Who’s The Top Big Bank? BB&T Corporation (BBT), U.S. Bancorp (USB)

Hidden Earnings And Which Stock Is The Best Value?
As I mentioned before, banks with a high loan loss coverage ratio could choose to release some of this reserve later, which would boost their earnings. If you look at the coverage ratio at each of the banks we’ve talked about, only U.S. Bancorp and Wells Fargo have a coverage ratio above 200%. This means both banks have set aside at least $2 worth of reserves for every $1 of troubled loans. Even if all of their troubled loans were charged off, both banks should have money left over. By comparison, BB&T’s coverage ratio is 146% and J.P. Morgan’s coverage ratio is 119%. The good news is, all four banks have enough coverage for their problem loans, but only U.S. Bancorp and Wells Fargo have this hidden earnings potential.

If you look at the value offered by each bank, it’s tough to make an argument against U.S. Bancorp. On a relative basis, J.P. Morgan and Wells Fargo’s lesser loan and deposit growth is a challenge to their earnings power going forward. While analysts are calling for 6.45% growth from J.P. Morgan, their estimate of 9.33% EPS growth at Wells Fargo may be hard to attain without better loan growth. Each of these banks also have much higher non-performing loan percentages compared to BB&T and U.S. Bancorp.

BB&T offers solid value with a roughly 3% yield, and analysts calling for about 10.8% EPS growth in the next few years. U.S. Bancorp looks like less of a value with a 2.35% yield, and expected EPS growth of 9.1%. However, U.S. Bancorp reported stronger deposit growth, a higher coverage ratio, and a slightly lower non-performing loan percentage. If U.S. Bancorp can manage its problem loans appropriately, they should be able to release some of their loan loss reserves to improve earnings in the future. In addition, their stronger deposit growth should lead to better lending opportunities and a better net interest margin in the future. It’s still a close race between these two top quality banks, but U.S. Bancorp is closing the gap quickly. I would suggest investors add US (NYSE:USB)B to their Watchlist today to keep up with developments.

The article Who’s The Top Big Bank? originally appeared on Fool.com and is written by Chad Henage.

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