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U.S. Bancorp: America's Best Big Bank

U.S. Bancorp (USB) is the best-run major bank in all the land. And this exchange between company CEO Richard Davis and UBS analyst Matthew O'Connor during U.S. Bancorp's fourth-quarter conference call last week illustrates why:
O'Connor: So just to be clear, even if charge-offs and [non-performing assets] are flat or down a little bit say in 2Q, there'll be some loan loss reserve built?

Davis: I think so, because we just want to be abundantly careful to make sure that we see a repeated consistency. So one quarter in this environment isn't enough to convince all of us that we're done. A couple of quarters, yes. And because it's just a matter of time, not a matter of the facts, we probably will continue to add the provision a little longer until we're sure.

A phrase like "abundantly careful" should be music to the ears of anyone who follows banks. USB's loan-related losses are leveling off, but the $281 billion-asset company is still stocking reserves to guard against an unexpected downturn in its business or the economy. Indeed, in adding reserves the banking firm is "effectively daring the larger peers to keep up the pace," said analyst Christopher Whalen in a recent note upgrading USB's financial outlook from "neutral" to "positive." He added:
"More, the stability we see in key revenue lines stands in striking contrast to the earnings statement volatility in USB's larger bank peers. With a 50% efficiency ratio, strong capital reserves and more than adequate capital, we expect to see USB continue to acquire troubled banks and grow into its position as the fifth-largest bank in the U.S."
USB has remained profitable throughout the financial crisis, reporting net income of $602 million on record revenue during its last quarter. It's adding deposits and making loans, unlike some other large banks and proving that tighter lending standards don't preclude doing business. The company is using acquisitions to expand. But it's doing so opportunistically and without swinging for the fences. Investors and analysts also like USB for another reason -- no surprises. Davis and his management team are conservative and, most important, accurate in their forecasts.

Not incidentally, USB's leadership is reasonably paid. Davis ranked only No. 309 in Forbes's 2009 list of what bankers earn. More impressive is that the executive, a 17-year-veteran of USB, appears to have reined in the company's compensation culture after taking the helm as CEO in December 2006. In contrast to, say, Citigroup (C), which rushed to repay TARP partly to evade government comp limits, USB volunatrily revamped its pay practices in 2008 to reflect the shaky economic environment and to discourage execs from taking undue risks.

Abundantly careful is right.