U.S. Bancorp Continues Profit Run As Fitch Reaffirms Rating

July 26th, 2012 by Trefis Team
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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. [1] 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. [2]

We maintain our $35 price estimate for U.S. Bancorp’s stock, which is quite close to its current market price.

See our complete analysis for U.S. Bancorp

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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.

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Notes:
  1. 2Q 2012 Earnings Release, U.S. Bancorp Press Releases, Jul 18 2012 [↩]
  2. Fitch says U.S. Bancorp continues to outperform peers, Reuters, Jul 19 2012 [↩]