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Pnc Financial Services Group,The (PNC)

February 12, 2013 2:30 pm ET

Executives

Richard J. Johnson - Chief Financial Officer and Executive Vice President

Robert Q. Reilly - Executive Vice President and Head of the Asset Management Group

Analysts

Moshe Orenbuch - Crédit Suisse AG, Research Division

Richard J. Johnson

Thank you, Moshe, I appreciate it and congratulations on another very successful conference, and good afternoon to everyone in the audience as well. As you can see on this slide, our presentation materials and information in the Investor Relations section of our website, pnc.com, includes cautionary statements regarding forward-looking and adjusted information, and I urge you to read them. This afternoon, I'm going to focus my brief remarks on 2 items. First I will review our significant 2012 accomplishments and second, I'll highlight the key priorities we see in 2013, and how our businesses expect to grow and deliver positive operating leverage in 2013. When I'm finished, I'll turn it over to Rob, who will speak on the opportunities for growth we see in the investment and retirement areas. Let me start with an overview of 2012 achievements on Slide 4. In 2012, we had some of the highest levels of customer growth we have ever seen. Both through organic gains and acquisition, we added customers across all our businesses, creating opportunities to deepen relationships and further increase our revenue. By increasing customers, we were able to grow loans, deposits and revenue. As a result, revenue increased by $1.2 billion or 8% in 2012 compared to 2011. Higher expenses reflected overall business investments, including operating expenses related to the acquisition of RCB Bank -- RBC Bank (USA). These were partially offset by $550 million in continuous improvement opportunities that we achieved during the year. Overall, credit metrics improved on a year-over-year basis and our capital and liquidity remained strong. Our pro forma Tier 1 common capital ratio under Basel III rules is estimated to be 7.3% as of December 31, 2012. Overall, 2012 was a good year for PNC. As we begin 2013, we have identified several priorities for 2013 that build upon our achievements of last year. First is in the area of customer growth. We talk about customer growth because we believe the customers are the foundation for revenue potential. Our innovative products set, coupled with our go-to-market strategy and strong brands, helped us increase the number of customers we see -- we serve across all our businesses. This year, our focus is on improving the profitability of these new accounts by deepening our customer relationships through cross-selling. We believe this approach will enable us to continue to grow customers, loans and deposits, but we don't expect the increases to be at the same pace that we saw last year. Our goal in 2013 is to deliver positive operating leverage. Building on the customer growth we achieved in the last 3 years, we believe we can grow revenues, primarily fee income, which would improve the ratio of noninterest income to total revenue. From an expense perspective, we expect reported expenses to decline by mid single digits on a percentage basis, while I expect core expenses, which exclude integration and trust preferred securities redemption charges, to be flat in comparison to 2012. We will continue to invest for growth with approximately $550 million of identified investments, including $115 million for the full year impact of expenses associated with our new markets in the Southeast. And we have $150 million in our plan for unidentified but potential expenses. To fund this, we have established a continuous improvement target of $700 million for the year. This is the largest non-acquisition-related cost reduction effort we have set for ourselves. We didn't come up with a catchy name for this initiative because we didn't think we needed one. At PNC, continuous improvement is part of the culture to what we do every year and we have a strong track record of reaching the goals we establish for ourselves. Our focus on creating positive operating leverage, along with our effective credit management, should create the necessary earnings to help us reach our Basel III Tier 1 common capital goal of 8% to 8.5% by year end.

Now let me share the initiatives we are pursuing to increase revenue and keep core expenses flat. As you can see on Slide 6, we are seeking to increase revenues and be disciplined in expense management. In the Retail Bank, we added more than 700,000 new relationships last year through organic growth and acquisition. With these new customers along with our existing relationships, we see opportunities to provide more products and services and deepen our relationship with these customers. To drive fee income, we are targeting increased credit and debit card penetration among all of our customers and we intend to have a retirement conversation with all of our customers as well, and Rob will say more about this opportunity in a few minutes. At the same time, we plan to reduce our service delivery costs by accelerating branch consolidations and adjusting our staffing to support a migration to more automated channels, which have significantly lower transaction costs than the same activities conducted in a branch. In the corporate and institutional bank, we continue to see opportunities to add new customers that meet our risk return criteria, including growth in our new Southeast markets, but not at the pace of recent years. From 2010 through 2012, we acquired about 3,000 new corporate banking primary clients. We also added new customers and asset-based lending on commercial real estate. These new names helped drive solid, long growth in 2012. In 2013, we see significant opportunities to cross sell these clients to further deepen our relationship with all of our clients. Increasing the fee income, we earn from these relationships. Full year treasury management fees were up 9% and capital market fees were up 14% in 2012 compared to the previous year, and we believe we can continue to grow corporate service fees this year. Now Rob will provide you with more detail around the growth and efficiencies we're expecting in the Asset Management Group through higher fee income from our investing and retirement initiative and our expansion into the Southeast markets. In our residential mortgage business, we have been taking steps to increase our overall origination capacity and to enhance our purchase origination capabilities. As refinancing activity decreases, the purchase business should help to drive longer term value for PNC. We continue to see gradual strengthening in the housing market and believe we are well positioned to respond to increased demands. At the same time we are working to increase our cross-selling efforts to existing clients across our footprint. As a result, we expect higher origination volumes will offset lower anticipated gain-on-sale margins in 2013. We believe this should drive higher loan origination revenue in 2013 when compared to 2012. On the expense side, the resolution of the mortgage foreclosure look-back issue should reduce related expenses by at least $100 million in 2013. Taken together, our efforts to increase fees and revenues and reduce expenses gives me confidence that we can deliver positive operating leverage this year. And if our revenue goals do not meet our expectations, we intend to be more aggressive on expenses so that we achieve positive operating leverage. With that, and I'm pleased to have Rob Reilly here today who's going to share with you how our asset management business is positioning itself for further growth. Rob?

Robert Q. Reilly

Thanks, Rick. And again, thanks, to Credit Suisse for hosting us here today. This afternoon, I'm going to talk about 3 things. First, I'm going to provide you with an overview of our asset management business. Second, I'm going to cover our financial results, which tell a great story particularly as it relates to our sales and new client acquisitions. Then finally, I'll share some of our plans to build on these to deliver further growth. The size and scope of our investment and retirement business is shown on Slide 8. And these numbers reflect the assets for all of PNC, and those managed in our brokerage retail banking business along with those in my business, the Asset Management Group. As you can see from the table on the right, we currently serve more than 400,000 households. We ended 2012 with $262 billion in combined assets under administration and we have approximately 4,000 employees with the capability to help us grow our business. As a result, we produced full year revenue of $1.2 billion in 2012. The pie chart on the left shows our breakdown. And although we have a profile similar to many other banks, we are different than most in 2 respects. First, approximately 85% of our revenues come from our wealth and institutional business, what we call AMG, and second, our asset mix has a favorable percentage of equity in long-term investments. Overall, we have a leading wealth and investments business. Slide 9 highlights our go-to-market strategy, which is primarily a segment approach to client and prospects based on the type and amount of investable assets. We have 4 categories. First is our mass market and affluent covered by PNC Investments, our retail brokerage, serving clients with investable assets of less than $1 million. Second is the high net worth segment, we go to market as PNC Wealth Management, serving individual investors with greater than $1 million of investable assets. Third is our ultrahigh net worth business, we go to market as Hawthorn, serving clients with greater than $20 million of investable asset. As a note, Hawthorn, on its own, is currently the 10th largest family office in the United States. And fourth, our institutional business, serving our commercial and dominant foundation clients. Importantly, in each of these businesses in these segments, we have opportunities to further our client penetration and increase revenue.

Now I want to turn your focus to the Asset Management Group's performance over the last couple of years to demonstrate the success of our model. These are highlighted on Slide 10. First, we've achieved consistent revenue growth despite volatile markets. Second, we've achieved core positive net flows. And finally, our business mix and expense discipline enabled us to achieve margins that have exceeded the averages for our peer group for the last 3 years, even after making substantial investments in this business. These results have made us one of the top 10 bank-held wealth managers in the United States. When Rick talked about growing clients as a core strength of PNC, this is where that shows up for AMG. Slide 11 highlights some of our results. First, we spent a lot of time during the past years on new sales efforts, largely in cross-selling. We believe we have one of the highest internal referral rates in the industry and importantly, we know we have more room to grow. Second, 2012 marked the seventh straight year of record new client acquisition. And third, we've added more than 350 new employees over each of the past 2 years to build out our presence in some of our growth markets and in our newly acquired markets in the Southeast. Of those hires, approximately 70% are in client-facing roles. Those additions to staff represented only a 4% increase in FTEs on a compound average rate, so at the same time, sales per FTE increased 19%, reflecting our increasing sales productivity. Success in the investments business is all about client satisfaction, everyone knows that. And as you can see on Slide 12, our client satisfaction ratings have been consistently strong and finished 2012 at a 4-year high, which equates to us for high client retention, allowing us to direct our energy and resources to client acquisition. Client satisfaction is mostly driven by investment performance, and a majority of our discretionary equity and fixed income accounts have outperformed relative benchmarks over the most recent 3-year period. Following investment performance, the next most important driver of client satisfaction is reporting, and here we believe PNC Wealth Insight is a game-changer for us. If you're not familiar with PNC Wealth Insight, it's an online reporting tool that we introduced in the fall of 2011. It allows wealth management customers to aggregate their assets, even those not managed by PNC, and view them based on how they think about their money. The majority of our wealth management clients are now using the tool, and for clients using Wealth Insight, their reporting satisfaction rate in 2012 was 92%, 10 percentage points higher than the group as a whole. And the number of clients who say they would be more likely to increase their investment holdings with us is 50% higher among Wealth Insight users. So this tool is clearly making a difference for us. Slide 13 reflects the growth for wealth management that we've acquired as a result of applying our business model in the former National City markets. We believe we've achieved this growth in part by utilizing the local market regional precedence that helps us bring capabilities of a large bank to a local level, and we believe it differentiates PNC from our peers. I'll remind you that PNC's model has been fully in place in these markets for just a little bit more than 2 years. This chart also shows the sales growth that we've seen in the wealth management business during the last 2 years. The compound annual sales growth rate in the Northeast markets, which are primarily PNC, legacy PNC, was 33%; and the Midwest markets, which are primarily legacy National City, was 40%. However, as you can see, total sales in the Northeast markets were more than twice as high as those in the Midwest, so naturally our goal is to build out sales results in the Midwest to eventually match the Northeast's total levels. These trends give us confidence in our ability to achieve similar levels of sales growth in the Southeastern markets over time. Speaking of the Southeast, we're up and running in -- with 5 new offices in Charlotte, Raleigh, Atlanta, Birmingham and Tampa, and this is a prime example of PNC bringing new products and capabilities to the former RBC Bank (USA) market. Overall, we've been pleased with our ability to attract talent and we're already seeing early wins in building a pipeline of new business.

Let me take a moment to talk about the progress we've made in the state of Florida. Prior to 2009, we had a minimal presence in the state, primarily to serve our snowbird customers. Through several acquisitions, PNC had significantly expanded its presence in the state of Florida. And as you can see on Slide 14, on an annualized basis during the period between 2009 and year end 2012, wealth management saw gains in assets under management of 22%, resulting in an 18% increase in revenue. As a result of the sales efficiency that I mentioned earlier, we achieved this with only an 8% growth in employees. From a pretax margin perspective, our Florida business moved from negative positions in 2009 to positive positions in 2010 -- I'm sorry, negative positions in 2009 and 2010 while we were investing, to positive positions in 2011 and 2012 while we continued to invest at roughly the same rate. 2012 full year pretax margin for the Florida market was 16%. So essentially, the strategy we developed for Florida is the blueprint for the rest of our new markets in the Southeast. These areas represent an $800 billion opportunity in high net worth investable assets alone. By applying our Florida strategy in these other markets, we believe we'll see similar growth in assets and revenue over time. You've seen Slide 15 before, this really captures the opportunity we have by applying our successful business model to the expanded universe of PNC's overall client base. Across all of PNC and all lines of business, our client-facing employees now have goals related to the investment and retirement business. That, along with the strides we've made, put us in a great position. We've made gains. In AMG, we've gone from low to mid single-digit penetration in the last couple of years, and our long-term goal is to drive penetration levels to the double digits, which obviously, would double the size of our business.

In closing, we believe PNC has the proven size, scale and products to successfully compete in all our markets. We have a favorable competitive position relative to our peers and we see tremendous potential in our new Southeastern markets. Over time, we produced strong sales results through our very successful client acquisition activities, especially with referrals. And finally, we're well positioned to capture additional growth opportunities in our new markets, and through our ability to apply our platform and approaches to all clients across the expanded PNC franchise. Thank you, and with that, Rick and I will be pleased to take your questions.

Question-and-Answer Session

Moshe Orenbuch - Crédit Suisse AG, Research Division

We're going to start with the audience response questions first, if we can put those up -- first one of those. So okay, what would be the largest driver of improved valuations for the company? So you, the audience, pick up your little devices there and tell us what you think the best -- the largest driver of improved valuations for PNC would be. Choice 1, an increase in interest rates, improved loan demand, improved efficiency ratio or expense control or pursuit of deals or transactions.

[Voting]

Moshe Orenbuch - Crédit Suisse AG, Research Division

A little more age-appropriate. Okay. So okay, one -- okay, they don't like the deals and an even split thereafter. Okay, so...

Robert Q. Reilly

Wow, is that possible?

Moshe Orenbuch - Crédit Suisse AG, Research Division

And I think there's like 3 people voting, right? Okay, all right. Moving to the second question, and I think this is -- looks like this is somewhat repetitive. All right, well, it's here, so we'll give it a shot. That's right, I know. What aspect of the company's outlook gives you the most confidence in future stock performance? First is expense cut; two, benefit of the deals that the company has done; third, growing the balance sheet; or four, investments in the business.

[Voting]

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. So almost 1/2, 47% got the expense cuts, and 1 out of 6 essentially think that the performance of the deals and growing the balance sheet and another, current investments in the business. We're going to come back to that in just a moment. If we can have a next question please. Best use for PNC of capital over the next 12 to 18 months? First, reach the B3 capital minimums; dividends; share buyback; or additional deals?

[Voting]

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. So 58% like the B3 minimums, 18% dividends and 1 out of 4 share buyback. Okay, and I think we've got one more on the asset management business. Can you post that question, please? No? Do we have one more? Didn't make it and I apologize, we were trying to put one in there. I will ask -- yes, we'll do that kind of verbally. I guess, why don't we start out with a question for Bob, and that is you showed us that the asset management business essentially had a decent revenue growth but is seeing some margin pressure because of the investment that you're making. Just talk a little bit about the time period that, that investment is going to be made over and what do -- how do you see your way clear to those margins coming back and improving again, and I guess to your goal of essentially doubling the pretax profit margin?

Robert Q. Reilly

Great question. We've been actively investing in the business on an organic basis for the last 2 years. So we're 2 years into what we see as a 5-year plan to invest in this business. So we're encouraged by the growth that we've seen in these new markets, the return on those investments. So you're right, even though we have leading margins relative to peers, that's after the investments that we're making. So we feel as though we're in a comfortable position in that regard, and we look forward to that continuing for the next 2 to 3 years, so forth.

Moshe Orenbuch - Crédit Suisse AG, Research Division

So the -- at what point will it be -- after this year, where you're going to see those margins to start to actually improve and...

Robert Q. Reilly

Yes, I think that's right because the investments that we've made will now be in year 3, so the vintages from year 1 and 2 will be accretive, so to speak.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Great. Okay, let's talk a little about expenses kind of overall since that was kind of the key theme that everyone had and that everyone really did respond to in that question. And I think that, Rick, in your comments, you were very clear that you feel like -- 2 things stood out to me. One was essentially setting aside part of your budget for things that are unknown to you right now, which I think is probably more conservative than what has happened in the past and kind of gives you a little bit of shock absorber as things go through, and then the comment about being willing to take additional steps if the revenue doesn't materialize. So talk to us a little bit about kind of where you are in that process and what sign posts you're going to use to make those decisions.

Richard J. Johnson

Well, it'll be a quarterly decision. We're looking at the expenses every month, but I think at the end of each quarter, we'll have to make an assessment as to whether or not we're hitting the goals we thought we would, whether or not we have to pick up the pace or drop expenses, and so we'll look at that all the time. So I think it's just -- it's going to be a pay-as-you-go, figure it out and make the decisions along the way.

Moshe Orenbuch - Crédit Suisse AG, Research Division

And would this be the sort of situation that -- I mean you mentioned this is -- this doesn't have a catchy name and yet, still has probably as significant an impact as any program that you've done. Could you talk about the impacts on this on the company kind of after 2013?

Richard J. Johnson

What's most important was the timeframe. If we talked to you back in October and November, we were talking about a $500 million number right at the time, and that was going to have low single-digit expense growth. And then I think as we moved through the budgeting process, I think we all realized that we had to find a little bit of a different balance between the investments we are very much committed to as a company, okay, versus when we turn the ship and actually start to show positive operating leverage. So that's something where you -- in a growth mode, you got to be very careful how you send those signals. And so we had to work hard to figure out where we can take that cost out without getting in the way of the growth potential of the company. And that's exactly what we did and obviously got a little bit of a boost with the mortgage foreclosure release and when we got another $100 million-plus out of that. And that enabled us to move the continuous improvement from a $500-some million target to a $700 million.

Moshe Orenbuch - Crédit Suisse AG, Research Division

And one of the things you mentioned when you discussed the retail business was kind of a repositioning there and that's something that is -- I think the industry as a whole has had tremendous challenges in terms of the revenue side of that retail business. I mean, you've had better than your fair share actually of growth in the top line there, but talk a little bit about what might be going on from an expense standpoint there.

Richard J. Johnson

Well, we've been migrating all along the retail bank to recognize the channels that are changing for them in terms of online banking, mobile banking and so on, and they've been consolidating more of the traditional branch activities over time. And that's been clear, every year we have anywhere from 30 to 50 consolidations in the footprint. We're going to have 32 on our first quarter this year and we believe we will accelerate from there. So clearly it was never a question around if, I think it was a question of when and at what pace. And you want to make sure you do that at a pace where you can maintain the customer base you have when you consolidate one branch into another. And we've been very successful in it to date and we believe we can be very successful as we pick up the pace a bit.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. Are there questions from the audience? Anybody? I think we've got some mics if there are people that have. And okay, if not, I will continue to ask. Maybe keeping on that theme for a moment. One of the things that I think that in addition to closures of branches is actually the staffing within them and that's one of the things. Can you kind of elaborate on your thoughts there?

Richard J. Johnson

Well the Retail Bank for us is about 1/2 of our expense base. It's $5 billion out of $10 billion. Approximately $0.5 billion of that is in real estate, another $1 billion in technology and $1.5 billion in people because the distribution network is about $3 billion of the $5 billion. So clearly, staffing levels need to change in order to -- whether you have an image-enabled ATM with someone to support that as you move to more online channels. And in each market is different and we can measure the performance in each market, so we'll be making decisions in each market to figure out how to best migrate the business to the new channels but also figure out how to cross sell other products and services in the new automated online banking activity. And I think that's -- the big question everyone has out there is how do you get cross-selling in an automated environment? And I think every bank is working on it as we speak.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. Let's go back to Rob for a couple of questions. You had talked about -- I think you had alluded to hiring, that was the driver of that margin. Could you talk a little bit about your plans? I mean how do you source your people? And what's -- what are their marching orders? And how does that plan...

Robert Q. Reilly

Yes, sure. We've hired, as I've mentioned, over 350 people in each of the last 2 years, primarily client-facing roles, in growth markets that we were already in: Florida; or even prior to the RBC purchase, Washington, Chicago; and now with the Southeastern markets, which has been roughly about 100 people or so. The wealth management, asset management business as we define it, is highly fragmented. So we have lots of competitors beyond just banks, as you know, so we hire a representative sample, some coming from banks, some coming from boutiques, RIAs, et cetera. We've been very pleased with our ability to hire. That hasn't been a challenge. And I mean we plan to continue that at roughly the same rate.

Moshe Orenbuch - Crédit Suisse AG, Research Division

And the -- I guess the underlying reason that the payback is a couple of years is that these people generally aren't coming with books as their own. Is that...

Robert Q. Reilly

Right, right. Yes, that's right. That's in contrast to the brokerage model, so it's not a buying of books, so to speak. It's just building out the army to run our plays and execute on our model.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Got it. I think one of the -- I mean one of the challenges with the mass affluent has always been controlling the cost and can you talk a little about your plans in that area?

Robert Q. Reilly

Well it's very similar. The mass affluent is wholly part of our retail strategy, sort of what Rick had spoken about, so it's in parallel with the alternatives in terms of the distribution. One of the things that we did with cost in mind -- because you're right, it's tough to make a profit in that -- is to establish a central investment center, which was part of our investments over the couple of years, so now that's up and running. So we're able to handle in a centralized way the online, the alternative channels as well as accounts that are well suited to that.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. Rick, back to you. We talked a little bit about the -- well, we asked in the audience question, about capital return and their thoughts and use of capital. Just talk a little bit about your thoughts. Obviously, you made some very public comments about your plans for 2013 already. Talk about your plans once you've kind of reached that Basel III goal.

Richard J. Johnson

Well I think we have been pretty clear with everyone about not being a capital-return story in 2013 and primarily because the acquisition of RBC was about 1.2% of our capital ratio, which put us about 1 year behind in getting to the Basel III standards. Now we've set an operating goal of 8%, 8.5% and we're well on our way to that, and with the positive operating leverage I talked about before, good credit management, we don't see anything changing on that front. We should generate enough retained earnings to get us there at the end of the year. So we think that is a top priority. We think the dividend's an important priority. But I would also say if we ended up getting more loan growth than we anticipate and as a result, we fall a little short of the 8%, 8.5%, that's fine, too, because that's good business and we'd be okay with that, and we'd find some other way to try to get there.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Maybe -- I don't know if you want to venture into any sort of thoughts about that loan growth. You had a very strong Q4. I think a lot of that coming as kind of -- it's not -- it wasn't seasonal business but maybe relating to the time that we were in, and talk about what the first quarters look like.

Richard J. Johnson

Yes. The commercial loan growth in 2012 was terrific for PNC, both from an organic growth as well as from an acquisition point of view, and also generated some consumer loans with the acquisition and some of the indirect auto. I don't expect the pace going into the new year to be at the same speed that we saw in 2012, but I do believe we will have good commercial loan growth primarily in -- not in the middle market space where there's a lot of cash on balance sheets and not a lot of capital expenditures taking place but in the verticals that we have, the national businesses that we have. Whether it be health care, energy, whether that be asset-based lending, commercial real estate, public finance, we see those as opportunities to grow high single-digit loan growth in the commercial side, and let's call it low single-digit in the consumer side, probably focused more on auto lending and credit card. But I think overall, mid single-digit growth is what we have in our plan at the moment.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Great. Any other -- nay questions from the floor? Okay. I'd asked you before about that continuous improvement plan. There are 2 parts of it that I wanted to kind of spend a moment on. The first is you mentioned kind of using a good chunk of that to reinvest in the business, as we've obviously talked about asset management. Are there others -- other things that you wanted to highlight where you are, reinvesting in your business?

Richard J. Johnson

Well if you look at the $550 million that I have referred to as being already identified investments, about $150 million of that is the full year impact of the RBC investments that we made, south -- in the Southeast investments we made in 2012 and getting the full year run rate. The other $400 million was just the different businesses Rob is driving as well as all the growth markets we saw across the footprint. Now the other thing we've been doing is we had to very quickly go to be Basel-compliant, to be in the parallel run -- with January, we went into parallel run. A lot of investments at other institutions probably made over 5- or 6-year period, we had to make in about 2 years, getting prepared and up to speed on CCAR and making investments there and frankly, building an infrastructure for a company that doubled in size in a couple of years. So we've been doing a lot of that. And as we are doing that, we're finding that when you spend on all those fronts at the same time, there's always an opportunity to find ways to do it a little smarter and quicker. So with -- so I see, as we move forward, a great opportunity on that front. I also see expenses during the course of this year, very flat at about $2.5 billion a quarter, which puts us in a great shape in 2014. If rates remain low again, puts us on a great position to try to do more on the expense side in 2014.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Got you. So one of the things -- one of the topics that you've addressed at length in your recent conference calls has been the issues in terms of the purchase accounting accretion, the impact on 2013 and your ability to kind of maintain or grow the core net interest income. Can you talk a little bit about your thoughts there? And obviously you did just say that you thought you'd get some pretty decent loan growth. So maybe just kind of elaborate on that a little bit.

Richard J. Johnson

Yes. We expect core net interest income to grow 2012 to 2013 but we have about a $400 million runoff related to the purchase accounting accretion, which means that net-net, net interest income will be down year-over-year. And then we will grow fee income, so the total revenues will be up, okay? We've also said that in the first quarter, we do expect net interest income to be down 2% to 3% and purchase accounting accretion to be down about $50 million to $60 million. And the reason for that is we just had a lot of good cash recoveries in the fourth quarter right at the end of the year and we don't expect them to repeat themselves in the first quarter.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Okay. All right. I think that has taken -- that's pretty much a run-through my list of questions here. If there are no questions from the floor, PNC will be doing a breakout session in Hong Kong A, and the next presentation, which is Citigroup, will be starting here in about 5 minutes. Thank you very much.

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Source: PNC Financial Services Group Inc. Presents at 2013 Credit Suisse Financial Services Forum, Feb-12-2013 02:30 PM
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