PNC (PNC) Q1 2026 Earnings Call Transcript

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DATE

April 15, 2026, 10 a.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — William S. Demchak
• Chief Financial Officer — Robert Q. Reilly

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TAKEAWAYS

• FirstBank acquisition impact -- The FirstBank transaction added $15 billion in loans and $22 billion in deposits, directly influencing overall balance sheet growth.
• Loan growth -- Average loan balances reached $351 billion, up $23 billion, or 7%, sequentially, reflecting a three-year high in organic loan growth.
• Deposit balances -- Average deposits rose $19 billion, or 4%, to $458 billion, with DDA accounts comprising 22% of the total.
• Tangible book value -- $109.42 per common share, down 3% sequentially due to the acquisition, but up 9% year over year.
• CET1 ratio -- Estimated at 10.1%, a decline of 50 basis points since year-end 2025, primarily from the acquisition and loan growth.
• Net interest margin -- 2.95%, up 11 basis points from the previous quarter, with management expecting to exceed 3% in the second half of the year.
• Net interest income -- $4.0 billion, increasing $230 million, or 6%, sequentially.
• Total revenue -- $6.2 billion, up $94 million, or 2%, quarter over quarter.
• Noninterest income -- $2.2 billion, down $136 million, or 6%, sequentially.
• Noninterest expense -- $3.8 billion, up $165 million, or 5%, sequentially, including $97 million of integration costs; excluding integration, up 2%.
• Net income -- $1.8 billion, or $4.13 per common share; $4.32 per share when adjusted for integration costs.
• Provision for credit losses -- $210 million, with allowance totaling $5.5 billion, or 1.52% of total loans at period end.
• Return of capital -- $1.4 billion returned to shareholders comprising $700 million each in dividends and share repurchases, with ongoing repurchase expectations of $600 million to $700 million quarterly.
• FirstBank integration expense outlook -- $325 million of total merger and integration costs anticipated, with $98 million recognized and roughly $150 million expected in the second quarter.
• Basel III RWA outlook -- Management expects a 10% reduction in risk-weighted assets (approx. $45 billion to $50 billion) under both frameworks.
• Credit quality -- Nonperforming loans increased $25 million, representing 0.62% of total loans, down from 0.67% prior quarter; net charge-offs at $253 million, with $45 million related to acquisition accounting.
• NDFI loans -- 90% rated investment grade or equivalent, 80% of business credit intermediaries category composed of asset securitizations, and $7 billion in CLOs mainly in AAA senior tranches; management expects "zero losses going forward."
• Expense management initiative -- Ongoing cost reduction goal of $350 million for 2026, separate from acquisition-related synergies.
• Revenue and expense outlook Q2 2026 -- Loans expected to rise 2%-3%, net interest income up ≈3%, total revenue up ≈3.5%, noninterest expense (excluding integration) up ≈2%, and net charge-offs forecast at about $225 million.
• Full-year 2026 guidance -- Loans expected up ≈11%, net interest income up ≈14.5%, total revenue up ≈11%, noninterest income up ≈6%, and noninterest expense (excluding integration) up ≈7%.
• Tax rate guidance -- Full-year effective tax rate projected at approx. 19.5%.

SUMMARY

PNC Financial Services Group (NYSE:PNC) reported that the FirstBank acquisition significantly expanded its loan and deposit bases, comprising a major part of the sequential growth. Management outlined that ongoing investment in branch expansion and technology, alongside disciplined capital returns, remain central to its strategy. Revenue growth was primarily driven by increased net interest income, aided by both the FirstBank acquisition and lower funding costs. Noninterest income declined sequentially but grew strongly year over year, signaling variable fee trends across business lines. Credit quality remained stable, with the allowance and nonperforming metrics reflecting a benign loss environment and management confidence in low-risk NDFI portfolios.

• Management stated, "we expect total revenue to be up approximately 11%" for 2026, anchored by double-digit loan growth and robust net interest income projections.
• Deposit growth was attributed to retail client acquisition and digital expansion, complemented by the opening of eight new branches with plans for 55 in total for the year.
• Guidance for expense increases includes $325 million in merger and integration costs, with most recognized in the first half, and targets $350 million in cost reductions from ongoing improvement programs apart from acquisition synergies.
• Management commented that a potential 10% RWA reduction under Basel III "is a nice problem to have," and final capital deployment decisions will await regulatory clarity.
• Leadership directly addressed sector concerns around nondepository financial institutions, stating, "We feel very good about the risk content of our NDFI loans and, based on the composition of these low-risk assets, expect zero losses going forward."

INDUSTRY GLOSSARY

• NDFI (Nondepository Financial Institution) loans: Loans to financial entities that do not accept deposits, such as finance companies, business development companies, and specialty lenders; at PNC, these are largely investment-grade, collateralized structures including securitizations and CLOs.
• CLO (Collateralized Loan Obligation): A structured fixed-income security backed by a pool of corporate loans, typically issued in tranches with varying risk profiles; senior tranches hold priority claim on collateral and repayments.
• Business credit intermediaries: Regulatory reporting category for loans to businesses that facilitate credit intermediation, including asset and trade receivable securitizations, in which PNC has significant participation.
• PPNR (Pre-Provision Net Revenue): Income before provision for credit losses and tax, a common line item used to assess underlying bank profitability.
• Integration expense: One-time costs associated with merging operational platforms, systems, and personnel following a corporate acquisition.

Full Conference Call Transcript

Bill Demchak: Thank you, and good morning, everyone. As you have seen, we are off to a really strong start this year. We achieved a great deal this quarter and we continue to build upon the strength of our franchise. We completed the acquisition of FirstBank early in the quarter and we are well on our way to a mid-June conversion. Our financial performance was solid. Organic loan growth hit a three-year high, net interest margin expanded meaningfully, and we had 13% year-over-year fee income growth. Credit quality remains strong, and we returned significant capital to shareholders. Importantly, beyond the financial results, we continue to see strong momentum across our businesses with notably increased client activities.

We continue to make meaningful investments in our technology and our branch network. While we recognize that there are many market concerns out there—from energy prices to AI to private credit—we are not seeing anything that suggests these issues are broadly impacting our customers or our credit quality in the near term.

Specifically regarding the increased attention on banks’ exposure to nondepository financial institutions, Rob is going to walk through some of the details as it relates to our exposure, but the sound bite you ought to walk away with here is that we do not see any loss content in this book and certainly do not see any exposure to a systemic event, which, by the way, we do not expect. But were there to be one, a systemic event in private credit, I cannot speak to what other banks have in this category as the definition seems to capture random things.

We are very outsized in our corporate receivables financing relative to others, which is a low-spread business with negligible risk. Importantly, the bulk of our loans actually have nothing to do with private credit despite the regulatory category in which they reside. Overall, our focus remains on disciplined execution of our strategy, which is clearly reflected in our results this quarter. Looking ahead, we are entering into the second quarter with a lot of momentum, and we continue to be excited about the opportunities in front of us. Finally, as always, I want to thank our employees for everything they do for our company and our customers.

With that, I will turn it over to Rob to take you through the numbers. Rob?

Rob Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis. As Bill mentioned, during the first quarter, we successfully completed our acquisition of FirstBank, and as a result, our overall balance sheet growth includes the impact of the acquisition, which represented $15 billion in loans and $22 billion in deposits. For the linked quarter, loans of $351 billion grew by $23 billion, or 7%. Investment securities of $145 billion increased $2 billion, or 2%. Deposit balances were up $19 billion, or 4%, and averaged $458 billion. Borrowings increased by $3 billion, or 4%, to $63 billion.

Our tangible book value was $109.42 per common share, down 3% linked quarter due to the acquisition, but up 9% compared with the same period a year ago. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.4 billion of capital to shareholders. Common dividends and share repurchases were approximately $700 million each, and we continue to expect quarterly repurchases to be in the range of $600 million to $700 million going forward. We remain well capitalized with an estimated CET1 of 10.1%, down 50 basis points from year-end 2025. The decline was primarily driven by the FirstBank acquisition, accounting for roughly 40 basis points, with the remainder attributable to strong loan growth.

Regarding the recent Basel III proposal, we expect the changes to be a net positive for our CET1 ratio relative to the current framework. Our initial assessment reflects a reduction of approximately 10% of our RWAs, or $45 billion to $50 billion. The reduction amount is the same under both the revised standardized and the expanded methodologies, in line with our previous expectations. Slide 5 shows our loans in more detail. Loan balances averaged $351 billion in the first quarter, an increase of $23 billion, or 7% linked quarter. The growth reflected both higher commercial and consumer balances. Compared to the same period a year ago, average loans increased $34 billion, or 11%.

The total average loan yield of 5.5% decreased 10 basis points linked quarter. On a spot basis, loans increased $29 billion, or 9% from year-end, including $15 billion from the FirstBank acquisition and $14 billion of growth in legacy The PNC Financial Services Group, Inc. loans. Specific to our legacy business, C&I loans increased $15 billion, driven by broad-based growth across businesses, reflecting strong new production and higher utilization rates. CRE balances reached an inflection point and increased approximately $100 million; we expect moderate growth through the remainder of the year. Consumer loans declined $1 billion due to lower residential mortgage balances. Slide 6 covers our deposit balances in more detail.

Average deposits were $458 billion, up $19 billion, or 4%, driven by the addition of FirstBank balances partially offset by a reduction in brokered CDs. Excluding those items, deposit trends were consistent with typical seasonality as growth in consumer balances more than offset a seasonal decline in commercial deposits. DDAs continue to represent 22% of total deposits. Our total rate paid on interest-bearing deposits decreased 18 basis points to 1.96% in the first quarter, reflecting lower rates. Turning to Slide 7, we highlight our income statement trends comparing the first quarter to the most recent fourth quarter, and again including the impact of the FirstBank acquisition. Total revenue was $6.2 billion and grew $94 million, or 2%.

Noninterest expense of $3.8 billion increased $165 million, or 5%, of which $97 million was integration expense. Excluding integration costs, noninterest expense increased 2% and PPNR grew 1%. Provision was $210 million and our effective tax rate was 19%. As a result, our first quarter net income was $1.8 billion, or $4.13 per common share, and $4.32 when adjusted for integration costs. Turning to Slide 8, we detail our revenue trends. First-quarter revenue increased $94 million, or 2%, compared to the prior quarter. Net interest income of $4.0 billion increased $230 million, or 6%. The growth was driven by the addition of FirstBank as well as lower funding costs and commercial loan growth.

Our net interest margin was 2.95%, an increase of 11 basis points. Noninterest income of $2.2 billion decreased $136 million, or 6%. Inside of that, fee income decreased $44 million, or 2% linked quarter. Looking at the details, asset management and brokerage increased $9 million, or 2%, due to higher average equity markets and client activity. Capital markets and advisory revenue declined $26 million, or 5%, reflecting lower M&A advisory activity off elevated fourth-quarter levels, partially offset by higher underwriting and trading revenue. Card and cash management increased $5 million, or 1%, as higher treasury management revenue was partially offset by seasonally lower credit card activity. Lending and deposit services decreased by $2 million, or 1%.

Mortgage revenue decreased $30 million, or 20%, largely attributable to a $31 million decline in MSR valuations given the heightened rate volatility during the quarter. Other noninterest income of $125 million included $32 million of Visa derivative costs, as well as negative private equity valuations, partially offset by $28 million of net securities gains. Compared to the same period a year ago, we demonstrated strong momentum across our franchise. Importantly, fee income grew $240 million, or 13%, driven by broad-based growth in our businesses. Turning to Slide 9, first-quarter expenses increased $165 million, or 5% linked quarter, which included $97 million of integration costs.

Noninterest expense excluding the impact of integration expense increased $68 million, or 2%, as the addition of FirstBank’s operating expenses more than offset lower legacy The PNC Financial Services Group, Inc. expenses. We remain focused on expense management, and as we have previously stated, we have a goal to reduce costs by $350 million in 2026 through our continuous improvement program, which is independent of the FirstBank acquisition. This program will continue to fund a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 10. Overall credit quality remains strong.

Our NPL and delinquency ratios each improved on both a linked-quarter and year-over-year basis, reflecting the strong credit quality we continue to see across our portfolio, and the linked-quarter growth in balances was entirely attributable to the addition of FirstBank. Nonperforming loans increased $25 million, or 1%, and represented 0.62% of total loans, down from 0.67% last quarter. Total delinquencies increased $115 million to $1.6 billion, and our accruing loans past due declined to 0.43%, down from 0.44% last quarter. Total net loan charge-offs of $253 million included $45 million of purchase accounting related to the acquisition. Excluding these acquired charge-offs, our NCO ratio was 24 basis points.

At the end of the first quarter, our allowance for credit losses totaled $5.5 billion, or 1.52% of total loans. I want to take a moment to cover the details of our NDFI loans, which are highlighted on Slide 11. We have discussed this topic at recent investor conferences, and importantly, nothing has changed in terms of the composition of the book or the underlying risk. NDFI loans continue to represent our lowest risk loans. Approximately 90% of our NDFI loans are investment grade or investment grade equivalent, and all have robust collateral monitoring requirements.

Because there has been a lot of focus on the regulatory reporting category of business credit intermediaries, we have further broken out the components in detail on the slide. This category for The PNC Financial Services Group, Inc. includes asset securitizations, primarily trade receivable securitizations, of which The PNC Financial Services Group, Inc. is an industry-leading provider. These are loans to bankruptcy-remote subsidiaries of corporate borrowers secured by diversified pools of receivables. These loans represent approximately 80% of the business credit intermediaries category for The PNC Financial Services Group, Inc. The remaining 20% of our business credit intermediaries category—approximately $7 billion—is mostly comprised of CLOs secured by private credit provider assets.

These are well-structured assets all supported by senior positions with substantial excess collateral. We have been in these businesses for a long time and have experienced virtually no losses going back 25-plus years. We feel very good about the risk content of our NDFI loans and, based on the composition of these low-risk assets, expect zero losses going forward. To summarize, The PNC Financial Services Group, Inc. reported a strong first quarter and we are well positioned for the remainder of 2026. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 1.9% in 2026 and the unemployment rate to drift slightly higher to 4.6% by year-end.

We do not expect the Federal Reserve to cut rates during 2026. Our outlook for 2Q 2026 compared to 1Q 2026 is as follows: We expect average loans to be up 2% to 3%, net interest income to be up approximately 3%, fee income to be up 2.5%, and other noninterest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up approximately 3.5%. We expect noninterest expense, excluding integration expenses, to be up approximately 2%. We expect second-quarter net charge-offs to be approximately $225 million.

Considering our first-quarter operating results, second-quarter expectations, and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows: We expect full-year average loan growth to be up approximately 11%. We expect full-year net interest income to be up approximately 14.5%. We expect noninterest income to be up approximately 6%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 11%. Noninterest expense, excluding integration expenses, to be up approximately 7%, and we expect our effective tax rate to be approximately 19.5%. As a reminder, our expectation for nonrecurring merger and integration costs is approximately $325 million.

We recognized $98 million in the first quarter and anticipate approximately $150 million in the second quarter, with the remaining balance to be recognized in the second half of the year. With that, Bill and I are ready to take your questions.

Operator: Thank you. We will now open the call for questions. Our first questions come from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

Ebrahim Poonawala: Hey, good morning. I guess maybe Rob, Bill, just if you could talk about deposit growth as we think about a period—we have not been here in the better part of the last 15 years—where rates are higher for longer. I think, as you mentioned in the forward curve, we may not get any rate cuts. Just give us a sense of the algorithm to grow core deposits in this environment. How do you think about it? What is the approach? And how difficult do you think it is going to be for The PNC Financial Services Group, Inc. and the industry to actually grow low-cost core deposits?

Bill Demchak: I would frame it a bit differently and talk about growth in DDA accounts and retail clients broadly, which in turn causes deposits to grow. Think about the average balance somebody holds as a function of how high rates are and how competitive outside alternatives are. Think about total shots on goal as the number of retail clients we have. Our focus has been on growing retail clients, which is the key to growing deposits long term. In a period where rates are steady for a time and people are fighting to expand, you see at the margin—and you have heard competitors talk about this—that in certain price categories, people are paying up to maintain balances and/or attract new clients.

But look, we are opening branches. We have opened eight so far this year. We are going to—what is our total for the year—another 50 or something? 55. Our digital acquisition has been really strong, and we just need to continue that. That ultimately will lead to deposit growth.

Rob Reilly: And we do, Ebrahim. Just as a reminder, we do have deposit growth expectations for the year. Sort of staying at these levels—we had a good first quarter—with some incremental growth in 2026.

Ebrahim Poonawala: Understood. Got it. And I guess separately, around customer sentiment—think all sorts of risks over the last month including speculation on what higher oil prices and energy prices would mean for the consumer. Did we see some decline in sentiment over the course of the last month, or are you as constructive when you think about the growth outlook? Obviously, the guidance suggests nothing has dramatically changed, but we came in with a lot of excitement around the tax incentives for businesses and consumers. Is all of that more or less mostly intact?

Bill Demchak: I do not know that we can square for you the headline surveys on consumer confidence or small business confidence, which are all not great, with what we actually see. When you look through spending patterns, growth in savings, activity levels, loan growth—what we see day to day in our business is almost at complete odds with the surveys you see on confidence.

Rob Reilly: I would just add to that. In terms of sentiment, obviously there has to be a higher level of concern, but to Bill's point, the activity has not changed.

Bill Demchak: Spending has accelerated.

Ebrahim Poonawala: That is actually good color. Thank you.

Operator: Sure. Thank you. Our next questions come from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

Scott Siefers: Good morning, guys. Thanks for taking the question. I wanted to follow up on that sentiment question and also about what it suggests for loan growth. You had pretty good performance in the first quarter, and when I look at the guide, it does not necessarily imply much growth in future quarters off the first-quarter base. But I inferred at least that your commentary on utilization rates sounded good. It sounds like they are increasing. Do you see anything specifically that would cause you to be conservative, or you are sort of approaching with an abundance of caution?

Rob Reilly: Sure, Scott. Clearly, we saw more than what we expected in terms of loan growth in the first quarter, and on an average basis that is going to pull into the second quarter. On a spot basis going into the second quarter, we actually see it staying flattish because we do have some paydowns that are coming that will offset continued new production. That gets you through the second quarter. When you look at the back half of the year, we are pointing to growth, but not at the rate that we have seen in the first quarter nor that we expect in the second quarter.

To your point, that is related to concerns that ultimately end up reducing the visibility of what can happen in the second half.

Bill Demchak: Long story short, you have followed us long enough—we are never going to go out there and say loan growth is going to be this big number. We cannot predict it, but we banked some in the first quarter, so we put that in the authority base and go forward, and if we are pleasantly surprised, that will be great.

Rob Reilly: And that will be accretive.

Scott Siefers: Perfect. Okay. Thank you. And then, Rob, maybe just some expanded thoughts on how capital management might change, should these Fed proposals or NPRs indeed come through. How much more aggressively might you think about things, or what are the governing factors you think about? You get this big relief, but then it is unclear the ratings agencies are necessarily on board. What are the puts and takes you see, or the factors as you walk through that?

Rob Reilly: Sure, Scott. Under both methodologies, we see a reduction in RWA of about 10% as I mentioned in the opening comments, which is good. We are still in the proposal or comment stage, so we have to work through the nuances. But at first blush, because AOCI is blended in under both methodologies over the five years upfront, there is no AOCI; that is close to a full point of capital for us.

Bill Demchak: The other issue—you mentioned the rating agencies—and inside of their rating methodologies, they look at risk-weighted assets. I have not actually thought through the notion of, “Hey, we have less, so does this actually just pull through to how they are going to look at us as well?” But I think it will.

Rob Reilly: We have not had that discussion point with the rating agencies, but they had adjusted their expectations with the change of these proposals, so they have worked the numbers down under the current framework. It is logical to expect that it would extend into the new methodology.

Scott Siefers: Okay. Perfect. Thank you very much.

Operator: Sure, Scott. Thank you. Our next questions come from the line of Manav Ghisalya with Morgan Stanley. Please proceed with your questions.

Manav Ghisalya: Hey, good morning. Thanks for taking my questions. On the capital question, you noted that ERBA adoption benefit is similar to adopting the revised standardized approach. Would it still make sense to adopt the ERBA as it relates to maybe the flexibility that it could give you in managing the business going forward—maybe if you wanted to lean in on the investment grade credit side or lower LTV CRE? Just wanted to know how to think about this going forward.

Rob Reilly: I think you are right. On the surface, the ERBA—because of the benefit coming through investment grade equivalent loans, which are our wheelhouse—makes that methodology appealing. But we are still in the analysis stage here. There are still a lot of nuances to figure out, and obviously potential changes after the comment period. But you are on the right track.

Manav Ghisalya: Got it. And maybe if I can ask the loan growth question and compare it to the NII guide. You are pretty close to the 3% NIM number you had indicated, and you are taking the loan growth guide up by three percentage points. The NII guide is going up, but maybe to a lesser extent. Is there anything that we should be thinking about on loan spreads or deposit rates that you are baking in now that is different to where we were at the start of the year?

Rob Reilly: The short answer is loan mix on the new production piece. If you go back to January when we called for 8% average loan growth, we used average spreads on the new production through 2026. Where we find ourselves today after the first quarter is we have generated, on a relative basis, much higher volume of higher credit quality deals, which by definition carry relatively lower spreads. Still attractive spreads, still attractive returns, particularly given the non-credit portion of those relationships. It is just a mix change that, when we look out for the full year, will have higher volume on relatively lower spreads, and as you point out, that results in higher NII than we thought in January.

Manav Ghisalya: Which is a good thing.

Rob Reilly: As far as NIM, we might as well cover NIM because someone will ask the question. We saw a nice increase in the first quarter relative to our expectations. We still expect to go above 3% in the second half. As you pointed out, we are at 2.95%, so if we are going to be above 3% in the second half, you can do the math in between. Most of the expansion is still coming from the fixed-rate asset repricing. That continues to be very strong.

Manav Ghisalya: That is great color. Thank you.

Operator: Thank you. Our next questions come from the line of John Pancari with Evercore. Please proceed with your questions.

John Pancari: Good morning.

Bill Demchak: Morning, John.

John Pancari: On the fee side, I know your capital markets revenues decreased a bit off the particularly solid fourth quarter, particularly on the M&A front. Can you update us on the outlook here in terms of pipelines and how you will be thinking about M&A and your other capital markets revenue, given the current backdrop? Thanks.

Rob Reilly: Sure. Harris Williams had a strong quarter in the first quarter. It was off the elevated levels of the fourth quarter but higher than what we expected. The good news is their pipelines are strong. Going into the second quarter, we expect them to be at the levels they were at in the first quarter, which again is more than what we thought. Strong activity there, and that is leading to the guide. In the second quarter, we have capital markets essentially being at the same level, and more importantly, for the full year still up double digits.

John Pancari: Got it. Okay, great. And then on the capital front, appreciate the buyback color in terms of the plans for the second quarter. Maybe more broadly, can you talk about capital allocation priorities, and Bill, give us an update on where you stand on M&A interest given the backdrop and regulatory posture to deals?

Bill Demchak: Real simply, we like to use our capital on clients and our business. We have increased our buyback given capacity to do so. We have—and you should expect that we will continue to have—healthy dividends. In the ordinary course, we will otherwise be giving back more capital to shareholders than perhaps we have in the last handful of years. The M&A side—the noise and activity levels, forgetting about us, just what I see going on around us—seems to have died down. We are focused on growing our company organically. We have great momentum on that. We keep our eyes open, but I do not think there is going to be a lot of M&A activity, particularly with us.

People are happy to do what they want to do, and we are not going to push on a string, nor do we need to.

John Pancari: Got it. Thanks, Bill. Appreciate it.

Operator: Thank you. Our next questions come from the line of Ken Usdin with Autonomous Research. Please proceed with your questions.

Ken Usdin: I was wondering—obviously we see the outlook for costs still intact for the year, and then higher first to second. Can you remind us of the expected conversion of FirstBank and then the magnitude of saves you are expecting and how that cascades to a run rate as you get through the rest of the year?

Rob Reilly: Sure, Ken. Our full-year guide holds in terms of expenses up 7%, which includes the operating expenses of FirstBank. Relative to the first quarter, we spent a little less than we expected; that will fall into the second quarter, largely around technology investments and the timing of those investments. On FirstBank itself, everything is going well. We are still planning to convert mid-June. We expect approximately $325 million of integration charges. We will see the decline of their run rate in 2026. There will be some residual integration charges in the second half, but the majority will be completed in the second quarter, which will be about $150 million.

That is all in our guidance, on track, and we feel good about it.

Ken Usdin: Got it. So then we would assume that the cost saves would run rate by the fourth quarter and then that gives you a good starting point to think about next year?

Rob Reilly: That is a good place to start.

Ken Usdin: Cool. Great. And Rob, can you dig on that point a little bit? There is a push-off of some spending from first to second. Does that demonstrate the flexibility that you have?

Rob Reilly: We of course have flexibility, but that was not what drove it. It was just timing. Some items slipped into the second quarter versus what was planned for the last couple weeks of the first quarter. Nothing major.

Ken Usdin: Okay. Got it. Thanks a lot.

Operator: Thank you. Our next questions come from the line of David Schieterini with Jefferies. Please proceed with your questions.

David Schieterini: Hi, thanks for taking the question. On deposit pricing competition, are there any differences in competitiveness by geography in your footprint?

Rob Reilly: Not really.

Bill Demchak: In a retail memo, there were comments on the Midwest being tight with high promo offers by a few competitors. But it depends—some parts of the country people are doing big promo CDs, in other parts, they are focused on money market funds. People are fighting for deposits, and people are fighting for clients.

Rob Reilly: Not particularly harder in any geography.

David Schieterini: That is fair. It sounds like it is mostly stable, so that is good. Shifting to the loan side, can you talk about borrower sentiment, pipelines, and competitiveness on the loan pricing front?

Rob Reilly: The quarter was really strong. It is always competitive. As I said, our new production was skewed toward higher credit quality, lower spread, and the pipelines look strong—a continuation of that into the second quarter.

Bill Demchak: The only thing we have really seen on spread widening is in leveraged lending. We do not do much of that. In business credit, we have seen spreads move. Our partnership with TCW on cash flow lending—those spreads have gapped 50 basis points on new production because of the scare around what is going on in the process.

Rob Reilly: The other thing to mention around loans is that we reached the inflection point on our commercial real estate balances, which we called for in 2026. As you know, that has been a headwind for a number of quarters, and we have reached that inflection point as we expected.

David Schieterini: Great. Thank you.

Operator: Thank you. Our next questions come from the line of Chris McGratty with KBW. Please proceed with your questions.

Chris McGratty: Great. Good morning. Rob, you talked a lot about your confidence in the credit of the private credit portfolio and NDFI lending. Where would that rank in the wall of worry within the company? It seems like the market is, to your point, overestimating the loss content. Where in the risk curve does that live?

Bill Demchak: It is not even on the curve. If you go through that whole bucket, the riskiest piece in the whole thing is that little $5 billion slice that is to REITs, leasing, and this and that. A AAA CLO senior tranche—static maturity—to my memory, there has never been a loss in the history of the product. The BDC exposure is really small. Even if that whole market blows up, which I do not think it is going to, that just causes that product to early amortize. You would have to have massive corporate defaults at low recovery rates to ever get hit on that.

Remember when we highlighted our real estate book—we said we were worried about office, we are through it, we reserved a lot of it. This NDFI stuff is not even on the page of what we are looking at. It is nothing. It is a great business. It does not worry me. I worry about trucking companies, and I worry about people who are dependent on fuel and what is going to happen to discretionary spending. This is not in that list.

Rob Reilly: Just as a follow-up, that real estate piece that you pointed to—that is the most risk—is still very little risk. That is on a relative basis. I think we had one loss back in 2014 in that category, and we are still talking about it.

Bill Demchak: I get that the end of the market has seen liquidity events in a small slice of what is private credit, and it has scared everybody.

Rob Reilly: Because a lot of people focus on that category of business credit intermediaries. The vast majority of ours are trade securitizations, so people sometimes mistakenly call that whole category private credit, and for us it is quite the opposite.

Bill Demchak: To hammer on this point—way back in the financial crisis when corporate receivable securitizations used to be done through CP, it all stopped with the reversal at money funds. A handful of us started doing it on balance sheet. Really high credit quality, not a great spread, great return on economic risk, kind of lousy return on liquidity, decent return on regulatory capital. We are by far the market leader in it, and that is what is blowing up that category for us when you look at comparisons of how much we have in the book. But it is not risky.

It is a great business and we are going to keep doing it, and we are going to have some conversations with the regulators on the uselessness of what they have defined as NDFIs.

Chris McGratty: Great color. Thank you. Just my follow-up: the $350 million you talked about as the savings. I am interested beyond this year—you have the cost savings from this program and also the FirstBank deal. Is there more potential to cut costs as you couple of years go by, as the narrative around AI and technology investments evolves? Is there another benefit that yields?

Bill Demchak: Yes is the short answer. I do not know that it is a standout structural change in the efficiency of banks in the sense that we have been automating for years and have largely kept our headcount flat as we doubled or tripled the size of the company. That continues. AI allows that to continue. Maybe it accelerates through time. Maybe you can establish a competitive advantage early on and be a leader in it, but everybody is eventually going to catch up and get to a place where banking follows the same trend we have been on forever and ever. The winner is going to be the low-cost provider of really good products with trust behind it.

We are going to squeeze costs out of the production of what we offer to customers. You are going to need to do that to win in a consolidated industry.

Rob Reilly: But that is likely over multiple years. For 2026, our continuous improvement $350 million of savings is part of our guide, which is up 7%.

Operator: Thank you. Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question.

Matt O'Connor: Good morning. Can you talk about your interest rate position right now and how you are thinking about hedging? I feel like the best hedges are put on when the market does not really know where rates might go, which is kind of where we are right now. Where are you right now, and what are you more concerned about protecting—downside or upside?

Bill Demchak: Sort of technical answer: we are basically economic value of capital flat—duration is zero in our equity. We are flat to overall rate movement inside of our balance sheet. Having said that, we have continued the process, as you have seen us do last year and this year, of locking in forward curve rates, particularly when we see some volatility to the upside in the belly of the curve. We have done that and it gives us greater certainty around some of our comments for 2026, but even 2027 and into 2028 as we lock down some of these rates.

So neutral in 2026 and looking to lock in some in 2027 and 2028 similar to what we did last year.

Rob Reilly: Yes.

Bill Demchak: Part of this discussion, of course, is do not confuse that—we are going to have really good NII trajectory for the next couple of years. We are going to do that despite being flat total rate exposure, which means we are not trading our future five years out for the ability to produce really strong NII in the first couple of years.

Matt O'Connor: That is helpful. Specifically within some of these MSR hedges, residential and commercial—I understand this is not the broader interest rate risk management—but anything to read through there? You have had pretty strong net gains the last several quarters, and this time it was more offsetting. Anything interesting to point out there?

Bill Demchak: We got chopped up. That is a massively negative convexity book and you are short options every which way you try to hedge it, and realized vol was way higher than implied. As we tried to hedge out that risk, we got chopped up. It happens, and you are exposed to it anytime you have rate swings as aggressively as we saw in the first quarter around some of the news. Through time, that tends to be an income-producing line item for us—usually we are plus, I do not know, $10 million. It is not a driver, to your point. We just got chopped this quarter.

Rob Reilly: This quarter, the heightened rate volatility was the driver of an unusually large negative for us.

Bill Demchak: But it was not like anybody screwed up. It was not a trading thing. Literally, realized volatility was higher than what was implied. Anything that has optionality in it gets hurt in that environment.

Matt O'Connor: Okay. I realize the residential and commercial essentially offset each other, so that is not too bad getting chopped up.

Operator: Thank you. Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your questions.

Mike Mayo: To the extent that RWA with Basel III might be 10% less, how would you plan to use that extra capital, and when might you start leaning into using more capital—or maybe you are doing so already? Clearly, you are leaning into using capital with the loan growth that you had and expect. But maybe more buybacks, a deal—how do you think about using that excess capital and when? Thanks.

Bill Demchak: It is down the road. We have increased our buyback. We have seen good deployment to our growth in the franchise. We will see when this gets approved and done after comments, and then it will be a whole new environment and we will figure out what we do at that point in time. It is a nice problem to have. We are going to drop a point of capital into our pocket. We will figure it out when it shows up.

Mike Mayo: How do you see competition? It seems like the industry is all playing offense. You have been growing unused commitments, and that is playing out to a certain degree. You have already been competing, but others are coming back more in force. How do you see competition generally, especially with regard to loan growth? How are you getting so much more loan growth than the industry? To what degree are you competing on price? It just seems like everyone has excess capital and in those situations historically you have seen competition swing a little too far.

Bill Demchak: That is not our story. We are bringing all these new markets online. We have more shots on goal. We are seeing more opportunities as opposed to trying to rebid the same deal I have been in for 22 years in our local market. That is a big part of it, and that is why when we went through the Southeast, now it is accelerating—BBVA and FirstBank markets. The other issue is we have much more specialty lending—do not read that as high risk—but we are in a lot of lending products that are not commodity capital.

Whether it is our corporate receivables business or asset-based lending or equipment finance, we are in a lot of things that are not simply throwing money out as a generic good. At the margin, that always helps us outperform.

Rob Reilly: The other piece is the expansion of the new markets—what we call our expansion markets—for our market-based corporate loans. Our national businesses aside, they are now more than half our loans and growing at twice the pace. That is a big driver.

Mike Mayo: I missed what you said there. What is half your loans?

Rob Reilly: More than 51% of our market-based loans. We have national businesses that are not market-based, but in all the markets that we have entered within the last 12 years, half of our corporate loans are in those markets.

Mike Mayo: That is interesting. And what was that percentage a few years ago?

Rob Reilly: I do not have it, but it probably started in the 30s, depending on where you are.

Mike Mayo: And it is growing at two times the rate. Generally speaking, do you want to call out any of the expansion markets as being stronger than others?

Rob Reilly: We have done very well in the Southeast, where we have been the longest. With the Southwest—Texas and California, Colorado now—we are online there. California has been, in some ways, shockingly strong.

Bill Demchak: It is a target-rich environment. The amount of commercial middle market clients within the ZIP codes of California—great clients, great fee. And we have not done this by just doing loans. Our fee income percentage in these new markets is actually equal to or higher than our legacy markets. It is not like we are running out throwing money at people. It is an integrated relationship. We are really good at it, and we are growing.

Mike Mayo: That is helpful. Thank you.

Operator: Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions.

Gerard Cassidy: Hi, Bill. Hi, Rob. Bill, on your comments about the focus on organic growth, can you share an update? I think at the BAP Conference in November, Robin Gunner gave details about the retail expansion you are undertaking. How is that going? What are you learning from the process? Are you pleased with the pace?

Bill Demchak: I am chuckling because Alex is going to be amused that his older brother gave the presentation. First of all, it is working. What have we learned? It is actually hard to build 60 or 100 branches a year. The site location, the teams that you need in each market to pull this off—we have created a production factory around it. We have learned a lot about how to create a massive buzz around a new branch opening, particularly when we are trying to get our fair share in a newer market where we are building a lot of branches.

We have not leaned into pricing to attract new customers necessarily, which is an accelerant if we want to use it. But they are working really well.

Gerard Cassidy: On the metrics, have you crystallized what you need in deposits or the type of deposits to bring a branch up to breakeven, and how long does it take to reach that point?

Rob Reilly: Everything is on track, Gerard, and as Alex pointed out back in November, we pencil in three years to get to breakeven. We are running a little better than that right now. Everything is on plan and we are excited about it.

Gerard Cassidy: Pivoting away from this growth, there has been a change in the leveraged lending guidelines by the FDIC and OCC. Have you been able to optimize any of your lending now that these restrictions went away in December? Are you seeing benefits where you are winning new business because you have more flexibility?

Bill Demchak: Most of our struggle with that was that it was capturing business we were going to do anyway because it was really good business and they just had the definition wrong. Maybe at the margin we have seen some acceleration, but mostly it opened the window for banks to do good, smart business and not try to write a four-paragraph description of what is a good or a bad loan, which you just cannot do today.

Gerard Cassidy: Very good.

Operator: Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your questions.

Erika Najarian: Hi, good morning. A few quick follow-ups. Bill and Rob, I know you were asked a lot about the deposit opportunity. Just pulling up—if the Fed does not cut this year, how do you think deposit costs behave? Do you think that you could hold the line on deposit costs if the Fed does not cut?

Rob Reilly: Yes. If the Fed does not cut, which is our expectation, deposit costs are fairly steady through the second quarter and then, by our estimates, maybe go up 1 or 2 basis points. Generally speaking, the pressure up is not from competition but rather repricing back book as things roll—back book customers to a closer-to-market level—which at the margin will cause our deposit cost to go up over the next period if the Fed does not move. It is all in our guidance, it is not material, and we will still hit the 3% NIM. That back book repricing is a dynamic that has been in place for a while; that is not new.

There is obviously a risk if loan growth continues to exceed and there is pressure on those deposits, but that would be a good thing.

Erika Najarian: Got it. Finally, one of your peers, David Solomon, talked about widening spreads in certain pockets of NDFI lending. Are you observing similar spread expansion in certain NDFI-type credits?

Bill Demchak: Inside of NDFIs, the spot everybody is focused on is private credit. Inside of our bucket, the $7 billion is 90% CLOs. AAA tranches I imagine have widened. Facilities to BDCs are going to widen as the fear factor steps in. We have like $500 million—even less—of BDC exposure. The odds of me figuring out that there is a spread movement in there is unlikely because we are huge in the trade receivables flow business.

Erika Najarian: Got it. Perfect. Thank you.

Operator: Thank you. Our next questions come from the line of John McDonald with Truist. Please proceed with your questions.

John McDonald: Hi, thanks. Good morning. Rob, as loan growth is picking up here, your reserve ratios look solid, but any need to start to provide a little for loan growth as we look ahead?

Rob Reilly: That will be part of it. If you take a look at our provision increase quarter over quarter, that was largely driven by the loan growth we saw. That comes along with loan growth. These tend to be higher credit quality, so it is not as much, but I would expect provision expense to go up with the growth amount.

John McDonald: On ROTCE, any updated thoughts? I think you talked earlier about exiting the year at kind of an 18% ROTCE heading higher next year. Any updates there?

Rob Reilly: Same as what we said back in January. We finished 2025 at approximately 18% ROTCE—that was elevated a little by the tax reserve release in the quarter. We said, and still believe, we are going to go down during 2026 because of the FirstBank acquisition and the impact on that. Then when we deliver everything that we intend to deliver in 2026 along our guidance, we will be back to approximately 18% in the fourth quarter of 2026. The important part is we would expect to drift higher as we go into 2027. That is still the plan.

John McDonald: Got it. And that is a function of operating leverage and growth next year in terms of moving higher?

Rob Reilly: That is right. You bet.

Operator: Thank you. We have reached the end of our question and answer session. With that, I would like to turn the floor back over to Bryan Gill for closing comments.

Bryan Gill: Thank you all for joining our call today and for your interest in The PNC Financial Services Group, Inc. Please feel free to reach out to the IR team if you have any additional questions.

Operator: Ladies and gentlemen, thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.

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