U.S. Bancorp On Acquisition Spree
U.S. Bancorp (NYSE:USB) is on an acquisition spree. Its lead bank, U.S. Bank National Association has acquired the banking operations of New Mexico based First Community Bank, a subsidiary of First State Bancorporation in a Federal Deposit Insurance Corporation (FDIC) assisted deal.
What’s the Deal?
As part of the transaction, approximately $2.1 billion of assets and $2.1 billion of liabilities, including $1.8 billion of insured and uninsured deposits, of First Community Bank would be acquired by U.S. Bank. However, neither any asset nor any liability of First Community Bank’s parent holding company, First State Bancorporation, would be acquired by U.S. Bank.
Also, the deal is designed as a bank purchase and assumption transaction en masse without a loss share agreement. An extensive credit due diligence was conducted by U.S. Bank and ultimately First Community Bank was bought for an asset discount of approximately $380 million.
Given its asset base, First Community Bank was New Mexico’s third-largest bank. However, severe loan losses from commercial real estate loans had crippled the bank keeping it significantly undercapitalized. Finally, the bank was closed by the New Mexico Financial Institutions Division on January 28, 2011, and FDIC was appointed as receiver.
For U.S. Bancorp, the deal is a strategic fit as the community banking model is an attractive one and the deal adds 35 New Mexico and 3 Arizona branches together with over 50,000 new deposit customers. The company also plans to expand its presence in the state through de novo branch expansion.
U.S. Bancorp is focused on expanding its business through acquisitions. Recently, its lead bank U.S. Bank completed the purchase of Bank of America’s U.S. and Europe-based securitization trust administration businesses. This transaction included $1.1 trillion of assets under administration and provided U.S. Bank with approximately $8 billion of deposits during closure.
The acquisition strengthens U.S. Bancorp’s position as a leader in the structured finance trust business and is a great complement to its corporate and municipal trust business. Moreover, the acquisition provides the bank with a prospect of expanding its presence in the European market with offices in Ireland and London, England.
Earlier in 2010, the company completed the purchase of BB&T Corp.‘s (NYSE:BBT) banking operations in Nevada. In October 2009, the company had acquired the FBOP Banks in an FDIC-assisted deal. Together, these two transactions added more than 160 branch locations to its franchise and over $15 billion in deposits.
The financial crisis has helped U.S. Bancorp make strategic acquisitions at an affordable price. Such expansions provide the company ample opportunity to boost its revenue stream in the upcoming years.
The largest bank failures in the U.S. banking history was that of Washington Mutual in 2008, which was subsequently acquired by JPMorgan Chase & Co. (NYSE:JPM). Besides JPMorgan and U.S. Bancorp, the other acquirers include Fifth Third Bancorp (NASDAQ:FITB) and BB&T Corp.
We expect U.S. Bancorp to benefit from its diversified revenue base and strategic acquisitions, thereby posting growth in core earnings going forward. The company is one of the biggest retail banks in the U.S. and is one of the nation’s top 10 banks. It has weathered the economic downturn relatively well.
The improvement in revenue and credit quality is encouraging. Yet, regulatory issues would continue to pose as headwinds to both top and bottom lines. Also, robust growth would remain elusive until we see more tangible signs of economic recovery.
U.S. Bancorp shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation.