By the looks of it, U.S. Bancorp (USB 0.15%) didn't get the memo about the headwinds facing the financial industry. Earlier today, the nation's largest regional bank reported third-quarter earnings that were almost indistinguishable from both the second quarter, and the same period last year.
For the three months ended Sept. 30, the Minnesota-based bank earned $1.43 billion, or $0.76 per diluted share, of common stock. The figure was a mere $14 million less than last quarter, and only $2 million below the third quarter of 2012.
According to president and chief executive officer Richard Davis, the results "reflected our continuing ability to manage through the current uncertain and slow-growing economy." Even though I'm obviously less biased than Davis, I'd have to agree with his conclusion.
One of the prevailing themes this earnings season is that banks are seeing revenues decimated by a drop in income from mortgage banking and fixed-income trading activities. JPMorgan Chase (JPM 1.12%), the nation's largest bank by assets, provides a case in point. These two things alone reduced revenue at the megabank by $2 billion compared to the second quarter.
Although U.S. Bancorp was not entirely immune from these trends, it emerged from the quarter in considerably better shape than many of its peers. In the first case, because it doesn't have the same level of investment banking operations as the too-big-to-fail banks, it wasn't exposed to the drop in trading revenue. In addition, its income from mortgage banking fell by a comparatively reasonable 17% on a sequential basis.
To make up for the drop, most of U.S. Bancorp's peers looked to a reduction in loan loss provisions. This is the reason, for instance, that Wells Fargo (WFC 0.83%) was able to legitimately claim that its earnings rose for the 15th consecutive time, as it set aside only $75 million for anticipated loan losses going forward -- a far cry from the $1.6 billion that it expensed in the same quarter last year. And while U.S. Bancorp did follow suit, it wasn't nearly to the same degree, given that quarterly provisions fell to $298 million, down from $488 million in 2012.
But nothing speaks to U.S. Bancorp's accomplishments (click here to read about the secret to its success) more than its expense and profitability metrics, which can be considered benchmarks for the entire industry. With an efficiency ratio of 52.4%, shareholders receive nearly half of every dollar that the bank earns in revenue. This point is underlined by U.S. Bancorp's exceptional 15.4% return on equity, which is still almost unheard of from other players in the industry.
At the end of the day, there's no question U.S. Bancorp's stock trades for a pretty penny at 2.7 times tangible book value. Results like last quarter's prove, however, that this premium is duly earned.
