Tuesday, September 21, 2010

A Bank That Buffett Loves

U.S. Bancorp (USB) is the fifth largest commercial bank in the United States and has branches in 24 states. The bank currently has over $280 billion dollars in assets. The retail banking giant is a longtime favorite of buy and hold investor Warren Buffett.

US Bancorp has managed to maintain profitability in a volatile earnings environment for commercial banks. The banking institution had revenue of $4.3 billion dollars and net income of $669 million dollars. U.S. Bancorp has done an excellent job of increasing its deposit base. Total deposits increased 13.7% to $182 billion dollars and savings account deposits rose nearly 41%. Profitability jumped 55% due to increased revenue one commercial loan fees.

The banking giant loaned out over $36.5 billion dollars over the first quarter. Corporate payment products revenue grew 9.1% and merchant processing services revenue increased 13.2%. The growth at U.S. Bank is just beginning with the company looking for additional expansion opportunities to increase the bank’s visibility nationally.

The only negative for the bank is that net-charge offs rose 2.3% to $1.1 billion dollars. However, company management believes that loan losses have peaked and will stabilize in the foreseeable future. U.S. Bancorp’s conservative lending practices are allowing the bank to outperform many of its competitors.

U.S. Bancorp is currently trading at $23 per share. EPS is projected at $1.64 for the current year and shares currently trade at just 11 times next year’s earnings estimate of $2.18. That is a little expensive for a company who is expecting to grow earnings in the single digits for the next few years. The stock is selling for 1.7 times book value which is a reasonable valuation for such a premium franchise.

The company is currently paying a dividend of 1%. The company was forced to cut its dividend during the financial crisis of the last 2 years. The current yield is still higher than most industry peers. US Bancorp should be among the first banks to return to normalized earnings and raise its dividend. US Bank is looking raise its dividend next year and the stock will likely return to its historical dividend yield of 4.3% in the future.

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  1. I worked for USB for quite a long time. It is really a well-run bank. They did not get caught up in liar loans and all the other garbage of recent times. Their discipline on expense is almost fanatical. Much of their income comes from services instead of lending. I can see why Buffett likes it.

  2. how many money can you get back from the tax office on a mortgage


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