U.S. Bancorp (USB) Q4 2016 Earnings Report, Transcript and Summary

Welcome to U.S. Bancorp's Fourth Quarter 2016 Earnings Conference Call. Following a review of the results by Richard Davis, Chairman and Chief Executive Officer; and Terry Dolan, U.S. Bancorp's Vice Chairman and Chief Financial Officer, there will be a formal question-and-answer session. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately noon Eastern standard time through Wednesday January 25th, at 12 midnight Eastern standard Time. I will now turn the call over to Jen Thompson of Investor Relations for U.S. Bancorp.

Thank you, Melissa and good morning to everyone who has joined our call. Richard Davis, Andy Cecere, Terry Dolan and Bill Parker are here with me today to review U.S. Bancorp's fourth quarter results and to answer your questions. Richard, Andy and Terry 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, Jen. And good morning, everyone. Thanks for joining our call. While the economy was challenging, and often unfavorable in 2016, it was a good year for U.S. Bank. As you can see on slide 3 of the presentation, we reported record net income of $5.9 billion and record earnings per diluted share of $3.24 for the full year. Our 2016 return on common equity was 13.4% and our efficiency ratio was an industry leading 54.9%. We reported strong loan growth and strong deposit growth and we returned 79% of earnings to shareholders through dividends and buybacks. I'm also pleased with our fourth quarter results which are highlighted on slide four. In the fourth quarter reported net income of $1.5 billion or $0.82 per diluted share. Healthy balance sheet growth supported 2.1% sequential growth in net interest income and strength in fee businesses such as payments and trust drove 3.9% noninterest income growth, compared with the year earlier. Credit quality remained stable in the fourth quarter. Turning to slide 5, our profitability metrics continue to be among the best in the industry. In the fourth quarter, our return on average common equity was 13.1% and our efficiency ratio was 55.3%. Terry will now provide more details about our fourth quarter results. Following Terry's remarks, Andy, whom we announced yesterday will assume the CEO role at the April shareholder meeting this year, while provide some insights about our opportunities for growth in the current environment. Terry?

Thank you, Richard. I'll start with the balance sheet review and then discuss our fourth quarter earnings trends. Turning to slide 6, you can see our loan and deposit growth trends, average total loans outstanding grew 1.1% on a linked quarter basis and increased 6.2% compared with the fourth quarter of 2015 or 5.6% excluding a credit card portfolio acquisition at the end of the fourth quarter of 2015. In this years fourth quarter, the linked quarter growth and our increase in average loans was led by a rebound in growth in average total commercial loans of 1.6% and strong growth in several consumer categories. As expected and in line with industry trends, residential mortgage loan growth slowed in the fourth quarter, reflecting both seasonal factors and a slowdown in refinancing activity driven by higher rates. Also commercial real estate mortgages were essentially flat compared with the third quarter of '16, as customers paid down mortgages and evaluate the potential of policy changes and the outlook for rising rates. Total average deposits increased 11.8% compared with the fourth of 2015 and were up 3.3% on a linked quarter basis. The sequential growth was highlighted by a 3.5% linked quarter increase in non-interest-bearing deposits. Turning to slide 7. Credit quality remained relatively stable for the third quarter. Net charge-offs as a percentage of average loans were 47 basis points in the fourth quarter, up one basis point compared with the third quarter and flat with a year ago. A seasonal increase in our credit cards net charge-off ratio offset declines in commercial and commercial real estate net charge-offs. Nonperforming assets decreased by 3.7% compared with the third quarter. Improvement was driven by commercial loans, residential mortgages and other real estate. And while NPAs increased 5.3% versus the fourth quarter of 2015, NPAs as a percentage of loans, plus other real estate rose just one basis point to 59 basis points. We continue to add to the allowance for loan losses in the fourth quarter to support loan growth. I'll move to earnings results. Slide 8 provides highlights of fourth quarter results versus comparable periods. Fourth quarter net income of $1.5 billion was down 1.6% compared to the third quarter. The fourth quarter is seasonally lower from a fee revenue perspective each year and this year was no different. On slide 9, you can see that total revenue increased by approximately 1% in the fourth quarter, compared with the third quarter and grew 4.3% on a year-over-year basis. Our year-over-year revenue growth was primarily driven by solid loan growth, funded by strong deposit growth and strength across our fee businesses. Turning to slide 10, net interest income on a taxable equivalent basis increased by 2.1% compared with the linked quarter and was up 4.6% compared with the prior year. Linked quarter growth reflected 2.1% on average earning asset growth and a stable net interest margin. The benefit of higher rates to loan yields was offset by higher average cash balances and lower yields on security purchases and reinvestment rates on existing securities. Slide 11 highlights trends in noninterest income which declined by 0.6% versus the third quarter, reflecting typical seasonal patterns and a 24% decrease in mortgage banking revenue. The mortgage banking revenue decline was in line with our December guidance and reflects both seasonality and a drop in refinancing activity due to higher interest rates. On a year-over-year basis, noninterest income increased by 3.9% driven by strength in payment services revenue, trust and investment management fees and mortgage banking revenue. I'll highlight a couple of items within noninterest income, merchant processing revenue grew 5.6% on a year-over-year basis, adjusting for the impact of currency rate changes Trust and investment management fees increased 9.5% year-over-year, reflecting lower money market fee waivers, along with account growth, an increase in assets under management and improved market conditions. Given the recent increase in the short term rates the impact of fee waivers in 2017 will be minimal. Turning to slide 12, noninterest expense increased 2.5% compared with the third quarter, in line with our expectation. On a year-over-year basis, noninterest expense increased 6.9%. The primary drivers for the increase on both a quarterly and year-over-year basis were higher compensation expense, professional services expenses and other noninterest expense. Compensation expense reflects hiring for business growth and compliance programs, including addressing the AML Consent Order and DOL implementation. We believe the trajectory of cost for these programs is stabilizing. As a reminder, professional fees and other expense are seasonally higher in the fourth quarter. In the fourth quarter other noninterest expense was driven by higher costs related to investments and tax advantage projects which abates somewhat in the first quarter of 2017. I'll finish with a look at our capital position. Turning to slide 13, our common equity Tier 1 capital ratio estimated using the Basel III standardized approach as if fully implemented at December 31 was 9.1% which is well above the 7% Basel III minimum requirement and our internal target of 8.5%. Our tangible book value per share was $18.70 at December 31st, up 7.2% from a year ago. In the fourth quarter we returned 81% of our earnings to shareholders through dividends and share buybacks. We expect to remain in our targeted payout ratio of 60% to 80% going forward. I will now turn the call over to Andy.

Thanks, Terry. I'd like to provide some insights into our thoughts on how we are positioned for growth in the current environment. For the full year 2016, average loans increased by 6.9% and we think are the full year 2017, a 6% to 8% growth rate is very achievable. We expect the pace of growth is likely to be more weighted towards the later part of the year as customers become more comfortable with the economic future post-inauguration. In the first quarter, we expected loan growth to be similar to the linked quarter growth experienced in the fourth quarter of 2016, as customers consider the implications of potential policy decisions and tax decisions of the new administration. We also expect relatively flat growth in residential and commercial mortgage loans as seasonally slower growth and credit card balances. Coming out of the first quarter, we are optimistic that an improving economy will spur more consumer activity, which will help both our payments businesses and our consumer lending businesses and improved economic backdrop should also result in increased business spending on development and capital investments, and we are well positioned to capture our fair share of that lending and fee activity. Given the improving interest rate environment, including the current shape of the yield curve, we expect that the net interest margin or the NIM will expand modestly in the first quarter. We look for mortgage revenue to decrease 10% to 15% in first quarter, in line with an expectation for lower refinancing activity, reflecting both seasonal trends and the impact of higher market rates. We expect expenses to decline slightly on a linked quarter basis, primarily driven by seasonally lower professional fees and a decline in tax credit amortization expense, resulting in a relatively stable efficiency ratio. Finally, given the underlying mix and quality of the overall portfolio, we expect credit quality to remain relatively stable. I'll now turn the call back to Richard.

Thanks, Andy. And I'm proud of our record fourth quarter and our full year 2016 results. We've maintained our industry-leading performance measures and reported a 17.7% return on tangible common equity in the quarter, and an 18% return for the full year. That concludes our formal remarks. Andy, Terry, and Bill Parker and I would now be happy to answer any questions.

[Operator Instructions] Your first question is from John McDonald with Bernstein.

Good morning. Good morning, Richard and Andy. Congratulations to both of you on yesterday's announcement. I was just wondering…

Thank you.

Just wondering, Richard, if you have any additional color to share on what drove the timing of the decision to do the transition now. Obviously it has been well-planned but just what drove the exact timing? And then also what exactly will be entailed in the role of Executive Chairman for you going forward?

Thanks, John. I know you all be disappointed, you can't kick me around anymore, that’s the number one goal. First of all, this was very well telegraphed and I want to thank you for setting it up that way. You know, I hit my 10 year anniversary as the CEO of the bank last month and many years before that I conferred with the board and our senior leaders and told them that I had a couple of thoughts that attended to that notion, that at 10 years I think it's the right time for a transition. I think that's for any company of any type and it seem that we are about three years away. Second point, John was that our success was sitting right here. Andy, was clearly becoming the perfect person to lead the company based on his talents and his skills. I had worked with him seven years as a partner at that point and I want to make sure that as a board, and as a CEO we telegraphed him, first of all, that he was a candidate and it was up to them to make that final decision and that the candidacy wouldn’t come eight years from now you know, when I am 65 and hi is 62, and it seemed appropriate that we lockdown that succession as soon as we could and that we started that process privately back then. And then equally important to me, but it's just a personal thing for me, I want to do something else in my life that’s entirely different. I call it a calling, if you will, I don't exactly know how to explain it. And I know it's a little odd to have a 58-year-old healthy CEO leaving and to go nowhere. But that's really what it is because I'm not leaving this company, I'm handing it over to a great management team, and a great leader and I'm looking forward to being successfully part of it the future as an advocate and a exclusive partner in this part of the banking environment. So I'm really going off to do something uniquely different and I'll see what comes about in the next few months. As you know I'll be the CEO for another 90 days until April 18th and I'll be full in on that job until which time our shareholder meeting in Nashville will hand over the reins. I'll then step up to be the Executive Chair. And what that means, John is really what I am now. So I think of it this way, I had three titles two years ago, I gave Andy one of them last year, I'm giving him another one in April and I am keeping the last one because I am selfish. I am going to chairman for a while until the transition is ensconced and complete in both the Board and the Street, you guys are comfortable that we've made that transition and its my hope that there is a lot of continuity and sustainability of what we did and yet I also hope Andy feels the permissions to do what he needs to do and make adjustments into the future. So as a Executive Chair we're not telegraphing that we're separating the titles of Chairman, CEO permanently or just doing it because we would do that in any succession. We think that's one of the best practices. And then in the future whenever I move away and the Board has a decision either merge the two titles again or not and that’s the decision we don't have to know or telegraphed now because we don't have that decision afoot. So hopefully that’s clear and I'll be working with the lead director as a partner and that's what happens when you have an executive chair and a lead director, we'll work together with Andy to guide the board and to give him guidance to manage the company.

Okay, great, that is super helpful. Thank you, Richard. And just a follow-up then on expenses. When you think about the year, it seemed like 2016 for U.S. Bank was a year of kind of digesting maybe an above average expense drag. You mentioned a few things like DOL, consent order, it seemed like there were some compliance costs, maybe some stepped up investments. Just wondering as you look at the operating leverage dynamics for 2017, does it get better from both ends with higher rates helping revenues and maybe easier comps on expenses? Could you flesh that out a little bit?

Yes, I will and then I'll give to Andy to color. The answers is yes, you are right, I work from both ends. Look, I'm more disappointed than anybody that we hit that 55% efficiency ever. It’s a reality, its something that we needed to do. A big part of that is the AML Consent Order and you know I think most banks are probably dealing with some form public or private of the consent on the issue for AML and so a remarkably expensive process. I mean, remarkably, and we underestimated that, but we're able to handle it as we go forward. As Terry said that’s stabilizing now only to mean that it's peaked, but also mean, we don't know when it starts to come back down, but it will definitely come back down because it's got and end point, its a consent order. I will say that that's a fair amount of the number that's moved us from what might have been 53 or 54 to the 55 and we'll see that come down. DOL is also a time vested event that will come and go by middle of this year and we said before we're investing heavily into it. We've got a great partner. We believe we've got the right solution and no matter what happens in Washington, we would do this anyways. So it's not bound by any kind of regulation or changes that might occur. So those are two big enough issues that have taken our efficiency ratio, our expenses up a little higher than we like, but we think that they sustain and they start moving down. And then you know as well as anybody, the fact that the interest rates are starting to move and that the curve is steepened, while that’s the other benefit. And so on both ends let's call this and probably this quarter which should be pretty flat on efficiency, probably the high water mark and then we'll get back to places you expect us to be. The other thing that’s sitting underneath those numbers is this remarkable cost of innovation and technology and we can talk about it until you guys stop listening, but it will only show itself in the future when you'll see which companies really made those investments and we're ready to jump to a new kind of real-time payments, mobile environment and those that didn't, we are one that is. And so are capital expenditures are right now and again this year, probably twice what they were many years ago, and probably half again what they need to be in the future years, but we're spending that kind of money to get this thing ready for this environment, its going to change pretty quickly. That is also a time bound issue where that CapEx starts to come down, probably this will be another peak year and then we'll start moving down. So everything moves back to getting into the low 50s without a lot of work, but with time passing. Andy, do you want to…

And I'd Richard. So as you said we expect two rate increases in '17 mid year and in December, given that and the expectation for the stronger economy, plus the brand and innovation investments we made. We expect accelerated revenue growth in 2017 and positive operating leverage.

Great. Thank you.

Your next question is from John Pancari with Evercore.

Morning, John.

Morning. I just want to get a little bit more color on what you are seeing in terms of loan demand and borrower appetite post the election. And where are you seeing strengthening? Is it in certain markets like in some of the borrower appetite in the Midwest given some of the manufacturing implications or is it some of your other markets? Thanks.

John, I'll start and then I'll hand it to Bill for a little bit more detail. So first I will tell you that there's more optimism and positive commentary for a lot of our business customers. But we haven't seen a significant change in utilization or actually take down of credit yet. So while the talk is there, the actual action is not yet shown itself. We do see a steady growth in middle market, small business, and a higher corporate loan growth, and auto is strong as is the mortgage activity. But again, because re-financings are down we will expect that to diminish. But again, the key point I would make is, we're not seeing huge changes. In fact, it's relatively flat in terms of the overall utilization rate and then there are couple of areas that we're choosing not to be as active in, and I am going to let Bill comment on that.

Yes, what is Andy is referring there is commercial real estate, we do see some of those markets as being sort of late stage credit cycle. If you look back, we had fairly robust growth in our construction, real estate construction book and that's slowing now, its even slowing with you know our client base, they are being more cautious. Multifamily is an area that if you look at the forecast, there are forecast, its pretty broad-based of potential rent declines in a lot of the major cities. So we're been more cautious there and then on commercial mortgages soft of the term portion we've been fairly flat to down in that area and there is very aggressive competition for long-terms, fixed rate, limited covenants, to no covenants, non-recourse and that’s just not a market that we play in. So that's one area where we're just to going to see lower growth based on what the business we do.

You know, John, this is Richard. We've been here before 10 years ago when we started to see the bifurcation of loan growth by different appetites, by different banks and it always sounds a bit like a hollow victory to say, we're just not to be as aggressive, we're not going to fight on terms, we're not going to fight on tenor, we're not going to do certain kinds of kinds of loans and it might sound a little bit of an excuse, but it's really part of the strategy and it’s the thing we're going to stick with, we're not changing that approach. I'll give you an example, commercial real estate $43 billion portfolio, $17 billion of it is in small communities, because remember we're really kind of a community bank at heart and there's a lot of smaller banks that are doing some things that you guys aren’t even writing about because you don't follow the small banks, but we're in the middle of that and we're not going to play. And while it be easier to give you guys some loan growth in certain areas, it won't be on terms or tenor or stretching or underwriting on any category. It will be on price because we've got that cost advantage, we're going to use that advantage where can. But when you do price you do it only for AAA kind of customers and then you have the higher quality customers who by the way in this last quarter also had access to the capital markets more than other customers and you'll see our capital markets, these are much higher than they were expected, while loan growth might have been on the low end of our range, its probably a good outcome because it reflects quality of our customers. So we're going to stick to that and that’s kind of thing you won't see change. And while we might take a little heat because I know loan growth is a good proxy for a healthy bank, its got to be at the right quality, the right terms and we're just going to stick to our guns.

Okay, that is helpful. And then on that competitive point, I just want to get an update from you on a comment you made at a conference this past quarter around how much of the tax benefit could ultimately accrete to the bottom line. I think you had indicated that about 50% to 60% of any benefit that you do see from corporate tax reform could accrete to EPS. Is that still your thinking? Do you have any update there and any additional color you can get us on how do you come up with that general [ph] range? Thanks.

Sure, John. And this is Terry. So I mean, obviously there are still a lot that has to happen with respect tax policy both in terms of the amount of the rate and you know what ends up continuing to be deductible and all sorts of things. But when you think about the tax credit business, the tax credits will still be worth a hundred percent all the rest of that stuff. But you know the area that we would you know see an impact, I think is really related to the tax benefit that you get on the investment that you make in those assets. So basically the tax benefit on the shield. But to keep it simple, if we saw a tax – a corporate tax rate decline of 10%, we would expect our effective tax rate to benefit or go down by about half of that or about 60% of that. So think about five percentage points to 6 percentage points in that range, that's essentially what we would expect to see the change in our effective tax rate and its because of the various dynamics associated with how tax credits work.

Okay, so that is not any -- that doesn't factor in anything competitively like the expectation that some of this benefit could get competed away?

No, I know what you are talking about and we don’t see that, that’s not - I'm not predicting that that’s going to be given back by the banking industry as a form of competition. This is just a singular event that could happen. By the way, I am going to a tax benefits unless you guys know something I don't, it’s really has to go with the budget process. So this is probably more a late '17, '18 issue, much as we all want to be immediate. And I think that's one of the reasons customers were also a customer of others are holding back on some final decision. So we see what and when things happen in taxes is one of them. But we're quite efficient now, we're proud of where we are, so I don’t want to be punished for having been more tax efficient than others, but it also means is a little less benefit if the most aggressive tax benefits accrue, we've get a little bit less of it, but its still a benefit of its starting point.

Got it. All right. Thanks again, and Richard and Andy congrats.

Thanks, John.

Thank you, John.

Your next question is from Elizabeth Graseck, Morgan Stanley.

Morning.

Hi. Hi, good morning. Thanks so much. Couple of questions. Just one as a follow-up on the compete away question that has been coming up on a bunch of calls. The corporates that you work with, the larger they get the more I think they are aware of how much wallet share and what the value is that they are providing to you. So I guess the question is why do you think that it won't get competed away given that it tends to be a pretty dynamic process in those discussions?

I'll go first and then Andy can jump on. They do know their wallet share. By the same token part of it is by design because they've learned over the years they want to be double or triple down with one partner, right. So first of all, they have – and need to have more than one partner in and above just from competition and rate. Second thing is, if you look at the way the industry is handling the rate increases that relates to the liability side of the balance sheet, right, we're a little smarter this time and we're not giving it all the way immediately and we're not – we're not colluding either because we never talk. But we're also being very careful and thoughtful about protecting what needs to be a wider range between the cost of liability and the cost of asset and if that behavior continues, I think the same action comes with taxes where we'll find it, we do it in pricing and yet the world still reasonable and aligned. And I think with taxes its going to be the same thing, we're all going to want to do our very best to protect what benefits our companies and help our customers do well, but company is one we're like to bank that and find it another forms, particularly in credit quality and in cost of funds. So I am saying others won't try it, but we also never really been competing on that level. If somebody wants to compete on price, bring it on because we can beat him every day for the highest quality customers.

And to that point Richard, you know we already have the advantage of best rated bank which gives us a plenty of an advantage, which will already advantage in terms of getting new business and or achieving higher return. So that's the other component to it.

Okay. That’s helpful. Maybe I could also ask a separate question on the NIM outlook. I think, Andy, you mentioned expand modestly in -- was it 1Q '17 or 2017? But just wanted to tie that in with the commentary on this deck where you talked about how the reinvestment rate on securities was lower. Just wondering if that’s the angle with which a higher reinvestment rate on securities is going to drive that expand modestly. Maybe you could help me understand if that is the case and how much expand means when you say expand modestly?

So Betsy I'll start then hand it over to Terry. On the expand modestly it was a comment specific to the first quarter, it related to both the increase in LIBOR and the short term end of the curve as well, as long-term end of the curve and its principally around loan pricing and deposit pricing. The investment security portfolio, sort of stabilization occurs little about mid-year and then that would be beneficial towards the end of the year. And Terry anything you'd add to that?

Yes. When we talk about reinvestment rates as Andy said, when we get to the end of the first quarter, into the second quarter, you know, we start to see that inflection point, so that will help the margin. And you know we - as Andy said earlier, you know we plan for a rate hike, December of last year, June and then December. And so you know we think about the margin first quarter it will expand modestly and then it will probably accelerate a bit from there.

Okay. Perfect. Thank you. And then last question -- on the impact of the stronger dollar on your merchant processing business and elsewhere if it is material, but I think it is mostly there.

Yes, it is mostly there. So our stated revenue growth Betsy was 2.8% year-over-year and excluding the FX impact it was about 5.6%. So everyone 1% or whatever the currency is about a $1 million a year.

Thank you.

Thanks, Betsy.

Your next question is from Scott Siefers with Sandler O'Neill Partners.

Hi, Scott.

Morning, guys. First, Richard and Andy, congratulations to both of you, well-deserved…

Thank you.

Thank you.

I guess first question on the expenses, I appreciate the commentary for the full year on operating leverage and expenses. Just hoping you guys might be able to put sort of a finer point on the slight drop in costs you expect in the first quarter. I guess as I look back over the last few years the magnitude of drop into 1Q, it used to be much more significant I would say but it has gotten lesser as we have gotten more recent. Just curious if you can maybe give us a sense for order of magnitude of what you would expect that drop to be.

Yes. So this is Terry. So when we end up looking at the first quarter you know, we would expect that drop to be about in the percentage point kind of range. But you know, the drivers behind that is that professional services fees are always seasonally high in the fourth quarter and included in that are compliance costs related at DOL and other things, which will start to abate in the second, third quarter. So some of those compliance cost, specifically related to DOLs start to go away. And then of course the tax credit amortization that we have in the fourth-quarter is always seasonally high in the fourth quarter and it comes back down to normal and remember last quarter we gave some guidance around how much that might go up, I think it was about $60 million and that will all go away, but you know - probably about 60% of that will abate in the first quarter. So those are the biggest drivers in terms of why we see expenses going down.

Okay. Perfect. Thank you. And then maybe switching gears to the fee side. Terry, can you give a sense for what the dollar level of the equity investment income was in the fourth quarter? And I guess just to the extent possible, I know that is a volatile line, but your sense for what a typical level might be going forward?

Yes, in terms of equity investments, when we think about fourth quarter, you know, its probably I am going to say $20 million to $30 million higher than what we had seen in the third quarter, fourth quarter is probably more of what I would say normalized sort of level. So when you think about equity investments on a go forward basis its probably going to be comparable to the fourth quarter when we think about the first quarter.

Okay. All right. That’s good color. Thank you guys very much.

Thanks so much Scott.

Your next question is from Marty Mosby with Vining Sparks.

Hey, Marty.

Hey. Congratulations on the shift and the evolution of the management team there.

Thank you.

And Richard, what I wanted to ask you was as you take on the role solely of Chairman of the Board and working with your lead director, will you still take on most of those responsibilities? Because that is a large share of what you do when you have CEO and Chairman is you have a lot of activities just working with the Board, making sure that that process is going. So that relieves a lot of burden from what Andy would have to do initially as he takes his new responsibilities.

Marty, you nailed it, that’s exactly why the transition is we think best practice because it affords me chance to work with the board and make sure that Andy is got the time and energy to work with the management team and to work on the issues. I will not be in the day-to-day management of the company because that's also a best practices to stay out of running the company, but to help him with the board side of it. And I'll be an ambassador of company, I'll do whatever he needs me to do, I can go places for him if he needs me to. I am not going to go on TV a lot, I am not going to talk about as the ex-U.S. Bank CEO, I am not going to do that because the voice has to be his and the current management team. But you got it right and when the transition is satisfactorily complete and the board and I and Andy feel that we made successful transition then will move it to the next step and they can decide where the chairman position lies, but it will give Andy the time to get focused on all the right things to run the whole company.

And then Andy and Terry, when you are -- one of the things in the release that has been consistent across all of the bank so far, which is to me the biggest surprise, is that deposit growth is continuing not just to be relatively strong but in your case was actually picking up as we have kind of gone into rates starting to move up a little bit. And we would think some re-risking would be deploying some of this liquidity back into the system. I'm just trying to figure out where all that deposit growth is coming from, because, like you said, your deposit betas are going to be tied to what is happening on your deposits. And right now it is continuing to grow which gives you a lot of flexibility on pricing.

So Mary, I'll start and Terry will add on. So I am going to say three areas of focus, why we're growing deposits. First of all in the wholesale side and as continuation of us taking market share and along with that market share is new customers who have deposits. Secondly is our corporate trust business. Corporate trust is a great business. It's very high return, great fee business, but importantly it also generates a tremendous level of deposit activity and we're growing that business both domestically, as well as in Europe and that's very helpful. And thirdly is the retail core basis. As we continue to take market share and this is one of the things we talked about being very prudent around branches. While its true that we consolidated 40 or 50 branches in the last couple years. We've done that very thoughtfully in a manner that says we don't want to lose face. We want to optimize the footprint. But we don't want to lose customers or deposits and I think the deposit growth you're seeing is because of that manner of closure or consolidation which is very thoughtful. Terry, what else would you add?

Yes, I would add maybe just two different things. One is that you know as corporates kind of waiting to see what happens from a policy perspective as they have cash and they are waiting to figure out how to deploy that, they are probably parking it a little bit. And then as we talked about in the third quarter [with money market reform, there was a fairly strong inflow of deposits in the third quarter, I am not sure all that has abated yet, as people kind of figure out what they are going to do from a money market standpoint in terms of government funds or whatever. So those are the other two things I would just add.

Thanks.

Thanks, Marty.

Thanks, Marty. Operator Your next question is from Matt O'Connor with Deutsche Bank.

Hi, Matt.

Hi, guys, it is Ricky Dodds from Matt's team.

Hey, Ricky.

Just a quick question on - the goal is positive operating leverage. And if we don't see those two hikes that you guys have kind of built into your forecast is the goal of positive operating leverage still achievable?

It’s more challenging. This is Andy. It’s more challenging and we've always had great balance around making sure we're investing for the future and recognizing our short-term objectives. And we believe firmly we can get there with the two rate increases that I mentioned it will be more difficult, we'll have to continue to measure that balance of short term versus long-term, but it would more difficult.

And Ricky, they are not equal because if we get the June one, another December, we're there. We get the December and not the June much harder. So - and I know there is a lot of work out [ph] that have a June, September, December, we're just using June, December projections right now.

Got it. And then maybe an unrelated follow up on deposit betas. Obviously not a huge impact with the first hike. But as you think about more hikes what's your thinking there both on the commercial and consumer side?

Yes, so I mean, and that’s good way looking at in terms of commercial and consumer. So you in terms of the December rate hike and kind of what we're seeing right now its very similar to what we experienced a year ago in terms of the deposit beta. So kind of in the middle teens to upper teens is kind of in that ballpark. When we model it out, especially on a longer-term basis and so as we see rate hikes and if would see a June rate hike or December rate hike or maybe even the September rate hike, that will start to normalize. We typically model it in the 40% to 50% range in terms of deposit betas and then also from a modeling perspective, you know we assume that there is going to be some deposit disintermediation that would take place during that time because of economic growth. So that – that probably that kind of gives you some perspective and the price it will be more sensitive with respect to the wholesale deposits, our corporate trust deposits and it will on the retail side.

Perfect. Thanks, guys.

Thanks, Ricky. Operator?

Your next question is from Ken Usdin with Jefferies.

Hi, Ken.

Thanks, good morning, guys, and also congratulations to both of you. Can we talk a little bit about fees, understanding that the NII side looks to have a pretty good path to growth based on your loan and NIM comments? Can you talk us through what you think would be the lead driving forces on the fee side especially given that it looks like mortgage might be a more difficult comparison looking ahead?

Yes, I'll start. This is Andy. The fees as you said, three component side highlight, number one is mortgage down 10% to 15%, number two payments. So our payments revenue this quarter on a year-over-year basis, up 4%, but actually about 5.5% excluding FX 5.3%, and we actually saw good growth in all three categories, the merchant acquiring, the card issuing, as well as corporate. So we would expect to see that to continue to grow, particularly as we see increased spend, both from a personal standpoint, as well as from a business standpoint. So that’s a second category. And then final category I mentioned is our trust and investment fees, that is going to be partially leverage to a growing economy and continuing together investment activity in our private client, as well as our retail base overall. So those three categories, I think those two categories offset that mortgage category that we'll see growth in fees.

This is Richard, Ken. Why don't you also give a little color, because that will also come up later, that from the payment side we don't chase volume for revenue and just like we don't chase loans for quality.

Right. I should mention, so and Elavon is the best example of that. So I mentioned that our core growth stated is about 2.8% and excluding FX it’s about 5.6%. But what you see on volumes is actually decline in volumes and that’s because we intentionally exited some very low margin large customers who were not profitable, and we did that intentionally, you'll see that impacting volumes, but you did not seeing impacting revenues and I think that is a great example we're trying to do this in a smart way.

And that was actually going to be my follow-up. So it looked like the credit and debit card comped a little bit harder year-over-year, whereas corporate and merchant, to your last point, started to look better. Are we near the point where you think that we can get all three of the individual lines of payments moving the right way on a revenue growth perspective? And if not what is still holding that back?

Yes. And let me add, so Elavon as I mentioned strong growth on the revenue, same store sales up just under 4% driven by airline and fuel and that drove that 5.6 ex-FX revenue growth. Corporate card is two stories, number one is on the business side of the equation. We continue to see strong middle market, virtual pay, commercial freight payment growth and that’s positive. But that was offset somewhat by government spending down a bit, sometimes that happens in the fourth quarter, we saw that occur this time. I think that will come back or flatten now, but that's what drove some of the lower growth activities you saw on corporate. And then finally on the card side, of the issuing side, our growth in fees was about 7.5% less than that excluding Fidelity, but it was also impacted by one last processing day in the fourth quarter which impacted growth about 1% or 1.5%. So those three things are what's driving it overall and as I said, I think all these categories we would expect to grow in 2017.

Thanks a lot, guys. And best of luck. Congrats.

Thanks, Ken.

Your next question is from Erika Najarian with Bank of America.

Morning.

Good morning. Congratulations, Richard and Andy.

Thank you.

Thank you.

Richard, we will sure miss you, but we are looking forward to having Andy at the top. So my first question, you mentioned in the prepared remarks that the trajectory of regulatory-related costs are stabilizing. And you mentioned how expensive the AML consent order was and DOL compliance. I am wondering if you know, the stabilization seems like the natural trajectory of regulatory-related cost. But if we get some regulatory relief from the new administration is there an opportunity for reg costs to actually go down for U.S. Bank?

The answer is yes. I wouldn’t be this year and I'll say I'm going to be prognosticator here. But based on what I understand, the administration that's going to take office in a few days. The number one issues are health care reform, taxes and infrastructure and somewhere in the top five might be financial services, but it’s not the top three, a lot of financial services issues I think will be dealt with in the early part of the year but with some implications later. So that’s why I said earlier on DOL for instance, as we never made a bet on whether something would happen that would cause us to need to slow down because we want to be ready. We would do it anyway. So I think Erika the best thinking is that the understanding of what implications and lower regulation might happen will be known probably in the second half of the year and benefited in sometime in '18, but I'll also tell you but for things like an unusual consent order or an event like DOL transition, I think this bank has peaked on those costs. Our compliance costs in the entire company are now in terms of FTE, they are over 7000 people of our 70,000 and that’s up more than twice what it was a few years ago. That’s a little high because of these issues I just mentioned, but it's not going to go back to where it was, it’s going to stay much higher because that’s the cost of running a high-quality bank. We don't have issues other, but the AML issuance which has causes that kind of extra expense and so it’s expecting that nothing else comes along. We will see that come down and whatever regulatory reform relief we do see. But most of it, I've got to say its going to be on the margin because most of the stuff is burdened in, its under run rate, it turns out a lot of its good operating policy and good compliance review tactics for double and triple checking and we're not going to give up a lot of that. So at least for this bank it’s got a positive leaning toward improvement, its late in the year, if not next year and it’s not going to be significant, but it will be part of it.

Great. My second question is for Andy. I mean it is pretty clear in terms of the 60% to 80% capital return that you target every year. I am wondering, given the stock is trading close to 3 times tangible book if you think about future CCARs, whether you will maybe prioritize the dividend heavier as you think about dividend growth going forward and maybe normalizing to pre-crisis payout ratios. And also how you are thinking about acquisitions, especially depository acquisitions, in terms of your capital strategy going forward?

So Erika, as you know our capital strategy is 30 to 40 and dividends, 30 to 40 on buybacks. We're at the high end on buybacks and at the low end on dividends right now I would think about as moving more to our balance perspective on that as we move forward and as we continue to look at the future years in CCAR. With regard to acquisitions, with the consent order in place right now we're precluded from traditional depository acquisitions. But we are doing things like you saw in the last year with Fidelity and IAG card portfolio acquisitions, we can do merchant acquiring to acquisitions and on trusted payments businesses. So that does not preclude us and that’s actually area of focus. So I think that will be our focus in the short-term, once we're out of the consent order we may look at traditional depository, but that's not on focus right now.

Great. Thank you.

Sure.

Thanks.

Your next question is from Mike Mayo with CLSA.

Hi, Mike. Mike, are you there?

And you maybe on mute on your end Mike.

Okay. Richard, the first question is why are you stepping down? I guess I am - I mean I am a little confused. I mean you are running a bank with best-in-class performance measures. You have been there 10 years, you are 58, I guess almost 59 and you had many other banks - have sometimes run banks with worst-in-class performance measures, have been there over a decade and they are a lot older. So what's going on? And also what does it mean when it says you will help move the Bank to new areas of business?

So Mike, I don't if heard at the opening of the call, because I answer that question for John McDonald. That basically the reasons are, I said in place three years ago that at the 10 year mark, assuming nothing else that changed, that would be appropriate for a change in leadership because I just feel that way. It’s my personal opinion. I indicated that Andy is the perfect candidate, he is sitting right here next to me, lets give him the signal, lets give him the time table and lets keep them. And thirdly, I do have another calling in life to do something entirely different, which I don't know what it is because I never felt permitted to look until the amount was passed and today will be my first day look into the future, along with my wife, but a very strong view that we want one more thing in life to accomplish and its going to be entirely outside the banking industry. So that’s the reason and the rumors of my bad health or early demise are greatly exaggerated, I feel quite good today. And so that’s timing for that and I don't know why some people stay longer. I don't know what the issues are in other companies. But mine was not the time it, mine was not to set this moment in time based on how the company is doing. It was three years ago to set a timetable that if at the 10 year [ph] market seems right and it now does, we've got everything lined up and the perfect guy to do it. And so that's exactly what it was and the board of course has all those decisions, I can't make any decision I want to on my own without their complete endorsement and they are very careful due diligence, which they did all of and they are quite excited about this transition as well.

And then as far as Andy, is this business as usual? Are you going to have some tweaks or strategic changes? Or what degree of change might you implement especially with Richard still as Chairman?

Hanging around.

So like Richard and I've been together - Richard. I've been together for 10 years and the strategies and the decisions that we have made and the position the bank is a combination of all of us, the management committee and the two of us. So I don't expect major changes. We are continuing to focus on one bank from the perspective of the customer, the technology and innovation will continue to be an area of focus as it has been as things move digitally. And you know I would maintain that we are the best bank right now and I'm certain that we have one of the best management teams out there. So I couldn’t be more honored and pleased to take this on.

All right, well, thank you.

Thanks, Mike.

Your next question is from Saul Martinez with UBS.

Hi, Saul.

Hi, good morning. Hi, good morning and congratulations on the roles. I wanted to ask you about the longer term guidance you had - you outlined at your Investor Day. And I think you guys have addressed it I guess in a directional fashion thus far, but sort of a broader question. You guys gave pretty expensive guidance on revenues, expenses, through the cycle provisions, business line growth. And obviously the backdrop has changed, we are kind of at an inflection in terms of - potential inflection in terms of the economic backdrop, regulatory backdrop and whatnot. But how are you guys thinking about the longer term guidance that you outlined today versus mid-September when you had your Investor Day? And where are you feeling more comfortable; where are you feeling less comfortable? If you could just kind of give us a directional sense of that.

So Saul, as you know that guidance was based on a three-year view and that was a three year view of what we would call sort of a more normal rate and economic environment. I think as we sit today we're probably more comfortable about getting there in the three year window that we talked about, certainly from a rate perspective, and what we predicted as far as occurring, the economy seems to be at least steadier and slightly improving. And so I would say we continue to feel good about those projections and our expectations are still to get there in that three year window.

Okay. That’s helpful. I guess more of a specific follow-up. I think last quarter you talked about utilization rates on commercial lines being around 25%, 26%. Any change there? Are you seeing any of the optimism from companies starting to filter through in terms of borrowing the pipeline for credit and whatnot?

Saul, while the talk and optimism and discussion is more positive, the utilization rates are flat, still a 25% as they have been for the past few quarters.

Okay. All right, thanks a lot.

Thanks, Saul.

Your next question is from Kevin Barker with Piper Jaffray.

Morning, Kevin.

Good morning. Congratulations on the new roles for both of you.

Thanks.

I just wanted to follow up regarding some of your comments around the tax rates moving down to 5% to 6% effective tax rate. And obviously your reinvestment of some of those tax credits. Obviously it is very early in this discussion, we still have a ways to go before we figure it all out. Were there any specific line items around possibly low income housing tax credits or BOLI that you expect to go away? And at what level do you expect to have to reinvest those assets?

Yes. So let me add, take a stab and I think your question was really around tax policy and tax credit sort of investments and then where we might see either changes in the nature or type of investment. So you know, we invest in really kind of four different areas. Affordable housing is a very significant part of it, new market or economic developments sort of tax credits is a second, a little bit of historical tax credit, but then also renewable energy. You know, when we end up talking to people that are kind of plugged into the tax credit kind of market, we don't see a lot of change coming with respect to affordable housing because of all the policy implications associated with that, or any economic development because when you think about what the administration is trying to do, they are trying to stimulate economic development. So we don’t see a lot of change to that, probably where that change is going to occur will be with respect to renewable energy type of credits and you know to be quite frank the law had already incorporated a phase out of those over the next four or five years anyway. So we didn’t really anticipate a lot of impact to us with respect to where we were going to invest and you know what the implications associated were going to be.

So when you say the 5% to 6% decline in the effective tax rate on a 10% decline in the actual rate with some reinvestment tax credit, depending on how that all plays out. If you were to see a 10% decline in effective tax rate would you believe that the decline in earnings would be close to 30% or 40% or do you expect - 30% to 40% of the 10% or something closer to 10% or 20% of the 10%?

I mean, its in fact, I have implemented it isn’t a decline in earnings, its actually an improvement in earnings because of the fact that we're paying less in tax expense as opposed to more. So in my example, our effective tax rate would go from 20%, 29%, down from there and that actually would be a positive from a probability standpoint.

Yes, what I mean is so with the tax credits, and what I am saying is if you had a 10% decline would it be a 5% to 6% improvement in earnings or would it be more of a 7% to 8% improvement in earnings?

It would be - again, this is all the simple math, and et cetera, in terms of how I'm portraying it right now. But it would be a 5% improvement in our effective tax rate. So you'd have to kind of do the math from there, but its not a 5% improvement in earnings or anything like that. It's a 5% reduction in our effective tax rate.

Okay.

Using the 10% example.

Okay. Thank you.

Thanks, Kevin. Operator?

Your next question is from Vivek Juneja with JPMorgan.

Hi, Vivek.

Hi, Richard. Hi, Andy. Congratulations again. Let me add that. A couple of quick questions. Just one just for Terry, just want to confirm that when you said percentage drop in expenses in the first quarter that I heard it correct, that you are referring to 1% drop in expenses, Terry?

Yes, we would expect on a linked quarter basis, it would decline about the 1% range.

Okay. Okay. Then the other line item that you said, I can't remember whether it was you, Andy. You said equity investment gains should run at the fourth-quarter level. What is the level of equity investment gains and also what is the amount of equity investments? And is that increasing because you have increased investments? Can you talk a little -- can you give us some color on this three items there?

Yes. You know, other income represents a whole variety of different things that includes trading income and includes end of term and retail product revenue. It includes equity investments. It’s just a whole variety of different things and they kind of move in sometimes in different directions. So it's really hard to kind of narrow it down to – and specifically equity investments and I wouldn’t want to kind of take you down that path or mislead with respect to that. I guess my point is that you know, when I end up looking at other income and the impact of equity investments within other income, I think its going to be fairly stable relative to fourth quarter, that what I would tell you.

Okay. And have you - what is the dollar amount of investment that you will have made in equity investments and has that increased recently?

It hasn’t increased and it’s not something we've kind of specifically disclosed in the past.

Okay. One last quick one, AML. Are you - can you just give us an update on timing of when you expect to get out of that one?

Yes. Vivek, this Richard. We don't have timing on that. We're an OCC bank. so they are really our binding constraint. We are making great progress, we are moving forward. This is a bifurcated view I think on any consent order, one as you get to where you need to be, then you need to prove you can stay there for a while. Then they need to audit to confirm the sustainability. So you know we're in between stages one and two right now, so it depends on how long that will take. Back to Erika's question I do think that as regulatory reform starts to maybe lighten a bit, I think those kinds of issues move more swiftly and we might hope that there will be a faster conclusion from beginning to end on anything, any bank has been called out to improve because I think part of the issue is we're just in these issues for a very long time and maybe unnecessarily extended periods when the performance has actually been accomplished. The remedy is been done and it sustained and it just needs to long to prove it. So I think we've talked about this year being that year to get all those steps done, if I had to make a guess we're probably late this year or early into next year, but that's on my own guess and we're not [indiscernible] we're not you know another bank that has this issue, we're a U.S. Bank and we're dealing with our own issues and we're moving swiftly with our the regulator to OCC to prove to them that we've got the message, we've got the sustainability, and we're ready to move forward. But it's not imminent, but let's hope that it’s not too much into the future either.

Okay, thanks, Richard.

Yes. Thanks, Vivek.

Your next question is from Peter Winter with Wedbush Securities.

Hi, Peter.

Morning. You guys have had nice growth in the other earning assets, the excess liquidity with all the deposit growth. Any thought with the move up in rates to reinvest in securities? Or is it you want to hold onto it just thinking that deposits will outflow given the outlook for better loan growth?

Yes. It’s really couple of different things. We do expect it to really kind of abate again then we'll see deposit outflows occurring, which is why, especially in the fourth quarter we tend to hold the cash balances, we see a run-up in deposits with respect to - for our corporate trust business and then that ends up getting deployed in terms of structures, et cetera. If the economy moves up - starts to improve and businesses start to make those business investments that we expect, you know, we do – and we would see some disintermediation [ph] deposits at that particular point in time because where they we would start to see outflow there.

Got it. And just a quick - just another question, housekeeping. You mentioned with the recent increase in rates that the fee waivers on money market accounts will be minimal in '17. Just what was that impact in '16?

So two years ago I had at its peak - this is Andy. The money market waivers were just about $100 million and we received back so to speak about 75% or 80% of it in 2016. So that's why Terry says there is limited amount remaining in 2017.

Right. And the vast majority of that we'll probably see in the first quarter and [indiscernible]

Yes. Got it, okay. Thanks.

Thanks, Peter.

Your final question is from Gerard Cassidy with RBC.

Thank you. Good morning, guys.

Morning.

Morning.

A question for you, on your loan to deposit ratio, average loans to average deposits is about 82%, what is the optimal level that you guys like to keep that ratio at?

We don’t strive for an optimal ratio Gerard. We – it’s a function of loan growth and demand and deposit growth and demand. So it's just an outcome, and if we have more than that some of it goes investment securities or cash, as referenced by Terry, if we have less than that we have plenty of funding opportunities of been a very highly rated banks. So we're not striving to a specific ratio, it’s just an outcome.

Okay, thank you. Richard, you mentioned earlier in the call that you're sensing that the banks are smarter in terms of the deposit pricing. How much of an influence do you think that the industry's low loan to deposit ratio may have on that if at all?

I don't know the answer to that, Gerard, but I know that the temptation already is been present if it was there. So the first couple of movies a year ago and now a month ago I think that based on the hunger for banks to do well that probably would have been as heightened and as an opportunity as possible. So I'm just of the mind that that temptation is past and people are very thoughtful and smart as we move up, obviously as rates get further and deeper beyond 25 basis point things will start to pick up. But the arbitrage between deposit and loan rates will start to get lighter which is good for banks and that's why people are betting that banks will do better in part. And I think we've just gotten smart, people are more thoughtful their balance sheet makes more sense to them and there is other lever to pull, I just don’t think that’s going to be one of them, it could be wrong.

Great. And then just a final question. Again, Richard, you touched on some of the regulatory aspects of what's going on in the industry and of course it is not the top priority of the incoming administration, as you have identified. We hear a lot about relief fees for the banks under $250 billion in assets from a regulatory standpoint. The so-called global SIFIs are not going to see as much relief. Can you point where you guys are positioned, obviously above $250 billion but less than a global SIFI, what would be ideal relief for banks your size?

You know that's a great question because don’t hate me for this answer, but we don't think there be a lot of changes even if we were given really. We're a very large company and systemally important has a lot to do with whether you would break the world of you fell apart. In our case we're very important wherever we are and I think most of the practices that we have been performing, particularly stress testing and recognizing where the risks are, those are better practices and we're really good at it and we would keep a lot of those Gerard. So a lot of those would not go away, some of the relief would be in the consumer enforcement area. have long asked, I have pleaded with Rich Cordray to consider making the CFPB an endorsement agency, not an enforcement agency and I'm not being clever here. The idea that if they put out the basic tenets where the top-rated banks to be customer protective, plus pies customer supportive, financial literacy, do the right thing and they told us what those rules where, we would kill ourselves to be at that top-level. Everyday we do all we could to be positively vexed towards to getting better every day. And instead, there is undue sense that the enforcement side of the spirit comes from trying to catch up and do something wrong and not instead work to get better but try to find a mistake, many cases that were human error and in many cases that were even there when they were done. So that would be my favorite, that would be beneficial to all of us. We're 404 year - $450 million, we're not G-SIFI, but we're a SIFI and we're okay with that and we will come with it all the responsibilities would be that attend to being very, very thoughtful and your compliance above approaching your customer care and doing everything the right way as best you can and if you don't get it right as soon as you figure it out. So not a lot would change for us and you know we've actually not enjoying with some of the smaller regional banks and try to [indiscernible] because we just don't think it would change the way we run our bank.

Great, appreciate the color. Thank you.

Yes. Hey, before we close, since I might get to the last question, I just had a couple thoughts on the bank and the environment. We do believe that the rate environment, steeper yield curve that it was 90 days ago likelihood of interest rates, we think those are those are bankable. We think banks deserve that long overdue and it’s going to get better. That's part of our modeling and we think that that's important. Economy being better is actually trumps all of that, a really good economy, reflection of what our customers feel and when that economy kicks and we hope it does that'll be more important than anything. But were disappointed as you might be to hear it, we are like canaries at mind, we can see balance sheets, we can see customer behavior, optimism is high, but actions are not present yet. So we're going to wait and see on that on. And then tax reform might at a big one that benefits us and our customers, as I said earlier, based on my understanding of the budget process it’s probably going to be a late year issue. So I think bank should bank, you should bank on banks doing well by the interest rate environment. I think you should expect the economy and taxes to be to the best benefits that will improve bigger than right. But I think those come later in the year and we're balancing the bank to manage through slight beneficial quarter and two and a much more beneficial probably quarter three or four. And this is my last call, 41 of them. So I just want to tell you guys how much I appreciate as a class of investors and analysts you had been fair and thoughtful and balanced and you treated this company very well and I appreciate that very much. We've also in kind been and transparent. We've been very complete and thorough in our forecasting and think we've been as candid as we know how to be because we trust the relationship that we have you as part based on transparency and clarity. So I want to thank you for that relationship. I want to encourage you to keep that relationship with us. Terry and Andy will be a remarkable team, and despite the fact that I want things to change for the betterment this company, I think you'll be appreciative that they'll be thoughtful and measured and very well telegraphed. So to end an sport note because that’s how I try to think of my life, this is rather like a great relay race and we're on the backside of track and Andy and I are running together now because he's about to pick up the baton, he is got the perfect cadence, I've got the perfect speed. Our hands come together, the baton hands off and we're off to another race and that exactly how you see it. So with that operator or Jen I think you can close the call. Operator This concludes today's conference call. You may disconnect.