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Here's Why It is Worth Holding On to U.S. Bancorp (USB) Stock
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U.S. Bancorp (USB - Free Report) continues to gain from the rising loans and deposit balances as well as its inorganic growth strategies. Nonetheless, mounting expenses on investments in technology, lack of diversification of loan portfolio, as well as pressure on margins remain near-term headwinds.
The company has witnessed continued organic growth in the last few years backed by its constant efforts to fortify the existing relationships and improving customers’ experience through the introduction of new products. A decent lending scenario, aided by economic growth, will support the company’s net interest income (NII) in the days to come. Also, the company’s diverse revenue streams support fee income growth.
Notably, the company’s average deposits and loans reflected a five-year CAGR of 3.5% and 6.2%, respectively, in 2020. Total deposits witnessed a rising trend in the first nine months of 2021, while the total loans declined. We believe both loan and deposit balances are poised to increase in a recovering economy. Management expects sequential modest loan growth in the fourth quarter on the back of growth in its auto lending and credit card balances, as the economy recovers and business activities resume in full swing.
Driven by a strong liquidity position, U.S. Bancorp has been able to expand via a couple of mergers and acquisitions in the past couple of years. These moves have opened up new markets and fortified the existing markets. In September, it entered into a definitive agreement to acquire MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group (MUFG - Free Report) in a cash-and-stock transaction valued at $8 billion. These acquisitions, combined with the ongoing investments in innovative product improvements and services, have bolstered the company’s balance sheet and fee-based businesses besides boosting the market share.
Of late, several finance companies have been undertaking consolidation to counter the low interest-rate environment, and diversify revenues and products. Earlier in October, with an aim to further diversify its deposit gathering capabilities and revenue mix, Raymond James (RJF - Free Report) announced a deal to acquire TriState Capital Holdings, Inc. for $1.1 billion in a cash-cum-stock deal.
However, rising costs are hurting U.S. Bancorp’s bottom-line growth. As it intends to make investments in digital, data and technology refinements, product differentiation and other initiatives, we believe, such costs might weigh on its expense base to some extent in the upcoming quarters.
A bulk of U.S. Bancorp’s loan portfolio — nearly 48% as of Sep 30, 2021 — comprises total commercial loans. Such a lack of diversification can be precarious for the company amid a challenging economy and competitive markets.
Lastly, margin pressure for U.S. Bancorp has been straining its financials. In mid-March 2020, the Federal Reserve lowered rates to near-zero levels to protect the economy from the coronavirus-induced financial breakdown. This, along with excess liquidity levels, might keep margins under pressure in the near term.
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Here's Why It is Worth Holding On to U.S. Bancorp (USB) Stock
U.S. Bancorp (USB - Free Report) continues to gain from the rising loans and deposit balances as well as its inorganic growth strategies. Nonetheless, mounting expenses on investments in technology, lack of diversification of loan portfolio, as well as pressure on margins remain near-term headwinds.
The company has witnessed continued organic growth in the last few years backed by its constant efforts to fortify the existing relationships and improving customers’ experience through the introduction of new products. A decent lending scenario, aided by economic growth, will support the company’s net interest income (NII) in the days to come. Also, the company’s diverse revenue streams support fee income growth.
Notably, the company’s average deposits and loans reflected a five-year CAGR of 3.5% and 6.2%, respectively, in 2020. Total deposits witnessed a rising trend in the first nine months of 2021, while the total loans declined. We believe both loan and deposit balances are poised to increase in a recovering economy. Management expects sequential modest loan growth in the fourth quarter on the back of growth in its auto lending and credit card balances, as the economy recovers and business activities resume in full swing.
Driven by a strong liquidity position, U.S. Bancorp has been able to expand via a couple of mergers and acquisitions in the past couple of years. These moves have opened up new markets and fortified the existing markets. In September, it entered into a definitive agreement to acquire MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group (MUFG - Free Report) in a cash-and-stock transaction valued at $8 billion. These acquisitions, combined with the ongoing investments in innovative product improvements and services, have bolstered the company’s balance sheet and fee-based businesses besides boosting the market share.
Of late, several finance companies have been undertaking consolidation to counter the low interest-rate environment, and diversify revenues and products. Earlier in October, with an aim to further diversify its deposit gathering capabilities and revenue mix, Raymond James (RJF - Free Report) announced a deal to acquire TriState Capital Holdings, Inc. for $1.1 billion in a cash-cum-stock deal.
However, rising costs are hurting U.S. Bancorp’s bottom-line growth. As it intends to make investments in digital, data and technology refinements, product differentiation and other initiatives, we believe, such costs might weigh on its expense base to some extent in the upcoming quarters.
A bulk of U.S. Bancorp’s loan portfolio — nearly 48% as of Sep 30, 2021 — comprises total commercial loans. Such a lack of diversification can be precarious for the company amid a challenging economy and competitive markets.
Lastly, margin pressure for U.S. Bancorp has been straining its financials. In mid-March 2020, the Federal Reserve lowered rates to near-zero levels to protect the economy from the coronavirus-induced financial breakdown. This, along with excess liquidity levels, might keep margins under pressure in the near term.