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U.S. Bancorp aiming for midyear release of expected CECL impact

U.S. Bancorp plans to release its financial projections under a new loan loss accounting methodology halfway through the year, according to management comments Jan. 16.

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The bank is in "pretty good shape" with its implementation of the current expected credit loss model, or CECL, said CFO Terrance Dolan during the bank's fourth-quarter 2018 earnings call. The new model will adjust the way banks build reserves for bad loans. It goes into effect for U.S. Bancorp in 2020, and as that deadline looms some sell-side analysts are seeking status updates.

The bank is aiming for a midyear deadline to begin providing ranges for how its books will fare under CECL, said Chairman, President and CEO Andrew Cecere. He cautioned that these numbers will be a point-in-time estimate and may need to be adjusted if conditions change from the second quarter of 2019 through year-end.

Few banks have disclosed estimated impacts. Citigroup Inc. said credit reserves would increase about 10% to 20% based on a preliminary analysis done in 2017 that used the current environment and existing portfolios, according to its 2017 Form 10-K.

U.S. Bancorp's Dolan said timing could be a challenge with CECL, as the effective date may coincide with the long-awaited turn in the credit cycle, which could "create a little bit more volatility." He said industry estimates that show an initial CECL impact of 20% to 30% on reserves are "reasonable," based on current conditions.

U.S. Bancorp executives are finalizing the bank's CECL model and process in order to run its loan books in "parallel," or shadowing its existing model, Dolan said. The goal of the exercise is to get the bank "in good shape" ahead of the implementation date, he added.