Should Investors Be Worried About U.S. Bancorp’s Stagnant Deposit Base?
Total deposits held by U.S. Bancorp have remained largely flat at around $335 billion over the last four quarters – something that stands out given the steady growth in total deposits for the U.S. banking industry over the same period. In fact, each of U.S. Bancorp’s larger peers in the retail banking space have reported deposit growth that is comparable or better than the industry average (with the exception of Wells Fargo, due to the growth restriction order imposed on it by the Fed).
In our view, U.S. Bancorp’s subpar deposit growth isn’t likely to be a concern for long. It should be noted that as a regional banking giant, U.S. Bancorp has a much smaller geographical presence in the U.S. compared to its larger peers. Also, the bank has faced headwinds in growing its deposit base over recent years as customers have moved a considerable portion of their cash parked in bank accounts to better investment options due to an improved interest rate environment, or to online-only banking accounts that provide higher interest rates. While U.S. Bancorp has been slow off the block, it is looking to roll out its own online-only deposit service nationally in the near future – which we believe should help it level the playing field with its peers.
We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, U.S. Bancorp – through interactive dashboards, while also detailing the impact of changes in these key factors on their share price.
Deposits across U.S. commercial banks have grown sharply since 2010 due to the prevailing low interest rate environment since the economic downturn. This is because the resulting lack of lucrative investment options led investors to shift some of their liquid assets into interest-bearing deposits – leading U.S. deposits to swell at well above 5% annually over 2012-16. With the Fed hiking benchmark interest rates since December 2015, the interest rate environment has improved – leading to a normalization in deposit growth rate over recent quarters.
With improvement in technology allowing banks to offer online-only deposits at attractive interest rates over recent years, this has become the primary area of growth for the retail banking industry. As it costs a bank much less to offer an online-only account compared to a traditional account, they are able to pass the benefits from lower operating costs on to the customer in the form of higher interest rates. Despite this, deposits remain a cheap source of funding for the banks’ lending operations.
Notably, total deposits for the five largest U.S. banks grew by 1.8% over the last twelve months – less than the industry-wide growth figure of 3.1%. As we pointed out earlier, this can be attributed primarily to Wells Fargo’s misgivings over recent years. Having already lost the position of the second-largest bank in terms of deposits to Bank of America in the first quarter, Wells Fargo is likely to see its deposit base shrink further over coming months before stabilizing and remaining largely unchanged until the Fed lifts its enforcement order.
Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for JPMorgan Chase | Bank of America | Wells Fargo | Citigroup | U.S. Bancorp
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