How Important Is Card & Payment Services Division To U.S. Bancorp’s Stock?

U.S. Bancorp (NYSE:USB) is the seventh-largest bank in the United States by assets, and offers consumer banking, commercial banking, cash management, card & payment services, foreign exchange, and investment management services to its clients. Though the bank has multiple revenues streams, Card & Payment Services has contributed roughly 30% of its revenues over the last three years – making it the second-highest revenue stream for U.S Bancorp after its core Consumer Banking segment (which contributes ~40%).

Trefis details the key components of U.S. Bancorp’s Revenues in an interactive dashboard along with our forecast for 2019-2020. Its revenues have increased at an average annual rate of 3% over the last two years, from $21.1 billion in 2016 to $22.5 billion in 2018, and the trend is expected to continue in the near term. This should help the bank’s revenues cross $23.3 billion by 2020. Further, you can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for U.S Bancorp’s Revenues.

What To Expect From U.S Bancorp’s Revenue?

• U.S. Bancorp has added $1.4 billion to its top line over the last two years, from $21.1 billion in 2016 to $22.5 billion in 2018.
• We expect revenue growth of about $800 million over 2019-2020, which would be driven by about $400 million from Consumer Banking division, $300 million from Card & Payment Services and $100 million from Wealth Management division.
• This should help the bank’s revenues cross $23.3 billion by 2020

Details about how trends in U.S. Bancorp revenues compare with peers Citigroup, Wells Fargo and Capital One are available in our interactive dashboard.

(A) Consumer Banking revenues are expected to grow at a slower pace over coming years to cross $8.9 billion by 2020.

• This segment encompasses community banking, metropolitan banking, indirect lending and mortgage banking operations.
• Consumer Banking revenues have grown 16% from $7.3 billion in 2016 to $8.5 billion in 2018, driven by a 30% jump in net interest income. This increase was mainly due to higher net interest margin on consumer loans as the Fed’s rate hikes boosted the bank’s interest income.
• Mortgage Fees decreased by $259 million over the last two years mainly due to lower mortgage origination across the industry, whereas Deposit service charges have hovered around the $1.1 billion mark.
• Moving forward, we expect the revenues to grow at an average annual rate of 2% and cross $8.9 billion by 2020. This would mainly be driven by a $300 million increase in net interest income due to slight improvement in net interest yield and higher average outstanding consumer loans.

(B) Card & Payment Services segment has contributed around 27% of total revenues over the last three years, and its revenues are expected to cross $6.3 billion by 2020

• It represents revenues from providing credit card services and merchant payment services for corporate and retail clients.
• The segment revenues have grown at an average annual rate of 3% over the last two years, from $5.7 billion in 2016 to $6 billion in 2018. This was mainly driven by a $300 million increase in Net Interest Income from credit card loans and a $100 million growth in Debit & Credit Card Revenues, partially offset by a $100 million drop in Merchant Payment Services.
• The growth in Net Interest Income was mainly due to higher net interest yield from credit card loans, while increase in Credit & Debit Card Revenues was supported by a jump in Credit Card Transaction Volume.
• The drop in Merchant Payment Services over 2016-2018 was driven by negative growth in Merchant Transactions and lower average fee per transaction.
• We expect the segment revenues to report an increase of 4% over 2019-2020, from $6 billion in 2018 to $6.3 billion by 2020. This would be driven by $200 million increase in segment’s Net Interest Income due to growth in Average Credit Card Loans, and $100 million addition in Credit & Debit Card revenues due to higher Credit Card Transaction Volume.

(C) Wholesale Banking revenues are expected to decrease by 1% from $3.8 billion in 2018 to $3.7 billion in 2019 due to 2% decline in net interest income from commercial loans.

• This represents the revenues for U.S. Bancorp from providing commercial products and services as well as treasury management services to its corporate clients.
• We expect the revenues to drop in 2019 due to slight decrease in Net Interest Income, and then improve by 1% y-o-y to cross $3.8 billion by 2020.

(D) Wealth Management revenues are expected to grow at a slower pace and cross $3.1 billion by 2021.

• This division includes U.S. Bancorp’s asset management, investment, retirement, and brokerage services.
• Although the segment revenues have grown at an average annual rate of 16% over 2016-2018, the growth rate would drop to 2% in coming years.

(E) Treasury & Corporate Support doesn’t have a significant impact on U.S Bancorp’s top line

• It includes the bank’s investment portfolios, funding, capital management and interest-rate risk management operations which provide support to its other operating divisions.
• We expect the segment revenues to increase at an average annual rate of 1% and cross $1.4 billion by 2021.

Our interactive dashboard for U.S Bancorp details what is driving changes in revenues for U.S. Bancorp’s Wholesale Banking, Wealth Management and Treasury & Corporate Support segments.

Trefis estimates U.S. Bancorp’s stock (shows cash and valuation analysis) to have a fair value of $57, which is roughly 5% lower than the current market price (Our price estimate takes into account U.S. Bancorp’s earnings release for the third quarter).

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