America’s biggest banks are still dogged by record defaults on their giant portfolios of credit card and home loans, and the storm over foreclosures could delay their efforts to move troubled mortgages off their books. For now, regional banks offer less risk and more opportunity. Here are two that weathered the financial crisis in strong shape, boast rising earnings, and could soon pay large dividends.

US Bancorp (USB), based in Minneapolis, is America’s sixth-largest retail bank, with a broad network of branches in the Midwest and on the West Coast. “They were extremely conservative in commercial lending while their competitors were making bad loans,” says Gary Townsend of hedge fund Hill-Townsend Capital, which owns US Bancorp shares. The bank garners 47% of its revenues from fee businesses such as credit card processing and Treasury services that are far steadier and more predictable than lending. At a price-earnings ratio of eight (based on estimated 2011 earnings), US Bancorp looks reasonably cheap. Another plus: Its management wants to start paying a large dividend as soon as it receives federal permission. Says Townsend of the shares, currently trading around $23: “This is a $30 stock.”

Pittsburgh-based PNC Financial (PNC) exploited the credit meltdown by buying National City for a bargain price in late 2008. The deal transformed PNC into a large regional player in retail, with big market shares in Illinois, Michigan, Ohio, and Pennsylvania. PNC is rapidly shedding Nat City’s problem mortgages and has further reduced its credit risk by selling its distressed real estate holdings. Like US Bancorp, it gathers a big share of revenue — more than a third — from dependable fee businesses, like servicing commercial mortgages. PNC gets 15% of profits from another dependable source, its 23% ownership in BlackRock, the assetmanagement behemoth. At $53, PNC is selling at just nine times next year’s expected earnings. Best of all: Analysts expect that, by 2012, PNC should resume strong dividends and big share buybacks.

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