U.S. Bancorp (NYSE:USB) followed Wells Fargo’s (NYSE:WFC) lead in ending 2011 on an exceptionally strong note with record revenue and earnings figures for the 4th quarter.  The bank’s performance in Q4 also helped it post record revenues of more than $19 billion for the year – a 5.3% boost over 2010 revenues. U.S. Bancorp reported a growth in all types of loans offered for the quarter. The tumultuous second half of 2011, which was a tough period for investment banks like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), was evidently a good time for retail banks to flourish.
We maintain a $31 price estimate for U.S. Bancorp’s stock, which is slightly above the current market price.
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The Mortgage Business Has Grown Significantly
U.S. Bancorp’s residential mortgage portfolio was worth $27.7 billion in 2010. In 2011 the portfolio swelled to more than $33.7 billion – a growth of nearly 22%. In fact, this portfolio recorded an almost 7% increase over the previous quarter.
We believe that the impressive growth in the bank’s residential mortgage lending was largely driven by one of the country’s largest mortgage lenders, Bank of America (NYSE:BAC), falling out of favor with customers in the latter half of the year. As Bank of America and other major lenders have seen their reputations take a hit, U.S. Bancorp and Wells Fargo have been able to capture additional market share.
…But U.S. Bancorp Should Keep an Eye on Its Expenses
It must be noted that while the bank’s revenues grew by 5.3% for 2011, its non-interest costs outpaced revenue growth at 5.6% for the year. U.S. Bancorp ended up shelling out nearly $10 billion in expenses, with a little more than 40% of these costs being compensation expenses.
While revenue growth is no doubt accompanied by an increase in costs, a rapid spike in expenses is a potentially issue if it continues to outpace revenues.Notes:
- U.S. Bancorp Reports Fourth Quarter and Full Year 2011 Earnings, U.S. Bancorp Press Releases, Jan 25 2012 [↩]