U.S. Bancorp

Chief Executive Officer Gunjan Ketia, and Vice Chair and CFO John Stern. In a moment, Gunjan and John will reference a slide presentation together with their prepared remarks. A copy of the presentation, our press release, and all supplemental consolidated schedules are available on our website at ir.usbank.com. Please note that any forward-looking statements made during today's call are subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. These factors are described on page two of today's earnings presentation, in our press release, and in reports filed with the SEC. Following our prepared remarks, Gunjan and John will be happy to answer your questions. I will now turn the call over to Gunjan.

Thank you, George, and good morning, everyone. If I could please turn your attention to slide three. In the third quarter, we reported earnings per share of $1.22. an increase of 18.4% year over year. Our net revenue of $7.3 billion was a quarterly record, reflecting both strong momentum across our fee businesses and improved spread income. This quarter, we generated a very meaningful 530 basis points of positive operating leverage a return on average assets of 1.17% and a net interest margin of 2.75%. John will provide more details on our financial performance in his opening remarks. Importantly, we are making strong progress against each of our three strategic priorities for our company. We are generating organic growth through distinctive, interconnected solutions, We are maintaining our expense discipline through sustainable process automation, and we are executing on our payments transformation with greater focus and strategic investments. And as we manage the bank for the long run through both positive and uncertain times, our highly diversified balance sheet and foundational risk management capabilities delivered improved credit quality, and stronger capital and liquidity levels this quarter. Moving to slide four, fee income diversification is a key source of strength for the company. On the left, you will see that fee revenue grew at 9.5% on a year-over-year basis, reflecting broad-based strength across our payments, institutional, and consumer businesses. Notably, interest rate movements this quarter supported a meaningful acceleration in select capital markets and mortgage revenues. On the right, we highlight five key businesses that have demonstrated strong year-over-year growth and that we believe present a favorable growth outlook. Collectively, these businesses represented approximately two-thirds of our total fee revenue this quarter. Turning to slide five, we spotlight one additional business, Impact Finance. With the Union Bank acquisition, we bolstered our platform, bringing improved tax credit syndication capabilities, new talent, and increased access to the California market. Currently reported within the other revenue, Impact Finance has grown at a 17% CAGR from 2021 to 2024 and is an important mission-driven capability that is core to our fee income portfolio. Over the next several years, we anticipate additional growth from a pull forward of activity tied to some recent executive orders and expect revenue trends across our environmental finance, affordable housing, and community finance solutions to remain robust. In addition, The business also supports a net tax benefit to the company, which we believe will continue to be a meaningful driver of bottom line EPS growth. Slide six showcases a growing consumer franchise and long-term deposit strategy. Our deposit base is highly diversified across clients, geographies, and products, providing strength and stability through the cycle. We are actively working to increase our share of consumer deposits with interconnected products like BankSmartly, branch and client center expansions, partnerships, and enhanced marketing and analytical capabilities. Consumer deposits now represent over 52% of total average deposits, up nearly two points from the third quarter of 2023. Moving to slide seven, our expense discipline over the last two years and execution on four signature productivity programs has resulted in improved organic growth and greater operational efficiencies. As you can see on the left, the outcomes of our efforts have been quite successful as we have seen steady improvement to both the efficiency ratio and positive operating leverage as adjusted. Turning to slide eight, our payments transformation remains a key strategic priority for our company. As the charts on the left show, we have seen steady improvement and more consistent year-over-year fee growth over the last several quarters across both our traditional card issuing and merchant processing businesses. We are looking forward to providing a deeper dive into our payments transformation and strategy at an upcoming industry conference in the fall. Let me now turn the call over to John.

Thank you, Gunjan, and good morning, everyone. This is a very strong quarter for us, highlighted by core underlying business momentum and accelerating growth as we made meaningful progress toward our medium-term financial targets. If you turn to slide 9, I'll start with highlights for the quarter, followed by a discussion of third quarter earnings trends. As Gunjan mentioned, we reported earnings per common share of $1.22 and achieved record net revenue of $7.3 billion this quarter. Revenue growth versus prior periods benefited from improved spread income driven by enhancements we've made to our portfolio mix, as well as broad-based fee growth as we deepen client relationships across the franchise. Elevated deposit flows at the end of the quarter in support of more robust client activity and seasonality in our corporate trust business resulted in ending assets of $695 billion. As expected, nearly all key credit quality metrics, including non-performing assets and net charge-offs, improved both sequentially and on a year-over-year basis. As of September 30th, our tangible book value per share increased 12.7% on a year-over-year basis. Slide 10 provides key performance metrics. As the slide illustrates, each of our key profitability and efficiency ratios improved this quarter, highlighted by a return on average assets of 1.17% and a return on tangible common equity of 18.6%. Over the last two years, we have increased our tangible common equity approximately 30% while continuing to deliver a high-teens ROTCE on steadily improving earnings growth. Notably, we also delivered an improved efficiency ratio of 57.2% and a net interest margin of 2.75% this quarter. Our sequential margin expansion of nine basis points was driven by fixed asset repricing, strong card and commercial loan growth, as well as strategic balance sheet actions we took in the second quarter. We continue to expect net interest margin expansion in the medium term. Slide 11 provides a balance sheet summary. Total average deposits increased 1.8% linked quarter to $512 billion as we continued to emphasize growth in relationship-based deposits. Our percentage of non-interest bearing to total deposits remained stable at approximately 16%. Average loans totaled $379 billion, up 0.2% from the prior quarter. Adjusting for loan sales last quarter, our underlying growth rate was 1.0% linked quarter and 2.8% on a year-over-year basis. Loan yields increased to 5.97%, an eight basis point improvement linked quarter. As we continue to strategically remix our balance sheet with a greater proportion of commercial and credit card loan balances, we increase both commercial and credit card loans 9.5% and 4.3% respectively on a year-over-year basis. Given the current industry focus on non-depository financial institution lending, we included a slide in the appendix of our presentation to provide additional transparency on this loan category. As you will observe, this is a highly diversified portfolio with a balanced and broad composition of borrowers that is underpinned by our proven underwriting capabilities and strong collateral and structural protections. Finally, as it relates to the balance sheet, the ending balance in our investment portfolio as of September 30th was $171 billion and had an average yield of 3.26%, an eight basis point improvement sequentially, driven by the strategic actions we took last quarter and fixed asset repricing. Turning to slide 12, net interest income on a fully taxable equivalent basis totaled $4.25 billion, an increase of 4.2% on a linked quarter basis. Slide 13 highlights trends in non-interest income. Total non-interest income was approximately $3.08 billion, Excluding security losses, total fee revenue increased 9.5% on a year-over-year basis, driven by new business momentum and broad-based growth across our fee businesses. Turning to slide 14, non-interest expense totaled approximately $4.2 billion as we continued to prudently manage our expense base. Slide 15 highlights our improving credit quality performance despite ongoing macroeconomic uncertainty. our ratio of non-performing assets to loans and other real estate was 0.43% at September 30th, an improvement of one basis point linked quarter and six basis points year over year. This quarter, our net charge-off ratio of 0.56% improved three basis points sequentially and four basis points year over year. Turning to slide 16, as of September 30th, our common equity Tier 1 capital as a percentage of risk-weighted assets was 10.9%. a 20 basis point increase linked quarter. Including AOCI, our CET1 ratio improved to 9.2%. At the top of slide 17, we provide a comparison of third quarter results to our previous guidance. This quarter, both net interest income and fee revenues exceeded our expectations, while non-interest expense was in line with previous guidance, which drove meaningful, positive operating leverage for the quarter. Let me now provide our forward-looking guidance. In the fourth quarter, we expect net interest income on a fully taxable equivalent basis to be relatively stable to our third quarter level of $4.25 billion. Total fee revenue is expected to be approximately $3 billion. Total non-interest expense is expected to increase between 1% and 1.5% sequentially. We expect to deliver positive operating leverage of 200 basis points or more on an adjusted basis. Turning to slide 18, we are now operating within all of our medium-term target ranges, one year removed from our 2024 investor day, and remain confident in our ability to build on these results over time. Let me now hand it back to Gunjan for closing remarks.