The bank is expanding its loan portfolio, and execs are talking about increasing shareholder dividends.
U.S. Bancorp gave Wall Street investors everything they wanted Wednesday, including strong revenue and once-elusive loan growth.
The Minneapolis-based bank's profits jumped nearly 40 percent in the fourth quarter as it set aside less money to cover soured loans and raked in fees, deposits and loans. For the full year, profits soared nearly 47 percent to $4.9 billion.
The nation's No. 10 bank by assets, U.S. Bank has been gobbling market share, and its fourth-quarter performance shone in a quarter that's seen volatility in investment banking. The strong report, a day after Wells Fargo & Co. also reported a jump in profits, contrasted with weaker reports in the past week from Citigroup and J.P. Morgan Chase.
U.S. Bank hinted that shareholders can expect another dividend hike if it gets the green light from the Fed in the spring.
Investors shrugged, as it's the level of performance they've come to expect from the eat-your-peas bank. Shares rose 31 cents to close at $29.08.
"They've kind of been tearing up the dance floor for a few quarters now," said Nancy Bush, a bank analyst and contributing editor of SNL Financial in Charlottesville, Va. "They're moving market share from somewhere. We don't know where yet."
The usual suspect, Bush said, is battered Bank of America.
U.S. Bank's fourth-quarter profits were $1.35 billion, or 69 cents per share, up nearly 40 percent from a year ago. Adjusted for two one-time events, the earnings were a lower 64 cents, topping Wall Street's consensus estimate by a penny.
The two special events included a $263 million gain from settling a long-running dispute over ending a merchant processing referral agreement U.S. Bank had with another bank.
In addition, the bank disclosed that it was one of several banks invited to participate in ongoing settlement talks with the government and the country's five largest mortgage servicers -- Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- over foreclosure processing abuses, such as "robo-signing" documents. U.S. Bank said it set aside $130 million to cover the matter, reflecting the bank's "best estimate of a probable settlement," bank Vice Chairman and CFO Andrew Cecere said in an interview.
Combined, the two events increased U.S. Bank's fourth-quarter income by a nickel.
But it was strong loan growth, coming in a subdued economy, that stole the show.
The bank increased revenue 8 percent, both from interest on loans and various banking fees. Fees grew 9 percent, despite a decline in debit card interchange fees as a result of the Durbin Amendment's cap on what banks can collect on debit card swipes.
Loans grew 5.9 percent, a pace that has steadily accelerated over 2011.
"We're starting to get back toward what is a normal growth level," Cecere said, adding that loans typically grew at a rate of 7 to 9 percent before the financial crash.
Commercial loans and residential mortgages grew particularly fast, jumping 16 percent and 22 percent, respectively. Most of that is homeowners refinancing mortgages to take advantage of low interest rates, and commercial customers rewriting loans that were up for renewal.
The bank said it's been benefiting as European banks move away from large loan syndications, and U.S. Bank is increasingly being invited to participate and lead deals.
Reaction from analysts ranged from "solid" to "outstanding."
"It's no secret that this is one of the very finest and best-run banks in the U.S.," said Erik Oja, a bank equity analyst at S&P Capital IQ.
Business borrowers remain cautious, but there are hints of greater optimism. The bank's lines of credit grew by about 7 percent, Cecere said, up from growth of about 1 to 2 percent. However, the utilization remained flat at about 25 percent -- low by historic standards.
"Every bank that we've heard from ... has said that the economy is somewhat stronger -- with emphasis on the somewhat -- and they're seeing greater confidence, particularly in the small business segment," SNL's Bush said.
Jon Arfstrom, banking analyst with RBC Capital Markets in Minneapolis, noted that commercial loans have generally been improving industrywide. The Fed reported last week that commercial and industrial loans for all banks rose 10 percent in 2011 after falling the previous two years.
Investors are likely to see U.S. Bank raise dividends again. The bank increased its quarterly dividend last spring to 12.5 cents per common share, from 5 cents. On Tuesday it reiterated its commitment to returning gains to shareholders.
"Increasing the dividend is a priority for both the board and management," Cecere said.
Jennifer Bjorhus • 612-673-4683
Figures in millions except for earnings per share.