The Secret to U.S. Bancorp's Success

Had you invested $1,000 in U.S. Bancorp's (USB -1.65%) stock in 1983, it would be worth roughly $40,000 today. That equates to a compound annual growth rate of 12.9%, and makes it the third most successful bank stock over that time period -- click here to see the two banks that beat it.

How did it do this? What's the secret to U.S. Bancorp's success?

The answer is much simpler than you might imagine. As I've said before, "If [US Bancorp's success] stands as an example for anything, it's that the business model of a traditional bank still reigns supreme over the universal model of its too-big-to-fail competitors."

The table below presents U.S. Bancorp's return on equity followed by the five most important profitability levers. In order to boost the former, in other words, it must pull on one or more of the latter.

There are two things that should stick out to you. The first is U.S. Bancorp's return on equity. Above all, this is the most important metric for any bank. It thus speaks volumes that the Minnesota-based bank is best in class in this regard.

With an ROE of 14.1% over the last 12 months, it handily outperforms the 9.2% median of its peer group. The only bank that even comes close is Ohio's Fifth Third Bancorp (FITB -1.50%), which managed to notch a 12.5% ROE over the same time period.

And the second thing that should stick out is U.S. Bancorp's superiority when it comes to expense management -- this, indeed, is the secret to its success. Only 51% of its net revenue before loan losses is eaten up by operating expenses. This is a staggering 14 percentage points better than the median, and is bested only by New York Community Bancshares (NYCB -1.23%), a regional niche lender operating principally in New York City that specializes in financing multifamily housing units. The latter's efficiency ratio came in at 43%.

For investors, the takeaway should be straightforward. In this day and age of universal banks -- that is, combined investment and commercial banks -- the simplest banks continue to produce superior returns.