U.S. Bancorp expects an impact ranging from $1.2 billion to $1.6 billion upon adoption of the current expected credit losses standard in the first quarter of 2020.
The increase in loan reserves is driven by card, mortgage and retail lending, the Minneapolis-based super-regional bank said in an investor presentation. U.S. Bancorp sees its reserve-to-loan ratio increasing to between 1.90% and 2.0% from 1.53% as of the second quarter of 2019, and with that, it expects to make more loan loss provisions in the future.
U.S. Bancorp also expects CECL to reduce its capital by 25 basis points to 35 basis points upon adoption of the new accounting standard, which requires banks to make loan loss provisions at origination instead of when a loss is likely to occur.
The company also issued its revised long-term growth expectations, with forecasts lower than the guidance given in 2016. It expects revenue to grow 5% to 7% in the long term, down from 6% to 8%, and it forecasts net income growth to slow down to a range of 5% to 7% from 6% to 8%. EPS growth is also expected to slow down to a range of 7% to 10% from 8% to 10%. U.S. Bancorp sees expense growth slowing down to a range of 2% to 4% from 3% to 5%. The revised growth expectations represent the end of a three-year period.
The revised forecasts are based on several economic assumptions, such as the unemployment rate hovering around 3.5% to 4%, GDP growth of 1.5% to 2.0%, the Federal Reserve cutting rates to 1.50% by early 2020, adoption of CECL, low inflation, stable consumer confidence and stable credit quality.
The company did not revise its long-term guidance on return on assets, return on tangible common equity and efficiency ratio. U.S. Bancorp increased its long-term forecast on return on equity to 14.5% to 17.5% from 13.5% to 16.5%.
