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U.S. Bancorp (NYSE:USB) sure has been putting its money in the right place – something that is readily confirmed from the banking group’s earnings figures for the third quarter released early this Wednesday [3Q 2012 Earnings Release, U.S. Bancorp Press Release]. The fifth-largest U.S. bank in terms of assets has been steadily building its mortgage business over recent months, ousting big-wigs Bank of America (NYSE:BAC) and Citigroup (NYSE:C) to become the country’s third-largest mortgage originator earlier this year. And the timing couldn’t have been better as is evidenced by its record revenue and income figures for the quarter.

We maintain a $35 price estimate for U.S. Bancorp’s stock, which is around its current market price.

Mortgage Business Continues To Fuel U.S. Bancorp’s Growth Ambitions

U.S. Bancorp’s mortgage banking business reaped the benefits of the bank’s focus on the business over the third quarter as low interest rates and the government-backed Home Affordable Refinance Programs (HARP) drove home-owners to the bank in large numbers to refinance their existing mortgages. U.S. Bancorp continues to eat into the market share of competitors like Bank of America and Citigroup, which have reduced their mortgage banking activities over recent quarters to rein in losses from their existing portfolio.

The increase in mortgage origination and sales over the quarter saw the bank generate a record $519 million in mortgage banking revenue – 6% higher than $490 million reported in Q2 2012 and more than double of $245 million registered for Q3 2011.

And The Cost Front Seems To Be Covered Well

The bank has also tightened its belt by controlling expenses. After a period of seemingly unbridled growth in non-interest expenses last year – when growth in expenses outpaced growth in revenue – costs have been reined in to a good extent over recent quarters.

Non-interest expenses for Q3 essentially remained at the same level of $2.6 billion compared with the previous quarter. The 2.2% growth in revenue over the same period is what primarily helped the bank post record bottom-line figures this time around.

Disclosure: No positions

Source: U.S. Bancorp Churns Out Record Results As Mortgage Revenue Soars

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