U.S. Bancorp USB-N cut its forecast for full-year interest income and reported a 22 per cent fall in first-quarter profit on Wednesday, as higher deposit costs and a larger corpus of rainy-day funds to cover potential defaults continue to weigh on the sector.
Shares of U.S. Bancorp fell 4 per cent in morning trading. It was among the top losers on the broader regional banking index .
Lenders in the U.S. have been offering higher interest rates in recent months to retain deposits as customers are increasingly seeking better returns by placing their money in higher-yielding alternatives.
U.S. Bancorp now expects net interest income (NII), the difference between what banks pay customers on deposits and earn as interest on loans, between $16.1-billion and $16.4-billion for the full year compared to the over $16.6-billion it had expected earlier.
“The reduction in guidance is disappointing,” analysts at HSBC said in a note, adding the bank had recently reiterated the forecast at investor conferences.
NII declined 14 per cent to $3.99-billion in the first quarter, while net interest margin contracted to 2.70 per cent, versus 3.10 per cent a year ago.
The outlook for potential rate cuts in 2024 has changed meaningfully over the past few weeks, executives said in a call with analysts.
“We’re not going to give a 2025 guide right now because it’s so volatile in terms of what rates could be,” said CEO Andy Cecere. But, he added that the bank expects an improvement in the second half of 2024 and is working to lower expenses to counter NII headwinds.
Meanwhile, the Minneapolis, Minnesota-based bank also hiked its provisions for credit losses – the capital banks use to cover loans that borrowers are unable to pay back – to $553-million against an uncertain economic backdrop, compared with $427-million a year earlier.
Net income attributable to U.S. Bancorp fell to $1.32-billion or 78 cents per share in the first quarter compared to $1.7-billion or $1.04 per share reported a year earlier.