U.S. Bancorp's Third-Quarter Earnings -- A Big Bank That's in a Class by Itself

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U.S. Bancorp (NYSE: USB) is the fifth-largest U.S.-based commercial bank by assets, and is widely considered to be one of the best-run banks in the nation. In fact, the company is one of Warren Buffett's major bank stock holdings.

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In its third-quarter earnings report, U.S. Bancorp not only lived up to expectations, but continued to show investors why it has such a strong reputation. As its profitability and efficiency show, the bank is truly in a class by itself.

The top and bottom line met expectations

U.S. Bancorp's top and bottom line numbers weren't too exciting. The bank's earnings of $0.88 per share matched analysts' expectations, and its revenue of $5.61 billion surpassed expectations, but just slightly. Earnings grew by nearly 5% year-over-year, and revenue grew by 4%.

Additionally, the bank's growth was impressive in many key areas of the business. Net interest income grew 8.3% year-over-year due to a combination of 3% higher loan balances and net interest margins that grew by 12 basis points (0.12%) over the past year. And while U.S. Bancorp has historically had relatively small loan losses compared with peers, the bank's non-performing assets dropped by an impressive 25% from last year, and by 7.3% from the second quarter.

In a nutshell, the bank produced solid results with few surprises.

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U.S. Bancorp is now in a class all by itself

U.S. Bancorp is well-known for being a highly profitable and efficient banking operation. The bank's return on assets (ROA) and return on equity (ROE) profitability metrics came in at 1.38% and 13.6%, respectively. The industry benchmarks are 1% and 10%, respectively.

In addition, the bank's efficiency ratio is 54.3% (lower is better), which is one of the best among brick-and-mortar banks.

As far as the five largest U.S. banks go, U.S. Bancorp has consistently been the most profitable and efficient, while Wells Fargo has been a close second. However, the fallout from Wells Fargo's fake-accounts scandal has depressed the bank's profitability and has left U.S. Bancorp in a class by itself when it comes to big-bank profitability and efficiency.

Company

3Q17 ROA

3Q17 ROE

3Q17 Efficiency Ratio

U.S. Bancorp

1.38%

13.6%

54.3%

Wells Fargo

0.94%

9.06%

65.5%

Bank of America

0.98%

8.1%

60%

JPMorgan Chase

1.04%

11%

56.5%

Citigroup

0.87%

7.3%

56%

In fact, in this year's Federal Reserve banking "stress tests," U.S. Bancorp was one of a select few that was actually projected to make money in a hypothetical deep recession.

A few things to keep an eye on

To be fair, U.S. Bancorp's earnings report wasn't 100% excellent. For one thing, noninterest income dropped by about 1% year-over-year, mainly due to a drop in mortgage banking revenue.

Also, while the loan portfolio increased by 3% year-over-year, this was the slowest annual growth rate of the past five quarters. The same can be said for the 5.2% growth in deposits. None of these things should necessarily be taken as a sign of trouble, but they are certainly worth noting.

A solid quarter shows why U.S. Bancorp is the best big bank in the business

With a rock-solid loan portfolio, lean and profitable operation, and solid growth, U.S. Bancorp is one of the best-run banks in the United States and could be worth a look for investors who want financial-sector exposure.

It's worth mentioning that U.S. Bancorp isn't cheap. In fact, on a price-to-book basis, it's significantly more expensive than the rest of the five largest U.S. banks. However, when it comes to U.S. Bancorp's quality as a bank and as a long-term investment, you get what you pay for.

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Matthew Frankel owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.