In the face of economic uncertainty, U.S. Bancorp has showcased robust credit quality through a decline in consumer card delinquencies compared to the previous year. The bank's leadership emphasizes its strategic commitment to expanding its payments businesses and enhancing money movement capabilities as pivotal areas for future expansion. Furthermore, U.S. Bancorp benefits from a strong presence among affluent customers, who continue to exhibit stable spending patterns. These insights emerged during the company's first-quarter earnings call, where CEO Gunjan Kedia highlighted the importance of diversifying revenue streams while preparing for various market scenarios.
During the recent earnings report, U.S. Bancorp's CEO, Gunjan Kedia, underscored the bank's solid credit quality and capital levels. Despite heightened market volatility, the bank demonstrated modest improvements in its net charge-off ratio and continued to accumulate capital. Kedia noted that this quarter's results reflect an environment of intense market fluctuations, yet the bank remains prepared for diverse potential outcomes. The focus on payments businesses and embedded money movement represents a significant opportunity for growth.
Kedia emphasized the critical role of money movement in strengthening client relationships. The bank achieved $925 billion in trailing 12-month payments volumes, reflecting a 4% compound annual growth rate over the past two years. Payments-related average loans increased by 6.1%, reaching $42 billion. The affluent customer segment continues to be a focal point, with the merchant payments services business evolving through enhanced interconnectivity across the bank and adopting a tech-driven operating model aligned with contemporary consumer behaviors.
Merchant processing fees saw a 3.5% increase year over year. In response to analysts' inquiries about consumer spending trends, Kedia explained that initial spending pullbacks early in the year were largely weather-related but have since stabilized. While monitoring declining consumer sentiment, the bank does not observe corresponding changes in spending patterns. This stability is attributed to the bank's focus on affluent customers and non-discretionary everyday spending habits.
John Stern, Chief Financial Officer, reported a slight improvement in the first-quarter net charge-off ratio to 0.59%, marking a one basis point improvement from the linked quarter. Delinquency rates remained low at 0.2% overall, with card portfolio delinquencies under 90 days decreasing to 1.3% from 1.4%. Discussing the merchant-facing business, Kedia highlighted its significance as an organic growth opportunity, representing approximately 5% of the bank's operations. By concentrating on five targeted verticals—retail, services, travel, entertainment, and healthcare—the bank aims to deliver stronger value propositions and deepen execution within these sectors.
Amid broad market losses, U.S. Bancorp shares declined by 2% on the day of the earnings release. Nevertheless, the bank's strategic initiatives and financial resilience position it well for navigating current challenges while pursuing long-term growth opportunities in payments and related services.