We are reiterating our Neutral recommendation on the shares of U.S. Bancorp (USB) following the company’s fourth quarter and full year earnings release as well as its recent acquisitions. Our analysis is based on the company’s fundamentals, recent strategic acquisitions, threats, challenges and current economic trend.

U.S. Bancorp’s fourth quarter earnings came in at 47 cents per share, a penny ahead of the Zacks Consensus Estimate, reflecting improved revenues from business growth initiatives, including acquisitions. Credit metrics also showed improvements. Yet, these positives were partially offset by an increase in expenses.

U.S. Bancorp is also focused on expanding its business through acquisitions. Toward the end of the last month, its lead bank U.S. Bank acquired banking operations of First Community Bank (New Mexico), a subsidiary of First State Bancorporation, in a Federal Deposit Insurance Corporation (FDIC) assisted deal. Given its asset base, First Community Bank was New Mexico’s third-largest bank. For U.S. Bancorp, the deal is a strategic fit as the community banking model is an attractive one. Moreover, 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.

On December 30, 2010, the company wrapped up the purchase of Bank of America Corp.’s (BAC) U.S. and Europe-based securitization trust administration businesses. This acquisition offers the company an opportunity to strengthen its market position within the U.S. structured finance trust business and compliments its current market position in the country’s corporate and municipal trust businesses. Moreover, the acquisition offers the bank a prospect to expand its presence in the European market with offices in Ireland and London, England.

Previously, the company acquired BB&T Corp.‘s (BBT) banking operations in Nevada and FBOP Banks in an FDIC-assisted deal. These opportunistic acquisitions bode well for future growth.

U.S. Bancorphas weathered the economic downturn relatively well and is expected to be one of the first few banks to increase dividend in the first half of 2011. Yet, regulatory issues and mortgage repurchase expenses will continue to pose as headwinds. So, we reiterate our Neutral stance.

U.S. Bancorp shares currently retain the Zacks #3 Rank, which translates into a short-term Hold rating.

 
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