U.S. Bancorp (USB) Q1 2013 Earnings Report, Transcript and Summary

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

Erika Penala - BofA Merrill Lynch, Research Division Matthew D. O'Connor - Deutsche Bank AG, Research Division John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division Paul J. Miller - FBR Capital Markets & Co., Research Division Kenneth M. Usdin - Jefferies & Company, Inc., Research Division Brian Foran - Autonomous Research LLP Keith Murray - Nomura Securities Co. Ltd., Research Division Betsy Graseck - Morgan Stanley, Research Division Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division Dan Werner - Morningstar Inc., Research Division Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division Kevin Barker - Compass Point Research & Trading, LLC, Research Division Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division Nancy A. Bush - NAB Research, LLC, Research Division Moshe Orenbuch - Crédit Suisse AG, Research Division

Welcome to U.S. Bancorp's First Quarter 2013 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 Daylight Time through Tuesday, April 23 at 12 midnight Eastern Daylight Time. I will now turn the conference call over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Thank you, Brooke, 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 first quarter 2013 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 analyst schedules, are available on our website at 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. Thanks for joining us today to review U.S. Bank's first quarter results. I'd like to begin with a few quarterly highlights on Page 3 of the presentation. U.S. Bank reported net income of $1.4 billion for the first quarter of 2013 or $0.73 per diluted common share. Although a total net revenue of $4.9 billion was slightly lower than the same quarter of last year and the previous quarter due to a reduction in total expense, we achieved positive operating leverage year-over-year and linked quarter. Total average loans grew year-over-year by 5.8% and as expected, 1% or 4% annualized linked quarter. We experienced strong growth in total average deposits of 7.3% over the prior year and 0.5% over the fourth quarter of 2012. Credit quality remained strong. Total net charge-offs decreased by $35 million or 7.5% from the prior quarter, while nonperforming assets declined at 9.9% linked quarter or 2.8% excluding covered assets. We generated significant capital this quarter. Our estimated Tier 1 common ratio under the most recent Basel III rules was 8.2% at March 31, with a Basel I Tier 1 common equity ratio of 9.1% and a Tier 1 capital ratio of 11%. We repurchased 17 million shares of common stock during the first quarter, which, along with our dividend, resulted in a 69% return of earnings to our shareholders in the first quarter. Slide 4 provides you with the trends in our industry-leading performance metrics. Return on average assets in the first quarter was 1.65%, and return on average common equity was 16%. Our net interest margin and efficiency ratio are shown on the graph on the right-hand side of Slide 4. This quarter's net interest margin of 3.48% was, as expected, 7 basis points lower than the prior quarter's rate of 3.55%. Andy will discuss the margin in more detail in a few minutes. Our efficiency ratio for the first quarter was 50.7%, better than the prior year and the previous quarter. We continue to manage our operating expenses effectively and in line with revenue trends. We expect that this ratio will remain in the low-50s going forward, as we continue to manage expenses in relation to revenue trends while continuing to invest in and grow our businesses. Turning to Slide 5. The company reported total net revenue in the first quarter of $4.9 billion, a 1.1% decrease from the prior year and a 4.7% decrease from the previous quarter. The decline in revenue year-over-year was largely driven by Mortgage Banking, while the linked quarter variance reflected both a reduction in Mortgage Banking, as well as normal first quarter seasonality within our business lines. Average loan and deposit growth is summarized on Slide 6. Average total loans outstanding increased by over $12 billion or 5.8% year-over-year and 1% linked quarter. Overall, excluding covered loans, our run-off [ph] portfolio, average total loans grew by 8% year-over-year and 1.4% linked quarter. Once again, the increase in average loans outstanding was led by strong growth in average commercial loans, which grew by 16.8% year-over-year and 2.3% over the prior quarter. Total average Commercial Real Estate also increased over the prior quarters. Residential real estate loans continue to show strong growth, 19.2% over the same quarter of last year and 4.5% over the prior quarter. Within the retail loan categories, average credit card loan outstanding fell slightly as consumers paid down their balances, and average home equity lines and loans continue to decline as paydowns more than offset new loan originations. Auto loans and leases, however, posted good growth year-over-year. We continue to originate and renew loans and lines for our customers. New originations, excluding mortgage production, plus new and renewed commitments, totaled over $35 billion in the first quarter. Total average revolving corporate and commercial commitments increased year-over-year by 11.9% and 1.7% on a linked quarter basis, while utilization remained stable at approximately 25%, basically where it's been for the past 5 quarters. Total average deposits increased by $16.7 billion or 17.3% over the same quarter of last year, and by $1.2 billion on a linked quarter basis, with growth in low-cost savings deposits particularly strong on a linked quarter basis. Turning to Slide 7 and credit quality. Total net charge-offs in the first quarter decreased by $35 million or 7.5% from the fourth quarter of 2012, while nonperforming assets, excluding covered assets, decreased by $59 million or 2.8%. The ratio of net charge-offs to average loans outstanding in the first quarter declined to 0.79% from 0.85% in the fourth quarter. During the first quarter, we released $30 million of reserves compared with $25 million in the fourth quarter and $90 million in the first quarter of 2012. Given the mix and quality of our portfolio, we expect net charge-offs to remain relatively stable in the second quarter, while nonperforming assets will continue to trend lower. Andy will now give you a few more details about our first quarter results.

Thanks, Richard. Slide 8 gives you a view of our first quarter 2013 results versus comparable time periods. Our diluted EPS of $0.73 was 9% higher than the first quarter of 2012 and 1.4% higher than the prior quarter. For comparison purposes, recall that the fourth quarter 2012 results included an $80 million foreclosure-related settlement expense accrual that reduced EPS by $0.03. The key drivers of the company's first quarter earnings are summarized on Slide 9. The $90 million or 6.7% increase in net income year-over-year was the result of a decrease in expense and a lower provision for credit losses, slightly offset by a reduction in net revenue. Net interest income increased year-over-year by $19 million or 0.7%. The favorable variance was largely driven by a $13.9 billion increase in average earning assets, mostly offset by a decrease in net interest margin. The 4.6% growth in average earning assets included increases in average total loans and loans held for sale, as well as planned increases in the securities portfolio. The net interest margin of 3.48% was 12 basis points lower than the same quarter of last year, primarily due to lower-yielding investment securities and lower loan rates, partially offset by lower rates on deposits and wholesale funding and a reduction in cash balances held at the Fed. Noninterest income declined by 3.3% year-over-year, primarily due to Mortgage Banking revenue, reflecting lower origination and sales revenue, partially offset by higher servicing revenue and favorable change in the addition to the mortgage reps and warranty repurchase reserve. Also contributing to the decline in noninterest income year-over-year were lower equity investment gains, retail products revenue, primarily due to fewer cars coming off lease, and commercial products revenue. Offsetting these declines were increases in trust and investment management fees, retail payments and merchant processing revenue. Noninterest expense was lower year-over-year by $90 million or 3.5%. The majority of this favorable variance is attributable to favorable variances in regulatory, insurance and litigation items, partially offset by higher compensation and benefits expense and an increase in tax credit investment costs, net occupancy and technology expense. Net income was higher on a linked quarter basis by $8 million or 0.6% as a result of an 8% decline in expense and a lower provision for credit losses, partially offset by a 4.7% decrease in net revenue. On a linked quarter basis, net interest income was lower as growth in average earning assets of $1.8 billion was offset by a 7-basis-point decline in net interest margin and the impact of 2 fewer days. The 7-basis-point decline in net interest margin was primarily due to lower loan and securities rates and seasonally lower loan fees. On a linked quarter basis, noninterest income was lower by $164 million or 7%. This unfavorable variance was primarily the result of a decrease in Mortgage Banking revenue and seasonally lower payments and deposit service charges, as well as commercial products revenue. The variance in Mortgage Banking revenue largely reflected lower origination and sales revenue, offset by favorable variances in the addition to reps and warranty repurchase reserve and mortgage servicing rights valuation. On a linked quarter basis, noninterest expense was lower by $216 million, mainly due to the fourth quarter $80 million settlement expense accrual, lower professional services expense due to the reaching of that settlement, favorable variances in insurance and litigation items and seasonally lower operating expense, offset by higher benefits, including pension, and the expense related to low income housing and other tax-advantaged projects. Turning to Slide 10. Our capital position remains strong and continues to grow. Based on our assessment of the full impact of the current proposed rules for Basel III standardized approach, we have estimated that our Basel III Tier 1 common equity ratio was 8.2% at March 31 versus 8.1% at December 31. At 8.2%, we are well above the 7% Basel III minimum requirement and above our targeted ratio of 8%. In March, we received the results of the 2013 Comprehensive Capital Assessment and Review, the CCAR, including the Federal Reserve's non-objection to our capital plan. Subsequently, we announced a new 1-year buyback authorization totaling $2.25 billion, effective April 1. And we expect to recommend to the Board of Directors that they approve an 18% increase in our common stock dividend in the second quarter. These capital actions will allow us to maintain our goal of returning 60% to 80% of our earnings to shareholders in the form of dividends and buybacks in 2013. In the first quarter, we returned 69% of our earnings to shareholders, including dividends and repurchase of 17 million shares of common stock. Finally, Slide 12 provides updated detail on the company's mortgage repurchase-related expense and the reserve for expected losses on repurchases and make-whole payments. The addition to the reps and warranties repurchase reserve this quarter was $36 million lower than the fourth quarter of 2012. Recall that we booked additional reserves in the fourth quarter to address the put-back risk of Freddie Mac loans originated in 2004 and 2005. Our outstanding repurchase and make-whole request balance at March 31 was $66 million compared with $131 million at December 31. I'll now talk -- turn the call back to Richard.

Thanks, Andy. Turning to Slide 13, you will see the cover of our 2012 Annual Report, "A Rich Heritage" and "A Strong Future." And today, we're in Boise, Idaho, the site of our 2013 Annual Shareholders Meeting. I'm looking forward to presenting our shareholders with a brief look at our past and a view into our future. Idaho, in fact, is part of our company's rich heritage, which began 150 years ago, with the signing of our national bank charter in 1863. The presentation will include the story of how we achieved the size and scale we are today and in particular, what we accomplished in 2012, including record revenue, record earnings and industry-leading performance metrics against the backdrop of a slowly recovering and uncertain environment. Even more important, however, to all of our shareholders is that we have positioned U.S. Bank for a strong future, a future that includes continued investment in our well-diversified mix of businesses, prudent risk management, a focus on operating integrity and compliance, strong capital and liquidity and superior returns for our shareholders. We're looking forward to the future as we move into 2013 with our first quarter now complete, and we remain focused, as always, on producing consistent, predictable, repeatable results for the benefit of our customers, our employees, our communities and our shareholders. That concludes our formal remarks. Andy, Bill and I would now be happy to answer any questions from the audience.

[Operator Instructions] Your first question comes from Erika Penala with Bank of America.

Richard, your comments on cautious -- your cautious loan growth commentary during the Citi Conference really resonated with the investor community. So I was wondering if you could give us an update on your outlook for the balance of the year.

Thanks, Erika. Yes, much as I wish it were more positive, I think we just need to be realistic in this environment. And while you'll recall that in quarter 4, we grew our linked quarter loans 1.4%, we then suggested, a month ago, that while we wanted to be in the range of 1% to 1.5% for this most recent quarter, we'd be on the low end, and here we are at 1%. My guidance for next quarter, which is as far as I can see, is somewhere between the 1% and 1.5% again. If we get the seasonal lift that we expect and we normally see in the springtime, then we'll in be the middle of that to the high end of that range. If we see a continued cautious nature by our customers, which we've now seen for the last few months, then it might be on the low end of that range, but it'll be somewhere in between. So what I'm saying is it's not going to be robustly coming back on all cylinders, and that makes sense to us because there continues to be a withholding by both consumers and businesses in this uncertain environment, particularly now, on the heels of both the higher FICA costs and what we all know to be some of the slow but eventual sequester impacts, the higher gasoline costs and the lack of any other catalysts for the business community to jump on the need to take action any earlier now, with the commitment of forward interest rates being low for so long. So longer view, second half of the year, I would hope we start moving into the higher end of the 1% to 2% quarter -- linked quarter range. But for now, let's say, we're going to be pretty set in that same kind of range, bound [ph] 1% to 1.5% linked quarter until we see some catalyst.

Got it. And my follow-up question would be on the expense side. Thank you so much for the color on looking for a low-50s efficiency ratio. And -- but you also mentioned the word "flexible" in your prepared remarks. If we fall into the lower end of the range on loan growth, and clearly, Mortgage Banking is a big question mark for the rest of the year, is the main message here is that there is still flexibility remaining in terms of managing the dollar number to keep the efficiency ratio in the low-50s no matter what happens to the revenue side for the rest of the year?

Yes, for a couple of reasons, the answer is yes. I'm fairly comfortable that, as you know, we manage more to operating leverage than we do efficiency ratio. And we've promised that, as this year will be a harder year for revenue growth, at least at the conservative manner in which we run the company, likewise, we're going to be conservative on our expense growth. And as long as revenue grows faster than expenses, you know that you have positive operating leverage and your efficiency ratio gets better. So efficiency for us is a result not a goal, but because of that, I can assure you it will stay in the low-50s. I don't see any reason for that to be any different than it has for the last many years. I'll also add, you'll recall that while we are moving through this consent order and have substantially less cost in compliance for that purpose, we do see the cost of compliance and operating integrity going up, but well within the range of the amount that we are now going to be able to redeploy. So even on a linked quarter basis for a company like ours, while I hated all the money we were spending on the consent order, it now serves as a backdrop for us to use for some redeployment for what I know to be higher expenses in compliance and audit going forward. So we have really no reason -- and if loan growth were to stay slow, as you know, because of our kind of 50-50 mix of spread income and fee income, as long as the seasonality continues to happen, along with our trusts and our payments businesses, and some of the non-balance-sheet items, I also have confidence we can stay in the low-50s as an outcome.

Your next question comes from Matt O'Connor with Deutsche Bank.

I realize there's a lot of seasonality in fees quarter-to-quarter and year-over-year, yet you highlighted some of the declines, obviously, in mortgage and private equity. But I guess, just generally speaking, it felt like fees, broadly, were a little bit weaker year-over-year, as we looked at the service charges, the cash management, corporate areas, just some areas that I thought would be grinding higher. I don't know if there's anything kind of unusual that just happened to all hit at once or is it just kind of sluggish client activity overall?

Matt, this is Andy. So first, you're right. The first quarter is seasonally lower across a number of categories. In addition to the seasonality, I'd highlight 2 things. One is in our corporate products -- corporate payments revenue, we have about a 30% exposure to the U.S. government, with a high percentage of that related to the defense department. And government spending is down approximately 15% to 30% depending upon the category. So that is a driver of our -- principal driver of the lower year-over-year and a little lower linked quarter growth that you see in corporate payments. So that's going to depend upon what the future is in terms of government spend, but that is an unusual item that you see there. The second category I bring up is our commercial product revenue. We have particular strength in our high-grade bond underwriting. That's doing very well, and you're reading about the marketplace and how a lot of bond issues are occurring. However, the marketplace is also indicating that FX, loan syndication and some of the more onetime fees are slowing down a bit because -- somewhat because of that high bond underwriting activity. So those are 2 things in addition to seasonality that I would call out.

Okay. And then just separately, following up on the net interest income -- or sorry, the loan growth outlook. As we think about the NIM component from here, any outlook comments on the net interest margin percent?

Yes, so I -- we had indicated that we would be down 5% to 7%, we were down 7%. I will tell you, my expectation was that is the most it will go down this year. My expectation for the second quarter is closer to 4% to 6%. Part of the reason for that is first quarter has seasonally lower loan fees. And secondly, the compression of what's coming on versus what's coming off is dissipating. So you'll see continued improvement throughout the year and again, second quarter 4% to 6%.

And then when you combine that with the low-single digit or low 1% loan growth, do you hold net interest income stable or can you get a little growth out of that?

Relatively stable to perhaps a little bit growth.

Your next question comes from John McDonald with Sanford Bernstein. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Andy, quick follow-up on the net interest margin. Your margin was very resilient for a lot of the low interest rate environment, and the last couple of quarters, you've had a little leakage down. What's the dynamic there? Did you have some funding cost ability to push that down and that's starting to dissipate? Or can you just give us a little color there?

Yes, John. So that is the reason. In 2012, we had about $12 billion of debt that either matured and was not replaced or was replaced at a much lower cost. That helped us, particularly in the last half of 2012. In 2013, we have a much lower number of debt coming due, so we have less of that repricing that will help us. However, as I said, sort of offsetting that is the difference between what's coming on and off, particularly in the securities portfolio. We'll continue to improve each quarter, so that'll be an offset. But that is the principal dynamic last year versus this year. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then can you just remind us of your positioning to higher interest rates and which interest rates matter most for you?

We're asset-sensitive. We continue to be asset-sensitive. What you saw in the fourth quarter annual report is very similar to what you'll see in the first quarter Q. So we are biased towards positive rates, and the most important part in the curve for us is 3 to 5 years. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then, on the credit side, Richard, I guess you -- do you envision being able to run at a below-average charge-off rate for a considerable amount of time here, both you and the industry? As there hasn't been much lending and housing's improving, do you see credit kind of running below average for a while?

I do, and I think we've predicted that a year ago, that we would all fall below our over-the-term rates and it would take years to come back. I mean, it's just the way the math works. The temptation is for certain companies to decide that now is the time to take maybe a higher level of risk because: a, it won't show up for a while; and b, to stretch [ph] for that asset growth is pretty high. And that temptation is present in our company, but it isn't going to happen. So the fact is, is that we're going to continue to be prudent, and we'll take our hits, if you guys don't like the loan growth. But we're not going to put on, structurally, a deficit asset onto our books for the fear of them being a problem in many years forward. We're just not going to do that. So you'll see us be prudent, and we're not going to -- we're not in the leveraged lending business, to speak of, so we're not enjoying that particular run-up right now. We're not going to get into things like enhanced lease residuals or get into some of the noninterest-related activities. But as I always say, we'll continue to fight for our own customers and continue to build some growth in market share by using our pricing advantage, which, you all know, we have a pretty substantial one, which we can give a part of it back to our best customers and new customers. I'll also remind that our commitments grew almost 12% year-over-year, and annualized linked quarter, 7%. And so we're continuing to enjoy bringing a lot of new customers, and they're still sitting at that 25% usage level. But once and when they start using it, we would hope that whoever has the most customers on their balance sheet with open lines of credit will be the one that does the best, and we're counting on being one of those. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: And while it does sound like you'll run below average or over the cycle, you don't see much more improvement from this kind of 79-basis-point level. Do you think you'll just kind of hold somewhere in there?

Yes, I think we fell through the 70s, and we stay in there. And I thought -- 6 months ago, we fell to the low-80s, so it got better faster and probably more sustainably than we thought, which is why you saw some of our actions. But just because of our large credit card portfolio and the mix of business, it shouldn't get much lower than that or we're -- then, we really left too much on the table. Bill, do you want to..

Yes, yes. This is Bill. Okay, I mean, the area that still has room for improvement is anything related to the residential mortgage, so residential mortgage, home equity, still high. And over the next year or 2, depending on housing prices, that should continue to come down. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Bill, it looked like the home equity NPLs and charge-offs ticked up a little bit in the first quarter. Is that a seasonality issue?

Yes, they will come down again in the second quarter and should be down for the balance of the year.

Your next question comes from Paul Miller with FBR. Paul J. Miller - FBR Capital Markets & Co., Research Division: So on the Mortgage Banking side, a lot of people felt that we've been writing it off for the rest of the year. What's your views for the gain on sale and volumes throughout the year?

So Paul, I'm going to give you -- I don't know the whole year. I'll give you what I can see in the second quarter. And so the first quarter, our fees were down about 15.5%, and that's principally because apps were down. We book about 80% of our revenue at app and the remainder at close. Apps were down about 20%, and gain on sale margins were down 10, 15 basis points, and the offset was positive servicing revenue and the gain on sale -- or excuse me, the servicing hedge. So those are the gives and takes. What we look -- as we look into the second quarter, we believe mortgage revenue will grow, and we believe the application volumes, what we've seen thus far, will increase. So we think that this first quarter was a little bit seasonal, a little bit impacted by the blip in rates that occurred in late February. We're starting to see some strength there, so we expect an increase in mortgage revenue Q2.

And Paul, we're sticking with mortgage. We like it, and we do it well. We think, as I said before, that there will be a purchase money future out there, and we want to have that same market share position, if not greater, with purchase money. So we continue to prioritize our new customers and make sure that their servicing and their -- our performance on their onboarding is exceptional so that they'll be pleased. A refi is also important, but it doesn't have the same time parameters attached to it because you don't have another party involved. And we're going to continue to grow this business and do what we can to improve the mix of where the originations come from, more retail, if we can. But at the same time, we have a very good variability on our expense control, so if things were to continue to fall and be less than we expect, we can adjust to that very quickly, probably within 30 to 60 days, based on the way we staff and the way we've set up our occupancy costs [ph] . So we're able to flex with it, but we like it and we're going to plan on it continue to be strong. Paul J. Miller - FBR Capital Markets & Co., Research Division: And correct me if I'm wrong, but I don't think you have a lot of HARP-eligible loans. I mean, what type of HARP production you're doing right now?

About 11% is the HARP for us.

Your next question comes from Ken Usdin with Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Just wondered if you could just expand on the mortgage side. Can you talk about how your mix of originations has changed? And any market share dynamic changes as you -- as Richard, as you talk about that being prepared for purchase market?

Yes, so first of all, from an origination standpoint, if we think about production, about 72% of the production is refinancing. Only about 62% of the applications, however, are refinancing. So again, that increase in rates that occurred did impact apps, and refinancings did come down in the first quarter. We're starting to see it shift back to more of that 70-30 refinancing. And again, we expect strength in the application volume into quarter 2. Given -- we don't have the full market data yet, but we continue to expect that we'll be either stable or slightly increasing in market share. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay, great. My second question, I wanted to ask you about noninterest-bearing deposits did decline, on average, a decent amount. And I just wanted to ask you to flesh that out a little bit. How much of that was seasonal? How much of it is customers behaving differently? And any changes with regards to even customers starting to potentially use some of their deposits instead of borrowing?

Yes, I think a factor there, Ken, was the elimination of tax. So what we saw at the end of the year was a shift, perhaps, of about $6 billion out of noninterest-bearing, which, at -- until year-end, had unlimited insurance, into a more interest-bearing category. So I think customers thought about it, and said, "I'm going to go after a few basis points since I don't have unlimited insurance." So I think that's the phenomenon that we saw.

Ken, you make a great point. As I've often said, it's a canary in the mine. The first good news for all this industry is the deposits in total moved down because people are using them, then they'll use the lines of credits that they have open to buy and they're paying for and then, eventually, they'll get more loans. This is not that. This is not that first mover, where we're seeing total deposits moving down as a result of customers using it for other things, particularly for growth. They're really withholding. They continue to be cautious, and they're just building up the balance sheet. No matter where they placed it, they're just kind of moving it about to seek a little higher yield. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: And Richard, on that point, this should be my last question, just can you just talk us through -- when you are talking to customers, we've continued to hear about this delay and cautiousness. What are customers looking for to make that change in their minds? So everyone is very flush with cash. Companies are strong from a financial perspective. We're seeing that in credit. But so we continue to hear about delay, delay, delay. What are customers waiting for?

Yes, that's a great question. And it has a lot of answers, but mine would be that it is particularly the lack of a catalyst, perhaps more than it is the uncertainty. Even I'm tired of talking about uncertainty without a very good definition. We could tie it, last year, to fiscal cliff. We could tie it, last quarter, to the pending sequester. We can try to say it's going to be the national debt. It's probably not any of those anymore. There's no reason to take a bite right now at the apple and invest in something that will cost you more, with the uncertainty of not knowing whether or not there's going to be a customer base for you. So what I would say to you, Ken, is you've got the interest rates being decidedly low for a long time, so there's no catalyst for a company to rush to make a decision because rates are eventually going to move up. They probably should be thinking that way, but based on the calculus and what the Fed has done by tying it to unemployment, everyone can see that it's not imminent. So absent that and absent a good deal, where you see the M&A market still has some life to it, most companies are going to continue to just do what they do well, stick to their knitting, be very cautious and be proud of the fact that they're still being profitable. And they're going to wait for a catalyst, which, I think, will be interest rates eventually starting to move up and people taking advantage of that and/or the consumer getting much stronger, starting to seek more purchase, consumer products and services and then the companies starting to meet that demand. None of that's present today. It's not horrible. It's slow recovery, it's torturously slow, but there's no catalyst to jump on something earlier than you need to.

Your next question comes from Brian Foran with Autonomous.

I wonder if I can follow up on this point you made about it's tempting at this point in the cycle to stretch for growth and maybe people getting to mid and even late cycle underwriting standards in certain products. You referenced leveraged lending is one. Are there other parts of the market that particularly concern you? And maybe if I could specifically hone in on auto a little bit, since you have some slides on it in the back of the deck.

Yes, I'm going to have Bill answer the hard one. I'll take auto because that's very timely. We're one of the larger -- we're the seventh largest auto lender, so it's meaningful, 2.3% market share. But we're also one of the larger auto lessors. And we've been in that business for as many years as auto leasing has been around, so we're good at it. It has a lot of other attributes to it like end of term, used market sales values, all those kinds of things. And it would be -- one of the opportunities you would have is to enhance your residual value. And so if you're going to get a loan from Bank X, and they're going to say, after a 3-year term, your value is going to be x. And you will get it from us, and we say, after a 3-year term, your value is going to be, let's say, lower, then you're going to have a higher payment with our company because we're going to have you take a larger spread. When the car comes back in 3, 4, 5 years, that's when we have to meet our maker and decide whether or not we expected the value to be higher or lower, and then take an adjustment well outside of the interest income that would have been derived. So as an example, we're just -- we've done this business long enough, we're not going to do something any more than we would take a structural interest -- a structural -- a credit risk on a customer, hoping that they're going to get better when we don't see the evidence. And so autos has a leasing issue that's probably more germane. Let's pause for a minute though and also look at what happened with the CFPB last week, as they're starting to ring-fence the discretion at the pricing level in the auto sales rooms, and you know that the banks are now going to be held accountable for disparate lending behaviors by auto dealers all through the country, as it relates to the kind of upcharges they might provide a customer or add-on products they might deliver. So that's also going to be well worth watching in the next 90 days, to see what the banks are going to do. We immediately responded by ring-fencing the amount of latitude we give our dealers. We'll probably lose a little market share in the beginning, but we know that's the endpoint so we wanted to adjust quickly. And I think you're going to find that this starts moving toward a much more, probably, predictable pricing scheme in auto dealers across the country and probably margin compression, and that may well end up becoming an issue for affordability, as the dealers want to take on some of that profit back in another manner. So auto lending is really in flux given what just happened. But germane to your question, we're simply not going to enhance residuals or take the risk outside of what would otherwise be credit structure. So Bill for the other topics?

Yes, I think the other category would be commercial real estate. Historically, banks have liked commercial real estate because it's actually a pretty easy area to generate instant outstanding. There's always a developer with a project and seeking money. So that's an area that, over the years, has been subject to too much money going into too many projects. The way we manage that is we start with our customers. And the first thing we do is really underwrite, understand our customer. It's common that we do not necessarily do every project for our customer base. We look at the ones that we like. It's been a successful strategy for us for decades. So the commercial real estate is the other area.

I wonder, as a follow-up, if I could almost ask the opposite question. I mean, you've been pretty good at being countercyclical and maybe extending into products when others are still afraid to do them. And are there any opportunities that are still out there like that? And the specific one, I guess, I'm getting at is in residential mortgage. Alt-A has become maybe a dirty word, but at the same time, the whole market's doing 760 average FICOs. You cite yours at 765, with a weighted average LTV of 64%. Is there an opportunity to do some kind of prime minus business? And is this a good point in the cycle to be thinking about that?

I'd say less than -- a little different answer than the prime minus. I mean, we've held a lot of our underwriting fairly steady there, and we have the capability to do home equity up to 90% loan-to-value. We haven't changed that in several years. The issue being a lot of people are just not taking advantage of that, getting back to Richard's comment about sentiment, so it's available. We use it in some of our piggyback loans. But the volumes are just not that great. And I think it's less us changing our standards and more the market eventually coming back to them as people get more confidence.

Your next question comes from Keith Murray with Nomura.

Just ask you a question -- you're talking about loan growth. Are you seeing the ability to take share? And which particular loan categories are you seeing it?

This is Richard. Small business for sure. Five years ago, we started a trip to become a really high-quality small business originator, and we won -- we did it through our branch managers. And you're welcome to call any of them, all 3,100 of them. It's -- their job is to be a community leader and know that whole neighborhood like it was a small little town, and part of that goes along with being the bank for the small business owners in and around that location. So we've been taking market share. That continues to be one of our strongest growth both in what you'd call traditional small business, as well as SBA lending. We're the second largest SBA lender at national level at this point as well. So we see a lot of value in being good at that, and it is a real execution game. It's not so much just pricing and product, it's knowing your customer and giving them what they need. The other thing that I would say that we're continuing to focus on in terms of market share grab would be second -- first-position second mortgages. We've been very, very successful at that. It's -- for a lot of people, it's a way to get into the equity without having to go through the typical steps you would have to go for a first-position traditional mortgage. They're very high-quality customers. They like the product. They like the access, and particularly, they don't want to do another credit card. They still feel comfortable using the equity in their home, and those have been 2 really growth businesses for us. Bill, did I miss...

Yes. Well, I think, the other big area is really our corporate bank and especially their inroads into the investment-grade space, whether that's through commitments and taking joint lead or lead positions with a number of our clients. And with that, comes the investment-grade underwriting that we established in Charlotte. So I'd say that's another area that's come a long way in the last...

Yes, 4 years ago, 4 years ago, Keith, we didn't really even have that, and now we're leading transactions. And what comes with that too, Bill, is the fee business, which is part of the quid pro quo. So yes, that would be another good place. So we feel we've got a lot of room and space for market share growth in places we're still getting better at. But I think we also have the advantage of being ahead some of the curves on that, and we're going to play it out.

. And then on the payment side, you've mentioned the government spending piece of it having an impact. But what's your growth outlook for that business? A lot of clients ask the question. It looks like growth has slowed there. Just what's your view on this space?

So it's -- let me put it by piece. So the merchant growth is going to be a bit of a function of same-store sales growth, which will range somewhere between 3% and 5%, we expect, for the rest of the year. We'll grow a little bit above that because we're adding new customers, but same-store sales drives that. On the card side, it's going to be consumer spend and that -- what we're seeing is spending relatively stable, but the paydown of the loans continues to increase. In other words, revolve rate is such that people are paying down their outstanding debt, so that's what's impacting outstandings. And then on the corporate card side, as we said, we have a fair exposure to the government and T&E spend, both of which are weak for the reasons that Richard already has gone through. So purchasing, the traditional purchasing is stronger, the T&E and government is a little weaker so that will depend, again, on the sentiment on a go-forward basis.

And Keith I'll add, one of our hidden benefits, and it is hidden because it's still growing, is this international growth in our merchant acquiring. You've heard that we closed a deal with Santander last week. We've got this continuing growth in this early stage kind of nascent partnership with Citi down in Brazil. I was in Mexico City just a couple of weeks ago, where we have 400 employees, and we've been working on partnerships with some of the largest merchants in Mexico. And so these are businesses that are fairly young, a few years old, but they're the kind that have the great growth curve. So they're moving from red to pink to gray to black in terms of bottom line, and they've got great trajectories of growth. And that's probably something you'll hear about in future quarters, which isn't present in today's run rate.

Your next question comes from Betsy Graseck with Morgan Stanley.

A couple of questions, follow-ups. One, you mentioned earlier the mortgage origination revenues, 80% at app, 20% at close. Is there -- what drives that difference? Is it a function of the type of loan that you're originating?

No, you principally book the gain at lock and you book some of the miscellaneous fees at close.

Okay. And for your budget, when you're looking out 1 and 2 years, what kind of interest rate environment are you basing that on?

The budget that we planned under is very similar to the CCAR base case budget, Betsy, which is a basically low rate environment for the next couple of years at the low end, with some increase at the longer end towards the end of this year into next year.

Okay. So is it fair to say it's in line with what the FOMC is suggesting they're going to do with rates or not?

Yes, it's very close to the Blue Chip consensus.

Okay. And then lastly, on payments space, so obviously, there's a lot going on in the payments industry right now. I just wanted to get your thoughts on how you're thinking about positioning USB longer term, specifically around some of the payment strategies in the U.S. You know that JPM and Visa have signed into a unique partnership. Is there anything that -- in that make -- would make sense for USB? Obviously, you've got your own merchant acquirer, so I wanted to see what your thoughts are there. And then, separately, in non-U.S., you've been increasing your footprint pretty significantly in the merchant acquiring. Is there any more that you could do there? And then lastly, on the Internet space, what kind of options do you have to increase your share of wallet?

Great. This is Richard. I was going to say payments can now mask as either cards or mobile banking, right? So we'll take those separately. On the traditional payment space, we, too, have relationships with partners that we just are working on. And we don't necessarily announce them, so you can read between those lines. By the way, it's not exclusive, what you mentioned with the other banks. So we are in R&D mode in a significant way with all types of ways to use our acquiring partnership with merchants, and in some cases, directly to consumer, a la Square and some of those things that you've read about. So we're not left out of anything. Nothing has come across our desk that we wish we had been a part of, and we're just more likely to announce it once it's been tested and out, as opposed to the fact that we're going to test it. So just trust us, we have a different cycle in which we announce that. As it relates to international, once we get this beachhead down in Brazil, there's a lot of good growth in South America and, as our reputation builds, like I believe it will, as a partner with Citi, where they have a great deal of relationship, we'd expect to see us moving through South America rather like we did moving from west to east across best -- Pan-Europe and then, eventually further along, perhaps down into the Pacific Rim. We're more careful in Asia Pacific because we're not exactly sure of the politics in some of those environments. But like anywhere else, our entire story has always been built on the partnership of another bank that's local to that market, and we work with them to become their preferred merchant provider. It's usually a rent-to-own kind of a relationship, and we bring our international platform, that we've built years ago, and bring it to any country and flip it on and we start doing business. So there's really very few parts of the world, I would tell you, we're not interested in, but we're going to be careful because of the politics that go along with doing business in countries that we may not have the experience, and the partner is going to be more important probably than the country itself. And then as it relates to just mobile payments, we're spending an inordinate amount of time and energy on that as well, both keeping ourselves open for all channel options and for all partner options, which, in many cases, are mobile providers and some of the less-known brands that are being built in garages across the country. So we're spending an inordinate amount of time on that. And you'll see some of our M&A will very likely be the continuation of traditional merchant acquiring, but I will bet you're going to see some purchases of some less-known capabilities and technologies as it relates to the channel of moving money in nontraditional ways, particularly through mobile. So more of that will come, but you'll hear about it, in our case, after it's working, not the announcement of the idea.

And then, on the mobile side, that would be something that you could then provide to other financial institutions that you are running their payments business for?

Excellent point. So we will -- as a correspondent bank is to smaller banks, we've been that in the merchant acquiring space forever, where many of these regional banks, smaller banks use us to be their merchant acquirer under private label. We will do exactly the same thing with mobile technology. We'll build it, we'll brand it, we'll white-label it, we'll sell it to them and they can have the benefit. We'll also get the markup.

Your next question comes from Chris Kotowski with Oppenheimer. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: I hear what you say about consumer confidence and people not wanting to lever up. But I guess I always kind of viewed that loan growth, and especially consumer loan growth, kind of should go with nominal GDP. And you see auto sales up 40% off the bottom. And while you were speaking, housing starts hit the tape. It was over 1 million units for the first time in a couple of years and 2x off what it was on the bottom. And you think about all the furniture and rugs and all this stuff that goes with housing starts. And just how can it not translate into loan growth? And I'm wondering is it purely consumer behavior or is it some of the new strictures that are on you. Is it like the inability to raise card limits and so on? I just -- how does all this other activity, this [indiscernible] activity not translate into loans?

Chris, those are all good questions, and we consider them all the time, too. First of all, let's talk about auto loans. Auto loans are probably the squeeze play between the lack of equity in homes and the lack of people's willingness to extend their unsecured credit card any further. So it used to be home equity would mask a great deal of the auto purchasing, and even credit cards would end up allowing people to feel more comfortable that they had other alternatives to pull on. People are paying down their credit card more than they're using it, and people's equity, while probably starting to warm up, hasn't been that good that long for them to be comfortable. So it makes sense to me that autos are probably the single and exclusive space of strength in the consumer side. That's how I've put it into my head at least. But as it relates to kind of the next steps, you've got the consumer is -- like a small business, like a large corporation, they've figured out that they can be better with their budgets than they thought they could. They can find out they can live on less than they thought they could. And they do not want to get -- once burnt, twice shy. And so the behaviors are reasonable, but they're more emotional than they are practical or financial, and I think this will eventually recover as people feel more comfortable. They now know what their cost is going to be in their paycheck every 2 weeks now that FICA has been changed. They're probably getting a better sense of what's going to happen in terms of the cost of gasoline as we move into the summer months, and they start looking whether they've got money for a vacation. This is the perfect time of the year where we're in a flux to figure out where things are going to settle. And in our company, April and May pretty much tell us the rest of the year. We don't trust the first quarter for a lot of reasons. I don't go -- have to go much past May to know how the year is going to go, but we're right on the heels of figuring out what the consumer behavior will be. And I'll tell you it's probably going to be cautious because, for the same reasons I mentioned for corporate, there's no catalyst, but for to be careful and protect yourself, given the uncertainty of what things could happen. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: So your view is it's purely behavioral, it's not the new regulations and structure?

Yes, thank you. For our company, it's not the latter. We are not bound by capital, by regulators, by any enforcement actions. We're simply doing the business we think is safe, sound and repeatable, and so far that's been aligned with what the regulators would expect.

Yes. And I'll also point out the -- I mean, the housing starts statistic is heavily weighted now with multifamily starts, so the single family, I see, is actually down. And so when you talk about consumer sentiment, I mean, it's, yes, you build an apartment building, you need carpet, but what you're talking about is this consumer going out and buying a new home and refurnishing and et cetera, and that's a different behavior. And that's still fairly tepid.

Your next question comes from Dan Werner with Morningstar.

I apologize if -- I got in the call late. With regard to the allowance of loan losses and given that you're improving asset quality and even provisioning slightly less than what you're charging off, where do you see the loan loss reserve long term?

Well, I'm not going to comment long term but...

Or at least for the rest of the year.

That's still very...

That's forever.

We usually go a quarter at a time. But in general terms, there's still a little more room for improvement in the credit profile. There's still wholesales almost back to what I'd call prerecession levels. But there's still a few things to work out so that will give us a little more relief on the allowance. But basically, it's similar to what it's been doing.

Your next question comes from Todd Hagerman with Sterne Agee. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: Andy, a couple of questions, just some follow-up. First, in terms of kind of you were mentioning on the spread outlook kind of stable to maybe some growth. What I'm curious about is how we should think about the earning asset mix with the balance sheet. Obviously, it's been growing. And one of the things that stands out is really the growth in mortgage held on balance sheet, and this quarter, we saw a bit of a drop-off in terms of held for sale. So I'm just wondering how to think about kind of the ongoing mortgage retained on balance sheet, how you think about perhaps the fee income versus the spread component in conjunction with your comments on the spread.

Right. So there are a few questions in there. First, let me make it clear that qualifying mortgages, Freddie, Fannie, we are not holding in our balance sheet other than held for sale, so we are selling those. What you're seeing in terms of mortgage traditional loans on the balance sheet is first, our Smart Refinance product, which is that branch-based mortgage originated high-quality customer, that is not a Freddie, Fannie product. That's what you're seeing growing, and we would expect continued growth there for the reasons we've talked about. In terms of, I want to be also clear, net interest income, we expect to be relatively stable to some growth. We do still see some expectation for that 4- to 6-basis-point decline more than [ph] offset by the earning asset growth. And finally, I would say that I expect loan and securities growth to sort of be in sync. So we've stopped in terms of the build on the securities portfolio and it'll grow in conjunction with overall balance sheet growth. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: Okay, that's really helpful. And then, just switching gears a little bit, in terms of, again, like the mortgage outlook, if you will, but in particular on the reps and warranties. You guys had a nice drop-off this quarter in terms of the associated costs on the repurchase risk, as well as on the legal side, as well. I was just wondering how we should think about the provisions, if you will, on a go-forward basis. Is that more in sync with current production levels? Are we going to see more of a drop-off and decline in the reserve? Or how should we think about that?

Right. So as you recall, in the fourth quarter, we increased our reserve, principally due to the look-back period on Freddie Mac going back a couple of more years. So that was unusually high. The first quarter may be a little bit low because of timing and some of the work-through of that additional look-back period. But I do expect that to sort of be stable to down in future quarters. So I think we've reached the peak there in terms of the addition to reserve, and we'll start to see it come down. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: Okay. And then, similarly, I don't know if the question was addressed before, but just in terms of litigation. Again, relative to some of your bigger peers, the legal, while it's difficult to predict, if you will, it seems like we might be in a better or kind of more stable run rate, if you will, in terms of how we think about the legal going forward in terms of in your existing accruals.

There is no unusual legal accruals in the first quarter. As you recall, the fourth quarter had the $80 million, but first quarter was relatively straightforward. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: Okay. So first quarter looks like more of like consistent in terms of the outlook?

Nothing unusual from a litigation reserve standpoint.

Your next question comes from Kevin Barker with Compass Point. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: 15% markup in the MSR this quarter, and the MSR looks like it's valued at about 7.7% of total Tier 1 common equity per Basel III. Could you just talk about how you expect to manage that if the MSR continues to mark up, if we have an increase in rates here?

Yes, so you're talking about the potential impact to reduction in capital? Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Yes.

Yes, so we have plenty of room there. So part of the reason for the increase in the value was the increase in rates that we talked about. But from an overall standpoint, we could almost double our securities port -- or MSR book and still not have the haircut from a Basel III perspective. So we're not bound by that. We continue to expect to grow the mortgage business, as we talked about. And again, as we talked about, we expect that to grow more in the second quarter relative to the first quarter because of the seasonality, but we're not bound by MSR in capital. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Is part of that due to deferred tax liabilities associated with MSR?

A lot of -- there's a lot of different calculations, but that is not a binding constraint right now. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Okay. And then also you had -- 11% of your loans were HARP, which is similar to what you had in the last couple of quarters. Was the reason why the HARP mix continues to stay elevated due to you're doing cross-servicer refis? Or is it just your own book where you're doing HARP loans?

It's primarily our own book.

Your next question comes from Chris Mutascio with KBW. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: Andy, I want to make sure I wrote down a couple of things right. Did you say the gain on sale was down only 15 basis points? Because I'm coming out with a much bigger hit to the gain on sale margin this quarter.

Yes, and the reason for that -- and I know, Chris, where you're coming from. So the reason for that is you calculated it on production, which is what we're putting in our reports. And I'm doing it on net apps after fallout expectation. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. I just make sure...

And our apps -- right, so production while it looks sort of flattish, apps are down closer to about 20%. So if you go through the math on that, you'll see the gain on sale margins down 10 or 20 basis points. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that explains the difference from what I was doing. Staying with mortgage for a quick second. You mentioned that 2Q could be up over for -- over 1Q in terms of Mortgage Banking income. There's kind of 4 puts and takes in mortgage. There's production volume, your gain on sale margin, I guess, servicing and your rep and warranty expense. Of those 4 little subsets, which one is going to be better than first quarter in order to drive an upward pressure in Mortgage Banking, first to second?

Application volume. The others might be better, too, but the application volume is going to be the key driver. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: And that's just because of seasonality.

Principally seasonality and principally because of that slowdown of the curve with the increasing rates in the middle of the first quarter. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And you're pretty confident in this?

I tell you what I know.

We only say what we know.

Your next question comes from Nancy Bush with NAB Research.

I have a capital question for you, Richard. I mean, the big discussion, if you want to put it that way, today, is the proper level of capital for the systemic banks and this whole Brown-Vitter and is it going to be 10%? Is it going to be 15%, whatever? I think we're all sort of coming to the conclusion that the largest banks are probably going to have to have more capital even than Basel dictates. So do you see this as a competitive advantage for you? Or do you think that these demands for higher capital will then trickle down to the next tier of large banks, in which you and a number of the other large regionals reside?

Nancy, good question. First of all, we're just a little tiny bank from Bloomington [ph]. I want to make sure you all know that. I'm convinced that there will be a ratability here. There will be a sliding scale. Even if it doesn't look like it at first, if you recall the G-SIFI or G-SIB requirements, we were the first bank not to be given one, but we were uncomfortable to have 0 as a buffer in our minimum capital charge. We just know it couldn't be 0, but we were not given a number, so we picked 50 basis points. I think that this whole "too big to fail" issue has been -- we have failed as an industry to provide confidence to the people who worry the most, that we really have ring-fenced this problem by 6 ways to Sunday. And as the bank that might otherwise look like an advantaged bank, because we're not typically in that first conversation, we're going to be affected by it, in some manner, as well. And I believe, for the good of this country, we need to have banks larger than us and we need to have banks smaller than us. But we are preparing to be part of something, and we think we'll get our pro rata share. I don't think it'll be excessive, but I don't think it'll be advantageous either. I think we'll get our fair measure of whatever the rule is here to try to make banks safer. And if capital's a measure, so be it. If it's loan losses, it might be that. It might be a liquidity ratio. It could be all kinds of things. I'm worried that "too big to fail" is just introducing the idea that we need so many different ways to protect the banks that we'll become so risk-free that we'll end up losing our benefits to those of you who invest in us. So that's a bigger worry, but I think we will get whatever is fair and assigned to us based on our size and our complexity. I don't see it as an advantage or a disadvantage. I think the whole thing, though, is a disappointment, because we should do a better job of convincing people who are worried that we really have this ring-fenced.

Do you think that the concept of risk-weighted assets is going to still be with us? Or are we going to go back to just assets?

Nancy, this is Andy. I think we'll still have risk-weighted assets, and maybe a tangible ratio will come into play in addition. One of the things I want to highlight, in our bank, our risk-weighted asset Basel III to our total GAAP asset is about 87%. So we're not -- we don't have a huge discount on the risk weightings that you're reading about in some others. So it may come into play, but it won't be a big deal for us.

Our final question comes from Moshe Orenbuch with Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: Back on the payments. I guess looking at least through the first 2 months of the year, Visa had, had -- had kind of talked about their volume in U.S. credit. And your consumer business seems to be somewhat slower. I know you mentioned T&E being somewhat slower, but are there any other things going on? And kind of got a follow-up on the partnership thing that you had mentioned.

Moshe, on the merchant side, our portfolio is heavily weighted toward resorts, airlines, hoteliers, not retail. And those are areas that are typically very slow in first quarter, they always are. And they're even slower right now based on the T&E spend of some of the corporations. So that's why we might be slightly disparate, because we're not heavy -- as heavy on retail as the averages you would hear from MasterCard or Visa. Moshe Orenbuch - Crédit Suisse AG, Research Division: Okay. And you mentioned kind of talking to Visa about potential partnerships, but waiting until they're a little more clearly defined. What's your view as to what that could accomplish?

Well, I won't talk to any one specific deal, but the goal that everyone's trying to figure out is who's going to carve out what space, as it relates to the interlopers that are not financial institutions, in moving money for people in nontraditional ways. I should write that down because that was a long sentence. But the fact of the matter is that's what we're trying to do. When you're a merchant acquirer, you're the only group that has a shot at it. And if you blow it, then you're going to have an interloper come in and take a position that we've otherwise had as one of the people -- trusted parties in a transaction between consumers and merchants, so that's really where this is at for us. That's why I tell you we're dealing with many partners, we're dancing with a lot of different folks. We can do all kinds of different dances if we need to, but we're not leaving ourselves out of the conversation. We're in virtually every one to decide what we think is the surviving technology or the surviving partner or the surviving customer behavior, and it's changing pretty quickly. So all you should know from us is that we're not waiting and going to be left standing by ourselves. We're out trying all kinds of different things. I just think it's a more prudent approach to deliver on things and show you even pilots before we announce partnerships. You can just trust me on this call. We're partnering with everybody you'd want us to, to make sure we're not leaving out the advantage that accrues to a 30-year merchant acquirer, who's already in this space and does it very well and everybody wants to be a partner with. Moshe Orenbuch - Crédit Suisse AG, Research Division: Got you. One last follow-up and that is, you did mention M&A. And it's interesting because, after a couple of years in which Visa, MasterCard, American Express have been making a lot of acquisitions and there'd been a lot of acquisition in this space, it kind of died out. Could you talk a little bit about what you might be thinking about in terms of relative size of transactions? Because you sounded like there's stuff going on.

Yes, yes. It wouldn't be very big. I think I tried to mention it would be names you haven't heard of and people who put it together in a garage 2 years ago. It's a technology, intellectual property we'd like to buy. We're big enough that we can bring it in-house and we can manage things and do them ourselves. But kind of a nascent technology that we think starts to work is better brought in-house. We can then own it, probably bring them in with us and have them help us to derive some of that. But we're better off to buy their idea than have to try to create a laboratory where we have everyone trying to come up with something new. And there are people out there doing that today. It will not be names that you're going to be looking at today in the paper, and they're not going to be big transactions that would cause you to change the sense of balance of how we make our money.

Okay. Thanks, Brooke, for hosting. And I want to thank everyone for listening to our call. If you have any follow-up questions, please feel free to call us in Investor Relations.

Thanks, everybody.

This concludes U.S. Bancorp's First Quarter 2013 Earnings Conference Call. You may now disconnect.