Bank stocks have been in rally mode since the November elections. This has made Warren Buffett even richer than he was before.

Berkshire Hathaway (BRK-A) holds several bank stocks in its massive, $148 billion portfolio, led by U.S. Bancorp (USB)

With 85 million shares, Berkshire is U.S. Bancorp’s second-largest investor. Berkshire owns 5% of the company, in a stake worth approximately $4.3 billion.

Banks have seen their valuations rise considerably in just the past few months, as investors become more comfortable with the outlook for the financial sector.

This article will discuss why Buffett has taken such a huge ownership stake in U.S. Bancorp.

Business Overview

The biggest reason why Warren Buffett owns U.S. Bancorp is likely because of its strong management team and competitive advantages.

Last year was a record one for U.S. Bancorp. Net income reached a record of $5.9 billion. Earnings-per-share of $3.24 was also a record performance.  Earnings-per-share rose 2.5% for the year. The company experienced growth across most of its key metrics.

Source: 2016 Earnings Presentation, page 5

As the U.S. economy continues to steadily recover from the Great Recession, consumers are becoming more financially healthy.

This has resulted in accelerating growth in both loans and deposits over the past several quarters.

Source: 2016 Earnings Presentation, page 6

Average loans and deposits increased 6.9% and 8.9% last year, respectively, from 2015.

In addition, the company is seeing strong growth in financial and investment fees. Last quarter, trust and investment management increased 9.5%, along with 13.7% growth in mortgage banking.

Growth Prospects

One of the major growth catalysts for banks is rising interest rates. Higher interest rates helps boost investment income that banks earn.

When interest rates go up, U.S. Bancorp will see its interest earned on long-term loans rise at a faster rate than growth in interest paid on its deposits.