US Bancorp: Credit Card Volumes Surge, Loan Delinquencies Stabilize

Bank earnings continue to show credit remains a key payments choice.

U.S. Bancorp’s earnings, released Wednesday (July 17) indicated that within the company’s payment services segment, credit card payment volumes came in at $36.5 billion, up 4.6% year on year. The average loan balance, overall, in the credit card segment, was $28 billion, up 8.8% from last year’s second quarter.

CEO Andrew Cecere said on the conference call with analysts that “credit quality results were in line with our expectations as we saw stabilization in delinquency rates and a modest increase in NPAs [non performing assets.”

Net charge-off ratios on credit cards were 4.4% in the June period, where that ratio had been 3.1% last year and had been about 4.3% in the first quarter. Loan delinquencies and other credit metrics have “stabilized” and have given the company confidence in its credit outlook, CFO John Stern said.

Average total deposits increased 2.2% quarter on quarter to about $524 billion, up 3.3% from last year.

Stern also said on the call that “we continue to emphasize stickier relationship-based deposit generation. The pace of decline in non-interest bearing balances continued to slow this quarter,” as the company was successful in “retaining and growing core operational relationships across the franchise.”

Management disclosed on the call that about 50% of the loan balances are retail, while the remainder is held by institutions and corporates.

Fees and Payments Volume Growth

Asked on the call about fee income, Stern noted that “on the fee side of things … we had a solid quarter, but we continue to expect momentum in the various categories, and it’s going to be a combination of all the main ones. It’s going to be payments. It’s going to be our trust, investment management fees, and it’s going to be in the capital market spaces. … On the payment side of things,  we continue to see strong, core competencies” in merchant processing and corporate payments.

The payment services segment, as detailed in U.S. Bancorp’s earnings supplementals, indicated that the number of merchant transactions, at 2.1 billion transactions, in the most recent quarter were up 5% year on year.

Merchant volumes (acquiring) in the quarter were up 1.7% year over year. Non-travel categories of spending are seeing strong growth, according to conference call commentary. The payments business, over the medium term, should see high single-digit growth in the merchant and corporate payments systems categories, per discussion on the call, and the mid-single-digit growth rates should also apply to credit and debit card activity.

Shares of U.S. Bancorp were up 2% at the start of trading on Wednesday.