Welcome to U.S. Bancorp's Third Quarter 2013 Earnings Conference Call. Following a review of the results by Richard Davis, Chairman, President and Chief Executive Officer; and Andy Cecere, U.S. Bancorp's Vice Chairman and Chief Financial Officer, there will be a formal question-and-answer session. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately noon EDT through Wednesday, October 23, at 12:00 midnight EDT. I will now turn the conference call over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Thank you, Tiffany, and good morning to everyone who has joined our call. Richard Davis, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp's third quarter 2013 results and to answer your questions. Richard and Andy will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings release and supplemental analyst schedules, are available on our website at usbank.com. I would like to remind you that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's presentation, in our press release and in our Form 10-K and subsequent reports on file with the SEC. I will now turn the call over to Richard.

Thank you, Judy, and good morning, everyone. Thank you for joining our call. I'll begin with a review of U.S. Bank's results with a summary of the third quarter's highlights on Page 3 of the presentation. U.S. Bank recorded net income of $1.5 billion for the third quarter of 2013 or $0.76 per diluted common share. Total average loans grew year-over-year by 5.7% and 1.9%, or 7.6% annualized, on a linked-quarter basis. We experienced strong loan growth in total average -- strong growth in total average deposits of 5.5% over the prior year and 2%, or 8% annualized, over a linked-quarter basis. Credit quality remained strong. Total net charge-offs decreased by 16.3% from the prior quarter, while total nonperforming assets declined, linked quarter, by 2.8%. We generated significant capital this quarter. Our estimated Tier 1 common ratio under Basel III rules issued in early July was 8.6% at September 30, while our Basel I Tier 1 common equity ratio was 9.3% and our Tier 1 capital ratio was 11.2%. We returned 77% of our earnings to our shareholders during the third quarter through dividends and the repurchase of over 17 million shares of common stock. Slide 4 provides you with a 5-quarter history of our performance metrics, and they continue to be among the best in the industry. Return on average assets in the third quarter was 1.65%, and return on average common equity was 15.8%. Moving to the graph on the right, you can see that this quarter's net interest margin was equal to the prior quarter at 3.43%. Our efficiency ratio for the third quarter was 52.4%, slightly higher than the previous quarter. As we have stated in the past, our goal is to maintain an efficiency ratio in the low 50s by continuing to manage expenses in…

Thanks, Richard. Slide 8 gives you a view of our third quarter 2013 results versus comparable time periods. Our diluted EPS is $0.76, was 2.7% higher than the third quarter of 2012 and equal to the prior quarter. The key drivers of the company's third quarter earnings are summarized on Slide 9. The $6 million or 0.4% decline in net income year-over-year was the result of a decline in net revenue, offset by a decrease in expense and a lower provision for credit losses. Net interest income declined year-over-year by $69 million or 2.5%, the result of a 2% increase in average earning assets, offset by a 16 basis point decrease in the net interest margin. The $6.1 billion growth in average earning assets year-over-year included increases in average total loans and investment securities. Offsetting a portion of the growth in these categories was a $5.4 billion reduction in average other earning assets primarily due to the deconsolidation of a number of community development entities in the second quarter and a $3.5 billion reduction in average loans held for sale, reflecting lower mortgage origination activity this quarter versus the same quarter of last year. Net interest margin of 3.43% was 16 basis points lower than the third quarter of 2012 primarily due to lower rates in investment securities and loans, partially offset by lower rates in deposits and a reduction in higher-cost, long-term debt. Noninterest income declined by $219 million or 9.1% year-over-year primarily due to mortgage banking revenue, reflecting lower origination and sales revenue, partially offset by higher servicing-related revenue and a favorable change in the valuation of mortgage servicing rights net of the hedge. Also contributing to the decline in noninterest income year-over-year was a reduction in other income, which largely reflected the 2012 gain from the sale…

Thanks, Andy. And turning to Slide 12. In September, we hosted our 2013 Investor Day in New York City. The theme of this year's conference was Extending the Advantage, which followed our 2010 Investor Day theme of Positioned to Win. During the presentations, our senior management team spent time reviewing what we accomplished since 2010, which included our added distribution and sale; our expanded products, services and capabilities; and our gains in market share, as well as how we positioned the company to capitalize on future growth opportunities. In other words, how we are extending the sustainable, competitive advantage that our company has created through carefully investing in our diversified business model by maintaining prudent risk management, by focusing on operating integrity and compliance, by sustaining strong capital and liquidity and by providing superior returns for our shareholders. U.S. Bank's performance metrics for the third quarter will, once again, be among the best in the industry. We will continue to build our company to perform in the future as we have in the past and remain focused on producing consistent, predictable and repeatable results for the benefit of our customers, our employees, our communities and our shareholders. That concludes our formal remarks. Andy, Bill and I would now be happy to answer questions from our audience.

[Operator Instructions] Your first question comes from the line of Erika Najarian of Bank of America Merrill Lynch.

My first question goes with the theme of Extending the Advantage. As I'm sure you're aware, larger banks or banks just larger than you have to comply with these new supplementary leverage ratio rules. And particularly, as it relates to the 100% capital that they have to hold against unfunded lending commitments, do you think that could be an opportunity for a bank with your scale and size if the SLR does pass as proposed?

Erika, this is Andy. While we're not bound by that supplementary ratio, our ratio, in fact, would be above the 6% that we currently have. So it is -- given the simple structure of our balance sheet and the fact that most of our deposits -- or most of our funding is deposit-oriented, it is not a major factor for us. And so to that extent, it could be an advantage.

Got it. And just a question on your Basel III disclosure. Could you give us what your Basel III Tier 1 common would be under the advanced approach?

It's interesting. We have a situation where our standardized approach is a lower ratio than our advanced approach. Said another way, standardized is our binding constraint because the advantage that we get from our simple, high-quality credit portfolio is more than the negative we get from increasing of our capital due to operational risk. So our capital ratio actually would be higher under the advanced approach. Therefore, our return would be actually a little bit better.

Your next question comes from the line of Betsy Graseck of Morgan Stanley. Your next question comes from the line of Ken Usdin of Jefferies.

Richard, I was just wondering if you could elaborate a little bit on your expectations for keeping the loan growth rate about the same pace and help us think about the constitution of it. It seemed like this quarter, you had resi mortgage pick up the slack a little bit. And so I'm just wondering what you're seeing in terms of people's appetite out there but also your appetite for retaining certain types of loan production.

Yes, thanks, Ken. Mortgage had a strong quarter, and it's actually across the board. We were very pleased especially in some of the auto and consumer areas that have, in the last couple of quarters, not had this kind of lift. So I like the way it came about this quarter, which gives me confidence to say that we'll still be in that 1% to 1.5% range and probably in the high end of that, unless something occurs that we all know about in Washington that precludes a lot of things. In that case, I'll tell you we've got some opportunities for continued growth because of the following. In the last couple of years, U.S. Bank continues to be invited into more syndicated deals and in a higher position, by far, than we used to be in, in some cases, at the lead position. And that's a big turnaround from what we might used to have expected a few years ago. And likewise, as you know, one of the biggest sources of lending right now in line of benefits are refinancing and customers restriking their balance sheet. And so when they come up to that renewal point and we get invited into deals we weren't before or get invited to upsize into deals we've been in, that's a big driver for us. And that continues to happen at higher levels and expected to continue to happen even more so in the next couple of quarters. I might add that we're a flight to quality bank, so even when there's any kind of question in the economy about what might be otherwise negative, we tend to get the benefits that accrue to that on the lending side, as well as on the deposit gathering side, where you might expect people to…

Okay, great. And my second question, Andy, you had been talking about getting to this point of margin stability, and we certainly saw that pickup in the investment securities yield. So I'm just wondering how you see the different parts in securities and then loans which are still trending down on a yields basis. How much -- how are you reinvesting, I guess, on the securities book? And then also, how close are we to the bottom of the loan yield side?

Yes. So Ken, we're investing about half and half floaters and fixed on the security side. We're keeping the duration short, understanding that rates will go up. And we continue to maintain an asset sensitivity on our balance sheet. With regard to the loan side, I think we are seeing loan spread stabilize. There are certain pockets, particularly in the middle market and maybe on the smaller end, that we have some aggressive players that caused a little bit of a compression on spread. But as Richard mentioned, we have a funding advantage, so we could always compete on price. My expectation for the fourth quarter margin is relative stability again. However, I do want to note one item. With the government issues that we're facing, we are seeing an influx of deposits and quite a strong influx. And that -- while it doesn't impact net interest income, it does cause our net interest margin to go down a bit. So that could impact it by 1 basis point or 2. But absent that, I would see relative stability.

[indiscernible] a flight to quality bank.

[Operator Instructions] Your next question comes from the line of Dan Werner of Morningstar.

This is kind of more of a forward-looking thing. On the corporate payments business and the government shutdown, could you comment on how that's impacted fourth quarter so far? And if that -- if those revenues are significantly lower, will they be made up once the government shutdown ends?

Yes, I'll just go on quickly. As we try to characterize this particular earnings call, I think people might have thought we have a bigger position as the government affects our corporate payments. And I think you heard us walk through -- Andy walked through the percentage of the percentage of the percentage. By the way, that's only 20% of the total company's revenue. So it's really about a 1-ish kind of a percent impact to our total revenue, but it is an impact. And I'll tell you, it started out looking like sequester and a pull out of a war situation, and that's been the last, probably, 6 to 8 quarters. Right now, it looks like the continuation of the sequester and what continues to be now a government shutdown. Once and if those things get behind us, it will start to pick back up but not to the original levels until which time we get into a stronger purchasing pattern by some of the government agencies and well beyond whatever the sequester will end up to be. So I think this quarter will continue to be stressed for all the reasons we've been talking about, limited in Washington, and a little bit worse than they've been in the last few quarters. But once and when that gets past, then we expect this thing to start to pull back up, and we'll see a sustainable recovery as the government agencies start to spend, in particular, the Department of Defense gets it budget back and knows what its rules are going to be in the case going forward. Andy, do you want to...

I think that's right, Richard.

There are no further questions at this time. I would now like to turn the call back over to Judy Murphy.

Thank you for listening to our call. Richard, do you have any...

I just want to tell you guys that we are quite pleased with the follow-up we had from the Investor Day a couple of weeks ago. We do our very best to telegraph to you all exactly what is going on, and I think the results you read this morning were exactly what we suggested. We have a really good play at this company. We see the balance sheet continuing to grow. We have good margin protection. We've got good compliance and operating integrity. And as you worry about surprises, I think in this case, sustainable, predictable, repeatable is working pretty well. And we're going to continue to deliver on those consistent methods that we have in the past. We're always available for questions, but we appreciate the following of our company.

Yes, thanks, Richard. And thanks, everyone, for listening to the call. And of course, as usual, if you have questions, please feel free to call Sean or I in Investor Relations. Thank you.

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