U.S. Bancorp (NYSE:USB) Impacted by Low Interest Rates

December 12, 2016

Portfolio Manager Matt Hayner of Madison Investment Holdings says that while U.S. Bancorp (NYSE:USB) is growing deposits and loans, that growth is being offset by interest margin compression.

U.S. Bank is a high-quality, super-regional bank, if you will. It’s different than some of the traditional Wall Street banks, and they have less capital markets business. It’s mostly primarily borrowing and lending, so traditional banking. And of course, for them and for that business model, the interest rate environment has mattered.

And so for U.S. Bank, we’ve seen, over the past couple of years, we’ve seen nice deposit growth for them and certainly in low-cost deposit growth, but really not a lot of opportunity to make a lot of net interest margin or spread, based on a low interest rate environment.

Well, their deposits are growing nicely. Their loans are actually growing nicely as well in the mid single digits. But that spread between what they pay to borrow and what they earn on lending continues to compress. So their growth, like other banks, is being offset by that interest margin compression. And that story hasn’t changed.

Matt Hayner