U.S. Bancorp (USB) achieved record total net revenue and earnings for 2012, largely driven by continued mortgage banking strength and increased card fees.

The company reported net income of $1.4 billion for the fourth quarter of 2012, included in the results was a previously disclosed $80 million accrual for a mortgage foreclosure-related regulatory settlement, which slightly reduced earnings to $0.03 per common share.

Strong new lending activity of $71.5 billion during the quarter was a significant highlight for USB including $39.8 billion of new and renewed commercial real estate commitments as well as $29.1 billion of mortgage and other retail loan originations.

“Growth in both of these categories demonstrates our Company’s continuing ability to expand and deepen relationships with our current customer base, as well as gain new customers and market share,” said chairman, president and chief executive officer Richard Davis at U.S. Bancorp.

He added, “Our fee-based businesses also realized solid growth in 2012, led by mortgage banking. With continued investments in growth initiatives and small, strategic acquisitions, these businesses remain very well positioned to continue to grow and leverage the slow, but steady, economic recovery.”

Total average loans grew in the quarter over the year prior and linked quarter by 6.4% and 1.5%, respectively.

For the full year, total average loans increased by 6.9% from a year prior, accelerating growth over the 4.4% increase realized in 2011.

“Given the company’s strong loan origination platform, we expect U.S. Bancorp to continue adding to its loan book,” FBR Capital Markets noted in its USB update. 

The $173 million, or 57.1% increase in mortgage banking revenue over the same quarter of last year was significantly due to higher origination and sales revenue as well as an increase in loan servicing revenue.

FBR reiterated its ‘outperform’ rating and $36 price target for USB and credits the company’s solid performance to strong mortgage banking. 

Mortgage production volume increased $529 million, and revenue of $467 million remained solid from the third quarter’s record level.

Mortgage banking revenue now accounts 20% of fee revenue, compared with 14% from a year ago.

“Given our expectations for sustained, robust Home Affordable Refinance Program 2.0 and general refinancing volumes, constrained market capacity, demand generated by open-ended third round quantitative easing program, and less involvement from larger players, we expect mortgage banking revenue to continue to materially contribute to earnings through the middle of first half of 2013, at least,” FBR analysts said.


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