U.S. Bancorp (NYSE:USB) reported its best quarterly numbers ever for the last three months, with the bank earning a record $1.38 billion from revenues that crossed $5 billion for the first time.  The country’s fifth-largest bank in terms of assets gained from strong growth in loan volumes even as its net interest margins remained high. A decent increase in fee income for the period also contributed to strong top-line figures. The strong earnings figure prompted Fitch Ratings to reaffirm its ratings for U.S. Bank with a note that the bank would likely continue to outperform its peers in the short run. 
We maintain our $35 price estimate for U.S. Bancorp’s stock, which is quite close to its current market price.
Mortgages Quickly Becoming The Backbone of U.S. Bancorp’s Growth Story
U.S. Bancorp’s total loan portfolio size grew by almost 2% this quarter to an average of $214 billion this quarter. Commercial loans swelled by 5% over the quarter followed by a strong 3.5% growth in residential mortgages.
The bank’s increasing focus on mortgages in the recent past becomes evident from the fact that it originated home loans worth $21.7 billion this quarter. This means U.S. Bancorp would retain its position as the third largest mortgage originator among all U.S. banks, after Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) (see U.S. Bancorp Beats BofA, Citi In Q1 Mortgage Lending). There is also a notable increase in the size of mortgages the bank services for others, with the value at the end of the quarter being $207 billion.
Merchant Processing Fees Grew On Increased Transaction Volumes
The fees that U.S. Bancorp generated by processing payments at merchant locations grew to reach almost $360 million this quarter from under $340 million in Q1. The growth is noteworthy, as stricter regulations governing payment processing fees have resulted in a reduction in merchant processing fees for bigger competitors.
While the fees that U.S. Bancorp charged per transaction definitely should have declined, this was more than compensated for by a significant increase in the number of merchant transactions for the period.Notes:
- 2Q 2012 Earnings Release, U.S. Bancorp Press Releases, Jul 18 2012 [↩]
- Fitch says U.S. Bancorp continues to outperform peers, Reuters, Jul 19 2012 [↩]