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By Robert Gordon

Banks are among the first companies to report earnings during each quarterly cycle. These banks today are among the largest in the country, at the next level compared with money center banks. I expect regional banks, those without commitments to investment banking or large European exposures, to generally report solid earnings.

The Goldman Sachs Group (NYSE:GS)

Goldman is among the best known, most respected, and possibly, the most reviled financial institution in the world. Its stock was trading recently at about $103 per share. Its 52-week range is from $171.49 to $84.27, and its market capitalization is $52.4 billion. Its 12-month trailing P/E is 22.6, and it pays a quarterly dividend of $0.35 per share, for a yield of 1.4%.

Goldman's 4th-quarter earnings, and the Street's reaction to them, show how desperate many are to "believe" in Goldman. Revenue for the quarter was $6.05 billion, down from $8.64 billion a year earlier. Revenue for all of 2011 was $28.8 billion, off 26% from the year earlier. Profits for the 4th quarter were $1.01 billion, off 58% from the year-earlier quarter. Full-year 2011 earnings were $4.44 billion, off 47% from 2010.

Upon the release of the earnings numbers, Wall Street bid up the price of Goldman stock nearly 7%, under the guise that the numbers were not as bad as feared. By some measures, perhaps Goldman's numbers were not as disappointing as some of its peers. Yet, anyone who believes all of the company's troubles are behind it is in for a surprise. Other companies behaved stupidly or naively in the 2007-8 mortgage crisis. Goldman behaved with utter contempt for fairness in its Abacus and related dealings, and the $550 million settlement with the SEC on that matter hardly ends the headaches for Goldman. New legislation too limits Goldman's ability to make money from trading.

I know there are smart people at Goldman. But there is too much uncertainty for my taste. Look elsewhere.

U.S. Bancorp (NYSE:USB)

USB has long been my favorite large regional bank, and it did nothing to disappoint in its 4th quarter of 2011. USB stock was trading recently at about $29 per share, near the top of its 52-week range of from $29.42 to $20.10. It has a market capitalization of $54.7 billion, and a 12 month, trailing P/E of 11.6. It pays a quarterly dividend of 12.5 cents, for an annual yield of 1.7%

USB is the nation's fifth-largest bank by assets with about $340 billion. In its recently concluded 4th quarter, it reported earnings up 39% to $1.35 billion, or $0.64 per share. Full-year earnings were $4.87 billion, or $2.46 per share. The full-year profits represent a 47% improvement from full-year 2010.

The secondary numbers are as good as the gross profit numbers suggest. Return on assets in the 4th quarter was an annualized 1.62%. Its efficiency ratio was 51.3. Its loan portfolio grew by 7% year to year, and its low-cost deposit base grew by 12%. The only issue I see with USB is its narrowing net interest margin. It was 3.88% for full-year 2010, 3.83% in the 4th quarter of 2010, 3.65% in the 3rd quarter of 2011, and 3.60% in the recently concluded quarter. I want to see that margin trend reverse, and that will be the first thing I look at when USB next reports for the 1st quarter of 2012.

On an operational efficiency and productivity scale, USB is unequaled in the banking world. Trading at a P/E of less than 12, I endorse it without reservation as a long-term holding. Note that we provided a detailed analysis of how to value USB.

PNC Financial Services Group, Inc. (NYSE:PNC)

Pittsburgh-based PNC is the nation's sixth largest commercial bank by assets, with about $271 billion on its balance sheet. It had by almost any account a disappointing quarter to wrap up a successful year. Its stock was trading recently at a little under $60 per share, near the high end of its 52-week range of from $65.19 to $42.70. It has a market capitalization of $31.3 billion, and a 52-week trailing P/E of 10.6. It pays a dividend of $0.35 per quarter, for an annual yield of 2.3%

In the just completed 4th quarter, PNC reported earnings of $493 million, or $0.85 per share. That represents a 41% decline from the same quarter of 2010. For all of 2011, PNC reported earnings of $3.1 billion, or $5.64 per share, down about 9% from 2010. The principle factor behind this poor showing this quarter was the ratio of non interest income to non interest expense. Non interest income declined by nearly $20 million dollars quarter over quarter, largely due to PNC's losing about $75 million in debit card interchange fees due to the Durbin Amendment to the Dodd Frank financial reform package. Non interest expense increased about $580 year over year, due to what the bank characterized as one-time occurrences such as mortgage settlements and personnel bonuses. The net result of these taken as a whole was an efficiency ratio for the fourth quarter of 0.77, among the worst I have seen from a large bank. PNC reported that it expects these non interest expenses to go back to historical levels in the first quarter of 2012, and if true, the efficiency ratio will improve in step back to its historical level of about. 0.60.

Over the longer term, I am concerned about PNC's net margin trend as it is like USB's, trending the wrong way. It was 4.14% full year 2010, 3.89% in the third quarter of 2011, and 3.86% in the 4th quarter of 2011. PNC will have to address this in the near future.

PNC is growing its asset base the old fashioned way, through acquisitions. In the 3rd quarter of 2011, PNC purchased the metro Atlanta area branches of Flagstar Bank. It is in the process of acquiring Royal Bank of Canada's (NYSE:RY) assets in the United States.

If PNC can get its non interest expenses in line, PNC is otherwise a premier franchise. I see far more upside potential than downside risk from this point, and urge you to look more carefully.

Source: 3 Big Banks Report Earnings: What You Need To Know