The two biggest banks in Minnesota, Wells Fargo and U.S. Bank, delivered robust profits in the final three months of last year.
The two companies control about 60 percent of bank deposits in Minnesota.
San Francisco-based Wells Fargo, the biggest bank in Minnesota, earned nearly $3 billion, reversing a loss that was nearly as big a year earlier. Wells Fargo earned 8 cents a share, well above Wall Street expectations of one cent.
The bank warned another downturn in the economy would hurt profits. But Wells Fargo officials provided a pretty rosy picture for the new year, saying they believe the economy is definitely recovering and the bank's worst lending woes are, or soon will be, behind it.
"Wells Fargo definitely struck the most optimistic tone yet of all the largest banks," said Shannon Stemm, a banking industry analyst for brokerage Edward Jones. "As we begin to see loan losses abate, this is going to be a direct boost to earnings and a real positive. They do see a lot of their losses peaking in 2010. This will certainly be a benefit for the company, going forward."
Wells Fargo loan losses jumped to nearly $6 billion in the fourth quarter; roughly double the $3 billion a year earlier. The rise was driven by residential and commercial mortgage losses.
But the bank is using less capital to address the problem. Wells Fargo set aside about just $5.9 billion to cover loan losses in the quarter, compared with more than $8.4 billion a year earlier.
As loan losses fall and the bank has to set aside less money to cover bad loans, it should mean better profits down the road.
At Minneapolis-based U.S. Bank, fourth-quarter profits soared to about $600 million, up from $330 million a year ago. The bank also beat Wall Street expectations.
U.S. Bank has remained profitable as many competitors collapsed under housing market losses. The bank reports it now has $1.1 billion in loans it doesn't expect to be repaid. That's nearly a doubling in the past year.
But Morningstar banking analyst Jaime Peters said U.S. Bank has its bad loans under control and is poised to take off as the economy rebounds.
"The underlying fundamentals of the business, the day-to-day business, is really running as strongly as it did before the credit crisis, which tells us that once the credit losses peak and start to come down, US Bank is really going to shine through," Peters said.
U.S. Bank reported a 15 percent increase in consumer deposits, giving it a cheap source of money for loans. But the bank's laments loan demand is pretty weak. One gauge of loan demand, how much businesses are using their lines of credit, is at an all-time low.
Peters said Wells Fargo and U.S. Bank are a cut above most big banks in performance and strategy.
"They are by far some of the most conservative," he said. "And a result they have performed meaningfully better in this downturn than most of their peers. As a stockholder, as a customer, as a taxpayer, I like these banks a lot more than so many other banks out there."
Despite that endorsement, Wells Fargo shares fell about two percent Wednesday. U.S. Bank's stock rose about two percent.