Investopedia: U.S. Bancorp Could Bring Investors Back To Banks

Many banks, but particularly the large banks like Citigroup (NYSE:C), have found the quality of their recent earnings reports challenged by those who do not approve of the large loan loss reserve releases that have buoyed the reported numbers. Does that change now, though, since conservatively-run U.S. Bancorp (NYSE:USB) has joined the list of banks recognizing reserve releases? While USB's reserve release was quite modest and the company's credit quality stands out as quite good, it may ultimately be a sign that conditions really are getting better for the banks. 

The Quarter That Was
It is easy to get bogged down in the details of bank earnings releases, so here are some of the most significant take-away points.

USB saw revenue increase 1% on a sequential basis and 3% on an annual basis for the fourth quarter. Net interest income was up 1% and 6%, respectively for those time periods, while non-interest income was up 5% and 10%. Non-interest income has long been a very significant part of U.S. Bancorp's business (and a reason that the company fared better during the recession), but investors should realize that the numbers this quarter were inflated by some "other" items that may not be repeatable. Netting out all of the "other," this item would have been down 3% sequentially and up 9% annually.

USB saw its net interest margin fall slightly, but 3.83% is still a very good result. Average earning assets were up 3%, and the company increased its loan book by 2% (or 1% net of acquisitions). Although a higher net interest margin would be much better, this is what bank investors should want to see - loan growth, net interest income growth, and so on.

Credit quality continued to improve in the fourth quarter. The company recognized a small reserve release ($25 million, or about one cent of EPS), and non-performing asset and charge-off ratios all improved (and are at good levels on a relative basis). Investors should also note that U.S. Bancorp has reserves well in excess of current non-performing loans (162%) - that is very conservative relative to other banks like Comerica (NYSE:CMA) or the also extremely well-run M&T Bank (NYSE:MTB).

Please follow this link:
http://stocks.investopedia.com/stock-analysis/2011/U.S.-Bancorp-Could-Bring-Investors-Back-To-Banks-USB-C-CMA-MTB-TCB-CYN-PNC0121.aspx