U.S. Bancorp Could Bring Investors Back To Banks (USB, C, CMA, MTB, TCB, CYN, PNC)

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.

9 Simple Investing Ratios You Need To Know
*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).

*The Road Ahead*Relative to many other banks, U.S. Bancorp is in good
shape. While the bank's size limits what it can do in terms of
domestic acquisitions, and the company's conservative policies may
preclude overseas expansion, the company is nevertheless at least in
good position to resume lending and build its market share
organically. A strong capital and credit position also leaves the
company in good shape to boost its dividend payout, and that appears
to be a priority for the bank.

Longer term, U.S. Bancorp does have some challenges when it comes to
growth. *Bank of Montreal* (NYSE:BMO) is knocking on the door in some
of USB's markets, and other competitors are likely to enter the U.S.
as well. What's more, smaller banks like *TCF Financial* (NYSE:TCB),
*City National* (NYSE:CYN) and *PNC* (NYSE:PNC) have options that USB
does not in terms of M&A activities (as well as smaller bases from
which to grow).
Source: Investopedia.Com