Operator: Good morning. My name is France, and I will be your operator for 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 a mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded.
I will now turn the call over to the Director of Investor Relations, Mr. Bill Callihan. You may go ahead, sir.
William H. Callihan - SVP, IR: Thank you and good morning. Welcome to today's conference call for the PNC Financial Services Group. Participating on this call is PNC's President and CEO, Bill Demchak and Rick Johnson, Executive Vice President and Chief Financial Officer.
Today's presentation contains forward-looking information. 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.
Our forward-looking statements regarding PNC's performance assume a continuation of the current economic environment and do not take into account the impact of potential legal and regulatory contingencies.
Information about such factors as well as GAAP reconciliations and other information on non-GAAP financial measures we discuss is included in today's conference call, earnings release, 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 website pnc.com under the Investor Relations section. These statements speak only as of July 17, 2013, and PNC undertakes no obligation to update them.
Now, I'd like to turn the call over to Bill Demchak.
William S. Demchak - President and CEO: Thanks, Bill and good morning everybody. Thanks for joining us today. I'm going to start by running through some of the highlights of our second quarter earnings and talking about the progress we're making on some of our strategic priorities. I will also share some views on the environment, now that it's likely to affect us through the remainder of the year, before I turn it over to Rick, to run you through the actual results. Then, we'll take your questions.
As you've all seen, we reported net income of $1.1 billion, or $1.99 per diluted common share, with the return on average assets of 1.49%. Obviously, these are big numbers and while we're pleased with the results, as we noted, we did have several select items in the quarter and let me run through a couple of these.
First, we sold some Visa Class B common stock and we realized a gain of $83 million. As you all know, we've been monetizing our position in Visa over time and at the end of the second quarter we still had approximately $750 million in unrealized gains.
Now, we also sold some securities early in the quarter when rates were low, which gave rise to some security gains and increased our asset sensitivity. As rates rose later in the quarter, we reinvested those proceeds. Now, the net effect was higher than normal security gains and lower than forecasted NII. All else equal, it should benefit NII in future quarters.
In addition, higher interest rates, improved evaluations of our commercial mortgage servicing rights and our derivative counterparty book. Also, you've seen our provision for loan losses decline this quarter and were substantially below – I'd tell you, our own expectations as credit quality improved faster than our forecast, and this was particularly true on the commercial space.
Having said all of that, on the negative side, we did record increased residential mortgage repurchase provisions this quarter primarily in response to additional information from Freddie Mac. Now, this is an issue that everybody in the industry is working hard to bring to a close as quickly as possible and that's certainly our goal as well.
Now, apart from those select items client fee income was really strong and as you've seen, our capital ratios were strengthened. We hit our expense numbers in the second quarter and we remained focused on improving our efficiency ratio even as we make targeted investments through the remainder of the year to meet our clients' needs. And as we look at where we are in relation to our long-term priorities, we're starting to see the tangible benefits of our long-term growth strategy and the shift of our revenue mix towards fee income is becoming visible as a result of this. Last quarter, we talked about our efforts to capture more of our clients' investable assets and our investing in retirement cross-sell effort continues to gain traction. AMG new primary client acquisitions, referral sales, brokerage fees, were all up linked-quarter and year-over-year.
In the Residential Mortgage Banking business, volume trends were actually quite good in the second quarter with loan originations of $4.7 billion, up 11% linked-quarter and 30% over the second quarter of '12, consistent with our strategic objectives. We've expanded our seamless delivery across our entire network of mortgage originator and brought our average time to close for loans going through the new process down to 38 days in May. That's about 20 days better than our peer average of 58 and we believe – we think we can do ever better and importantly, we are seeing – we're already seeing customer satisfaction score rise significantly from the past.
Now, clearly, higher rates here are going to slow application volume and in turn decrease gain on sale margins. Notwithstanding this it appears that our model of retail only originations focus on purchase transactions, increased capacity and the rollout of seamless delivery have all combined to mitigate the potential decline relative to our peers.
In the Retail Bank, we've had a lot of activity inside of our delivery channels as we work to build the bank of the future. We consolidated 78 branches this quarter, on top the 30, we consolidated in the first quarter and we're still targeting a total of about 200 for the year. You will have seen, we also announced that we're phasing out traditional free checking and despite this activity, attrition of our existing customers has been less than expected. We actually added 55,000 new DDA households and grew average loans by about $300 million in the second quarter.
In C&IB, as we've been expecting for some time, the market has become more competitive and it's more difficult to win new primary clients and grow loans while maintaining our risk and return thresholds. So, while we continue to prospect for high-quality new clients and grow loans, and we did add more than 200 clients in the second quarter in the Corporate Bank, our focus is shifting towards developing deeper and more valuable relationships with many of the 3,000 plus new clients that we added over the last few years.
We continue to make good progress in growing our share in the new Southeast markets as well as the underpenetrated legacy markets like Chicago. As we looked at what the Southeast is contributing in terms of new clients and the positive effect of our Southeast operations on fee income, we can start to see the benefits of the RBC Bank acquisition coming into focus.
In the second quarter, in the Southeast, we added 11,000 DDA households in retail, 95 new primary clients in wealth. We've also seen a dramatic increase in new client wins in corporate banking in the Southeast. Year-to-date over 20% of our new primary client wins in the corporate bank are coming from the Southeast markets.
Much like our ongoing efforts to bring our Midwest markets in line with the performance of legacy PNC markets, our play in the Southeast is part of a long-term strategy. It's going to take time and patience, but the markets' receptivity to PNC continues to be enthusiastic and we're quite encouraged from it. We talked to you in the past about how we're positioned to grow relative to some other institutions because we had a lot of leverage to pull depending on market conditions and this quarter is an example of our ability to make money even as the environment changes. We think it was an excellent quarter, even without counting some of the select items and while we're optimistic about the opportunities in the remainder of the year and Rick's going to provide an update on some of the guidance in a second, clearly this remains a challenging and competitive environment, and it's probably a good place for me to turn it over to Rick to go through the quarterly results.
Richard J. Johnson - CFO: Thanks Bill. Good morning, everyone. Let me begin with our balance sheet on Slide 4. Total assets increased by $3.6 billion on a linked quarter basis, as the growth in commercial and consumer lending was partially offset by a reduction in investment securities. Investment securities were down $1.9 billion or 3%, compared to the first quarter as we replaced a portion of the prepayments maturities and sales activities during the quarter with forward settling positions. I'll talk more about this later. We saw continued loan growth in the second quarter. Total loans increased by $3.3 billion or 1.8% on a spot basis, compared to first quarter. Commercial loan growth was the primary driver of increase in loans. Total commercial lending increased by $3 billion, compared to the first quarter of 2013, as a result of increases in asset-based lending, healthcare, real estate and public finance. Consumer lending saw a modest increase of approximately $300 million on a linked quarter basis, primarily due to home equity loans and automobile lending, partially offset by pay downs in education lending and residential real estate.
Shareholders' equity increased by $600 million or almost 2% in the second quarter, primarily due to the growth in retained earnings, partially offset by a decline in AOCI. As a result, we ended the second quarter with strong capital ratios. Our Basel I Tier 1 common ratio at the end of the second quarter is estimated to be 10.1%. That's up 30 basis points since the end of the first quarter. Our Basel III Tier 1 pro forma common capital ratio was estimated to be 8.2% as of June 30, 2013 without the benefit of phase-ins, a 20 basis point increase from March 31. We achieved this improvement despite a $500 million after-tax decrease in security valuations as interest rates increased and spreads widened. The growth in retained earnings and a modest decrease in risk-weighted assets exceeded the impact of the security valuation decline. Although we now have final Basel III rules we have not completed our review and continue to use the proposals for our estimated Basel III common capital. However, we are confident that the changes in the final rules from the proposals will not be negative to our common capital ratio. We continue to believe we will be well-positioned to return additional capital to shareholders in 2014.
Turning to our second quarter income statement in Slide 5, our net income for the second quarter was $1.1 billion or $1.99 per diluted common share. Our return on average assets for the second quarter was 1.49%, an increase of 15 basis points compared to the first quarter, a strong performance. We've produced $4.1 billion in revenue, up 3% compared to the first quarter and 12% compared to the same quarter a year ago. The increase was primarily driven by strong noninterest income performance, which increased $240 million or 15% on a linked-quarter basis. While customer fee income was strong, this quarter also included higher gains on asset sales and valuations. I'll give more information on these gains in a moment. But you can see the details of these items on Phase 16 in the consolidated financial highlights.
Those increases were partially offset by a decline of $131 million or 5% in our net interest income when compared to the first quarter, which was a result of lower core net interest income and lower purchase accounting accretion. This decline is more than we expected and I'll provide more details shortly.
Second quarter expenses of $2.4 billion were in line with expectations. As a result, our pre-tax pre-provision earnings were $1.6 billion, an increase of 4% compared to the first quarter and an increase of 67% compared to the same quarter a year ago. Provision in the second quarter was $157 million, lower than the guidance we provided to do better than expected improvement in commercial credit quality.
Looking to the third quarter, we expect the provision to be between $170 million and $250 million as we expect the impact of improvements in commercial credit quality to ease and we expect an overall increase in credit exposure.
Now, let's review the components of net income in more detail. As you can see on Slide 6, our total net interest income declined by $131 million or 5% on a linked quarter basis primarily due to a 4% decline in core net interest income. Approximately $50 million of the decline in net interest income was from securities due to an expected decline in security yields and in part to the portfolio management activities mentioned previously.
We sold approximately $2 billion in securities in the quarter, but long-term rates were lower contributing to security gains of $61 million for the quarter. We also had approximately $3 billion of security portfolio run-off throughout the quarter due to prepayments and maturities. We did put some of that money to work later in the quarter when interest rates were higher and spreads were wider by purchasing securities for delivery in the third and fourth quarters. While decreasing net interest income in the second quarter, these activities should benefit net interest income in the future. As a result, we expect net interest income from securities to improve in the third quarter versus second quarter. The remaining decline of $80 million, resulted from a decline in net interest income from loans of $75 million. The $75 million decline included a $20 million decline on maturing swaps related to loans, a larger than expected decrease in purchase accounting accretion of $45 million, primarily due to lower cash recoveries on commercial impaired loans, and a $10 million decline as loan yields were partially offset by higher loan balances.
While we do expect further pressure on loan yields, we do not expect the decline in net interest income from swap maturities and purchase accounting accretion to continue at these levels. Keep in mind that cash recoveries on partial impaired loans was only $10 million in the second quarter. It can't get much lower. Looking to the third quarter, we expect net interest income to be modestly down as the continuing impact of lower loan yields and a decline in scheduled purchase accounting accretion should be partially offset by loan and securities growth, including the portfolio management activities we took in the second quarter.
For the full year, we now expect purchase accounting accretion to decline by approximately $350 million versus 2012 and in 2014, we expect purchase accounting accretion to be down approximately $250 million compared to 2013.
As you can see on Slide 7, total noninterest income increased by $240 million or 15% in the second quarter compared to first quarter results. Bill spoke to you about the progress we're making on our strategic priorities. Further evidence of that can be seen in the growth we saw during the second quarter in our customer facing fee categories. Asset management fees increased by $32 million or 10% on a linked quarter basis. Consumer service fees were up $18 million or 6% compared to the first quarter, primarily as a result of higher debit card, merchant services, brokerage and credit card revenue. Corporate services increased by $49 million or 18% linked-quarter which was primarily due to a $33 million increase in valuation gains from the impact of rising interest rates on commercial mortgage servicing rights valuations and a higher capital markets revenues. Residential mortgage had strong loans sales revenues. Originations were up 11% on a linked-quarter basis and the gain on sale margin of approximately 4% was flat compared to the first quarter. This resulted in 10% increase in loan sales revenue to $190 million.
However, total residential mortgage fees were lower than first quarter, primarily due to an increase in repurchase demands as Freddie Mac requested additional files on older vintage loans, primarily 2004 and 2005, as National City was the large originator with Freddie Mac during that period. As a result, we recorded a provision of $73 million for residential mortgage repurchase obligations. This provision covers new originations in the second quarter and the additional demand for loan files. Finally, deposit service charged increased by $11 million or 8% linked-quarter.
We also sold 2 million of our Visa Class B common shares in the second quarter resulting in a pre-tax gain of $83 million. We continue to hold approximately 12.4 million shares of Visa Class B common stock with an estimated fair value of $950 million as of June 30, 2013. These shares are recorded on our books at approximately $200 million resulting in an unrecognized value of approximately $750 million pre-tax. And as I mentioned earlier, the securities sales resulted in a net gain of $61 million.
In addition, we saw an increase in revenue of $37 million associated with the impact of higher market interest rates on valuations related to customer-initiated hedging activities. Effectively, the higher interest rates reduce the fair value of our credit exposure on these activities. Our diversified businesses resulted in noninterest income to total revenue increasing to 44% in the second quarter. That compares to 40% in the first quarter and 30% during the second quarter of last year. We continue to expect that full year total reported revenue will increase in 2013 compared to 2012.
Now, turning to Slide 8, second quarter total expenses increased by $40 million or 2% as we expected. This is primarily due to a $30 million non-cash charge on the redemption of trust preferred securities along with a $22 million increase in marketing expenses. As you recall, our goal is to achieve a total of $700 million in continuous improvement cost savings this year. A significant portion of these dollars are being used to offset investments we are making in our businesses and infrastructure.
For the first half of the year, we have captured approximately $600 million of annualized savings. This gives us confidence that we will exceed our full year cost savings target. For the third quarter, we currently expect noninterest expenses to be up modestly compared to the second quarter and we expect full year 2013 expenses on a reported basis to below 2012 by at least 5%.
Our credit quality continued to improve in the second quarter as you can see on Slide 9. In the second quarter, accruing loans past due, nonperforming loans and charge-offs were all lower compared to the first quarter. Net charge-offs were $208 million, a decrease of $248 million or 54%, reflecting in part the $140 million impact of the first quarter alignment with regulatory guidance related to consumer lending. We also saw commercial net charge-offs decline by $91 million to $30 million during the second quarter. Although, this level of commercial net charge-offs may not be sustainable. As you can see on the chart, we released $57 million reserves from our commercial book during the second quarter, primarily due to improved credit quality, and we continue to maintain our reserves for consumer lending as we monitor our performance on refinancing interest-only home equity loan maturities. As a result, our provision $157 million declined by 33% on a linked quarter basis. This reduced level of provisioning may not be sustainable.
Overall, PNC posted strong financial results in the second quarter due in part to certain select items that may not continue at these levels. Looking ahead to the third quarter, we do expect modest growth in loans and solid growth in fee income, as defined on Slide 7. We also expect net interest income to be down modestly and noninterest expense to be up modestly when compared to the second quarter, and we expect the provision for credit losses to be between $170 million and $250 million as we expect the pace of commercial credit improvement to ease and net credit exposure to increase.
With that Bill and I are ready to take your questions.
Operator: Gerard Cassidy, RBC.
Gerard Cassidy - RBC Capital Markets: Bill, can you give us more color on the competition on the commercial loans side? Your yields, you show in your second quarter report here, declined fairly meaningfully to 3.71% from 4.03% in the prior quarter. Is it the Southeast or the Midwest? Where is the real competition?
William S. Demchak - President and CEO: Well, first off, inside of that decline, a chunk of that – Rick knows the number – that came from swaps that matured that were – they're effectively A&L management long positions that we used to manage deposits, but we point them to loans. And as they roll off, the reported yield on loans drop. So, the actual spread on the loans that we have in the book declined this quarter versus prior quarters. There is no increase or change really in the trend. On the demand side, the fight for small business, commercial, middle market, generic product is pretty fierce and we haven't seen much growth in that product either (– our) new balances are changing than utilization. Where we continue to see progress is in our asset-based lending, in our real estate, in some of our verticals, healthcare and public finance and specialty lending segments where we just – frankly, we run into a lot less competition. The smaller banks aren't playing in that space.
Richard J. Johnson - CFO: I think Gerard if I could help a little bit there, you also had in that total loan yield balance, you had about a $40 million decrease in purchase accounting accretion related to cash recoveries which is about 9 basis points of the decline, as well as to Bill's point, the decline related to the swap maturities.
William S. Demchak - President and CEO: Yeah, so I wouldn't read anything into the trend line here.
Gerard Cassidy - RBC Capital Markets: Are there any swaps coming off in the second half of this year that could affect the yields?
Richard J. Johnson - CFO: There are, but they are not as material as what you saw in the second quarter.
William S. Demchak - President and CEO: I mean, remember, part of the noise you're seeing inside a yield, inside a NIM, and inside a net interest income was a conscious decision as we basically – when rates going back to April were down at 165 in the 10 year, we just let stuff roll off. We weren't replacing anything and then we accelerated it through sales. So, in effect, we took a lot of chips off the table, didn't replace and then replaced towards the end of the quarter. It wreaked havoc on our reported NIM and net interest income this quarter, but we think it was the right economic thing to do for the long term.
Gerard Cassidy - RBC Capital Markets: Can you also share with us, with the NPR out on the Federal Reserve's interpretation of Basel banks under $700 billion in size will be able to choose if they want to keep the gains or losses in the securities portfolio in the regulatory capital. Have you guys figured out which way you are going to go on that yet?
William S. Demchak - President and CEO: I think the rule is that if you are a mandatory opt in B2 bank that you don't have a choice and you have to (indiscernible). So, we are in.
Gerard Cassidy - RBC Capital Markets: You're in? Okay. Then finally in terms of the outlook for the Tier 1 common ratio. Assuming you get to your targets, do you think next year that we should expect a meaningful amount of capital return to shareholders?
William S. Demchak - President and CEO: Yes.
Operator: R. Scott Siefers, Sandler O'Neill.
R. Scott Siefers - Sandler O'Neill & Partners L.P.: Rick, I was hoping you could maybe speak a little to sort of the core NII number. I think to sort of oversimplify it, I mean, you guys have given a lot of good color on what happened this quarter and I guess it boils down to as much of timing issue as anything else between the securities gains and then the reinvestment. But if you guys have a little more pressure in the third quarter, are we getting to a point where that core NII number kind of settles out in maybe call it the $2 billion-ish a quarter range and what are the major kind of puts and takes that you see going forward that would impact that number?
Richard J. Johnson - CFO: Well, you are going to continue to see pressure on loan yields. I mean, we would expect that to come down, but I think the balances we will add in lending will offset that in terms of what the impact will be on core net interest income. We've already spoken briefly about the securities portfolio, where you will see a decline in yield there as well, but again the reinvestments Bill mentioned in the third and fourth quarter should help us to be able to maintain that balance and grow net interest income. The pressure is going to be on the scheduled accretion of purchase accounting, where you would expect that to continue to come quarter-over-quarter.
William S. Demchak - President and CEO: One thing I'd point out with all the press on higher rates and how this helps in the future, we're rolling off securities with average yields, I don't know, we're at 3.25 or something and we're replacing them at 2.75. So, all else equal, if we stayed equally invested you'd still continue to see a decline. Having said that, we've been massively underinvested and increasing that short position through the front end of this year as rates got lower and lower. So, our ability to increase invested balances, as you know, even at somewhat lower rates than our average is going to increase the amount of revenue we get from it and – we can argue about the levels but one thing's certain, we're closer to fair value on fixed-rate returns today than we were in April.
R. Scott Siefers - Sandler O'Neill & Partners L.P.: Rick, just want to make sure that I understand the guidance clearly, just on the fee income side, where you're expecting solid growth in the third quarter. That's off the sort of an adjusted number where we'd remove some of the sort of unusual items that you guys have called out, is that correct?
Richard J. Johnson - CFO: Yeah, if you go to Schedule 7 of the report there, I don't think you've got the actual number there. It's all for that fee income number you see there, which is – how much…?
William S. Demchak - President and CEO: It's a $1.294 billion. You see, we kind of drew a total of fee income. It takes out the security gains and that sort of thing. That's what we're talking about.
Richard J. Johnson - CFO: What we're looking at – we're not expecting the repurchase reserve to repeat, and also in that you have on the commercial side, the valuation on the CMSRs; we're not expecting that to repeat either at that level, but we'll grow off of those numbers.
Operator: Paul Miller, FBR.
Paul Miller - FBR Capital Markets & Co.: Yeah, just a follow-up on the valuation to CMSR number. Can you remind us again where did that flow through to and what that number was?
Richard J. Johnson - CFO: Yeah, the actual number was actually $45 million CMSR in the quarter. It was actually $11 million in the first quarter, so that's your increase of about $34 million and flows through your corporate service line, corporate service fee income.
Paul Miller - FBR Capital Markets & Co.: Was there any one-time items in the Asset Management or is that just lumpiness that comes from the BlackRock investment?
Richard J. Johnson - CFO: Yeah, and I think we'd just have to wait for BlackRock to release tomorrow.
Paul Miller - FBR Capital Markets & Co.: And then on consumer services, it was also strong. Was there any one-time items in there or was that just strong second quarter performance?
Richard J. Johnson - CFO: No, it's just adding customers and focused on the brokerage business, the retirement investment business, getting that to be more of in the annuity product going forward. No, that's just good growth.
Paul Miller - FBR Capital Markets & Co.: And is that a seasonal number or is that just growth because you're increasing your customer base?
Richard J. Johnson - CFO: It's clearly seasonal in the first quarter, but you can see we've got strong growth year-over-year as well.
Paul Miller - FBR Capital Markets & Co.: And is the growth coming from the RBC acquisition (itself)? I mean, can you follow up a little bit, add some color to that?
Richard J. Johnson - CFO: I would suggest that that's in there clearly, but it's not driving the number yet.
Paul Miller - FBR Capital Markets & Co.: Not driving the number. And on the mortgage side, can you talk a little bit about where you'd see the gain on sale in the third quarter or is it purely the tail? We've seen rates go up. It looks like switching to more of a purchased market to refi market and how you fit into that?
William S. Demchak - President and CEO: Yeah. Well, look, like everybody else we expect it to decline – its volumes decline and capacity and volume start matching. Now, one thing that benefits us and you see it on our printed numbers versus peers going back through time is the fact that we're kind of retail only not through correspondent channels. So, that will help us and we have been focused on purchase and have grown purchase, my guess would be at a pretty good clip relative to peers and as a total percentage of the origination. So, that will help, but it's going to decline – total asset decline, we'll wait and see how much that is, but we feel pretty good on a relative basis as to where the Company is positioned. They've done a good job reconfiguring the old National City mortgage.
Paul Miller - FBR Capital Markets & Co.: Have you been able to put lenders down South, I mean, one of the discussion about RBC didn't have a lot of product offerings. Are you able to get stuff down there too?
William S. Demchak - President and CEO: Yeah. We have full product and client teams in all the markets down there and have had sort of six months after we closed the thing, we're basically up and running and we've been – during my comments, we've been growing clients across all lines of business, including wealth where they had literally nothing. They didn't have a single employee, but the reception on the corporate side, wealth and retail where growing clients is pretty good and by and large, we find those markets particularly on the retail side to be less competitive than some of our other markets on an a commercial corporate side, no more competitive than the other markets.
Operator: John McDonald, Sanford Bernstein.
John McDonald - Sanford C. Bernstein & Co., LLC: Rick, could you give us a little more color why the provision came in better than expected this quarter and why you see it going up a little bit next quarter?
Richard J. Johnson - CFO: Yeah. We just – during the quarter, we didn't quite see as much growth as we're expecting in the loan book. We did have good growth, but it wasn't as much as we were hoping for. Then, I think if you take a look at the charge-off line as it relates to the commercial book, they were extremely low in the quarter. So, therefore, the pace of the improvement in credit quality in the commercial bank is much more than we had anticipated. Now, going forward, we just think that, that pace of growth is going to ease a bit from where it is today, and we think we're going to continue to add credit exposure, net credit exposure to the portfolio overall. As a result, we've hedged our guidance back to the 170 to 250 range.
John McDonald - Sanford C. Bernstein & Co., LLC: So, the form it would take would be just smaller reserve release with charge-offs price still improving?
William S. Demchak - President and CEO: Well, charge-offs on the commercial side were particularly low. That's kind of our issue. We don't operate the business. We don't think of a business running at those levels in the near term. It's great if they do and we hope they continue, but it's not really indicative of what we would say it's in our book.
Richard J. Johnson - CFO: So, I would expect to see additional commercial reserve release, but I would not expect any on the consumer side.
John McDonald - Sanford C. Bernstein & Co., LLC: On the put back provision, have both Fannie and Freddie now looked back to the early 2003 – so just trying to gaze any room for additional surprises here or changes in their behavior?
Richard J. Johnson - CFO: Well, they did approach us in November. They asked for about 8,000 files. They came back in May and asked for something like 10,000 files. So they had actually upped their interest in the files related to the old Nat City originations. We hope they are done.
John McDonald - Sanford C. Bernstein & Co., LLC: Okay. Then one, bigger picture question, return on assets 1.49% this quarter, are you close to your target? Just kind of thinking about how does that improve over time and what your longer term target of where you'd like to see ROA headed?
Richard J. Johnson - CFO: John, I think in the past we've said we wouldn't hit 1.5% without some help from rising rates and that we've got at this quarter but in a different kind of way, the impact on some of the assets yields and so on. I still think we still need to have a higher rate environment to exceed 1.5% over time.
Operator: Todd Hagerman, Sterne, Agee.
Todd Hagerman - Sterne, Agee & Leach: Just a couple of questions. First, just a follow-up on mortgage. I think, Rick, you mentioned in terms of like the MSR or the servicing rather (indiscernible) not to continue. But I guess kind of a broader question is, the company was fairly positive in terms of the outlook for mortgage coming into the beginning of the year, fell short a little bit in Q1. Obviously, Q2 is kind of not what was expected. But given the commentary we've heard from some of your peers, I'm just trying to get a sense or reconcile between the increased capacity, perhaps more capacity on the HARP side. If you can get a better read in terms of the back half of the year all else being equal kind of where you see this trending, particularly like the servicing, for example, has been trending lower at a clip much faster, so to speak, relative to expectations at this point in the cycle?
Richard J. Johnson - CFO: Well, actually, let me point out in Q2, actually, we were quite pleased. We had $4.7 billion in originations. Margins stayed flat at about 4%, 10% increase in origination revenue. We are pleased with that. But you're right, we do expect those volumes to fall off in the second half of the year and the margins to go with it, as Bill mentioned a minute ago. I don't if Bill you have further to add to that.
William S. Demchak - President and CEO: I think that it's hard to argue that applications for the industry aren't going to fall with higher rates. So that's going to happen. We feel pretty good about our position in inside of that decline in apps, but like everyone else. As we go through this, we're also going to have to make our engine a little more efficient and take capacity out on the cost side, and I think you'll start seeing people start to talk about that.
Richard J. Johnson - CFO: While refinance is going down, our percentage of purchase mortgage this quarter was 28%, which is pretty high relative to others.
Todd Hagerman - Sterne, Agee & Leach: Where did you end the quarter in terms of the forward pipeline relative to March?
William S. Demchak - President and CEO: I don't have that number in front of me.
Richard J. Johnson - CFO: It's obviously a little softer.
William S. Demchak - President and CEO: I would tell it's not lower by the same big percentage as I've heard (indiscernible).
Todd Hagerman - Sterne, Agee & Leach: Then just finally perhaps, a little bit more on the debt side, borrowing costs perhaps didn't come down as much as expected, some of that timing. I know that you've talked about in the past in terms of leverage on your wholesale borrowings, if you will. I'm just curious kind of as you look out at the back half of the year, how rates have – on the long end have moved as they have in terms of order of magnitude. What kind of leverage can we really expect in the back half of the year as you noted, some of the debt was replaced here in the first half and how should we think about that in the back half of the year and the leverage on the borrowings?
William S. Demchak - President and CEO: I'm not sure I quite follow the leverage on the borrowings comment, but just on the…
Todd Hagerman - Sterne, Agee & Leach: I'm thinking about the spread and just in terms of leverage on your borrowing cost at this point?
William S. Demchak - President and CEO: Well, I mean a couple of things, the vast majority of the investment that we did in the back, fairly a couple of weeks of the second quarter were forward settling. So, you're going to see stuff show up later in the third quarter and into the fourth quarter where you'll start seeing the improvement in income from the balances. The simple math is, we're rolling off balances as they mature at 3% plus in yields and replacing them at 2.75%, but we're very underinvested relative to what we should be in terms of the value of the deposits we hold. So, we have a lot of room to put money to work at more rational rates, and rates today, they're rallying a bit today, but rates today are still almost 100 higher in the tenure than they were in the tights at the beginning of the second quarter.
Todd Hagerman - Sterne, Agee & Leach: I guess, part of the question was really the fact that you did introduce some debt here in the first half of the year, but I guess, I'm more sensitive to – with the scheduled maturities in the back half and certain opportunities you may have otherwise, would we expect some of that to just roll off without being replaced?
William S. Demchak - President and CEO: So, just dropping our cost funding on wholesale borrowings? Is that where you're going?
Todd Hagerman - Sterne, Agee & Leach: Yeah. Again, I mean, there's scheduled maturities and other opportunities within the debt but…?
William S. Demchak - President and CEO: I think by and large, and Rick can comment on it, that we've kind of played out the ability to drop our cost of funding. You'll see us change our mix of funding perhaps as we look at bank notes and other things that we want to do as we get ready LCR, but I don't think you're going to see a big change in the cost of funding. For us, it's really an issue of what's going on in the asset side, how we choose to invest in fixed rates through the rate cycle and our ability to grow loans at a decent risk-adjusted return, albeit while credit spreads in general continue to decline. That's the game we and every other bank in the country are playing right now.
Operator: Moshe Orenbuch, Credit Suisse.
Moshe Orenbuch - Credit Suisse: Just really following up on that last one. I mean, most other banks have kind of sounded a little more hesitant to invest their liquidity at this point in the cycle than you and maybe I'm reading in too much. So, correct me if that's not right. But could you talk a little bit about your thought process there?
William S. Demchak - President and CEO: Yeah, sure. Look, we're not at all thinking we're going long in this market, but we had literally gotten to the point where we were running everything off and not replacing anything off of what was already a short position. So, simple prudence given the backup in rates, at least has us replacing run-off, particularly run-off and then sales that occurred in the second quarter. So, it's not as if we're going to out and think this is dependency and we're buying the market here. But it is enough of fair or higher than simple prudence suggest that we ought to replace some and that's what you'll see us doing.
Richard J. Johnson - CFO: And in that regard, our duration of equity is still negative, what, three or three-and-a-half years, something like that. So, it's still pretty short.
Moshe Orenbuch - Credit Suisse: And separately, just on mortgage gain on sale. I mean, I know that you kind of didn't want to talk about where it's running in the third quarter, but any thoughts about where it ended the quarter versus the average, just any kind of look into that?
Richard J. Johnson - CFO: No. Towards the end of the quarter, it was probably close to the 3.5% as opposed to 4%. So, it was coming down in terms of the overall margin.
Operator: Erika Penala, Bank of America.
Erika Penala - Bank of America Merrill Lynch: My first question is a follow-up on your expense guidance. Rick, you said full year expenses in 2013 lower by 5% year-over-year. Is that a core number excluding some of the TruPS redemption, charges and merger charges or is that off of the reported number?
Richard J. Johnson - CFO: That is a reported number and as you know, the TruPS and integration and all that will be effectively 5% and we are going to beat that. So, we are going to be below $10 billion.
Erika Penala - Bank of America Merrill Lynch: Just one more question on the margin. Relative to your core loan yields of 3.77, if you look at your production pipeline, what's your replacement yield on the loan book?
Richard J. Johnson - CFO: It really depends on the business. I mean asset-based lending is still getting good returns; commercial real estate is still getting good deals. If we are adding it to our conduit, which is basically the securitization activities that's very high quality paper, but you're probably only seeing 150 basis points or even less. So, it really depends on the mix of the book.
William S. Demchak - President and CEO: I guess what we see and we hear from the businesses is that the trend line in credit spread decline hasn't really changed, right? They've been kind of grinding in a couple of handful of basis points a quarter and that continues and notwithstanding, the noise that you see in the reported numbers in the second quarter, the trend didn't really change in terms of what we are originating in credit spread.
Erika Penala - Bank of America Merrill Lynch: Just one more strategic one, Bill, if I can. Clearly, there is a lot of news out there about a large European bank looking to sell a large bank in your neighborhood and I guess, I'm wondering given your emphatic response earlier in the call about increasing capital return next year is looking at this deal, total nonstarter for you or would you potentially think about maybe liquidating your BlackRock stake and consider doing something like this in your backyard, given the implication for cost savings?
William S. Demchak - President and CEO: No.
Operator: Ken Usdin, Jefferies.
Ken Usdin - Jefferies & Co.: Just one more follow-up on the fee side and the outlook. There's a lot of moving parts and I know you put this below the line type of stuff in there but, just a little bit confused on what you're actually saying about what fee bases you grow off of. Is it just that $1.294 billion piece that grows or because the other – I guess the question is, what happens with the other line that you put below the line?
Richard J. Johnson - CFO: Yeah Ken, if you go to Slide 7 of our presentation, we have fee income of $1.294 billion, that's up from $1.251 billion on the first quarter. We're basically saying that we will grow fee income solidly from the $1.294 billion.
Ken Usdin - Jefferies & Co.: Then could you just give us a little context then of what's the driver underneath the other, and why that wouldn't grow?
Richard J. Johnson - CFO: Well, I don't think unless the opportunities present themselves, we're going to have a lot of net gains on securities, given where rates have moved to potentially as we consider monetizing Visa, we could have further gains there over time, but that's hard to predict. Then within the $372 million, you have about $35 million due to rates going up on our client hedging activities in the credit exposure related to that, the CVA, I'm not expecting that to repeat. So, I think that number will be lower, but if you take that other category, typically we say that's about $250 million to $300 million is what you can expect out of us, maybe a little higher than that, maybe we should be pushing that up to ($275 million to $300 million) in a quarter given the growth in the Company.
Ken Usdin - Jefferies & Co.: The other question I have is just a follow-on. BackRock, last quarter or intra-quarter, there was a lot of back and forth just in the market and I just wanted to give you guys the opportunity again just to level set everybody on just your thoughts around where you stand there and then what path would eventually need to be taken for you guys to even get to a point where you'd consider some optionality, exercising some optionality on the BlackRock stake?
William S. Demchak - President and CEO: We've said the same thing for a long period of time. BlackRock has been a phenomenal partner and investment for our Company. I wish we had this issue five times over inside of the things we own. Having said that, we've recognized that through time BlackRock has become more of an investment than a partnership. We've recognized that we have a large position that need to be cognizant of because it takes up a big chunk of our capital in our balance sheet. We currently like the returns that we get from it. We know that because of the low tax based in that ownership that an outright sale of that entity is not friendly for shareholders. So, sort of the best thing I could say to you is that you should think of us as rational stewards of your capital. We look at that position and think of ways to optimize it. There is nothing currently on the table that we're contemplating that would do better for you than simply owning it today and that's where we are. But we look at it all time as you would expect us to in any position we would hold that would be that large.
Operator: Jack Micenko, SIG.
Jack Micenko - SIG: Most questions have been asked and answered, but I wondered if we could just go to the expense commentary, on track to exceed continuous improvement in the slide deck and then commentary, you said about $600 million annualized. Does exceed mean dollars, meaning there is more than a $100 million more to go of opportunity or does exceed mean timing in terms of just realizing it sooner and then remind us – I believe most of the RBC expenses were more front-end weighted there, but is there anything incremental on the RBC side still to go on the expense side?
Richard J. Johnson - CFO: No, the RBC was already baked into our investments for the year. Just you had $150 million in 2013 which is the full year running rate of what we invested in 2012, but we do plan to exceed the $700 million. We haven't quantified by how much, and I think that will contribute to the fact that we are going to exceed a 5% decline in year-over-year reported expenses.
William S. Demchak - President and CEO: I mean, I would tell you Rick continues to hedge his expense guidance a little bit. It's getting a little more bullish that – I mean originally I think we've said we would be flat core. Now, we are saying we're flat to down and we'll be little more than 5%. The practical truth is that the Company has really gotten behind the notion that we need to drive a more efficient organization and we continue to be positively surprised by what we're seeing on the day-to-day roll-up of numbers whether it's headcount or outright expenses. So, our guidance is what our guidance is, but I like what I am seeing. I like to work the Company is doing. I like the fact that the employees have kind of gotten a bit between their teeth and have taken this seriously and we are encouraged by it.
Jack Micenko - SIG: So, going forward, is it CIP 2.0 or is it just, hey, expense guidance is down X% or whatever from here?
William S. Demchak - President and CEO: What did you say to him – we're going to be down by more…
Richard J. Johnson - CFO: Reported expenses will be down year-over-year by more than 5%.
Jack Micenko - SIG: Fair enough, guys. Thanks.
William S. Demchak - President and CEO: And very nickel we can find beyond that, we'll find.
Richard J. Johnson - CFO: Exactly.
Operator: Matt O'Connor, Deutsche Bank.
Matt O'Connor - Deutsche Bank: Just going back to the size of the securities book and just the capacity that you have to add over time, and I realize that you wouldn't do this, this quarter or next quarter, but just conceptually, if you wanted to get back from this negative three year duration of equity, I think you said, to zero or negative one year, what's like a long-term goal for that and what would that mean in terms of adding securities or adding swaps to your current position?
William S. Demchak - President and CEO: Well, just a couple of comments on the book. One of the things, you will have noticed if you've done the peer comparisons. If you look at our – when we put our after-tax loss out, but if you look at the pretax equivalent of that against the notional of our book you'd come to the conclusion that it's a very short duration book. As we've said before, a big chunk of that is floating. So, don't get hung up on the notional of the book relative to what we would do in terms of closing the duration gap on equity. With respect to outright buy volume that we could do to get to a positive duration of equity, all I would tell you is it's a substantial amount. There's been times in our history, in fact, we got this really right going into the rate rally post the crisis. I think our duration of equity was north of what Rick, three or four years.
Richard J. Johnson - CFO: Yeah, exactly.
William S. Demchak - President and CEO: So, there's a lot of room to go from here, and big impact ultimately on NII when and if we get to that point, but we haven't put out and I'm not going to quantify what a year's worth of duration of equity is in terms of security balances.
Richard J. Johnson - CFO: But what you can take away is just based upon the portfolio activity we did in the second quarter and the investments we've made to-date that are going out to the third and fourth is you can expect about $1.5 billion to $2 billion increase in average security balances going into the third quarter.
Matt O'Connor - Deutsche Bank: And there'd be some additional securities settling in the fourth quarter then?
Richard J. Johnson - CFO: Correct, and some swaps that are going to settle in 2014 which will also net interest income over time.
Matt O'Connor - Deutsche Bank: Meaning the swaps that settle in 2014 are currently a drag?
William S. Demchak - President and CEO: They're not a drag.
Richard J. Johnson - CFO: It's just not there.
William S. Demchak - President and CEO: When we reinvested the proceeds, basically the drop price on a forward settled security and/or starting swap, the implied financing – for your details, the implied financing price of settling that forward was negative. It was big yield pickup to start forward, so that's what we did.
Matt O'Connor - Deutsche Bank: So, just – I mean, in summary there, you had some swaps roll off in 2Q. You replaced them with some swaps that will kick in 2014 and boost the net interest income then?
William S. Demchak - President and CEO: Yeah.
Richard J. Johnson - CFO: Yeah, I think the most important thing is, we will have loan balance increases in the third quarter versus the second; we'll have security balance increases in the third versus the second. And in both loans and securities, the yields will be down. But to the tune of where purchase accounting accretion will close, you'll have a modest decline in net interest income.
Operator: Stephen Scinicariello, UBS.
Stephen Scinicariello - UBS: Yeah, just real quick, just given the strong loan growth that we saw in the quarter, I mean, up 1.75% with C&I up 3%. Just kind of curious what were really some of the strong drivers there and how sustainable – I know the guidance is for modest growth, but how sustainable are some of these kind of underlying trends that you're seeing just as you look ahead?
William S. Demchak - President and CEO: On the Commercial side, we continue to benefit from the verticals in the specialty lending. So, you saw growth in asset-based lending. Interestingly, some of that growth coming on the back of utilization increases, which is the first time in a long time we've seen that and you see growth in real estate balances largely as a function of utilization increases as projects fund up and get completed although we had good origination there as well. Specialty lending in some of the verticals in healthcare and public finance, our equipment leasing business, we feel pretty good about the activity in those businesses. If we were relying on pure plain vanilla senior secured commercial middle market, I'd have a different take on what we could do, but the specialty stuff continues to play out for us.
Richard J. Johnson - CFO: I think we're also on the Consumer side – this is the first time we've seen an increase in home equity, net home equity balances I think as housing prices have rebounded a bit, people are getting a little bit more equity in their home and able to borrow against that. So, that was good to see that balance. We haven't seen that in several quarters.
Stephen Scinicariello - UBS: Just sounds like you're being a little conservative maybe on the modest growth outlook perhaps or what would be some of the constraining factors then?
William S. Demchak - President and CEO: We'd hoped we'd be able to grow faster at a good risk-adjusted return. I would tell you that the market, certainly in certain sectors is getting increasingly competitive and there's areas where we're choosing to walk away given the spread or structure on a loan, where a half ago, we wouldn't have, because you'd have been paid better for it. So, that's probably the constraint – is just relative competition in the degree to which the credit markets get overheated here.
Richard J. Johnson - CFO: Plus, we still have run-off in the education lending, you've got run-off in the non-strategic assets – residential mortgage. So, I think you're going to see balance that are putting pressure downward as well.
Operator: Matthew Burnell, Wells Fargo.
Matthew Burnell - Wells Fargo Securities, LLC: Just a follow-up on the last question in terms of borrower demand, I guess, I'm just curious as to whether or not you saw a meaningful decline in borrower demand as rates were going up in June and if you did, if you saw an improvement in demand heading into July particularly in some of the verticals that you mentioned, where you've seen, somewhat stronger growth?
William S. Demchak - President and CEO: We didn't – in terms of fundings and pipelines, I don't know that you'd saw – anecdotally, when the rates first spiked, you'd hear a lot of comments of kind of deer in the headlights and people just choosing not to make a decision, but in terms of just volumes, I don't know that, that necessarily flowed through anything. We did see less so in our books, given the business we're in, but you know, on the leveraged credit side in high yield and the larger syndicated leveraged loans, we always saw a complete freeze in the market when rates went up, as people were trying to react to that, but that didn't really impact us.
Matthew Burnell - Wells Fargo Securities, LLC: Then, just a couple of housekeeping questions. Rick, I think you said that – if I heard you correctly, the portfolio duration of the AFS portfolio, you said, I believe was between 3 and 3.5 years now, is that, did I hear you correctly?
William S. Demchak - President and CEO: The duration of equity.
Richard J. Johnson - CFO: I'd say, yeah that's the duration of equity, and that was a negative – the securities portfolio is about 2.5 to 3 years.
Matthew Burnell - Wells Fargo Securities, LLC: Okay, so that really hasn't changed much since the end of the first quarter?
William S. Demchak - President and CEO: No. That's right.
Matthew Burnell - Wells Fargo Securities, LLC: Then, I noticed in the home equity portfolio. It looks like recoveries improved pretty visibly quarter-over-quarter at the highest level in more than a year. Net charge-offs in that portfolio continue to come down. But nonperforming asset balances are up about nearly 60% year-over-year. Is there something going on there or is that more due to just the regulatory guidance?
Richard J. Johnson - CFO: Well, keep in mind that the decline in the charge-offs in the home equity was because of the policy change we made in the first quarter and that hit home equity as well as residential mortgage and in total, that was about $134 million. So, the first quarter was inflated, I guess, is that I would say and obviously, it's kind of come down in terms of charge-offs. On nonperforming, you've got – we're seeing a little bit of risk in the home equity. I think you've seen that nonperforming number going up each of the last five quarters.
William S. Demchak - President and CEO: But inside of nonperforming we have those same (indiscernible) balances, right?
Richard J. Johnson - CFO: We do.
William S. Demchak - President and CEO: Yeah. So, it has been the change in what is considered nonperforming, which has caused some of that increase.
Operator: Betsy Graseck, Morgan Stanley.
Betsy Graseck - Morgan Stanley: A couple of follow-up questions. One is on the Basel III final rules, so has that got done? Wondering what BlackRock was designated as, is it designated a financial institution and does that change how you think about it?
Richard J. Johnson - CFO: We've got a thousand pages we're looking through and we're studying the whole thing, but we really don't have a view right now on exactly how that's going to be handled. We're still sticking at least at the moment in the ratios we put out here for you based on the original (MPRs) and based on our understanding of that.
Betsy Graseck - Morgan Stanley: Secondly, on the expense ratio, Bill, in the past you've mentioned how part of the reason why structurally your expense ratio is higher than peers and your tax rate lowers because how you structure some of your house affordable programs, affordable housing programs, if that's the correct term for it, and just wondering is there anything, afoot to potentially changing that structure or you stick with what you got?
William S. Demchak - President and CEO: We're not changing business. It's a very high return business for us. It just looks confusing on an income statement, but the economics to shareholders are good and so we'll continue it.
Betsy Graseck - Morgan Stanley: Structure remains the same?
William S. Demchak - President and CEO: That's correct.
Betsy Graseck - Morgan Stanley: Then just lastly on the Southeast franchise, I mean, we've talked a lot about how that's been a contributor to the growth here this quarter. Could you give us a sense as to where it is on all the metrics that you managed to efficiency ratio, sales ratio, FD efficiency, all that kind of stuff, how it is ranking relative to the rest of the bank and what kind of timeframe it takes to get to rest of the bank levels? I'm basically trying to understand, are we going to be accelerating from here or is the rate of change that we experienced this quarter higher likely to persist?
William S. Demchak - President and CEO: Well, a couple of things. We don't have exact internal metrics where we'd compare efficiencies by regions, but I would tell you without having those that the Southeast is much worse than everywhere else and Rick is looking at me, I guess because of attrition accounting...?
Richard J. Johnson - CFO: Yeah, it's almost like the story at the top of the house, you get the purchase accounting accretion cost and the efficiency to be good and that's going to run off as we grow fee income and…
William S. Demchak - President and CEO: But the core activity on those markets is well below what we do in other markets and that's the opportunity set. What you see in terms of growth is interesting because we continue to run off non-core balances in the market. There is a lot of investor on real estate stuff that we just don't want, yet we have been able to do that and replace it with clients that we do like and balances that we do like. The timeline on it, we think of the Southeast as, we want to turn that into the next, you know, Philadelphia or Cleveland or big markets. So, we don't sort of – this isn't a one or two or three year gain. It's going to be a can be a long-term gain where we're in those markets and turn those markets, into markets that behave like our legacy markets, which are materially more productive today than what we see in the South. We knew that going in. We're pleased with where we've gotten to today. My guess is it will continue to improve through time, based on what we're seeing.
Betsy Graseck - Morgan Stanley: Sure, so the rate of change that we're seeing this quarter is likely to persist for a bit. I mean, obviously it's going to kind of fade out in terms of rate of change, but increase in terms of total dollar contribution to overall PNC.
William S. Demchak - President and CEO: I'd like to think so, yeah.
Betsy Graseck - Morgan Stanley: I guess, I'm just wondering, if it's possible at some point, to maybe sketch out, how you guys are seeing that rate of change in that timeframe would just be helpful. I think a lot of questions on the call have to with, as you well know the expense ratio and just triangulating to that would be helpful.
William S. Demchak - President and CEO: Fair enough. I mean, we don't – because we don't – purposely don't do regional P&Ls given some things are regional and some are centralized. We don't run the company that way, but we do look at metrics in the Southeast in terms of levels of activities and loan balances and clients and we can do better and should do better going forward to put some of those metrics out to you guys.
Operator: Nancy Bush, NAB Research.
Nancy Bush - NAB Research: A couple of questions, number one, Bill, you escaped the net of the leverage ratio, at least this time around, which applies to the top six institutions. Do you have any concerns that's going to get sort of pushed down the banking side ladder as time goes on?
William S. Demchak - President and CEO: Not particularly, they kind of came out with it and it doesn't impact us as defined and it certainly hasn't come up in sort of any of the speeches that I have heard. I would tell you – I don't know – do we put out?
Richard J. Johnson - CFO: Well, even as defined, we exceed both the 5% to 6% number.
William S. Demchak - President and CEO: Yeah. We are comfortably above where we are today and our business model would – arguably, we are not changing our business model. So, even as we grow, we continue to support those higher levels. So, it didn't cause us a lot of concern one way or the other.
Richard J. Johnson - CFO: Right.
Nancy Bush - NAB Research: On the issue of acquisitions, future acquisitions, there has been a lot of complaining in Washington because the largest banks have increased market share so much in the interim since the financial crisis and a lot of that share, of course, has been buying failed institutions which the Congress folks seem to ignore and you, of course, were the beneficiary of not a failed institution, but a marginal one, to put it nicely. Do you foresee any point at which you think you might get pushed back if you wanted to do another sizable deal? I mean are they going to sort of try to constrain the size of the banking industry as it stands right now?
William S. Demchak - President and CEO: I just don't know, right? Everybody talks about that as a practical matter. We got approval to do RBC. We haven't really focused on it because we have enough on our plate today in terms of what we are trying to accomplish and grow. So, since acquisitions really haven't been on our radar, we haven't been too sensitized to whether they would let us do or not, to be honest with you.
William H. Callihan - SVP, IR: So, I think that was our last question, Bill. Do you have any closing comments?
William S. Demchak - President and CEO: Yeah. Just real quickly, so this is – after eight years of doing these calls, this is the Rick's last time doing the call. I'll be joined in the third quarter by Rob Reilly. But on behalf of the firm, I'd just say thank you to Rick for helping us steer through what was a fairly remarkable eight years for our company in the economy and we greatly appreciate it.
Richard J. Johnson - CFO: Thank you, Bill.
William S. Demchak - President and CEO: Thanks a lot everybody. We'll see you in the third quarter.
Operator: Ladies and gentlemen, this concludes the conference call for today. You may now disconnect your lines. Have a great day everyone.