It sounds like the setting for a vintage detective story: On a gloomy night in downtown Los Angeles, two bankers who had never met before sit down for a pivotal meeting. Thirty-year-old banker Richard Davis was meeting his new boss.

“It was raining out. It was a nasty night. About 7:30. I’ll never forget it. I was so impressed with him,” recalls Jerry Grundhofer. Grundhofer was the new boss. He had just been put in charge of retail banking for Security Pacific National Bank.

It was soon clear to Grundhofer, former CEO of Minneapolis-based U.S. Bancorp, that Davis was smart, a quick study who had a mind that could assimilate big-picture banking concepts and understand how all the pieces of the business fit together. “You just saw that he was a quick take,” says Grundhofer today. “We sat in my office for about two, two and a half hours.”

Looking back today, Davis clearly remembers the meeting.

Davis with Medal of Honor recipient Clint Romesha at U.S. Bank’s Veterans Day meeting in November 2015 (Photo: US Bank)

“I was the last person on his new team. He said, ‘You know I named you last because I had no idea what your job was,’ ” says Davis with a laugh. At the time, he was in charge of “quality assurance and customer satisfaction” for Security Pacific.

The two worked together for several years, until Bank of America acquired Security Pacific in 1992 and Grundhofer relocated to San Francisco. The following year, Grundhofer was tapped as CEO for the Cincinnati-based Star Banc Corporation. A short article in the New York Times described Star Banc, referring to its assets, as “a $7.5 billion Middle West bank-holding company.”

Grundhofer thought Davis had the expertise and acumen to be a part of the leadership team. He called Davis back in California, asking him to come to Ohio to lead Star Banc’s retail banking. At the time, Star Banc wasn’t even the biggest bank in Cincinnati; that was Fifth Third Bank.

“I asked him to join me,” recalls Grundhofer. “That’s where we started.”

Davis made the move to Ohio. For the next 13 years, Grundhofer led the bank through a series of acquisitions. Davis was a key lieutenant throughout. What began as Star Banc grew to become the bank now known as U.S. Bancorp.

Today, U.S. Bank has $454.1 billion in assets, more than 67,000 employees, and ranks as the fifth-largest commercial bank in the U.S. Nearly two decades after meeting on a rainy night in Los Angeles, Grundhofer retired as U.S. Bank’s CEO in 2006, and the job went to Davis.

Leading the industry

It’s been a record year for U.S. Bank. In January, the company reported a net profit of $5.9 billion on revenue of $20.3 billion. The company’s revenue is up 49 percent since Davis took the helm a decade ago. In early 2010, after the recession, U.S. Bank moved from sixth place to fifth place on the largest commercial banks list.

Davis, U.S. Bank President Andy Cecere and “Community Possible Relay” team captains outside U.S. Bank Stadium with “relay” bus that traveled to 38 cities in 2016 to promote community volunteerism (Photo: US Bank)

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Davis has a personable, average-guy demeanor. He looks more like he could be your accountant. Your dentist. Your insurance agent. But sometimes on the weekends, you might see Davis zipping around town behind the wheel of a vintage sports coupe.

“I started to collect muscle cars,” Davis says. He owns a 1966 Chevrolet Chevelle, a 1974 Chevelle and a 1974 Oldsmobile 4-4-2. “No one in this building has ever seen any of the cars,” says Davis, in reference to the company’s tower in downtown Minneapolis.

“He does not put on airs. He’s just a regular guy,” says Lester Bagley, executive vice president of public affairs and stadium development for the Minnesota Vikings, who has seen firsthand how Davis connects with people. It’s because of “the way he treats people at all levels, and it doesn’t matter if you’re a parking lot attendant or another CEO.”

In July, the $1.1 billion U.S. Bank Stadium opened in downtown Minneapolis. Davis played a key role in that, too. Any mention of the facility, which will host the Super Bowl in 2018, is a de facto plug for the bank.

“Richard was one of the key leaders and one of the team leaders on the business side that helped deliver the stadium,” says Bagley.

Recalling the long debate over the building, Bagley says that a group of four local business leaders—Davis, Ecolab CEO Doug Baker, General Mills CEO Ken Powell and then-CEO of Target Gregg Steinhafel—worked behind the scenes and “really weighed in with legislative leadership.” The ultimate stadium plan was approved by the state legislature in 2012.

Wall Street and others give Davis high marks for quarterbacking U.S. Bank.

“U.S. Bancorp has been able to avoid many of the pitfalls that other large banks have fallen into over time,” says Marty Mosby, director of bank and equity strategies for Memphis-based investment firm Vining Sparks. “From a risk standpoint, they have been really the gold standard. … The combination [of businesses] that they have is really valuable, and it generates the highest returns in the industry.”

U.S. Bank’s business goes well beyond taking deposits and writing mortgages. The mix includes wholesale banking (financing and other services for large corporate and institutional clients), wealth management, and payments (processing credit card transactions for merchants), all of which generate fees.

In recent years, observers have often touted U.S. Bank as “the best big bank.” In an October report on the bank’s third-quarter earnings, the Wall Street Journal noted that U.S. Bank has consistently posted “higher returns on equity than bigger banks. Its return was 13.5 percent in the third quarter. While down from 14.1 percent a year earlier, it was still miles ahead of returns of 11.6 percent and 11.2 percent at Wells Fargo & Co. and Goldman Sachs, respectively.”

Among the five largest U.S. banks, U.S. Bank posted the highest operating margin (39 percent) in 2015. (Wells Fargo saw 37.6 percent, JPMorgan Chase 31.3 percent, Citibank had a margin of 28.6 percent and Bank of America hit 24.8 percent.)

Legendarily savvy investor Warren Buffett is clearly a fan of U.S. Bank and its business model. Buffett’s Berkshire Hathaway Inc. is the bank’s second-largest stockholder, owning more than 85 million shares. (The Pennsylvania-based Vanguard Group is the largest.) At the end of October, the Berkshire stake was worth approximately $3.8 billion.

In October, U.S. Bank tied for first place (with TD Bank) on Money magazine’s ranking of “The Best Big Banks,” with high marks for customer service. Also in October, the Traverse City, Mich.-based Ponemon Institute, an information security research firm, ranked U.S. Bank first on its “Most Trusted Companies for Retail Banking” list. This was not a surprise. The institute reported, “It is also noteworthy to announce that U.S. Bank is the only bank to rank in the top five for all 12 years and has been No. 1 for the past 10 years.”

But the record is not spotless.

“They haven’t grown earnings in over two years,” laments Mosby. The analyst says in recent years, U.S. Bank faced some headwinds, including declining mortgage volumes and increased regulatory compliance costs.

 
Davis and Minneapolis Mayor Betsy Hodges reading to Minneapolis Public Schools students in April 2015 (Photo: US Bank)

In mid-October, U.S. Bank reported third-quarter results, posting a 4.7 percent increase in revenue, to $5.4 billion. The company also saw a slight 0.9 percent gain in earnings for the quarter, at $1.5 billion. An uptick in refinancing drew a 31.9 percent increase in mortgage banking revenue for the quarter. U.S. Bank is also the third-largest SBA lender in the country. In October, the company announced that its SBA business for the federal fiscal 2016 was up 7.9 percent.

The latest numbers are encouraging, says Mosby, who notes the uptick in profits.

New markets, a different approach

The Great Recession put hundreds of banks out of business. Seattle-based Washington Mutual failed in 2008, despite more than $300 billion in assets. Between 2008 and 2012, a total of 462 American banks failed, including 21 in Minnesota. Amid the fallout, U.S. Bank was largely on the sidelines and out of the headlines. The bank had steered clear of riskier subprime mortgages, which stung other banks when the housing market collapsed.

“We ended up having far [fewer] issues than a lot of banks and it was because we didn’t take a lot of risks in the first place,” says Davis. But he says that wasn’t some secret plan to survive the recession: for U.S. Bank, it was business as usual. “That looks like a brilliant strategy; it was simply we just didn’t do things we didn’t understand.”

The economy has now been in a recovery for years, but the gains have been incremental and sluggish. Banks everywhere are grappling with persistently low interest rates.

“The challenge is a slow economy,” says Davis. “In times past, recoveries were pretty fast. This one’s different. This is a long, slow, almost a tortured recovery.”

Where is U.S. Bank finding growth? Davis points to three business lines that are growing: wholesale banking, wealth management, and payment processing for merchants. The behind-the-scenes payments business is called Elavon.

For 2015, the bank’s total revenue only crept up 0.7 percent. Revenue in its consumer and small business banking was actually down 2.8 percent. But revenue in the payment services division was up 5.2 percent for the year, while revenue for its wealth management business was up 4.1 percent.

U.S. Bank got into the payments business in 2001 with the acquisition of Atlanta-based NOVA Information Systems. Operations expanded to Europe with acquisitions in Poland and Norway. The company remains based in Atlanta, has its own CEO (Simon Haslam) and 4,500 employees. Statistics from the Nilson Report, a trade publication covering the credit industry, rank Elavon fifth in the United States and fourth in Europe based on the volume of transactions handled.

“In both cases we have scale and in both cases we have momentum,” says Davis. He says that the barrier to entry costs are high in the payments industry and that U.S. Bank is benefitting as other competitors leave the market.

“They’re well known in this business. They’re one of the national and global leaders,” says Mosby of U.S. Bank’s role in the payments industry. “U.S. Bank is one of a handful of banks that are doing that.”

In the wholesale banking arena, Davis says that the economic slowdown gave U.S. Bank a chance to “audition” for new corporate clients.

“Our wholesale business went from regional to national,” Davis explains. Within the span of just a few years, he says, U.S. Bank has gone from 26th in U.S. wholesale banking to sixth, based on industry data.

Meanwhile the nation’s second-largest commercial bank, San Francisco-based Wells Fargo & Co., has had a bruising autumn in the wake of fines of $185 million for creating more than 2 million fake accounts to meet internal sales quotas. Lawsuits are piling up, Congress is irate and John Stumpf, CEO during the phony accounts scandal, abruptly retired in October.

But Davis is disinclined to join the critics’ choir: “I’m certainly not going to be judge and jury of another bank.”

Given the high-profile nature of the Wells case, it’s a black eye for the entire financial services industry and may prompt customers to believe that it reflects standard business practice for any bank. The genesis of the fake accounts appears to be intense pressure to “cross-sell” customers more financial products.

“We don’t cross-sell. There’s no incentives for that,” says Davis firmly. “Our starting point’s different. We focus more on service than we do on sales. We believe that good service creates future sales. . . . You are not incentivized here to cross-sell anything.”

A community leader

Behind closed doors, Davis is apparently one heck of a salesman.

The trio of Davis, Marilyn Carlson Nelson and Ecolab’s Baker led the effort to bring the Super Bowl to the Twin Cities. It was ultimately Davis and Carlson Nelson who made the pitch to a room full of strangers: the NFL owners.

“He and Marilyn Carlson Nelson together had only 15 minutes to pitch why the Super Bowl should come to the Minneapolis-St. Paul region,” recalls Michael Langley, CEO of Greater MSP, who was part of the delegation that traveled to Atlanta in May 2014 for the vote. On the fourth ballot, Minneapolis prevailed.

“It was an upset win by all accounts, and it was that because of the community response that Richard helped to organize,” says Steve Cramer, president and CEO of the Minneapolis Downtown Council. Davis is now co-chairing the Super Bowl host committee with Baker and Carlson Nelson.

Davis brings an effective, collaborative approach, says Langley, noting that Davis is the Greater MSP board chair for 2016 and 2017. “He’s a consensus builder and he’s the person who makes sure everybody else gets credit for successes,” says Langley, “and he’s the first to take responsibility when something needs to get done.”

“He doesn’t really have a half-speed button,” says Ecolab’s Baker, who serves on the U.S. Bank board. “Whether he’s chairing or on a campaign committee or just a volunteer, if he’s in, he’s all in. I think that’s exactly what you see with him professionally as well.”

Business and community intersected for U.S. Bank at the new football stadium.

“You rarely get a chance to name a stadium that you already know is going to be a Super Bowl stadium,” says Davis, who says it’s also a symbol of the bank’s commitment to Minneapolis. “I wanted everyone in this town to know we’re staying here. A lot of cities lost their banks during the downturn. A lot of cities would love to have a headquarters bank.”

Media reports put the price tag for naming rights in the neighborhood of $200 million. Citing an agreement with the Vikings, Davis declines to comment on the cost of the deal. “It certainly cost money, real money, and we’re both very satisfied with it. No one ever goes to a stadium without looking forward to it.”

Today Davis is also working to secure corporate backing to pay for events and programs related to Super Bowl LII.

“He’s been instrumental in getting commitments in excess of $30 million already,” says Bagley. “Richard’s done an extraordinary job of getting in front of our corporate leadership in Minnesota. . . . We are significantly ahead of schedule.”

Reports have put the campaign’s goal in the range of $40 million to $50 million.

And Davis’ commitments go beyond the gold-plated aspects of the game. In June, U.S. Bank and the Vikings announced the first round of grants for the Places to Play program, which will donate money to create and improve parks, playgrounds and youth sports facilities in low- to moderate-income areas across Minnesota. U.S. Bank and the team will donate $1 million over three years to nonprofits and schools for the program.

The commitment goes beyond the Super Bowl. When the Minneapolis Step-Up program was launched in 2004, then-Minneapolis Mayor R.T. Rybak invited Davis to co-chair the effort with him. The program offers paid summer internships at participating companies for disadvantaged Minneapolis youth between 14 and 21. Since 2004, U.S. Bank has had 346 paid summer interns as part of the program.

“He really was kind of the private sector leader for the Step-Up program,” says Cramer. “It has impacted the lives of, at this point, thousands and thousands of young people in Minneapolis.”

Looking back over the years, Grundhofer says his gut instincts about Davis nearly three decades ago paid off.

“He was always my go-to guy and that’s why he ascended,” says Grundhofer. “He understands the business of banking, not just the banking business. He understands the interactions in a very complex business, and as we got bigger, the company became more and more complex.”

Even though Grundhofer retired as CEO in 2006 and as chairman in 2007, he still has a keen interest in the company as a shareholder. He credits Davis for steering U.S. Bank through the depths of the recession and the current slow-growth, low-interest-rate environment. “He has done just an incredible job,” says Grundhofer, “in the most challenging banking environment in my lifetime.” tcbmag

Burl Gilyard is TCB’s senior writer.