William H. Callihan - Senior Vice President and Director of Investor Relations William S. Demchak - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Risk Committee Robert Q. Reilly - Chief Financial Officer and Executive Vice President

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division Paul J. Miller - FBR Capital Markets & Co., Research Division Matthew D. O'Connor - Deutsche Bank AG, Research Division Betsy Graseck - Morgan Stanley, Research Division Erika Najarian - BofA Merrill Lynch, Research Division Vivek Juneja - JP Morgan Chase & Co, Research Division John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division Bill Carcache - Nomura Securities Co. Ltd., Research Division Kenneth M. Usdin - Jefferies LLC, Research Division Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division Michael Mayo - CLSA Limited, Research Division Kevin Barker - Compass Point Research & Trading, LLC, Research Division Eric Edmund Wasserstrom - Guggenheim Securities, LLC, Research Division John G. Pancari - Evercore ISI, Research Division

Good morning. My name is Glenn, and I will be your conference operator today. At this time, I would like to welcome everyone to the PNC Financial Services Group Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to the Director of Investor Relations, Mr. Bill Callihan. Sir, please go ahead.

Thank you, and good morning. Welcome to today's conference call for the PNC Financial Services Group. Participating on this call are PNC's Chairman, President and Chief Executive Officer, Bill Demchak; and Rob Reilly, Executive Vice President and Chief Financial Officer. Today's presentation contains forward-looking information. Our forward-looking statements regarding PNC's performance assume a continuation of the current economic trends and do not take into account the impact of potential legal and regulatory contingencies. Actual results and future events could differ, possibly materially, from those anticipated in our statements and from our historical performance due to a variety of risks and other factors. Information about such factors as well as GAAP reconciliation and other information on non-GAAP financial measures we discuss is included in today's conference call, earnings release and related presentation materials and in our 10-K and various other SEC filings and investor materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of April 15, 2015, and PNC undertakes no obligation to update them. And now at this turn -- I'd like to turn the call over to Bill Demchak. Bill?

Thanks, Bill, and good morning, everybody. As you've seen today, we reported net income of $1 billion or $1.75 per diluted common share for the first quarter. That is pretty much as we expected, and it's a decent start to the year. Our average -- or sorry, our return on average assets for the quarter was 1.17%. Linked quarter, these results were impacted by seasonal trends and fewer days in the quarter, but on the whole, we continue to deliver the consistent performance that has characterized the company for a number of years now. And in the first quarter, we grew average loans by $2.3 billion or 1% linked quarter. Average deposits were up $3.7 billion or 2% linked quarter. We grew our average investment securities by $3 billion, essentially keeping pace with our growth in deposits and without meaningfully changing our interest rate sensitivity. And we also benefited from modestly improved credit quality. You'll have seen that we maintained a strong capital position, even as we continue to return capital to shareholders. In the first quarter, we completed the common stock purchase program we announced last year, with total repurchases of 17.3 million common shares for $1.5 billion. We also announced a new share repurchase program of approximately $2.875 billion over the next 5 quarters, which begins in the second quarter of this year. And earlier this month, the Board of Directors approved a 6% increase in the quarterly dividend, effective with the May dividend. We continue to make important progress against our strategic priorities, and I'm not going to run you through all those again, but I'll be happy -- or Rob and I will be happy to take questions about them during the Q&A, if you have any. Worth noting is that our strategic priorities are producing…

Thanks, Bill, and good morning, everyone. Overall, we had a solid first quarter that played out largely as we expected and consistent with our guidance. First quarter net income was $1 billion or $1.75 per diluted common share. These results were driven by continued average loan and deposit growth, well-controlled expenses and modest improvements in credit quality. And as Bill just discussed, our business results have generated significant capital return to our shareholders. As is typical for the first quarter, seasonal factors affected revenue and expenses, and I'll cover that in a moment. Our balance sheet is on Slide 4 and is presented on an average basis. Total assets during the first quarter increased by $8.4 billion or 2%. Commercial lending was up $2.9 billion or 2% from the fourth quarter, primarily due to new account production and modest utilization increases in Corporate Banking and commercial real estate. Consumer lending declined $600 million or 1%. Approximately half of which was due to the runoff of nonstrategic assets, and the remainder was primarily due to decreases in home equity and education loans. Spot loans remained essentially flat in the quarter due to higher activity levels at the end of the fourth quarter. Investment securities were up $3 billion or 5% linked quarter as net reinvestment activity, primarily agency residential mortgage-backed securities, outweighed payments and maturities. And lastly, our interest-earning deposits with banks, primarily with the Federal Reserve, increased in the first quarter, largely related to balance sheet management activities and strong deposit growth. On the liability side, total deposits increased by $3.7 billion or 2% when compared to the fourth quarter, driven by higher levels of consumer demand and money market deposits. Total equity remained stable in the first quarter compared to the fourth quarter as retained earnings were essentially offset…

Operator, could you give our participants the instructions, please?

[Operator Instructions] And the first question comes from the line of Gerard Cassidy with RBC.

Can you guys share with us some of the color? You've had real good success on the commercial loan growth on a year-over-year basis, in particular commercial mortgage is up real strong. Could you share with us where that growth is coming from? Is it geographically the Southeast versus the Midwest? Or where is the best growth coming from?

Well, on a percentage off a base, the Southeast is higher than the remainder of the footprint, but again, it's coming off of a small number. Geographically, it's dispersed. And as we've said several times, we're kind of getting growth and certainly growth versus our peers on the back of our specialty lending businesses. The commercial mortgage side of it goes all the way back a couple of years to our desire to sort of track what was maturing under the CMBS market and where appropriate, balance sheet that product more of a life insurance competitor than a CMBS competitor, and that's worked for us, although probably slowing recently because of the take-up in CMBS.

Yes, and I think that's right, Gerard. This is Rob. What Bill said is true in terms of where we're seeing it across the geographies. In this quarter, though, on the commercial mortgages, we did have -- it benefited from a reclass in some loans that were in Other. So we did grow commercial loans, but a big part of that increase quarter-over-quarter was a reclass from the Other category.

I see. And then can you guys give us any color on the utilization rates of the commercial lines? Did they go up this quarter? Some of your peers are suggesting higher utilization rates now.

Yes, and Rob may have better detail. It bounced -- it bumped up a little bit quarter-to-quarter, nothing dramatic and kind of consistent with -- we've kind of seen that, I guess, over the last year.

Yes, I think that's right. We continue to see modest improvement in utilization that had been consistent for the last 3 or 4 quarters, but nothing dramatic.

And then one final question. Can you just give us an update on your modernization program of the internal systems? Obviously, it's elevated spending. How long do you expect that to last?

Well, on the -- in terms of the overall investments in our infrastructure and our technology, we're well underway, as you know. Well, there's portions of that, that we'll continue to be at forever, particularly around cyber. But in terms of a lot of the infrastructure build, we're probably another 18 months or so.

I think that's probably right. The other thing though, Gerard, you're going to see through time and you've already seen it that the increase in our equipment expense line as we start depreciating some of these investments, offset by, particularly in Retail, just lower personnel costs and lower personnel costs where we're automating a lot of the manual processes that we put in place as a result of new regulation. We're well underway. We have our new data center strategy kind of up and running, with the second one coming online soon, big investments into cyber, and we feel pretty good about where we are there, modernization of applications. So it's a big project that we're -- we feel good about where we are. We're hitting our internal targets in terms of what we spend and getting it done on time, but it will take a while.

And the next question comes from the line of Paul Miller with FBR Capital Markets. Paul J. Miller - FBR Capital Markets & Co., Research Division: Can you give us an update on the RBC acquisition down south, where you stand there and how the growth has been -- you experienced the growth down there.

Yes, sure, Paul. This is Rob. Well, we're pleased in terms of our progress in the Southeast across all business segments. We now have 6,000 employees in those markets, and we're fully up and running in the key areas, Charlotte, Raleigh, Atlanta, Mobile, Birmingham and Tampa. So we feel good about that. Growth rates continue to exceed our legacy growth rates in all the businesses. The Corporate Banking loan growth is faster. On the Retail side, household acquisition is faster. And then on the Asset Management side, by definition because we were de novo, the percentage increases are significant. So it's going well. Paul J. Miller - FBR Capital Markets & Co., Research Division: And the overall loan book, I mean, where do you stand, like C&I and stuff like that, down in the Southeast?

In terms of balances? Paul J. Miller - FBR Capital Markets & Co., Research Division: Well, just in terms of growth, I mean, like you're getting good account acquisitions on the loan growth side. Where does it stand?

Yes. Quarter-to-quarter -- this quarter, it was, I'd want to say 2% or 3% higher than what we saw in the legacy markets, but quarter-to-quarter, it's been running materially higher. In some quarters, it's been double just on a percentage basis. And it's not -- and importantly, we're not out booking loans. We're trying to get lead relationships and establish relationships across all of our core products beyond lending, and we're doing pretty well with that. But the growth down there on the back of having really good teams of people in the markets has frankly surprised us to the upside.

And the next question comes from the line of Matt O'Connor with Deutsche Bank.

Just a couple of rate-related questions. If we get rising short-term rates but nothing on the long end and I guess in between things, go up a little bit, but not as much as the short end, so you get a flattening yield curve, remind us how sensitive you are to that scenario.

Well, look, short rates jumping up immediately help NII on a -- not to get into the weeds, but on a value basis just in terms of the present value of future NII, long rates going up is better. But short rates up, we're going to see that impact the yield that we get on our loans, and the follow-through on our deposits, well, as you've heard me say, I think it will be higher than past periods. We'll still lag what we're able to do on loans, and it will be beneficial.

Okay. And then just if you thought rate increases weren't going to happen for longer, materially longer, and not just pushing out 3 months, are there additional costs that you would cut? And how meaningful could those be?

Well, look, you heard my comments that we're quite sensitive to revenue expense relationships and where our efficiency ratio resides today. And all I will tell you is that we're going to turn up the heat on expenses starting last week, and we'll see where we get to. At this point, we're not changing guidance or throwing numbers out there. I just want to put out the point that we're not blind to it and we're going to focus on it.

Okay. And then just lastly, if we look at, call it the people cost, I think you called it personnel, they were up about 7%. We're seeing similar increases at some of your high-quality peers like USB and Wells, and everyone's pointing to kind of the infrastructure, risk management increases. You've been talking about it for a while. But has something changed in the last 6, 9 months that's causing everybody to ratchet these up? Or is it just the progression of what we've seen in the last couple of years?

I just -- I think it's a continuation of the same as people work to comply with new regulations. I think there's opportunity through time, as I've talked about, to automate some of that work set. But what we are seeing generally, while we're seeing kind of decreased headcount or change in headcount in our retail-facing businesses, we're seeing more headcount in our staff services area and importantly, more expensive headcount. The average cost of some of the people that are coming in is higher than where we're reducing people.

[Operator Instructions] Next question comes from the line of Betsy Graseck with Morgan Stanley.

A couple of questions just on the expense theme here. So in the first quarter, you mentioned 30% -- more than 30% of the $400 million outlined in efficiency improvements and they were reached in the first quarter. Do I take your comments to mean you reinvested all of that into the IT investment program? Or was any of that dropped to the bottom line?

That's a good question, Betsy. This is Rob. Yes, generally speaking, you're conceptually right. As we've said many times on the call, the continuous improvement program and the expenses that we have outlined are more helpful to us internally in terms of going after those than being able for you to be able to net 2 numbers. But what I would say, though, relative to expenses, we're off to a good start in terms of capturing those expense saves. We're generally on plan in terms of our investment rate. However, I do want to emphasize that we'll manage for the full year guidance in terms of expenses being stable, and you could see some quarterly fluctuation. So annualizing any quarter might not work because it's just some of the timing differences of the moving parts.

Okay. And then I just wanted to also understand a little bit. Bill, you mentioned how if rate hikes are pushed out from June until, let's say, December, at that, you're likely to be ratcheting up the management of expenses. So do I take that to mean that at least expenses are stable and could go down if the longer rate hike gets pushed out? And how do you think about how much expense to manage? Is it a function of ROEs you want to hold?

Yes, I don't have an answer for that because it's too early into the process. Simply go with the stable forecast for now. We're simply playing out that we're going to turn up the heat on where we're spending money and how we're spending money given the revenue environment. And if and when we have an update, we'll give it to you.

The next question comes from the line of Erika Najarian, Bank of America.

Bill, I just wanted to get your thoughts on something that's top of mind for all your investors, and it's sort of the worry that rates will normalize after credit quality normalizes. Clearly, as the whole market is -- we don't know when rates will normalize. But given what you're seeing in your portfolio today, your losses were 20 basis points this quarter. How far are we in terms of normalization of charge-offs for PNC, granted that the provision is probably going to see some volatility quarter-to-quarter?

Well, look, that's the right worry to have. I've been talking about that worry for 1.5 years. Credit continues to be phenomenally good. We're at 20 basis point charge-offs. We talk about a 40, 50 basis point number kind of through the cycle. So at some point, unless we're just in a golden period of great credit forever which I never believe, it's going to go up. We're seeing no evidence of that today. Our credit quality, you heard us say, actually modestly improved in terms of some of the statistics of upgrades, downgrades, charge-offs, net delinquencies and other things quarter-to-quarter. But that is a concern. If credit turns for the banking industry before we have rate normalization, you're going to obviously -- you're going to see depressed earnings, yes.

But I guess, and just to follow up on that question, you're not seeing any evidence of this now. Another CEO said it that it might be a multiyear process until the industry sees normal or getting back to average. Do you agree with that?

Yes, I think that's probably right. And by the way, I think in some ways, they will be linked simply because certain parts of the credit book will be impacted by higher rates directly. So there's probably some correlation of those things moving at the same time.

And just one -- if I could just sneak one more. How should we read into your LCR becoming being over 100% relative to the 80% 2015 minimum? I know that this ratio is quite volatile. But is there an opportunity to maybe add duration to descend a NIM? Or are you happy to just stay sure and keep this excess?

They are related but somewhat independent questions. So we could add duration and irrespective of -- and just through swaps. It doesn't impact what we do on LCR. LCR compliance at 100% was, as with all the new regulations, even though there is phase-ins, everybody wants it today. So we pushed ahead and got there. At the margin, you saw our securities book go up quarter-to-quarter. A lot of that was simply reinvesting deposit growth that we had. But even inside of that securities growth, we were probably into longer-duration securities than we historically had been. So look, at the margin, we'll do some of that, but I think our core asset sensitivity position will remain. We think it's the right position. If rates are delayed a quarter or 6 months, you don't take a massive shift in the way we position the balance sheet for a 6-month delay.

The next question comes from the line of Vivek Juneja with JPMorgan. Vivek Juneja - JP Morgan Chase & Co, Research Division: So Bill, that's -- let me follow up, Bill Demchak, let me follow up to that. Honestly, you just gave the growth in securities. The longer-duration securities, was that -- I mean, the last couple of quarters, you did most synthetics, you used rather than cash. Was this just a shift to cash and rather than using the synthetics? Or did you actually do more?

No, a big chunk of that growth was actually just TPAs coming on to the balance sheet that we're on in the fourth quarter in terms of notional you see. So it hasn't necessarily been a direct shift there. We did some balanced repositioning of the securities from low-coupon mortgages into some higher-coupon stuff after the rally because they got very cheap. But there's no big change in what we're doing inside of the securities book, and I recognize the confusion that changing on-balance-sheet balances cause because sometimes we'll use interest rate swap, sometimes we'll use TPAs and sometimes we'll use securities. So I guess my simple message is that we remain with our core short position in asset sensitivity, and at the margin, we take advantage of opportunities in the market by yield curve, by asset type and by, as you've seen, pretty volatile interest rates intra-quarter.

The next question comes from the line of John McDonald with Bernstein. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Bill, I was kind of wondering if in this environment, has your appetite for portfolio purchases or even company acquisitions increased with the persistence of the low rate environment? And what's your take on the supply of those kinds of assets? I suppose there's lots of folks looking. But is there any kind of assets or deals that you might be able to look at? And are you more prone to looking now as this goes on?

Well, a lot of headlines recently on a really big seller of assets. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Might have read that. I might have read something about that.

Yes, the struggle we have with that is buying loans is the same as buying a security. I'm not investing in a relationship. I'm not getting cross-sell. So it's sort of a positioning trade. And I guess at the margin, to the extent we got a better return on an individual asset that was a loan versus a security, we would do it. With that particular seller, what we have found in the businesses where we overlap with them is they are further out on the risk curve than we typically operate. Having said that, at the margin, if we saw assets and relationships out of those businesses, it made sense for us we'd look at them. And we are looking through all the materials that are showing up from the different dealers on portfolios that are for sale. But it's a tough putt [ph] for us. There's not an entire business that we're not in that we want to be in. And as I said, most of those assets, particularly on the commercial side, will struggle inside of a regulated bank space at least in my view, and I think you're going to see a lot of that go into private equity and ultimately into CLOs. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then just more broadly, beyond that particular seller, just your appetite and whether it changes much as the rate -- low rates persist.

Again, I think they're kind of independent of each other, right? If we see -- let me answer in a different way. If there's an asset for sale that we can get a good economic return on, either directly because it's very cheap or because it comes with a relationship that we can cross-sell, then we will do that independent of where interest rates are. But they're not substitutes. And to simply pile down on credit where I'm not getting a return to cover a hole made by something I can't control, which is interest rates, it's just -- it's a lousy long-term strategy. It putties over near-term problems but creates longer-term problems. John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division: Got it. Okay. Great. Last quick thing on -- just also on low rates. Is there any more room on interest expense, anything you could do, whether it's deposits or wholesale funding? Or are you really kind of tapped out on lowering your interest expense potentially?

We're probably tapped out. Interestingly, you see it will have jumped over the last couple of quarters on rate pay for deposits. One of the things that we have been focused on is testing, in effect, the elasticity of deposit pricing and our ability to gather deposits by having kind of leading rates. And frankly, it surprised us a little bit to the upside. Part of it was we executed well, but our deposit growth on the consumer side, in fact almost all of it, was on the consumer side that was...

In part due to some of the experimentation and...

Well, it was quite phenomenal and it was in part due to, in some places, paying up for deposits, which we -- when they finally raise rates and when QE slows in the mix shift and deposit flows in the sector, we want to be ready for it. And we're playing around with that at the margin right now.

The next question comes from the line of Scott Siefers, Sandler O'Neill + Partners. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Well, maybe if I could sneak one more rate question. You had made the comment in your prepped remarks about the sort of lower for longer risk having ramifications not just for this year but for out-years as well. I mean, is your concern more not just about a, say, a 3- or 6-month delay in when the Fed moves, but about how much they eventually move? I mean, is that the change? Which is the bigger, the when or how much in your mind?

In terms of long-term upside, it's the how much, right? The when they move helps income immediately, but I think there is substantial, real substantial upside in our [indiscernible] line, if and when rates would actually normalize, whatever that means. We'll still benefit even if they don't go nearly as much. We'll benefit a lot. But I worry, as it drags out, I worry about the strength of the dollar, the impact we're seeing on manufacturing, the impact that that's going to flow through on to jobs, the fact that cheaper imports will keep inflation down further. So I think all of this has given the Fed the ability to drag this out and go slower, and that's all my comments are meant to reflect. We just don't see -- by the way, I don't know that I ever saw a very quick 6 months from now, everything going back to a normalized rate environment. That would be great, but we had never planned for that. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Yes, and I understand and I appreciate that. And then maybe if I can switch over -- switch gears to maybe fees for a second. Bill, either for you or for Rob, fees have been a really good offset for you in this sort of pressured NII environment, and I think last quarter, you had given some top-level thoughts for the full year. And I think most of your individual components, you were looking for like mid- to high single-digit increases in fees in those categories in '15. Has there been any change to the kind of growth you think you can generate just in light of anything you've seen through the first 3 months of the year?

Yes, hey, Scott, this is Rob. No change. Yes, we're still optimistic in terms of our ability to grow those fees, obviously, across all the categories for that part. So no change there, and that's part of our second quarter guidance, and our full year guidance, we expect growth.

The next question comes from the line of Bill Carcache with Nomura Securities.

Bill, I had a follow-up question on the comments you just made about your efforts to be well positioned post-QE. With QE now over, we've started to see loan growth outpace deposit growth across the banking system as a whole, but it's interesting that, that doesn't appear to be the case for the big banks where deposit growth is still outpacing loan growth according to the HA data. And I guess as far as PNC goes specifically over the last couple of years, we've seen some quarters where your loan growth has outpaced your deposit growth and others where, I guess, it has been the reverse. Can you give us a little bit of -- just speak to what's been driving these trends and I guess what you guys expect going forward?

Yes. I won't speak to the industry flows. I guess there's been some confusion on trying to figure out where, in fact, that deposit growth from the Fed data is coming from or where it's going to. But as it relates to PNC, we were never massive beneficiaries of the flows from corporates, which I think was a lot of what you saw into the large banks. Our recent growth has been on the consumer side, and we're focused on the consumer side because those are the LCR-friendly deposits. We paid for them. So the good news is that in fact there is price elasticity and being able to drive volume. The bad news is they cost more. I don't know that quarter-to-quarter I would try to read into we have bigger flows 1 quarter than the next. We see that at times with operational deposits on the corporate side coming in heavier than we otherwise expected. None of those help us with LCR. We have plenty of balance sheet room for them. At the margin, we make money on them.

And they're part of a relationship.

Yes, yes.

Got it. Separately, Bill, can you discuss how you evaluate and think about the contribution of BlackRock to your overall results? I guess some investors take more of an enterprise-wide view and others try to evaluate core PNC separately by stripping out the contribution from BlackRock, which some suggest flatter your consolidated results. I was just hoping that you could discuss how you think about it.

Yes. BlackRock, obviously, has been a great addition to the PNC family going back many years, and it's an important part of our earnings stream today. They continue to do very well. Having said that, we're cognizant that at this point in our relationship with them, they are a strategic investment but not a core part of our company. Look, we strip them out as well and look at some of our metrics x BlackRock. Some of them are not flattering and we're focused on that. But in terms of the way we think of their earnings, they're a diversified fee-generating, cash-flow-generating entity to our holding company that's a great part of our franchise.

The next question comes from the line of Ken Usdin from Jefferies.

Bill, just on your points about -- on credit expansion, this quarter, you had point balances below the averages, and some of it is the nonstrategic runoff that Rob alluded to earlier. But I was just wondering, in that context of being conscious about both rate risk and credit risk, is any of this a conscious effort to either pull back from certain areas? And -- or what do you see about at least the competition/term structure in the environment today?

Yes, well, probably 3 different things that I'll highlight, and Rob can jump in here. At the margin, we're starting to make choices on LCR. So there are certain places, municipal finance, financing insurance companies, so it's your financial sector, and get hit by LCR. At the margin, we are lowering balances there. We don't have an ability to reprice. In fact, we haven't seen much repricing occur in the market at all as it relates to LCR and/or higher capital standards, which is an interesting comment. So at the margin, that has impacted it. We've seen inside of the retail space, particularly in auto, decline year-on-year as we have kind of held to our standards, and we have seen others extend maturities and drop FICO. I saw a stat somewhere on the percentage of new car lending that is now subprime, which was a very high percentage -- yes 40%, and we are not -- we do not play in that space. So we're losing share in auto purposely. And then at the margin again, in C&IB, competition is tougher, particularly for the plain vanilla product. We're still winning clients and growing volumes but not at the pace we did when, frankly, many of our competitors were struggling.

Yes, the only thing I'd add to that, Ken, is yes, the risk return has gotten tighter, and the best example is the auto where we are deliberately pulling back from some of the risk.

Understood. Rob, a quick follow-up for you. Just -- you mentioned that the expected purchase accounting decline this year is still expected to be $225 million. I think the first quarter was probably a little bit ahead of maybe your trajectory, but would you agree with that? And would you expect there to just be a pretty decent falloff from here?

Yes, I would agree with that, and I'd still count on $225 million down for the year. It's really the recoveries, as you know, that are difficult to schedule in, but they did occur in the first quarter. That's a good thing. But in some respects, they were recoveries that would have otherwise happened later in the year.

The next question comes from the line of Matt Burnell with Wells Fargo Securities.

Just to follow up on your energy-related exposures. I realize that you did provision a little bit for that this quarter, not particularly meaningful in the context of the overall portfolio, but I'm curious if you've been giving any thought to the potential impact on lower oil prices in the consumer portfolio? Or is the credit quality there overall just so good at this point that you're not really concerned about that?

Well, we -- it's a good question, and our comment is on record, seeing lower oil prices as being a net positive for our consumers. But we haven't -- which is a good thing.

Well, for the economy. The consumers are a slam dunk.

And for the economy, that's right. So we haven't done anything in terms of reserves related to that, but we welcome it.

Okay. And then just going back to the idea of somewhat slower, potentially, revenue growth and stable expenses, you're talking about those in terms of guidance in terms of dollar figures. I don't believe you have an outstanding efficiency ratio target, but does this make it harder to generate operating leverage gains in 2015 if your outlook for lower for longer on rates continues?

Yes.

Yes.

So that's the whole -- I mean, that's a mathematical truism, but that's the whole reason we've got to refocus on expenses and turn up the heat a little bit on that because I think, look, we hope we're wrong on rates and they move middle of the year, but we don't expect it given that. Definitionally, it hurts us. And we're going to try to react at the margin on the expense line, and we'll continue to focus on fee income and cross-sell and controlling the things we can control. But -- by the way, we're not -- this is an industry issue. We kind of highlight it and lay it out for you guys because everybody is facing the same issue. Your reaction to this can take one of 2 directions. Our choice is to not change our core balance sheet position and ride this out. That's a PNC choice. Another choice could be to invest into it through portfolio purchases, through levering the balance sheet and securities, and you'd putty over it for a period of time. We're just not doing that. So everybody's facing this and has the same decision to make, and people will choose differently.

And that's been our position for some time, not just this quarter.

The next question comes from the line of Mike Mayo with CLSA.

You said revenues are under more pressure. Is the sole reason due to lower rates for longer? Or are there some other contributing factors? I mean, you mentioned more competition in commercial, but that's not new. For example, maybe service charges on deposits are going to be worse than you've thought before.

No. The comment is entirely related to our previous guidance on NII where we had referenced our economist forecast that the Fed would start moving towards the middle of the year. Since we backed off of that forecast and are now saying 3 months later, right, there's a mathematical impact on what our NII might do, assuming we hold everything else constant. And that's what we were talking about, Mike.

So the more part of that pressure is the rate pushout.

Yes. We -- just back on your comment on fees. We have seen nothing but good news in terms of continued progress on what we're doing on the fee side across retail, wealth and C&IB cross-sell. So that continues and it has a lot of our attention, and we can control that. We can't control the rates.

And I guess you can't really control the purchase accounting accretion. So...

Yes.

If I heard you correctly, you're guiding for negative operating leverage first to second and for the year. And is that strictly due to purchase accounting accretion? Or is that just the tougher environment for longer?

I'm trying to do the numbers in my head, but I mean, basically, what we're saying is if you took out accretion accounting and it's entirely, we had previously talked about hopefully having positive growth in core. We'd fight for it. Now we're saying that's tough. We're going to have expenses flat. We're going to grow fees. Provision will be what it will be. I don't know.

Well, I think, yes -- well, let me -- maybe I can just say it differently, Mike. So at the beginning of the year, we said, hey, revenues would be under pressure as we thought the combined revenue growth of our businesses, including our fees and some growth in core NII, could offset partially the $225 million purchase accounting decline.

Yes.

So everything stays the same. Take out the rate movement, it's under some more pressure.

Just one more question and just how about a big picture perspective, Bill, in your CEO letter, you talk about PNC as a Main Street bank, and it seems like Wall Street is beating Main Street right now. And if you stick to your core, it sounds like what you're saying in the CEO letter, Main Street banks will win in a normalized environment. Is that a fair characterization?

Well, I think we mean a lot of things when we talk about ourselves as a Main Street bank, and it's -- I'm glad you bring the question up. To us, a Main Street bank is it means going to market locally, living and working in the communities with the customers we serve, having extensive relationships with customers as opposed to having transactions with customers. So it's not only the businesses we choose to be in but how we choose to execute those businesses that I think differentiates who we are from any number of our competitors, particularly the large competitors in New York and elsewhere where they are more transaction-focused. At the end of the day, I think a Main Street traditional bank model offers good return opportunities independent of where rates are. I think it's a healthy part of our economy. I think it is a needed product and service for consumers and small business and middle market alike, and I think we do it well.

The next question comes from the line of Kevin Barker with Compass Point. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: I noticed that the gain-on-sale margin in the mortgage bank ticked up to 409 bps from 396 bps, and we're seeing higher margins across all mortgage banks this quarter as the primary secondary spread has been wider, but you previously guided to about a 3% margin over the long term. Was there anything that caused the elevated margin outside of wider spreads?

Yes, yes, Kevin. This is Rob. There is. We guided to 300 and we still guide to 300. The jump was some fair value marks that we got in the quarter that results in 100 basis points. But I would just point you in terms of dollar size, it's pretty small. So that's a $15 million number there that changes that from 300 to 400. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Okay. And then also you purchased an $8 billion servicing portfolio. This is one of the largest servicing acquisitions you made in recent history. I mean, do you see this an opportunity to expand the mortgage bank and increase your amount of fee income given the pressure you're seeing on net interest income? Or do you even see it as attractive now with purchase activity starting to pick back up?

No. We have been fairly active purchasers of very clean recent vintage servicing. We've seen good value in that. We're good at it, and we'll continue that. I mean, part of it is it provides scale into our servicing operation to help lower the average cost per loan serviced. Part of it is, as you know, there's a dislocation in the servicing market where certain people, because of capital constraints related to Basel III, are sellers, and we can be a buyer. Okay? Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Do you see an opportunity to expand your mortgage bank or potentially do acquisitions there?

The -- our mortgage strategy, so if you go back through time and looked at our balances and our servicing balances, they've been largely flat independent of our purchases because our origination volume as we've changed from a strategy that National City pursued to more of a client-centric strategy, our origination volumes have declined. But our servicing balances have stayed constant as we've augmented our origination with purchases. Our strategy in mortgage is largely around being an extension of a Retail Bank. It has to be part of this company. We have to be good at it. We have to cross-sell it and integrate it into our retail offering with all of our customers. We don't aspire to be a pure transaction-focused, mortgage-only, generate-a-fee business. And because of that, you'll hear us say through time that mortgage is very important to us yet it's never going to be a major contributor to the bottom line of our income statement.

The next question comes from the line of Eric Wasserstrom, Guggenheim.

Rob, I just want to understand a few of the puts and takes with respect to the provision outlook. First, the -- I noticed that the commercial recoveries you have been running typically in sort of the $70 million to $80 million level for the past several quarters kind of dipped down to the 45-ish kind of level. Is that an inflection point? Or was that just a seasonal or some other kind of 1 quarter trend?

It's a good question. There's always some movement in between quarters, but in theory, through time, recoveries should go down as we get further into the cycle. So the jump quarter-to-quarter, part of that's just quarterly timing, but the general trend down, I think, is real.

Okay. And then in terms of the -- where the release, which elements of the reserve constituted the release, did -- I'm calculating that about $11 million of it came out of the PCI portfolio. Is that correct? Or am I getting the math wrong?

What do you mean on PCI?

Incurred in the payer.

Oh, the purchase credit. No, that's -- there's been some release there. So I don't have an exact number for you, but that's part of it.

Right. That's correct.

Okay. So I guess this is really the essence of my question which is if that's the case, it looks like the coverage on the non-purchased portfolio, the nonmarket portfolio is getting close to about 1%, and so if recoveries are also declining, does that suggest that perhaps the provision, in all likelihood, needs to be closer to the top end of the range?

Well, I think your theory is correct in terms of how that works. In terms of our guidance, it's $50 million to $100 million in the second quarter. Where I pause is at these low levels and Bill sort of alluded to it. An individual handful of transactions can sort of swing that in any given quarter. So...

Look, your math is right, and that's why we, for 9 quarters in a row, have guided to higher provision, and for 9 quarters in a row, we've been wrong.

Right.

But we're looking at the same stuff you're looking at, and that kind of makes sense to us and then it doesn't happen.

Right.

So $50 million to $100 million.

And the next question comes from the line of John Pancari with Evercore.

Back to the competitive discussion, and I think that Ken had brought up, around commercial competition, I believe you have indicated in the past that you're staying off the fairway to a degree in commercial lending around mid-market C&I and CRE given the ability -- inability to get compelling-enough returns. Is this still the case? And are you continuing to emphasize the specialty businesses in terms of driving growth in your commercial books?

To be clear, we emphasize all of it, and we have been adding customers and balances in the more commodity-like product. It is -- you do need more cross-sell for that to make economic sense, and the competition there, almost by definition, is more aggressive than what we see in the specialty areas because there's less competitors in the specialty areas. But we focus on it. We haven't given up on it. We continue to grow clients. We actually do quite well with it. What causes us to stand out in loan growth, though, versus our peers is the specialty businesses.

Okay. And then given that and given also what you indicated in auto right now, given the competition, for your loan growth expectation in the out-quarters, I get what you say about next quarter, but in the out-quarters, can you give us a little bit of color on how you're thinking about growth? Is it still something you would call or characterize as modest?

Yes, I think, and we haven't changed...

Yes. And I think...

You'll see higher growth of C&I and a struggle inside of the retail space to grow. Part of it -- we've seen growth -- some of the growth recently is coming in our corporate finance book on the back of what, as you know, is a very active M&A market, and that seems to continue. So that surprises the upside. We have a little growth in utilization. We continue to grow asset-based lending, leasing, essentially real estate balances. So we feel good about that. We highlight -- we're saying it's going to be more difficult. We've been an outlier to the upside in growth. We'll probably trend towards -- more towards the mean is all we're saying. But we're still positive on our ability to grow customers and grow balances.

Okay. All right. And then lastly, the -- I know you indicated the concerns around how much in rate hikes we could actually see in '15. Have you actually officially adopted a new internal expectation for rate hikes? And if so, what is that?

We have a -- so our economist publishes his forecasts, which we use for some things and for some other things I disregard.

And we make public. And we make public, right?

But his forecasts are public, and you ought to assume that our comments today are on the back of his forecasts, yes.

That completes the Q&A portion for this call. We want to thank all of you for participating this morning, and have a great day. And with that, operator, this concludes the call.

Thanks, everybody.

Bye-bye.

Ladies and gentlemen, this concludes the conference call for today. Have a great rest of the day, everyone. You may disconnect your lines.