Earnings Call Transcript
US BANCORP \DE\ (USB)
Earnings Call Transcript - USB Q4 2025
Operator, Operator
Welcome to the U.S. Bancorp Fourth Quarter 2025 Earnings Conference Call. Following a review of the results, there will be a formal question and answer session. If you would like to ask a question, please press star then 1 on your phone. If you wish to withdraw your question, please press star then 1 again. The call will be recorded and available for replay beginning today at approximately 11 AM Central Time. I will now turn the conference over to George Anderson, Director of Investor Relations for U.S. Bancorp.
George Anderson, Director of Investor Relations
Thank you, Julianne, and good morning, everyone. In our boardroom today, I'm joined by our Chief Executive Officer, Gunjan Kedia, and Vice Chair and CFO, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release, and supplemental analyst schedules can be found on our website at ir.usbank.com. Please note that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page two of today's earnings presentation, our press release, and in reports on file with the SEC. Following our prepared remarks, Gunjan and John will be happy to take any questions that you have. I will now turn the call over to Gunjan.
Gunjan Kedia, CEO
Thank you, George, and good morning, everyone. I will begin on Slide three. This quarter, we delivered strong earnings per share of $1.26, an increase of approximately 18% year over year on an adjusted basis. Net interest income this quarter increased 3.3% year over year, supported by strong consumer deposit growth. Fee revenue grew 7.6% year over year with broad-based strength across most of our fee businesses. For both the fourth quarter and the full year, we posted record net revenues of $7.4 billion and $28.7 billion, respectively. More specifically, in the fourth quarter, total net revenue grew 5.1%, and we delivered meaningful positive operating leverage of 440 basis points as adjusted. John will provide more details on our financial performance in his opening remarks. Moving to Slide four. A clear focus this year has been on restoring investor confidence in our ability to deliver strong and more consistent financial results. For the second consecutive quarter, more focused execution on our three key priorities resulted in us operating within all of our medium-term target ranges. On Slide five, we highlight steady progress against our expense management priority. Four signature productivity programs have helped us deliver nine straight quarters of largely stable expenses. This has meaningfully contributed to our ability to deliver positive operating leverage of 370 basis points for the full year of 2025. Our expense initiatives continue to generate sustainable productivity in our operations and will remain foundational disciplines going forward. In 2026, we will make strategic investments necessary to drive our growth, particularly in technology, sales, and marketing. As such, we expect revenue growth to be a stronger driver of continued positive operating leverage for the year. Slide six highlights our strong fee growth and improving mix. For the full year, fee income represented 42% of total net revenues for the company and grew 6.7% year over year. A highly diversified mix of fee revenue business is a core differentiator for our franchise. Our organic growth strategy has focused on the principle of interconnected product solutions that have created unique value propositions and deeper relationships with our 15 million clients. In '26, we will remain highly focused on executing the initiatives that we launched in 2025. In addition, we are excited to close on our acquisition of BTIG and capture the considerable revenue synergies offered by that combination. On Slide seven, we recap the strategic rationale for this bolt-on acquisition. We've had a ten-year partnership with BTIG and have completed over 350 deals together in that time frame. Last week, after we announced, I heard from many of our clients who applauded this next step in our partnership, which gives us confidence around the cultural fit between our two organizations and our ability to build an extraordinary capital markets franchise that can support an even broader array of client needs. We look forward to updating you on our progress there at a future analyst conference. Let me turn to Slide eight. We briefly spotlight our global fund services business, which generated strong fee revenue growth for the company this year. GFS is a highly capital-efficient business that serves our institutional clients, particularly private capital and asset managers across the U.S. and Europe. The products offered by GFS attract high-quality operational deposits, money market assets under management, and capital markets business such as foreign exchange. BTIG capabilities will further support growth in this business. As you can see from the chart on the left, GFS total net revenue has grown at a healthy 11% CAGR since 2021 and grew at 12% in 2025. We have some unique product capabilities for start-up and first-time ETFs and have onboarded nearly half of all new U.S. ETF launches in 2025. The underlying drivers of performance within this business are continuing to gain momentum as ETFs stay in favor with investors for their cost efficiency and recent favorable regulatory changes. And we continue to innovate in areas like digital assets and derivative-based ETF products. Moving to Slide nine. Our payments transformation is a strategic and long-term priority for the company. Today, a payments product is oftentimes the first and the most frequent engagement with clients, especially with Gen Z. Embedded interconnected payments capabilities are fundamental to retaining, deepening, and growing our future client franchise. The chart on the left shows the steady strengthening of growth rates for our payments businesses as we execute our transformation. With our payments leadership team now fully in place, we have hit our stride on execution. In '26, we expect to maintain momentum on our transformation and add additional focus on the small business segment for both card and merchant. Turning to Slide 10. Net interest income and margin are both improving. We delivered record consumer deposits this quarter. The effectiveness of products like BankSmartly, more sophisticated pricing capabilities, and a significant overhaul of skills, training, digital tools, and incentives together with investments in our branches drove our performance. Additionally, commercial real estate loans showed modest growth after eleven quarters of decline. Today, our balance sheet is poised for continued NII growth. On the loan side, we will drive commercial and credit card loans to deepen client relationships. On the deposit side, we'll drive consumer and operational deposits to improve our funding mix. Turning to Slide 11. Operating within our medium-term target ranges has resulted in leading EPS growth as adjusted in 2025, even with more modest buybacks as compared with the industry. Let me now turn the call over to John, who will take you through more details of the quarter.
John Stern, CFO
Thank you, Gunjan, and good morning, everyone. This was another strong quarter for us, driven by continued new business momentum and an improving macroeconomic environment. If I could turn your attention to Slide 12, I'll start with some highlights for the quarter followed by a discussion of fourth-quarter earnings trends. As Gunjan mentioned, we reported earnings per common share of $1.26 and achieved record net revenue of $7.4 billion this quarter. Revenue growth benefited from improved spread income, and all fee categories performed well. Key credit quality metrics improved both sequentially and on a year-over-year basis. As of December 31, our tangible book value per common share increased 18.2% on a year-over-year basis. Slide 13 provides our key performance metrics. This quarter, we delivered a return on tangible common equity of 18.4%, a return on average assets of 1.19%, and an efficiency ratio of 57.4%. All improvements on a year-over-year basis. Slide 14 provides a balance sheet summary. Total average deposits increased 0.7% linked quarter to $515 billion as we continue to emphasize growth in our consumer and relationship-based deposits. Noninterest-bearing deposits increased both sequentially and year over year, as we gained traction across several institutional fee businesses, like treasury management and Global Corporate Trust. Our percentage of noninterest-bearing to total average deposits remained stable at approximately 16%. Average loans totaled $384 billion, up 1.4% from the prior quarter, on accelerating year-over-year growth in our focus areas of commercial and credit card loans, which grew 10% and 15.7%, respectively. On an ending basis, these loans now represent approximately 48% of total loans for the bank, compared to approximately 45% last year. The ending balance on our investment portfolio as of December 31 remained at $171 billion. Turning to Slide 15. Net interest income on a fully taxable equivalent basis totaled $4.3 billion, an increase of 1.4% on a linked quarter basis, primarily driven by favorable deposit mix shift. Net interest margin increased two basis points sequentially to 2.77% as we look to achieve greater margin expansion in the medium term. Slide 16 highlights fee revenue trends within noninterest income. Total fee income was approximately $3.05 billion, an increase of 7.6% on a year-over-year basis with broad-based growth across our payments, institutional, and consumer fee businesses. For the full year, fee income increased 6.7% compared to the prior year. In 2025, we benefited from high single-digit growth in our institutional fee businesses, continued strength within Impact Finance, and stronger payments revenue. Turning to Slide 17. Noninterest expense totaled approximately $4.2 billion, up 0.7% linked quarter as FDIC expense favorability was partially offset by severance charges. Slide 18 highlights improved asset quality trends. This quarter, our ratio of nonperforming assets to loans and other real estate was 0.41% at December 31, an improvement of two basis points linked quarter and seven basis points year over year. The net charge-off ratio improved to 0.54%, a two basis point decrease sequentially, while our allowance for credit losses of $7.9 billion represented 2.03% of period-end loans. Turning to Slide 19. As of December 31, our common equity Tier one capital ratio was 10.8%, or 9.3%, including AOCI. On Slide 20, we provide a comparison of our fourth quarter and full-year results to our previous guidance. For the fourth quarter, net interest income, fee revenue, and noninterest expense all exceeded our previous guidance. Taken together, this resulted in another quarter of meaningful positive operating leverage for the company. For the full year, revenue growth of 4% hit the midpoint of our full-year guidance expectations, while positive operating leverage meaningfully outperformed our full-year 2025 outlook. Moving to Slide 21, I'll now provide full-year and first-quarter 2026 forward-looking guidance. Starting with the full year of 2026, we expect total net revenue growth to be in the range of 4% to 6% compared to the prior year. We expect to deliver positive operating leverage of 200 basis points or more for the full year. Our guidance excludes the impact of the BTIG acquisition, which is expected to contribute $175 million to $200 million of fee revenue per quarter. I have provided some additional details on page 30 of the appendix. Let me now provide first-quarter 2026 guidance. Net interest growth on a fully taxable equivalent basis is expected to be in the range of 3% to 4% compared to 2025. Total fee revenue growth is expected to be in the range of 5% to 6% compared to 2025. And we expect total noninterest expense growth of approximately 1% compared to 2025. Turning to Slide 22. We continue to operate within our medium-term target ranges. Our consistent execution against these ranges will remain a key focus entering 2026, and we have a high degree of confidence in our ability to strengthen our performance and build on these results over time. Let me now hand it back to Gunjan for closing remarks.
Gunjan Kedia, CEO
Thank you, John. We are wrapping up 2025 with a significant leadership transition behind us and strong momentum going into 2026. The banking industry will likely see meaningful shifts in capital supervision, digital assets, AI, and novel banks in the coming years. Our scale, business mix, and culture position us for success. We remain focused on executing our priorities to drive organic growth, high returns, productivity, and strong risk management. Finally, I would like to offer a special thanks to many of you for your well wishes for Minneapolis, where we are headquartered. With all the challenges this community is facing, we remain focused on our clients and our teams. With that, we will now open the call for your questions.
Operator, Operator
At this time, as a reminder, if you would like to ask a question, press star and the number one on your telephone keypad. And our first question comes from Scott Siefers from Piper Sandler. Please go ahead. Your line is open.
Scott Siefers, Analyst
Let's see. John, let's start with you. Can you please speak to how you might think about the pace of share repurchase as this year plays out given you're increasing the capital ratio toward the 10% CET1 target? You'd, of course, dipped your toe back in at the end of last year, but I would love to hear your thoughts on the go forward.
John Stern, CFO
Sure, Scott, and good morning. In terms of share repurchases, we've made a tremendous amount of progress in our capital build over the last several years, and we obviously have business momentum behind us. And of course, our first priority is going to be client and loan growth as we move forward with obviously then a focus on capital return to our shareholders. But knowing all that, our intention is to grow our share repurchase amount starting this quarter in a gradual way. Likely go from $100 million or so to $200 million and then the commitment to glide into our 75% payout target that we have over time.
Scott Siefers, Analyst
Terrific. Okay. Good. Thank you. And then just sort of a broader question. Given all the noise regarding whether it's credit card rate caps and newer chatter regarding the Credit Card Competition Act. Could you speak to how you all are thinking about these possible responses and how you are thinking about these, granted they're all sort of in flight, but what are you all thinking about at this point?
Gunjan Kedia, CEO
Scott, good morning. You know, our estimate is that 90 plus percent of our clients will see a detrimental impact if there was an across-the-board 10% rate cap on credit cards. The impact to 50% of the clients will be severe as it will be for the economy. We have observed that just in the last few days, the conversation around the rate cap has shifted more productively to options for customers to help them in the short term. So just as a reminder, our shield credit card offers twenty-four months of 0% APR for consumers. And in fact, most card issuers have some product of that sort. So we think that's a productive conversation, and we are thinking of ways to increase communications and financial education to try and ensure people know what options they have. But that's sort of the momentum. The CCCA, as you asked, has come and gone many times. There are very credible reasons why that would be costly for many small merchants and would not achieve the intended goal. So at this point, we continue to it, but it is not a meaningful planning that we are focused on.
Scott Siefers, Analyst
Gotcha. Okay. Terrific. Thank you very much for the color.
Operator, Operator
Our next question comes from John Pancari from Evercore ISI. Please go ahead. Your line is open.
John Pancari, Analyst
Morning. I just want to ask a bit around the revenue growth expectation of 4% to 6% for 2026. I appreciate the color you gave around the first quarter. In terms of the spread income versus the fee growth expectation. Could you help us understand how that could play out for the full year in terms of balance sheet dynamics and your margin outlook? Then the same thing on the fee side, how should we think about the breakout of that total revenue when you look at '26?
John Stern, CFO
Sure. It's John. Thanks, John. So the way we think about the revenue growth this year, obviously, we gave you the 4% to 6% on that side. But given the momentum that we have and what we see today, we think that mid-single-digit growth is appropriate for both net interest income and fee revenue growth. So maybe just to break it out a little bit. So on net interest income, as an example, we expect that to strengthen over time. We have 3% to 4% here in the first quarter. But with the increase in loan pipelines that we see as well as NIM expansion as that continues, we do expect that to grow. And then fees, we expect that to have a more consistent approach and performance as we look through the course of the year. Of course, that's going to be led by many of our key businesses like trust capital markets, impact finance, and payments. So overall, we see a lot of momentum in the businesses. We've had several good quarters here in a row; our job is now to continue to execute on the strategy.
John Pancari, Analyst
Got it. Alright. Thanks for that, John. And then, Gunjan, you mentioned that revenue rather than expenses may be a bigger driver of the expected positive operating leverage in 2026. If revenue doesn't cooperate, can you discuss the flexibility that you still may have to achieve the 200 basis points plus and positive operating leverage? Like, what are your levers and do you have flexibility around the strategic investments that you emphasized?
Gunjan Kedia, CEO
John, good morning. The short answer is yes. Our productivity and expense management is being created in a very fundamental way. You'll remember that for six years, we have been investing very heavily in digital capabilities. Nearly all back-end platforms have been upgraded, and that creates a lot of productivity once you start getting the operations aligned. You add to it the AI boost we are seeing in large expense pools. So we are very confident about expense management. We have aggressive plans to invest back in the business just to drive revenue growth, especially fee revenue growth in businesses like capital markets and payments that attract more expenses. But we have a lot of ability to flex that. Those are not long-term investments. Things like sales and marketing are quarterly investments. So we are very committed to our meaningful positive operating leverage, and we expect it to come from revenue. But if something happens in the macroeconomic environment, we have levers on expenses.
John Pancari, Analyst
Great. Thank you.
Gunjan Kedia, CEO
Thank you. Thanks, John.
Operator, Operator
Next question comes from John McDonald from Truist.
John McDonald, Analyst
Thanks. Good morning. I was wondering, John, if you could expand a little bit about your outlook for balance sheet growth in 2026 and any mix shifts or trade-offs that you want to highlight between loans and also loans earning assets. You had given a forecast last year about balance sheet growth by the end of the year, and it had had some mix shift. So I just want to get an update on that.
John Stern, CFO
Sure. Good morning, John. Yeah. So largely, I think you're talking about the slide that we had in the first quarter of last year, talking about our asset growth and things like that. I think that still holds. We still feel like that range is the appropriate range for our balance sheet. Maybe just to go into some of the pieces, you know, we do expect loan growth to be stronger this year. Probably more in the 3% to 4% loan growth area led by commercial and cards again. But, you know, we also see that commercial real estate is starting to grow, and we expect that to help in terms of growth there. We do expect that deposits will continue to grow consistent with loans. That should be about one for one in the way we're looking at it. And in terms of other assets, I expect the investment portfolio to kind of flex based on if loan growth is faster, we'll probably have fewer investment portfolio and other earning assets; if it's less, then perhaps we keep the balances the same. So those are going to be kind of as we go manage through the quarter, we'll see how that progresses. But all this is to say that the mix is improving in the balance sheet, and that's going to continue throughout 2026, and that's what gives us confidence in the NIM expansion as well.
John McDonald, Analyst
Great. And maybe just on that note, you could give us your updated thoughts on the timeline for the NIM expansion, you know, to get to 3% over the next year or two. And in addition to that loan mix shift, what are just an update on some of the fixed asset reprice drivers. Thank you.
John Stern, CFO
Sure. Yeah. So, I think, first of all, there's no change to our outlook. We still feel there's definitely a path to 3% in 2027. The drivers of net interest margin are going to be the mix that I just mentioned as well as the fixed asset repricing. What I would say there on the fixed asset repricing is that we'll have slightly or we'll have more balances that should reprice this year than last year. But it'll be likely at a lower spread just because the nature of long-term rates have come down over the course of the year and based on our forecast. So those are kind of the pieces. And then the deposit mix is going to continue to improve with the focus on consumer deposit growth, which we've been very successful at growing this year, as well as commercial deposits that are tied to strong fee categories like treasury management, institutional businesses, and things like that. So that's all, again, a big focus for us as we look into 2026 and continued NIM expansion.
John McDonald, Analyst
Okay. Thank you.
Operator, Operator
Our next question comes from Ebrahim Poonawala from Bank of America. Please go ahead. Your line is open.
Ebrahim Poonawala, Analyst
Good morning. I guess good morning. Maybe, John, just hey, John. Following up on slide 10 on the deposit growth, just spend some time talking about drivers of deposit growth. You're having the mix towards consumer deposits. What's driving that net net? Is that accretive as we think should we continue to think about that mix shifting to the consumer side? And how accretive is that when we think about either deposit margin or the overall margin? Thanks.
John Stern, CFO
Sure. So, you know, on the deposit, a couple of things are going on in the deposit growth. Over the course of the year, we saw steady growth in the consumer deposits. And as that Slide 10 illustrates, we continue to believe that that is accretive and it is helpful to bring in new accounts and clients to the bank, typically those that are younger, more affluent base that we have, and this is particularly in our BankSmartly product, which is a savings and a card tied together. We've seen very good success in growing that savings product over the course of the year. We find these clients to be stickier, and that's going to be over long periods of time. That's gonna be very helpful from our funding cost perspective. The other thing we're focused on the commercial side is a reduction in CDs. We reduced our CD count by $6 billion this quarter. We are at the lowest point in CD usage in the last ten quarters. So that has been helpful moving forward to our mix. Our wholesale and institutional balances are gonna be really driven by our core institutional and, like, fund services, corporate trust, treasury management, and other middle-market and other types of accounts that that's gonna give us. So the mix is gonna be very important for us as we move forward.
Gunjan Kedia, CEO
And, Ebrahim, I can just add that we are very intentional about using the balance sheet to drive deeper relationships and fee-based businesses. An expansion in the core client franchise brings a lot of payments and card revenue and merchant revenue at the back end of it. So it's very accretive in the long run and very strategic for us as well. So the focus is very much on consumer deposits and operational wholesale deposits, which come with expansion of treasury management, investment services, and some of the fee-based products. That's one of the reasons we wanted to highlight the global fund services business. While it's, you know, a billion-dollar-like business for us, it's not huge enough, but it's a very important source of operational deposits.
Ebrahim Poonawala, Analyst
That's helpful. And just a separate question, I guess, I think last quarter you all established a digital assets organization. Just talk to us. You put out a few press releases. A lot of energy around tokenization. Is there a role for USB to play there? And is that a needle mover as we think about either fees or deposit growth outlook for the bank?
Gunjan Kedia, CEO
Yes. Thank you. So let me just describe the world here a little bit from our perspective. We are obviously taking it seriously as an industry shock. That's why we stood up an organization called Digital Assets and Money Movement, and it's led by a very seasoned payments executive for us. We have seen progress in two very distinct areas. The first is on capital markets where the investment side around cryptocurrency stablecoins is leading to demand for core custody type of capabilities. We have almost $12 trillion in assets there. We were very quick to stand up a cryptocurrency custody offer. Last year, we stood up a stablecoin custody offer. Ibrahim, I'll tell you, last year has been a very brisk place of new ETF launches, and a large majority of them have been to take advantage of the digital assets. And we are seeing the revenue model come through in a very real way. And we think that's real and there's momentum. On the bigger conversation of payments, it's more speculative. So we do press releases because there's a lot of interest every time we actually conduct a stablecoin transaction with some partner platforms. We have done many of those. I can't point to a specific revenue-generating use case. The demand specifically from the client base is not very strong or real yet; the revenue model is still to be figured out. There's enough momentum there, both from a supervisory and commercial side that we expect to be very front-footed as this world evolves around payments.
Ebrahim Poonawala, Analyst
That's good color. Thank you.
Gunjan Kedia, CEO
Thank you.
Operator, Operator
Our next question comes from Mike Mayo from Wells Fargo. Please go ahead. Your line is open.
Mike Mayo, Analyst
Hi. Well, you announced the acquisition of BTIG. And I think there's a little confusion. Is that the reason why you're slowing down buybacks? And just more generally, a few covered U.S. Bancorp for a while, and this is over two decades after you spun off Piper, and now you're going back into the capital markets business a little bit more than you were already there. So if you can also just talk about the investments that you'll be making with BTIG, the business lines, what else that requires. I imagine this is kind of like a link and leverage deal where you buy a firm and you leverage it over your entire franchise, but I'm not sure. On the other side, this, you know, what do you expect in terms of cap to market fees? Other opportunities for balance sheet growth? Thank you.
John Stern, CFO
Sure, Mike. I'll start on your share repurchase comment, then maybe Gunjan will comment on the other side of the questions that you had. There's no impact to our buyback. In fact, as I mentioned earlier, we'll be increasing our share repurchases from $100 million to $200 million this quarter. And then, thereafter, we'll glide into our eventual target of 75% that we've talked about. And so, this transaction is a 12 basis point impact on the CET1 ratio. No more, no less. That will be the impact no matter what the earnout or anything else. So, we feel really good about the financials, and it's not material to EPS. This year, simply because there will be some merger-related costs that will offset any revenues for this or margin. So as we look to the following year, that will shift.
Gunjan Kedia, CEO
Mike, good morning. I'll just step back and maybe recap the strategic rationale. You know, our clients use both bank balance sheets and capital markets to manage their own balance sheets. We have had a lot of success with the fixed income side of our capital markets business that has grown organically over the last fourteen years or so, and it's now grown to about $1.4 billion in revenues for us. It's a sizable business. The last gap in our product lineup was the BTIG set of products. We've had a partnership with them for ten years. And it is true twenty years back Piper Jaffray was acquired. And just as a reminder, we retained all of the wealth and asset management sites of Piper Jaffray, and those have become sizable businesses for us today with a lot of cultural fit. The capital markets weren't appropriate for us at the time. It is very much more culturally aligned with what we do plus we know the property. On your balance sheet question, I think the issue is you're already deploying a very sizable balance sheet today against our commercial and corporate clients. And a broader lineup of fees leverages that balance sheet more. We do not expect the BTIG business in itself to be a big driver of additional sort of balance sheet usage. But otherwise, lots of revenue synergies across our IS business, across our family office business. And we'll report on that more to you once the deal closes, and we give better guidance on what the economics of that deal will be like.
Mike Mayo, Analyst
Alright. Thank you.
Operator, Operator
Our next question comes from Erika Najarian from UBS. Please go ahead. Your line is open.
Erika Najarian, Analyst
Yes. Thank you. Good morning. First question, period end assets ended at $692 billion for the year. And I guess this is a two-part question. First is, as you understand it, how do the tailoring for proposals or the removal of tailoring proposals in Washington, how would that positively impact that $700 billion crossing? And additionally, as we think about John, that path to 3%, does that consider the currently more stringent liquidity requirements that you would need to adhere to if nothing changed on tailoring?
John Stern, CFO
Sure, Erica. Thanks for the question. So on the asset side, yes, we're continuing to grow. Obviously, as you know, it's a four-quarter average of assets that is the deciding factor in how when you trip into category two. You know, we're running our business without any regard to that level. We are growing our loans consistent with the industry. We want to make sure we're there for our clients. Any rule that happens or change to the tailoring rules over this process will take in stride. We understand there's obviously been chatter about that. As folks in the regulatory spheres have talked about those perhaps being reindexed, but we don't know that for sure. So in the meantime, we're going to continue to do what we need to do on the growth and supporting our clients through that. And then in terms of the consideration that you had, I'm just trying to remember your second question. It was on the LCR with the LCR. I'm sorry. Yeah. Thank you. On the LCR, there is no impact to that. We have that fully loaded into our calculus here as we think about the NIM. So as we jump from a more modified LCR to a full LCR, there's no impact, and that's all incorporated into our guidance.
Erika Najarian, Analyst
That was very helpful. Thank you. And just as a follow-up question, Gunjan, during prepared remarks, you talked about the faster evolution of the banking industry and also in your responses to the other analyst questions, it seems like, you know, you have a very nimble organization in terms of how you're responding to these changes. And, you know, as we think about the investments that you have to make, you know, in terms of moving the continuing to move the company forward, you know, is there just enough productivity savings that you can identify where you can continue to invest for the future, whether it's nearer term like capital markets or medium term like, you know, the digital asset transformation, you know, and still deliver on that positive operating leverage, you know, of 200 plus that has been a clear message to your investor base.
Gunjan Kedia, CEO
Thank you, Erica. Good morning. It's a very thoughtful question. And let me start really by the new investments in AI and stablecoin. They are actually very capitalized. There is so much support that is being provided to us from a whole suite of partners who really like our business mix, our payments, and capital markets. You know, we are unusual in having sizable capabilities on both of those. And we've organized that data. As you know, we are on the cusp of category two transition, and that has given us a lot of imperative over the last two or three years to have better data. Collectively, we are a very important partner. So we are getting a lot of support when we do these pilots on stablecoins. They're not huge investments yet. However, we stand ready to invest as needed when the market flexes. You have to learn. You have to have your products set ready. So I would say to you that for some time, at least, you're getting a lot of benefit of industry-wide investments to just scale up our product capability. The real investments we are making are to support our fee business growth. We are doing bigger deals; they come with more upfront cost. The payments transformation, if you think about the revenue model of payments, we are looking at acquired but not installed business. We are looking at sales pipelines, and the revenue model follows twelve to eighteen months after you sold the business. So we are very prepared for that kind of expense inflection. But also creating productivity. So I feel very comfortable with both investing heavily for organic growth and delivering positive operating leverage. And again, I always want to remind when you spend 5 or 6 billion upgrading your digital investments, which we did over the last six years, you have a long runway to drive productivity out of them, which we will.
Erika Najarian, Analyst
Got it. Thank you for that.
Operator, Operator
Our next question comes from Ken Usdin from Autonomous Research. Please go ahead. Your line is open.
Ken Usdin, Analyst
Thanks. Good morning. A follow-up on that last point. So as you've made all these investments, it's nice to see a little bit of improvement year over year in payments business fees in aggregate. I was just wondering what's the pace of improvement that we could expect as you think about next year and to John's prior point about mid-single-digit growth on the fee side overall? How much does payments play a part of that? If you can kind of just talk through each of the three business areas there. Thanks.
John Stern, CFO
Sure. Thanks. Appreciate the question. You know, absolutely, payments has a role in our mid-single-digit call for fees overall. But take it piece by piece, you know, card, we have a lot of progress with the Smart Leap program and other cards that we've introduced into the market. There's a tremendous focus on small business that we are very much focused on internally. So we have a lot of momentum there. We do expect mid-single-digit growth in this business for the year of 2026. On the merchant side, as we talked about on our strategy, at a recent investor conference, we talked about, you know, increasing our margins through more distribution and a direct model, really being thoughtful about what verticals that we want to be a part of. And really focusing on that embedded software and having that be a key component of our growth. And so, again, here, we think that mid-single-digit growth for the year is appropriate for this business as well. And then on the corporate payment side, clearly, we saw improvement this year on a year-over-year basis, but it’s still negative growth. Just given the spend levels on the government side as well as just some caution on the corporate T and E side of the equation. That will likely continue into the first half of the year, but should overall strengthen as we get through that. And by the time we exit that, that will be more in the mid-single-digit range. So overall, single-digit for this business is what we should expect, and we're looking forward to executing our strategy.
Ken Usdin, Analyst
Okay. Great. Thanks. Thanks, John. And just one follow-up on the credit card side and charge-offs. That loss line has really settled down a little bit. Are we at kind of a new— I know there's some seasonality, but like what's your expectations for card losses? You know, versus where we kind of ended the year and averaged for 25?
John Stern, CFO
Yeah. Thank you. So, you know, card, if I think about there's seasonality, so you should expect a little bit higher charge-off rate on card in the first half of the year just given that seasonality. But overall, if I just look at big picture on card 25 versus 26, we expect stability in that charge-off rate based on what we know today.
Ken Usdin, Analyst
Okay. Got it. Alright. Thanks, John.
Operator, Operator
Our next question comes from Gerard Cassidy from RBC. Please go ahead. Your line is open.
Gerard Cassidy, Analyst
Good morning, Gunjan. Good morning, John.
John Stern, CFO
Good morning.
Gerard Cassidy, Analyst
John, you talked about the commercial loan growth, and you talked a bit about commercial real estate. I think you said maybe the first time in November, it may have seen a little bit of growth. Can you expand upon that for 2026 along with the commercial loan growth? Are the 10% year over year quite nice. And can that continue, do you think, in 2026?
John Stern, CFO
Thanks, Gerard. The short answer is yes. On the continuation on the commercial side of the equation. But let me start with the commercial real estate side. Since you talked about that, I'll mention that we do expect growth in the real estate line. As you said, this is the first growth that we've had in eleven quarters in that line item, which is great to see. I think what we're seeing here is the continuation of the pipeline building, particularly as it relates to multifamily and industrial. I think those have been strong areas of growth. And I would also say that paydowns have actually slowed down as well. Our office numbers, our CRE office has dropped $3 billion over the last three years and at a pretty rapid pace. And so that has started to slow down. So that has been helpful. I'll also say that this growth is not driven by data centers and things like that. We have less than a billion dollars of data centers in our portfolio, and we do select high quality in that sense. So that's kind of the story on real estate. On the C&I side, we're just seeing growth in a number of different areas. I'd just say it's very broad-based. Even though utilization has been pretty flat, we've seen growth in subscription lines, supply chain, and some of the M&A activity is picking up with our clients. So there's just core growth on that side of the equation. We've also been going into business banking and SBA, seeing very strong growth as well as our expansion markets and middle markets. So a combination of all these things, we think, persists into 2026, and so we're looking forward to that growth.
Gerard Cassidy, Analyst
Very good. And Gunjan, one of your peers in asking this question called me a curmudgeon. So I'll try to ask the question a little less negatively. But the setup for you folks and your peers is really good this year. Investors see that. But being bank people that we are, we're always looking over our shoulders. Aside from the obvious geopolitical risks, do you guys keep your eye on just, you know, in case of a surprise comes up that we're not expecting right now?
Gunjan Kedia, CEO
Well, thank you, Gerard. I will not call you a curmudgeon. We worry about what's coming around the corner as much as you do. You know, the economic backdrop going into 2026 is broadly constructive. The consumer did very well through the holiday cycle, and that was across all ranges of FICO scores and across discretionary spending. As John just described, the delinquencies are coming down. While the employment picture is a little muddy, it's still strong, and we are not yet seeing the impact of the one big beautiful bill and some of the new tax provisions like tips and overtime, etcetera, will come into the consumer's balance sheet. So we expect that to be good. The sentiment on the corporate side too has moved to sort of more M&A and real CapEx rather than just sort of a pause and replacement CapEx waiting for tariff uncertainty. I would say the economic backdrop feels like tailwinds rather than headwinds going into the year. So our attention really is on unexpected policy changes. In front of us is a very big capital bill. In front of us are some real discussions around stablecoin bank industry, novel charters. And so I would say our attention is really focused on the policy side with some relief on the economic front.
Gerard Cassidy, Analyst
Very good. Thank you.
Operator, Operator
Our next question comes from Betsy Graseck from Morgan Stanley. Please go ahead. Your line is open.
Betsy Graseck, Analyst
Hi. Good morning.
Gunjan Kedia, CEO
Good morning.
Betsy Graseck, Analyst
I had one question on BTIG. I know we talked about it earlier in the call. But I wanted to get an understanding of how much of a capital call do you think this piece of the business will be? And just from my vantage point, it feels like it's a little bit less than what the fixed income would be, which you already have. But I'm not sure how much you're looking to lean in and grow what they have and increase the balance sheet items associated with the equity book. So some color there would be helpful. Thank you.
John Stern, CFO
Sure, Betsy. So maybe just as a starting point for BTIG, they have a very low balance sheet. There's not a lot of loans and balance sheet with that. I think that potentially could be one of the synergies that's not built into our current forecast. We think the synergies are really gonna be around areas like our fund services, our capital markets, as well as our ICG or our institutional client group. There could be loans associated with that. But, you know, we'll treat that in the context of the entire capital market suite. And so this will be just another component of how we manage and have grown in the capital markets space methodically over the last fifteen years. This is another component of that journey, and so we'll grow as the market allows, and we'll be taking it into consideration with our risk management framework.
Betsy Graseck, Analyst
Okay. And is it a self-funded capital call or does it pull from other parts of the organization?
John Stern, CFO
Yeah. It's self-funded. I mean, there's no other parts of the organization. It's all contained here at the bank.
Betsy Graseck, Analyst
Okay. Thank you.
Operator, Operator
Our next question comes from Saul Martinez from HSBC. Please go ahead. Your line is open.
Saul Martinez, Analyst
Hi. Thanks for taking my question. I'll ask also on this is more of a clarification. John. It's expected to close in the second quarter. You mentioned there are some merger costs embedded in the guidance. For it being PPNR neutral. But with that, I guess, can we surmise that it will be PPNR accretive by year-end and into early 2027, especially considering, you know, some of the synergies that you just mentioned in your response to Betsy's question.
John Stern, CFO
Yeah. Thanks, Saul. The answer is yes. We expect merger-related costs to happen in the next quarter or two. And so as that occurs, that will keep the EPS neutral. And so, after that, then we expect to have some, obviously, we'll see margin expansion in this business once we get through those costs.
Saul Martinez, Analyst
Okay. That's helpful. And then, you know, I hate maybe beating a dead horse here would be the question on BTIG, and you kind of addressed this. But it does really change the composition of your capital markets business adding equities, and I think one of your competitors said that this really isn't a business that makes a lot of sense for a large regional bank. It's what we've given that, at least in their view, it really does require massive scale and there's more suitable for a larger bank. I guess, what makes you think that these businesses, especially equity, make sense for U.S. Bancorp and that you why are you confident that you'll be successful in extracting value with that business under your umbrella?
John Stern, CFO
Yeah. Thanks for the question. You know, our view is that these businesses we added because we had an opportunity here with a partner that we know, a known that fits into our risk management. But also importantly, it's what our clients have been asking for. We have had very good reach out from clients across the board that have wanted us to participate more in their financings, have us participate more in their broader activities, but have not been able to give that to us freely, in terms of the full spread and wallet share that they would have liked or intended to do. So this is something that's really gonna, it's something that our clients have asked for. It fits well within our risk management profile as that has been built up internally here over the last several years. And so it is a great fit for us.
Gunjan Kedia, CEO
You know what I'll add, Saul, that you have to look at our track record in growing the fixed income book, which not all regionals have been able to do. So everybody has a different strategy here. Our confidence in leaning in heavily into the capital markets comes not just from the client conversations, but from the real success we have seen just holding our own. The market is not uniform. There's a lot of need for family offices, for middle-market clients that are unique, that require high touch, and so we think at our size, we definitely have the ability to carve out a very nice business given the size of our balance sheet here.
Saul Martinez, Analyst
Great. That's helpful. Thank you.
Operator, Operator
Our next question comes from Steven Chubak from Wolfe Research. Please go ahead. Your line is open.
Steven Chubak, Analyst
Hi, good morning, and thanks for taking my questions. So I wanted to start off with one on Global Fund Services, and I appreciate the additional disclosure that you provided in the slides. You noted you're seeing strong growth in GFS. You outlined the strength of the ETF servicing capabilities. I was hoping you could speak to the competitive landscape in that area. How much of the growth that you've seen since '21 is tied to organic efforts versus some of the rate and market tailwinds that transpired and just how that informs what you believe is the sustainable growth rate or outlook over the medium term relative to the mid-single-digit guidance that you offer at the firm level?
Gunjan Kedia, CEO
Steven, thank you for that. Let me start. GFS has a very niche specific set of products for highly complex small boutique-type firms around private capital, private credit. So you have to play the game right. We have done this for now many years, and there's a very sustainable competitive path for this business going forward. We do like to highlight that smaller businesses don't get airtime. Just to teach you last quarter, we just gave you some visibility to our impact finance business. So we see this being a real engine of growth as the whole world of investments overall grows. Obviously, when you have good strong equity markets, you do slightly better. In other times, you do slightly worse. But the core organic growth and market share gains here are very real.
Steven Chubak, Analyst
That's great. And for my follow-up, on deposit mix, looking at noninterest-bearing deposits, you saw solid growth of 4%, sequential increase on average. Recognizing some of that is gonna be seasonal. But do you feel we've reached a sustained inflection in noninterest-bearing deposits? And within the NII guidance for the full year, what are you assuming for deposit remixing and shrinkage in time deposits? As well as betas with some of the upcoming rate cuts.
John Stern, CFO
Sure. Thanks. Appreciate that. In terms of noninterest-bearing, and yes, we have grown both sequentially and on a year-over-year basis. That year-over-year basis has not been achieved in quite some time. So it was nice to see that. And we do expect that to continue into 2026. So in our call here for growth, on both loan and deposit, I would anticipate it's both a mix of interest-bearing and noninterest-bearing deposits, with roughly the mix probably being in the same area that it is today, is kind of how we think about it. You know, in terms of deposit mix and rates and things like that, I'm just gonna kinda go back to, you know, we're focused very much on growing our consumer business as well as these key areas that are gonna help us grow in our fee revenues, the treasury management areas, the institutional businesses, and several select corporate clients. So that's gonna be our focus as we think about deposits this upcoming year.
Steven Chubak, Analyst
That's great color. Thanks for taking my questions.
Operator, Operator
Our next question comes from Matt O'Connor from Deutsche Bank. Please go ahead. Your line is open.
Matt O'Connor, Analyst
Good morning. I was hoping you could give a quick update on your branch strategy. Your branch count, I think, is down about four or 5% versus a year ago. I think you've talked about not being that interested in bank deals. So kind of bringing that all together and in lieu of some other banks maybe announcing branch expansion strategies. You know, just talk about the branch strategy and, you know, if there's any change on the M&A, I think. Thanks.
Gunjan Kedia, CEO
Matt, thank you. Let me begin. So just for historical context, U.S. Bank had a very, very heavy presence in in-store branches. Before our digital tools, that's what provided servicing access to people over the weekends and after hours. You don't need that anymore. So the vast majority of our branch closures is really these small servicing units. What we are building instead is multi-client hubs that have many products represented in more hub-like branches. We invest about $200 million in our branches. We find that to be a very effective channel and continue to be a very effective channel. So our strategy, though, is to try and get to top five market share in the places that we are in and create modern interconnected branches in those areas. For example, in Denver, we've just finished the renovation of all our branches into the new format. We continue to lean in on branches as a source of growth and client service. It's just our starting point was slightly different. So we have to close all these sort of in-store branches and then rebuild from that point onwards. And on your second question, there's no change in our strategy. We are very focused on our organic growth opportunities and seeing a lot of momentum there.
Matt O'Connor, Analyst
Okay. That's all helpful. And then, so if we strip out the in-store branches. Any numbers on the remaining branch network, and then from your perspective, how much more refurbishing or retrofitting is there still to do for the traditional branches? Thanks.
John Stern, CFO
Sure. So on how much to do, the $200 million is going to be a consistent always-on approach to remodeling, to adding and branches and things of that variety. So we've had several hundred branches remodeled this year. We expect to have that occur next year as well, and that'll be just a continuation of our strategy that Gunjan just laid out.
Gunjan Kedia, CEO
Matt, it's very much always on, you know, because you refresh these formats over and over again. So it's not sort of one and done. But the message here really is we are investing very much in our branch. It's an important channel for us.
Operator, Operator
Our last question will come from Chris McGratty from KBW. Please go ahead. Your line is open.
Chris McGratty, Analyst
Oh, sorry about that. I was on mute. John, when you look at your top five goal for market share, and across your footprint, the metro market, where would you not be where you need to be? Where do you need to invest a little bit more to get the market share?
John Stern, CFO
You know, in terms of are you speaking more on the consumer side or on the commercial side?
Chris McGratty, Analyst
Consumer side?
John Stern, CFO
Sure. So, you know, like Gunjan just laid out, the Denver area, we've certainly been making investments here in our hub here in headquarters here in Minneapolis, Nashville, Arizona, areas, of course, in California, given the Union acquisition where we've combined locations that were very close to each other and obviously took the premier spot or refurbished those areas. So, what we're doing is really refurbishing and we're building branches in areas where there's high growth in those MSA areas. Not every area is, of course, the same, so you have to go kind of market by market. But that's been the course of our strategy over the last couple of years.
Chris McGratty, Analyst
Great. And my follow-up would be on just consumer checking account growth. It's gotten a lot of attention this quarter. You guys had good consumer deposit growth in the quarter. Can you share any statistics about the checking account growth over the past year or two that would give you optimism? It's gonna be this could continue?
John Stern, CFO
Thank you. Yeah. So I think the important thing is really, I mean, accounts are good, of course, and we watch that. But it's really about the balances is what we're really focused on. And so our consumer amounts were up two and a half percent, or $7 billion or so this past year. Not many peers grew consumer deposits this year. It's a very competitive market. And I think what's important for us is we've developed a very nice set of products that can meet a number of different clients. And we have pricing capability tools that we've been building over the last several years that have helped us in this regard as well. So the combination of all that is really, I think, is what is giving us strength in that consumer number. As well as our capability digitally to compete anywhere across the country. So it doesn't have to be just our footprint. That is necessarily the case. So all those are leading factors to where why we think that consumer growth will continue.
Gunjan Kedia, CEO
I'll just add that the branch performance has inflected very nicely too with all of the investments that we have made, all the tools that we've put in the hands, all the AI-powered next-best solutions, you know, collectively that has created a fair amount of momentum, and we've been building towards those capabilities all of 2025. And beginning to show up in our results here.
Chris McGratty, Analyst
Great. Thank you so much.
Operator, Operator
There are no further questions at this time. Mister Anderson, I turn the call back over to you.
George Anderson, Director of Investor Relations
Thank you, and thank you to everyone who joined our call this morning. Please contact the Investor Relations department if you have any follow-up questions. You may now disconnect.
Operator, Operator
This concludes today's conference call. You may now disconnect.