A faster-than-expected rebound in consumer travel and hospitality spending helped boost second-quarter earnings at U.S. Bancorp in Minneapolis.
The $558 billion-asset company also saw growth in its commercial payments businesses as certain types of business spending began to recover. Total payments revenue, including money generated from consumer spending on flights and hotels, was roughly $908 million, up 39% from last year's second quarter.
“I think that the rate of vaccination and that sort of activity has been extremely helpful in giving people confidence that they can travel again,” Chief Financial Officer Terry Dolan said in an interview Thursday.
Total revenue from U.S. Bancorp’s payments business — which includes credit and debit cards, corporate payment products and merchant processing services — has nearly recovered to prepandemic levels, the company reported.
Credit and debit card revenue totaled $396 million, a 39% year-over-year increase, with travel spending accounting for some of the rebound.
A number of airlines are reporting that leisure travel spending “is really back to prepandemic levels,” Dolan said on the company’s conference call. Delta Airlines, for example, reported on Wednesday that
Still, corporate payment products revenue rose 36% to $138 million, while merchant processing services increased 40% to $374 million.
“Business spending activity is getting stronger,” Dolan said. “As small businesses start to respond to their need for inventories and those sorts of things, I do think business spending will continue to get better. That’s been lagging, but the momentum is stronger than what we would have expected.”
Increased business spending has yet to translate into stronger loan growth, as many business clients are still flush with cash, executives at the bank said on a call with analysts.
Total loans at U.S. Bancorp fell 7.5% on a yearly basis to $294 billion in the second quarter. The biggest decline happened in commercial and industrial lending, which totaled $103 billion, or 19% lower than in the same period last year. Residential mortgage lending ticked up 3% to $73.4 billion.
Net income in the second quarter totaled around $2 billion, compared with $695 million in the year-ago quarter, when a $1.7 million loan-loss provision ate into the company’s bottom line. Earnings per share were $1.28, or 14 cents higher than the mean estimate of analysts polled by FactSet Research Systems.
U.S. Bancorp’s net revenue ticked down slightly to $5.8 billion. Net interest income declined 2% to $3.1 billion, due to lower interest rates and lower loan volumes. The company’s net interest margin contracted 9 basis points to 2.53%.
Total noninterest income remained level with the year-ago quarter at $2.6 billion, owing largely to a 46% decline in mortgage servicing revenues, which benefited from a strong refinance market last year.
Expenses increased 2% to $3.4 billion. A large part of that was driven by employee benefits and compensation, but U.S. Bancorp also increased its technology and communications spending by 17% to $362 million. Some of that spending has been devoted to e-commerce, improvements in the payments business, and other digital capabilities that the firm believes will ultimately help widen its customer base, Dolan said.
“We saw during the pandemic and continue to see that customer adoption of digital capabilities is really strong,” he said.
