Good morning. My name is Dina, and I will be your conference 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 mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the one followed by the four on your telephone keypad.
If you would like to withdraw your question, please press the one, then the number three on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to Director of Investor Relations, Mr. Bryan Gill. Sir, please go ahead.
Hello. Thank you and good morning, everyone. Welcome to today's conference call for The PNC Financial Services Group. Participating on this call are PNC's Chairman, President, and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward-looking information, cautionary statements about this information, as well as reconciliations of non-GAAP measures are included in today's earnings release materials, as well as our SEC filings and other investor materials.
These materials are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of April 15th, 2020, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.
Thanks, Bryan. Good morning, everybody. As you've seen this morning, our results for the quarter were solid on a pre-provision basis, but the extraordinary changes in the economic backdrop occurring in March and the implications of the broad-based response to the COVID-19 breakout had a material impact on our provision for credit losses. Before we go into the financials, however, I want to acknowledge the current environment.
Obviously, this pandemic is having a profound impact on the global economy and on people's lives, and the challenges we face as a country are unprecedented. PNC, through this period, is navigating these challenges from a position of strength. We have nearly 52,000 employees who are working incredibly hard to serve our customers. We immediately mobilized to mitigate the risks to our frontline employees and implemented enhanced pay provisions for those in roles that cannot be performed remotely.
Our technology, in which we've invested heavily over time, allowed us to quickly transition to a remote work model for more than 30,000 of our employees, including those from our call center who are managing a very high call volume from the safety of their homes. Our technology also allowed us to quickly prepare for and respond to the federal government's economic stimulus package, which we are supporting through loans and other relief to consumer and business customers.
As an aside, since launching our online Paycheck Protection Program portal on April 3rd, we've received over 75,000 applications, and we have thousands of people working tirelessly to process these loan requests in accordance with the SBA's requirements, including documentation, and have registered at this point, actually as of this morning, something over $6 billion worth of these loans.
The convenience and security of our mobile and online banking tools are allowing us to continue to provide critical banking services with minimal disruption. Despite the current economic challenges, we are confident in our ability to continue to withstand strong environmental headwinds. We have solid liquidity and capital positions. We grew loans by $25 billion and deposits by $17 billion compared to the end of the fourth quarter.
While this was largely driven by draws on commercial lines of credit, as Rob's going to take you through, we have provided new loans to support key industries in our country since the COVID outbreak, including over $2 billion in new loans to hospitals and other healthcare entities, and $1 billion in new loans to municipalities. As an aside, over the last few weeks and into April, we've seen the rate of loan draws normalize.
We've seen a meaningful increase in deposits, with the growth in dollars now equal to the loan growth since the outbreak of COVID-19. We're processing thousands of forbearance and loan modification requests for consumers. To date, consumer modifications, we've had 41,000 processed, sorry, as of April 12th. Of the 41,000, 20,000 of these are bank-owned, with the remainder being for loans that we service for others. This may be the greatest challenge that many in our country have ever experienced.
Many of our clients are experienced financial hardship. Despite their uncertainties, our commitment to them is as certain as it has ever been. Our results for the first quarter are shown on slide four, and while pre-provision earnings increased 7%, the provision for credit losses of $914 million increased $693 million, reflecting the new CECL standard.
While we developed our economic scenario, Rob will provide insight on how our scenarios have been impacted by some developments and how we would fare if the situation was to become more severe. In that instance, we would still be well capitalized, highly liquid, and be able to maintain our dividend while complying with capital standards. Rob's going to take you through the income statement, but one thing I wanted to point out inside of our non-interest income is our security gains, which were higher than usual this quarter.
We realized these gains by taking advantage of some of the disruption in the fixed income markets that occurred before the Fed stepped in, and we still managed to increase our book yield on securities quarter-over-quarter. Think about it, normally you sell securities, and you replace them, and your book yield goes down. In this instance, we actually increased our book yield in securities.
Before I turn it over to Rob, I want to recognize and thank our employees who are going above and beyond every day to help our customers address the many challenges that they are facing. Additionally, our regional presidents, together with the PNC Foundation, are playing a critical role in upholding our commitment to the communities we serve by allocating critical funds to coronavirus relief efforts across our markets. With that, I'll turn it over to Rob for a closer look at our first quarter results, and then we'll be happy to take your questions.
Great. Thanks, Bill, and good morning, everyone. Our balance sheet is on slide five and is presented on a spot basis. While we typically cover our average balance sheet, we're going to focus on our spot balances this quarter due to the substantial increased activity late in the quarter related to the economic impact of COVID-19. On the asset side, loan balances of $265 billion at March 31st were up $25 billion or 10% compared to December 31st, 2019.
This growth reflected an increase in commercial loan balances of approximately $24 billion, primarily driven by higher utilization of loan commitments. Investment securities of $91 billion increased $3.7 billion or 4% linked quarter. Also, our cash balances at the Federal Reserve as of March 31st, 2020, were $20 billion, down $3.6 billion from year-end, in part due to the benefits from the regulatory tailoring rules on our liquidity effective January 1st, 2020.
On the liability side, deposit balances of $305 billion at March 31st were up $17 billion or 6% compared to December 31st, 2019. As a result, non-interest-bearing deposits grew $8.8 billion or 12% linked quarter. Total borrowed funds increased $13 billion due to higher FHLB borrowing and increased debt issuance activity during the quarter.
As of March 31st, 2020, our Basel III Common Equity Tier 1 ratio was estimated to be 9.4%, which reflected the impact of the tailoring rules, including our decision to opt out of AOCI, as well as our election to phase in CECL's impact on our estimated regulatory capital. While our capital ratios remain strong, on March 16th, 2020, we announced the temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during this time. It did not impact PNC's dividend policy.
Our tangible book value was $84.93 per common share as of March 31st, an increase of 9% compared to a year ago. Our loan-to-deposit ratio was 87% at March 31st, and importantly, our liquidity coverage ratio exceeded the regulatory minimum requirement. As you can see on slide six, commercial loan unfunded commitments declined by approximately $16 billion as customers drew down lines to bolster their liquidity or replace alternative funding channels.
As a result, our utilization rate increased from 55%- 61%. The drawdowns we've experienced are diversified across industries, and more than 2/3 of the increased utilization is from investment-grade borrowers. While drawdowns were well above normal in mid-March, we saw activity begin to slow at the end of the quarter, and that's remained the case so far during the second quarter.
That said, we do expect loan balances to be elevated for some time. Importantly, PNC is well-positioned with strong capital and liquidity, and we're committed to putting our resources to work to support our customers and the broader financial system at this critical time. As you can see on the slide, as of March 31st, we had approximately $140 billion of readily available liquidity from diverse sources.
These sources, along with substantially more availability from the Fed discount window, should it be necessary, provide ample funding to meet the potential needs of our customers. Turning to slide seven, we're working to provide relief and flexibility to our customers through a variety of solutions during this time. On the commercial side, we're offering emergency relief for small and medium-sized business loans, including those being provided through the federally enacted CARES Act.
We have received thousands of applications through the Paycheck Protection Program and have begun to fund those loans successfully, as Bill just mentioned. Additionally, we're granting loan modifications to commercial clients, primarily in the form of principal and/or interest deferrals. We're analyzing and making decisions on these modifications based on each individual borrower's situation.
With our consumer customers, we're also granting loan modifications through extensions, deferrals, and forbearance. As of April 13th, we had completed over 41,000 consumer loan modifications, primarily related to COVID-19. In addition, we're offering relief in the form of extended grace periods and halting all foreclosures while waiving certain fees and charges. As you can see on slide eight, first quarter total revenue was $4.5 billion, down $92 million linked quarter or 2%.
Net interest income of $2.5 billion was up $23 million or 1% compared to the fourth quarter, as lower funding costs as well as higher loan and security balances were partially offset by lower loan yields and one less day in the quarter. Our net interest margin increased to 2.84%, up six basis points linked quarter, in large part due to lower rates paid on deposits. Non-interest income declined $115 million or 5% linked quarter, reflecting stable fee revenue that was offset by lower other non-interest income.
Non-interest expense declined $219 million or 8% compared to the fourth quarter, with all categories essentially flat to down. Our efficiency ratio was 56% in the first quarter, improving from 60% in the previous quarter. Provision for credit losses in the first quarter was $914 million, reflecting the adoption of the CECL methodology, including the economic effects of COVID-19 and loan growth. Our effective tax rate in the first quarter was 13.7%. In light of the current economic circumstances related to COVID-19.
Naturally, we're evaluating and monitoring our entire loan portfolio. However, we believe the industry sector is likely to be most impacted are on slide nine. Our outstanding loan balances as of March 31st to these industries are $19.3 billion and represent 7% of our total loan portfolio. Corporate loan balances in these industries total $10.6 billion. Within this group, we're most focused on our exposures to retail, restaurants, and certain parts of leisure travel. In retail, total loans outstanding are $2.5 billion, 60% of which are asset-based.
Restaurant loan outstandings are $1.2 billion, and cruise lines and commercial airlines together total less than $600 million. In our commercial real estate portfolio, we have $8.7 billion in outstandings in areas most likely to be impacted by COVID-19. This includes CRE properties of $5.1 billion, 60% of which are stabilized and 40% under construction, all with a portfolio LTV of 55%. The remaining $3.5 billion of exposure is to REITs, approximately two-thirds of which are investment grade. Turning to slide 10.
This is an update on our oil and gas portfolio, given the continued pressures on the energy industry. At the end of the first quarter, we had total outstandings of $4.6 billion in oil and gas loans. We're just less than 2% of our total outstanding loans. We last updated you on this portfolio in the fourth quarter of 2016. We were relatively pleased with the performance of this portfolio through the last oil and gas downturn of 2016, especially with respect to reserve-based lending structures.
Accordingly, the growth in our portfolio since 2016 has been primarily in the upstream segments, which carry these structures, as well as the midstream segments, which tend to perform relatively well under stress. Nearly all of our losses from the 2016 downturn occurred in our services book, which has declined as a percentage of total loans from the fourth quarter of 2016, and notably, approximately $900 million or 74% of the $1.2 billion of this sector is asset based.
We will continue to monitor market conditions and actively manage our energy portfolio. Our credit quality metrics are presented on slide 11. Net charge-offs for loans and leases were stable with the fourth quarter increasing slightly by $3 million. Annualized net charge-offs to total loans was also stable with the fourth quarter at 35 basis points. Non-performing loans increased $9 million or 1% compared to December 31st, 2019. Total delinquencies declined $21 million linked quarter or 1%.
The ratios for both non-performing loans to total loans and delinquencies to total loans decreased in the quarter. As you can see, our provision for first quarter 2020 increased substantially to $914 million, reflecting the adoption of the CECL methodology, including the economic effects of COVID-19 and loan growth. Since the adoption of CECL on January 1st, 2020, we've increased our reserves by approximately $1.3 billion.
As a result, at March 31st, our allowance for credit losses, including unfunded balances to total loans, was 1.66%, and our allowance to non-performing loans was 240%. Slide 12 shows the drivers of the increase to our allowance for credit losses and ultimately our provision under CECL. Our attribution shows the increase in reserves for the CECL day one transition adjustment of $642 million, as well as portfolio changes and economic factors.
Portfolio changes represent the impact of shifts in loan balances, age, and mix, as well as credit quality and net charge-off activity. These factors accounted for $196 million of the change in our reserves for the first quarter of 2020. Economic factors represent our evaluation and determination of an economic forecast applied to our loan portfolios. To accomplish this, we use a three-year reasonable and supportable forecast period and a weighted average of four different economic scenarios at quarter end.
Importantly, each of these scenarios were designed to address at the time the emerging COVID-19 crisis. This approach provided a blended scenario as of March 31st, which when compared to the scenarios used for our transition calculation, resulted in an increase in reserves of $496 million for the first quarter. For this blended approach, we used a number of economic variables with the largest driver being GDP.
In this scenario, annualized GDP contracts 11.2% in the second quarter of 2020 and finishes the year down 2.3%, with recovery of the pre-recession peak levels occurring by the fourth quarter of 2021. Since the end of the first quarter when we finalized our CECL estimate, the macroeconomic backdrop has worsened, suggesting a deeper decline in GDP and other economic factors than what our March 31st scenario contemplated.
Should these macroeconomic factors persist, we'll adjust our blended scenario accordingly, which would likely result in a material build to our reserves during the second quarter. Additionally, for our own stress informational purposes, we considered our most extreme adverse scenario in isolation to determine a hypothetical year-end 2020 capital and liquidity impact. This scenario is even more severe than the 2020 CCAR severely adverse scenario.
It assumes a 30% annualized contraction in GDP in the second quarter of 2020, followed by another 20% annualized contraction in the third quarter, leading to a peak to trough decline of 14%. This compares to the CCAR severely adverse scenario peak to trough decline of 8.5%. To be clear, this scenario is not our expectation, nor does this exercise attempt to capture all the potential unknown variables that would likely arise, but simply provides an approximation of outcome under these circumstances.
This results in an approximately 8.5% CET1 ratio at year-end 2020, and we believe would allow us to continue to support our current dividend. In summary, looking at the remainder of the year, we expect a challenging environment as a result of the COVID-19 pandemic. We expect a significant contraction in GDP, and we expect the Fed funds rate to remain in its current range of 0- 25 basis points throughout 2020.
Clearly, the biggest variables impacting the economy will be the length of the crisis and the efficacy of the massive U.S. government support and stimulus programs. While we're hopeful the duration will be short and the government programs prove highly effective, at this time, we naturally have no way of knowing these outcomes. Accordingly, our visibility is low. Based on what we think now, we can provide a second quarter guidance and some directional thoughts for the full year.
For the second quarter of 2020 compared to the first quarter of 2020, we expect growth in average loans to be in the high single-digit range as a result of the increased spot level at quarter end, as well as additional anticipated funding needs of our commercial and consumer customers. We expect NII to be stable. We expect total non-interest income to be down approximately 15%-20%, mostly reflecting the elevated MSRs and security gains that we generated amidst the volatility during the first quarter.
We also expect some general softening in fee categories as well, particularly service charges on deposits, while we continue to waive fees for our customers during this crisis. We expect total non-interest expense to be flat to down. In regard to net charge-offs, we expect second quarter levels to be between $250 million and $350 million, up quarter-over-quarter, as we begin to experience the economic effects of the crisis. For the full year and for the reasons previously stated, our visibility is substantially limited.
With that in mind, we now expect both full-year revenue and non-interest expense to each be down between 5% and 10%. With that, Bill and I are ready to take your questions.
Thank you. At this time, if you would like to ask a question, please press the number one followed by the number four on your telephone keypad. Please hold while we compile the Q&A roster. Your first question comes from the line of Erika Najarian with Bank of America. Please go ahead.
Hi, good morning.
Hey, good morning, Erika.
Very much appreciate the comments on the extremely adverse scenario as we think about the dividend. I'm wondering, as you think about your company run test in a severely adverse scenario, I think last year, over nine quarters, you estimated losses of 4.2%. I'm wondering, you clearly pointed out the difference in unemployment rate. What's different from a negative, obviously, from that scenario of this economic outlook that we're staring down at versus the severely adverse and what's better?
I haven't thought about this.
How could the cumulative losses compare to that 4.2%?
Well, just on cumulative losses, the scenario we ran. Jump in here where you want, Rob.
Yep.
Basically had us coming up with losses of $10 billion in 2020, whereas the severely adverse in CCAR had roughly $10 billion over the nine quarters.
In our defense.
It's much more soundbite.
Yeah. No, Erika, that's exactly right. It's more severe in the sense that we front end those losses into the next nine months.
Yeah.
Whereas CCAR and DFAST contemplated that over nine quarters.
The peak to trough, what did we do on GDP?
About 14%.
Yeah. Versus eight on.
Eight and a half, yeah.
Severely adverse.
That's right. Much sharper and faster.
Yeah.
Just to clarify the question, I'm wondering what you think your cumulative losses could actually be. There's that extremely adverse scenario with that $10 billion shock in 2020, and then we have that other data point of severely adverse. I'm wondering what, based on what you know now, cumulative losses could look like.
That's an unanswerable question. What we tried to do was barbell it for you. We would tell you, and I had this in my script, that since we closed the books, we saw claims be higher than we had assumed. We changed from thinking that a V-shaped recovery was going to happen fast into more of a U-shaped recovery. That's why we kind of put comments out there that we're going to have a reserve build likely into the second quarter.
If we had perfect foresight here, the reserve true-up we would have taken in the first quarter would have effectively marked our book to current economy and future provision would simply be based on growth. It would go way down. In practice, given we're seeing the economy worsen from our assumptions, again, sort of dragging out further unemployment a little bit higher, we'll see reserve build into the second quarter.
That doesn't mean it's going to be necessarily higher than the first quarter. It doesn't mean that it's going to be lower than the first quarter.
Yeah. No comment on the magnitude.
Yeah.
The fluidity of where we are.
Yeah. Trying to give you some precise science with all of these unknowns out there, I don't think is a useful exercise. What I did think was useful was simply make it as ugly as we can make it and show that we are still highly liquid.
Well-capitalized.
At that point, 150 basis points over the regulatory minimum. We can operate in this environment.
That's the primary point.
Understood. The follow-up question is probably equally unanswerable, as I said, this is our first recession, obviously, in a CECL construct. Many management teams have noted that CECL is pro-cyclical by nature. I'm wondering if, again, we could have some sort of guardrails in terms of where reserve to loans could build to. I guess the big investor question is that, given the amount of PPNR strength and capital levels banks have, there seems to be an opportunity to anticipate the future provisions ahead of when charge-offs are recognized.
Is there something in CECL that would allow you to recognize those ahead of charge-offs and perhaps when the charge-offs actually hit, the draw on your provision costs won't be as painful? That question makes sense.
All right. Let me Yeah. That's a CECL 101 question. Basically, CECL itself, in its perfect form, if our economic predictions were correct, today, our reserve would cover the entire portfolio as it runs down, including charge-offs. Any change in provision would come from the rundown of the portfolio, upgrades and downgrades of the portfolio, and then additions to the portfolio. CECL, by its very nature, is ahead of the charge-offs.
Life of loan.
It has those embedded in that. Again, if our assumptions were correct in the first quarter, and we think that they weren't conservative enough, but if they were and we just quit lending, we're covered. That's what CECL is designed to do. In theory, if that were correct, our provision would decline through here, from the print in the first quarter through the rest of the year.
In practice, we're saying we think the economy's worse, and therefore the provision will be elevated beyond what we would provide for simple loan growth. Beyond that, we can't get any more exact.
That's right.
No, that's helpful. I appreciate it. Thank you.
Yep.
Your next question comes from the line of John Pancari with Evercore. Please go ahead.
Morning.
Hey, good morning, John.
Hey, John.
Yeah. Back to your point around the, that you can't rule out an incremental material addition to the reserve in 2Q. I know you just said it's tough to size it up. I guess, I'm trying to figure out how we could think about the magnitude. How much would the potential addition in the second quarter, how much would that have differed under your base scenario that you embedded in the first quarter provision versus that more severe scenario? Can you give us a little bit of color that way?
Well, versus the severely adverse we talked about.
Yeah.
By nine and a half billion dollars, but that's not the one we expect. Versus what's happened in the economy. Put it into context from what I've seen other people do just against charge-offs. Go back to kind of basics. I think we provided for 4.2 times or something like that our charge-offs.
That's the ratio.
In the quarter.
Correct.
That's pretty similar to what everybody's done. JPM was a little bit higher than that, I think. People are kind of right around that number. Should it have been five times? Yeah, maybe.
Nine.
Yeah. In context against what we know, if we were light, it's not orders of magnitude light, we should've been a couple $200 million more. Again, I'm making up a number here. By the way, a week from now, I could give you a different number. That's the challenge.
That's the primary point. The fluidity of the situation, John, as you know, is moving so fast. On any given day, the scenarios can change. We felt good about our estimate at March 31st. It's deteriorated from then. For the second quarter, it could move around a lot over the next couple of months, and when we go to do our CECL estimates for the second quarter, we'll factor all that in.
Yeah. I actually, notwithstanding all the magic that goes into the CECL models, I did gain some amount of comfort from the fact that at least for the big banks that have reported to date, that the numbers are kind of similar as a function of multiples of charge-offs.
Reserves are increasing substantially.
Yeah.
Got it. Okay. All right. In terms of your loan modifications, I appreciate the color you gave us on the consumer modifications. Are you starting to see restructurings or modifications on the commercial side? If you are, what amount or balances have you restructured on the commercial end?
Yeah. That's been slower. As I mentioned in my comments, John, we handle that on an individual basis with customers. There's been some of it, but nowhere near the volume on the consumer side.
Yeah. I think what's happening, think about it occurring with smaller commercial, small business clients. A lot of it real estate related, not surprised, where we're kind of deferring interest for 90 days or something. Much of it when we do it as an aside isn't actually changing the rating of the credit.
Correct.
They were good credits. They got a cash flow crunch. We're waiving interest or a payment or something, and it doesn't necessarily trigger an outright downgrade. It's kind of case by case.
Yeah.
It's going to result in losses, and that's what we're reserving for.
It's something that we've got our eye on for the second quarter. It's nowhere near the volume of the consumer.
Okay. Thank you. Appreciate it.
Sure.
Your next question comes from the line of Scott Siefers with Piper Sandler. Please go ahead.
Thank you. I was hoping to ask another question on the modification. Specifically in the $5.1 billion of consumer mods you guys have done, how does that break down between, I'm guessing it's mostly mortgages, but among the various consumer categories, where are you?
Yeah.
Seeing, and I guess, what's your sense for where that ultimately could go?
Yeah. Right now it is 80/20 investor versus bank-owned, and the vast majority of that being mortgage. The other significant category is auto, but mortgage is the largest.
Yeah. The other, I'm just looking at some numbers here. The other thing on auto is for example, we have about $300 million in auto where we've had mods, but if memory serves, we, on any given day, have half of that in the normal course.
That's right. Yeah.
Yeah. Some of these totals, we're close to $5 billion. A big chunk of that is kind of in the ordinary course of what you see in consumer. To be honest with you, we struggled a little bit to break out how much of this is really COVID related versus how much of this is basic churn in the consumer book. The majority is mortgage.
Yeah.
The majority is investor-owned.
Okay. All right. Perfect. Thank you. Then one, I guess, a little more ticky-tacky just in your other fees. A lot of private equity marks. Presumably those aren't the kind of things that will persist. Do you guys have a sense for where that other line ends up going as we look forward?
Well, that's why for the second quarter at least, I combined other with fee income, and we have the total being down 15%-20%. That's about as precise as I can get.
Yeah.
Hopefully we won't see the private equity valuation marks that we saw in the first quarter. Who knows?
Yep. Exactly. Okay. Sounds perfect. Thank you guys very much.
Sure.
As a reminder, if you would like to ask a question, please press the number one followed by the number four on your telephone keypad. Your next question comes from the line of Bill Carcache with Nomura. Please go ahead.
Hi. Good morning, Bill and Rob. I had a clarification question on your CECL methodology comments. It sounds like you're basing the allowance on economic forecasts available through 3/31.
To the extent there was deterioration in the outlook as we got into early April with expectations for unemployment and GDP growth further deteriorating, you would not be factoring in that incremental deterioration into your 3/31 allowance, even though that deterioration arguably existed at the balance sheet date because you didn't find out about it until April. Is that right?
No, the thing that changed the most was the shock that the market had on unemployment claims. The two weeks in a row where they kind of went $6 million a week, that was close to close.
Yeah.
That's the biggest change we saw. The other thing that's impacting how we think of this, the GDP decline is probably right. The unemployment decline, we need to think through how to model correctly because of the amount of government dollars that are going into unemployed pockets. The normal impact you'd see from the spike in unemployment that would drive GDP further down doesn't feel right. It's more than you want to know, but that's what we have to sort of model and think about.
That's a challenge for us in the second quarter.
Yeah.
Yeah, for sure.
As we get into the second quarter.
Yeah, I guess I was just trying to see if there's any implication that as long as the delta and expectations were to continue to deteriorate post balance sheet dates as we go forward from here, whether we can expect there to be incremental reserve building continuing even though CECL, in theory, should already be capturing lifetime losses, setting aside of course, any growth that you have to reserve for?
Yeah, but the basic notion is that reserve gets marked to your best expectations of economic outcome when you close the books.
Which is what we did.
Which is what we did and what we will do.
Correct.
All we're saying today is all else equal. What I know now, a couple of weeks post is, the economy's a little bit worse than what we assumed when we closed the books, and we'll capture that in the second quarter.
Yeah, we're mindful of that.
If we get it right in the second quarter, then there wouldn't be any more build in the third quarter.
Right.
It's as simple as that. Don't confuse that with orders of magnitude. To my point, things could just get horrific, and we've shown you the horrific number.
Yeah. The only thing that I would add to that is, and you know it, Bill, is just the fluidity of all this. It moves fast daily. We'll continue to monitor it and build it into our scenarios.
Yeah.
Got it. Thanks, Rob. That's helpful.
Yeah.
Bill, if I may, just one last follow-up on I guess the fee income growth opportunity in the period leading up to the Great Recession. You guys stood out for slowing loan growth and stepping on the gas to grow the fee income side of the business. As we look back to this recession several years from now, what do you think will stand out about the way that PNC handled itself, both in the period leading up to and during the recession?
I think without question, our loan book is going to stand out. We've said this forever. We haven't changed our credit box. We're going to have losses, but they're going to be losses that you would otherwise expect for the way we talk about our credit. I think in an environment like this, I always say the cost of goods sold actually becomes known to people.
Yes. Right.
I think that stands out. I think our willingness to extend capital intelligently to clients is going to stand out as it did in the crisis. We have an opportunity to grow good clients and support existing clients with our liquidity and capital. We are going to do that. We do have, as you know, some very stable fee streams. In particular, our treasury management business, which is doing fantastically well and is very stable and will support us through this.
We have for the quarter and probably for the next quarter or so, our capital markets activity has been very strong. I think we're in a really good position. We sit as a management team here working tirelessly to support our clients and with mixed emotions in the sense that this is the environment we run our company for, right? Our company is built around being able to support people and grow when everybody else falters.
That's super helpful. Thanks, Bill. Thanks, Bill and Rob. That's super helpful.
Yep. Thanks, Bill.
There are no further questions.
Okay.
All right. Well, thank you everybody. Stay safe.
This concludes today's conference call. You may now disconnect.