Rising lending helps US Bancorp (USB), cost concerns prevail
US Bancorp USB continues to benefit from rising lending and deposit balances as well as inorganic growth strategies. Nonetheless, increased investment spending in technology, lack of diversification of the loan portfolio and declining margins remain short-term obstacles.
The shares of this currently Zacks Rank # 3 (Hold) player have risen 0.2% over the past six months, while the industry grew by 4.2%. You can The full list of Zacks # 1 Rank (Strong Buy) stocks today here.
Image source: Zacks Investment Research
Average US Bancorp deposits and loans reflected a five-year CAGR of 3.5% and 6.2%, respectively, in 2020. Total deposits trended upward in the first nine months of 2021 , while total loans have declined. We believe loan and deposit balances are poised to increase in a recovering economy. Management expects modest sequential loan growth in the fourth quarter of 2021 as its auto loan and credit card balances grow as the economy recovers and commercial activities resume full steam.
USB has experienced organic growth over the past few years, supported by its continued efforts to strengthen existing relationships and improve the customer experience through product launches. A decent lending scenario, aided by economic growth, could support US Bancorp’s net interest income (NII) in the days to come. In addition, the various sources of USB revenue drive the growth of commission revenue.
Driven by a strong liquidity position, US Bancorp has been able to grow through a few mergers and acquisitions over the past two years. These steps have opened up new markets and solidified those that already existed. In December 2021, US Bank, a subsidiary of USB, entered into the previously announced agreement to acquire PFM Asset Management through US Bancorp Asset Management. The buyout amplifies US Bank’s presence in the institutional asset management space nationwide and strengthens its position as a dominant provider of diverse investment solutions in the country. In September 2021, US Bancorp completed the acquisition of Bento Technologies, a FinTech company providing payment and expense management services to small and medium-sized businesses. That same month, USB reached a definitive deal to acquire MUFG Union Bank’s main retail banking operations from Mitsubishi UFJ Financial Group in a cash and stock transaction worth $ 8 billion. These acquisitions, combined with continued investments in product improvements and innovative services, have strengthened USB’s balance sheet and profitable businesses in addition to increasing its market share.
However, rising costs are hurting US Bancorp’s earnings growth. As it intends to invest in digital, data and technology improvements, product differentiation and other initiatives, we believe these costs could weigh on its spend base to some extent over the course of for the next few quarters.
A large portion of US Bancorp’s loan portfolio – nearly 48% as of September 30, 2021 – includes total commercial loans. Such a lack of diversification can be precarious for USB in a tough economy and competitive markets.
The pressure on US Bancorp’s margins is a constant strain on its finances. In mid-March 2020, the Federal Reserve cut rates to near zero levels to shield the economy from the coronavirus-induced financial crisis. The net interest margin is likely to continue to be affected in the near term, as the central bank maintains its relatively accommodative and moderately hawkish monetary policy.
Actions to consider
Some better ranked actions in the banking space are Shore Bancshares, Inc. SHBI, Southern First Bancshares, Inc. SFST and OZK Bank OZK. Currently, SHBI and SFST sport a Zacks Rank # 1 each, while BMTX carries a Zacks Rank # 2 (Buy).
Over the past year, shares of Shore Bancshares have gained 40.8%, while shares of Southern First and Bank OZK have jumped 84.1% and 49.9%, respectively.
Over the past 30 days, Zacks ‘consensus estimate for Shore Bancshares’ current year earnings has been revised up 21.7%, while Southern First’s has moved 13. , 3% to the north. OZK Bank’s profit estimates for the current year have risen slightly over the past two months.
5 actions in the process of doubling
Each was selected by a Zacks expert as the # 1 favorite stock to earn + 100% or more in 2021. Previous recommendations climbed + 143.0%, + 175.9%, + 498.3% and + 673.0%.
Most of the stock in this report is flying under Wall Street’s radar, which provides a great opportunity to get into the ground floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.