(USB) U.S. Bancorp Acquires BankEast

U.S. Bancorp (USB) is focused on expanding its business through acquisitions. The company’s lead bank, U.S. Bank National Association, acquired the banking operations of BankEast, a subsidiary of BankEast Corporation, in a Federal Deposit Insurance Corporation (FDIC) assisted deal. It is based in Knoxville, Tennessee.

What’s the Deal?

As part of the transaction, approximately $272 million worth of assets and $268 million of insured and uninsured depositsof BankEast, 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 BankEast was bought for an asset discount of approximately $67.5 million.

Last Friday, BankEast was closed by the Tennessee Department of Financial Institutions, and FDIC was named the receiver. BankEast is the seventh FDIC-insured institution to fail in the nation this year, and the second in Tennessee.

For U.S. Bancorp, the deal is a strategic fit as the community banking model of BankEast is quite attractive and the deal would help it to expand in the Tennessee market. The 10 branches of BankEast in the Knoxville area will result in U.S. Bank’s total branch count in Tennessee to rise to 91. The company also plans to continue expanding organically in the state.

Previous Acquisitions

U.S. Bancorp is on an acquisition spree. In 2011, the company acquired the banking operations of First Community Bank (New Mexico), a subsidiary of First State Bancorporation, in an FDIC-assisted deal. Given its asset base, First Community Bank was New Mexico’s third-largest bank. The deal added 35 New Mexico and 3 Arizona branches together with over 50,000 new deposit customers.

In early 2011, U.S. Bank completed the purchase of Bank of America Corp.’s (BAC) 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 its closure.

The acquisition strengthened U.S. Bancorp’s position as a leader in the structured finance trust business and posed as a great complement to its corporate and municipal trust business. Moreover, the acquisition provided 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 acquisition of BB&T Corp.‘s (BBT) banking operations in Nevada. Back 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 with ample opportunities to boost its revenue stream in the upcoming years.

In fact, with so many consecutive bank failures, consolidation has become a trend in the industry. For almost all the failed banks, the FDIC enters into a purchase agreement with healthy institutions. The largest bank failure in the U.S. banking history was that of Washington Mutual in 2008, which was subsequently acquired by JPMorgan Chase & Co. (JPM). Besides JPMorgan and U.S. Bancorp, the other acquirers include Fifth Third Bancorp (FITB) and BB&T Corp.

Our Take

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 the fifth-largest commercial bank in the United States. It has weathered the economic downturn relatively well.

The improvement in revenue and credit quality is encouraging. Yet a sluggish economic recovery and low interest rate environment along with regulatory issues will continue to restrict any robust development at U.S. Bancorp.

U.S. Bancorp shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation.

BANK OF AMER CP (BAC): Free Stock Analysis Report

BB&T CORP (BBT): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

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