeah, mid-single digits is the way to think about it. It’s consistent with this year. It’s consistent with our medium-term targets.

Jason, Analyst: The other target you’ve talked about is kind of 200 basis points plus a positive operating leverage for this year. It feels like that’s intact, but just how do we think about that number, maybe looking out to next year as you kind of imagine beginning the 2026 budget process?

Gunjan Kedia, CEO, U.S. Bancorp: Let me begin.

Jason, Analyst: Yeah.

Gunjan Kedia, CEO, U.S. Bancorp: Jason, we are not really sort of managing to a specific positive operating leverage number. We are marching towards our medium-term target goals and stable expenses. As such, we expect that the positive operating leverage will be intact, as you say. The exact level will depend on revenue growth expectations. We are creating a sustainable, attractive EPS growth model. In certain cases, you might see us leaning in more into operating expenses to drive revenue growth. What we are very committed to is positive operating leverage without necessarily quoting a number. As long as it is accretive to a healthy, responsible EPS growth profile, we are happy to spend expenses as needed.

Jason, Analyst: I guess we’ve seen, as John alluded to, we’re going to say the eighth straight quarter of stable expenses. Do we see 12 straight quarters of stable expenses, or you’re okay to spend as long as the operating leverage is there?

Gunjan Kedia, CEO, U.S. Bancorp: Oh, we’re okay to spend as long as the operating leverage is there. We’re not trying to sort of get to 12 quarters of stable expenses. The expense takeout has just been sort of institutional productivity. We’ve gotten quite a lot of questions around whether we are sort of squeezing investments to get the expense ratios. I just want to say, at our size, we have considerable scale without the complexity in the businesses that we operate in. A lot of times, we are compared to these large global players. When you’re not in 100 regulatory environments where you’re trying to manage that kind of complexity, you should operate in what we think is a sustainable mid to high 50% efficiency ratio. That’s a business model assertion of ours. The expense flattening is important to get to balance in where we are going to be.

After that, we hope very much to drive the very diversified, very differentiated fee-intensive model that lends itself to good growth.

Jason, Analyst: Got it.

Gunjan Kedia, CEO, U.S. Bancorp: Third quarter.

Jason, Analyst: Yeah. Six minutes left, six questions. We’re going to go rapid fire here.

Gunjan Kedia, CEO, U.S. Bancorp: Agreed.

Jason, Analyst: Credit quality, it’s been stable. I guess any areas that we should be focused on?

John Stern, Chief Financial Officer, U.S. Bancorp: are really no areas. It’s stable. It’s improving in certain areas, so it’s quite stable. There’s not a lot of areas that give us any concern at this point. Trying to keep you on.

Jason, Analyst: Yeah, no, we’re good. I guess capital return, you know, share repurchase has been fairly modest. I think $100 million a quarter for the last several quarters, you know, a modest amount of earnings. Historically, you know, share rep buyback has been like 30% to 40% of earnings. Now it’s been like 5% of earnings. How do you kind of, is 30% to 40% still the right way to think about it longer term? Like when do you think we can get back there?

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah, from a policy standpoint and the way we think about capital return, ideally, we would like to be at 35% to 45% on dividend, 30% to 40%, as you mentioned, on the share repurchases. Right now, we’re right where we need to be on the dividend payout side. On the buyback, we’re on the lower end. We do aspire to get up to that level, but we’re still building capital to get to that category two level that we’ve been migrating toward. It’s been a two-year journey. We still have a little bit of kind of the last leg approaching here. As we approach that, we do intend to move that percentage up. How and when that occurs is going to depend on the macro and how loan growth is doing and all those other things that are important when you’re making these sort of decisions.

Jason, Analyst: Adjusted CET1 in the second quarter was 8.9%. Is there kind of a number you want to get to before you ramp up the buyback? You’ve actually taken a fair amount of actions to improve capital position. Is there more we could do there?

John Stern, Chief Financial Officer, U.S. Bancorp: Sure. I think we’ve made considerable progress. We wanted from 8%, 9% to get to 10%. I think the buyback, back to your question, we’re going to eventually get to that 30% to 40% range as we move forward and march through time. Again, back to what I just mentioned, the timing of when that happens is just going to depend on loan growth, the macro, all those sorts of things. The intention is to glide back up into that realm once we get very close to our levels.

Jason, Analyst: Another use of capital is bank M&A. U.S. Bancorp has a long history of doing bank deals, albeit not recently. How do you think about the acquisition landscape? How does that play into the growth strategy?

Gunjan Kedia, CEO, U.S. Bancorp: I was reflecting on the audience survey on what’s the most important thing to get evaluation up, and it was sort of delivering on a medium-term target. Our focus is very much on organic execution towards the targets and consistently delivering to the promise. Outside of sort of big bank M&A, we are always open to sort of bolt-on M&A. We do that very well too. We see that more in the realm of payments or institutional world, and that’s opportunistic. We’re always looking at any properties that might augment either scale or the product capability. The focus right now is organic growth.

Jason, Analyst: Good to hear. One question we get asked a lot is just how you’re preparing for the category two regulatory designation. You expect to cross that. Any update there?

John Stern, Chief Financial Officer, U.S. Bancorp: Yeah, certainly, we continue to grow. We have no restrictions on growth. Along with what our forecast indicates, we think no earlier than 2027 is when we cross that $700 billion mark to get into category two. There’s been a fair amount of investment that we’ve made in terms of reporting, in terms of infrastructure, and all those sorts of things. Some of the technology questions that I answered earlier in this have gone into the development of that as we get ready for higher regulatory expectations, what our expectation is at this point. We have that all embedded in the run rate. Again, no earlier than 2027 is when we expect to get there.

Jason, Analyst: Got it. Just to put up the last ARS question. Gunjan, maybe to wrap up, we’ve talked in the past about kind of restoring investors’ confidence in U.S. Bancorp’s narrative and execution is your top priority. In your view, kind of what aspects of U.S. Bancorp’s story do you believe the market may be overlooking or underestimating? What do you think it will take to get the stock back to its premium valuation?

Gunjan Kedia, CEO, U.S. Bancorp: I am very committed to restoring investor confidence. I hear the concerns. I accept them. We are quite focused on that. In the immediate term, we need to just deliver consistent financial results marching towards our medium-term targets. That is credibility building on execution. Once that confidence comes back to the investor base, the true strength of the franchise will come through. It’s a high return, low efficiency ratio, very risk-managed franchise. When you combine that with a diversified fee-oriented mix, the impeccable culture, the memorable brand, and just a long track record of consistent performance, I think the investor story will be very, very strong.

Jason, Analyst: Great. On that note, please join me in thanking Gunjan and John for their time today.

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