U.S. Bancorp (USB) Q3 2011 Earnings Report, Transcript and Summary

Richard K. Davis - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Risk Management Committee P. W. Parker - Chief Credit Officer and Executive Vice President Judith T. Murphy - Senior Vice President, Director of Investor Relations and Analyst Andrew Cecere - Vice Chairman and Chief Financial Officer

Matthew O'Connor - Deutsche Bank AG, Research Division Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division Nancy A. Bush - NAB Research, LLC, Research Division John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division Leanne Erika Penala - BofA Merrill Lynch, Research Division Moshe Orenbuch - Crédit Suisse AG, Research Division Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division Marty Mosby - Guggenheim Securities, LLC, Research Division Kenneth M. Usdin - Jefferies & Company, Inc., Research Division Paul J. Miller - FBR Capital Markets & Co., Research Division Betsy Graseck - Morgan Stanley, Research Division Unknown Analyst - Brian Foran - Nomura Securities Co. Ltd., Research Division Ed Najarian - ISI Group Inc., Research Division

Welcome to U.S. Bancorp's Third Quarter 2011 Earnings Conference Call. Following a review of the results by Richard Davis, Chairman, President and Chief Executive Officer; is 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 Time, through Wednesday, October 26, 12:00 midnight Eastern 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 third 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 usbank.com. I would like to remind you that there are forward-looking statements made today during the call and they 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 our call. I'd like to begin by saying that I'm very proud of our third quarter results. The company achieved both record earnings and record total net revenue this quarter, along with positive operating leverage year-over-year and linked quarter. And we accomplished these results while facing the headwinds of a very challenging and uncertain economic environment. I'd like to point out a few of the highlights from our third quarter earnings, which are detailed on Page 3 of the presentations. U.S. Bank reported record net income of $1,273,000,000 for the third quarter of 2011; $0.64 per diluted common share. Earnings per share were $0.19 higher than the third quarter of 2010 and $0.04 higher than the prior quarter. We achieved record total net revenue of $4.8 billion this quarter, which was 4.5% higher than the same quarter of 2010 and 2.2% higher than the second quarter of 2011. Revenue was driven by growth in both net interest income and fee income. Total average loans grew year-over-year by 5% or 4.5% excluding acquisitions. And we realized linked quarter total loan growth of 1.7%. Once again, we benefited from strong growth in average low-cost deposits with balances increasing by 23.2% over the third quarter of 2010 and 4.7% over the second quarter of 2011. Credit quality continued to improve as we posted a decline in net charge-offs of 10.4% and reduction in non-performing assets excluding covered assets of 6.9% on a linked-quarter basis. Our capital position remained strong as we continue to generate significant capital each quarter through earnings. Our Tier 1 common equity ratio was 8.5% at September 30 or 8.2% using anticipated Basel III guidelines, while the Tier 1 capital ratio ended the quarter at 10.8%. Finally, we repurchased 13 million shares of common stock during the third quarter. As a result, we returned 45% of our earnings to shareholders this quarter in the form of dividends and buybacks. The 5-quarter trend of our industry-leading performance metrics are shown on the left-hand of Slide 4. Return on average assets in the third quarter was 1.57%. And return on average common equity was 16.1%, significantly better than the 1.26% and 12.8% respectively that we reported last year. Our net interest margin and efficiency ratio are shown on the graph on the right side of Slide 4. As expected, this quarter's net interest margin of 3.65% was lower than the same quarter of last year and the prior quarter. And Andy will discuss the factors that led to this change in a few minutes. As I mentioned at the start, we achieved positive operating leverage on both a year-over-year and linked quarter basis leading to an improvement in our third quarter efficiency ratio. Our 51.5% efficiency ratio for the third quarter is consistent with our expectation that this ratio will remain in the low 50s going forward. Turning to Slide 5, as I previously noted, our capital position remains strong and continues to grow. Our Tier 1 common ratio under Basel III guidelines at September 30 was 8.2%, well above the 7% Basel III level required in 2019. We have not yet received final regulatory guidance as to the amount of capital we will be required to hold as a systemically important financial institution or SIFI buffer. Given our current capital levels, however, we are confident that we will be able to meet those guidelines through internal capital generation once they are established. In the meantime, we will continue to return capital to our shareholders in the form of dividends and buybacks, eventually reaching our goal of returning 60% to 80% of our earnings. Average total loans outstanding increased by $9.7 billion or 5% year-over-year and 4.5% adjusted for acquisitions. Significantly, new loan originations excluding mortgage production, plus new and renewed commitments, totaled over $46 billion this quarter compared with approximately $37 billion in the third quarter of last year, representing a 25% increase in renewal and new activity. Specifically, total corporate and commercial commitments outstanding increased by 16.8% year-over-year and 5.8% linked quarter, indicating we continue to gain customers and market share, and we are well positioned to meet the demand for loans once our customers are more confident in investing in their businesses as the economy recovers. Although you may think of our middle market and large customers when discussing new commitments, numbers also include our Small Business lending. We just announced this week, that U.S. Bank has set a new company record for SBA loan approvals with a total of $630 million for the SBA fiscal year ending September 30. This represents a 123% year-over-year increase in loan approvals for our company. And SBA loans are just one piece of the Small Business lending that we do. In fact, our branches grew non-SBA Small Business average loans outstanding by over 12% year-over-year. Total average deposits increased by $32.7 billion or 17.9% over the same quarter of last year. Total average deposits grew by $6 billion on a linked-quarter basis or 2.9%. With strong growth in Corporate Trust, Consumer Banking and Wholesale Banking over both time periods, the customers continue to hold historically high levels of cash, viewing our bank as a trusted safe place to turn. Additionally, we've recently published FDIC market share data. It indicates that our company grew deposits significantly more in the U.S. markets as a whole. U.S. Bank grew deposits 15.8% between June 30, 2010 and June 30, 2011 compared with the 6.8% growth rate for the total U.S. market, confirming that we have definitely increased our overall deposit market share. Turning to Slide 7, the company reported record total net revenue in the third quarter of $4.8 billion, an increase of 4.5% over the prior year's quarter and 2.2% over the previous quarter. The growth in revenue can be attributed to both our balance sheet and Fee business lines, all of which have benefited from investments and many growth initiatives made throughout the downturn of the past 3 years, partially tempered, of course, by the impact of recent legislative and regulatory actions. Turning to Slide 8 and credit quality. Third quarter total net charge-offs declined by 10.4% from the second quarter of 2011, while non-performing assets, excluding covered assets, decreased by 6.9%. This marks the sixth consecutive quarter of improvement in both measures. Turning to Slide 9. As the graph on the left illustrates, early and late stage delinquencies, excluding covered assets, have continued to improve overall and are actually returning to pre-2008 levels. On the right-hand side of the slide, you can see that the trend in criticized assets was also positive this quarter. Both of these statistics provide us with assurance that net charge-offs and non-performing assets will trend lower in the fourth quarter. With those statistics in mind, please turn to Slide 10. You can see that we recorded a provision for credit losses that was 78% of net charge-offs in the third quarter. This compares with the second quarter when we recorded a provision that was 77% of net charge-offs. The continued improvement on our credit quality once again supported the reduction in the allowance for credit losses, but the amount of the reserve release was $25 million lower than the previous quarter. The reduction in the amount of the reserve release reflected the fact that the net charge-off levels for several consumer loan categories, particularly credit card and auto loans, are beginning to stabilize. The underlying quality of the wholesale loan book, however, is expected to continue to show incremental improvement in the coming quarters. I'll now turn the call over to Andy.

Thanks, Richard. I'm going to take just a few minutes to discuss some of the details behind our record third quarter results. Slide 11 gives a full view of our third quarter 2011 compared to the prior quarter and the third quarter of 2010. Diluted EPS of $0.64 was 42.2% higher than the third quarter of 2010 and 6.7% higher than the prior quarter. Slide 12 lists the key drivers of the company's third quarter earnings. The 40.2% increase in net income year-over-year was the result of a 4.5% increase in net revenue and a decrease in the provision for credit losses, partially offset by a 3.8% increase in non-interest expense year-over-year. Net income was 5.8% higher on a linked-quarter basis. This positive variance was the result of a 2.2% increase in net revenue and a favorable variance in the provision for loan losses, both of which more than offset the 2.1% increase in expense quarter-over-quarter. With the exception of the $150 million reserve release, our third quarter results did not include any notable income or expense items that would have impacted the comparison of our year-over-year or linked quarter earnings. Turning to Slide 13, net interest income increased year-over-year by $147 million or 5.9%. The increase was largely driven by the $34.4 billion or 13.6% increase in average earning assets, as well as the benefit from strong growth in low-cost deposits. The growth in average earning assets was driven by predicted increases in the securities portfolio, a higher cash position at the Federal Reserve and an increase in average loans. The net interest margin of 3.65% was lower than the same quarter of last year due to the expected increase in low-yielding investment securities and the higher cash balances at the Fed. On a linked-quarter basis, net interest income was higher by $80 million, the result of an $8.7 billion increase in average earning assets and a 2 basis-point decline in the net interest margin. The net interest margin was lower in the prior quarter due to the expected growth in lower-yielding investment securities as the company continues to add liquidity on the balance sheets. The investment securities portfolio at September 30 totaled $68.4 billion. And we expect the portfolio to reach $70 billion by year end. We also expect to maintain the investment securities portfolio at/or around that level for the foreseeable future given current Basel III liquidity requirements. Turning to Slide 14, you can see more detail behind the change in average total loans outstanding. Average total loans grew by $9.7 billion or 5% year-over-year. Excluding covered loans, which are slowly running off, average total loans increased by 7.6% over the third quarter of 2010. As indicated on the chart, the increase in average total loans is principally driven by solid growth in residential mortgages and total commercial loans. The latter of which grew by a very strong 11.9%. This was the third consecutive quarter of year-over-year growth in average commercial loans. And the growth has been improving each quarter. On a linked-quarter basis, the 1.7% increase in average loans outstanding was primarily driven by the increase in commercial loans, which grew by 4.6% as well as residential real estate loans. Slide 15 tracks the growth in total deposits over the past 5 quarters. Average total deposits grew by $32.7 billion or 17.9% year-over-year. Excluding acquisitions, the growth rate was 13.2%. On a linked-quarter basis, average deposits increased by 2.8% or approximately 11% annualized. Slide 16 provides more details about the changes in non-interest income on a year-over-year and linked-quarter basis. Non-interest income in the third quarter of 2011 was 2.9% higher than the third quarter of 2010. This variance was driven primarily by a growth in payments revenue, deposit service charges and commercial products revenue. These positive variances were partially offset by lower trust and investment management fees, principally the result of the sale of our long-term Asset Management business late in 2010, and mortgage banking revenue. On a linked-quarter basis, non-interest income was higher by $25 million or 1.2%. This favorable variance was primarily the result of higher payments revenue, deposit service charges and mortgage banking revenue, partially offset by lower trust and investment management fees. Deposit service charges benefited this quarter from the rollout of our new checking account redesign, as well as higher transaction volumes. A mortgage banking revenue which increased by $6 million linked quarter reflected a strong increase in application volume, partially offset by the unfavorable variance and then the net change in the MSR valuation and related hedge. Recall that the new debit card pricing guidelines went into effect on October 1. Under the new pricing, we expect to see a reduction in debit fee revenue of approximately $75 million in the fourth quarter related to this pricing change, which is consistent with our previous estimate of a loss of $300 million on a full-year basis, based on our current portfolio and growth assumptions. As we have noted in the past, we expect to mitigate approximately 1/3 to 1/2 of the reduction in the revenue related to all regulatory changes by modifying our checking account products and pricing, any other changes to which are in process and partially reflected numbers this quarter. We do not, however, have plans at this point, to assess a debit card fee. Slide 17 highlights non-interest expense, which was higher year-over-year by $91 million or 3.8%. The majority of the increase can be attributed to a higher compensation and benefits expense, occupancy, investments in affordable housing and other tax advantage products, and an increase in professional services, primarily due to the foreclosure review project. The expense related to this project, about $25 million per quarter, is expected to be in our run rate for the next few quarters. Or until the foreclosure review is complete. On a linked quarter basis, non-interest expense was higher by $51 million or 2.1% due to compensation, professional services, and marketing and business development expense. Finally, the tax rate on a taxable equivalent basis was 30.4% in the third quarter of 2011 equal to the second quarter of 2011 but higher than the 25.9% in the third quarter of 2010. Slide 18 is included to provide updated detail on the company's mortgage repurchase-related expense and the reserve for expected losses on repurchases and make-whole payments. Note that we do not participate in the private placement securitization market. We expect mortgage repurchase activity to continue to moderate lower over the next few quarters. Outstanding repurchases and make-whole request balances at September 30 was $115 million compared with $123 million at June 30. I'll now turn the call back to Richard.

Thank you, Andy. To conclude our formal remarks, I will call your attention to Slide #19. To sum it up, we had a very good quarter. We grew both loans and commitments. And the overall credit quality of our portfolio continued to improve. We had excellent deposit growth, and gained market deposit -- market share. We grew both our balance sheet and our fee-based revenues, and attained record total net revenue. We realized positive operating leverage and earned record net income. Our capital and liquidity position remained strong and growing. We were able to return 45% of our earnings to our shareholders, and we once again achieved industry-leading performance metrics. All of this, despite the challenges of a difficult and uncertain economic environment, further demonstrating the value of our company's diversified business model, prudent approach to risk management and sound growth strategies. We're a bank. And we're proud to be a bank. On one hand, we're managing our business through a difficult and complex environment, which includes a fragile economy, increasing regulatory oversight, reputation risk and competitive pressures. On the other hand, we're providing our customers, consumers, small businesses, large corporations, institutions and government entities with the products and services they need to achieve their own financial goals. We're in this together. And we're trying to strive to do our part, not at the expense of others, but for the benefit of all of our constituents, including customers, employees, communities and shareholders. Our company has created momentum by adhering to the disciplined business strategy and investing through the cycle. We've adapted and will continue to adapt to this changing environment with a focus on the future. We're positioned to win during a difficult and strong economic time. This concludes our formal remarks. Andy, Bill and I would now be happy to answer questions from our audience.

[Operator Instructions] Your first question kind comes from the line of Ed Najarian of ISI Group.

A couple of quick questions. Richard, we obviously saw a pretty good across-the-board improvement in credit quality, and as well the delinquencies declining more than we're seeing with peers, which I guess is what gave you the confidence for your fourth quarter statement. How do you look at that in terms of increasing the paces or keeping or increasing the pace of reserve recapture from here? We're seeing a lot of banks that recapture a lot of reserves in prior quarters and are actually slowing that down. You guys, on the other hand, are speeding that up. I'm just sort of wondering how you're thinking about that in your head.

First of all, we're kind of -- we're last to kind of come in to this because our credit quality was better from the beginning. And so, it probably never hit any kind of a peak. We're actually are starting now to come back down. So I think we'll declare the last quarter, quarter 2, the quarter before this one, as probably the peak of reserve release at 175. But you'll still continue to see reserve release because we're not yet at our sustained credit quality levels that we've said over the course, will be about 1% in total charge-offs. Having said that, you all note that we have a math that goes along with the development of our total loan loss provision, which includes a kind of a forward four quarter arithmetic around what's happening to consumers, which is actually showing some stability now, reaching that point. And on commercial, it's much more lumpy, and therefore, we kind of take it at 90-day increments. So that's why we're comfortable that the consumer portfolio continues to show improvement with the delinquencies, forecasting improvement in total charge-offs. That will continue to kind of slight soft landing, if you will, into something more steady over the course of time. But commercial, Commercial Real Estate are still lumpy and higher than they will be over the course, which also tells me we're not yet where we need to be. Going further, as I've told you before, we think this is about a 1% net charge-off over the course company, primarily because we have such a significant credit card portfolio. And I do predict that we will go below 1% in total charge-offs before we come back to it as we kind of overswing the economy will take us to that point. I've been pleading with the regulators and the accountants to let us, as banks, not miss this chance to soften the impacts of counter cyclicality and allow us to determine what our over-the-cycle minimum level of loan loss provisions needs to be. And don't ask us, don't force us to go beyond that, so that we all have to start building back loan loss reserves a couple of years from now when we swing back. I'm not getting a whole lot of resonance, by the way, on my plea, but at least I'm still out there asking for it. But you can see this company's moving down toward the 1%. It doesn't happen in one quarter. You'll see the steady pace we have is probably what you could estimate over the next few quarters. And so reserve releases will continue until we hit that point where we think we've got a sustainable level of loan loss reserves.

Okay, thanks. And then, to follow up, you talked about getting to that 60% to 80% total payout ratio in terms of buybacks and dividends. Is that something -- I know you've got to go through the next round of capital assessments with the Fed, but is that something that you hope to get to as early as next year? And what is the kind of -- along with that, what is the kind of range of dividend payout ratio, you're hoping to get to for next year?

Yes, there's a lot in there, right? And you said it first. I have to go through all the prescribed gateways to get what we want. But what we're going to be asking for in our stress test for the CCAR, which will happen at year's end, is an increase to our dividend that stays within our committed 30% to 40%, and moves beyond what was the last year's first CCAR test of maximum 30%. But we're going to stick with that 30% to 40% as a range against that we think is a reasonable forecast of earnings for this company. And of course, they'll put it against the very tedious stress test, which we do ourselves, by the way, and we can withstand a lot of stress. And on top of that, we'll let the other 30% to 40% move up as we do the buybacks, and we'll seek additional permission. Although, Andy will tell you here in a second, we have plenty left in our current permissions. And then what's left over, as we put back into the company 20% to 40% in the form of organic investments, which you've all allowed us to do over the last few years, and/or acquisition opportunities that follow the same time that we've been doing over the last few years. The difference only between now and what we said, I don't know, 5 years ago, was it used to be 80% to shareholders and 20% to the company. Now we've given it more 30% to 40% of buybacks, 30% to 40% of dividends and 20% to 40% of what could be investments that we don't want to miss through this challenging time. But I hope to get to 60% to 80% as soon as I can. And I suspect that if I were left to my own devices, I'd get there a little faster than I'm going to be allowed to. But next year will be a good target. And we'll see how close we can get. Andy might just cover a little more color on the remaining [indiscernible].

Right. So Ed, we are at 8.2% Tier 1 common Basel III and above the level impact that we think we need to be without the specificity of the SIFI yet here. So yes, we do expect to get back to that level in 2012. And we still have some buyback capacity remaining here in the fourth quarter.

Okay, thanks. That's really helpful. And then, just finally, any outlook in terms of this -- short-term outlook in terms of the net interest margin?

Yes, this is Andy again. So the margin decrease on a linked-quarter basis was entirely due to our securities purchases. And on a year-over-year basis, it was entirely due to our securities purchases and the cash position at the Fed. You strip those 2 things out and we're basically flat. So we expect to continue to have securities purchases here into the fourth quarter, getting into that $70 billion, probably in the neighborhood of $3 billion or so. Simple math, is every $1 billion is a basis point. So I would expect the fourth quarter to be somewhere between 3 and 6 basis points down, depending upon the cash levels and the securities I just talked about. And however, I would also say that I would expect net interest income to be up, just the same phenomenon you saw this quarter, which was margin was down but net interest income was up.

And then I'll add to that. History lesson for everybody, not that you asked for it. As you recall, about a year ago, we were given guidance by our regulators that our capital was quite sufficient and quite strong as it relates to the Basel III levels of total common. But at the same time, we were given the nod that we need to move up on our liquidity operation to have this balance sheet more fortress-ready. We've done that. And we're actually quite proud of that. And I don't think you heard us ever even indicate it as a problem for this company to achieve during which time we've been doing other things. We're glad we did it. And I think the timing was quite good. I'm glad we're virtually done with that liquidity build. I think you'll see that it's a good strong balance sheet with much more liquidity than before. And I'm glad we did it in the last year when probably it was more financially beneficial to do than to have to start it now. So with that as a backdrop, we really positioned ourselves. And every single way we've dealt with suspenders on, being a very strong company able to basically handle any kind of downturn that comes along. With that, we're hoping we'll get the permissions from the Federal Reserve to be recognized for that and allow us to move forward.

Your next question comes from the line of Brian Foran of Nomura.

Can I ask a couple of questions on cards? I guess first, there's a lot of concern that if industry starts to grow again, yields will get competed down and your card book is up. It looks like it's up a little bit more than normal seasonality, if I'm reading it right. But your yields are up as well, and I'm talking on a quarter-over-quarter basis. Is there anything -- I guess what's driving the yields higher?

The yields have a little bit to do with the revolve rate, Brian, and then a little bit also to do with the reserve for credit there, which is improving on the interest margin. So you think about the interest reversals. There's a reserve established. And as credit gets better, that reserve gets better. So that's a little bit in a factor. I think if you strip those 2 things out, the margin would be relatively flat.

I guess, going forward, is the old 9.2% to 9.3%, the run rate? Or is the new 9.6%, the right run rate to think about?

A little bit's going to depend on the revolve rate on a go-forward basis. But I expect it to moderate down just a bit because, again, we did see some improvement in that reserve component that improved the rate this quarter.

And then you referenced the 1% normalized charge-off rate for the company, which at least when you first presented it back at the investor conference a year ago now, had a 5.5% credit card charge-off rate. Do you still feel like that's the normal level? Or obviously, we're going to be below that for a while here. Is there some argument that the new normal for cards is lower?

Yes, we're certainly not a 5.5% credit card. Right now, you see us at the mid 4s in the credit card. And I think that's probably that kind of sustainable level you can expect. It will bounce up and down depending on the number of days in the quarter and even now on your spending trends. But I think you will see, of course, all of our portfolios, they're just at the high quality. We don't have any book of prime in our portfolio. We have some joint issuances with people like Kroeger. And we have some co-branded cards with some REI and others like that. But they perform very, very well. So Brian, I think you'll see us over the course have a boorish kind of a credit card charge-off. But we'll continue to grow that book. And it does affect the total 1% because it's a fairly significant part of our total charge-offs. But we think that's the right mix and probably the right quality to go after. And we're not going to get greedy and try to reach further back and change the underwriting that we have under credit cards, as the world gets maybe a little bit better. We're going to stick with our old knitting.

Yes, and I'll just add. Remember the 1% was a -- more of a through the credit-cycle type number. So it's not at any given point in time now or a fairly stable unemployment. So that's why we're seeing the good results right now.

By Bill Parker. Professor Bill Parker.

If I could ask one last one on the same theme, I mean, just the overall competitive environment in cards, as well as the data you get to see from a spending perspective in terms of the health of the consumer, how would you characterize both?

I was looking for Bill. I thought he was going to answer. I would tell you that we've got a couple of things that give us insight to the consumer behavior. They -- first of all, Brian, are -- there has been encash [ph] on the deposit side, and they're very, very careful using their money on the credit side. So we expect to see same-store sales be a pretty good proxy for the kind of increase we have in the balance sheet, as the season starts to heat up for the holidays. And then they'll pay it back down. People are using their cash before they are using ours, so that's why you'll see kind of a moderate use of credit cards. But our insight says, that those that are creditworthy are actually pretty comfortable with their ability to use the charge card and to pay it down pretty quickly. And we don't have anybody know our portfolio that isn't creditworthy because we didn't have, in the first place, and anybody who's on the margin has since charged it off and haven't underwritten anybody new since. You won't go to your mailbox and see a ton of U.S. Bank direct mail. We do a lot of this origination through our direct customer contact, through branches and call centers and online. We deal mostly customers we know or have other relationships. And if we do extended it, it’s through this partnerships with other very high-quality companies, then we prefer this sense of trust. As you may have seen the other day, we introduced a new idea with REI where a customer can go into REI, make application for a credit card online, get approved while they're in the store and use the actual transaction as a credit line. Those are the kind of customers we'll deal with. But we will only deal with them at a very high credit quality level, so that we're not reaching down to try to grow the balance sheet at the risk of putting some less prime customers on in the future. I think you'll see -- what you see is we're a nice trajectory. Everything in our company, you all, is going to be a nice, steady, slow methodical recovery down to that average of 1% credit charge-offs over the course. And you'll see us sit there for quite a while because we're going to continue to underwrite at that level.

Your next question comes from the line of John McDonald of Sanford Bernstein. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Richard, really, just to clarify the commentary about the capital return. Last year, the Fed said requests for dividend payouts north of 30% would be given extra scrutiny. Did they give any informal cap that last year on like the total return that, that should be limited to 50% or anything like that? You noted that you had done about 45% this quarter, total return?

Yes, John, they did not. Last year, in fact, the buybacks were silent. The entire issue last year was a maximum 30%, for what we included is common and preferred dividends, which is as you recall, which is why we want to leave a little room and then go right to the top. We haven't got any new guidance since then either, but we have had permission to move forward on our buyback plan, which is obvious because we've been doing it. So that kind of came inter-test. Now as the new test comes forward, I don't have any guidance on what they're going to propose. But given that they've let us get up to that 30% in dividends and approved us to do some actions on buyback, everything we did this quarter was within permitted balance. And 45% is the result but it wasn't a target. It just happened to be what we got to. I'm hoping that our current performance and our future stress test guidance will give us permission to at least go from this point now forward from 45% and up toward that 60%, dated [ph] that we spoke up with that. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: And did those approvals around the buybacks that came subsequent to the dividend approvals, is that kind of a quarterly thing? Or is that just -- okay, you could do this for the rest of the year?

That was a full year view, John, so we had a full year projected buyback plan consistent with the capital ratios that we set out in our plan, and that was approved as part of the overall CCAR.

So John, what happens -- each company did it different because the rules were so vague last time, and I'll just give you an example. We put a proviso in our stress test plan that said, if and when we get to a certain capital Tier 1 common capital level, without any of us knowing what the SIFI buffer would be. In fact, a year ago I don't think that phrase was even out there yet. But if we get to this point then do we have permission to begin the buyback if we never go below that stated level? And that will be proviso that said yes. And as it -- we turn out, we actually got to that point sooner than we thought. And we also have permission to move sooner than we originally thought, and we got it. So kind of the interim test but it had to be kind of set up as part of the structure in the first round. And so lesson learned, is we'll make sure we set a lot of options for us to negotiate with them in the second year once we pay out the CCAR in January. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Right. Okay, got it. That's very helpful. So question for Andy on the NII. Outside of the impact of securities purchases, how have you been able to keep the NIM pretty flattish at a high level amid this kind of low and declining rate environment? What are some of the puts and takes that allow you to do that?

Sure. So first of all, the margin on the loans has been relatively stable the last quarter. We had seen a bit of a decline in quarters 2 compared to prior quarters, but it stabilized a bit. A second, is we still have some room on the deposit side of the equation. Across both wholesale and consumer deposit pricing, we've moved down a little bit, consistent with the marketplace. We're still in the middle of the pack but we had a little room there. Third is we continue to have -- we have had and continue to have opportunity in terms of debt maturities and then the reissuance of debt. And we'll continue to see that in 2012. And so all those factors are part of the equation that gets me to that sort of 3 to 6 basis points. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then maybe one for the Professor. Bill, do you -- what do you make of the flattening out of the home equity delinquencies? And that some other banks are kind of -- sound a little worried about mortgage credit double-dipping and turning in home equity. Charge-offs may be going up. But just -- can you give us your view there?

Yes, this is -- there's definitely a little seasonal pressure this time of the year. So that would be normal. I mean, our state, pretty flat. We're further and further away from kind of the originations that took place pre-'09 -- or pre-'08. And so we continue to work through whether it's modifications or just attrition of the older portfolios. So that gives us some confidence that we'll continue to see improvement. It'll be modest going forward because they're, obviously, with the home prices the way they are, there's still a fair amount of pressure on those old vintages. But we have good modification programs that we employ for all the products, so.

John, this is Richard, in the OMG category, don't forget, we had this amazingly high-quality credit portfolio for home equity. I mean, if you look at anything, we didn't grow a lot in the first half of that 2000s. It was home equity. I mean for our size, you had to stick out. Where were you guys, because you weren't growing at that, fast. We did it through people we knew. And our customers are primarily people that we have other relationships with. And our seconds, in many, many cases follow our own first. And that people where we follow someone else's first, they're underwritten at very conservative levels. So that is -- of all the portfolios, it's probably our best, most pristine portfolio in the original stress test of -- in April 2009, our numbers were so low in the forward view, they asked us to take the next bank's -- next number because they couldn't model our number being that low. So it's a point of pride for us that we have really high-quality home equity. And our branch originators understand that we will only do those kind of home equities. So you will see very little volatility in risk as it compares to our peers. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: And even with a little bit of pressure on severity from the home price, do you still expect the charge-offs to grind down both there and in the first mortgage book, too, Bill?

Yes. Slowly, but surely, yes.

Underwriting comes through in the end.

Yes.

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

Two questions, one on Durbin and then one on Commercial Real Estate. On Durbin, you mentioned that you expect to be able to offset about 1/3 to 1/2 of all the regulatory issues including Durbin. I'm guess I'm just wondering over what time frame and how much of that is in the run rate? You mentioned some of it was?

Yes, okay. So let's do our setup here. We think that those 3 categories where the Reg E activities, Card act and now Durbin. And for that total we're expecting to reach -- achieve a 30% to 50% recovery. We're, right now, Betsy, at 30%. That's in our numbers today. You get to 50%. I'm going to take all of next year. And the reason I'm going to do that is because we're not going to rush to judgment, we're not going to make a mistake here and we don't have to. And so right now I'm making something very clear. We will not get that $75 million that we started the quarterly loss for Durbin beginning this month. We're not going to try to hive it back this quarter or even in the first quarter of next year. We'll start working our way toward different ways of charging for services and customers are willing to pay for. We've got a great laboratory of watching a number of banks that have been doing the debit fee and we'll learn whether or not that's inelastic or elastic. We'll find out if customers complain and move, or just complain. We'll take all that in time and we'll make our decision. But over the course of now, to the end of next year, we will have achieved 50% of that total cost of loss, but it will take the rest of the year to get the extra 20%.

Okay, and that's -- so it's about $1 billion in total for all 3, and so you're talking about that $200 million or so incremental?

Yes. Yes.

Okay, and then on your slide deck, you talked about Commercial Real Estate. Obviously, with all the other asset classes and credit quality on Page 25. So I just wanted to see if we could dig in a little bit to how you're managing down the Commercial Real Estate portfolio in terms of the NPLs there. I mean, obviously, you had a big improvement in construction NCOs this quarter. But when I look at the last couple of quarters, the NPL decline in Commercial Real Estate looks like it's coming down pretty similarly, a little bit less than in net charge-offs in that asset class. Is this just something that you'll charge off and that's how we're going to down NPLs over time? Or is there something else going on that could accelerate that?

No, I mean it'll stay lumpy going forward. But it's on a overall downward trajectory. I mean, the overall construction book continues to decline. I think it's down 20% approximately year-over-year. So as we -- if the portfolio, the higher risk construction book continues to attrit, and as we work through the different deals, either we'll do loan sales or take the charge-offs, and just otherwise it was all the assets.

Okay, and as the current run rate of about $100 million or so decline in NPLs q-on-q, what you would expect to continue or?

Well, if you look at -- there's a chart in there, and it's going to be lumpy. But overall, it's on a downward trajectory.

Okay, and then you could also talk a little bit about the performing TDRs? You indicated that, that was due to accounting. But maybe give us some color about whether or not you dealt with them differently because of the accounting or not?

No, we don't know. We don't deal with anything differently because of the accounting. I mean, there were 2 things we did. We -- historically, we really only looked on the commercial side at those over $5 million and tagged them whether they were TDRs or not. Now we basically go down to 0. We have basically some formulas we run against the below $5 million to identify TDRs. And then we used to use internal rates for determining market rate. And now we use an external benchmark, which is a little bit higher. So -- but it doesn't change how we handle customers.

Right, and they're all performing -- so you don't have any non-performing TDRs [indiscernible]?

Yes, there are definitely non-performing TDRs, too. But those have no impact because you're already doing a 114. So there's no financial impact at all there.

Our next question comes from the line of Erika Penala of Bank of America-Merrill Lynch.

My first question is the follow-up on Ed's question. You seem very conservative with your tone with regards to reserve release. But then, when you were answering John's question, you were very confident in the strength of your underwriting. I guess, is what's missing in the equation in terms of what's driving for your conservatism, the continued uncertainty in how the economic recovery plays out?

No. It's the math. I mean, we're at 130 -- what are we at? 131, and we're going to be at 100 basis points. So as you start to slide into that new run rate, you don't have that much left. And so I hope we actually get to the point where the reserve release ends. It's the only thing I don't like about our numbers because it's not sustainable, repeatable and consistent. So it'll come down just like a nice, slow slide into home plate. I mean it's just going to be steady and methodical, and eventually, our loan losses will equal our charge-offs. And we'll be back to normal. I just hope it's actually sooner than later.

Got it. And just a follow-up on the margin, we saw an 18 basis-point compression on commercial yield. I guess, in terms of looking forward, do you expect a similar level given what you're seeing in the pipeline, given what you're seeing in terms of pricing? Or do you think it'll be a little bit lower from here?

This is Andy, Erika. That decline is really a function of the decline in rates overall in the marketplace. So when I talk about spreads, I'm talking about both the rate on the loan as opposed to bunding cost in that loan which stabilized a bit in the third quarter. So on an absolute basis, it's down because rates, on a relative basis, it was down a little bit, quarters up to a quarter 2 and stabilized a bit, and right now, I see stabilization.

Your next question comes from the line of Paul Miller of Friedman Billings. Paul J. Miller - FBR Capital Markets & Co., Research Division: On the mortgage banking side, it's one of these areas I think you have been growing market share, and even though it's still relatively small. But with Bank of America getting out of the correspondent business, is that something you guys are taking a look at? And secondly, can you talk a little bit about what type of mortgage loans you're putting on your books? I don't know if you answered in the beginning, but we've been running around this morning. Just what type of loans your portfolio-ing?

Right, so first, I'm going to answer your second question first. The loans that represent the majority of the increase are in 2 categories. Number one is a product called smart refinance that's originated at our branches. It's a refinancing product for high quality core customers that come through the branch. The second category would be prime jumbo loans originated through our mortgage banking group. So these are not Freddie and Fannie qualified, but again, they're high-quality loans. And then that smart refinance, I would note that the term of those is probably in the neighborhood of 15 years or less, so they're not long-term 30-year mortgages, that's the principal area. In terms of the mix of businesses and the way we originate from a retail and correspondent basis, I would not see a significant change on that going forward. Paul J. Miller - FBR Capital Markets & Co., Research Division: On the smart refinance, what type of yield do you give them?

Again, I'll go from a spread basis because that's how I think about things, and so in the neighborhood of 200-plus basis points. Paul J. Miller - FBR Capital Markets & Co., Research Division: 200-plus basis points. And most of its 15 years or less?

Yes, 10 to 15, yes. Paul J. Miller - FBR Capital Markets & Co., Research Division: Okay, and on the other issue, on your deposits, like a lot of the banks are collecting a lot of deposits out there. Can you talk about where that's coming from? Is it mainly coming in retail or through your business relationships?

Paul, it's coming everywhere. So first on the consumer side of the equation, we have a number of products, smart savings and a number of different products that have allowed us to gain market share. Richard talked about that. You saw the FDIC data that indicated that. So we are absolutely gaining market share on the consumer side of the equation. On the wholesale lot side of the equation, it's additional cash being held by corporations as they're shrinking the balance sheet, additional market share. And then finally, on the corporate trust side of the equation, we continue to build that book also, and that is adding to our deposit categories particularly DDA. So we're seeing across all 3 categories, Corporate Trust, Wholesale, as well as Retail. Paul J. Miller - FBR Capital Markets & Co., Research Division: And just on a percentage basis, is it an even mix across 1/3, 1/3, 1/3, or is wholesale like 56% of -- then consumer, 20% to 30%, just on that mix shift?

Yes, so wholesale's the majority of the increase. And Wholesale and Corporate Trust is the majority of the increase that you see in DDA balances, which is a big piece of the increase. And I would say the remainder is sort of 50-50.

Your next question comes from the line of Moshe Orenbuch of Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: I was wondering if you could kind of talk a little bit about -- given your comments about credit quality, particularly, as they stand in contrast to some of the larger banks being a little more conservative, are there areas in which you think you're going to be taking even more market share, kind of over the course of the next 6 to 12 months from a loan perspective?

Yes. We're taking it now. You'll see it in the wholesale side. And it'll be always in Small Business to Middle Market up to Corporate. Starting backwards, Corporate Banking, as you know, we are getting, for the last few years, since we've really established our national Corporate Banking capabilities, we've been getting a lot more bites to the apple. We've been invited into more syndicated deals. And now, over the last year, we're now leading a lot of deals and leading syndications and playing the lead partner for these companies, which is a big step. And then, as you might have thought through this, the international banks are now not typically showing back up at the same level they were when there's a renewed syndicated deal. And so we're not only invited in but we're invited up. And so we're finding a lot of market share gain in deeper relationships and more customer -- more position with customers that are really, very impressive-like corporate -- top Fortune 100 kind of customer. The Middle Market, they really seem to appreciate the quality of the balance sheet. They like our top ratings. And those companies are sophisticated enough to know they want to put their money and get their line from a bank that's really safe. And we've been invited to do more business with them, and particularly, non-credit businesses come along with the loans that we've had. And through Bill's good work, we've taken higher positions on whole levels for customers that we really feel good about. And on Small Business, we've been growing that, Moshe, like in anywhere, 9% to 12% in origination year-over-year, whether it's SBA or business lines or business loans on the Small Business side. And we're getting a lot of new bites of the apple there because the company's focus on Small Business in the last 2 years has been yielding a lot of benefits by changing the course of what used to be a bank that did Small Business when it was available, to kind of leading relationships now with Small Business, I mean, getting all the ancillary deposits and key businesses to go along. So it's going to be anything wholesale. You're going to see it. It's in our numbers now. We're going to see it even more in future. And I'll just recap by saying the opportunity presented by some of the international banks deciding to change their posture is going to help a lot in the next year. Moshe Orenbuch - Crédit Suisse AG, Research Division: And just one other, kind of, separate question, that is, I think when we've talked in the past, there have been some thoughts about acquisitions outside of the banking space. And it's been very quiet there. What -- I mean, what can you tell us about the environment? Are there conversations or the things we should be looking for? And what -- what are your areas of focus on that?

And you mean outside of the traditional like? Moshe Orenbuch - Crédit Suisse AG, Research Division: Traditional commercial banking, yes.

Yes, okay. For us -- you just quoted the Corporate Trust and Payments businesses. And you'll see more of what you've seen so far. We keep looking. We'd love to grow those 2 businesses. The best capital use or low capital users, they're great fee businesses. The cost of entry is almost 0 for those who aren't in it. And for those who are, it's a scale business. So we're not slowing that area at all. We're not seeing perhaps as many deals to show you, but it's not for lack of looking. And if I have my way, you'll see continued branch and small bank deals. You'll see continued Corporate Trust deals. You'll see portfolio purchases and you'll see opportunities for us in the payment space, which might include more mobile banking activities. So what you see is more what you're going to get. And we're going to do our best to keep filling the pipeline with those kind of small deals that come together in a nice way in the end.

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

Just a quick follow-up, how much of the commercial growth and the growth in commitment is driven by the wholesale and large corporate business?

A big part of it, and that's part of the reason why I started -- I mentioned to Moshe's question backwards. Let me just say that as I look at the wholesale -- traditional wholesale, which is the larger Middle Market, Corporate and Commercial Real Estate, our line of credit continues to grow. Our utilization is pretty flat, but it's only in fact a little bit down. It's because we keep growing commitments by more and more. So on a book of about $70 billion of commitments for those larger corporate side, we grew in linked quarter $4.1 billion in commitments. So $70 billion going to $74 billion. The loans themselves went from, like, 17 to 18 of about $1 billion. So we continue to have nice growth of 4.6% on that book, linked quarter on loans, but 5.8% linked quarter on the same book for commitments. So that also says people are positioning to continue to be ready for something when they're ready. And we're getting robust business across the board. I would say if I had to split down the large CRE in the large corporate versus the middle market side of it, it will be probably 2/3, 1/3. So it's really happening at the corporate level, at the highest-level most.

And then just a follow-up on a comment you just made, you talked earlier also about the confidence of customers and how utilizations are relatively flat and you think you need confidence to lead the stronger balance growth. I'm just curious if you could give us some, maybe qualitative stuff on what your customers are spending and how much of an issue is the confidence question?

Yes, so one of the stories of the U.S. Bank this quarter would be, that most of the new opportunities in Wholesale Banking is driven primarily by refinance activities. And if we were only refinancing our own customers, there wouldn't be any balance sheet growth. In fact, there might be margin deterioration. But the best proxy I have for you, is we are bringing in other people's customers and refinancing new credits for us, someone else's credits for them, at rates that are sufficient enough for us based on our cost of funds to be good. And so the majority of it, it doesn't matter which of the category they talked about, has a lot to its refinance activities, and coming to us. It can also be in the form of a refinance. And that's getting a higher bite of the position, or, in fact, leading the positions. So by far, John, that's the majority of what we're seeing here. It's really market shift. Otherwise, its customers who are either in M&A. And we're getting a bigger piece of that because more often than not, our customers on the M&A side of the transaction, or in many other cases, we've got like good ad businesses. In the Community Bank, we've got the Small Business growth I've talked about. It kind of fills in the rest of the gap.

Next question comes from the line of Marty Mosby of Guggenheim.

Question is when you do your Basel III calculation and you're only taking out from 8.5% to 8.2%, are you giving yourself any credit for the better-than-performance on their credit, that you actually can get a positive impact even though a lot of the legislation says we're not supposed to eventually get that? But are you giving yourself any credit for that as you go through that calculation?

No, is the short answer because that's Basel II. And our constraint is actually Basel I/III. Our Basel II numbers are actually higher than our Basel III numbers, so I don't get to use any of that credit.

Okay, and then on what we're seeing in the commercial growth, as we're seeing really less access to market, less competition from alternative providers of this, is part of what we're seeing, especially with your commercial loan growth, just maybe the first sign of what may be a new paradigm for banking, that the pie may be smaller but we're going to get a piece of it as we see business start to come back?

Yes. I mean, I can repeat your answer, but that's exactly what we're saying.

Okay, and I just think your positioning in the commercial side, that's the first place we're going to see it because there are refinancing going on. And as they move back into the banking system, you're getting the benefit of that. Eventually, that will roll down in the Middle Market, I guess, and also some of the -- even closer to smaller business?

Marty, that's right on. In fact, what I just told the numbers back to John and Moshe -- I mean, our utilization of those large per customers is like 24%. I mean -- and we just keep building more customers, and more opens to buy. I mean, when the recovery hits, then it will. I can't even tell you how much we have in terms of opportunity for our loan book to grow without adding one more new customer because we're having so many that are positioned eventually to take and use our balance sheets. It's pretty good stuff.

The next question comes from the line of Ken Usdin of Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: A follow-up question just on securities, yields and deposit pricing. I know you talked about these expectations for slight margin compression. But I'm just wondering, underneath the purchases first on the security side, the pieces that you're adding for liquidity, can you just give us come color what's going underneath in the securities yields? And do you expect that to hold up as you continue to reinvest going forward?

Yes. So Ken, we are -- first of all, I should highlight we ended the quarter at about $67.5 billion. And we mentioned in the notes and in the call that we're going to probably end the year at $70 million, and sort of be in the holding pattern then because we're going to be very close. So the level of build is -- that remains is not significant, so I'll start that there. Secondly, from the purchases I would say, it's about 2/3 or 3/3, 1/3 or one-quarter floating. And the fixed is probably just around 2%-plus. And the floating's probably LIBOR plus 135 to 140. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay, got it. All right. That's helpful. And then secondly, the all-in deposit costs and the all-in liability costs were stickier for you guys relative to a lot of other banks. I know you talked about the ability to continue repricing the right side of the balance sheet lower. Can you help us at all think about how much is left either in deposits or what you're doing on the deposit side? And then also remind us about what you may have benefits from in terms of lowering the long-term debt costs?

I would say a good deal of the deposit pricing opportunity is reflected in the third quarter. There might be a little bit more opportunity but I would not call it significant. We have between $7 billion and $10 billion rolling of over the next 12 to 15 months on the debt side of the equation that will offer us additional opportunity. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. And is that -- so a lot of banks are talking about just the ability to reprice the entire deposit complex lower. Obviously, with your interest checking and money market savings at 14, there's not much more you can go. But can you give us the amount of, kind of, where your go-to rates are on the CD side? And what the roll-off of the CD book is, kind of, like you just did with the debt book?

Yes, the CD book does represent a repricing opportunity, both on new CDs as well as renewals. But just from -- and you can see the math in terms of the balance sheet and income statement. It's not a significant component of what changes on a month-to-month or quarter-to-quarter basis.

Your next question comes from the line of Mike Mayo of CLSA. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: You've talked a lot about your market share expansion in the commercial loans, but 20% annualized growth in commercial loans, how comfortable are you with the credit quality? Of the new loans, I guess there are a couple of hung deals in the syndicated loan market this past quarter. I didn't see your name associated with that, but you're seeing some signs that everything's not as good as it had been. So I guess I'm asking about the quality of the new loans, what you're seeing in the market overall and if you plan continue that pace of expansion?

I mean the quality of the loans is excellent, right? So I mean we're very selective about how we go after the large corporate customers. So -- and these are companies we know well. We can provide a full suite of services. And you're right, we don't have any hung syndications. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: And which geographies are these loans in? I mean you've been consistent for last year saying you're expanding, you're going to gain market share. You are. Is that more in the Midwest, is that Southeast? Where is it?

Well, the national corporate, it's a national platform. So that's all over the United States.

Mike, if you compare it back to a few years ago, though, it's the out footprint. Because we didn't have it. And now it's quite robust for us, but in market we're growing there, too. It's just that the net new -- if you just take a couple-of-year horizon, it's really coming outside of the 25 states because of this national -- gone from regional, the national corporate bank. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: And how much of that -- if 2/3 of the growth came from wholesale, how much of that would be international? Like capturing share from the international banks which are all pulling back?

We don't do any international. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: No, you know what I mean. In other words, you had some international bank competing in the U.S. market, they're pulling back, how much of your growth might be attributed to that?

That's shown up just more recently. [indiscernible]

It's our future growth. It's what I may be talking about in the next few quarters. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: And just -- I'm going to repeat the question just so I know what to tell other people. They say, U.S. Bancorp had 20% annualized commercial loan growth, why?

Because we are taking more position, buyer positions with customers we now come to know. We're being invited to syndicated deals for the first time and for the second time at a much higher level. And we're rolling new customers just the old-fashioned organic way because I've added hundreds of new people in the last few years, from a lot of really good banks with really good skills, and really good customers who now work here. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: All right, great. And one last completely separate question, when you look at home prices through the end of next year, what do you plan around? What kind of flat, down 2, down 5, what do you think?

Mike, this is Andy. We're down 0% to 2%.

The next question comes from the line of Matt O'Connor of Deutsche Bank.

NIM obviously held up a lot better than we've seen at other banks. It seems like you managed the surge in noninterest-bearing deposits better than some. How sustainable do you think that increase is? That $10 billion increase in noninterest-bearing since its in the Wholesale and Corporate Trust?

So, Matt, first of all, I think you're right. And our Treasury group works very closely with our Consumer group and our Wholesale groups, in terms of pricing. And we really try to target those solid customers and really try to work with the customers with different alternatives. So we're not pushing customers away from the bank at all or charging them. Second is, I do think that the growth that you were seeing reflects a little bit of the fact that the corporations are very strong right now, in terms of their own particular balance sheets, and are not yet choosing to invest those dollars. So we probably will see some decline in those over time. The final factor I'd mention is that, as you know, there's unlimited insurance in DDA till the end of 2012. So certainly in this environment, that's a very safe place to put your money, and that may change once the unlimited insurance changes at the end of '12.

Okay, it's helpful. And then just totally separate topic, one of the interesting things that's probably going to happen in the next several years is some movement in the payments business in terms of how customers and corporates pay. You've got, obviously, these changes in the debit card fees. You've got mobile payments that is probably going to take off at some point. There's stubbornly high unemployment, so there's a lot of government transfers. Can you just talk about -- obviously, you're in a lot of the areas of payments. And can you talk about some of the new products that you have or are working on or some of the themes that you think you will benefit from over the next, say, the next 6, 12 months, but a little bit longer term maybe?

But 6 to 12 months is long [ph]. Two categories here. One is your consumers, and our mobile banking -- online banking capabilities are at the top of class. And I've said a number of things about this company over the years, and a few years ago, you never said U.S. Bank and innovation in the same phrase. And now you should put it at the top of the class because we have spent a lot of time and energy with that price revenue office, and building a whole new set of suite of new ideas and new ways to move money. Because we're in the business of moving money for corporate payments for 20 years. And now we extended that capability. And I'm putting money behind getting amazing talent and amazing skill to get this kind of mobile banking in the top of class. And you'll see amazing things in the next couple of quarters. Back to corporate payments, and the thing we haven't talked about much, but I'm so glad we have it. 20 years ago, the legacy of this bank started the corporate payments business, which you know is a huge government provider of card big key [ph] payments. It's a huge, kind of sophisticated way of treasury management on steroids, and moving money along before it was going to be popular paperless. And all of that continues to grow and expand in terms of the capabilities we have. And by the way, Matt, the cost of entry there is too high for -- there's only 4 or 5 of us in this space. So this corporate payments world is going to become very robust for us. Customers are going to get smarter and don't want to move anything that they can't see in a nanosecond. They don't want it on paper. They want to have the next new idea. So while we appeal to consumers, we're going to be able to get even further ahead because of our starting position with corporate and commercial payments. So I'm totally jazzed about both of those and I'm glad you brought it up.

There's obviously a revenue opportunity from this. But as people use banks differently as banks have to charge customers differently, does this make you think about the expense base differently than we've seen one bank who was going to be very aggressive in expanding its branch network? Talk about maybe toning that down a little bit. I think you're more, kind of complete and haven't had this ambitious expansion. But just as you look out in the next couple of years, you're going to be doing business differently and I would think that might mean some reallocation of cost.

Yes, not really. We kind of the like where we are and I think we can handle just small nuances to the way we spend our money. The branch network's probably going to go to 25 to 50 branches net a year. And yes, that's exactly what we've done for the last 10 years. So it's nothing remarkable. We have a disparately large position in what we call grocery branches and on-site corporate and public location branches in the same guide category because they are growing well. They're exactly what customers want, the hybrid between, be where I need you to be but I don't need the same old-fashioned branch with marble columns. And I'll say over the next few years, you'll see, like everyone else, we're going to take the branches we do have, make sure that they pass the test to be in locations for which more than check-cashing occurs. And we'll probably remodel them in a way that make them much more attractive as a point of destination for conversations and private discussions. But pretty much what you see. And we're not going to make much of a change in course because we kind of like how it got us here. And we don't have anything we need to either retrofit or back-out of because of having been to excess in the last couple of years.

Your next question comes from the line of Matt Burnell of Wells Fargo Securities.

Just a couple of quick follow-up questions. Richard, you've spent a lot of time over the last couple of quarters talking about the investment bank and the gains that you've seen there. I'm just curious as to what the trends were in the investment bank this quarter relative to underwriting volumes, and things like that. Obviously, the market's been pretty weak for underwriting. But at least in terms of your line of business numbers, it didn't look as if the Wholesale Banking and Commercial Real Estate numbers were down all that much. So if you could just provide some color there, that would be helpful?

Let me just say, a lot of businesses I thought you were talking about our fee businesses where we provide the guidance and trust and support to our wholesale clients, which is growing very nicely especially since it started from 0, 2 years ago. So for us, it's icing on the cake and there may be deals that we're not showing you yet because they haven't even come to market or they didn't come to market yet. But we're now in conversations and the folks that we have in Charlotte and New York are at the top of the people's call lists, as it relates to providing services for any kind of the underwriting or the high-grade activities. In many cases, that does derive more business on the balance sheet for us. But primarily, Matt, it's going to be our fee business that you should look at that really derive, kind of, the benefit of that. And I would say it's in inning 3 as this company is growing this business, and growing a respect and a capability. The talent is already there. We're ready for the phones to ring but the market will find us as it continues to heat up. And Andy, you might put some numbers on.

Yes, I would say that from the -- if you look at the commercial product revenue line, which is with the majority of that fee revenue at glance, our high-grade bond business, our municipal underwriting business, I think in all cases were building and taking share, and building -- moving up on the lead tables. And I think you should continue to expect that. You are correct that the third quarter was down a bit in overall activity, but we were up because we continue to gain share. And I think once the activity starts to become robust, we're going to move even more in those tables.

And then I might add lastly, not unlike the conversation we had on the wholesale loan book, this business is going to be benefited by the foreign bank's decision to retreat from some of those participations with some of those levels in involvement. So this will be another place we will see, I think robust benefits next year that are just starting to show up.

That make sense. And if I can, just a follow-up question on the commitments. You mentioned the commitments are growing a little faster than loans. I'm just curious as to the trend in the pricing of commitments if that's gotten substantially more competitive over the last couple of quarters?

It kind of flattened out a little bit. I mean, we did see year-over-year pricing come down 25, 30, 40 basis points. But third quarter, basically said, it's still an uncertain environment out there, so people are still willing to pay.

And I would add, as this recession gets older and as people kind of start thinking through what's worth it to them, we are prepared to compete on price. We've always said that, and I'll say it again today. We're not having to use it as much. People have more and more value that even I expected them to ascribe to our ratings and to our balance sheet strength, and probably now our multi-year commitment in following through on things we've promised. So we're actually not having to spend as much as I'm willing to spend to win a high-quality deal because they're actually coming to us, saying that's a fair price for the quality of our relationship, I'll take it.

And then finally just a question on the CCAR exam. Richard, am I correct in assessing sort of the color of your comments relative to the 2012 exam versus 2011, as maybe the regulators being not quite so prescriptive this go-round versus last time? Maybe because of familiarity with the whole process, but also because we're a bit further away from the challenges of 2008 and 2009?

Yes, what you heard was my aspirations that I'm right. Honestly, I don't have any insight except the way they've treated us during the year, the way we continue to communicate well. And my hope is that, that distinction will be recognized. I don't have the facts that -- and I really won't know until we do this second. We only have 2 points to connect. We have one test and the tea leaves to read. But so far, we're prepared to perform well in test. And I hope that the teacher will give us a high grade and let us move on to the next class.

Our next question comes from the line of Nancy Bush of NAB Research.

I have a small picture question for Bill and a big picture question for you, Richard. I'll ask the small one first. Bill, the impression is that the credit standards have changed dramatically on the consumer side over the last few years. Could you clarify whether that is indeed true at USB? And just sort of maybe give us your sort of average FICO on the consumer side now versus where it was in maybe 2008?

Yes, and I said this before. I mean, in terms of U.S. Bank and our underwriting, if you look at our cards or autos, our underwriting really did not change a lot. I mean in cards, you have to make adjustments in a downturn based on region and stuff like that, but basically, straight prime books. The one area that did change, we changed along with the industry was the 100% financing of a home, which we did some of that in our finance company. And we do some of that on our home equity. So backing away from 100%, we still do 90% home equity in kind of our branch. But that's the one area where there was a change at U.S. Bank. And obviously, even bigger changes in the industry. And the average side, we do disclose on our residential mortgage and home equity originations. They're in our schedule that we hand out and those FICOs are, I think, they're in the 760s.

Okay. Richard, the question for you is this, I think it's recognized in the banking industry that you're one the CEOs who has pretty good relationships with the regulators, i.e., you're not out there yelling at them or insulting them in public. So I would ask you -- I mean, what do you see as sort of the general relationship between the banking industry and its regulators right now? And do you see any -- where are we in this sort of whole new regulatory revolution or evolution? Do you see any new initiatives that are going to be coming down the road at us?

Yes, Nancy, that's a big one. Let me say, first of all, we have a handful of people that are still in appointed or unconfirmed positions, and that is worth starting at because until the comptroller, the head of the FDIC are finally confirmed and until the CFPB is finally appointed, you don't get the same kind of definitive answers, you don't get the same kind of definitive progress on things when people are watching progress but not necessarily setting a long-term objective. So I think we're a bit -- I'd say I'm frustrated by that because I'd like to have a better sense of where the endpoint is so we can all start marching toward that. But directionally, we all know where we're headed. I would say if you take a look at the Dodd-Frank, 20% of the whole activity hasn't even -- has only been slightly accomplished, 80% even yet to be defined. You look at things like SIFI buffers. We're sitting in wait, wondering what will be called and what the number will be. We're eager to know whether or not there's going to be a standard coming out of this CCAR test coming up, that we just mused about here not knowing. So the uncertainty is everywhere. But I also balance it by saying, and so it's been that way for 3 years. I mean, we've been operating under uncertainty for a long time. We've been operating under a difficult economic environment for a long time/and so I think the answer to your question is nothing's getting more clear or progressing very fast, but our ability to now understand that it's not going to happen fast and our willingness to accept the fact that we have to make up some of the answers until there's a final one. It's probably much higher. So I believe that my peers and I are still frustrated to the highest level that we don't have better guidance. But we're not, in most cases, frustrated or surprised by it. We're now managing to kind of a new normal in understanding it will take quite some time. And on the other hand, until you tell me I can't do something and it's not harmful and it's good for your customers and it seems to be in line with good regulatory behavior, then we're going to do it. And we'll wait and find out if they want us to change that later, but we're not sitting on our hands waiting for guidance on how to run the company. We're just trying to be a little more logical. So I'd say it's because it's old and it's not that different, we're probably more balanced in our view and probably not as surprisingly frustrated as we would otherwise be.

There was an announcement last week or a report that the CFPB is going to start examining mortgage servicers for hidden fees, et cetera, et cetera. Do you expect that you will get targeted in that? And do you expect that then they're going to go from mortgage servicing to credit cards, et cetera, et cetera?

Yes, I don't. I don't. I'll tell you why. I think the CFPB is still a long way from being configured. And in fact, I don't have a CFPB person assigned to me yet, so we have no CFPB evidenced at U.S. Bank. And so until that time, the OCC and others will continue to watch over what would be consumer regulations and we'll watch it ourselves. But I think when it comes to things like mortgage, there are so many other entities looking over that topic. It would be surprising if the CFPB picked one of their first things to get into the middle level of. It would be something that someone else is working on. I think from talking to Rog Tate [ph], it's clear to me that they're going to stay pure on focused on transparency disclosures, customer clarity on all products, could be mortgage, too, but credit cards and mortgages to start. But it won't be intrusive or redundant, the things that are being done in a more provocative sense of servicing rules and foreclosure exams and things like that. I think they're going to stay pretty pure first. What we all really want more than anything is that we want them to appoint someone so that the non-bank entities can be brought into the same umbrella of oversight that we all share. And I think that's the most important thing we should look forward to, which is why I've always been a supporter of the CFPB because I think it brings more guidance to a level playing field than it does additional work for those of us who already doing it.

The next question comes from the line of John Dunne [ph] from Meredith Whitney.

I think in the past, you guys have sort of downplayed the idea of buying credit card portfolios -- I mean, sorry, commercial real estate portfolios. It seems like maybe you've softened your stance on that. Is that because there's a lot of weak players out there and you might be able to get something at a good price? Has your view changed?

No, we haven't softened our stance. We've typically pretty much -- might want to underwrite stuff that big and that important, and know where it came from, and know our customer. Not to say we wouldn't find what we might like, but the more recent deals you saw, we took a quick look and said not for us, and we've moved right along.

Yes, it's a critical test to know who we're doing business with, that's not the space where you just buy indirect.

Yes, and we're not desperate for us to asset growth. And I'd mean that in the nicest way. We're simply not looking to go buy other assets because we have a balance sheet issue. We can handle where we are now. And eventually, gosh, I can't wait until these lines of credit get used and then we're going to be very, very pleased that we didn't over-encumber ourselves with loans that we didn't know.

That was our final question. Presenters, do you have any closing remarks?

Thank you, Tiffany. I just want to thank everybody for their continued interest. I am really proud of this quarter. And we've always said we want to focus on consistency, predictability and repeatability. I call it my CPR. And I think we're getting close to consistent. I think we're getting close to predictable. And I certainly think we can keep repeating this kind of clean and unjaundiced performance of just doing business the old-fashioned way. So I hope that's clear to you and I appreciate the time you gave us today.

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

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