Update U.S. Bancorp (USB)

04/22/2011 2:07 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

The first quarter at U.S. Bancorp (USB), reported on April 19, looked suspiciously like back-to-normal banking.

Unlike its peers, the bank didn’t get a huge boost from a big drop in reserves against loan losses. Net charge-offs did fall 29% to $805 million in the first quarter from $1.14 billion in the first quarter of 2010, but the bank showed a release from reserves back to earnings of just $50 million.

That means that the bank’s growth in earnings to 52 cents a share from 34 cents a share in the first quarter of 2010 was pretty much a result of U.S. Bancorp’s banking business rather than changes to its balance sheet. (Wall Street analysts had projected earnings of 49 cents a share.)

Loan growth fell into that back-to-normal pattern. U.S. Bancorp reported that loans grew in the first quarter by 0.7% from the fourth quarter of 2010. That matches the historical average of growth from the fourth to the first quarter, according to the Federal Reserve. Growth of 0.7% isn’t anything to get too excited about but it does compare favorably with what Barclays Capital projects as a drop of 3% for the sector.

The bank is one of the few that have reported so far that hasn’t shown a drop in interest income either. Interest income climbed to $2.51 billion from $2.4 billion in the first quarter of 2010.

And in contrast to most of its peers, the bank actually showed an increase in revenue from the first quarter of 2010. The increase was just 4.6%--to $4.52 billion from $4.32 billion—but that contrasts with a year-to-year drop in revenue of 5.2% at Wells Fargo (WFC) and a 15.9% drop at Bank of America (BAC).

Wall Street analysts are expecting a pick up in bank lending in the second half of 2011. If that actually happens, U.S. Bancorp is in a good position to make a strong transition from back-to-normal banking to bank-to-normal earnings.

I had set a target price of $31 a share by June 2011 for this stock in my Jubak’s Picks portfolio http://jubakpicks.com/ . After this quarter, I’d raise that to $33 a share but stretch out the timetable to September 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of U.S. Bancorp as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/


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