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#Thank you, Andy
I will start with a balance sheet review and then discuss first quarter earnings trends
Slide 5 shows our loan growth trends
Average total loans outstanding increased 0.2% on a linked quarter basis and grew 4.1% compared to the first quarter of 2016. Strong linked quarter growth in retail leasing and residential mortgages was essentially offset by modest declines in commercial loans, commercial real estate loans and home equity lending
As mentioned earlier, the commercial loan growth was sluggish across the industry during the first quarter
Our commercial loans declined slightly compared with the fourth quarter of 2016. Excluding the seasonal decline of corporate card balances, which are included in our commercial loans, our commercial loan growth was positive 0.2%
Somewhat offsetting this headwind in the first quarter was strong growth in middle-market lending across many geographies
Loan growth in commercial real estate reflects our own prudent approach in lending to certain CRE segments, such as multifamily and retail given current market conditions
Turning to Slide 6. Total average deposits declined 0.2% compared with the fourth quarter of 2016, reflecting typical seasonal trends and lower funding requirements given the slower loan growth in the quarter
On a year-over-year basis, average deposits increased 11.0%
Following the March interest rate hike, our total interest bearing deposit beta is about 20%
As future rate hikes occur, we model that the beta will gradually trend toward a 50% level
On Slide 7, you can see the credit quality remained relatively stable in the first quarter
Net charge-offs as a percentage of average loans were 50 basis points in the first quarter, up slightly by 3 basis points compared to the fourth quarter and 2 basis points higher than a year ago
Non-performing assets declined by 6.7% compared with the fourth quarter, and NPAs as a percentage of loans plus other real estate decreased 4 basis points to 55 basis points at March 31. Improvement was driven by commercial loans, commercial real estate, residential mortgages and other real estate
Slide 8 represents some information on two areas that have received a lot of attention lately by the investment community: auto lending and retail industry exposure
First, on auto, we are a prime lender in the space and we do not originate sub-prime auto loans
The average FICO score for originations in 2016 was over 770. Our credit metrics remain very stable in auto lending
The second area is the retail industry segment, given recent pressure, as consumers alter their buying habits
Commitments related to the retail industry totaled 3.4% at year end 2016. A little over half of that is direct C&I exposure to retailers, two-thirds of which are to investment grade or equivalent clients
We have minimal exposure to retailers who make their malls
We are watching this retail segment and are comfortable with our portfolio, given the relative small exposure, geographic diversity and high quality of customers
I will now move on to earnings results
Slide 9 provides highlights of first quarter results versus comparable periods
First quarter net income of $1.5 billion was essentially flat compared to the fourth quarter, but was up 6.3% versus the first quarter of 2016. The first quarter is impacted seasonally each year and this quarter was no different
Turning to Slide 10, total revenue declined by 2.0% on a linked quarter basis and grew 5.7% compared with the year earlier
The 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 11, net interest income on a fully taxable equivalent basis was $3.0 billion in the first quarter, essentially stable with the fourth quarter despite fewer – two fewer days in the quarter
Net interest income was up 3.7% compared with the prior year, reflecting earning asset growth from a year ago
Slide 12 highlights trends in non-interest income, which decreased by 4.2% versus the fourth quarter, reflecting typical seasonal patterns and a decrease in mortgage banking revenue of 14%
The mortgage revenue decline was in line with our guidance and reflects both seasonality and a drop in refinancing activity due to higher interest rates
On a year-over-year basis, non-interest income increased by 8.4%, driven by strength in payment services revenue, trust and investment management fees and mortgage banking revenue
I will highlight a couple of items within non-interest income
Trust and investment fees increased 8.6% year-over-year, reflecting new account growth and improved market conditions, along with lower money market fee waivers
Credit and debit card revenue increased 9.8% on higher credit card sales of 8.5% and total card sales volumes of 6.2%
Credit and debit card revenue increased 6.8%, excluding the impact of an acquired portfolio
The increase in other income was primarily due to higher equity investment income
Merchant processing revenue grew 2.7% on a year-over-year basis, adjusted for the impact of currency rate changes
This is a slower pace than we have seen in previous quarters and reflects several factors, including the impact of higher EMV related equipment sales revenue in the first quarter of 2016, the margin impact of certain interchange caps implemented in Europe in late 2015 and our decision to exit certain high volume, low margin merchant relationships last year
We are growing merchant relationships in this business, but the impact to volumes and revenue is being muted somewhat by these factors
We expect this masking effect will begin to dissipate in the second quarter
By the third quarter, merchant acquiring revenue is expected to return to a more normal rate of growth, a trajectory of same-store sales plus about 2%, excluding the impact of foreign currency changes
Turning to Slide 13, non-interest expense decreased 2.0% compared with the fourth quarter, primarily reflecting seasonally lower costs related to investments in tax advantaged projects, professional services expense and marketing and business development
On a year-over-year basis, non-interest expense increased 7.1%
Growth was driven by higher compensation and employee benefit expenses, reflecting the impact of merit increases, higher variable compensation, including performance based incentives and stock based compensation and hiring to support business growth and risk management programs
The increase in marketing and development expense reflected investment in the brand and various business initiatives
Other expense was up 6.2%, reflecting the impact of the FDIC surcharge, which began in the third quarter of 2016 and an insurance recovery last year
Slide 14 highlights our capital position
At March 31, our common equity Tier 1 capital ratio estimated using the Basel III standardized approach as if fully implemented was 9.2%, which is well above the 7% Basel III minimum requirement and our internal target of 8.5%
In the first quarter, we returned 78% 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 provide some forward-looking guidance
In the second quarter, we look for modest growth in net interest income on a tax – fully taxable equivalent basis, driven by improved loan growth compared with the first quarter and slightly higher net interest margin
Credit card, mortgage and auto loan growth are seasonally stronger in the second quarter
Additionally, we look for improved commercial loan growth in the second quarter as well
However, the timing of anticipated policy changes are difficult to predict
Also, given the current yield curve and rate expectations, corporate clients are continuing to access the capital markets, which may impact that growth in commercial loans in the short-term
Therefore, we think meaningful acceleration in commercial loan growth is more likely to occur in the second half of 2017. Finally, we remain disciplined in lending to the CRE market and growth in that category will likely remain muted in the near-term
We look for mortgage revenue to increase compared with the first quarter
The second quarter is seasonally stronger, as home sales strengthen in the spring and we are well positioned to gain share in the purchase market over time
Industry refinancing activity is projected to continue at lower levels, reflecting higher mortgage rates
Expenses will be seasonally higher in the second quarter, but as previously mentioned, we expect to deliver positive operating leverage for the full year
Given the underlying mix of quality of our loan portfolio, we expect credit equality to remain relatively stable in the second quarter and we expect the loan loss provision to increase in line with loan growth
The taxable equivalent income tax rate was 27.0% in the first quarter compared with 28.1% in the fourth quarter of 2016. The decrease reflected the impact of new accounting guidelines related to stock based compensation effective for the first quarter of 2017. We estimate the taxable equivalent income tax rate in the second quarter of 2017 will be approximately 28%
Finally, in the first quarter, we provided notice to redeem all of our Series G preferred stock and issued $1 billion of Series J preferred stock
The total quarterly dividend – preferred dividend – the total quarterly preferred dividend for the quarter was $69 million
Included in the determination of diluted earnings per share for the first quarter of 2017 was an additional charge of $10 million related to the Series G issuance cost
Looking to future quarters, given our current capital structure, the level of preferred dividends will be about $63 million in the second and fourth quarters of each year and $70 million in the first and third quarters of each year
Of course, the $10 million issuance charge will not reoccur
Let me hand it back to Andy for closing comments
So if you end up thinking about the second quarter, we are going to typically see it growing probably 3% to 4% in the second quarter relative to first quarter
As <UNK>, we have talked in some of our investor conferences, we still expect pressure with respect to risk programs, at least through the end of the second quarter, with the trajectory of that growth starting to slow as we get later into the year
So when we think about positive operating leverages as far as expenses are concerned, we are pretty confident that we are going to deliver on positive operating leverage for the full year
That’s the way that we are thinking about it
I think it’s going to probably start to plateau and then as it gets later into the year, it’s going to start to come down
I think net interest margin as we said is going to end up expanding, but it’s going to end up expanding slightly, I think in the second quarter
We do see growth in the net interest margin as we get into the third and fourth quarter
Part of the growth in the first quarter of 5 basis points, some of the factors that will help us as we go into second quarter is we are starting to see that inflection point in terms of the investment security portfolio, so that will help us a little bit
Cash balances will be a little bit higher, which will put some pressure on it
When we end up looking at kind of all of those, the growth quarter-over-quarter is going to be in the basis point or so
So, one of the things that we talked about last quarter is that we thought that loan growth for the year would probably be in the 6% to 8% sort of range
And certainly, as we look at where the first quarter has occurred, that’s going to be hard to achieve, but we think it’s going to be middle single-digits, if you will, for the year
We also do believe that second quarter is going to start to get stronger and that’s going to start to accelerate as the year progresses
And so as we think about 2018, we certainly believe that, that 6% to 8% is very reasonable as we think about the future
Thanks, <UNK>
So, let me take the professional services fee piece first, Ricky
And if you end up thinking about that, that is an area where a lot of business initiatives comes through and a lot of expense related too, for example, some of the risk compliance programs
It’s also very seasonal
It’s very – it’s seasonally high in the fourth quarter
First quarter comes down to the levels that you are seeing and then it starts to ratchet up as business initiatives are put into place and as the year kind of progresses
So, we do expect that it’s going to be a line category that is going to go up
As we get later into the year and especially as we kind of start getting into 2018 though I think some of the pressure related to professional fees as is related to risk management compliance programs is going to start to alleviate
And so I think that is an area for opportunity as we start looking at next year, but second quarter definitely is going to be seasonally up third quarter and then fourth quarter is usually the high watermark for professional services fees
In terms of other revenue, other revenue is a combination of a whole variety of different things
It ends up including equity investment income, some trading income, sometimes syndications – part loan syndications is a part of that, retail product revenue, insurance product revenue
And so it can be very lumpy depending upon what’s happening that particular quarter
Year-over-year, it’s up a little bit, but relative to the fourth quarter, we had some CDC syndication fees that were a part of that
So, it tends to be a little bit lumpy
Thanks
Good morning Ken
Yes
I mean, so if you are all looking at just kind of the shifting of earning assets, I mean we are holding a little bit more cash balances than what we have in the past and that’s for things like liquidity purposes, etcetera and the fact that we have had stronger deposit growth over the course of last couple of quarters
In terms of loan growth, I think we have kind of talked about the mechanics of that
Our investment securities is really going to grow in line with what our liquidity requirements are at any particular point in time
From a deposit standpoint, in terms of pricing, we are just really looking at being very competitive with respect to deposit pricing
But right now, deposit beta has been fairly inelastic
So we don’t see a lot of changes relative to where we are at
I think it is fairly indicative in terms of what you are going to see going forward
Yes
No, I think that is true
I mean we did see really nice growth with respect to credit card
And one of the areas that I would also kind of focus on is in the commercial payments space
We saw some very nice growth
Linked quarter is about 4.7%
On a year-over-year basis is about 5.3%
It’s one of the things we are seeing and we started making some business investment in that, a little over a year ago in terms of technology
We rolled out kind of virtual card offerings and innovations
And we are also seeing a little bit of a tailwind as a result of fuel prices getting a little stronger
So that’s some of the things that are benefiting us
In terms of commercial business sort of spend, in that particular category
And then in the first quarter, we are starting to see government spend expanding a little bit up, which is a little bit unusual for the first quarter
It was up about 2.2% year-over-year
And we are seeing stronger defense spending in the sense of the election, it’s maybe the way that we would categorize that
On the merchant – merchant acquiring and merchant processing revenue, I did talk a little bit about it
But again, the drivers behind the 1.3%, part of that is the foreign currency, so that gets you to about 2.7%
We, as part of the kind of chip and PIN sort of rollout in the whole – in that whole topic, our EMV equipment sales were strong at the end of 2015 and the first quarter of 2016. But relative to the industry, we are more penetrated in terms of chip technology with about 66%, 67% penetration at this particular point in time relative to the industry, which is closer to about 40%
And so in the first quarter of this year, we are kind of just continuing to see that
Now, that will abate as we get into the second quarter and into the third quarter as well
And then I think the other thing that’s been – the other two things that’s been impacting that is that we just have margin compression that’s been occurring in Europe because of the interchange caps that were put into place in late 2015. That’s getting close to the end, which is good to see
And then as we said, we have been exiting some high volume, low margin sort of merchants
And so that has impacted revenue a little bit, but it certainly has impacted volumes
And so when we think about merchant acquiring revenue for the second quarter, we do believe that, that is going to get stronger as some of these factors start to abate
And it’s going to become more normalized in the third quarter
And we think about that – we usually think about it in terms of same-store sales plus 1% to 2% in terms of what the revenues should look like
Well, certainly, on a year-over-year basis, we do believe that
The second quarter tended to be a little bit stronger last year because of some of the Brexit things in terms of second quarter
But the pipeline, in terms of syndication and fixed income capital markets, continues to be strong
We do expect, given the current rate environment and just kind of some of the things our large corporate customers are doing, that they will continue to access the capital markets
Our capital market revenue was up very strong in the first quarter
We would expect it to stay at higher levels going into the second quarter
So we think that that’s a pretty good outlook
And of course, by those large corporate customers accessing the capital markets, that has been impacting our loan growth to some extent
But we do see that continuing
Hi <UNK>
So let me kind of talk about it
Again, betas overall, if we end up looking at December of ‘15, December of ‘16, March of ‘17, typically what we have seen and we are pretty much on track on this is well in terms of the March hike, is that deposit betas have been up about 20%, 20% to 25% kind of in that ballpark
We have a strong retail deposit base that represents about 50% of our overall deposits
And the pricing from that particular standpoint has been pretty inelastic thus far
So we haven’t seen a lot of movement in terms of retail deposits
And certainly for the next rate hike, I don’t expect that we are going to see a lot of movements
There may be a little bit more pressure, but we still think there is room and opportunity there
On the wholesale side, which represents about 30% of our overall deposits, we are seeing kind of what I would say, selective competitive pressure and the deposit betas with respect to that or closer to the kind of 25% to 30% kind of in that ballpark
And then our corporate trust business, which will be unique to us, represents about 18% of our overall deposits
That tends to be a little bit more sensitive to interest rates
And so we are seeing pressure in terms of movement of interest rates is going to be in that space
As we think about kind of the rest of the year and certainly, the next rate hike or so, that 20% to 25% deposit beta probably starts to migrate to 30%, 35% and that would be – what I would think we would see kind of through this year
It’s really going to depend upon how many rate hikes and how quickly they come
I just want to point out is that when we model a rate hike movement, certainly as we get a few rate hikes out, we are going to see deposit betas
There is going to be just more competitive pressure there in the future
So that’s kind of how the way we think about it
I have never gotten into the dollar amount associated with equity investments simply because other revenue represents the whole bunch of different categories, I will tell you that as we think about the second quarter <UNK>, that we do believe that the equity investment income is we are – going to be pretty consistent based upon anything that we see right now, pretty consistent with the first quarter
So we wouldn’t expect to see a lot of movement up or down in terms of equity investment
So when we end up looking at loan growth, C&I loan growth, we did see good growth in the middle market space
And so on a year-over-year basis, middle-market was actually up about 8.7%
And on a linked quarter basis, it was up about 2.5%
It represents about 13% to 15% of our overall portfolio
We are seeing that type of growth across the whole variety of different markets
We have seen good growth in places like Nevada, Utah, Colorado, here in the Twin Cities, Kansas City, Wisconsin, just kind of across the board
So as we kind of talk to our folks, we talk to our clients, we are not seeing the same level of access to the capital markets
So that impacts really more on the large corporate space
And we would expect the middle market to continue to grow
The other thing I would say is as we look into the second quarter, part of the middle market is our community banking space and we typically see lift in the second quarter as the ag lending starts to kick in and so both of those would be areas that we would look for opportunity as we think about the second quarter
Yes
It’s kind of based upon size
It’s about $10 million
Yes, the middle-market is the $500 million, above that’s the large corp
And the growth in the utilization, I think, will drive growth
Well, <UNK>, we are in a good spot right now
Our capital levels are such that – and our returns are such that our capital formula works
In other words, we are able to generate enough to return that 60% to 80%
We are at the high 70s right now and still accommodate balance sheet growth
So, I don’t see a scenario that we are getting to that 100% as far as the near-term as long as we are continuing to achieve balance sheet growth, which is what I expect
And again, we are in a good spot
We are not sitting here in a big excess position today
And <UNK>, what I would say is that in that particular space, we are not interested in what I would call traditional asset managers, but where we found a good fit in terms of a real wealth manager, I think those are things we would take a look at, because culturally, that would be a better fit for us
Yes, <UNK>
Our leasing group is doing a great job
They are taking share
They have a great product
They have been consistent in the marketplace, good turnaround time
So I think that continues to be an area of opportunity for us
And as a reminder, everything we are doing there is prime
So, it’s good business and it’s good credit quality business
With longstanding relationships
