What happened

U.S. Bancorp (USB 0.32%) had a rocky first half of 2023, just as many banks did. The holding company for U.S. Bank was down 24.2% year to date through June 30, according to S&P Global Market Intelligence. As of July 10, it was trading at about $33.70 per share, down roughly 22.7% year to date.

That significantly underperformed the S&P 500, which was up 15.9% in the first half. 

So what

While U.S. Bancorp was down in the first half of the year, it was not an outlier among banks. The entire industry struggled: The KBW Nasdaq Bank Index, which tracks the performance of the largest banks, was down about 20.5% through June 30. But still, U.S. Bancorp slightly underperformed the index.

The bank's swoon can be attributed to both macro issues and company-specific concerns. The industry struggled in the first half of the year as rapidly rising interest rates led to a gradual drop in deposits because many banks were reluctant to raise the  rates they paid depositors, so customers moved their cash elsewhere, like money market funds, for example.

For most banks, this was a manageable problem, but then, two major banks collapsed in March, followed by a third in April. That set off runs on deposits at many smaller and regional banks. The banks that fell catered heavily to technology/start-up investors and high-net-worth individuals, and had high levels of uninsured deposits. Their failures caused a bit of a panic among investors, and all bank stocks tanked.

The largest banks generally fared pretty well, as many customers moved their deposits to them in a flight to perceived safety and stability. However, in late April, a report by HoldCo Asset Management questioned the safety and soundness of U.S. Bancorp, the fifth-largest bank in the country. The report said the bank was poorly capitalized, with a common equity tier 1 ratio of 8.5%, the lowest of the major banks. Among the potential reasons for that was U.S. Bancorp's recent acquisition of Union Bank. The bank was forced to pause its share repurchase program, but maintained its dividend.

U.S. Bancorp's stock price also took a hit in May after Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) revealed that it had exited its investment in the bank. U.S. Bancorp had been a top 10 holding in the portfolio of Warren Buffett's conglomerate, and it had held a stake in the bank since 2006.

Now what

Some of the concerns about U.S. Bancorp's capitalization seem to be overblown. In late June, the bank revealed that it had passed the Federal Reserve's annual stress test. The bank expects to have a capital buffer of 2.5 percentage points more than the 4.5% minimum, which would create a required common equity tier 1 (CET1) ratio of at least 7%. Its current CET1 ratio of 8.5% is well above the regulatory minimum of 7% -- and CEO Andy Cecere anticipates the ratio will climb to 9% by year's end after Union Bank is fully integrated and cost synergies are realized.

Once the acquisition is integrated, it is expected to be 8% accretive to earnings, which will also help the bank build capital.

U.S. Bancorp is trading at a low price-to-earnings ratio of 9, so it is worth a look. Its second-quarter earnings come out on July 19.