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Morningstar | U.S. Bancorp Continues to Churn Out Best-in-Class Returns Among the Banks

U.S. Bancorp is one of the strongest and best-run regional banks we cover. Few domestic competitors can match its operating efficiency, and for the past 15 years the bank has consistently posted returns on equity well above peers and its own cost of equity. U.S. Bancorp’s exposure to moaty nonbank businesses and its consistently excellent core banking operations make us like the company's positioning for the future. As the bank continues to make improvements around the margin, we expect consistent market-leading performance as expenses are controlled, regulatory capital is efficiently used, and technology investments continue.U.S. Bancorp has an attractive mix of fee-generating businesses, including payments, corporate trust, investment management, and mortgage banking (revenue is just over 40% noninterest income). The payments and trust businesses tend to be highly efficient and scalable due to relatively fixed cost structures. Barriers to entry are high and becoming higher as the initial investment and scale necessary to compete are prohibitive. We have been impressed by the bank’s continued investment in technology, leading to more integrated back-end systems, a highly competitive payments platform, and a leading presence in the push toward omnichannel banking (real-time payments, mobile account opening, photo bill pay, and so on). The continued secular trend of the increasing digitization of payments should provide further growth opportunities, and the importance of scale and technology should favor the largest banks, including U.S. Bancorp, over time. U.S. Bancorp has one of the best deposit market share concentrations under our coverage, which strengthens the efficiency and profitability of its traditional banking segments. Managers in the bank are also required to have 5% cost-cutting plans ready at any time if needed. Even amid a more challenging economic and interest-rate environment, we still believe operating efficiency should become better over the long term. We also believe U.S. Bancorp has a very strong underwriting culture, as its performance during the crisis was among the best of the banks we cover.