Q1 2026 PNC Financial Services Group Inc Earnings Call

April 15, 2026

Operator: Greetings, welcome to the PNC Financial Services Group Q1 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to Bryan Gill, Executive VP and Director of Investor Relations. Thank you, Bryan. You may begin.

Speaker #1: Good morning. Welcome to today's conference call for the PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC, and participating on this call is PNC Chairman and CEO Bill Demchak.

Bryan Gill: Well, good morning. Welcome to today's Conference Call for the PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC, and participating on this call are PNC's Chairman 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 are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of 15 April 2026, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Speaker #1: 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 .

Speaker #1: Materials , as well as our SEC filings and other investor materials . These are all available on our corporate website , PNC Under Investor Relations .

Speaker #1: These statements speak only as of April 15th , 2026 , and PNC undertakes no obligation to update them . Now , I'd like to turn the call over to Bill

Speaker #2: Thank you . Brian , and good morning , everyone . As you've seen , we're off to a really strong start this year .

Bill Demchak: Thank you, Bryan, and good morning, everyone. As you've seen, we're 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. As you know, we completed the acquisition of FirstBank early in the quarter, and we're 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. We had 13% year-over-year fee income growth. Our 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 notable increased client activities. We continue to make meaningful investments in our technology and our branch network.

Speaker #2: We achieved a great deal this quarter and we continue to build upon the strength of our franchise As you know , we completed the acquisition of first Bank early in the quarter , and we're well on our way to a mid-June conversion .

Speaker #2: 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 .

Speaker #2: Our credit quality remains strong , and we return significant capital to shareholders Importantly , beyond the financial results , we continue to see strong momentum across our businesses with notable increased client activity as we continue to make meaningful investments in our technology and our branch network .

Speaker #2: While we recognize that there are many market concerns out there for 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 , in regard to the increased attention on bank's exposure to Non-depository financial institutions , you know , Rob's 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 don't see any loss content in this book , and certainly don't see any exposure to a systemic event , which , by the way , we don't expect , but were there to be won a systemic event in private credit ?

Bill Demchak: 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, in regard to the increased attention on banks' exposure to non-depository financial institutions, Rob's going to walk through some of the details as it relates to our exposure. The soundbite you ought to walk away with here is that we don't see any loss content in this book, and certainly don't see any exposure to a systemic event, which, by the way, we don't expect. Were there to be one, a systemic event in private credit, I can't speak to what other banks have in this category, as the definition seems to capture random things.

Speaker #2: I can't speak to what other banks have in this category, as the definition seems to capture random things, but we are very outsized in our corporate receivables.

Bill Demchak: 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 Q2 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'll turn it over to Rob to take you through the numbers. Rob?

Speaker #2: 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 .

Speaker #2: 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 .

Speaker #2: Finally , as always , I want to thank our employees for everything they do for our company and our customers . And with that , I'll turn it over to Rob to take you through the numbers .

Speaker #2: Rob ,

Speaker #3: Thanks , Bill , and good morning , everyone . Our balance sheet is on slide four and is presented on an average basis .

Rob Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average basis. As Bill just mentioned, during Q1, 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 average $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.

Speaker #3: As Bill just mentioned , during the first quarter , we successfully completed our acquisition of first Bank 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% .

Speaker #3: Investment securities of $145 billion increased $2 billion , or 2% . Deposit balances were up $19 billion , or 4% , and averaged $458 billion .

Speaker #3: And 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 .

Speaker #3: 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 to $700 million going forward We remain well capitalized with an estimated Cet1 ratio of 10.1% , down 50 basis points from year end 2025 .

Rob Reilly: During the quarter, we returned $1.4 billion of capital to shareholders. Common dividends and share repurchases were approximately $700 million each. We continue to expect quarterly repurchases to be in the range of $600 to 700 million going forward. We remain well capitalized with an estimated CET1 ratio 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 to 50 billion. The reduction amount is the same under both the revised standardized and the expanded methodologies, in line with our previous expectations.

Speaker #3: The decline was primarily driven by the first Bank acquisition , accounting for roughly 40 basis points , with the remainder attributable to strong loan growth Regarding the recent Basel II proposal , we expect the changes to be a net positive for our Cet1 ratio relative to the current framework .

Speaker #3: Our initial assessment reflects a reduction of approximately 10% of our RWA , or 45 to $50 billion . The reduction amount is the same under both the revised , standardized and the expanded methodologies in line with our previous expectations .

Speaker #3: Slide five shows our loans in more detail . Loan balances averaged $351 billion in the first quarter , an increase of $23 billion , or 7% , linked quarter .

Rob Reilly: Slide five 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%, and the total average loan yield of 5.5% decreased ten basis points linked quarter.On a spot basis, loans increased $29 billion or 9% from year-end, including $15 billion from the First Bank acquisition and $14 billion of growth in legacy PNC 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, and we expect moderate growth through the remainder of the year.

Speaker #3: The growth reflected both higher commercial and consumer balances compared to the same period a year ago Average loans increased $34 billion , or 11% , and the total average loan yield of 5.5% decreased ten basis points linked quarter on a spot basis , loans increased $29 billion , or 9% , from year end , including $15 billion from the first Bank acquisition and $14 billion of growth in legacy PNC loans Specific to our legacy business , CNI 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 , and we expect moderate growth through the remainder of the year .

Speaker #3: And consumer loans declined $1 billion due to lower residential mortgage balances. Slide six covers our deposit balances in more detail. Average deposits were $458 billion, up $19 billion, or 4%, driven by the addition of First Bank balances and partially offset by a reduction in brokered CDs.

Rob Reilly: Consumer loans declined $1 billion due to lower residential mortgage balances. Slide six covers our deposit balances in more detail. Average deposits were $458 billion, up $19 billion or 4%, driven by the addition of FirstBank balances and 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. Non-interest-bearing balances continue to represent 22% of total deposits. Our total rate paid on interest-bearing deposits decreased 18 basis points to 1.96% in Q1, reflecting lower rates. Turning to slide seven, we highlight our income statement trends. Comparing Q1 to the most recent Q4, and again, including the impact of the FirstBank acquisition, total revenue was $6.2 billion and grew $94 million or 2%.

Speaker #3: Excluding those items , deposit trends were consistent with typical seasonality , as growth in consumer balances more than offset a seasonal decline in commercial deposits .

Speaker #3: Non-interest bearing balances continued to represent 22% of total deposits , and our total rate paid on interest bearing deposits decreased 18 basis points to 1.96% in the first quarter , reflecting lower rates .

Speaker #3: Turning to slide seven . We highlight our income statement trends , comparing the first quarter to the most recent fourth quarter . And again , including the impact of the first bank acquisition .

Speaker #3: Total revenue was $6.2 billion and grew $94 million, or 2%. Non-interest expense of $3.8 billion increased $165 million, or 5%, of which $97 million was integration expense.

Rob Reilly: non-interest expense of $3.8 billion increased $165 million or 5%, of which $97 million was integration expense. Excluding integration costs, non-interest expense increased 2% and PPNR grew 1%. Provision was $210 million, and our effective tax rate was 19%. As a result, our Q1 net income was $1.8 billion, or $4.13 per common share, and $4.32 when adjusted for integration costs. Turning to slide eight, we detail our revenue trends. Q1 revenue increased $94 million or 2% compared to the prior quarter. Net interest income of $4 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. Non-interest income of $2.2 billion decreased $136 million or 6%. Inside of that, fee income decreased $44 million or 2% linked quarter.

Speaker #3: Excluding integration costs, non-interest expense increased 2%, and PPNR grew 1%. Provision was $210 million, and our effective tax rate was 19%.

Speaker #3: 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 eight.

Speaker #3: We detail our revenue trends , first quarter revenue increased $94 million , or 2% , compared to the prior quarter . Net interest income of $4 billion increased $230 million , or 6% .

Speaker #3: The growth was driven by the addition of First Bank, as well as lower funding costs and commercial loan growth. Our net interest margin was 2.95%, an increase of 11 basis points.

Speaker #3: Non-interest 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% .

Rob Reilly: 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 Q4 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 non-interest 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 security gains.

Speaker #3: 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 and other non-interest 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 security gains compared to the same period a year ago .

Rob Reilly: Compared to the same period a year ago, we've 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, Q1 expenses increased $165 million or 5% linked quarter, which included $97 million of integration costs. Non-interest 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 PNC expenses. We remain focused on expense management, and as we've 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.

Speaker #3: We've demonstrated strong momentum across our franchise Importantly , fee income grew $240 million , or 13% , driven by broad based growth in our businesses .

Speaker #3: Turning to slide nine . First quarter expenses increased $165 million , or 5% linked quarter , which included $97 million of integration costs , non-interest expense excluding the impact of integration expense , increased $68 million , or 2% , as the addition of First Bank's operating expenses more than offset lower legacy PNC expenses .

Speaker #3: We remain focused on expense management, and as we've previously stated, we have a goal to reduce costs by $350 million in 2026 through our continuous improvement program, which is independent of the First Bank acquisition.

Speaker #3: And this program will continue to fund a significant portion of our ongoing business and technology investments. Our credit metrics are presented on slide ten.

Speaker #3: 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 .

Rob Reilly: Our NPL and delinquency ratios each improve on both a linked-quarter and year-over-year basis, reflecting the strong credit quality we continue to see across our portfolio. The linked-quarter growth and balances was entirely attributable to the addition of FirstBank. Non-performing 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 Q1, 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 MDFI loans, which are highlighted on slide 11.

Speaker #3: We continue to see across our portfolio and the linked quarter growth in balances was entirely attributable to the addition of first Bank 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 are accruing loans past due declined to 0.43% , down from 0.4 4% last quarter Total net loan charge offs of $253 million included $45 million of purchase accounting related to the acquisition .

Speaker #3: 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 .

Speaker #3: I want to take a moment to cover the details of our NFI loans , which are highlighted on slide 11 . We've discussed this topic at recent investor conferences and , importantly , nothing has changed in terms of the composition of the book or the underlying risk NFI loans continue to represent our lowest risk loans .

Rob Reilly: We've discussed this topic at recent investor conferences, and importantly, nothing has changed in terms of the composition of the book or the underlying risk. MDFI loans continue to represent our lowest-risk loans. Approximately 90% of our MDFI loans are investment-grade or investment-grade equivalent, and all have robust collateral monitoring requirements. Because there's been a lot of focus on the regulatory reporting category of business credit intermediaries, we've further broken out the components in detail on the slide. This category for PNC includes asset securitizations, primarily trade receivable securitizations, of which PNC 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 PNC. The remaining 20% of our business credit intermediaries category, approximately $7 billion, is mostly comprised of CLOs secured by private credit provider assets.

Speaker #3: Approximately 90% of our NFI loans are investment grade or investment grade equivalent , and all have robust collateral monitoring requirements . Because there's been a lot of focus on the regulatory reporting category of business credit intermediaries We further broken out the components in detail on the slide .

Speaker #3: This category for PNC includes asset securitizations , primarily trade receivables , securitizations , of which PNC is an industry leading provider . These are loans to bankruptcy , remote subsidiaries of corporate borrowers secured by diversified pools of receivables .

Speaker #3: These loans represent approximately 80% of the business credit intermediaries category . For PNC , the remaining 20% of our business credit intermediaries category , approximately $7 billion is mostly comprised of Clos secured by private credit provider assets .

Speaker #3: These are well structured assets , all supported by senior positions with substantial excess collateral . So again , we've been in these businesses for a long time and we've experienced virtually no losses going back 25 plus years .

Rob Reilly: These are well-structured assets, all supported by senior positions with substantial excess collateral. Again, we've been in these businesses for a long time, and we've experienced virtually no losses going back 25+ years. We feel very good about the risk content of our MDFI loans, and based on the composition of these low-risk assets, expect zero losses going forward. To summarize, PNC reported a strong Q1, and we're 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 the Q2 of 2026 compared to the Q1 of 2026 is as follows.

Speaker #3: We feel very good about the risk content of our NFI loans . And based on the composition of these low risk assets , expect zero losses going forward To summarize , PNC reported a strong first quarter and were well positioned for the remainder of 2026 .

Speaker #3: 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 .

Speaker #3: We do not expect the Federal Reserve to cut rates during 2026 . Our outlook for the second quarter of 2026 compared to the first quarter of 2026 , is as follows .

Speaker #3: We expect average loans to be up 2 to 3% . Net interest income to be up approximately 3% . Fee income to be up two and a half percent .

Rob Reilly: 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%, other non-interest income to be in the range of $150 to 200 million. Taking the component pieces of revenue together, we expect total revenue to be up approximately 3.5%. We expect non-interest expense, excluding integration expenses, to be up approximately 2%, and we expect Q2 net charge-offs to be approximately $225 million. Considering our Q1 operating results, Q2 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 non-interest income to be up approximately 6%.

Speaker #3: Other non-interest income to be in the range of $150 to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up approximately 3.5%.

Speaker #3: We expect non-interest expense excluding integration expenses , to be up approximately 2% , and we expect second quarter net charge offs to be approximately $225 million .

Speaker #3: Considering our first quarter operating results . Second quarter expectations , and current economic forecasts , our outlook for the full year 2026 compared to 2025 results is as follows .

Speaker #3: 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%.

Speaker #3: We expect non-interest income to be up approximately 6% . Taking the component pieces of revenue together , we expect total revenue to be up approximately 11% .

Rob Reilly: Taking the component pieces of revenue together, we expect total revenue to be up approximately 11%, non-interest 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 non-recurring merger and integration costs is approximately $325 million. We recognized $98 million in Q1 and anticipate approximately $150 million in Q2, with the remaining balance to be recognized in H2 of the year. With that, Bill and I are ready to take your questions.

Speaker #3: Non-interest expense, excluding integration expenses, is expected to be up approximately 7%. We expect our effective tax rate to be approximately 19.5%. As a reminder, our expectation for non-recurring merger and integration costs is approximately $325 million.

Speaker #3: 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.

Speaker #3: And with that , Bill and I are ready to take your questions

Speaker #4: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

Speaker #4: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #4: One moment please , while we pull for your questions Our first questions come from the line of Ebrahim Poonawala with Bank of America .

Speaker #4: Please proceed with your questions .

Speaker #5: Hey , good morning . I guess maybe Rob , just if you could talk about deposit growth as we think about a period we've not been here in a better part of the last 15 years where rates are higher for longer .

Ebrahim Poonawala: Hey, good morning.

Rob Reilly: Morning.

Ebrahim Poonawala: I guess maybe, Rob, Bill, just if you could talk about deposit growth. As we think about a period we've not been here in a 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's the approach, and how difficult do you think it's going to be for PNC and the industry to actually grow low-cost core deposits?

Speaker #5: 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 , like how do you think about it ?

Speaker #5: What's the approach and how difficult do you think it's going to be for PNC and the industry to actually grow low cost core deposits

Speaker #2: I guess I would just frame it a bit different and talk about growth in DDA accounts and retail clients broadly , which in turn causes deposits to grow .

Bill Demchak: I guess I would just frame it a bit different and talk about growth in DDA accounts and retail clients broadly, which in turn causes deposits to grow. I'd 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. The particular rate environment where rates are just kind of steady for a period of time and people are fighting to expand, you see at the margin, and you've heard competitors talk about this, that in certain price categories, people are paying up to maintain balances and/or attract new clients. Look, we're opening branches. We've opened eight so far this year.

Speaker #2: So, I don't know if you, you know, think about the average balance somebody holds as a function of how high rates are and how competitive outside alternatives are.

Speaker #2: Think about total shots on goal is a number of clients we have . So our focus has been on growing retail clients , which is the key to growing deposits long term .

Speaker #2: You know , the particular rate environment where rates are just kind of steady for a period of time and people are fighting to expand , you know , you see at the margin and you've heard competitors talk about this that , you know , in certain price categories , people are paying up to maintain balances and or attract new clients .

Speaker #2: But look , we're opening branches , we've opened eight so far this year . We're going to go , what's our total for the year ?

Bill Demchak: What's our total for the year, Rob? Another 50 or something?

Speaker #2: Another 50 or something? Yeah. You know, our digital acquisition has been really strong, and we just need to continue that.

Rob Reilly: 55. Yeah.

Bill Demchak: Our digital acquisition has been really strong. We just need to continue that. That ultimately will lead to deposit growth.

Speaker #2: And that ultimately will lead to deposit growth.

Speaker #3: And we do . Ibrahim . Just as , as a reminder , we do have deposit growth expectations for the year , sort of at staying at these levels .

Rob Reilly: We do, Ebrahim, just as a reminder, we do have deposit growth expectations for the year.

Bill Demchak: Good

Rob Reilly: Sort of staying at these levels. We had a good Q1, sort of staying at these levels with some incremental growth in the H2 of 2026.

Speaker #3: We had a good first quarter , sort of staying at these levels with some incremental growth in the back half of 26 .

Speaker #5: Understood . Got it . And I guess maybe just separately around customer sentiment , I think all sorts of risks over the last month , including stagflation , what higher oil prices and energy prices would mean for the consumer .

Ebrahim Poonawala: Understood. Got it. I guess maybe just separately around customer sentiment. I think all sorts of risks over the last month, including stagflation, what higher oil prices and energy prices would mean for the consumer. Just talk to us if we saw some decline in sentiment over the course of the last month, or are you as constructive when you think about just growth outlook? Obviously, the guidance suggests nothing's dramatically changed, but I'm wondering. We came in with a lot of excitement around the tax incentives for businesses, consumers. Is all of that more or less mostly intact?

Speaker #5: Just talk to us . If we saw some decline in sentiment over the course of the last month , or do you think are you as constructive when you think about this growth outlook ?

Speaker #5: Obviously, the guidance suggests nothing's dramatically changed. But I'm wondering, we came in with a lot of excitement around the tax incentives for businesses and consumers.

Speaker #5: Is all of that more or less mostly intact?

Speaker #2: Look , I don't know that we can square for you that the headline surveys on consumer confidence are small business confidence , which are all , you know , not great .

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

Speaker #2: How do we square that with what we actually see ? So when you look through it , spending , spending patterns , growth in savings , activity levels , you know , loan growth like everything we see day to day in our business is almost a complete odds with the surveys you see on confidence .

Speaker #3: Yeah , I would just add to that . I mean , in terms of sentiment , obviously there has to be a higher level of concern .

Rob Reilly: Yeah, I would just add to that. I mean, in terms of sentiment, obviously, there has to be a higher level of concern. To Bill's point, the activity hasn't changed.

Speaker #3: But to Bill's point , the activity hasn't changed . Yeah .

Bill Demchak: Yeah. Spending's accelerated.

Speaker #2: Anything's accelerated .

Speaker #6: Yeah .

Rob Reilly: Yeah.

Speaker #5: That's actually a good color . Thank you

Ebrahim Poonawala: That's actually a good color. Thank you.

Bill Demchak: Sure.

Speaker #4: Thank you. Our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

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

Speaker #7: Good morning, guys. Thanks for taking the question. Actually, I wanted to sort of follow up on that sentiment question and also ask about what it suggests for loan growth. You had a pretty good performance in the first quarter.

Scott Siefers: Morning, guys. Thanks for taking the question.

Rob Reilly: Thank you.

Scott Siefers: Sort of follow up on that sentiment question and also about what it suggests for loan growth. You had pretty good performance in Q1. When I look at the guidance, it doesn't necessarily imply much growth in future quarters off the Q1 base. I inferred at least that your commentary on utilization rates sounded good. Sounds like they're increasing. You see anything specifically that would cause you to be conservative, or you're just sort of approaching with an abundance of caution?

Rob Reilly: Thank you.

Speaker #7: When I look at the guy that doesn't 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 .

Speaker #7: Sounds like they're increasing . Are you seeing anything specific that would cause you to be conservative , or are you just sort of approaching with an abundance of caution

Speaker #3: Well , sure , I can answer that . Scott . Yeah . Clearly we saw more than what we expected in terms of loan growth in the first quarter .

Rob Reilly: Well, sure. I can answer that, Scott. Yeah, clearly, we saw more than what we expected in terms of loan growth in Q1. On an average basis, that's going to pull into Q2. On a spot basis going into Q2, we actually see it sort of staying flattish because we do have some paydowns that are coming that will offset continued new production. That gets you through Q2. Now when you look at H2, we're pointing to growth, but not at the rate that we've seen in Q1 nor that we expect in Q2. To your point, that is related to concerns that ultimately end up reducing the visibility of what can happen in H2.

Speaker #3: And on an average basis, that's going to pull into the second quarter on a spot basis. Going into the second quarter, we actually see it sort of staying flattish because we do have some paydowns that are coming that will offset continued new production.

Speaker #3: So that gets you through the second quarter . And then when you look at the back half of the year , we're pointing to , you growth , but not at the rate that we've that we've seen in the first quarter , nor that we expect in the second quarter .

Speaker #3: And and to your point , that is related to , you know , concerns that ultimately end up reducing the visibility of what what can happen in the second half .

Speaker #2: Long story short , you followed us long enough . We're never going to go out there and say loan growth is going to be this big number .

Bill Demchak: Long story short, you followed us long enough. We're never going to go out there and say loan growth is going to be this big number. We can't predict it.

Speaker #2: We can't predict it, but we banked some in the first quarter. So we put that in the starting base and go forward.

Rob Reilly: Yeah.

Bill Demchak: We banked some in Q1, so we put that in the.

Rob Reilly: Yeah

Bill Demchak: Starting base and go forward. If we're pleasantly surprised, that'll be great.

Speaker #2: And you know , if we're pleasantly surprised , that'll be great .

Speaker #3: And that will be accretive . That's right .

Rob Reilly: That will be accretive. That's right.

Speaker #7: Perfect . Okay , good . Thank you . And then Rob , you know maybe just some expanded thoughts on how capital management might change should these these fed proposals or NPR's indeed come through , you know , how much more aggressively might you think about things or what are sort of the governing factors you think about ?

Scott Siefers: Perfect. Okay, good. Thank you. 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 sort of the governing factors you think about? You get this big relief, but then unclear the ratings agencies are necessarily on board. What are sort of the puts and takes you see or the kind of factor you think as you walk through that?

Speaker #7: You get this big relief , but then unclear the ratings agencies are necessarily on board . So what are sort of the puts and takes you see , or the or the kind of kind of factors you think as you as you walk through ?

Speaker #3: Yeah .

Speaker #7: Sure

Speaker #3: Yeah , sure . Scott . So , so , you know , both methodologies under both methodologies , we see a reduction in our was of about 10% , as I mentioned in the opening , opening comments , which , which is a good thing .

Rob Reilly: Yeah, sure, Scott. Under both methodologies we see a reduction in our RWAs of about 10%, as I mentioned in the opening comments.

Scott Siefers: Mm-hmm

Rob Reilly: Which is a good thing. We're still in the proposal stage or comment stage, rather, of the proposal. We have to work through all the nuances there. At first blush, because AOCI is blended in under both methodologies over the five years up front, there is no AOCI. It's close to a full point of capital for us.

Speaker #3: We're still in the proposal stage or comment page stage rather of , of the proposal . So we have to work through all the , all the nuances there , but you know , at first blush , because AOC is blended in under both methodologies over the five years up front , there is no AOC .

Speaker #3: It's , you know , close to a full point of capital for us .

Speaker #2: The other issue you mentioned , the rating agencies and inside of their rating methodologies , they look at risk weighted assets . So I haven't actually thought through the notion of , hey , we have less .

Bill Demchak: The other issue, you mentioned the rating agencies. Inside of their rating methodologies, they look at Risk-Weighted Assets. I haven't actually thought through the notion of, hey, we have less, so does this actually just pull through to how they're going to look at us as well? I kind of think it will.

Speaker #2: So does this actually just pull through to how they're going to look at us as well ? But I kind of think it will .

Speaker #3: But I don't know if we've got that discussion point with the rating agencies , but you know , they had they had adjusted their expectations with the change of these proposals .

Rob Reilly: Well, I don't know if we've got that discussion point with the rating agencies. They had adjusted their expectations with the change of these proposals. They've worked the numbers down under the current framework. It's logical to expect that it would extend into the new methodologies. We'll see.

Speaker #3: So , you know , they've they've worked the numbers down under the current framework . So it's logical to expect that it would extend into the new the new methodologies .

Speaker #3: We'll see .

Speaker #7: Yeah . Okay . Perfect . All right . Thank you guys very much .

Bill Demchak: Yeah.

Scott Siefers: Okay, perfect. All right, thank you guys very much.

Speaker #3: Sure , Scott .

Rob Reilly: Sure, Scott.

Speaker #4: Thank you . Our next question comes from the line of Manon Gazalia with Morgan Stanley . Please proceed with your questions Hey . Good morning .

Operator: Thank you. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Please proceed with your questions.

Manan Gosalia: Hey, good morning. Thanks for taking my questions. Maybe just to follow up on the capital question, you noted that the 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.

Speaker #8: Thanks for taking my questions . Maybe just a follow up on On the capital question . So you noted that the IRB adoption benefit is similar to adopting the revised standardized approach .

Speaker #8: Would it still make sense to adopt the IRB as it relates to maybe the flexibility that it could give you in managing the business going forward ?

Speaker #8: You know , 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 .

Speaker #3: Yeah , I think I think you're right on the surface , the IRB , because of the the benefit coming through , you know , investment grade equivalent loans , which are sort of our wheelhouse that that makes that methodology appealing .

Rob Reilly: Yeah, I think you're right. On the surface, the ERBA, because of the benefit coming through investment-grade equivalent loans, which are sort of our wheelhouse, that makes that methodology appealing. We're still in the analysis stage here. There's still a lot of nuances to figure out, and obviously in terms of if there's any changes after the comment period. You're on the right track.

Speaker #3: But , you know , we're still in the analysis stage here . There's still a lot of nuances to figure out . And obviously in terms of if there's any changes after the comment period , but but you're on the right track

Speaker #8: Got it . And maybe if I can ask the loan growth question in , in maybe compared to the NII guide . So I guess you're pretty close to the 3% Nim number you had indicated .

Manan Gosalia: Got it. Maybe if I can ask the loan growth question and maybe compare to the NII guide. I guess you're pretty close to the 3% NIM number you had indicated, and you're taking the loan growth guide up by 3 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're baking in now that's different to where we were at the start of the year?

Speaker #8: And you're taking the loan growth guide up by three percentage points. And then the NII guide is going up, but maybe to a lesser extent.

Speaker #8: Is there anything that we should be thinking about on loan spreads or deposit rates that you're baking in ? Now ? That's different to where we were at the start of the year

Speaker #3: No , I start at the beginning . So I'd say the short answer to the your question is it's loan mix on the new production piece .

Rob Reilly: No. Let's start at the beginning. I'd say the short answer to your question is it's loan mix on the new production piece. If you go back to January when we called for 8% average loan growth, what we did is we just used average spreads on the new production through 2026. Where we find ourselves today after Q1 is we've generated, on a relative basis, a 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's just a mix change that when we look out for the full year, we'll have higher volume on relatively lower spreads. As you point out, that results in higher NII than we thought in January, which is a good thing.

Speaker #3: So if you go back to January , when we called for 8% average loan growth , what we did is we just used average spreads on the new production through 2026 , where we find ourselves today .

Speaker #3: After the first quarter , is we've 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 .

Speaker #3: So it's just a mix change that when we look out for the full year , we'll have higher volume on relatively lower spreads .

Speaker #3: And as you point out , that results in higher NII than we thought in January , which is a good thing And as far as Nim , well , we might as well cover Nim because someone will ask the question , you know , we saw a nice increase there in the first quarter relative to our expectations .

Rob Reilly: As far as NIM, we might as well cover NIM because someone will ask the question. We saw a nice increase there in Q1 relative to our expectations. We still expect to go above 3% in H2. As you pointed out, we're at 2.95%, so if we're going to be above 3% in H2, you can do the math there in between. Most of the expansion of that is still coming from the fixed-rate asset repricing that continues to be very strong.

Speaker #3: We still expect to go above 3% in the second half . But as you pointed out , we're at 2.95 . So if we're going to be above three in the second half you can you can do the math there in between .

Speaker #3: But most of the expansion of that is still coming from the fixed-rate asset repricing. That continues to be very strong.

Speaker #8: That's great color . Thank you .

Manan Gosalia: That's great color. Thank you.

Speaker #6: Sure

Rob Reilly: Sure.

Speaker #4: Thank you . Our next question is from the line of John Pancari with Evercore . Please proceed with your questions

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

Speaker #9: Good morning .

John Pancari: Morning.

Speaker #6: John , on the

Rob Reilly: Morning, John.

John Pancari: On the fee side, I know your capital markets revs decreased a bit off the particularly solid Q4, particularly on the M&A front. Can you maybe update us on the outlook here in terms of pipelines and how you'd be thinking about M&A and your other capital markets revenue just given the current backdrop? Thanks.

Speaker #9: On the fee side, your capital markets revenues decreased a bit off the particularly solid fourth quarter, particularly on the M&A front.

Speaker #9: Can you maybe update us on the outlook here in terms of pipelines, and how you would be thinking about M&A and your other capital markets revenue, just given the current backdrop?

Speaker #9: Thanks .

Speaker #3: Yeah, sure. I missed the first part of the question, but it was all about capital markets and sort of a—

Rob Reilly: Yeah, sure. I missed the first part of the question, but it was all about capital markets.

Speaker #2: Just saying that Harris Williams .

John Pancari: You were just saying the Harris Williams drive.

Bill Demchak: You were just saying the Harris Williams drive.

Speaker #3: John Williams oh , okay . Yeah , yeah . Sorry . Yeah . No , I've got that . Yeah . So so Harris Williams had a strong quarter actually in the first quarter .

Rob Reilly: Oh, Harris Williams. Oh, okay. Yeah. Sorry.

John Pancari: Yeah.

Rob Reilly: No, I've got that. Yeah. Harris Williams had a strong quarter actually in Q1. It was off the elevated levels of Q4, but higher than what we expected. The good news is their pipelines are strong, so going into Q2, we expect them to be at the levels that they've been at Q1, which, again, is more than what we thought. Strong activity there, and that is leading to the guide. In Q2, we have capital markets essentially being at the same level, and then, more importantly for the full year, still up double digits.

Speaker #3: It was off the elevated levels of the fourth quarter, but higher than what we expected. And the good news is their pipelines are strong.

Speaker #3: So going into the second quarter we expect them to be at the levels that they've been at the first quarter , which again is more than what we thought .

Speaker #3: So, strong activity there, and that is leading to the guide. So, in the second quarter, we have capital markets essentially being at the same level.

Speaker #3: And then more importantly for the full year still up double digits

Speaker #9: Got it . Okay , great . And then on the capital front , appreciate the buyback color in terms of the expectation for the second quarter , maybe just more broadly , if you could talk about capital allocation priorities and , and Bill , maybe if you could just give us the update again on where you stand on M&A interest , just given the backdrop and the activity and the regulatory posture to deal with , just want to get your updated thoughts .

John Pancari: Got it. Okay, great. On the capital front, appreciate the buyback color in terms of the expectation for Q2. Maybe just more broadly, if you could talk about capital allocation priorities, and Bill, maybe if you could just give us the old update again on where you stand on M&A interest, just given the backdrop we're in and the activity and the regulatory posture to deals. Just want to get your updated thoughts. Thanks.

Speaker #9: Thanks

Speaker #2: Talk about capital .

Bill Demchak: Talk about capital.

Speaker #3: We asked you about M&A

Bill Demchak: We asked you about M&A.

John Pancari: We asked you about M&A.

Bill Demchak: Oh.

Speaker #2: So , so real simply right . We obviously like to use our capital on clients and our business . We have increased our buyback just given capacity to do so .

Bill Demchak: Real simply, right? We'd obviously like to use our capital on clients in our business. We have increased our buyback just given capacity to do so. We have, and you should expect that we will continue to have healthy dividends. In the ordinary course, we'd otherwise be giving back more capital to shareholders than perhaps we have in the last handful of years, Rob, is that accurate?

Speaker #2: You know we have and you should expect that we will continue to have healthy dividends . So the you know , in the ordinary course , we'd otherwise be giving back more capital to shareholders than perhaps we have in the past .

Speaker #2: Handful of years . Rob , is that accurate ? Yeah , yeah . The M&A side , you know , the noise and activity levels , forgetting about us , just kind of what I see going on around us seems to have died down .

Rob Reilly: Yeah.

John Pancari: The M&A side, the noise and activity levels, forgetting about us, just kind of what I see going on around us seems to have died down. We're focused on growing our company organically. We have great momentum on that. We keep our eyes open. You've heard me say a lot of times, I just don't think there's going to be a lot of activity, particularly with us. It's an easier for banks.

Bill Demchak: The M&A side, the noise and activity levels, forgetting about us, just kind of what I see going on around us seems to have died down. We're focused on growing our company organically. We have great momentum on that. We keep our eyes open. You've heard me say a lot of times, I just don't think there's going to be a lot of activity, particularly with us. It's an easier for banks.

Speaker #2: We're not you know , we're focused on growing our company organically . We have great momentum on that . We keep our eyes open .

Speaker #2: But I you know , you've heard me say a lot of times I just don't think there's going to be a lot of activity , particularly with us .

Speaker #2: It's an easy year for banks . People are happy to do what they want to do , and we're not going to push on a string , nor do we need to

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

Speaker #6: Got it .

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

Speaker #9: All right . Thanks .

Speaker #6: Appreciate it

Speaker #4: Thank you . Our next question comes from the line of Ken Usdin with Autonomous Research . Please proceed with your questions

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

Speaker #10: Hi . Thanks . Good morning . Hey . I was just wondering , obviously , we see the outlook for the cost still intact for the year .

Ken Usdin: Hi. Thanks. Good morning. Hey, I was just wondering, obviously we see the outlook for the cost still intact for the year and then higher Q1 to Q2. Can you just remind us the expected closing of FirstBank, and then the magnitude of saves you're expecting, and then how that cascades to a run rate as you get through the rest of the year? Thanks.

Speaker #10: And then hires first to second . Can you just remind us the expected closing of first Bank and then the magnitude of savings you're expecting ?

Speaker #10: And then how that cascades to a run rate as you get through the rest of the year . Thanks .

Speaker #3: Oh yeah . So , so again , you know , our full year guide holds in terms of expenses up 7% , which includes the operating expenses of first Bank .

Rob Reilly: Oh, yeah. Sure, Ken. Again, our full-year guide holds in terms of expenses up 7%, which includes the operating expenses of FirstBank. You didn't ask the question, though, in terms of how the expenses have fallen in the quarter. Relative to Q1, we spent a little less than we expected. That will fall into Q2, largely around technology investments and the timing of those investments. On FirstBank itself, everything's going well. We're still planning to convert mid-June. Everything's holding there. We expect, as I'd said, $325 million or so of integration charges. We'll see the decline of their run rate, obviously in terms of H2 2026.

Speaker #3: You didn't ask the question though , in terms of sort of how the expenses have fallen in the quarter . Some people have asked that relative to the first quarter , we spent a little less than we expected .

Speaker #3: That will fall into the second quarter , largely around technology investments and the timing of those investments on first Bank itself . Everything's going well .

Speaker #3: We're still planning to convert mid-June . So everything's holding there . We expect , as I've said , 325 million or so of integration charges .

Speaker #3: And then we'll see the the decline of their run rate . Obviously , in terms of the second half of 26 , there will be some residual integration charges in the second half , but the majority will be completed in the second quarter , which in my comments I pointed out will be about $150 million .

Rob Reilly: There'll be some residual integration charges in H2, but the majority will be completed in Q2, which in my comments I pointed out will be about $150 million. That's all in our guidance. That's all there. It's on track and we feel good about it.

Speaker #3: So that's all in our guidance . That's all there . It's on track and we feel good about it .

Speaker #10: Got it . And so then we would , I would assume that the cost savings would run rate by the fourth quarter . And then that's given you .

Ken Usdin: Got it. I would assume that the cost saves would run rate by Q4, and then that's giving you a starting point.

Speaker #3: Yeah .

Speaker #10: Yeah . That's right .

Speaker #6: Yeah .

Speaker #3: I think that's a good that's a good that's a good place to start

Rob Reilly: Yeah. I think that's a good place to start.

Speaker #10: Okay , cool . Great . And Rob , can you actually dig on that point a little bit just to push off of some spending from first to second ?

Ken Usdin: Okay, cool. Great. Rob, can you actually dig on that point a little bit, does the push off of some spending from Q1 to Q2? That was going to be my follow-up, actually.

Speaker #10: That was going to be my follow-up, actually. So

Speaker #6: Yeah .

Speaker #10: Yeah, yeah. Does that demonstrate the flexibility that you guys have, or—go ahead. Thank you.

Rob Reilly: Yeah

Ken Usdin: Does that demonstrate the flexibility that you guys have? Go ahead. Thank you.

Speaker #3: Nah . I mean , well , of course we have flexibility , but that wasn't what drove it . It was just , you know , in terms of the timing , it can slip into the second quarter in terms of what we plan to do in the last couple of weeks of the first quarter .

Rob Reilly: No. Well, of course we have flexibility, but that wasn't what drove it. It was just in terms of the timing can slip into the Q2 in terms of what we plan to do in the last couple of weeks of the Q1. Nothing major.

Speaker #3: Nothing , nothing major

Speaker #10: Okay, I got it. All right. Thanks a lot.

Ken Usdin: Okay, I got it. All right. Thanks a lot.

Speaker #4: Thank you . Our next question comes from the line of David Severini with Jefferies . Please proceed with your questions .

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

Speaker #11: Hi . Thanks for taking the question . So on deposit pricing competition , are there any differences in competitiveness by geography in your footprint

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

Speaker #3: Not really .

Rob Reilly: Not really.

Speaker #2: I was I was going to say in our retail memo , Midwest , right . There are comments on just the Midwest being kind of tight with high promo offers by a few of the competitors , but it's , you know , it depends .

Bill Demchak: I was going to say in our retail memo, Midwest, there were comments on just the Midwest being kind of tight with high promo offers by a few of the competitors. It depends. In part of the country, you have people doing big promo CDs.

Speaker #2: In part of the country , people doing big promo CDs in other parts of the country .

Speaker #3: They're in West with CDs .

Rob Reilly: Midwest with CDs. Yeah.

Speaker #6: Yeah .

Speaker #2: It's on their money market funds. People are fighting for deposits, and people are fighting for clients.

Bill Demchak: It's on their money market funds. People are fighting for deposits and people are fighting for clients.

Speaker #3: And not particularly harder in any geography .

Rob Reilly: They're not particularly harder in any geography.

Speaker #6: Yeah , maybe .

Bill Demchak: Yeah, maybe. As it relates to us, you can see our growth and our growth in clients has been really strong, and we don't have to go and lead with our faces here on price.

Speaker #2: But we're , you know , as it relates to us , you can see our growth and our growth in clients has been really strong .

Speaker #2: And, you know, we don't have to go and lead with our faces here on price.

Speaker #11: Yep . No , that's that's fair . Sounds like it's mostly stable . So that's good . And then shifting on to the loan side , can you talk about borrower sentiment pipelines .

David Chiaverini: Yep. No, that's fair. Sounds like it's mostly stable. That's good. Shifting on to the loan side, can you talk about borrower sentiment, pipelines, and then the competitiveness on the loan pricing front?

Speaker #11: And then the competitiveness on the loan pricing front.

Speaker #3: Yeah . So , so again , first quarter was really strong . You know , it's always competitive . Our , like I said , our new production was skewed towards the higher credit quality , lower spread and the pipelines look strong .

Rob Reilly: Yeah. Again, Q1 was really strong. It's always competitive. Like I said, our new production was skewed towards the higher credit quality, lower spread. The pipelines look strong, a continuation of that into Q2, which I mentioned earlier. Pipelines are good.

Speaker #3: Continuation of that into the second quarter, which I— which I mentioned earlier. So pipelines are good.

Speaker #2: The only thing we've really seen on spread widening as you get into any of the space , you know what , I'll , I'll call leveraged lending .

Bill Demchak: The only thing we've really seen on spread widening as you get into any of the space on what I'll call leveraged lending, we don't do much of that. In business credit, we've seen spreads move. Our partnership with TCW on cash flow lending, those spreads have gap 50 basis points on new production just because of the kind of scare around what's going on.

Speaker #2: We don't do much of that . But in business credit , we've seen spreads move , you know , our partnership with TCW on cash flow lending , you know , those spreads have got 50 basis points .

Speaker #2: New production just because of the kind of scare around what's going on in pressure things .

Rob Reilly: They made sure.

Speaker #6: Yeah .

Bill Demchak: Yeah. This is a good thing. Yeah.

Speaker #2: This is a good thing .

Speaker #6: Yeah . The other .

Speaker #3: The other thing to mention is around loans is that we did reach the inflection point on our commercial real estate balances , which we called for in the first quarter of 26 .

Rob Reilly: Other thing to mention around loans is that we did reach the inflection point on our commercial real estate balances, which we called for in Q1 of 2026. As you know, that's been a headwind for a number of quarters. We've reached that inflection point as we expected.

Speaker #3: So as you know , that's been a . Headwind for a number of quarters and , you know , we've reached that inflection point as we expected .

Speaker #11: Great . Thank you

David Chiaverini: Great. Thank you.

Speaker #4: Thank you . Our next question comes from the line of Chris McGrath with KBW . Please proceed with your questions .

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

Speaker #12: Oh , great . Good morning , Bill and Rob . You talked a lot about your confidence in the credit of the private credit portfolio and EFI lending .

Chris McGratty: Oh, great morning. Bill and Rob, you talked a lot about your confidence in the credit of the private credit portfolio and NBFI lending. I guess, where would that rank in the wall of worry within the company? It seems like the market's, to your point, overestimating the kind of loss content, but where in the risk curve does that lie?

Speaker #12: I guess , where would that rank in the wall of worry within the company ? It seems like the markets , to your point , overestimating the kind of the lost content , but where in the risk curve does does that lie ?

Speaker #2: It's not even on the curve. I mean, if you go through that whole bucket, the riskiest piece in the whole thing is that little $5 billion slice that is to rights and leasing and this and that.

Bill Demchak: It's 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 and leasing and this and that and the other thing. Like a AAA CLO senior tranche, static maturity. To my memory, there's never actually been a loss in the history of the product in the AAA of a corporate. The BDC exposure is really small. Even if that whole market blows up, which I don't think it's going to, that just causes that product to early am. You'd have to have massive corporate defaults and low recovery rates to ever get hit on that. You want to talk, remember when we highlighted our real estate book, we said, hey, we're worried about this, we're working through it, we preserved a lot of it, sorry, in office.

Speaker #2: And the other thing , it's not like a triple A c o senior tranche , you know , static maturity . I to my memory , there's never actually been a loss in the history of the product and the triple H of a corporate , the BDC exposure is really small , you know , even if that whole market blows up , which I don't think it's going to , that just causes that product to early .

Speaker #2: AM , you have to have massive corporate defaults and low recovery rates to ever get hit on that . So , you know , I just like , you know , you want to talk , remember , you know , we highlighted our real estate book .

Speaker #2: We said , hey , we're worried about this . We're working through it . We reserve the same lot of it . Sorry .

Rob Reilly: Yeah.

Speaker #2: In office like this isn't even on the page of what we're looking at . This is nothing . I mean , it's great business .

Bill Demchak: This isn't even on the page of what we're looking at. This is nothing. It's great business. It doesn't worry me. I worry about trucking companies, and I worry about people who are dependent on fuel and what's going to happen to discretionary spending. This isn't in that list.

Speaker #2: It doesn't worry me. I worry about trucking companies, and I worry about people, you know, people who are dependent on fuel and what's going to happen to discretionary spending.

Speaker #2: This this isn't in that list .

Rob Reilly: Just as a follow-up, that real estate piece that you'd point to that's the most risk is very little risk.

Speaker #3: I just as a follow up , that real estate piece that you point to , that's the most is very little risk , you know , so that's on a relative basis , but I think we had one loss back in 2014 in that category .

Bill Demchak: Yeah.

Rob Reilly: That's on a relative basis, but I think we had one loss back in 2014 in that category, and we're still talking about it.

Speaker #3: And you know , we're still talking about it .

Bill Demchak: Oh, on the REITs. Yeah.

Rob Reilly: Yeah.

Speaker #2: Oh, and the reach.

Speaker #6: Yeah . Yeah .

Bill Demchak: I get with you. The market has seen liquidity events in a small slice of what is private credit, and it has scared everybody. Maybe it should if you're somehow trying to get money out in a hurry. That isn't where we are. We're a senior position against diversified pool of loans with a low advance rate. We've been doing this for 30 years.

Speaker #2: Yeah . It's it's I mean , I get the , you know , the market has seen liquidity events in a small slice of what is private credit and it has scared everybody and , you know , maybe it should if you're somehow trying to get money out in a hurry , but that isn't where we are .

Speaker #2: Our senior position against diversified pool of loans with a low advance rate . Yeah , we've been in we've been doing this for 30 years .

Rob Reilly: Just to add to that, and this is important because a lot of people focus on it. That category of business credit intermediaries, the vast majority of ours are trade securitizations. People sometimes mistakenly call that whole category private credit. For us, it's quite the opposite.

Speaker #3: And then just just to add to that , and this is important because a lot of people are focused on it . That category of business credit intermediaries , the vast majority of ours are trade securitizations .

Speaker #3: So people sometimes mistakenly call that whole category private credit . And for us , it's it's quite the opposite .

Bill Demchak: We stayed in, just to hammer on this point. Way back in the financial crisis when corporate receivable securitizations used to be done through CP, it kind of all stopped with the reversal at money funds. A handful of us just 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, and we're by far the market leader in it, and that's what's blowing up that category for us when you look at comparisons of how much we have in the book. It is not risky. It's a great business, and we're going to keep doing it. As an aside, we're going to have some conversations with the regulators on the uselessness of what they've defined as MDFIs.

Speaker #2: So we stayed in just a hammer on this point way back in the financial crisis , when corporate receivables securitizations used to be done , done through CP , it kind of all stopped with the reversal and money funds and a handful of us just started doing it .

Speaker #2: 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 .

Speaker #2: And we're by far the market leader in it . And that's what's 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's a great business and we're going to keep doing it .

Speaker #2: And , you know , as an aside , we're going to have some conversations with the regulators on the uselessness of what they've defined as Nfis

Chris McGratty: Great color. Thank you for that. Just my follow-up, I think it was $350 million you talked about as the savings. I'm interested beyond this year. You've got the cost savings from this program and also the FirstBank deal. I guess, is there more behind this potential to cut costs as the narrative around AI and technology investments? Is there another benefit that yields in the next couple of years?

Speaker #12: Great color . Thank you . Thank you for that . Just my follow up , the I think it was $350 million you talked about as the the savings .

Speaker #12: You know , I'm interested beyond this year . You've got the cost savings from from this program and also the first bank deal .

Speaker #12: Is there more , I guess , is there more behind this potential to cut costs as you as the narrative around AI and technology investments ?

Speaker #12: Is there , is there another benefit that yields in the next couple of years

Bill Demchak: Yes, is the short answer. I don't know that it's a standout structural change in the efficiency of banks in the sense that we've been automating for years and years and years and largely kept our headcount as flat as we've doubled or tripled the size of the company. That sort of thing 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. Everybody's eventually going to catch up, and we're going to get to a place where banking, same trend we've been on forever and ever. The winner's going to be low-cost providers of really good products with trust behind it.

Speaker #2: Yes , it was a short answer . You know , I don't like I don't know that it's a standout structural change in the efficiency of banks in the sense that , you know , we've been automating for years and years and years and largely kept our headcount , you flat as we've doubled or tripled the size of the company , that sort of thing continues .

Speaker #2: AI allows that to continue . Maybe it accelerates through time , you know , maybe you can establish a competitive advantage early on , you know , be a leader in it .

Speaker #2: But everybody's eventually going to catch up and we're going to get to a place where banking , same trend we've been on forever and ever .

Speaker #2: You know , banking is going the winner is going to be low cost providers of really good products with trust behind it . You know , we're going to squeeze costs out of the production of what we basically offer to customers .

Bill Demchak: We're going to squeeze costs out of the production of what we basically offer to customers, and you're going to need to do that to win in a consolidated industry.

Rob Reilly: That's likely over multiple years.

Speaker #2: And you're going to need to do that to win in a consolidated industry.

Bill Demchak: Yeah.

Rob Reilly: For 2026, our continuous improvement $350 million of savings is part of our guide, which is up 7%.

Speaker #3: And but that's likely over multiple years . So for 26 or 20 , 26 , our continuous improvement , $350 million of savings is part of our guide , which is up 7% .

Chris McGratty: Yep, got it. Great. Thank you.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

Speaker #6: Yep . Got it .

Speaker #12: Great .

Speaker #6: Thank you .

Speaker #4: Thank you . As a reminder , if you would like to ask a question , please press star one on your telephone keypad .

Speaker #4: Our next question comes from the line of Matt O'Connor with Deutsche Bank . Please proceed with your questions .

Matt O'Connor: Good morning. Can you guys talk about your interest rate positioning right now and I guess how you're thinking about hedging? Because I feel like the best hedges are put on when maybe the market doesn't really know where rates might go, which is kind of where we're at right now. At least it feels like that. Where are you right now, and what are you more concerned about protecting, downside or upside?

Speaker #13: Good morning . Can you guys talk about your interest rate positioning right now ? And I guess how you're thinking about hedging ? Because I feel it's the best hedges are put on when maybe the market doesn't really know where rates might go , which is kind of where we're at right now .

Speaker #13: It feels like that. So, what do you think? You know, where are you right now? And what are you kind of more concerned about—protecting the downside or the upside?

Bill Demchak: Sort of technical answer, we are basically economic value of capital flat. Duration is 0 in our equity. We're flat to overall rate movement inside of our balance sheet. Having said that, we have continued the process as you've seen us do in 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've done that well. It gives us greater certainty around some of our comments we've talked about with respect to certainly with 2026, but even 2027, and into 2028 as we lock down some of these rates.

Speaker #2: Sort of technical answer . We are basically Economic value of capital flat . So duration is zero . And our equity we're flat to overall rate movement inside of our balance sheet .

Speaker #2: Having said that , we have continued the process as you've seen us do . And you know , last year into this year of locking in forward curve rates , particularly when we see some volatility to the upside , the You know , the belly of the curve .

Speaker #2: So we've done that . Well . It gives us greater certainty around some of our comments . We've talked about with respect to , you know , certainly with 26 .

Speaker #2: But even 27 and into 28 as we lock down some of these rates .

Rob Reilly: Neutral in 2026.

Bill Demchak: Yeah.

Rob Reilly: Looking to lock in some in 2027 and 2028, similar to what we did last year.

Speaker #3: So neutral in . 26 and looking to lock in some in 27 and 28 , similar to what we did last year . Yeah , yeah .

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

Speaker #2: Part of this discussion though , of course is , you know , don't we're going to have really good NII trajectory for the next couple of years .

Speaker #2: We're going to do that despite being flat total rate exposure , which means we're not trading our future like five years out for the ability to produce really strong NII .

Matt O'Connor: Okay, that's helpful. I guess specifically within some of these MSR hedges, the residential and commercial, I understand this is not like the broader interest rate risk management, but I'm wondering, is there anything to read through there? You've had pretty strong net gains the last several quarters, and this time I think it was more offsetting. Just anything interesting to point out there?

Speaker #2: In the first couple of years

Speaker #13: Okay . That's helpful . And then I guess specifically within some of these MSR hedges , the residential and commercial , I understand this is not like the broader interest rate risk management , but I'm wondering , is there anything kind of to read through there ?

Speaker #13: You've had pretty strong net gains for the last several quarters , and this time I think it was , you know , more offsetting just anything interesting to point out there .

Bill Demchak: Look, we got chopped up, right? That's a massively negative convex book, and you're short options every which way you try to hedge it.

Speaker #2: Look , we got chopped up right . Volatility . I mean that's a massively negative CapEx book . And your short options every which way you try to hedge it .

Matt O'Connor: Right.

Bill Demchak: Realized vol was way higher than implied as we tried to hedge out that risk. We got chopped up. It happens, and you're exposed to it any time you have rate swings as aggressively as we saw in Q4 around some of the news. You're right. Through time, that tends to be an income-producing line item for us where usually we're plus, I don't know, $10 million a month.

Speaker #2: And realize vol was way higher than you implied . As we tried to hedge out that risk , we got chopped up , you know , it happens in your ear exposed to it .

Speaker #2: Anytime you have rate swings as aggressively as we saw in the fourth quarter , around some of the news , and you're right through time , that tends to be , you know , a , a in income producing line item for us where , you know , usually we're plus , I don't know , 10 million bucks .

Rob Reilly: It's not a driver at that point.

Bill Demchak: Yeah. It's just we got chopped up.

Rob Reilly: Q1.

Bill Demchak: This quarter.

Speaker #3: It's not a driver point .

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

Speaker #2: It's just, we got chopped.

Speaker #6: Up .

Speaker #2: Quarter this quarter .

Speaker #3: The quarter that heightened rate volatility was the driver of an unusually large negative for us.

Bill Demchak: Yeah. It wasn't like nobody screwed up. It wasn't a trading thing. It was literally realized volatility's higher than what was implied.

Speaker #2: But it wasn't like nobody — nobody screwed up. It wasn't a trading thing. It was, you know, literally realized volatility is higher than what was implied.

Matt O'Connor: Yeah.

Bill Demchak: Anything that has optionality in it, in effect, gets hurt in that environment.

Speaker #2: Yeah. So anything that has optionality in it, in effect, gets hurt in that environment.

Matt O'Connor: Okay. Yeah, I realize the residential and commercial essentially offset each other. That's not too bad.

Speaker #13: Okay . Yeah . And I realize the residential and commercial essentially offset each other . So that's not too bad . Getting chopped up .

Rob Reilly: Right

Matt O'Connor: Getting chopped up. Yeah. Okay. Thank you.

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

Speaker #13: All right . Thank you

Speaker #4: Thank you . Our next questions come from the line of Mike Mayo with Wells Fargo . Please proceed with your questions .

Mike Mayo: Hey. 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? Maybe you're doing so already. Clearly, you're leaning into using capital with net loan growth that you had and you expect, but maybe more buybacks, a deal. How do you think about using that excess capital and when? Thanks.

Speaker #13: Hey, to the extent that RWA with Basel III might be 10% less, how would you plan to use that extra capital?

Speaker #13: And when might you start leaning into using more capital ? Or maybe you're doing so already . Clearly you're leaning into using capital with that loan growth that you had , and you expect , but maybe more buybacks , a deal .

Speaker #13: How do you think about using that excess capital and when ? Thanks

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

Speaker #2: It's down the road . You know , we've increased our buyback . We've seen good deployment to our growth in the franchise . We'll see when this thing even gets , you know , comments are in and it gets approved and it gets done .

Speaker #2: And then it'll be a whole new environment and we'll figure out what we do at that point in time . But it's a nice problem to have , we're going to drop a point of capital into our pocket .

Mike Mayo: How do you see competition? It seems like the industry's all playing offense or everyone's front-footed. You've been growing unused lines of credit, and I guess that's unused commitments, I mean, and that's playing out to a certain degree. You've 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? I don't know. It just seems like everyone has excess capital, and in those situations, historically, you've seen competition swing a little too far. I don't think you're there, but just trying to take the pulse.

Speaker #2: We'll figure it out when it shows up

Speaker #13: How do you see competition ? It seems like the industry's all playing offense or everyone's front footed . You know , you've been growing , you know , unused lines of credit .

Speaker #13: And I guess that's unused commitments . I mean , and that's playing out to a certain degree . So you've already been competing , but others are coming back more in force .

Speaker #13: And so, how do you see competition generally, especially with regard to loan growth? How are you getting so much more loan growth than the industry?

Speaker #13: To what degree are you competing on price and I don't know , it just seems like everyone has excess capital and in those situations historically , you've seen competition swing a little too far .

Speaker #13: I don't think you're there , but just trying to . Yeah , the pulse .

Bill Demchak: That isn't our story. Look, we're bringing all these new markets online. We have more shots on goal. We're seeing more opportunities as opposed to trying to rebid the same deal I've been in for 22 years, in our local market. That's a big part of it, and that's why you saw when we kind of went through the Southeast, now it's accelerating with BBVA and FirstBank markets. The other issue is we have a much more, I don't know what to call it, specialty lending. Don't read that as high risk, but we're in a lot of lending products that aren't commodity capital. Whether it's our corporate receivables business, asset-based lending, or equipment finance, we're in a lot of things that isn't simply throwing money out as a generic good. I think at the margin, that always helps us outperform.

Speaker #6: Is .

Speaker #2: And that is in our story . I mean , we look , you know , we're bringing all these new markets online . We have more shots on goal .

Speaker #2: So we're just we're seeing more opportunities as opposed to trying to rebid the same deal I've been in for 22 years . You know , in our local market .

Speaker #2: So that's a big part of it . And that's why we've , you know , you saw when we , we kind of went through the southeast .

Speaker #2: Now it's accelerating with , you know , BBVA and , and , and , and first Bank markets . The other issue is we have a Much more .

Speaker #2: I don't know what to call it , specialty lending . Don't read that as high risk . But , but we're in a lot of lending products that aren't commodity capital .

Speaker #2: You know , so whether it's our corporate receivables , business or asset based lending or , you know , or equipment finance , we're in a lot of things that isn't simply throwing money out as a , as a generic good .

Speaker #2: And I think at the margin , that always helps us outperform .

Rob Reilly: The other piece to that.

Mike Mayo: And then-

Rob Reilly: Oh, I'm sorry.

Mike Mayo: No, go ahead.

Speaker #3: You know , the other piece to that is , oh , I'm sorry , just on the no . Go ahead expansion or the , the new market or what we call our expansion markets for our market based corporate loans .

Rob Reilly: Expansion of the new markets or what we call our expansion markets for our market-based corporate loans. Our national businesses aside, they're now half our loans.

Bill Demchak: Yeah, growing.

Speaker #3: So our national business is aside. They're now half our loans.

Rob Reilly: Growing.

Bill Demchak: At twice the pace.

Rob Reilly: That's a big driver.

Speaker #6: Yeah . And growing

Speaker #2: Twice the pace .

Mike Mayo: I'm sorry. I missed what you said there. What's half your loans?

Speaker #6: So yeah .

Speaker #3: That's , that's a big , big driver .

Speaker #13: I'm sorry . I missed what you said there , there . How much of your have your loans

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

Speaker #3: 50 , 51% . More than half of our market based loans . So we have national businesses that are not market based , but in all the markets that we've entered within the last 12 years Half of our corporate loans are in those markets

Mike Mayo: Oh, that's interesting. What was that percentage, just say, a few years ago?

Speaker #13: Oh , that's interesting . And what was that percentage ? Just say a few years ago

Rob Reilly: 40, I don't know if it's 30. It probably started at 30, depending on where you are.

Speaker #3: 40 I , I don't have the number 30 . It probably started at 30 depending on where you are . Yeah . It's growing at two times rate .

Bill Demchak: Yeah.

Rob Reilly: It's growing at good rate. Yeah.

Mike Mayo: It's growing two times the rate? Okay.

Rob Reilly: Yeah.

Speaker #3: Yeah .

Mike Mayo: Do you want to call out any of the expansion markets in particular being a little bit stronger than others?

Speaker #13: It's growing two times the rate . Okay .

Mike Mayo: Do you want to call out any of the expansion markets in particular being a little bit stronger than others?

Speaker #3: Yeah . Generally speaking

Speaker #13: And you want to call out any of the expansion markets in particular being a little bit stronger than others

Rob Reilly: Well, we've done very well in the Southeast, where we've been the longest, certainly with the Southwest, Texas and California, Colorado now, because we're online there.

Speaker #3: Well we've done very well in the southeast where we've been . You know , the longest . But then certainly with the southwest , Texas and California , Colorado now , because we're online there .

Bill Demchak: California's been, in some ways, shockingly strong. It's just a target-rich environment that the amount of commercial middle-market clients that are within the ZIP codes of California.

Speaker #2: California's been in some ways shockingly strong . It's just a it's a target rich environment that the , the amount of commercial middle market clients that are within the zip codes of California .

Rob Reilly: Yeah, massive.

Bill Demchak: Great clients, great fee. The other thing I'd just remind you is we haven't done this by just doing loans. Our fee income percentage in these new markets is actually equal to or higher than our legacy markets.

Speaker #6: Yeah, exactly. Yeah.

Speaker #2: Great clients , great fee . And the other thing , I just remind you is we haven't done this by just doing loans like our fee income percentage in these new markets is actually equal to or higher than our legacy markets .

Rob Reilly: Yeah, that's an excellent point.

Bill Demchak: Yeah, it's not like we're running out throwing money at people, where it's an integrated relationship, and we're really good at it, and we're growing.

Speaker #3: Yeah , it's an excellent point .

Speaker #6: Yeah .

Speaker #2: So it's not like we're running out throwing money at people . We're like , it's an integrated relationship . and we're really good at it and we're growing

Mike Mayo: All right. That's helpful. Thank you.

Rob Reilly: Sure.

Speaker #13: All right . That's 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.

Speaker #6: Sure .

Speaker #4: Thank you . Our next question comes from the line of Gerard Cassidy , RBC Capital Markets . Please proceed with your questions .

Gerard Cassidy: Hi, Bill. Hey, Rob.

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: Hi, Bill. Hey, Rob.

Bill Demchak: Hey, Gerard.

Gerard Cassidy: Bill, following up on your comments about the focus on organic growth, can you share with us an update? I think it was at the BAB conference in November. Rob and Gunner gave us more details about the retail expansion that you guys are undertaking. Can you share with us, how is that going? What are you learning from the process, and are you pleased with the pace in which you're growing it?

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: Bill, following up on your comments about the focus on organic growth, can you share with us an update? I think it was at the BAB conference in November. Rob and Gunner gave us more details about the retail expansion that you guys are undertaking. Can you share with us, how is that going? What are you learning from the process, and are you pleased with the pace in which you're growing it?

Speaker #14: Hey, Bill. Hey, Rob.

Speaker #6: Hey ,

Speaker #14: Bill . Following up on your comments about the focus on organic growth , can you share with us an update I think it was at the Bab conference in November .

Speaker #14: Robin Garner gave us more details about the retail expansion that you guys are undertaking . Can you share with us ? How is that going ?

Speaker #14: What are you learning from the process ? And and are you pleased with the pace in which you're growing ? It ?

Bill Demchak: I'm chuckling here because Alex is going to be amused that his older brother gave the presentation.

Speaker #2: I'm chuckling here because Alex is going to be amused that his older brother gave the presentation

Gerard Cassidy: I apologize.

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: I apologize.

Speaker #14: Oh , I apologize

Bill Demchak: It's all good. First of all, it's working. What have we learned through the process? It's 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've kind of created a production factory around it. We've learned a lot about how to create a massive buzz around a new branch opening. That is particularly when we're trying to, in effect, get our fair share in a newer market where we're building a lot of branches. We haven't leaned into pricing to attract new customers necessarily, which is an accelerant if we want to use it. They're working really well.

Speaker #2: It's all good .

Speaker #6: You know .

Speaker #2: First of all , it's working . You know , what have we learned through the process ? It's actually hard to build 60 or 100 branches a year .

Speaker #2: You know, the site location, the teams that you need in each market to pull this off. We've kind of created a production factory around it. We've learned a lot about how to create a massive buzz around a new branch opening.

Speaker #2: You know , that is particularly when we're when we're trying to , you know , in effect , get our fair share in a new market where we're building a lot of branches .

Speaker #2: We haven't leaned into, you know, pricing to attract new customers necessarily, which is an accelerant if we want to use it.

Speaker #2: But they're working really well

Gerard Cassidy: Yeah, go ahead.

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: Yeah, go ahead.

Bill Demchak: Sorry, no, you go ahead.

Speaker #14: And have you? Yeah. Go ahead.

Gerard Cassidy: On the metrics, have you kind of crystallized what you need in deposits or the type of deposits to bring a branch up to, let's say, break-even? Generally, how long does it take to reach that point?

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: On the metrics, have you kind of crystallized what you need in deposits or the type of deposits to bring a branch up to, let's say, break-even? Generally, how long does it take to reach that point?

Speaker #6: Sorry. Go ahead. You go ahead.

Speaker #14: I was and then on the metrics , have you kind of crystallized what you need in deposits or the type of deposits to bring a branch up to , let's say , break even and generally how long does it take to to reach that point

Rob Reilly: Yeah. Everything's on track, Gerard, and as Alex pointed out back in November, we sort of pen in three years to kind of get to breakeven. Actually, we're running a little better than that right now. Everything, to Bill's point, is on plan, and we're excited about it.

Speaker #3: Yeah . So everything's on track . Gerard And as Alex pointed out back in November , you know , we sort of pen in three years to kind of get to break even .

Speaker #3: Actually , we're running a little better than that right now , but everything to Bill's point is on plan . And we're we're excited about it .

Gerard Cassidy: Very good. Pivoting away from this growth. I know you know, Bill, because you've talked about it, there's 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, I think it went into effect in December, those restrictions went away? Are you seeing any benefits from that, where you're winning new business because you're able to have some flexibility and optionality now?

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: Very good. Pivoting away from this growth. I know you know, Bill, because you've talked about it, there's 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, I think it went into effect in December, those restrictions went away? Are you seeing any benefits from that, where you're winning new business because you're able to have some flexibility and optionality now?

Speaker #14: Very good . Pivoting away from this growth . I know you know , Bill could have talked about it . There's been a change in the leverage lending guidelines by the FDIC and OCC .

Speaker #14: Have you been able to optimize any of your lending now that these—I think it went into effect in December—that those restrictions went away?

Speaker #14: But are you seeing any benefits from that where you're winning new business because you're able to have some flexibility and optionality now

Bill Demchak: That's a good question. Most of our struggle with that was that it was capturing business that we were going to do anyway, no matter how much they yelled at us, because it was really good business, and they just had the definition wrong. I'm actually not sure. Maybe at the margin, we've seen some acceleration in some of that stuff. Mostly what that did is it opened the window for banks just 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 can't do today.

Speaker #2: That's a good question . Most of our struggle with that was that it was capturing business that we were going to do anyway , no matter how much they yelled at us , because it was really good business .

Speaker #2: And they , you know , they just had the definition wrong I'm actually not sure . You know , maybe at the margin , we've seen some acceleration in some of that stuff , but but you know , mostly what that did is it opened the window for , you know , banks just to do good , smart business and not try to , you know , write a four paragraph description of what is a good or a bad loan .

Speaker #2: Which you just can't do today.

Gerard Cassidy: Very good. Thank you very much.

Gerard Cassidy [Managing Director, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst; RBC Capital Markets, Research Div: Very good. Thank you very much.

Bill Demchak: Yeah.

Speaker #14: Very good . Thank you very much .

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

Speaker #6: Yeah .

Speaker #4: Thank you. Our next question is coming from the line of Erika Najarian with UBS. Please proceed with your questions.

Erika Najarian: Hi. Good morning. Just a few quick follow-ups. Bill and Rob, I know you were asked a lot about the deposit opportunity, which you answered fully. Just wondering, just pulling up, if the Fed doesn't 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 doesn't cut?

Speaker #15: Hi . Good morning . Just a few quick follow ups . Bill and Rob , I know you were asked a lot about the deposit opportunity , which you answered fully .

Speaker #15: Just wondering , just pulling up if the fed doesn't cut this , this year , you know , how do you think deposit costs behave ?

Speaker #15: Do you think you could hold the line on deposit costs if the fed doesn't cut ?

Rob Reilly: Hey, Erika, this is Rob. Yeah, I do think so. If the Fed doesn't cut, which is our expectations that they won't, deposit costs stay fairly steady through Q2, and then maybe by our estimates, maybe go up a basis point or two, generally speaking.

Speaker #3: Yeah . Hey , Eric , this is Rob . Yeah , I do think . I think so if the fed doesn't cut , which is which is our expectations that they won't deposit costs , stay fairly steady through the second quarter and then maybe in our by our estimates , maybe go up a basis point or two .

Bill Demchak: The pressure up isn't from necessarily competition, but rather just repricing back book as things kind of roll.

Speaker #3: But generally speaking .

Speaker #2: The pressure . Yeah . The pressure up isn't from necessarily competition , but rather just repricing back book as things kind of roll .

Rob Reilly: Yeah.

Bill Demchak: We're bringing back book customers closer to a market level, which kind of at the margin will cause our deposit cost to go up over the next period if the Fed doesn't move. It's all in our guide, and it's not material. We'll still hit the 3%.

Speaker #6: Yeah . so we're .

Speaker #2: Bringing , you know , back book customers to a closer to a market level , which kind of at the margin will cause our deposit costs to , to go up over the next period .

Speaker #2: If the fed doesn't move . But it's not , it's all in our guide and it's not material . And we'll still hit the 3% .

Rob Reilly: That back book repricing is a dynamic that's been in place for a while. That's not new.

Speaker #3: And that fact book free pricing is a dynamic that's been in place for a while . That's not new . Yeah . So generally steady and but you know , obviously there's a risk if loan growth continues to exceed and there's pressure on those deposits .

Bill Demchak: Yeah.

Erika Najarian: Yeah.

Rob Reilly: It's generally steady. Obviously, there's a risk if loan growth continues to exceed and there's pressure on those deposits, but that would be a good thing.

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

Speaker #3: But that would be a good thing.

Speaker #6: Yeah .

Speaker #15: Got it . And just finally , Bill , one of your peers , David Solomon , actually talked about widening spreads in certain pockets of NFI lending .

Speaker #15: Are you observing similar spread? You know, expansion in certain NFI-type credits?

Bill Demchak: Drill down on that. Where inside of MDFIs, right? The spot everybody's focused on is in private credit. Inside of our bucket in that, our $7 billion is 90% CLOs. AAA tranches, I imagine, have widened.

Speaker #2: Yeah . So , so drill down on that where inside of Nfi's , right . That what everybody's focused on , you know , it's in , in private credit and inside of our bucket in that , you know , our 7 billion is 90% close Triple-A tranches .

Rob Reilly: Yeah.

Bill Demchak: I imagine facilities to BDCs are going to widen as the fear factor steps in. We have like $500 million out to BDCs.

Speaker #2: I imagine have widened. I imagine facilities to BDCs are going to widen as people, you know, as the fear factor steps in.

Rob Reilly: Even less.

Bill Demchak: Yeah. Like the odds of me figuring out that there's a spread movement in there is kind of unlikely.

Speaker #2: We have we have like 500,000,000oz .

Speaker #6: Even less , sees even less .

Speaker #2: So , you know , like the odds of me figuring out that there's a spread movement in there is kind of unlikely because we're .

Rob Reilly: Because it's not there.

Bill Demchak: Not that huge in the flow. Yeah.

Erika Najarian: Yeah. Got it. Perfect. Thank you.

Speaker #2: not huge in the flow .

Speaker #6: Yeah .

Speaker #15: Yeah , yeah , yeah , yeah . Got it . Perfect . Thank you

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

Speaker #4: Thank you. Our next question comes from the line of John McDonald with Truist. Please proceed with your questions.

John McDonald: Hi. Thanks. Good morning, Rob.

Rob Reilly: Hey, John.

John McDonald: was kind of wondering, as loan growth is picking up here, your reserve ratios look solid, but any need to start to provide a little bit for loan growth as we look ahead?

Speaker #16: Hi, thanks. Good morning, Rob. I was kind of wondering, as loan growth is picking up here, your reserve ratios look solid, but is there any need to start to provide a little bit further for loan growth as we look ahead?

Rob Reilly: Yeah. Well, sure. That'll be part of it. In fact, if you take a look at our provision increase quarter-over-quarter, that was largely driven by the loan growth that we saw. That comes along with loan growth. These tend to be, and what we've seen tend to be higher credit quality, so it's not as much. I would expect provision expense to go up with the growth in loans.

Speaker #3: Yeah . Well sure . That'll be part of it . In fact , that was if you take a look at our provision increase quarter over quarter , that was largely driven by the loan growth that we saw .

Speaker #3: So yeah , that comes along with loan growth . These tend to be and what we've seen tend to be higher credit quality .

Speaker #3: So it's not as much. But I would expect provision expense to go up with the growth in loans.

John McDonald: Okay. 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?

Speaker #16: Okay. And then on ROTC, any updated thoughts? I think you talked earlier about exiting the year at kind of an 18% ROTC, heading higher next year.

Rob Reilly: No, the same what we said back in January. Just to remind everybody, we finished Q4 2025 at approximately 18% ROTCE. That was elevated a little bit by the tax reserve release in the quarter. What we said, and we still believe, we're going to go down during 2026 because of the FirstBank acquisition and the impact on that. When we deliver everything that we intend to deliver in 2026 along our guidance, we'll be back to that approximately 18% in Q4 2026. The really important part is we would expect to drift higher as we go into 2027. That's still the plan.

Speaker #16: Any updates there ?

Speaker #3: No , no . The same same what we said back in January . So just to remind everybody , we the the fourth quarter of 25 at approximately 18% ROTC , that was elevated a little bit by the the tax reserve release in the quarter .

Speaker #3: And then what we said, and we still believe, we're going to go down during '26 because of the First Bank acquisition and the impact on that.

Speaker #3: And then when we deliver everything that we intend to deliver in 26 along our guidance will be back to that approximately 18% in the fourth quarter of 26 .

Speaker #3: But the really important part is we would expect to drift higher as we go into 27 . And that's , you know , still , the plan .

John McDonald: Got it. That's just a function of operating leverage and growth next year in terms of moving higher?

Speaker #16: Got it , got it . And that's just a function of operating leverage and growth next year in terms of moving higher .

Rob Reilly: Yeah, that's right.

John McDonald: Okay, got it. Thank you.

Rob Reilly: You bet.

Speaker #3: Yeah . That's right .

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.

Speaker #16: Okay . Got it . Thank you .

Speaker #6: You bet .

Speaker #4: Thank you . We have reached the end of our question and answer session with Matt . I would like to turn the floor back over to Bryan Gill for closing comments .

Bryan Gill: Well, thank you all for joining our call today and for your interest in PNC. Please feel free to reach out to the IR team if you have any additional questions.

Speaker #6: Well , thank .

Speaker #1: Thank you all for joining our call today and for your interest in PNC. 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.

Q1 2026 PNC Financial Services Group Inc Earnings Call

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