One of These Banks Is Not Like the Others

07/21/2011 2:05 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Now here’s a bank earnings report investors can really like.

Strip away all the one-time items, and the gains from reducing reserves against potential loan defaults, and the core banking business at US Bancorp (USB) actually made more money this quarter.

So much money, in fact, that even without the items that have made earnings at big New York banks such as Citigroup (C) look better than they were, earnings at US Bancorp—a member of my Jubak’s Picks portfolio—beat Wall Street estimates for the second quarter by 3 cents a share.

Not that US Bancorp looked shabby in a head-to-head comparison on that basis, either. Provisions for credit losses dropped 50% in the quarter, and the bank released $175 million from reserves. That brought provisions for credit losses down to $572 million, from $1.14 billion in the second quarter of 2010.

Charge-offs fell 7.2% from the first quarter of 2011, and nonperforming assets dropped 6.2% (Include releases from loan-loss reserves, and Wall Street's beating climbs to 7 cents a share.)

But a look at the Banking 101 metrics from US Bancorp shows that this is one US bank that’s actually seeing its banking business grow—an important point for investors looking to the day when it’s no longer enough for a bank to say, "See, our business isn’t nearly as bad as it was during the financial crisis."

Revenue from US Bancorp’s credit-card division climbed 7.1% for the quarter, for example. New lending activity grew by 11.2% from the first quarter, and average total loans climbed by 4% from the second quarter of 2010. Average deposits grew by 14.2% (9.6% excluding the effect of acquisitions) from the second quarter of 2010.

US Bancorp’s strategy has been to grow market share during the financial crisis by using its stronger balance sheet to expand its geographic footprint. These numbers say that the strategy has been working.

Assuming that Washington doesn’t blow up the global financial system—again—in the coming weeks, I’d put a target price of $35 on US Bancorp shares for May 2012 (that’s up from my previous target of $33 by September 2011). The boost comes partly on expectations that the bank will raise its dividend this year, as projected by management.

Full disclosure: I don’t own shares of US Bancorp in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of US 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 here.

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