"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness..." -- Charles Dickens
We were all privy to the rollercoaster ride that the financial sector has been on the past five years. There have been catastrophic failures, unprecedented government bailouts, and hordes of new regulations being created and implemented. But roses have arisen from the ashes, and despite the splendid recovery, opportunities remain available to the Foolish investor.
Optimizing the branches
The largest banks in the U.S. are categorized as having $50 billion or more in assets. With approximately $355 billion in assets, U.S. Bancorp (NYSE: USB ) is certainly a large bank. However, it tends to have a regional focus instead of an omnipresent feel like some of the megabanks. For comparison, Bank of America (NYSE: BAC ) has over $2.2 trillion in assets and is one of the four largest banks in the country. This regional focus has enabled U.S. Bancorp to make its size go farther than the numbers indicate.
U.S. Bancorp tailors its branches to the needs of its locations. According to Vice-Chairman John Elmore, the bank has a disciplined approach to the branch network that includes a constant reevaluation of its distribution model to ensure it is meeting the needs of that particular community and customer base.
Its employees are cross-trained to accommodate the wide range of customer needs, and branch managers are expected to spend upwards of 40% of their time outside of the branch meeting with customers and business owners, and getting involved in the community.
A clear focus on what it does well and what its customers' needs are is what puts U.S. Bancorp a step above the other large banks with whom it competes.
According to the 2013 Bank Performance Scorecard compiled by Sandler O'Neill of SNL Financial, U.S. Bancorp ranked a close third among all large banks, and well ahead of megabanks such as JPMorgan Chase (NYSE: JPM ) and Bank of America. This scorecard measured important metrics such as Return on Assets (ROA), Return on Equity (ROE), and Non-performing Assets/Loans & Other Real Estate Owned (OREO).
U.S. Bancorp ranked first in both ROA and ROE. I believe U.S. Bancorp will continue to be successful and post great metrics as long as it continues to focus on the customer and structure its delivery and distribution to meet the customers' needs.
Finding a rose among the ashes
John Kanas is the chairman, president, and CEO of revived financial institution BankUnited (NYSE: BKU ) . While neither name may be familiar, the bank merits a deeper look nonetheless.
In 2009, the failed BankUnited was sold by regulators to Kanas, and a group of private equity buyers for the tidy sum of $945 million. Four years later, BankUnited finds itself atop the above-mentioned 2013 Bank Performance Scorecard in the $5 billion to $50 billion range of banks.
At year end in 2012, BankUnited had just over $12.3 billion in assets. The turnaround success story of Kanas and BankUnited is supplemented by guaranteed reimbursement on losses from the Federal Deposit Insurance Corporation, or FDIC, and a healthy recovery enjoyed by real estate values in their South Florida base of operations. Does this mean investors missed the boat on BankUnited's recovery, or is there still room to run?
The major component of this deal to watch is the Loss Sharing Agreement with the FDIC. According to BankUnited's latest 10-Q, this agreement indicates that the FDIC will reimburse BankUnited for 80% of its losses related to the covered assets up to $4.0 billion, and 95% of losses in excess of this amount.
BankUnited's 10-Q contains a comprehensive breakdown of how this agreement contributes to their balance sheet and their bottom line, as well as their overall strategic direction. Curious investors considering BankUnited should acquaint themselves with this aspect of the bank, since it forms the foundation for their continued successful recovery.
U.S. Bancorp provides investors with a proven strategy and a dedication to its customers. BankUnited is a rose that has arisen from the ashes of the financial crisis, but it has yet to bloom. There are still very complex issues facing BankUnited going forward as it recovers and grows.
While U.S. Bancorp is a large institution, there is still substantial room to grow, and it appears dedicated to growing as a result of its core business model. BankUnited has made a number of recent acquisitions and continues to look for more avenues to solidify its position as it rises in the ranks of medium-sized banks.
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