U.S. Bancorp Rides Fees to Growth

Unlike some companies, banks really don't change too much from one quarter to the next -- which makes writing snappy introductory paragraphs a little more challenging. Then again, Motley Fool Income Investor recommendation U.S. Bancorp (NYSE: USB) really isn't a snappy company, so I suppose that's OK. Just because there isn't a lot of sizzle or sex appeal here, don't assume that it's a bad bank; I still think it's quite the opposite.

For the first quarter, U.S. Bancorp saw income rise almost 8%, once again surpassing revenue growth. Earnings per share were up more than 10%, returns on both assets and equity improved again, and the book value per share nudged up slightly from the year-ago level.

While the company certainly did grow this quarter, that growth wasn't necessarily from the types of businesses that you might first associate with a bank. In fact, net interest income actually declined 1.5%, despite a nearly 6% increase in average earning assets. The company's non-interest-income businesses more than saved the day here. Revenue from credit and debit cards, corporate payments, ATM processing, trust operations, and so on, saw nearly 17% growth.

Like most other banks, U.S. Bancorp is taking a little bruising from shrinking interest spreads; the cost of the company's interest-bearing funds is increasing faster than the interest rates it charges for loans. Not wishing to price itself out of profitability, the bank seems to be holding the line on deposit pricing. Average deposit balances grew less than 1% this quarter, though loans were up more than 9%. Looking ahead, management indicated that it will run down its investment securities to fund future loan growth if attractively priced deposits aren't available in sufficient quantity.

I still like the extent to which this company's earnings streams are broad and diverse, and I certainly like the returns on assets and equity. Though the stock may not be quite as cheap as banks like Wachovia (NYSE: WB) or SunTrust (NYSE: STI), it's a very well-run bank, and I wouldn't flip out of U.S. Bancorp stock just to chase a few percentage points of relative valuation. Quality stocks are hard enough to find as it is.

Take an interest in further Foolishness:

• See U.S. Bancorp's latest quarter by the numbers.
• Regions Financial's Bumpy Territory
• Not Quite Wacky for Wachovia
• A Closer Look at Bank Stocks

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).