IMAGE SOURCE: THE MOTLEY FOOL.

Bank of America Corporation (NYSE:BAC)
Q2 2018 Earnings Conference Call
July 16, 2018, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to today's Bank of America Earnings Announcement. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question any time by pressing *1 on your touchtone phone and withdraw yourself from the queue by pressing #. Please note this call is being recorded. It's now my pleasure to turn the conference over to Mr. Lee McEntire. Please go ahead.

Lee McEntire -- Senior Vice President of Investor Relations

Good morning. Thanks for joining this morning's call to review our second-quarter '18 results. By now, I hope everybody's had a chance to review the earnings release documents on the IR website of the bankofamerica.com site. Before I turn the call over to our CEO Brian Moynihan, let me remind you we may make forward-looking statements during the call. After Brian's comments, our CFO Paul Donofrio will review the details of the second-quarter results, then we'll open it up for questions. Please limit your questions and you can have a follow-up afterwards, but limit it to one question if you can. For further information on forward-looking comments, please refer to either our earnings release documents, our website, or the SEC filings that we post. With that, I'll turn it over to Brian.

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Brian Moynihan -- Chairman and Chief Executive Officer

Thank you, Lee, and thank all of you for joining us to review our second-quarter results. Continued solid client activity and a growing economy coupled with strong cost and risk management discipline resulted in a strong quarter result. Combined with Quarter 1, the earnings this quarter bring us to $13.7 billion in net income for the first six months. This is the best start to a year in the company's history, more than 20% higher than the previous record.

Driving responsible growth has resulted in consistent results for shareholders. It has enabled us to increase returns and support customer growth in the real economy and to continue to invest in our operational excellence. Net income for the quarter was $6.8 billion after tax, and it grew 33% from last year. Our return on tangible common equity was more than 15%. We delivered positive operating leverage for the 14th consecutive quarter.

We drove the efficiency ratio below 59%, an improvement of 249 basis points, in just 12 months. And, of course, while it's true that tax reform is benefiting our bottom line as well as corporations around America, income before taxes also grew and second-quarter reported pre-tax income improved 5% year over year, but after adjusting for some select items, which Paul is going to cover later, a better way to look at it is pre-tax income is up 11%.

Our balance sheet from both a capital and liquidity standpoint remains extremely strong. We announced following the June CCAR results in 2018 we plan on returning roughly $26 billion to you, our shareholders, over the next 12 months through a combination of share repurchases and dividends. This is a strong improvement from last year's initial CCAR approval in June of 2017, where we were approved to return $17 billion in capital. Our immediate priority remains to use capital to buy back shares that we don't need for business growth, but importantly, we increased our dividend by 25%.

Our responsible growth strategy continues to work, growing earnings returns and capital returns, and doing so the right way. This quarter, we demonstrated growth within our defined customer and risk framework, and we did it organically. When you think about it year over year, we grew average loans by more than 5% in the aggregate across the businesses. We grew average deposits by more than 3%. This quarter marks the 11th straight quarter where Bank of America has grown its average deposits more than $40 billion on a year-over-year quarter comparison basis.

We added more credit cards, we added more checking accounts on the consumer side, and we added more accounts and households in our Merrill Edge online brokerage. We also had a strong quarter in our wealth management business as we formed more households than we had in any quarter in the past.

Importantly, we see our small business clients borrowing more. We originated during the second quarter of 2018 alone $2.3 billion of loans to small businesses. This helps facilitate the core economy in its growth. We also see more in our business banking/commercial banking customers and continue to deepen relationships with them.

The other aspect is to make sure we stay within our risk framework. As you can see on Slide 2, credit continues to perform well, with a 43-basis-point net charge-off ratio this quarter. Since coming out of the crisis and stabilizing, we've now seen consistency over the last few years. In fact, the charge-off ratio has been below 50 basis points for 14 of the last 17 quarters.

In Global Markets, we continue to see a strong return on our lower-value risk metric than many of our peers, all while continuing to generate growth and improve profitability. We have earned a 15% return on capital in the Global Markets business year to date from Tom and the team. The other part of being sustainable is to invest while remaining efficient. We have to make investments in the communities we serve, investments in the talent in our company, and investments in our capabilities. By doing this, we believe we have a leading capability that will sustain us well into the future.

How do we afford all that? We afford it through operational excellence. We've been able to continue to invest and have our costs continue to come down. Investments in our teammates have resulted in a strong, stable talent pool of tremendously effective teammates and historic attrition levels are all-time historic lows. We continue to receive third-party accolades as one of the best companies for people to work.

If you move to Slide 3, when you put all that together, what happens? You get operating leverage. This slide shows you the 14th quarter in a row where we've had positive operating leverage in our company. On a linked-quarter basis, every business segment drove expenses lower from first quarter to second quarter even as they continued to invest.

But, people ask for examples of how all this works. How can you invest and develop capabilities while continuing to take down costs and continuing to have higher customer satisfaction? I think the easier way for people to visualize that is in our consumer digital banking capabilities. Many of you use them, and all of you should. By investing in client capabilities, we make our clients' lives easier, more efficient for them, more effective for them, and their satisfaction goes up. Our costs go down in turn, and because our process has become more automated.

So, how does that play out? Let's look at Slides 4 and 5. Here, we display the results, and typically, Paul will cover these as part of the Consumer Banking dialogue, but I think it's important to understand how responsible growth and driving sustainable operating leverage works. As you can see on the slide, you can see some of the results we've been making across decades to drive the business. The important thing is the size of our consumer base allows those investments to be leveraged. As you can see in the upper left-hand corner, we crossed over 25 million active mobile users this quarter. Another 10 million used other digital channels. So, that brings us to 35 million customers using digital devices this quarter on an active basis, and it continues to grow, as you can see, due to the innovation we have.

Those mobile users, as you can see below, logged into their mobile apps nearly 1.4 billion times this quarter. What are they doing with us? You can see that in some of the other boxes. While they do transactions, they also use them for communication. They're using their digital services to set appointments with our financial services for their convenience rather than just drop in. This ensures we have the right teammates to serve the customers well. We had a half million digital appointments this quarter, but that's still a lot of room to grow when you think of the 50 million customers we have that walk into our great stores every day, so it's critical to have both the digital and physical.

As you can see in the rollout of Erica, our digital assistant, you can do some tasks hands-free or text, and that increases your flexibility. You can see Erica has grown nicely to over 2 million Erica users from only starting a few months ago. Customers are doing more of their regular deposit transactions on their digital devices. This quarter, we saw more deposit transactions by a person taking a picture of the deposit and sending via mobile phone than we did by a person handing a check to the teller. In fact, 76% of all our deposit transactions are now through ATMs and mobile deposit. This allows for more meaningful relationship management activities to take place in our centers as we invest more and add more teammates to do that.

Customers just aren't transactioning and researching these capabilities, they're using them for sales. Digital sales now make up 24% of all our sales in our consumer business. This compares favorably with all sectors, including general retail, in terms of digital sales. As we move to Slide 5, you can also see that the adoption rate is moving faster for these newer products. New capabilities are taken up much faster by the customer base, who is completely digitally enabled.

On payments, you can see the early adoption of Zelle has grown. In the recent quarter, we processed more than 35 million Zelle transactions, or more than $10 billion principal amount. That's twice the pace of a year ago. We believe we account for about 25% of Zelle and its activity will continue to grow as the industry continues to drive this as our standard for P2P payments.

Overall, consumer digital payments have now overtaken non-digital payments. More than $368 billion in digital payments at the bottom of Slide 5 you can see. Over 52% of total payments have come in this quarter. This is growing 12% on average for the past four years. As you can see on sales, 24% of sales are executed digitally, and we continue to expand that through other products and services. Digital auto was launched a year ago. It is now more than half of retail auto volume. Digital mortgage, which is a true end-to-end digital experience just brought out recently, you can see is growing fast.

And, on investments in the lower right-hand side, you can see with the Merrill Edge growing assets 20% in the past year to $191 billion and 2.5 million accounts. We have parlayed that in our capabilities for our automated Merrill Edge guided investing platform. They can see the statistics.

So, these examples are just a set of examples about how the sustained investment, coupled with the change in customer behavior, coupled with the process improvement, coupled with the operating excellence, allows us to drive positive operating leverage while driving up customer delight. There are many other examples across our company, including Cash Pro in our commercial set of businesses, which has 475,000 commercial users. So, we'll continue to make these investments and continue to drive the operating leverage in the company, and that'll provide good utility for you, our shareholders. Now, let me turn it over to Paul to handle the financial results. Paul?

Paul M. Donofrio -- Chief Financial Officer

Thanks, Brian. I will start on Slide 6. Bank of America reported net income of $6.8 billion or $0.63 per diluted share. Net income was up 33% from Q2 '17. EPS grew 43%. Once again, our earnings growth was driven by strong operating leverage and continued strong asset quality in addition to the benefits of tax reform. Before I review comparative period performance, let me remind you of a few select items which I think are helpful in understanding our operating performance.

In Q2 '17, we had a net after-tax gain from the sale of our U.K. card consumer business of roughly $100 million, which included a revenue benefit of nearly $800 million in other income, mostly offset by a tax cost of nearly $700 million. So, revenue was $22.6 billion on a reported basis, down 1% versus Q2 '17. However, excluding the impact of the U.K. card gain, revenue was up 3% year over year, driven by NII improvement and better sales and trading results.

Another notable item in Q2 '17 was in expenses. We had a $300 million impairment charge associated with the sales from data centers, so expense of $13.3 billion on a reported basis was down 5% from Q2 '17, but excluding that charge, expenses declined 3%, or nearly $400 million. After excluding both of the Q2 '17 revenue and expense items, operating leverage was 6% and pre-tax income improved 11%, as Brian noted.

I would also note two items in our Q2 '18 results which had a combined negative pre-tax impact of roughly $160 million in other income. However, these items are not part of the select items adjusted for on this page and in our release. The first item was a charge of $729 million from the redemption of some trust-preferred securities. The second item was a gain of $572 million from the sale of some non-core mortgage loans. Net DBA negatively impacted the quarter by $179 million. Provision expense was $827 million, $101 million higher than Q2 '17, driven primarily by the seasoning of our credit card portfolio, loan growth, and a modestly lower reserve release.

Brian already covered the significant improvement in returns seen on this slide. The effective tax rate for the quarter was a little more than 20%, which includes the ongoing benefit from the Tax Act. We would expect the tax rate to be roughly 21% in the second half of 2018 absent unusual items.

Turning to the balance sheet on Slide 7, overall, compared with the end of Q1, end-of-period assets of $2.3 trillion decreased $37 billion, driven by lower Global Markets assets as well as lower deposit levels, primarily due to seasonal customer tax payments. Liquidity remained strong, with average global liquidity sources of $512 billion and a liquidity coverage ratio of 122%.

Total shareholders' equity decreased $2 billion from Q1. Preferred equity was down $1.5 billion in the quarter. If you look at the first half of the year, we issued $3.7 billion of lower-yielding preferred stock ahead of redemptions of $2.8 billion of higher-yielding preferred stock, and note we have called another $900 million that we'll settle in the third quarter.

Given a $1 billion decline in the value of AFS securities, which impacts OCI, common equity decreased by $0.5 billion as we returned 90% of net income earned in the quarter to our shareholders via dividends and repurchases. In Q2, we repurchased 166 million shares for $5 billion and paid $1.2 billion in common dividends.

Turning to regulatory metrics, this is the first quarter in which our RWA under standardized exceeds RWA under advanced. Standardized RWA decreased $8 billion from Q1 due to lower trading exposure in Global Markets and continued runoff of legacy mortgages. CET-1 capital was flat from Q1 as net income and lower DTA disallowance was offset by share repurchases, dividends, and OCI. Our CET-1 standardized ratio improved to 11.4% and remains well above our 9.5% requirement. The supplement-to-leverage ratio remains well above U.S. regulatory minimums.

Turning to Slide 8, on an average basis, total loans increased to $935 billion. Note that the Q2 '17 sale of U.K. card impacted the year-over-year comparisons by nearly $6.5 billion. Adjusting for the U.K. card balances, which were recorded in All Other, average loans were up $26.6 billion or 3% year over year. Total loan growth continued to be impacted by the runoff of non-core consumer real estate loans.

On the other hand, loans in our business segments were up $45 billion or 5% year over year. Our consumer loans grew 6% year over year as clients grew card balances 5% and mortgage originations across both Consumer Banking and wealth management were equally strong. While we are seeing good growth in originations of home equity loans, they continue to be outpaced by paydowns of older loans.

Commercial loans grew 5% year over year. Consumer optimism carried over into small business as we originated $2.3 billion in loans and grew balances 6%. Strong year-over-year growth in structured lending with wealth management clients also contributed to commercial loan growth. Competition for commercial loans remains intense. We're seeing aggressive terms in structure; however, we remained disciplined, and from a consistency standpoint, as you can see in the bottom right chart, loan growth in our business segment has been mid-single-digit consistently for several years now.

This chart compares year-over-year growth over the past five quarters. Our growth has been led by consumers, which is consistent with what we're seeing in the economy. The recent moderation in the consumer growth rate is driven mostly by auto loans given our decision to focus on organic growth and rely less on third-party flow. On the other hand, growth in consumer credit card has ticked up recently, and also note the modest increase in the growth rate in commercial. This has been driven by improvements in both small business and structured lending.

Before turning the page, I just want to mention deposits as we think about funding this growth. Average deposits grew $44 billion or 3.5% year over year. Consumer banking once again led, with growth of $35 billion or 5%. Deposits in wealth management declined from Q1, reflecting seasonal income tax payments and shifts to investments. Global banking deposits were strong, growing 8%, and included movement from non-interest-bearing to interest-bearing.

Turning to asset quality on Slide 9, total net charge-offs were $996 million or 43 basis points of average loans and increased as expected. We saw seasonally higher losses in credit card. Note that we are now more than 180 days past the storms which impacted many U.S. areas. The small storm-related card losses which came through in this quarter were previously reserved for. Provision expense of $827 million in Q2 included a $169 million net reserve release. This reflects continued improvement in our consumer real estate and energy portfolios. The increase in net charge-offs versus Q2 '17 was due primarily to credit card seasoning, loan growth, and the storm-related losses. Compared to Q1 '18, the increase was driven by commercial bouncing around the bottom.

Our reserve coverage remained strong, with an allowance-to-loan ratio of 1.08% and a coverage level 2.6 times our annual net charge-offs for the quarter.

On Slide 10, we break out credit quality metrics for both our consumer and commercial portfolios. With respect to consumer, net charge-offs of $830 million were flat compared to Q1 '18 and up $79 million from Q2 '17. As mentioned, the driver of the year-over-year increase was credit card, which increased to 3.17% due to seasoning and growth as well as storm-related losses. Excluding the storm-related losses, the credit card loss rate increased 22 basis points from Q2 '17.

Consumer NPLs of $4.6 billion declined 5% from Q1 and 47% of our consumer NPLs remain current on their payments. The commercial loss rate excluding small business remained strong at 9 basis points. While up from a low level in Q1 '18, commercial losses continued to remain low. Other commercial asset quality metrics continued to improve as reservable critical exposure was down $1 billion from Q1 and NPLs declined 5%.

Turning to Slide 11, net interest income on a GAAP, non-FTE basis was $11.65 billion, $11.8 billion on an FTE basis. Compared to Q2 '17, GAAP NII is up $664 million or 6%, reflecting the benefits of higher interest rates as well as loan and deposit growth. This growth is even more impressive given Q2 '17 included $140 million of NII from the U.K. card business, which we sold in June of last year.

Note we have presented the net interest yield excluding the impact of net interest income and related assets associated with our Global Markets segment. These assets, resulting from client financing and trading activity, generally are shorter-term and have a lower net interest yield and core banking asset. The net interest yield excluding Global Markets increased 12 basis points year over year to 2.95%, driven by broad improvement in asset yields relative to funding costs.

Moving back to total NII, Q2 GAAP NII increased modestly versus Q1, as the benefits of higher interest rates and one extra day was offset by seasonal client activity in Global Markets and seasonal paydowns of credit card loans. An increase in three-month LIBOR rates from Q1 '18, which impacts the cost of our long-term debt, also negatively impacted the comparison.

With the expected deposit pricing, rate paid on total interest-bearing deposits rose 7 basis points from Q1 and is up 32 basis points versus Q4 '15, which was the beginning of this Fed rate hike cycle. That compares to an average Fed funds rate, which is up 27 basis points and 151 basis points respectively from Q1 '18 and Q4 '15. So, to date, in this cycle, we have pass-through on interest-bearing deposits roughly 21% of the increase in Fed funds.

Turning to asset sensitivity, as of 6/30, an instantaneous 100-basis-point parallel increase in rates is estimated to increase NII by $2.8 billion over the subsequent 12 months. This is modestly lower than our sensitivity on 3/31, driven by cash deployed to securities, which increases future NII. Note that the short end represents about 70% of this sensitivity.

Okay. Turning to Slide 12, we had another solid quarter of expense management, extending our record of year-over-year quarterly decreases in expense to 14 out of the last 15 quarters. Non-interest expense of $3.3 billion was down $698 million or 5% year over year. As I mentioned earlier, Q2 '17 included roughly $300 million in impairment associated with data centers that we sold, so, excluding that charge, expense still declined nearly $400 million or 3% with broad improvements across most categories, and I would emphasize that we achieved this reduction while continuing to invest in new technology, new financial centers, and sales staff.

With respect to sales professionals, we continue to add relationship bankers in consumer, business banking, and commercial, as well as financial advisors in wealth management, and notably, despite adding sales professionals, our headcount is down roughly 3,000 from last year as we reduce non-client-facing roles by streamlining how we work and deliver for customers. During the quarter, we also onboarded more than 2,500 summer interns. These interns were selected from nearly 50,000 applicants. This year's class is our most diverse group ever. For example, women make up 45% of these interns, and 55% are ethnically or racially diverse.

Turning to the business segments and starting with Consumer Banking on Slide 13, another great quarter for this business as client balances grew, revenues increased, and expenses were down. Key metrics suggest a healthy consumer and a strong U.S. economic growth. Jobs and wages are improving, tax reform put more money in consumers' pockets, and equity markets are healthy in creating wealth. These types of improvements are fueling higher spending and more borrowing, and we believe we are gaining share and deepening relationships in this growing economy.

Earnings in Consumer Banking increased to $2.9 billion, returning 31% on allocated capital. This is the 12th consecutive quarter that earnings in Consumer Banking have increased year over year. Consumer Banking created over 850 basis points of operating leverage this quarter as revenue grew 8% while expenses were down. The efficiency ratio has improved more than 400 basis points in the past 12 months and is now below 48%. Year over year, average loans grew 7%, average deposits grew 5%, and Merrill Edge brokerage assets grew 20%.

As rates rose -- and, given our solid growth in client balances -- the value of our deposits drove an 8% improvement in revenue year over year. Cost of deposits, which reflect non-interest expense as a percent of average deposits, improved to 155 basis points. Rate paid remained at 5 basis points. Net charge-offs increased $105 million from Q2 '17 as our credit card portfolio grows and continues to season. Net charge-off ratio remained low at 128 basis points, up only 7 basis points from Q2 '17. Provision expense increased $110 million from Q2 '17, in line with the increase in net charge-offs.

Turning to Slide 14 and key trends, looking first at revenue, we believe relationship deepening is driving improvement in revenue, predominantly NII. This quarter, our revenue growth of 8% year over year included a $0.11 growth in NII as well as higher revenue in card income and service charges. Spending levels on debt and credit cards were up 8% year over year, driving the increase in card income. Service charges grew modestly. Customer satisfaction in Consumer Banking reached a new high, with roughly 81% of our clients rating us 9 or 10 on a 10-point scale.

Focusing on client balances on the bottom of the page, we continued to grow deposits, loans, and brokerage assets. With respect to loans, in addition to growth and residential mortgage, card balances grew 5% year over year and Merrill Edge assets grew 20%. Edge offers customers a lot of value and is a great way for us to deepen relationships. Whether it is access to one of our 4,000 licensed advisors and a world-leading research platform or how integrated Edge is with other banking needs, we think customers are noticing and giving us more of their investment dollars.

Expenses were down slightly compared to Q2 '17 as productivity improvements more than offset the continued investment in financial center renovations and technology initiatives. We continue to modernize financial centers and add new ones. This quarter, we opened 13 new financial centers and renovated another 65.

Okay, turning to Global Wealth and Investment Management on Slide 15, GWIM produced another quarter of solid results, nearing the record $1 billion of net income earned in Q1 and producing the second-highest pre-tax margin ever at 28%. Strong client activity and a healthy equity market coupled with solid expense management all benefited the results. Growth in households and deepening of relationships is helping offset industry dynamics driven by consumer behaviors.

Strong AUM flows and market appreciation increased AUM balances, driving a 10% increase in asset management fees. This was offset by lower brokerage revenue and modestly lower NII. The NII reduction from Q2 '17 reflects lower deposit levels as well as higher rate paid on deposits. Additionally, brokerage revenue decreased as volumes declined and mix shifted toward fee-based products. As a result of this shift, the percentage of GWIM revenue derived from annuitized revenue streams has increased over the last year to more than 85%. The business managed costs well, creating operating leverage.

Moving to Slide 16, we continue to see strong overall client engagement in Merrill Lynch and U.S. Trust. Our local market strategy, led by 93 market presidents, is helping to better integrate our lines of business and deepen relationships, especially in wealth management. Merrill Lynch advisors reacted constructively to our 2018 compensation program, which incentivizes household and other types of responsible organic growth. Merrill Lynch's organic household acquisition has not been this high for at least five years.

Competitive advisor attrition remains near historic lows. Year-over-year client balances rose to record levels of nearly $2.8 trillion driven by higher market values, solid AUM flows, and continued loan growth. AUM balances, which have climbed to over $1.1 trillion, are up $110 billion versus Q2 '17, with flows contributing $74 billion of that increase. Average loans of $161 billion grew 7% year over year with continued strength in consumer real estate and structured lending.

Turning to Slide 17, Global Banking earned just over $2 billion, growing 16% from Q2 '17 and generating a 20% on allocated capital. Revenue was down 2% from Q2 '17 as an increase in NII from traditional corporate banking activities and higher rates was more than offset by lower investment banking fees and the impact of tax reform with respect to tax-advantaged investments. Absent the impact of tax reform, the business would have created modest revenue growth and operating leverage.

IBCs of $1.4 billion for the overall firm declined 7% year over year, driven by lower advisory fees from a record quarter a year ago. Expenses were relatively flat versus Q2 '17 despite our continued investment in additional client-facing professionals to enhance local market coverage. Global Banking average loans grew 3% and deposits 8% year over year.

Looking at trends on Slide 18 and comparing to Q2 last year, with respect to average loans, 3% growth was led by corporate banking, lending, and international regions. Core loan portfolio spreads were down 5 basis points year over year and 1 basis point versus Q1. Loan growth was solid and reflects the current economic environment but remains very competitive. Average deposits rose $23 billion or 8% compared to 2Q '17 as we maintain a targeted pricing approach to acquire and retain high-quality deposits.

Switching to Global Markets on Slides 19 and 20, I will talk about results excluding DBA. Global Markets generated revenue of $4.4 billion and earned $1.3 billion, producing a return on allocated capital of 14%. Earnings were up 35% as revenue growth outpaced expense increases from higher revenue-led costs and continued technology investments. Sales and trading grew 7% versus Q2 '17 to $3.6 billion. Our equity business led the improvement with revenue of $1.3 billion, up 17% year over year. The equities business benefited from increases in client financing activity, reflecting investments made in the business over the past 18 months. Equity derivatives also benefited from increased client activity driven by volatility in financial markets. Fixed sales in trading of $2.3 billion increased 2%. In general, improved performance across macro-related products was partially offset by weakness in credit products.

On Slide 21, we show All Other, which reported a net loss of $247 million. This is an improvement from Q2 '17 of $98 million. All the selected items reviewed at the start of this presentation except DBA in Global Markets were recorded in All Other and therefore impacted both revenue and expense comparisons. If you remember the two items in Q2 '18, the TruPS and the gain from the sale of non-core mortgages netted to a negative $160 million, while the sale of U.K. card increased revenue in Q2 '17 by nearly $800 million. This nearly $1 billion year-over-year swing drove the $1.2 billion change in revenue.

Non-interest expense improved $760 million year over year and includes the Q2 '17 data center impairment charge as well as broad improvements across other expenses. Remember, when comparing income tax expense between periods, the tax expense in Q2 '17 included the nearly $700 million tax impact of the U.K. card sale, which offset the revenue benefit. Okay. Let me turn it back to Brian for a couple of closing comments before we open it up for Q&A.

Brian Moynihan -- Chairman and Chief Executive Officer

Thanks, Paul. Just a couple thoughts to close, and then we'll take your questions. We continue to operate in a strong business environment led by consumer health, corporate profits, and a view of growth in the future. We've performed well in this environment and feel we are getting our fair share of the business. We continued to drive strong operating leverage for the 14th quarter in a row, and we grew, but we did it in a responsible manner, keeping our risk in check. Customer balances, earnings -- they all grew, as we cited earlier. Reported earnings which have been stronger and more consistent for many years now, and with that consistency and stability, we continue to produce that operating leverage, which plays to your benefit as shareholders. With that, let me turn it over for question and answer. Lee?