Revenue growth at the Minneapolis-based bank was the strongest in two years. Earnings rose 28 percent, but shares rose only 1 percent.
U.S. Bancorp beat Wall Street estimates Tuesday on strong overall loan growth plus a surprising surge in mortgage activity.
Although profits dropped a skosh from the previous quarter, when the bank benefited from a one-time settlement gain, they were up 28 percent from a year earlier to $1.3 billion, or 67 cents per share, topping Wall Street expectations for 64 cents.
The Minneapolis-based bank saw revenue jump 9 percent in the first quarter over a year ago, to $4.9 billion, its strongest revenue growth in two years. The increase reflects a 7.3 percent rise in net interest income and an 11.3 percent jump in non- interest income, mainly driven by strong mortgage banking.
The lender also boosted income by about $90 million by setting aside less to cover bad loans.
Except for higher-than-expected earnings, results were "right down the fairway," analysts at Robert W. Baird & Co. said in a research note. U.S. Bank shares closed Tuesday at $31.55, up about 1 percent.
U.S. Bank is regarded as one of the country's most profitable and best-run big banks, and already-high investor expectations likely muted reaction to the lender's solid earnings report.
Investors were also likely concerned about fee income from debit and credit cards, said Erik Oja, banking industry analyst at S&P Capital IQ. "I think that was much worse than expected, which is one reason why the stock isn't up that much today," Oja said.
Oja said he was concerned about the bank being able to maintain the mortgage pace as it cashes in on the boom in people refinancing their mortgages. The $452 million in total mortgage revenue is an all-time record for the bank, he said, and about twice what it usually makes.
"It's unsustainable, but it's really good," Oja said.
In a conference call with analysts, U.S. Bancorp CEO Richard Davis said the company has been strategically taking mortgage business from smaller banks and larger banks backing away from that sector. It's a market share opportunity "you only get once in a lifetime," he said.
The bank's other source of revenue, net interest income, saw growth driven by investment securities, a change in the classification of credit card balance transfer fees as interest income and a 6.4 percent rise in average total loans, including residential mortgages, commercial loans, credit card loans and commercial real estate loans.
Its mortgage loan volume grew by 20 percent, and its commercial loan volume, which includes loans to small businesses, rose 17 percent.
The bank's credit card balance was boosted by its acquisition of a $700 million portfolio of credit cards from Bank of America.
Analysts said it's difficult to know just how much of the bank's overall loan growth is organic, as opposed to taking business away from competitors.
Davis told analysts that U.S. Bank expects to recoup by year's end about half the revenue it has lost from various new federal regulations, such as a cap on what banks can collect on debit card swipes. Without elaborating, he said part of that recovery will come from "some increase in certain fee categories."
"We're going to be very careful," he said.
David also indicated the bank may make more acquisitions in other banks, or corporate trust and payment operations.
The bank announced last month that it will raise the dividend payout for shareholders 56 percent to 78 cents per share from 50 cents annually. It also said it will buy back 100 million shares of common stock over the next year. It repurchased 16 million shares in the first quarter.
At the bank's annual shareholders meeting Tuesday in downtown Minneapolis, Davis fielded several questions from attendees on foreclosures, taxes and the critical need for banks to facilitate wire transfers of money to Somalia, a major issue for the Somali community in Minnesota.
Many of the people asking questions were linked to a St. Paul-based activist group called Minnesotans for a Fair Economy, a coalition of community, faith and labor groups that also organized a protest outside the meeting.
On Monday, the group issued a short report critical of the expensive short-term, emergency advances that both U.S. Bank and Wells Fargo make to customers with direct deposit checking accounts, accusing them of making payday loans that take advantage of vulnerable people.
Jennifer Bjorhus • 612-673-4683