PNC Financial Services' (PNC) CEO Bill Demchak on Q4 2015 Results - Earnings Call Transcript

| About: PNC Financial (PNC)

PNC Financial Services Group (NYSE:PNC)

Q4 2015 Earnings Conference Call

January 15, 2015 11:00 AM ET

Executives

Brian Gill - IR

Bill Demchak - CEO

Rob Reilly - CFO

Analysts

Erika Najarian - Bank of America

John Pancari - Evercore

Rob Placet - Deutsche Bank

Gerard Cassidy - RBC

Scott Siefers - Sandler O’Neill & Partners

Ken Usdin - Jefferies

Paul Miller - FBR

Operator

Good morning. My name is Pama 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the call over to the Director of Investor Relations, Mr. Brian Gill. Sir, please go ahead.

Brian Gill

Thank you operator 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 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 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, 10-Q, and various other SEC filings and investor materials. These are all available on our corporate Web site, pnc.com, under Investor Relations. These statements speak only as of January 15, 2016 and PNC undertakes no obligation to update them.

And now I'd like to turn the call over to Bill Demchak.

Bill Demchak

Thanks Brian and good morning everybody. I know it's been a busy day for all of you and it was a pretty straight forward quarter end year first actually, so I am just going to have few brief observation to share and then I’ll turn it over to Rob.

As you are seeing today we reported full year 2015 results with net income of $4.1 billion or $7.39 per diluted common share and the return on an average assets for the full year was 1.17%. In a pretty difficult revenue environment PNC performed well by executing on our strategic priorities and as we’ve said before controlling the things that are in our power to control.

I’d tell you I’d even argue that the degree of difficulty in '15 was probably tougher than the year before, but again we delivered the solid consistent results that you guys have come to expect. In 2015, we grew loans, we had average deposits update percent, we had fee income up 3% and non-interest income represented a higher percentage of our totaled revenue mix in '15 than in '14, which is an important priority for us.

You have seen, we also maintain strong capital and liquidity positions even as we return more capital to shareholders through repurchases and higher dividend. And at the same time and importantly we continue to control expense as well. 2015 was the third year in a row that we brought down expenses despite major ongoing investments in our businesses and infrastructure.

In retail, we know have more than 375 branches using our universal banking model and we plan to convert another 100 or even more in 2016. In technology, we are in the late innings on our work to strengthen our core systems, fortify our cyber security and modernize applications. And once this is completed this infrastructure is going to allow us to shift more of our spend to offence focusing on consumer facing products and services.

Additionally, we continue to make progress on our other strategic priorities, building a leading banking franchise in our underpenetrated markets and capturing more investable assets. Now we’ve got a few highlights there on the slide and I’ll be happy to take -- talk more about this priorities during Q&A if you have specific questions.

But as we look ahead into 2016, we do expect our strategic priorities are going to continue to drive growth and fee income. We have the right model capabilities, cultures and peoples to continue to manage what is in our priority control and to deliver for the customers, shareholders and communities that we serve. And I believe that we’re well position, particularly if the Fed continues to raise rates to generate positive operating leverage this year.

Having said that, we are obviously concerned about the global volatility in markets that we have seen over the last few weeks and even today and the potential for that to directly impact the U.S. economy and the result in Fed actions.

But I going to turn it over to Rob for now to just take a closer look at our fourth quarter and full year results and give you few additional thoughts on '16 before we take your questions. Rob?

Rob Reilly

Thanks Bill and good morning everyone. Overall our full year and fourth quarter results played out largely consistent with our expectations. For the full year we grew loan, deposits and fee income and reduced expenses even as we continue to invest in technology and our businesses. In addition we returned more capital to our shareholders while maintaining strong capital levels.

As a result our 2015 net income was $4.1 billion or $7.39 per diluted common share. Fourth quarter net income was $1 billion or $1.87 per diluted common share. Our balance sheet information is on Slide 4 and it's presented on an average bases. As you can see total assets increased by $1.8 billion or 1% linked quarter compared to the fourth quarter a year ago, total assets grew by $21 billion or 6%, primarily reflecting increases in investment securities, loans and interest-earning assets which includes balances held at the federal reserves for liquidity purposes.

Total loans grew by $1.2 billion or 1% linked quarter, primarily due to growth in commercial real-estate. A worth noting that on the spot basis, total commercial lending grew $2.4 billion or 2% primarily in PNC’s real-estate business, which includes an increase in multi-family agency warehouse lending.

For the year-over-year quarter, total loans increased by $3.1 billion or 2% again driven by growth in commercial loans. Specifically real-estate and business credit as well as increased lending to our large corporate clients. Consumer lending decreased $396 million linked quarter as the decline in the non-strategic consumer loan portfolio was somewhat offset by growth in credit card and auto lending.

Compared to the same quarter a year ago, consumer lending was down $2.8 billion or 4%, primarily due to the continued decline a non-strategic home lending and lower educational loan balances again partially offset by growth in credit card. Investment securities were up $5.8 billion or 9% linked quarter and increased $13.6 billion or 25% compared to the same quarter a year ago. Portfolio purchases were comprised primarily of agency residential mortgage-backed and U.S. Treasury securities.

Our interesting earning deposits with the Federal Reserve were $31.5 billion at the end of the fourth quarter, down from the third quarter as we reduced commercial paper outstanding and shifted some Fed deposits to higher yielding liquid assets. Compared to the same quarter a year ago, our interest earning deposits with the Federal Reserve increased by $3.8 billion in support of our efforts to comply with the liquidity coverage standards. As of December 31st, our estimated short-term liquidity coverage ratio exceeded 100% for both the bank and the bank holding Company under the month-end calculation methodology.

On the liability side, total deposits increased by $3.5 billion or 1% when compared to the third quarter. Primarily driven by consumer deposit growth with an emphasis on savings products. Compared to the fourth quarter of last year, total deposits increased by $17.5 billion or 8%.

Turning to capital, as of December 31, 2015, our pro forma Basel III common equity Tier 1 capital ratio, fully phased in and using the standardized approach, was estimated to be 10%, essentially flat linked quarter as we continued to return capital to shareholders through our dividends and share buybacks.

During the fourth quarter, we repurchased 5.8 million common shares for approximately $500 million. We are on track to meet our repurchase authorization of up to $2.875 billion for the five quarter period which began April 1, 2015. Period-end common shares outstanding were 504 million, down 19 million or 4% compared to the same time a year ago. Finally, our tangible book value reached $63.65 per common share as of December 31st, a 6% increase compared to the same period a year ago.

Turning to our income statement on Slide five, again net income was $1 billion in the fourth quarter and $4.1 billion for the full year. Our fourth quarter return on average assets was 1.12% and for the full year, it was 1.17%. In the fourth quarter, total revenue grew by $78 million or 2% compared to the third quarter as a result of higher net interest income and fee income. Core net interest income grew by $30 million or 1% compared to the third quarter, primarily driven by increased securities balances and loan growth, while purchase accounting accretion was flat linked quarter due to greater than expected recovers.

For the full year 2015, purchase accounting accretion was down $164 million compared to 2014. This decline was somewhat less than expected due to higher cash recoveries throughout the year. For 2016, we expect purchase accounting accretion to be down approximately $175 million compared to 2015.

Total net interest margin was 2.7% in the fourth quarter, up 3 basis points linked quarter. Total non-interest income increased by $48 million or 3% compared to the third quarter, primarily driven by higher fee income. Total fee income grew by $27 million or 2% linked quarter due to growth in most categories partially offset by lower fee revenue from residential mortgage and service charges on deposits. I’ll have more to say about our fee income in a moment.

Non-interest income increased by $44 million or 2% linked quarter, largely due to higher business activity. Importantly full year expenses were down $25 million and as Bill mentioned this marks the third straight year we reduced total expenses, while supporting significant investments in our business.

These results are due in part to our Continues Improvement Program or CIP. During 2015, we completed actions and exceeded our full year goal of $500 million in cost savings. Looking forward to 2016, we have targeted an additional 400 million in cost savings through CIP, which we again expect to help fund a significant portion of our business and technology investments. Provision in the fourth quarter was $74 million, down $7 million or 9% from the third quarter. As overall credit quality remained relatively stable.

Finally, our fourth quarter effective tax rate was 26.1%, up from 20% linked quarter as the third quarter reflected tax benefits. Our full year effective tax rate was 24.8%. Looking ahead we expect our 2016 effective tax rate to be between 25% and 26%.

As you can see on Slide 6, non-interest income as a percent of total revenue has steadily increased during the last four years, and currently generates nearly half of our revenue. We have strategies in each of our lines of business to increase fee income across our franchise. Three of our business activity, asset management, corporate and consumer services, each generated more than a $1 billion in fee income in 2015. And their growth offset lower fee income from residential mortgage and service charges on deposits. For the full year asset management fees increased by $54 million or 4% as a result of new primary client acquisition, net asset flow and positive market performance in the first half of the year. Full year 2015 results also benefited from a large trust settlement that occurred in the second quarter.

On a linked quarter basis asset management fees reflected stronger equity markets and increased by $23 million or 6% due to higher earnings from PNC's equity investment in Blackrock and new sales production. Assets under administration were $259 billion as of December 31st, up $3 billion linked quarter but lower than the $263 billion at the same time a year ago, largely reflecting equity market movements in both comparisons. Consumer service fees increased $81 million or 6% for the full year as a result of increased customer related debit, credit and merchant services activity along with higher brokerage income all consistent with our strategy of growing share of wallet in retail. Reflecting this momentum consumer services fees increased $8 million or 2% linked quarter due to higher merchant services and seasonally higher credit and debit card activity.

Corporate services fees increased by $76 million or 5% in 2015 and included higher treasury management and commercial mortgage service fee. Our corporate and institutional business also saw strong full year results in capital markets. On a linked quarter basis corporate services fees increased by $10 million or 3% primarily due to higher merger and acquisition advisory fee and higher loan syndication. Residential mortgage non-interest income declined by $52 million or 8% for the full year primarily due to elevated secondary loan sales in 2014 that didn't repeat in 2015. As well as lower servicing fees. On a linked quarter basis residential mortgage fees decreased $12 million or 10% primarily as the result of lower sales revenue and net hedging gain. Fourth quarter originations were $2.3 billion down approximately $200 million or 8% compared to the same quarter a year ago, due in part to closing delays resulting from the implementation of new disclosure requirements.

Service charges on deposits for the full year declined by $11 million or 2% and on a linked quarter basis they were down by $2 million or 1%. In both periods the lower revenue was driven by evolving customer behavior and product changes. Lastly, full year total other non-interest income decreased by $51 million or 4% primarily due to a higher level of asset sales in 2014. Of note gains from the sales of Visa Class B common shares were approximately $40 million less in 2015 compared to 2014. And on a linked quarter basis total other non-interest income increased by $21 million or 7%, primarily driven by asset sales.

Turning to Slide 7, overall credit quality remains relatively stable in the fourth quarter compared to the third quarter, non-performing loans were down $51 million or 2% linked quarter driven by improvements in the consumer lending portfolio partially offset by increases in commercial loans. Total past-due loans were down $23 million or 1% linked quarter as we saw small declines in most categories. Net charge offs of a $120 million increased by $24 million due to higher growth charge off levels and lower recoveries compared to the third quarter. In the fourth quarter the net charge off ratio was 23 basis points of average loans up from 19 basis points in the prior quarter. Our provision of $74 million was down $7 million or 9% from the third quarter. Consistent with our previous disclosures during the fourth quarter we implemented the de-recognition of $468 million in purchase credit, impaired loan balances and the associated allowance for loans related losses.

These balances were related to loans that had been paid off, sold, foreclosed or have nominal value. Importantly this change had no impact on EPS, the net carrying value of the pools or accretion accounting. The allowance for loan and lease losses to total loans is 1.32% as of December 31st, this compares to 1.58% linked quarter and 1.63% at the same time a year ago. The decline in both periods was primarily attributable to the implementation of the de-recognition.

We are cognizant of the volatility effecting the energy related in commodity sectors. That stated not much has changed regarding our exposures since last quarter. Specifically on oil and gas we have a total of $2.6 billion in outstanding, which is relatively flat quarter-over-quarter. This represents approximately 2% of our total commercial loan book. We have approximately $700 million in outstanding to Energy and Production Company, $1 billion to midstream and downstream and $900 million to oil services. Approximately $200 million of this services portfolio is not asset based on investment grade and this poses a greatest near term risk consistent with what we've been telling you the last few quarters. We continue to experience some portfolio deterioration in the fourth quarter, though charge-offs were quite modest. And during the quarter we increased our reserves to reflect the incremental impact of the continued decline in oil and gas prices.

In summary PNC posted fourth quarter and full year earnings consistent with our expectations. Turning to 2016 we're obviously off to an unexpected rough start to the year relative to the global macro economy. However our 2016 operating plan completed at the end of last year and prior to this recent volatility assumes continued steady growth in GDP and a corresponding increase in short term interest rates three times this year, in March, June and December with each increase meaning [ph] 25 basis points.

Based on these assumptions our full year 2016 guidance is for modest growth in revenue and stable expenses which by definition positions us to deliver positive operating leverage. And as we've said before we continue to expect credit costs to normalize on a gradual basis. In regard to the recent economic conditions, we acknowledge it’s unclear how long these conditions may persist, but should they continue for a long period it will impact our plan and we will adjust accordingly.

Looking ahead at the first quarter of 2016 compared to the fourth quarter of 2015 reported results, we expect spot loans to be up modestly, but average loans to be stable as the calculation of the average balances will be impacted by the de-recognition implementation. We expect net interest income to increase in the low single digit range. We expect fee income to be down mid-single digits due to seasonality and typically lower first quarter client activity. We expect expenses to be down low single digits and we expect provision to be between $75 million and a $125 million.

And with that Bill and I are ready to take your questions.

Question-and-Answer Session

Operator

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

Erika Najarian

Thank you so much for giving us details in terms of what's embedded in your plan from an interest rate outlook perspective. I was anticipating that investors will be curious about what you mean by adjust accordingly. As you can imagine investors are a little bit more cautious about the pace of this set and as you think about the trade-offs between delivering positive operating leverage if the set doesn't raise three times versus delaying some of the investments that you've mentioned, I guess is it adjusting accordingly on the expense side or just take us through essentials?

Bill Demchak

It’s adjusting accordingly in terms of the guidance we give you in its simplest form. So, our plan takes those assumptions today and by the way some investors and even the Feds dot [ph] taught themselves I guess having going four times, obviously the market doesn't believe that today. We're three weeks into the year, so we're not going to bin a whole planning process until we see how it plays out, and as it plays out we would give you, as we do always quarterly guidance on what you might expect. I don't think as we've said before that near term pressures on rates and/or localized pressures on the economy are going to dramatically shift our investment profile, largely because we continue to be able to fund that profile through continuous improvement and hold costs constant. So, you're broader question, can we get to positive operating leverages, so many embedded assumptions on that in terms of what credit cost doing rates doing and everything else we'll have to see.

Erika Najarian

And in terms of your capital management for the year and in terms of us trying to back into what you could distribute post 2016 CCAR, your CEP1 [ph] ratio was kept flat at 10% which seems high relative to the risk profile and the size of the bank and I'm wondering if to you Bill that seems like an appropriate level to think about for '16 as well.

Bill Demchak

I would remind you and we've talked about this before that there is not a magic boundary on this kind of 100% payout ratio in terms of what we could request, I'd also remind you that we talk about focusing on the post stress ratio as opposed to the starting ratio which is the one that's obviously your binding constraint. As we run our base case, and the other thing that we've talked about in the past is that our base case typically for a variety of reasons ends up being lower than what we in fact produce in income. All of those things suggest that we'll have an opportunity to go back and be aggressive in terms of capital returns ask, until we see what actually comes out of the Fed in terms of instructions, that the definition of aggressive will have to be rather vague at this point, because as I've said despite that we're at 10 today it's really dependent on where we’re going to end up post there stress scenario.

Rob Reilly

And just to add to that Erika, as you know we are well positioned to return capital to shareholders we just have to see what their scenarios are.

Erika Najarian

Got you. Thank you very much.

Bill Demchak

Next question please.

Operator

Thank you. Our next question comes from a line of John Pancari with Evercore. Please proceed.

John Pancari

Just similar to the line of questioning, in terms of how we should think about spread revenue growth and the margin outlook. Can you just give us some way to think about the sensitivity if we don’t see any Fed moves, what we could think -- what we can expected by way of the margin progression as well as the spread rev? Thanks.

Rob Reilly

Yes sure, as you know we don’t give specific guidance around NIM, that’s an outcome. Our plans do call for growth in NIM, but they are largely reliant on increases and rates. Now naturally there is other variables involved in terms of pricing on loans and securities that would factor into that, but I think generally speaking if your question just sort of is where does this outcome play out if you don’t get Fed rate increases, its probably stable plus or minus the small amount.

John Pancari

Okay alright that’s helpful thanks. And then separately in terms of how we should think about loan growth beyond the first quarter, I know you indicated relatively stable for the first quarter '16 but what's a -- how are you thinking about full year particularly given some of the uncertainty on the micro back drop? Thanks.

Rob Reilly

Our plans call for really a continuation of what we have seen for a while which is continued growth on the commercial book for PNC largely in our specialty businesses. And then on the consumer side relatively flat, overall home equity, obviously some of the non-strategic working down off set by what we would expect to be a continued growth in credit card and possibly although it's smaller level auto [ph].

Bill Demchak

I think you know one of the offsets if in fact we get into a surprises here as it relates to the discuss in the economy and increasing credit cost, our specialty businesses actually tend to pick up growth in stressful situation. So our plan kindly called along with our GDP assumption for moderate growth, but in a down turn scenario same way you saw back through the crisis we actually have the ability through the specialty leading to do correct -- quite well.

John Pancari

Okay and Bill, if I could give you one more here on the capital to deployment side, could you just remind us of your thoughts around M&A, I know you have been more tempered to terms of that outlook, but just wanted to get your updated thoughts at this point.

Bill Demchak

Tempered is one word. As it relates to tradition of bank M&A we are not interested, we are not involved there is a variety of reasons you’ve heard me talk about before. Sometime through time could that somehow change sure because forever is a long time, but today it's not on our radar. I would tell you that we have taken some small investments and syntax [ph] stuff you would had seen an announcement with EWS and Clear Exchange in partnership with six other large banks to put a P-to-P product out on a ubiquitous way to all bank clients. We are interested in distributive ledger block chain technology, we are interested in some of the corporate payments dispersement technology, none of these are big numbers. But in terms of our focus and where we think about growth opportunities in how to deploy capital it would be much more focused in that area than it would be a traditional bank deal.

John Pancari

Got you thank you.

Rob Reilly

Next question please.

Operator

Thank you. Our next question comes from a line of Matt O'Connor with Deutsche Bank. Please proceed.

Rob Placet

Hi this is Rob from Matt’s team. I was just curious if you can updates on your thinking for the reinvestment of the 30 billion or so liquated on the balance sheet, where you may look to deploy that and the timing?

Rob Reilly

Sure Rob, so consistent with what we said on prior earnings calls we do have a large balance there that was largely driven by meeting the liquidity coverage ratios and given the growth in deposits and the way to year played out, those balances actually went into excess of that. We have started to put some of that to work at this past quarter, you could see in some investment securities. And probably the best way to answer your question is we could shift 10 billion of that into other high quality securities without jeopardizing the liquidity coverage.

Bill Demchak

The other thing you’d see if you dig through the numbers is, we’ve paid down some wholesale debt, short term funding that didn’t come for LCR and some of the -- I think there was even a sub-debt deal that deal that went [multiple speakers], which drops our funding cost helps in the, as well. So you could see that decline both as we change our funding mix but also as we deploy cash into higher yielding assets.

Rob Placet

Okay thank you.

Rob Reilly

Next question please.

Operator

Thank you. And our next question comes from the line of Gerard Cassidy from RBC. Please proceed.

Gerard Cassidy

Rob can you share with us in terms of what you are seeing on the underwriting standards and commercial real-estate and construction loans or what your loan guys are telling you? And second has there been any change in those underwriting standards in the marketplace since the regulators came out in December expressing concerns that those standards that too aggressive?

Rob Reilly

Well, to your first part of your question Gerard in terms of our commercial real-estate. We continue to see growth there, not quite at the same levels that we’ve seen in the past years. But the big difference there and it didn’t really sit up in the fourth quarter, but it’s been happening for a while, is the shift in the emphasis in terms of what we’re lending into much, much more around the permanent lending. You can see that in our supplement and less so on the construction sides in terms of a mix. So our commercial mortgage loan balance as you can see it continued to increase quarterly and we would expect that to continue.

Bill Demchak

Part was what’s happening is the combination of a lot of the European Banks pulling back post-crisis. And then the lack of volume that’s getting through the CMVS market is continuing the opportunity for what historically has been called Life Insurance product. But basically balance sheeting term loans with good debt service coverage and loan to value ratios kind of as we hit this big CMVS maturity double plus their projects get funded and come online.

So that’s kind of where we see the opportunity. The bankers will tell you and as we look at markets, we’re obviously concerned about energy heavy cities, we’re a little bit concerned about some of the technology heavy cities across all property types and that you would see that in our underwriting criteria in the step that we target to the extend we’re still doing new projects.

Gerard Cassidy

Thank you and then in your press release and the Corporate and Institutional Banking section, you guys give us some color, you talked about the loans growing about 1% over the third quarter, it was due to some real estate business credit that you generated, as well as large corporate. But then you put in there partially offset by the impact of capital and liquidity management activities, can you give us some color what that it was?

Bill Demchak

Yes. So combination of LCR requirements and the cost associated with LCR and simply capital regulatory capital requirements again certain types of lending only relationships caused the return to be below the standard we’d otherwise like the hold. And so we’ve shifted the mix and inside of our growth you’d actually see a lot of run-off in lower returning relationship. A lot of that shows up in what is broadly defined as the financial services space, you’ll see a lot of that in the public finance space. Where those balances have decline and frankly have somewhat masked the real growth that is underlined inside of C&IB as we’ve run those balances down.

Rob Reilly

And Gerard, you’ll recall that was a bigger issue in the third quarter where we have more of those balances run-off. So it’s the same issue just a smaller amount in the fourth quarter.

Gerard Cassidy

And not to put words in your mouth. So if it’s not meeting your internal return targets your willing to give this business up, is that correct?

Bill Demchak

Sure.

Rob Reilly

Definitely.

Gerard Cassidy

Good, no that’s good. And then finally Rob, I apologize if you addressed this in your prepared remarks and I didn’t hear it. But going into the first quarter, I know you showed us that the net interest income will be up slightly, so the increase in your margin in this quarter. With the Fed funds rate increased that we saw in December, should that have a positive impact on the net interest margin in the first quarter?

Rob Reilly

Yes, a bit. Definitely it will have an impact on the net interest income. But the margin moves a lot slower.

Gerard Cassidy

Great. I appreciated. Thank you, guys.

Bill Demchak

Next question please.

Operator

Thank you. Our next question comes from the line of Scott Siefers from Sandler O’Neill & Partners. Please proceed.

Scott Siefers

Bill couple of questions ago you talked about the potential benefited dislocation in your specialty business, I guess pricing [multiple speakers] the risk reward improves et cetera. I wonder if you could sort of apply those comments to the broader portfolio. Are you seeing anything thus far just given that dislocation which I guess for now has been largely limited to the capital markets? But have you seen anything in the broader portfolio that would lead you to feel better?

Bill Demchak

Yes. It’s interesting, we haven’t really seen the spike in lending spreads that potentially could occur. In fact did occur in 9 -- particularly in ’09, particularly with the leverage product. Where we probably have seen some benefit as the cash flow leverage loans done to do buyouts in M&A, think middle market private equity and so forth. As the market for that has become tougher and you’ve read about the Hung’s [ph] indications, opportunities increased for our asset based lending business as a substitute for that. We’ve already seen it, it’s part of the growth embedded in there and I expect it will continue.

Scott Siefers

Okay. Alright, that sounds good. Thank you very much.

Bill Demchak

Next question please.

Operator

Thank you. Our next question comes from the line of Ken Usdin from Jefferies. Please proceed.

Ken Usdin

If I can ask a question on just your fee income outlook, it had some really good seasonal strength as you usually do and we understand the first quarter seasonality. Can you talk about, what you expect to be the drivers within fee income this year given what looks like there will be some challenges whether it’s borne by the markets or residential mortgage comparisons or what not. But what do you think is going to drive fee income growth?

Rob Reilly

Well I think, if you take a look at it, we agree we think we had a strong fee story in 2015 and I think much of what drove that we would expect to continue into '16 because this is central to our strategy, is to grow these fee businesses across the broader franchise. So if you just walk down in a bit asset management, we would expect to be able to continue to grow, I guess we have to put some parenthesis around where these markets sort of play out and it’s my earlier comments in terms of this, they continue to persist over a prolonged period that could in the short term affect that, but long term we see big growth continuing there. Consumer services, a lot of momentum we've been growing at mid-single digits and we would expect to be able to do that through time. Same with corporate services. Residential mortgage is struggling in terms of where we are in the rate cycle and everything that's going on there, but of course that's a smaller number. So I think it's pretty.

Bill Demchak

I think the one caveat, if we ran into a lumpy capital markets, inside our corporate services the biggest driver there is our treasury management business and we continue to grow that at a healthy clip both through introduction of new products, but also through cross sell you know down into the southeast. But this year we did have a great year inside of our capital markets activity with corporate security fees loan syndications and Harris Williams while down a bit from last year, you know this is the second best year ever. So we could see some pressure conceivably in what we would call our capital markets line. But in terms of raw size that is so dwarfed by what we do in treasury management you know we'd like to think we could outgrow it.

Ken Usdin

Understood, and one just follow up, that other income line ex the Visa and Securities gains, can you just remind us what a kind of typical range is for that line and do you see any major changes one way or the other there.

Rob Reilly

Not a whole lot, we guide ex-Visa, we guide 250-275 a quarter and I think that's a good number.

Ken Usdin

Okay, thanks a lot guys.

Bill Demchak

Thank you.

Operator

Thank you sir, our next question comes from the line of Paul Miller from FBR, please proceed.

Paul Miller

I know in your past guidance that you've been somewhat bullish and I think you were calling for like 200 basis points of rate hikes. Has the volatility over the last -- have you answered this question already, I apologize, I've been jumping all over the place, but is the volatility in the markets over the last two weeks changed those assessments?

Bill Demchak

Sorry, let me. First off our guidance had three rate hikes, 25 each through the course of '16 and the volatility in the last three weeks you know has caused concern but hasn't caused us to be in a plan after three weeks of disruption, we'll let this play out and see where we end up. You have to -- the thing you always have to hold in the back of your mind is we're coming off of a base of zero, so we're still wildly accommodative and notwithstanding some localized stress in the economy, as you know doesn’t necessarily stop you from raising rates. You know the offset to that is that we're seeing even in some numbers today, we know the Fed is watching inflation and the inflationary numbers continue to be really benign, notwithstanding some at the margin inflation and wages where we’re seeing it from imports and other places. So we'll let that play out, but we had three increases in our plan, they happen or they don’t, it will affect their results or not, you know we'll update you as we go.

Paul Miller

And I know a lot of peoples have been asking about credit out there, but do you see any regions because you do go across pretty much most of the Mid-East coast. Do you see any regions besides some of those energy sector areas in Pennsylvania that are struggling?

Bill Demchak

It's, I mean energy sectors broadly, but you know I wouldn't isolate that to Pennsylvania. We’re actually -- you know the localized economy here notwithstanding some reliance on coal and natural gas is actually quite strong. We see some pressure down not surprisingly into Texas and other areas on our energy book and it's starting to spread as you would expect it would into at the margin real estate and other service providers from everybody from accountants to lawyers than anybody who was in the game as the oil boom started. But you know that's kind of at the margin and beyond that I don't know that we see a particular region in the country that is standing out although I’d tell you, Mike Lyons who runs our CNIB [ph] business just finished a grand tour around the country, seen a lot of clients and kind of came back with the notion that more so than he saw in the last time he was through, he said people are feeling more margin pressure and at the margin a little lower activity than they otherwise thought they'd see at this point in the year. [Multiple speakers].

Paul Miller

Thank you guys, thank you very much.

Operator

Thank you, [Operator Instructions], gentlemen there are no further questions, thank you.

Brian Gill

Thank you all for participating in the conference call this morning and we look forward to working with you during the quarter. Thanks everybody.

Operator

This concludes today's conference call, you may now disconnect.

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