Erika Najarian: Got it. And congratulations on the release of commitments.
Andy Cecere: Thanks, Erika.
Operator: And next, we’ll go to Gerard Cassidy with RBC. Please go ahead.
Gerard Cassidy: Andy, obviously, U.S. Bancorp has developed a reputation of being a strong underwriter and we talked about this in the past with you folks. And I was wondering if you could frame out the environment because every bank is talking about credit normalization as you guys did because we had such great numbers coming out of the pandemic on credit. And if you just exclude for a moment the economy because obviously, none of us can control that, but I’d really be interested in what you guys are seeing from a competitive standpoint in terms of underwriting. And if you could compare it to past cycles, obviously, we’ve been around for a few cycles and can’t compare. But I’m curious, from your guy’s vantage point, is it as risky today as it may have been in ’05, ’06 or ’99, 2000. Any color there that you can share with us?
Andy Cecere: Let me give you the big picture, and I’m going to ask Terry to highlight some specifics. I would say the consumer is entering this cycle in very strong shape from a balance standpoint, from the perspective of savings accounts that they have, the spend activity, I think they’re all starting to normalize, but normalized to a pre-pandemic what I’d say, normal level. The companies and small businesses are also in very good shape. The one area that we’re all very focused on is commercial real estate office, which is one of the areas that we increased our reserve to. As you know, it’s at 10% in this quarter. So maybe, Terry, you can give some specifics.
Terry Dolan: Yes. And what I would add to that, Gerard, as you know, when we think about underwriting, we really underwrite through a cycle. We try to take into consideration in the stress from an underwriting perspective, what could happen in terms of rising interest rates or other economic factors that could come into play. So, we haven’t adjusted our underwriting standards a lot. We have been thinking about this particular cycle. I do think that when you end up looking at the industry, I think there is some tightening that’s going out there. Certainly, from a competitive standpoint, we are seeing that to some extent. But we feel like we’re in pretty good shape. If you end up looking at our situation, as Andy said, probably the area that we’re monitoring the most is commercial real estate office space specifically.
We have a reserve that’s about 10% of the overall balance there. We have been increasing that, and we’re likely to continue to increase that because that’s going to be a pressure point. But we’re starting from — if you think about the overall portfolio, we’re starting at fairly low points. Our non-accrual loans is only 35 basis points of total loans. Our allowance is strong at 208. Delinquencies are still at relatively low levels although increasing. And our expectation as we go into 2024 is that that normalization will continue. Delinquencies will continue to kind of move up and nonperforming assets will continue to move up. But I think we’re in a really good position in terms of the allowance coverage that we have, and we feel pretty good about that.
Gerard Cassidy: Very good. Good to hear your voice, Terry. Just to follow up on what you were saying from a competitive standpoint, do you sense — the extreme, of course, was ’05, ’06 when all of the crazy lending is being done by some banks, but also the nonbanks. When you guys look at the nonbank competitors, are there rogue players out there that are just doing crazy things so that the second derivative impacts the banks, not because any of the banks, yourself included, made a poor underwriting decision, but it was the competitors that really did something foolish and now the banks are suffering a bit? Or again, not like ’06, I’m not suggesting we’re there, but just from a comparison standpoint.
