What happened
U.S. Bancorp (USB 0.32%) saw its stock price fall 4.7% today, as of 2:45 p.m. ET. The stock is trading at just over $35 per share and is down roughly 19% year to date (YTD).
The markets were mixed on Friday as the S&P 500 index was up 5 points (0.1%), the Dow Jones Industrial Average fell 47 points (-0.1%), and the Nasdaq Composite gained 42 points (0.3%) as of 2:45 p.m. ET.
So what
U.S. Bancorp, the holding company for U.S. Bank, presented at the Barclays Global Financial Services Conference in New York City on Wednesday, and that appeared to be the catalyst for today's move. In the presentation, President and CEO Andy Cecere and CFO John Stern offered guidance that disappointed investors.
Net interest income (NII) in the third quarter was projected to be in the $4.2 billion to $4.4 billion range, which would be at best equal to the $4.4 billion in the second quarter. Adjusted revenue is expected to be in the $6.9 billion to $7.1 billion range, which would be down from $7.2 billion in the second quarter.
However, for the full fiscal year 2023, NII is anticipated to be between $17.5 billion and $18 billion, which would be up from $14.7 billion in 2022, while revenue is projected to be $28 billion to $29 billion, up from $24.3 billion in 2022.
Further, the bank remains on target to achieve $900 million in run rate cost synergies from the acquisition of Union Bank entering 2024.
Now what
Stern said the quarter-over-quarter drop in net interest income was due to a decline in loan growth and higher deposit costs. Net interest margin for Q3 is expected to be around 2.80% -- down about 10 basis points from Q2. But he noted that things should start to improve a bit in the fourth quarter.
On Tuesday, the bank declared a $0.48 third-quarter dividend, the same as the previous quarter. It has a high 5.2% yield and a 53% payout ratio. U.S. Bancorp has underperformed its peers, but it has a good dividend, a low valuation, and it should be stronger once the acquisition is fully integrated.
