美國合眾銀行 (USB) 2012 Q3 法說會逐字稿

Welcome to U.S. Bancorp's third-quarter 2012 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 Wednesday, October 24, at 12 o'clock 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, Jodi, and good morning to everyone who has joined our call.

Richard Davis, Andy Cecere, and Bill Parker are here with me today to review U.S. Bancorp's third-quarter 2012 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 filings on the SEC.

I will now turn the call over to Richard.

Thanks, Judy, and good morning, everyone.

I am very proud to share our third-quarter results with you today.

I would like to begin with the highlights on page 3 of the presentation.

U.S. Bank reported record net income of $1.5 billion for the third quarter of 2012 or $0.74 per diluted common share.

Total record net revenue of $5.2 billion was 8% higher than the same quarter of last year, driven by a 6.1% increase in net interest income and 10.4% increase in fee revenue.

Importantly, we achieved positive operating leverage on both a year-over-year and on a linked-quarter basis.

Total average loans grew year-over-year by 7.3%, or 1.3% linked-quarter, or 1.6% linked-quarter excluding the impact from the sale of a credit card portfolio.

We experienced strong loan growth and total average deposits of 11.1% over the prior year and 3.5% over the second quarter of 2012.

Credit quality continued to improve.

Although total net charge-offs increased by 3.5% over the prior quarter, they included $54 million of incremental charge-offs related to a clarification by the regulators as to the treatment of the collateralized consumer loans to consumers that have filed Chapter 7 bankruptcy but continue to make payments on their loans.

Excluding this change, net charge-offs decreased by 6.9% quarter-to-quarter.

Nonperforming assets, excluding covered assets, declined by 3% linked-quarter.

Excluding the additional $109 million of consumer assets related to the regulatory clarification, nonperforming assets declined by 7.8% from the prior quarter.

We generated significant capital this quarter through earnings and ended the quarter with a Basel I Tier 1 common equity ratio of 9% and a Tier 1 capital ratio of 10.9%.

Our estimated Tier 1 common ratio under the most recent Basel III rules was 8.2%.

We repurchased 17 million shares of common stock during the third quarter, and consequently we were able to return 67% of our earnings to our shareholders this quarter through dividends and buybacks.

Trends in our industry-leading performance metrics are shown on slide 4. Return on average assets in the third quarter was 1.7%, and return on average common equity was 16.5%.

Both ratios are within our Company's long-term goal to achieve a normalized ROA in the range of 1.6% to 1.9% and an ROE between 16% and 19%.

Our net interest margin and efficiency ratio are shown in the graph on the right-hand side of slide 4. This quarter's net interest margin of 3.59% was 6 basis points lower than the same quarter of last year and, as expected, relatively stable compared with the prior quarter's rate of 3.58%.

Andy will discuss the margin in more detail in a few minutes.

Our efficiency ratio for the third quarter was 50.4%, lower than both the prior year and previous quarter, as we continue to manage expenses effectively.

We expect that this ratio will remain in the low 50%s going forward.

Turning to slide 5. The Company recorded record total net revenue in the third quarter of $5.2 billion, an increase of 8% over the prior year's quarter and 2.2% higher than the previous quarter.

The Company's revenue benefited from growth in both our balance sheet and our fee-based business lines; and, once again, mortgage banking was particularly strong.

Average loan and deposit growth is summarized on slide 6. Average total loans outstanding increased by $14.7 billion or 7.3% year-over-year.

As expected, linked-quarter growth in average total loans was down slightly from the previous quarter, as balances grew 1.3%, compared with the second quarter's linked-quarter growth of 1.9%.

Recall, however, that we sold a branded credit card portfolio on August 1 that totaled approximately $735 million.

Excluding the impact of this sale, average total loans would have been higher by 1.6% on a linked-quarter basis.

Overall, excluding covered loans, our run-off portfolio, average total loans grew by 9.6% year-over-year and 2% linked-quarter.

The increase in average loans outstanding was primarily due, once again, to strong growth in commercial loans, which grew by 21.9% year-over-year and 4.2% over the prior quarter.

Residential real estate loans also showed strong growth, 20.4% over the same quarter of last year and 4.6% over the prior quarter.

Within the other retail loan category, home equity line and loan activity remained subdued, while auto loans and leases continued to show steady growth.

We continue to originate and renew loans and lines for our customers.

New originations, excluding mortgage production, plus new and renewed commitments totaled over $45 billion this quarter.

Total revolving corporate and commercial commitments outstanding increased year-over-year by 21%, and 3.5% on a linked-quarter basis, while utilization remained fairly consistent at approximately 25.7%.

Total average deposits increased by $23.9 billion or 11.1% over the same quarter of last year, and by $8 billion on a linked-quarter basis or 3.5%.

All of our business lines contributed to this growth.

Turning to slide 7 and credit quality.

Total net charge-offs in the third quarter increased by 3.5% over the second quarter of 2012, but decreased 6.9% excluding the $54 million related to the regulatory clarification on Chapter 7 loans.

Nonperforming assets, excluding covered assets, decreased by 3%, or 7.8% without the $109 million related to the Chapter 7 loans.

The ratio of net charge-offs to average loans outstanding was 0.99%, essentially flat to the prior quarter; and excluding the charge-offs related to the regulatory clarification, the ratio was 0.89%.

During the third quarter, we released $50 million of reserves, compared with $50 million in the second quarter and $150 million in the third quarter of 2011.

Given the overall quality of our portfolio, we expect net charge-offs and nonperforming assets to continue to trend lower in the fourth quarter.

I will now turn the call over to Andy.

Thanks, Richard.

Slide 8 gives you a view of our third-quarter 2012 results versus comparable time periods.

Our record diluted EPS of $0.74 was 15.6% higher than third quarter of 2011 and 4.2% higher than the prior quarter.

The key drivers of the Company's third-quarter earnings are summarized on slide 9. The $201 million or 15.8% increase in net income year-over-year was the result of an 8% increase in net revenue and a decrease in the provision for credit losses, partially offset by a 5.4% increase in non-interest expense.

Net interest income increased year-over-year by $159 million or 6.1%.

The increase was largely driven by a 7.9% increase in average earning assets, in addition to strong growth in low-cost deposits and reduced rates on wholesale funding.

The 7.9% growth in average earning assets included planned increases in the securities portfolio as well as growth in average total loans and loans held-for-sale.

As expected , net interest margin was relatively stable at 3.59% and was 6 basis points lower than the same quarter of last year, primarily due to the increase in lower-yielding investment securities, partially offset by growth in low-cost deposits and lower-cost wholesale funding.

Non-interest income increased by 10.4% year-over-year.

Mortgage banking revenue was strong again this quarter, as production increased by over 87% year-over-year, gain on sale margins improved, and servicing revenue rose.

Also contributing to the favorable variance from last year were increases in trust and investment management fees and commercial products revenue.

In addition, as we mentioned in early September, other income in the third quarter included the net impact of the sale of the card portfolio and the loss associated with our investment in Nuveen.

These positive variances were partially offset by a 26.3% decrease in credit and debit card fees year-over-year primarily due to legislative changes to debit card interchange.

Non-interest expense was higher year-over-year by $133 million or 5.4%.

The majority of the increase can be attributed to an increase in professional services, primarily due to the mortgage servicing review-related projects and higher compensation and benefits expense due to business expansion and activity.

Net income was higher on a linked-quarter basis by $59 million or 4.2%.

This favorable variance was the result of a 2.2% increase in net revenue partially offset by a 3.8% increase in the provision for credit losses and a 0.3% increase in non-interest expense.

On a linked-quarter basis, net interest income was higher by 2.6%.

Average earning assets grew by $5.2 billion, and the net interest income margin rose by 1 basis point over the second quarter, the net result of the positive impact for lower-cost wholesale funding, offset by repricing of the investment securities portfolio.

The average balance of our investment securities portfolio was $72.5 billion in the third quarter, $6.2 billion higher than the third quarter of 2011, but slightly lower than the previous quarter.

Assuming stable cash balances and the current Basel III liquidity requirements, we expect to maintain the investment securities portfolio at or around this level for the next few quarters.

Also, given the current interest rate environment we expect the net interest margin to be down a few basis points in the fourth quarter, principally due to the repricing risk on the investment securities portfolio.

On a linked-quarter basis, non-interest income was higher by $41 million or 1.7%.

This favorable variance was primarily the result of growth in mortgage banking and the net positive impact from the credit card portfolio sale and the write-down of our investment in Nuveen, as well as growth in corporate payment products revenue, deposit service charges, and commercial products revenue.

On a linked-quarter basis, non-interest expense was higher by just $8 million, primarily due to the higher commissions and incentive-based compensation, marketing and business development expense, and higher tax credit investment expense, all of which were essentially offset by the favorable variance from the second-quarter Visa settlement charge.

Turning to slide 10, our capital position remains strong and continues to grow.

We have included estimates of our Tier 1 common equity to risk-weighted asset ratio using the Basel III proposed rules published both before and after June 7. Based on our assessment of the full impact of the current proposed rules for the Basel III standardized approach we have estimated that our Basel III Tier 1 common ratio was approximately 8.2% as of September 30 versus the 7.9% at June 30.

At 8.2% we are well above the 7% Basel III minimum requirement and above our targeted ratio of 8%.

Slide 11 provides updated detail on the Company's mortgage purchase-related expense and the reserve for expected losses on repurchases and make-whole payments.

Our outstanding repurchases and make-whole payments requests balance at September 30 was $118 million compared with $164 million at June 30.

During the third quarter of 2012, we added $36 million to the reserve and believe the level of reserves at September 30 is appropriate.

We continue to expect mortgage purchase requests to remain fairly stable over the next several quarters.

I will now turn the call back to Richard.

Thanks, Andy.

I am very proud to say that we once again were able to deliver a record-setting quarter.

We achieved record earnings and industry-leading performance by growing our balance sheet, our customer base, and our market share.

We did it by achieving record total net revenue, by realizing positive operating leverage, by improving our credit quality, and by maintaining strong and growing capital and liquidity positions while returning 67% of our quarterly earnings to our shareholders through dividends and buybacks.

We continue to manage this Company for the long term by investing in our diverse and stable mix of business, by maintaining the prudent approach to risk that has served us so well throughout this latest cycle, by providing our customers with the products and services they need to help them shape their future and reach their dreams, and, finally, by supporting our employees and our communities, all while producing consistent, predictable, and repeatable results for the benefit of our shareholders.

That concludes our formal remarks.

Andy, Bill, and I would now be happy to answer questions from the audience.

(Operator Instructions) Erika Penala, Bank of America Merrill Lynch.

Good morning.

My question is on capital return.

It seems like the banking industry, your bank in particular, is coming into the stress test with clearly much stronger capital levels.

And it feels like the global macro picture is a little bit better than it was at this point last year.

Is it fair to assume for investors that strong banks like U.S. Bancorp can then continue to increase their capital return levels next year?

And if not, what are the blind spots that you are seeing from your side that we are not seeing as investors, in terms of that premise?

Erika, it's Richard.

I don't think there are any blind spots, but I think we all see and know the same information at this stage.

Without the final rules and without the final scenario, it is still the Fed's option to decide what stress scenario they want to set us up for, and those assumptions are yet to be shared with us.

And unless we learn something new at this stage, we are still operating under the guidelines we have been in the past couple of years, of the dividends being limited to 30% of future near-term earnings and the rest being allowed for some form of share buybacks.

Until and unless we learn different rules, we are going to operate under that assumption and await the final guidance that will come in the next few weeks.

Okay, and just a quick follow-up question.

I know a lot of the management teams have been talking about the fiscal cliff as it impacts demand.

Is there -- do you think -- this is for Bill -- there would be an actual impact on credit quality if the worst-case scenario in the fiscal cliff plays out on the consumer side?

It is something that -- discussion I am starting to hear; but I guess that is not something that I've fully thought about yet.

Well, if the worst-case happened on the fiscal cliff, I think it is fair to say we would probably reenter a recession.

And that would be then -- you would see unemployment go up, and that would have an impact on the consumer portfolio.

I am hopeful that they come to some kind of resolution.

I think the fiscal cliff was designed in such a way that it is so severe I think it is unlikely that there won't be some political solution that cuts the middle ground and mitigates that risk.

Erika, I think -- this is Richard -- I also think when the recession started last time there was a different quality of customers that had loans from banks.

And as you think about it, five years later a very high quality of customers now are remaining in the bank portfolios that either haven't been charged off or in fact haven't been originated.

So I do think it would be a lagging effect.

Certainly it would be a negative effect, but I don't think it would be immediate.

And I think you'd once again see the nuances of credit quality in each bank's portfolio as they would be stressed at different speeds and different depths based on the recession.

Great point.

Thanks for taking my questions.

Scott Siefers, Sandler O'Neill.

Let's see, I guess, Andy, probably a question for you.

You guys have been able to hold in the margin pretty well; and appreciate the color on the anticipated fee-based points of compression over the next quarter or so.

I guess just from the way you look at things, what is your sense for how long that margin compression persists?

Is there some point where repricing on various pieces of the asset side just get fully baked in?

How are you thinking about that dynamic?

Then I guess additionally, you and others have been growing the resi mortgage portfolio for the last few quarters.

I was just curious for thoughts on what kind of stuff you are putting on, if there has been any change in what types of mortgages you are willing to put on, just given all the variables at play.

Okay, thanks, Scott.

So, first on the margin.

As a reminder, this quarter, third quarter, we improved by 1 basis points, principally due to improvement in our wholesale funding because some high debt was rolling off.

We talked about that.

We said it would be relatively stable.

That offset the headwind of the repricing on the securities portfolio.

In the fourth quarter, we don't have as much debt rolling off; but we continue to have the headwind in the repricing -- on the securities portfolio, and that is what is causing the few basis points down.

What happened in the last 30 or 60 days is that sort of two-year period to five-year period of the yield curve on what we are buying has come down 25 to 30 basis points, and that is the headwind we are seeing.

The loan and deposit side are sort of offsetting, so my focus is on that securities portfolio.

And that two- to five-year area is where we are focused on, and our duration is closer to the lower end of that range.

So that is what we are focused -- that's where we're focused on for Quarter 4.

I am not going to project out to next year yet, because there are a lot of moving parts here and things can change rapidly, as we saw the last 30 days.

So a few basis points in the fourth quarter; whatever we face in 2013 will be manageable, but that principal headwind is the securities portfolio.

In terms of what we are putting on the balance sheet on our residential mortgage, it is principally a product we call Smart Refinance, which is a branch-based, high-quality, typically 15-years-and-in mortgage product that again is originated out of our branches.

Okay, perfect.

I appreciate the color.

Jon Arfstrom, RBC Capital Markets.

Good morning, guys, and Judy.

Just a question on loan growth.

You obviously had a decent quarter when you adjust for the card portfolio sale.

But it looks like the commercial and the commercial real estate, the pace is a little bit slower; still good numbers.

But, Richard, just a question for you.

Is the loan growth a little weaker than you thought?

Is it normal in your view?

Does it reflect an increase in borrower caution?

And then maybe do you see any changes in that in terms of Q4 and beyond?

I think the answer is yes, yes, and yes, (multiple speakers) order.

I do think it is coming down.

You look at our linked-quarter and you annualize that, and it is lower than our real annual number.

I think you see our Company growing the book 6% to 7% on an annualized basis up until now, and I think I am going to guide you down to 4% to 6% in the next quarter and until we know what happens after the election and the fiscal cliff.

I, like Andy, we pride ourselves on giving you guys really I think high-quality guidance, and we don't want to go too far out when there's too many variables.

I do think that is emblematic, though, of customers feeling less comfortable.

I think it makes sense, too.

I mean, we are not surprised.

I wish it was higher, but I think it makes sense because you've got the near-term election uncertainty; you've got the fiscal cliff uncertainty; you've got the European recession; you've got the economy.

And those are -- all those are not going to be solved imminently, but they are going to be solved eventually.

So I am going to be pleased with 4% to 6% annualized.

We'll take anything we can get above that.

Commercial is a great proxy for, I think, sentiment.

And while it is still growing nicely, people are getting more lines than they are using, and they are still not using the lines they have.

So I think that uncertainty reminds us that there is still plenty of pent-up possibility.

I will also remind you that our deposits continue to grow at amazing levels.

And much as I like that, those deposits need to start getting used, first; and after that, the lines of credit will get used; and then eventually new lines will be originated and used.

So we're still in the cycle so early that we haven't even seen the beginning of that set of activities, where the deposits start getting used for growth and for investments.

So I think we are a ways off.

Okay.

Then just one question for Bill.

You touched a little bit on the consumer portfolio and what could happen under a fiscal cliff scenario.

But obviously, we have $54 million of chargeoffs rolling off this next quarter; and when I look at the card portfolio those losses continue to go lower and lower.

I guess my question for you is -- how long can that last in the card portfolio?

How low can that go?

Obviously probably going to drop under 4% this quarter, but just curious on your outlook for that in terms of how good it can get.

Well, in terms of rates, I would say -- or in terms of dollars, we are probably at a low point.

It's not going to get much below 4%.

So that would be a great place to stay for a long period of time.

So if the economy cooperates and is steady on the employment front, we will continue to see that performance.

And at anything around 4%, that is extremely profitable.

Jon, it's Richard.

I will remind you that without that $54 million our prevailing chargeoff level now is 0.89%.

We continue to remind you all that, based on the mix of our business, particularly with credit card in there, we think we are a 1% over the term chargeoff level.

And we will continue to guide that 0.89% down at least in the next quarter.

I think as -- unless there is some surprise event.

So for us, we're going to be at unsustainably low levels.

In a perfect world, you could criticize us in hindsight for not having used our balance sheet better so we can stay at that 1%.

But there was no way to know what was available back when times were tough, and we're going to be really underutilizing our balance sheet for a while until we can start to originate.

I think the industry is going to have unsustainably low levels of chargeoffs and low levels of non-performs until which time things start to warm up.

And then you have to watch all of us to be careful on the way up that we don't get sloppy or get greedy and start making loans just because the environment warms up.

So for now it's going to be at levels that I wish were actually higher; but for the near-term, you can expect them to trend down a bit.

Okay, thank you.

Ken Usdin, Jefferies & Company.

Thank you.

Good morning.

I wanted to ask just a couple quick questions on the fee side of things.

Number one, it looks like while there is still growth in fees overall, it looks like some of the payments lines have slowed on a year-over-year basis from a growth rate perspective.

I just was wondering if you can walk us through if there is any specific things that are happening within the businesses, or is it more macro related.

And how do you expect these businesses to grow as we look ahead?

Sure, Ken.

This is Andy.

So let me start with the credit card line.

You know, the biggest impact there is the Durbin impact to us; and that is just over $80 million on a year-over-year basis.

So that is the principal change there.

On the merchant line, we continue to see same-store growth of somewhere between 3% and 4%.

However, the DIA or the merchant discount rate is down a little bit, principally due to mix because airlines are growing a little bit more rapidly.

So that is what we are seeing there.

I would expect relative stability in that rate going forward and it's back to growth in conjunction with same-store sales.

Which again, right now we're looking at that 3% to 4% level.

Okay.

Can you also talk a little bit about just on the commercial side as well?

Yes, so on the corporate card side of the equation, we are seeing a little bit more of that going to margin as opposed to fee income.

It depends upon the frequency and the timing of the payment of their credit card balances, and it's a little bit more rapid.

So you are seeing a benefit up -- or expense a little bit more, expense up in margin, a little bit less on the fee category.

Again, I would expect that to be relatively stable on a go-forward basis.

Okay, great.

On the mortgage banking side, obviously another strong quarter even with a higher MSR impairment.

Can you just give us some context of just how you expect the refi environment to play out, how your pipelines are looking for originations?

And do you think '13 could be an elongated process here as far as where the mortgage market is heading from an origination perspective?

Right.

So Ken, we did $21.6 million -- or $20.6 million (sic - see p. 44 of supplemental schedule, "21,529") in production.

65% of it was refinance activity, 35% new.

We still have a healthy pipeline on our backlog of refinance activity.

And given the current rates I would expect the combination of refinance and our growth and taking market share or new business to allow us to have a fairly healthy production well into 2013.

Okay, great.

Then the last real quick one is just regarding liability costs.

I know -- and you don't want to go into '13 guidance on NIM.

But just a question just about the right side of the balance sheet.

I know you have fewer debt retiring in the fourth, but you still have the rollover of what happened in part of this quarter and still kind of an all-in higher cost of wholesale borrowings.

How much room do you still have as far as both wholesale costs and on core deposit costs, so continue to lower interest-bearing liability costs?

Right.

So on the debt runoff side, we had about $6 billion run-off in the third quarter.

On a go-forward basis the next few quarters, I would expect that to be closer to $1 billion to $2 billion.

So the rate of decline or run-off or rollover will certainly come down, and that will help us less, but still help us.

We still have a little bit of room on deposits, because while the deposit rate in total is low, you have to remember within there there are categories that are paying well above that and categories that are paying zero to just a few basis points.

So we have a little bit of room there.

And as we talked about, our loan spreads on a spread basis have been relatively stable on the wholesale side of the equation.

So I think we can manage fairly effectively the loan versus the deposit side.

That headwind continues to be the repricing on the securities portfolio.

Right, because there you're putting on 4-somethings against a 44 basis incremental cost of deposits.

You are still -- your loan versus deposit is still better than your average margin is.

That is correct.

And as you think about the securities portfolio, the way I think about it is what is running off is coming off at somewhere between 2.30% and 2.40%.

And what we are putting on, we're being very conservative in what we're putting on; it is probably coming on 75 basis points below that.

So that is the difference.

And we have a runoff somewhere between $1 billion and $2 billion a month.

Got it.

All right.

Ken, this is Richard.

I'm going to go back to mortgage for a minute and offer something you didn't ask.

We really like the mortgage business and we are going to continue to invest in it, and we are continuing to grow in it.

We have got great market share positions, but we are also seeing a lot of other value that comes from being in the mortgage business.

Eventually, this is unsustainable.

These numbers aren't going to be this way forever, and we know that.

So we are building the future of the Bank to find alternative ways to develop fee businesses and find other things through our payments and our corporate trusts.

So we are not going to rely on this forever.

But as long as interest rates are low, we have a pretty robust near-term future that we think this continues at some of these same levels.

Eventually rates go up; refis will fall.

They will go quickly at first, and then they will fall to almost nothing; and then we'll be a purchase money shop.

And we want to still be in the top rankings of national performance in the purchase area, and when rates go up then the balance sheet will make money in other places, and we hope that those will offset as well.

But we know this is not a sustainable forever kind of position, but we're not going to forgive it or give it away while we are in it.

We are going to keep growing it.

Our quality is good.

Our market position is good.

Our reputation is good.

And we are going to play that as far as we can, at least well into next year.

Got it.

Thanks for all that color.

Greg Ketron, UBS.

Good morning.

Richard, you talked about continuing to pick up market share; and you guys have done a great job of taking advantage of your position through the cycle.

In the current environment are you finding it -- and it's hard to gain market share.

Are you finding it continuing to be, I don't want to call it easy, but able to gain market share?

Or are you seeing competition become more difficult on that front?

Yes, it's a mixed bag.

We are still enjoying what we call the flight to quality, where especially the more sophisticated customers from corporate down to middle market, they value those debt ratings.

They value our number-one position.

That means a lot to them.

So that is getting stronger actually as these quarters go by, because they are valuing it and they understand the difference.

Until you get to the more consumer side, there is still -- much as I'd like to think that every consumer is paying attention to ratings and bank performance they are not often.

They are more measured by the quality of the relationship, the individuals that they deal with, and in some cases the location.

Therefore, I think we have to duke it out in the streets in the old-fashioned way for market share and earn it through customer quality and product sets, and doing things like mobile banking and mobile payments and things that are cutting edge where other companies might follow.

So that is probably a more traditional way of thinking of it.

I will say that on the wholesale side we still see the retreat of the European banks giving us benefit in higher syndication positions and new involvements in deals that we weren't before.

I would also say on the other side of the spectrum, the community banks, which used to be very, very robust and quite hard to compete with, they have been muted as well for reasons that are pretty obvious.

And they are not giving us quite the same margin compression or the irrational competition we've had in the past.

So I would say overall we are enjoying this flight to quality.

It actually gets stronger as the quarters age.

And I guess answering your question, it probably is a little easier actually.

And I will tell you what, it darn well better be.

Because this team, the way we are going to make money in this difficult long-term environment with rates low and yield curves flat is we're going to have to do it by market share.

And that is the only way you can do it.

And after all these years of all sitting around, everybody is saying we are growing market share and you are wondering if anybody is.

I think we are, and we are going to continue to make that a real reason for us to emerge eventually as a strong bank when times get great.

Great; appreciate the color.

Then one question on share repurchase.

I know you did $16 million in the first quarter, $13 million in the second quarter, and then $17 million in the third quarter.

You were authorized to do $100 million under the CCAR process.

Is the way to think about it that you have purchased $30 million of the $100 million so far under CCAR?

Or would you look at that as more like $46 million under CCAR and you still have roughly half to go?

I would look at it -- the $30 million, Quarters 2 and 3 for the most part, a little bit of the Quarter 1 was under the new authorization, but very little.

And part of the difference is the difference in share price.

And again as a reminder, it goes through the first quarter of 2013.

Okay.

We have put our own governor on, as you recall, when the capital fell below the 8%.

We withheld buybacks until we got back to that level, and now we are back at 8.2%.

But I want you to know that in and above the roles and the responsibilities of CCAR, we will do what we need to do that's right for the Company, and we will manage ourselves within those bounds to give you the right answer.

Okay, great.

Thank you.

Dan Werner, Morningstar Equity.

Morning.

Could you give a little more color on the commercial loan growth?

I was wondering how much came from current lines versus new customers.

And then just to follow up on the previous question, have you found it more difficult to acquire new customers given what is going on in the world with the fiscal cliff and the election?

And do you expect better results or better new customer growth after the election?

This is Bill.

I think since our utilization has really not budged -- in fact, it is still at sort of all-time lows.

So the growth we see is across all of our wholesale areas.

It is in the corporate area, the middle market area, even small business.

So we have seen good growth across areas.

It is market share.

As far as the impact in the fourth quarter, reiterating what Richard said, we do see caution out there.

But we think, assuming we get past all the uncertainties over the next two, three months we do see a resumption of activity early next year.

So we do anticipate to continue to grow market share next year.

Then a second question, in the investment portfolio, what type of securities are you adding on as securities are being called or mature?

Principally Freddie, Fannie, and Ginnie Maes, just a very small amount of treasuries, keeping it fairly short duration in that two or so year category.

Okay.

Any thoughts on when you think you may go longer duration?

Or is that just too far to look out given the current rate environment?

We are trying to be very conservative about this and continue to remain asset sensitive.

And that is the way we are managing the balance sheet.

Okay, very good.

Thank you.

At this time there are no further questions.

I will now turn it back over to the presenters for any closing remarks.

Well, this is Richard.

Thank you for your interest in the Company.

I think maybe by the lack of questions I hope you know that this is a pretty standard, almost boring quarter and a pretty boring bank.

We are pretty proud of that, and I think you can count on us to continue to give you guidance in public settings to help you be close to where you expect us to be.

And I think we have done that here today.

We are in an environment that is going not going to be easy for anybody, but if anybody is going to do well in it, it is going to be us.

And we will continue to not provide any surprises or throw anything your way that you didn't see coming.

So, thank you.

Great.

Thanks, all, for listening to the call.

And as usual if you have any questions please feel free to call either myself or Sean O'Connor in Investor Relations.

Thanks a lot.

Thank you.

That concludes today's U.S. Bancorp's third-quarter 2012 earnings conference call.

You may now disconnect.