U.S. Bancorp (USB) Q2 2011 Earnings Report, Transcript and Summary

Welcome to U.S. Bancorp's Second Quarter 2011 Earnings Conference Call. Following a review of the results by Richard Davis, Chairman, President and Chief Executive Officer; and Andy Cecere, U.S. Bancorp's Vice Chairman and Chief Financial Officer, there will be a formal question-and-answer session. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately noon Eastern Standard Time through Wednesday July 27 at 12:00 Eastern Standard Time. I will now turn the conference call over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Thank you, Tiffany, and good morning to everyone who has joined our call. Richard Davis, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp's second quarter 2011 results and to answer your questions. Richard and Andy will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings release and supplemental analysts' schedules, are available on our website at www.usbank.com. I would like to remind you that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's presentation in our press release and in our Form 10-K and subsequent reports on file with the SEC. I will now turn the call over to Richard.

Thank you, Judy, and good morning, everyone, and thank you for joining us. I'd like to begin on Page 3 of the presentation and point out the highlights of our second quarter results. U.S. Bancorp reported net income of $1,203,000,000 for the second quarter of 2011 or $0.60 per diluted common share. Earnings were $0.15 higher than the same quarter of last year and $0.08 higher than the first quarter of 2011. We achieved total net revenue of $4.7 billion this quarter, which represented a 3.8% increase over the same quarter of 2010 and over the prior quarter. Total average loans grew year-over-year by 4% or 3.5%, excluding acquisitions. As expected, we achieved modest linked quarter loan growth as total average loans grew by 0.6% over the first quarter or 0.5% adjusted for acquisitions. Deposit growth was again very strong this quarter, with average low-cost deposit balances increasing by 17.1% year-over-year and 3.7% linked quarter. Excluding acquisitions, the year-over-year growth rate remained a strong 12.3%, while a linked-quarter growth was 3.5%. Credit quality also continue to improve, as net charge-offs declined by 7.2% and nonperforming assets, excluding covered assets, declined by 6.2% from the first quarter. Further, the improvement in our credit quality once again supported a reduction in the allowance for credit losses and the company recorded a provision for credit losses that was $175 million less than the net charge-offs in the second quarter. Our company continues to generate significant capital each quarter and our capital position remained strong, with Tier 1 common and Tier 1 capital ratios increasing to 8.4% and 11%, respectively at June 30. Additionally, under the anticipated Basel III guidelines, the Tier 1 common ratio was 8.1% at quarter end. Slide 4 tracks our industry-leading performance metrics over the past 5 quarters. Return on average assets in the second quarter was 1.54% and return on average common equity was 15.9%. The 5-quarter trends of our net interest margin and our efficiency ratio are shown on the graph on the right-hand side of Slide 4. This quarter's net interest margin of 3.67% was lower than the same quarter of last year and the prior quarter, although slightly stronger than expected. And Andy will discuss the factors that led to this change in just a few minutes. Our second quarter efficiency ratio was 51.6%, consistent with past quarters and our expectation that our efficiency ratio will remain in the low 50s. Importantly, we achieved positive operating leverage on a year-over-year basis as well as on a linked-quarter basis when we adjust for the gain we recorded in the first quarter of 2011 related to our First Community Bank purchase. Turning to Slide 5, as I previously noted, our capital position remained strong and continues to grow. Our Tier 1 common ratio under the Basel III guidelines at June 30 was 8.1%, well above the 7% Basel III level required in 2019. Although we have not received the final regulatory guidance as to the amount of capital our company would be required to hold going forward, our SIFI buffer, we are confident that we can easily meet the new guidelines through internal capital generation, allowing us to continue moving forward with our long-term goal of distributing the majority of our earnings or shareholders in the form of dividends and buybacks. Accordingly, at the very end of the second quarter, we began to buy back stock and we expect to continue to repurchase shares through the remainder of the year. Moving on to Slide 6. Average total loans outstanding increased by $7.6 million or 4% year-over-year and 3.5% adjusted for acquisitions. Significantly, new loan originations excluding mortgage production plus new and renewed commitments totaled approximately $44 billion this quarter, compared with approximately $35 billion in the second quarter of last year, this represents a 25% increase in new activity. As a result, total corporate and commercial commitments outstanding increased by 13.8% year-over-year and a 4.4% linked-quarter growth, positioning us for the eventual revival of our customers demand for loans. Total average deposits increased by $26.1 billion or 14.2% over the same quarter of last year. Total average deposits grew by $5.1 billion on a linked-quarter basis or 2.5%, 2.3% excluding acquisitions with strong growth in Consumer Banking, as well as Wholesale Banking and specifically in the national corporate and institutional banking groups. Turning to Slide 7. The company reported total net revenue in the second quarter of $4.69 billion. The increase in revenue year-over-year was driven by earning asset growth, strength in our fee-based businesses and organic growth initiatives, tempered somewhat by the impact of recent legislative actions. Turning to Slide 8 and credit quality. Second quarter total net charge-offs of $747 million, were 7.2% lower than the first quarter of 2011. Nonperforming assets, excluding covered assets, decreased by $217 million or 6.2%. On Slide 9, the graph on the left illustrates the continuing improvement in early and late stage delinquencies excluding covered assets. In fact, delinquency rates in all major loan categories were lower than in the previous quarter. On the right-hand side of Slide 9, the trend in criticized assets is again positive. Consequently, we expect the level of both net charge-offs and nonperforming assets to trend lower again in the third quarter of 2011. Turning to Slide 10. You can see that we recorded a provision for credit losses less than total net charge-offs. Specifically, we released $175 million of reserves. This compares with the provision for credit losses that was less the net charge-offs by $50 million in the first quarter while an incremental provision of $25 million was recorded in the second quarter of last year. The amount of the reserve release was primarily driven by the improvement in credit quality of the Credit Card Loan portfolios. Let me now turn the call over to Andy.

Thanks, Richard. I will now just take a few minutes to provide you with more details about the results. I turn your attention to Slide 11, which gives a full view of our second quarter 2011 results compared to the prior quarter and the second quarter of 2010. Diluted EPS of $0.60 was 33.3% higher than the second quarter of 2010 and 15.4% higher than the prior quarter. The key drivers of the company's second quarter earnings are detailed on Slide 12. The $437 million or 57% increase in net income year-over-year was primarily the result of $171 million or 3.8% increase in net revenue and a $567 million increase -- decrease in the provision for credit losses, partially offset by a $48 million or 2% increase in noninterest expense year-over-year. Net income was $157 million or 15% higher on a linked-quarter basis. $171 million or 3.8% increase in total net revenue and a favorable variance of $183 million in the provision for loan losses more than offset the 4.8% increase in expense quarter-over-quarter. A summary of the notable items that impact the comparison of our second quarter results to prior periods are detailed on Slide 13. Items this quarter included net securities losses of $8 million and $175 million reserve release. The items called out in the first quarter of 2011 were the $46 million FCB gain, $5 million in net securities losses and a $50 million reserve release. Finally, the items impacting the second quarter of 2010 are highlighted on Slide 14. They include $180 million credit to equity that was recorded directly as an increase to net income applicable to common shareholders for the quarter. The ITS transaction item added $0.05 to earnings per share in the second quarter of 2010. Turning to Slide 14. Net interest income increased year-over-year by $135 million or 5.6%, primarily due to a $30.1 billion or 12.2% increase in average earning assets, and the benefit of strong growth in low-cost deposits. The increase in average earning assets were driven by expected growth in the securities portfolio as well as a higher cash position of the fed reserve as well as growth in average loans. The net interest margin of 3.6% was lower than the net interest margin in the same quarter of last year, primarily due to the expected increase in lower yielding investment securities and higher cash levels. On a linked-quarter basis, net interest income was higher by $37 million, a result of the $3.6 billion increase in average earning assets, offset by a 2 basis point decline in net interest margin. The net interest margin was lower than the prior quarter, again due to the expected growth in low-yielding investment securities, which impacted the margin by approximately 5 basis points. Offset somewhat by the positive impact of the lower cash position at the Federal Reserve. Slide 15 provides you with more detail on the change in average total loans outstanding. Average total loans grew by $7.6 billion or 4% year-over-year. Excluding acquisitions, average total loans increased by 3.5%. As you can see from the chart on the left, the increase in average store loans was principally driven by strong growth in residential mortgages and total commercial loans, which grew by a very strong 8%, or 7.8%, excluding acquisitions. This was the second consecutive quarter of year-over-year growth in average commercial loans since the second quarter of 2009. On a linked-quarter basis, the 0.6% increase in average loans outstanding or 0.5% excluding acquisitions, was driven by increases in commercial loans, which grew by 2.8% commercial mortgages and residential real estate lending, reflecting a continued modest demand for new loans. Average consumer loans decreased slightly on a linked-quarter basis as the decline in average credit card, home equity and second mortgages and other retail lending were slightly offset by growth in auto leasing and lending. Moving to Slide 16. You can see the growth in total deposits over the past 5 quarters. Average total deposits grew by $26.1 billion or 14.2% year-over-year. Significantly, low-cost core deposits, noninterest-bearing, interest checking, money market and savings grew by 17.1%. On a linked-quarter basis, average deposits increased by 2.5% while our average low-cost deposits increased by 3.7%. Slide 17 presents in more detail the changes in noninterest income on a year-over-year and linked-quarter basis. Noninterest income in the second quarter of 2011 was $36 million or 1.7% higher than the second quarter of 2010. This variance was driven primarily by growth in payments and commercial product revenue, as well as favorable variance in ATM processing, investment product fees and commissions and retail product revenue, which was driven by higher end-of-term gains and a favorable change in net securities losses. These favorable variances were partially offset by lower deposit service charges, which reflected legislative and bank developed pricing changes. And the impact of the Visa Gain recorded in the second quarter of 2010. On a linked-quarter basis, noninterest income was higher by $134 million or 6.7%. This favorable variance was primarily the result of seasonally higher payments revenue; deposit service charges and treasury management fees; higher commercial product revenue; higher mortgage banking revenue, which increased by $40 million, primarily due to the increase in application volume and a favorable change in the MSR valuation; and higher retail product revenue related to lower end-of-term losses. Slide 18 highlights noninterest expense, which was higher year-over-year by $48 million or 2%. The majority of the increase can be attributed to higher salaries expense due to staffing levels, merit increases and acquisitions; higher benefits expense driven by higher retirement and pension cost and staffing levels; and an increase in professional services, marketing and business development expense and occupancy, primarily related to investment projects and other business expansion activities and long-related compliance costs. Slightly offsetting these increases was a reduction in other intangible expense due to core run off and lower loan expense and conversion activity. On a linked-quarter basis, noninterest expense was higher by $111 million or 4.8% versus a seasonally lower first quarter expense level. Finally, the tax rate on a taxable equivalent basis was 30.4% in the second quarter of 2011 compared to 29% in the first quarter of 2011 and 25% in the second quarter of 2010. Slide 19 provides updated detail on the company's mortgage repurchase related expense and the reserve for expected losses on repurchases and make-whole payments. Repurchase activity for our company, including mortgage repurchase volumes and expense is lower than the peer banks due to our conservative credit and underwriting culture, as well as the very disciplined loan origination process. Our company originates conforming loans, about 95% of which are sold to GSEs. Additionally, we do not participate in private placement securitization market. We expect mortgage repurchase activity to continue to moderate downward over the next few quarters. Our current outstanding repurchases and make-whole payment request balance at June 30 was $123 million. Finally, turning to Slide 20. We wanted to update you on the impact of recent regulatory change and oversight in our company. The impact from changes to overdraft policies and pricing, or Reg E, are now fully reflected in our run rate and will reduce revenue by about $460 million per year. The impact of Card Act is also reflected in the run rate and is expected to reduce revenue by about $250 million on an annual basis. Neither of these 2 projections has changed. However, the Federal Reserve issued their final rules establishing a new debit card pricing guidelines late last month, as required by the Durbin Amendment. Under the new pricing, we would expect to see a reduction in debit fee revenue of approximately $300 million on a full year basis based on our current portfolio on growth assumption. The impact will begin in the fourth quarter of this year. We continue to expect to mitigate approximately 1/3 to 1/2 of the reduction in revenue related to regulatory changes. By modifying our checking account products and pricing, many of the changes, which are in process today, as well as changes to our debit products going forward. I will now turn the call back to Richard.

Thanks, Andy. And to conclude our formal remarks, I'll turn your attention to Slide #21. The results that were reported today, once again, demonstrate our company's ability to produce and maintain industry-leading performance in a very challenging environment. We operate in an industry that continues to face a difficult and increasing complex operating environment, including economic headwinds, regulatory oversight, reputation risk and competitive pressures. All these factors have, and will continue to have, an influence and how we allocate resources, manage our operations and capitalize on opportunities for our future growth. However, as our results show, our company has created momentum by adhering to our disciplined business strategy and by investing through the cycle. We've invested in our branches and new markets. In fact, this past weekend, we successfully completed the integration of the First Community Bank of New Mexico and Arizona branches, which we acquired in January. And further, we have invested in technology, invested in innovative new products and services and most importantly, invested in people. And the benefits are showing, through despite the slow to recover economy, are very successful results. We are the top-rated large bank in the country. We're growing our balance sheet including loans. We're increasing revenue and we're managing expenses, while we achieve industry-leading performance metrics. Our business model, are prudent risk management and our quality franchise have allowed us to adapt to this changing environment and focus on our future. We are positioned to win for the benefit of our customers, our communities, our employees and most importantly, our shareholders. That concludes our formal remarks, Andy, Bill and I would now happy to answer any questions from the audience.

[Operator Instructions] Your first question is from the line of Brian Foran of Nomura.

On Durbin, I guess, 2 questions. First, the new impact of $300 million. Was the old impact $400 million? And if so, I guess, why didn't it come down more based on the new fed proposal?

You're correct. The old impact was $400 million. This reflects a little bit higher growth because it's starting a little later this year and we're looking at 2012 in terms of the impact, Brian. So this represents about a 50% reduction from the level that we expect in 2012.

Got it. And then on the flip side of Durbin, is there any potential benefits to your payments business either from a -- with things like the beginnings of a share shift from debit to credit in spending volumes recently. And then, also, on the merchant acquiring side, some merchant acquirers, based on the way they're set up, seem to benefit by not passing through all the reductions. Some don't. And can you just remind us whether that's an opportunity for you or whether you'll pass it all through?

Yes, Brian. This is Richard. Those are both correct. The latter first, it's not as big a number as you might think, but being one of the largest merchant processors and providers in the country, we do have the benefit of assessing exactly where these payments will go and how they'll be allocated back down to the merchant. So there is some pickup there, it's not substantial but it's included in that number that Andy gave you. And furthermore, as you've seen more and more of the customers' reticence to accept certain debit fees and certain projected charges that may be forthcoming, which we're watching very closely and not implementing it at anytime yet. We do think that there will be a shift to people using their credit cards more often, particularly for the rewards and for those who typically pay out their cards every month and don't revolve balances any way. So on both counts, you're right. The former, we've included in our thinking and the latter is an opportunity we haven't assessed yet.

If I could sneak a last one in. The noninterest-bearing deposits on an end-of-period basis, the growth was pretty substantial and much higher than the industry. Is that -- can you just remind us if there's something seasonal or temporary or why that was up so much?

Brian, this is Andy. We saw a strong growth in both our wholesale businesses, our -- both commercial and large corporate companies, as well as our trust businesses. And I would perhaps say that it's a little unusual versus other peer banks. We have a large corporate trust business that generates a lot of DD&A and they did -- they had a very strong quarter.

Brian, it's Richard. I just want to add to that. We use this word, this phrase awfully often, flight to quality. But it shows up really, really strongly at times like this, where corporate CFOs, CEOs, municipality treasurers and things they do value the ratings and having the highest ratings it becomes a benefit that often we can't even assess until the quarter is over to see where people want to place their money under the safety and soundness of uninsured levels. So we're enjoying some benefit to that as well, and I think we'll continue to see that.

Your next question is from the line of Jon Arfstrom of RBC Capital.

Question on the reserve release. You obviously made a bigger statement this quarter than you have in prior quarters. And curious if there's any other categories that are potentially getting better, faster than you expected. And then also curious how we should think about the loan loss provision going forward. I guess, I see more room for this level of reserve release but just curious what your thoughts are.

Yes. Let me take it first. I'll hand it over to Bill for the details. This is Richard. I've said long ago that any reserve release will be a mistake having gone and putting in too much, and that's just because the math is the math. And now you're seeing that our card portfolios, particularly, and other areas are improving quite substantially. I think for the good of this industry, I'm going to make a plea here that we evaluate what will eventually become the risk of unintended consequences, where banks are going to find their credit quality over swinging as the pendulum does. And becoming so particularly good that if we aren't allowed to create some, over the time, allocations for -- unallocations for loan loss reserves, we're going to find ourselves reversing all loan provisions and then building in back when the cycle starts to build again. So we're not to that point yet. Our charge-offs a little over 1.5% are still 50 basis points ahead of where we think we'll be over the cycle at 1%. But I will predict for you that we'll probably fall below 1% before we settle there and reserve releases will continue. But I would hope, through a point, where we're allowed to keep some of that for over the cycle preparation for learning our lessons of pro-cyclicality during this last period. As it relates to more than credit card, we are seeing benefits. There's some lumpy and some more predictable portfolio. And I'll ask Bill to answer those for you.

Yes, Jon. So I mean we did see a solid improvement across all portfolios this quarter. So the go-forward look is positive. Cards, again, they exceed our expectations. It may do that again if it continues to improve. The other notable areas, just -- the C&I portfolio. The position of the corporate customers, the middle market customers continues to be one of real strength and resiliency. So that's probably another area where it's a better-than-positive outlook.

And if you think about it, this is for everybody, the duration of this recession, despite somebody was saying it was over 7 quarters ago, it's not. And the length of this duration of this recession has allowed banks to be very careful for a long time. And in accordance with that, there are a number of lines that -- who haven't been originated now in years that would otherwise been risky. And many customers in their category of unsecured lending have been charged off and haven't been brought back into the market. So I think you're going to continue to see these numbers come down faster than they moved up and that's my earlier point that maybe we're kind of preparing for it, particularly overswing of some very, very good numbers in the next couple of quarters.

The next question is from the line of Betsy Graseck of Morgan Stanley.

Couple of questions on the balance sheet. First, are you pretty much done with the liquidity changes that you've been making over the past couple of quarters, or is there any more to do there?

Betsy, we entered the quarter at $65 billion on our securities portfolio, we would expect to end the year at $70 billion. So we have about $5 billion more to expect over the next 2 quarters.

Okay. And then the loan-to-deposit ratio, 95%. I mean, we just went through a part of that as a function of corporate deposits going up. How do you think about where that loan to deposit ratio should be? Is 95% the right level given what might be flight to quality deposits, or would you seek to bring that back up over time as good quality credits emerge to 100%?

Well, first Betsy, we don't have a target for that. I mean, we have ample liquidity on the balance sheet. We have ample ability to generate more funding if we need to, so we don't really have a target for a loan-to-deposit ratio. What that is, really, is a function of the great flight to quality we're seeing on the deposit side of the balance sheet and the somewhat slower loan demand that we're seeing in the marketplace overall. And what we want to do is gain customers on both sides of the balance sheet both loans and deposits and that's really how we target our business objectives, not any specific ratio.

Then the evidence is in our actions. If you look at our commitments, they're way up. We continue to say that our utilization is flat and it remains flat because our commitments are up more than people are using what they have. But we are well and intending -- we will make as many good loans as we can make. And this bank was actually reversed many years ago. Our loan-to-deposit ratio wasn't even close to this. It's just as a result of what we think is good management of the balance sheet eventually the margin becomes a result of that and the loan-to-deposit ratio becomes a result of that. But we really wanted to play this good deposits and the good loans and we're making a lot of commitments. And so I think we're positioned, when people decided to use it, and you'll look at that as evidence of the fact that we're not setting any barriers or guideposts around loan to deposit.

Then just lastly on the commercial side, obviously, loans grew nicely in the quarter. Can you just talk about degree to which stuff coming from new clients versus existing lines?

Yes, I can. This is Richard. First of all I'm happy to report our C&I growth is all the way from down to small business, traditional small business lines and loans include SBA, it includes small ticket leasing and then all through the C&I more traditional space. Particularly, our best growth in the last quarter came from asset-based Lending, healthcare and government banking. Those are all areas that have momentum and continue to show that. The rest of the general growth came from those areas that are boosted by M&A activity or some tangent to something in that area. And our growing commitments, which are evidenced through the reports, include a higher position in each of the loan-syndicated deals that you will see over time. Both in our loan and high-grade fixed income lead tables, we continue to move up. We've been able to use the leverage of our new corporate bank to put ourselves in much higher positions and syndicated deals. And now we're starting the lead transactions, lead left and lead right and starting to make a difference in being able to not only outsource but actually be the predominant main provider for virtually everything for our larger customers. So it's a good story on C&I. Our loan average balances as we reported were up 0.6% linked quarter, 0.5% adjusted for acquisitions. But it was actually 0.9% end of period -- end-of-period linked quarter. So we see a little bit of momentum in the second half of the second quarter, which is the opposite of what we saw 90 days ago when we've said the second half of the first quarter was slowing. We're not courageous enough to make that a trend yet, but we are suggesting that it's got a favorable bias. And we continue to think our loan growth will be at the levels we've seen before and, hopefully, start to move a little bit more.

And net new is at the same profitability level, up, down, sideways?

As I talked about, Betsy, I would say, versus 3 or 4 quarters ago, it's down perhaps 25 to 30 basis points, versus where we were beginning this cycle. It's actually still up against that and still very profitable transactions. And you can see from our loan, overall loan rates and our deposit rates, that we're still -- that the margin overall is flattish. The only reason we were down for the quarter is because of the securities portfolio and that was actually down more than what we have reported. So our margin is hanging in there pretty flat.

Your next question is from the line of Chris Kotowski of Oppenheimer. Christoph Kotowski - Oppenheimer & Co. Inc.: I'd like to dive into the loan growth questions a little bit more and on Page 9 of the press release. I guess, first of all, both for you and for the industry as a whole, if you look at the categories that are under the most pressure, it's construction and development, commercial real estate and home equity mortgages. And those are the numbers where I thought we'd see it, but with the fed numbers coming down constantly. And is there a bottom there in your mind at which those portfolios stop growing or is that still a long way off?

Well, I'll take the construction and development first. I mean there is -- ours continues to decline. There is some run-off there as the projects that started 2, 3 years ago come to fruition, get online and find permanent financing. But we have seen some -- there's actually pretty good volume in multifamily. Still limited in residential. There's also been a lot of build-to-suit. So it's probably nearing bottom of the runoff, at least for our portfolio. But we have seen some uptick in the commercial mortgage or the stabilized lines. So on a mixed basis, we're probably 6 to 9 months away from that, really, moving around. Home Equity, we've been steady as she goes, just through originating it out through our branches. Every quarter, we originate about the same amount of the same high-quality home equity. So that's been a good steady business for us. Residential mortgages and terms, again, that has been a strong area of origination for what we put on our balance sheet with the jumbled mortgage market and historically low rates. So we've seen good demand in those areas. Christoph Kotowski - Oppenheimer & Co. Inc.: Okay. And then the lease financing as opposed to commercial loans is running down. Why is that?

There was a little bit of some older small ticket portfolios that we ran off. But other than that, if you take that out it's -- overall, the equipment finance area is doing very well.

Chris, it's really more aligned with traditional C&I lending. Christoph Kotowski - Oppenheimer & Co. Inc.: Okay. And then just on the credit card, I mean, it's small numbers, but compared to the fed loan numbers this quarter, your portfolio ran down a bit more than the industry. I would have expected you to be gaining share or is there a story there?

This is Richard. Our year-over-year growth is down about 2%. And that's a little bit better than the average of the larger portfolios we compare ourselves to. More importantly, compared to kind of the peak when each of the portfolios are a much higher a couple of years ago. We're only down 3% and the industry is down more like 20%. So while one quarter a trend doesn't make, I think, you'll find that we're one of the few shops that are pretty close to our peak level because we either bought or acquired portfolios who continue to originate at levels that we didn't have to change because we weren't underwriting at levels we couldn't sustain before. So I wouldn't read into it. In fact, I would say we are probably a little better based on our calcs in the quarter, but it did shrink a bit. And that's a reflection of some of the final venality of the charge-offs finally going away. And our reticence to get into the game of trying to outprice ourselves for the next new customer. We're not going to do that. We don't think we have to and we want to make sure that our growth is the same quality as the portfolio, so we're not going to add some blips and origination that won't be sustainable. Otherwise, we're actually quite satisfied. And for us, it's a pretty big portfolio based on our total asset size. So it's a business we like a lot and we're putting a lot of energy into it and, hopefully, going to see some results over the recovery of the economy in the next year or 2. Christoph Kotowski - Oppenheimer & Co. Inc.: Fair enough. And actually, while we're on the credit card business, I guess, there are considerable news -- press stories about HSBC's portfolio being available for sale and other portfolios potentially being on sale, available for sale. Is that a business that you would consider growing by acquisition?

I won't talk about any specific portfolio but in credit cards or anything, you won't see us pick up a portfolio that's bigger than we are or big enough to change what we are in that category. There's a lot of commercial real estate portfolios out there as well. And I don't want to change the composition of what you all expect from us. I don't want to acquire somebody else's business no matter what the price if it's going to change the way we operate or the way we manage the balance sheet. So anything really big, as it compares to our size, we're not going to do. If it's marginal in terms of size, if it's opportune because it's exactly what we do and it's a chance we can't pass, then we might take a look. And we'll look at anything. I've said this before, where in virtually every due diligence that has any possibility of making sense. But nothing of substantial size where you see coming into our portfolio to change the way our mix or our composition looks.

Your next question is from the line of Matt O'Connor of Deutsche Bank.

If I could just drill down a bit into the capital deployment areas -- things. You talked about buying back some stock in the later part of the second quarter and expectations for buyback for the remainder of the year. Just remind us of what you have the ability to do right now and kind of what your thought process is on buyback looking beyond the next couple of quarters.

Sure, Matt, this is Andy. So we have an authorization as you know for this year, 50 million shares. We started buying back very late in the second quarter as we approach that 8% number in terms of that Tier 1 common Basel III. About 2.5 million shares late in the second quarter. You should expect us to continue that buyback as we move forward. We’re still waiting on the final SIFI buffer. But as we talked about, we're starting at 8.1%. We're generating 30 to 40 basis points a quarter. So whatever that SIFI buffer is, we feel comfortable we've been able to achieve it and continue to distribute at capital for the remainder of this year and in going to next year. And from the perspective of our objectives from a capital deployment standpoint, and we've talked about this, we would, over the time frame expect to distribute 30% to 40% of our range in form of dividends, and 30% to 40% in terms of buybacks so you get to that 60% to 80%.

But just as we think about the next few quarters here, the dividend is what it is, the balance sheet growth obviously is something that's the main focus. And then absent deals try to manage that 8% Tier 1 common or if it ends up being 8.25%, 8.5%, whatever it is, but we should think about whatever over 8% will go towards buyback?

Yes. Depending upon whatever the final SIFI buffer is, which we hope to get some more guidance there. But that would be the correct way to think about it.

Okay. And then what are other capital deployment opportunities, I think you have about $4 billion of trust. I believe half of them are either callable now, or at some point this year irrespective of any changes out of a -- from a regulatory point of view. What's the thought process in terms of retiring some of that given all the deposit growth you had and strong funding overall?

You're right. Now we have $3.3 billion of trust-preferred. Some of it is already callable. You should expect us to act on those securities over the next year. Some of that could happen this year, some next year. I would say of the $3.3 billion, $2.2 billion have replacement capital covenants, so that would also perhaps entail some sort of issuance at the same time. But we will manage to those numbers and manage those securities over the next year or so.

Okay. And then just separately, I've asked you a lot about operating leverage the last few quarters. It was positive, nicely year-over-year or slightly positive quarter-to-quarter. I can appreciate any given quarter there could be some noise and we do have the Durbin impact to digest, but how do you think operating levels will trend going forward from here?

You're right. Any quarter, any particular quarter could have some noise. But as we talked about, we expected positive operating leverage in the second quarter, we achieved it. We're very focused on both the revenue and the expense side of the equation. And we're going to manage expense like we always do in conjunction with what we see from the revenue side. So that's the way we focus and that's the way we manage the balance sheet and the income statement.

So targeting positive?

Yes. This is Richard. We are targeting positive. That's the way we -- that's how you grow the company. And we are well aware that our revenue has been strong enough to account for these last 3 or 4 years. We have really invested in the company. We're real proud of that. As the world continues to be uncertain, we continue to be watchful on our expenses. And the 51.6%, we don't need to have a campaign or a program to watch our expenses, we do it every day. But we are continuing to watch them every day and you can well bet that until we see sustainable, foreseeable growth in revenue. We're going to tend to be very careful on our expenses and be very watchful. So that's one thing you don't have to worry about with this company.

Your next question is from the line of Paul Miller of FBR Capital Markets. Paul Miller - FBR Capital Markets & Co.: Going back to loan growth. And I know you have a lot of questions on it, but we had a lot of banks release earnings already. And it seems to be some banks that can really generate some loans and other banks that are really talking sour on loan growth, with a couple of banks saying, "Don't expect loan growth for the rest of the year." I just want to know, I mean, why the tale of the 2 different institutions? Because a lot of this is driven by the macro part of growth of GDP. Some of it utilization and relationships. But why are we seeing different, I guess, outlooks out there for loan growth from different institutions? I don't know if you can answer that or not.

Yes. This is Richard. Happy to answer it. Couple of things, it's a tale of 2 stories like you said. But first, our story goes back 3 years ago when we started investing on kind of the barbell of the loan spectrum. We brought in a number of new small business lenders and originators and changed the way our branch managers become the center of small business activities and that is showing up in great form. Just our annualized loan growth in small business, if you go down and drill down, it's about 10.6% small business, card is like 19%. So we're getting in on that. And then the same 3 years ago, we started introducing to all of you this corporate bank that we're building out. And it wasn't just for the sake of a having a few more people on the East Coast, it was to really become a full service, top-flight corporate bank that can provide virtually everything our customers need. And that happened too, Paul. So we are getting not only more customers, we're getting a lot more invitations to the party that earlier in the call, we're being now moved up to the top tier of many of these opportunities for both the line and for the capital markets activity, number one. Number two, is we don't have anything running off that we can't replace. So as you know that's probably a 4- or 5-year old story, but it really is important that we just simply haven't had to change any business models from the beginning to the end of this downturn because we simply weren't doing things we could sustain over the course of that more difficult period, and I think that helps. You will see that we don't have a run off portfolio virtually anywhere, and we don't have any business plan that we wish we weren't in or that are atrophying. I think those 2 things, our investments coming to fruition and the lack of having to change the continuity that we created years ago are probably the 2 best reasons our story might resonated differently. I can't speak for the whole industry, but I think that's probably is a good insight. Paul Miller - FBR Capital Markets & Co.: And then on loan pricing, I think a couple of individuals ask about the profitability of these loans because what we've seen -- what a lot of people have sat and told us that there's a lot of price competition that some banks don't want to chase down. I mean -- but it seems like they've built the lenders out there. But are you competing on price or is that something that you feel comfortable competing on?

No. We are being competitive on price but I will tell you the margins are still very profitable. As I mentioned before, perhaps down 25 or 30 basis points, but what we're talking about is on wholesale side and the middle-market side. A 250 spread now is somewhere around 220, so still much above -- well above where it was in 2006, early 2007. So they're still very profitable deals. And deals that we are very happy and proud.

We won't compete on price because with the other levers competing on underwriting, we won't do that, ever. So price is really very important to us and I don't think, based on our efficiency ratio, if anybody could catch up with the quality of the deal is good. And if there's a relationship attached to it. We won't go after a loan individually anymore. Those are the old days, there's no relationship in that.

Your next question is from the line of Ed Najarian of ISI Group.

Just 2 quick questions, maybe so that we can get a little more context on how you're thinking about capital and reserves over the long term. As you think about getting to normalize credit losses, say by 2013 or maybe as you indicated even slightly sooner than that, where would you be willing to take the reserve to loan ratio to in that environment? I think if we can get that sense, we can get a good sense of how you're thinking about reserve recapture.

Well, I'll take a stab of that, Ed. I mean, I've talked about that in the past and what I've said is there was, in the old days, there was sort of a benchmark of, industry benchmark of about 1.5% reserve-to-loan ratio. But even under the rules that are in existence today, there's more things that are under this 114 accounting methodology, which basically says if you have any kind of restructured loan you're going to look beyond the current period, look more of a lifetime loss. So with the issues in the residential mortgage business, in terms of all the restructuring banks are doing, that's just going to raise whatever kind of through the cycle reserve level banks go to. So I think you're going to be north of 2%. It's kind of an industry thing. I don't want to comment specifically on our bank on a long-term basis, but that's how I think about it.

So north of 2% of the industry and your -- well, you just said you don't want to comment specifically, but it seems...

Here's the other deal. This is, in fact, my only point. Every time you make a decision on what your loan reserves will end up based on actions of either add or taking away, your auditors and your regulators have to apply them. And so far, we have never come across where we've got any debates on whether or not we are at the right place. But I think we're going to test the nettle of that whole theory, whichever number you want to talk about, the is no single one ratio by the way. It has never been deemed as the most important. But I think that we're all going to need to collect our thoughts and work with the accounting FASB and everybody else to decide what's the right over the cycle kind of loan losses that we want so we don't visit a SunTrust 1998 SEC issue again. And recognize that banking is volatile. There's some cyclicality to it. And basically now it's stress testing. We offer pretty good idea and have overseers to decide what is the reasonable over the term kind of loan loss necessary level. And I think we should all work toward that and find an answer that's not there today so your question can be answered a bit differently. But that's one of the guidelines we haven't created yet through the course of this downturn. We, for one, are going to work to see if we can help inform that outcome.

Okay. And then just a follow-up. I mean, obviously, the credit quality is continuing to improve. We're getting closer to this sort of normalized environment. How quickly do you think you can get up to that? And your capital ratios are building, how quickly you think you can get the bank to that 30% to 40% dividend payout ratio that you're targeting? Is that next year? Is that 2013 or is it longer out?

I don't know. But I do know this, it's not just -- it's both, it's 30% to 40% on dividend payback and 30% to 40% on buybacks. Any combination of those up to 60% to 80%. I have a goal of getting there as soon as I can. I think first and foremost we have an annual stress test protocol now, which we will respect and move through. And we all don't know whether or not that's going to become more often than annual. But at least annually we'll put in our forecast. We'll stress test the company and we'll submit our request continue more buybacks and continue higher dividend. And over the course, if it was left to our own device, we'd probably get there sooner than I'm sure what the rules will be under our stress test scenario that says, "But what if this happens and we need to withhold certain actions until we're certain that we're beyond this." So for us, I think, it's multi-quarter but it's not and it's not like half decade. I mean, we're just going to get there as soon as we can and based on where I think we are plus what I think our SIFI might be, I think we're going to get there very quickly and we're going to seek permission to be among the first to move forward on both of those to get closer and closer to our final payout. But I'd love to take this if I knew. I wouldn't just withhold it from you I'd be taking other actions with certainty, but right now, we're just going to follow the rules and keep pushing to get as much as we can given our good performance.

Your next question is from the line of Ken Usdin of Jefferies. Kenneth Usdin - Jefferies & Company, Inc.: Just one question on net interest margin, last quarter you'd given some guidance that it came in much better largely the benefit of all the great excess deposit growth that you referred to earlier. I'm just wondering if you can put into context again the additional liquidity build that you're expecting to add, and thoughts on how the margin can track or within that, just your puts and takes.

Sure, Ken. So we were down 2 basis points 369 to 367, quarter 1 to quarter 2. If you think about the 2 basis points, we were down 5 basis points because of the $5 billion additional securities portfolio purchases, which is what we expected. The cash flows of the Fed, however, went down from about $8.5 billion to about $6.5 billion, so that helped us by 2 basis points. And everything else was better by about 1 basis point. So you think about the fact that we expect to add another $5 billion or so in the second half the year, that implies another 5 basis points in the second half of the year of decline. I'm not going to assume anything on cash levels or deposits, but all other things being equal, we have a slight decline and then perhaps a positive bias on our core a few basis points. And that's the way we describe it.

So you just said flattish. Kenneth Usdin - Jefferies & Company, Inc.: Right. So core is flattish because of the combination of still good loan growth and good low-core deposit growth.

Right. Our deposit pricing and our loan pricing has helped us. The net of those 2 is about a 1 basis point favorable and the cash position is about 2 and the securities was about 5 negative. Kenneth Usdin - Jefferies & Company, Inc.: Okay. Got it. Next, I want to follow-up just on credit and commitments. You mentioned that you're growing commitments a lot. I'm just wondering what's going on the pricing side of commitments. Are you changing the way you're pricing for commitments, and is that showing up in results? And the second part of that is just, are your corporate customers changing the way they view commitments in terms of fees are going up or are they just downsizing when they're renewing?

I wouldn't say they're downsizing when they're renewing. I mean, I think, there's more awareness in the banking industry of the cost of having the unfunded commitment out there. So I think that's been a nice balance, of course, our customers wanting lower pricing. So we've seen the commitment pricing hang in there pretty well.

Your next question is from the line of Nancy Bush of NAB Research LLC.

Richard, a question for you. I mean your results have been quite strong this quarter and as you said you're building momentum and sort of a strengthening pattern of earnings, and that's generally true throughout the major banks with 1 or 2 notable exceptions. There just seems to be a bit of a disconnect from what's going on and what we're hearing about the economy. And clearly, part of what you're achieving and what your peer banks are achieving is sort of a recovery from the crisis. But how long can the banks and the economy stay disconnected? And are your earnings indicating that there's a better economy out there than we're seeing?

Yes, that's a good question, Nancy. All of them actually. I would say first of all, my belief is that this economy will eventually come back and it will be corporate led, not consumer led, which is quite unusual. And I actually think that is a reflection what you're seeing in the strong banks balance sheet. For instance, in the recessions past, typically the consumer is the first to blink so they can't withhold making expenditures, doing things because they had basically the home equity, they have the housing values, they had certain other things that they were clear about. And that's not present this time. But we've gone longer and longer and longer than anyone thought from both the corporate and the consumer side of the balance sheet for people holding on and making things last until they can't finally go forward on growth. And I think the corporations are starting to build for that. The commitment line of usage is a reflection of when that finally happens. But the fact that they're building it up, and at a cost, says that they're getting ready to move when there's an opportunity. I actually think that at the highest level that this corporations will actually reduce their pricing to finally attract the consumer into the game and that will all start to create the recovery we're looking for whenever it occurs. So first of all, our balance sheets look like just the economy, people are saving like crazy. They don't know what to do with their money, but it's safer here than anywhere else especially given certain FDIC guarantees and things. There is nowhere better to put it unless it's a stock market and that's iffy and lumpy. So I think our balance sheet growing makes sense. I think at a low interest rates, you'll people not getting very clever on how they invest their money because there's not a lot of choices. So that make sense primarily in low interest deposit or some form of offset to service charges. And then I do think that the small businesses are starting to move forward where they can get some traction. The corporations are starting to building their lines. And it's just the basic consumer that's withholding because there's no other alternative for them. Their credit card is more important to them than their house. And housing may or may not come back for quite some time. So I don't think we're out of order with that. How long banks can put up with this? If it's forever, we're out of business because we don't make money if we don't deploy deposits into some form of loans or lines. But we all know that that's not going to be the case. So it's a matter of just who can hang on the longest. And in our case, we're blessed with this corporate trust and payments business, which creates this wonderful diversification of revenue that isn't based on balance sheet and isn't relying wholly on loans. So those of us that have diversified earnings and strong customer base, I think, can hold on for quite a while longer and still make money until which time it comes back. And I'm not Pollyanna. As you know, I'm quite realistic. But I think it takes another year or 2 for the economy to start to kick in, the corporates will start first and the consumers will follow.

Just one add-on question to that. You bring up the point that the credit card is now more important than the house. Have you modified your plans for the growth of the mortgage business in response to what seems to be a growing aversion to homeownership?

Not yet. And I say not yet, meaning, that we're going to do it but they were not sure what we're going to do. I mean, we're now the sixth largest mortgage provider origination and servicing. By the way 6 is a really good place, don't you think? And so for us, we're going to wait and see on a lot of issues. We have first to wait and see what the happens with the AG settlement with the large 5 servicers. Not so much the financial fees, which for us will be, on any measure, less than 2% and something we can handle. But more of what are the long-term rules of servicing. Number two, we need to understand what the rules are going to be for modifications and foreclosures. If you think about it, Nancy, if we're told that in the future, a high-quality customer for origination and servicing purposes is still a very profitable activity, we'll do it. But if someone tells me that the minute they flip into some form of risk or modification or foreclosure, the cost of compliance and the requirements of going through all kinds of specific steps becomes so inordinately expensive, we're all just going to underwrite at a much higher level and make sure we don't have any of those modified customers. And therein lies perhaps one of the risks of slowing down the availability and affordability of housing. Never mind, QRMs, is something else we need to worry about because they may be a bit too pure in their definition. And never mind the minute rates do go up, and they will eventually, home affordability plummets very quickly, it's exponential. So I do think we have a risk here, the mortgages outside of high, high quality become less profitable to the banks, and I think we're all just going to have to assess what level of volume we want in that respect. But I'll tell you that mortgages are a great core product. They always will be. And people who have a mortgage with you, who you can trust, you will let you have the rest of their business, and that's what we're staying in the game for. So we'll stay where we are. We'll work quickly to manage through the current uncertainties and we'll wait to see what comes out, and we'll make our decision after that.

Your next question is from the line of Marty Mosby of Guggenheim Partners.

I wanted to ask a little bit about the regulatory changes, and we're talking about the unfavorable impact that, if you add the 3 items together it's about $1 billion. And we're now kind of -- have kind of finalized all the uncertainty, so we know what to expect. And now we can start to move towards mitigating some of those issues. I was just wondering how do we kind of see that rolling out if we're talking about a $300 million to $500 million improvement over time to be able to mitigate some of those regulatory impacts.

Well, first, we're already doing some of our mitigating actions by the way we have reconstructed our checking products. We have a product called Checking With Choice, where customers can provide other business that they have with us as alternatives to withhold any kind of fee payment. In fact 85% of our customers don't pay any service charge on checking, but they brought a lot more business to us and that's happening around the system. But those who do pay, have no other opportunities but to create some service charge. And that's part of the mitigation on the checking product. However, there's another piece that will come in the form of either cost to merchants over the course of time as we understand how to unbundle what the Durbin Amendment really means and the cost of providing fraud and immediate guarantees and immediate credit and all of that. And we also haven't really touched the debit product yet. We're not going to. Debit rewards will continue to be something we don't provide going forward, as we haven't for the last 90 days. But in terms of creating a cost per debit capability, we're not at all at that place. We're going to let others go first, and we'll see what comes up. And I don't think the consumers going to really want that. So Marty, that's why we say 30% to 50%. We probably have our hand on 30% mitigation and we have a just big kind of white board for the next 20%, which we're going to take a little while to decide and make a very thoughtful division over the course of probably the next 3 to 4 quarters. So 30% in the books, the other 20% is probably 6 to 9 months away.

And I guess as we see that roll forward what we would see is that -- because we're talking about the way that these activities occur within the products. It will be kind of cent by cent, kind of rolling in over probably an 18-month period, 24-month period.

I would say it would be shorter than that, Marty. I would say in the next year.

Your next question is from the line of Mike Mayo of CLSA. Michael Mayo - Credit Agricole Securities (USA) Inc.: Now that we know the SIFI premium, 250 basis points for the biggest banks, I guess, you don't know your exact SIFI premium. Could that hold you back from doing a large acquisition because now you have not only the cost of the acquisition but the potential cost of having to hold higher capital levels?

No. I mean, a large acquisition will be made first and foremost on the merits of whether it's good for us. It needs to be something that meets all of our thresholds for profitability and accretion. And the fact that, Mike, if it's a really good deal and we have to raise capital we would do it with the expectations that the market would want it enough to celebrate our decision and raise capital with pretty high certainty. The SIFI itself will have no bearing at all on how we feel about acquisition. But you also know that, that bar, as I said, is pretty high for us. And if nothing comes along that meets that bar, then it won't matter anyway. And if they do, it will be such a good deal you all want for it. On the SIFI side, we don't know where we'll fall between and up to 2.5 basis points but we do believe that based on the tiering that we've heard about and all the intelligence we can gather, we're probably looking at a 0.75 to maybe 1.25 kind of a SIFI surcharge. And if that's the case, then we're getting close to that already. Plus a buffer that Andy and I, along said we would put on top of that for this company, it's probably 50 basis points. So once we get that number, we can fill in all the blanks and we're ready to roll. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then switching gears back to loan growth, credit card loans period end are up 1.5%, when the industry is down, 2% to 4%. So what are you doing differently in credit cards that's allowing for growth? Is it a new product? Are you targeting certain regions? Are you taking some more risk, which maybe it makes sense since credit's getting so much better?

Yes. I'll take that. I mean we grew through the cycle we didn't change our underwriting. We grew through the cycle. Most of our major competitors, I mean, if you look at what they did, over the past 2, 3 years, their balance have declined significantly. So they're running off or charging off parts of their business initiatives that they had from prior to the recession. But we did not have to do that. So that's the main difference.

Yes. So Mike, it's pretty much just having a steady core of customers that aren't leaving. We also have -- we do have some pretty good like our FlexPerks program, which we created a couple of years ago when we launched the Northwest Airlines card, it's a remarkable program, It gets recognized by Kiplinger and others. It's among the best. So we're in the game with a really good product, and a lot of our underwriting now is coming from customers to the branches, which creates a very high-quality customer with a lot of stickiness to it. So for us, we expected it to be that. In fact, the fact that it shrinks and all, even over an average period surprises us because we really haven't seen that over the course of this whole recession. Michael Mayo - Credit Agricole Securities (USA) Inc.: What percent comes through the branches?

I'm going to say the origination is probably 20%, 25% for the branches. The rest would come through more of the traditional ways. But you don't see us in your mailbox a lot because we're pretty selective on how we go after our customers in different co-branded ways and in some cases direct mail but it's very targeted. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then last question just going back to commercial loan growth. I mean, 14% annualized commercial loan growth, which is -- I guess, it's good as long as it's of good quality. So I guess, what's the loan utilization rate? I'm sorry if I missed it -- in the second quarter versus the first?

It's down 50 basis points, from 25 to 24.5. First quarter average to second quarter average.

Remember, we just look at the C&I piece. We don't have revolving lines of credit card or leases and things like that. Michael Mayo - Credit Agricole Securities (USA) Inc.: So this is really market share gains? You talked about in the last 3 years that you're expanding beyond your branch footprint for more national loans, you mentioned asset base, healthcare, government banking. So this is -- is that a fair way to characterize, it's market share gains, more lines, more customers?

Bingo.

Right. And Mike, it's important to note when I talk about the utilization going down 0.5%, underlying that is a utilization or a commitment increase of 4.4%. So really what happened was commitments grew tremendously and loan volume grew a little bit less than that but still grew well.

That's right. I just said bingo because I want to see it in the transcript. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then of the $47 billion of commercial loans how much of that would be syndicated loans?

I'd say about 20%, 25%. Michael Mayo - Credit Agricole Securities (USA) Inc.: And what would that percentage have been a year ago? Because it seems like you're ramping that up some.

I don't think it would be substantially low. Michael Mayo - Credit Agricole Securities (USA) Inc.: Is it fair to characterize your commercial loan growth as having been the largest part through syndicated loans?

Some of that, but not necessarily. I mean...

In fact, you said the same percentage a year ago, it's really not. Syndicated, maybe hold levels are bigger, it doesn't mean that we get the outstanding on it. So we are probably participating at higher levels. But a lot of this is brand new customers that are -- I just can't tell you what it's like to be invited into a 100-year-old credit that we've never been a part of. And they bring you in and they let you all the way in. It's really what we're doing in a lot of them. Michael Mayo - Credit Agricole Securities (USA) Inc.: What our typical hold levels these days?

Well, I'm not going to disclose that. But I mean, it varies by the asset quality of the company and by the amount of relationship business we get. Michael Mayo - Credit Agricole Securities (USA) Inc.: I guess, just to close this whole discussion about commercial loan growth and syndicated loans, you talked about being a bigger player in the more corporate lending segment. Just what your sales pitch to get business if you're competing against, say, a money-center bank like JPMorgan, or a foreign bank like Deutsche Bank, or let's say a brokerage firm like Goldman Sachs. And now here's U.S. Bancorp at the table saying give us your corporate business with all the bells and whistles. Why choose U.S. Bancorp versus those other competitors?

Number one is because our ratings, right? That really does weigh heavily. We open the door with the ratings. Then many of our employees out of footprint came from another really, really good bank and they had relationships with customers who they now under all the right legal approaches have now welcomed them to their new bank, which is us. So it's takes a lot of relationship selling as well. And then finally, we've been with customers for a long time but we've never had the capital market capability, which we can now come back to them and say we'd like to be more engaged in this 25-year relationship by being the bank that helps you with you all of your other offerings. And in accordance with that, we'd like to talk to you about our corporate payments, which a lot of our peers don't have and some of the transactional businesses that we've introduced over the many years even corporate trust. So Mike, for us, it starts with the ratings, that moves to relationship, and last and finally, new team on the block and a lot of banks have said well, our customers have said, I know I need more than 1 or 2 banks in my credit because I learned that lesson. I want to look at ones that would be around for a long time and they can check our references and they'll find out customers we've had over the cycle. We didn't change the rules. We didn't walk away and we didn't make it harder for them when it might have been easy for us to leverage a little bit more. I think those references get called out and we get called back.

Your final question comes from the line of Moshe Orenbuch of Credit Suisse. Moshe Orenbuch - Crédit Suisse AG: Two quick things. I guess the first is, overnight, the Basel committee actually put out their SIFI buffer on a global basis. And what I found interesting was that probably only 2 of the 5 criteria would likely apply to you in a significant way. So the question is, I don't know if you have had any discussions with the Fed as to how they are likely to apply the criteria because it would seem, based upon that, you shouldn't be overly worried being anywhere towards the upper end of any ranges anyway.

Right. So we don't have the international exposure. I would say our interconnectedness is limited. You're absolutely right. Size we're certainly well below the top 4 banks so that's why Richard mentioned that the global is at 1 to 250, we would expect to be somewhere at the low end of that if not below that level. Moshe Orenbuch - Crédit Suisse AG: Right. So I guess the follow-up to that is that it doesn't seem like you need to -- I mean, do you really need to wait until you get the precise number for those capital actions?

Yes, you do. Because first of all, we're just a little tiny bank from Bloomington, Minnesota, just remember that. The stress test is a model, and the model requires us to fill in all of the blanks. And so this will be one step, a blank that everyone needs to fill in, in order to move forward with their capital action in the CCAR reports. So we're all hopeful that we'll have some clarity around that when we introduce the second annual input in late fall and get our results in early winter. Moshe Orenbuch - Crédit Suisse AG: Got it. The second thing is you gave some clarity on your thoughts on Durbin, what you're going to do and what you're not going to do. Do you think you have something of an advantage because of the payments business, the ability to as opposed to the stick maybe a little bit of a carrot in terms of offering people other payments products? Is that -- can you talk about that a little bit?

Well, the ability to offer the full service set certainly is something that is beneficial. The fact that we have the merchant side of the equation, as well as the issuance side is also a positive for us. And as Richard said, we're going to be very thoughtful the way we rollout any changes, thinking about the relationship.

Yes. It's a net positive. We just haven't decided exactly what it means yet.

Presenters, do you have any closing remarks?

This is Richard. I just want to thank you all for your continued support of our company. I am quite pleased with this quarter, and I think it starts to get pretty close to something more normal. Our ROE is almost 16%. Our ROA is 1.5%. And those are close to numbers we promised we'll get to over the long period. So while we saw some reserve release, we'll eventually replace that with honest to God revenue. But we're getting very close to something more normal and I hope that recognized by you all. And I appreciate the fact that you've given us these last few years to kind of reconstruct the company and come out as well as we have.

Thanks for listening and as always if you have any follow-up questions, please give me or Sean O'Connor a call. Thanks.

This concludes today's conference call. You may now disconnect.