US Bancorp (USB) is an appealing asset for a defensive position in the financial sector. US Bancorp has some of the best metrics among the major US banks; this has been a consistent trend since the financial crash in 2008. Unlike Wells Fargo (WFC) or JPMorgan (JPM), US Bancorp grew after the crash and throughout the recession without being the beneficiary of any major acquisitions. To this day, US Bancorp remains focused on small acquisitions to augment its current business without straying from its conservative model of operations. Current shareholders should hold long term, and interested investors should watch for a potential dip in price since Moody's announced a review for one long-term downgrade due to peer banks recovering and an anticipated increase in competition. Not to worry, S&P upgraded US Bancorp just last month and even Moody's still maintains US Bancorp is one of the top banks.
Wells Fargo, JPMorgan, Citigroup (C) and Bank of America (BAC) are the largest US banks that are most comparable to US Bancorp. Wells Fargo and US Bancorp are most similar as they have both done well since the financial crash due to their aggressive management approach alongside their minimal exposure to the European financial crisis. US Bancorp's $64 billion market cap is the lowest among these banks. Its 12.6 price-to-earnings ratio is the highest among these firms. Wells Fargo's $185 market cap was the highest and its price is 11.5 times earnings. JPMorgan, Bank of America and Citigroup's price are all under 10 times earnings. US Bancorp's 5.03 price-to-sales and 1.7 price-to-book ratios are also the highest among these banks.
US Bancorp's $2.71 EPS is only higher than Bank of America's $0.92 EPS. JPMorgan's $4.32 EPS is the highest. US Bancorp's 0.61% sales growth in the past 5 years was only less than Wells Fargo's 8.9% and JPMorgan's 0.73%. US Bancorp's 3.5% sales growth in the past quarter, YOY is the highest among these banks; all the other banks' sales YOY were at a deficit. Wells Fargo's 1.22 debt-to-equity ratio is the lowest, US Bancorp's 1.57 is the next lowest; JPMorgan's 3.68 debt-to-equity ratio is the highest among the banks. US Bancorp's 16.4% ROE, 37.4% operating margin and 26.7% profit margin are all the highest among the banks by at least 410 bps.
JPMorgan's $1.20 annualized dividend is the highest among the banks. Wells Fargo's is around $0.88 and US Bancorp's around $0.78. Both Citigroup and Bank of America haven't received federal approval to increase their divided yet. US Bancorp has the lowest beta score of the banks and the lowest average daily volume at around 8.8 million trades its relative volume is currently around 0.7. Bank of America's average volume is over 130 million, both JPMorgan and Citigroup are above 30 million trades. US Bancorp stock is up 4.3% in the past month and 27.9% YTD through late September; it's around 2.7% below its 52-week high. US Bancorp's stock has increased around 4.6% since its last earnings release.
US Bancorp's recent earnings release showed that second quarter total net revenue was $5.06 billion, increasing 8.1%, YOY. Net interest income totaled $2.71 billion, increasing 6.6%, YOY. Noninterest income totaled $2.37 billion, increasing 10.2%, YOY. Second quarter net income totaled $1.37 billion, increasing 16.9%, YOY. The provision for credit losses totaled $470 million, decreasing 17.8%, YOY. US Bancorp's second quarter efficiency ratio was 51.1, decreasing from 51.6, YOY. Increased net interest income was due to growth in average earning assets as well as lower cost core deposit funding. Total loans increased 7.7% due to growth in residential mortgages, commercial loans, commercial real estate loans, and credit card loans, as well. Noninterest income growth was due to increasing mortgage banking revenue, merchant processing services revenue from higher transaction volumes and commercial products revenue.
Recently at the Barclays Capital 2012 Global Financial Services Conference, US Bancorp detailed some accomplishments over the past few years and its outlook for future growth. US Bancorp's revenue mix consists of 47% consumer and small business banking, 26% payment services, 8% wealth management and securities services and 19% wholesale banking and commercial real estate. The main difference between US Bancorp and the average revenue mix of its peers is that trading, brokerage, investment banking and equity investments only account for 2% of US Bancorp's revenue while it's 11% with peer bankers.
Peer bankers allocate 4% to payments fee revenue while US Bancorp allocated 17% for payment revenues. US Bancorp has a record $19.1 billion in total revenue in 2011. Revenue growth was over 8% in the last three quarters and over 3.8% in the two prior to those. The peer median growth rate was 2.8%. US Bancorp is one of the highest rated banks according to the major ratings like S&P, Fitch and Moody's. US Bancorp's invested over $580 million for technology investments including location based offers in mobile banking by 2013. US Bancorp's mortgage origination increased from 0.7% market share in 2007 to 5.6% market share in 2012.
Moody's Investor's Service recently announced it will put US Bancorp under review for a potential one-notch downgrade to its senior debt rating. This review is mainly due to increasing competition as the major peer banks begin to recover and US Bancorp's increased exposure to mortgage market fluctuations. This review is somewhat preemptive, although aggressive investors will still react despite the outcome. Moody's cites US Bancorp's high payout ratio and the fact that its capital profile doesn't significantly stand out among peer banks.
Moody's is not reviewing US Bancorp's short term ratings and still considers it to be one of the top banks in the industry. Just over a month ago, on August 20th, S&P raised its rating of US Bancorp to outperform; citing its minimal exposure to mortgage putbacks, the European crisis and litigation. S&P also cited US Bancorp's ability to outperform its peers since the crash in 2008 as well as its ability to routinely reduce NCOs each of the last nine quarters. US Bancorp has been the bank the least exposed to risky derivatives or international markets while retaining the most consistent earnings since late 2008.