Unsexy U.S. Bancorp Knocks Investors and Customers Dead

U.S Bancorp is boring shareholders all the way to the bank.

The financial crisis that's laying low some of the giants of the industry has been a boon for the Minnesota company, long regarded as one of the less dynamic banking enterprises. Yet despite its relatively low profile, U.S. Bancorp (USB) now runs the sixth largest commercial bank in the U.S. It is profitable, growing and diverse, having deftly avoided the worst of the meltdown through prudent lending, solid growth and a string of opportunistic acquisitions.

In short, U.S. Bancorp is just what you want in a bank: a little on the dull side, at least compared with what passes for excitement on Wall Street, but not brain-dead. Here's how CEO Richard Davis characterized the company's strategy during its third-quarter conference call:

I think it's a little unsexy, but we basically are confirming doing more what we've done for the last couple of years -- allowing M&A to be in-fill and depth-building as opposed to expansionary. And allowing M&A to be additional to our success, but spending a fair amount of our capital in the organic measures of old-fashioned banking to get long-term gains.

One key to these acquisitions is that they're small, but tactical. U.S. Bancorp doesn't do blockbusters (click on chart at bottom to expand).

The FBOP purchase, for example, boosts U.S. Bancorp's presence in the growth markets of Arizona, California and Texas, while solidifying its position in the Midwest. And because the company agreed to buy the banks as the FDIC was seizing FBOP, it will add more than $18 billion in assets at minimal risk. Similarly, the Mellon deal expanded the company's footprint in Los Angeles, an important business banking market, without chancing a complex, high-priced acquisition.

U.S. Bancorp has proved financially resilient. For the third quarter, the company recorded net income of $603 million on record revenue of $4.3 billion. It sports a solid 10 percent return on equity and has healthy margins. And while lending is shrinking at many other banks, it's up at U.S. Bancorp. During the third quarter it made nearly $15 billion in new residential mortgages and over $32 billion in other loans. Total average deposits at the company increased nearly 25 percent over the year-ago period.

Although not immune to the loan deterioration plaguing many other large banks, the company's chargeoffs have been relatively modest. That, too, attests to U.S. Bancorp's strong management. Indeed, the company had little exposure to subprime mortgages when the real estate bust hit.

That's the sort of performance that catches investors' attention. After U.S. Bancorp shares fell to less than $10 in March, they have since more than doubled. As investment bank Sandler O'Neill said in upgrading U.S Bancorp shares today from "hold" to "buy":

The company has a safer capital profile than many peers, it remains solidly profitable and generates sustainable [and] industry-leading returns, it is one of the best-managed banks in the country, and it continues to take advantage of opportunities to gain scale (and improve its earnings profile) as others downsize in the choppy environment.