The PNC Financial Services Group Q1 2026 Earnings Results & Report

The PNC Financial Services Group EPS Results

• Actual EPS: $4.32
• Consensus EPS: $3.92
• Beat/Miss: Beat by +$0.40
• One Year Ago EPS: $3.51
• EPS Beat Rate: 8 of last 8 quarters

The PNC Financial Services Group Revenue Results

• Actual Revenue: $6.17 billion
• Expected Revenue: $6.21 billion
• Beat/Miss: Missed by -$40.80 million
• YoY Revenue Growth: +13.10%

The PNC Financial Services Group (NYSE:PNC). is a diversified financial services company headquartered in Pittsburgh, Pennsylvania. Through its banking and financial services businesses, PNC serves consumers, small and mid-sized businesses, corporations, government entities and institutional clients across the United States.

PNC’s principal activities include retail banking, corporate and institutional banking, and asset management. Its products and services include deposit accounts, consumer and business lending, mortgages, credit cards, treasury management, investment banking, commercial finance, wealth management and investment advisory services. PNC also operates the nationwide online bank PNC Bank, National Association.

The company traces its history to Pittsburgh-based banking institutions established in the 19th century and adopted the PNC name following the 1983 merger of Pittsburgh National Corporation and Provident National Corporation. PNC maintains a branch and office presence in numerous U.S. markets and serves clients nationwide through digital and institutional channels. William S. Demchak serves as chairman, president and chief executive officer.

The PNC Financial Services Group Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Completed the FirstBank acquisition, adding $15 billion of loans and $22 billion of deposits with a mid‑June conversion that materially drove 1Q linked‑quarter balance sheet growth and reduced CET1 (~50 bps); management expects the proposed Basel III changes to cut RWAs ~10% and be net positive to capital.
• Positive Sentiment: Strong operating results — organic loan growth hit a three‑year high, net interest income rose $230 million, net interest margin was 2.95% (management expects >3% in H2), and fee income was up 13% year‑over‑year, supporting full‑year guidance of roughly +11% revenue and +14.5% NII.
• Positive Sentiment: Management emphasizes healthy credit quality — NPLs and delinquencies improved, allowance for credit losses equals 1.52% of loans, NCO excl. acquired items ~24 bps, and management says the bulk of its NDFI/private‑credit exposures are investment‑grade or secured receivable securitizations with low loss history.
• Neutral Sentiment: Integration and expense outlook — Q1 included $97 million of integration costs with total merger/integration charges expected about $325 million (≈$150 million in Q2), and non‑interest expense guidance is +7% for 2026 but includes a $350 million Continuous Improvement savings program to offset ongoing investments.
• Positive Sentiment: Capital returns and flexibility — returned $1.4 billion this quarter (≈$700 million dividends and $700 million buybacks), expect quarterly repurchases of $600–700 million going forward, and maintain capital flexibility (CET1 ~10.1%) with potential RWA relief that could free further deployment.

Presentation

[Operator]

Greetings, and 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.

[Bryan Gill, EVP and Director of Investor Relations at PNC Financial Services Group]

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 April 15th, 2026, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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, but 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 and private credit, I can't speak to what other banks have in this category, as the definition seems to capture random things.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 the first quarter, we successfully completed our acquisition of FirstBank, and as a result, our overall balance sheet growth includes the impact of the acquisition, which represented $15 billion in loans and $22 billion in deposits. For the linked quarter, loans of $351 billion grew by $23 billion or 7%. Investment securities of $145 billion increased $2 billion or 2%. Deposit balances were up $19 billion or 4%, an 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 million-$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 billion-$50 billion. The reduction amount is the same under both the revised standardized and the expanded methodologies, in line with our previous expectations. Slide five shows our loans in more detail.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 10 basis points linked-quarter. On a spot basis, loans increased $29 billion or 9% from year-end, including $15 billion from the FirstBank acquisition and $14 billion of growth in legacy 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. Consumer loans declined $1 billion due to lower residential mortgage balances. Slide six covers our deposit balances in more detail.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 the first quarter, reflecting lower rates. 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 FirstBank acquisition, 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. Excluding integration costs, non-interest expense increased 2% and PPNR grew 1%.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Provision was $210 million, and our effective tax rate was 19%. As a result, our first quarter net income was $1.8 billion, or $4.13 per common share, and $4.32 when adjusted for integration costs. Turning to slide eight, 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%. 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. Looking at the details, asset management and brokerage increased $9 million or 2% due to higher average equity markets and client activity.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Capital Markets and Advisory revenue declined $26 million or 5%, reflecting lower M&A advisory activity off elevated fourth quarter levels, partially offset by higher underwriting and trading revenue. Card and Cash Management increased $5 million or 1% as higher Treasury Management revenue was partially offset by seasonally lower credit card activity. Lending and Deposit Services decreased by $2 million or 1%. Mortgage revenue decreased $30 million or 20%, largely attributable to a $31 million decline in MSR valuations, given the heightened rate volatility during the quarter. Other 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, we've demonstrated strong momentum across our franchise. Importantly, fee income grew $240 million or 13%, driven by broad-based growth in our businesses.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 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. 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 the first quarter, our allowance for credit losses totaled $5.5 billion, or 1.52% of total loans. I want to take a moment to cover the details of our NDFI loans, which are highlighted on slide 11. We'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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

NDFI loans continue to represent our lowest-risk loans. Approximately 90% of our NDFI loans are investment-grade or investment-grade equivalent, and all have robust collateral monitoring requirements. Because there'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. These are well-structured assets, all supported by senior positions with substantial excess collateral.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 NDFI 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 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 second quarter of 2026 compared to the first quarter of 2026 is as follows.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

We expect average loans to be up 2%-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 million-$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 second quarter net charge-offs to be approximately $225 million. Considering our first quarter operating results, second quarter expectations, and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows. We expect full year average loan growth to be up approximately 11%. We expect full year net interest income to be up approximately 14.5%. We expect non-interest income to be up approximately 6%.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Operator]

Thank you. We will now 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 question come from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

[Ebrahim Poonawala, Managing Director and Head of North American Banks Research at Bank of America]

Hey, good morning.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Morning.

[Ebrahim Poonawala, Managing Director and Head of North American Banks Research at Bank of America]

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?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 don't 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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

What's our total for the year, Rob?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

50 or something?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

55. Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Our digital acquisition has been really strong. We just need to continue that, and that ultimately will lead to deposit growth.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Good.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

We had a good first quarter, sort of staying at these levels with some incremental growth in the back half of 2026.

[Ebrahim Poonawala, Managing Director and Head of North American Banks Research at Bank of America]

Understood. Got it. I guess maybe just separately around what the 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. Are you as constructive when you think about just growth outlook? Obviously, the guidance suggests nothing's dramatically changed. 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?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah. Spending's accelerated.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Ebrahim Poonawala, Managing Director and Head of North American Banks Research at Bank of America]

That's actually a good color. Thank you.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Sure.

[Operator]

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

[Scott Siefers, Managing Director and Senior Research Analyst at Piper Sandler]

Morning, guys. Thanks for taking the question. I actually wanted to.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Thank you.

[Scott Siefers, Managing Director and Senior Research Analyst at Piper Sandler]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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. 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. That gets you through the second quarter. When you look at the back half of the year, we're pointing to growth, but not at the rate that we've seen in the first quarter nor that we expect in the second quarter. To your point, that is related to concerns that ultimately end up reducing the visibility of what can happen in the second half.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Long story short, you've 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

We banked some in the first quarter, so we put that in the.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

That will be accretive. That's right.

[Scott Siefers, Managing Director and Senior Research Analyst at Piper Sandler]

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 factors you think as you walk through that?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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, Managing Director and Senior Research Analyst at Piper Sandler]

Mm-hmm.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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, upfront there is no AOCI. It's close to a full point of capital for us.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

The other issue, you mentioned the rating agencies and 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

I don't know if we've gotten to 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, so it's logical to expect that it would extend into the new methodologies. We'll see.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Scott Siefers, Managing Director and Senior Research Analyst at Piper Sandler]

Okay. Perfect. All right. Thank you guys very much.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Sure, Scott.

[Operator]

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

[Manan Gosalia, Head of U.S. Midcaps Banks Research at Morgan Stanley]

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.

[Manan Gosalia, Head of U.S. Midcaps Banks Research at Morgan Stanley]

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? I just wanted to know how to think about this going forward.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Manan Gosalia, Head of U.S. Midcaps Banks Research at Morgan Stanley]

Got it. And maybe if I can ask the loan growth question and maybe compare to the NII guide. So I guess you're pretty close to the 3% NIM number you had indicated, 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. 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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 the first quarter 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

As far as NIM, so we might as well cover NIM because someone will ask the question. We saw a nice increase there in the first quarter relative to our expectations. We still expect to go above 3% in the second half. As you pointed out, we're at 2.95%, so if we're going to be above 3% in the second half, 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.

[Manan Gosalia, Head of U.S. Midcaps Banks Research at Morgan Stanley]

That's great color. Thank you.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Sure.

[Operator]

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

[John Pancari, Senior Managing Director and Senior Research Analyst at Evercore]

Morning.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Morning, John.

[John Pancari, Senior Managing Director and Senior Research Analyst at Evercore]

On the fee side, I know your capital markets revs decreased a bit off the particularly solid fourth quarter, 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

He was just saying that Harris Williams drove.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Oh, Harris Williams. Oh, okay. Yeah. Sorry.

[John Pancari, Senior Managing Director and Senior Research Analyst at Evercore]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

No, I've got that. Yeah. Harris Williams had a strong quarter actually in the first quarter. It was off the elevated levels of the fourth quarter, but higher than what we expected. The good news is their pipelines are strong, 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. Strong activity there, and that is leading to the guide. In the second quarter, we have Capital Markets essentially being at the same level. More importantly, for the full year, still up double digits.

[John Pancari, Senior Managing Director and Senior Research Analyst at Evercore]

Got it. Okay, great. On the capital front, I 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 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? I just want to get your updated thoughts. Thanks.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Talk about capital.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

At least he asked you about M&A.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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. 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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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, but 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 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.

[John Pancari, Senior Managing Director and Senior Research Analyst at Evercore]

Got it. All right. Thanks. Bill, appreciate it.

[Operator]

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

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

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 first to second. 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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. Some people have asked that. Relative to the first quarter, we spent a little less than we expected. That will fall into the second quarter, largely around technology investments and the timing of those investments. On FirstBank itself, everything'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 the second half of 2026.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

There'll 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. That's all in our guidance. That's all there. It's on track, and we feel good about it.

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

Got it. I would assume that the cost saves would run rate by the fourth quarter, and then that's given you a-

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

Good starting point to.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

I think that's a good place to start.

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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 second quarter in terms of what we plan to do in the last couple of weeks of the first quarter. Nothing major.

[Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research]

Okay, I got it. All right. Thanks a lot.

[Operator]

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

[David Chiaverini, Equity Research Analyst of U.S. Large-Cap and Mid-Cap Banks at Jefferies]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Not really.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 in other parts of country.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Midwest with CDs. Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

They're not particularly harder in any geography.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah, maybe. 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.

[David Chiaverini, Equity Research Analyst of U.S. Large-Cap and Mid-Cap Banks at Jefferies]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah. Again, first quarter 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 the second quarter, which I mentioned earlier. Pipelines are good.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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, but in business credit, we've seen spreads move. Our partnership with TCW on cash flow lending, those spreads have gapped 50 basis points on new production just because of the kind of scare around what's going on.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

They made sure.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah, which is a good thing, yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

The 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 the first quarter of 2026. As you know, that's been a headwind for a number of quarters. We've reached that inflection point as we expected.

[David Chiaverini, Equity Research Analyst of U.S. Large-Cap and Mid-Cap Banks at Jefferies]

Great. Thank you.

[Operator]

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

[Chris McGratty, Head of U.S. Bank Research at KBW]

Oh, great morning. Bill and Rob, you talked a lot about your confidence in the credit of the private credit portfolio and NDFI 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. Where in the risk curve does that lie?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 loan, 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. It's 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 we highlighted our real estate book. We said, "Hey, we're worried about this. We're working through it. We reserved a lot of it." Sorry, in office.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Oh, on the REITs. Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

I get with Ian, and 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 NDFIs.

[Chris McGratty, Head of U.S. Bank Research at KBW]

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?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yes. This is 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 flat as we 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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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, EVP and CFO at PNC Financial Services Group]

That's likely over multiple years.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

So for 2026 or 2026, our continuous improvement, $350 million of savings is part of our guide, which is up 7%.

[Chris McGratty, Head of U.S. Bank Research at KBW]

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.

[Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Sort of technical answer, we are basically economic value of capital flat. Duration is zero 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Neutral on 2026.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah. Part of this discussion 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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Like that.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Five years out for the ability to produce really strong NII in the first couple of years.

[Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank]

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 kind of 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?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank]

Right.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 anytime you have rate swings as aggressively as we saw.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

In the quarter.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

This quarter 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

It's not a driver.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

To your point.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

It's just we got chopped up this quarter.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah. It wasn't like anybody screwed up. It wasn't a trading thing. It was literally realized volatility is higher than what was implied.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank]

Okay. Yeah, I realize the residential and commercial essentially offset each other, so that's not too bad.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Right.

[Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank]

Getting chopped up. Okay. Thank you.

[Operator]

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

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

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 that 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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 are in and it gets approved and it gets done, and then 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.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

How do you see competition? It seems like the industry is 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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah. 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 or 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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Oh, I'm sorry.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

No, go ahead.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

The 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, Chairman and CEO at PNC Financial Services Group]

Yeah, growing twice the pace.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

That's a big driver.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

40%. I don't know. I've been up to 30%. It probably started at 30%, depending on where you are. Yeah. It's growing at 2x the rate. Yeah.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

It's growing 2x the rate. Okay.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah, rapid.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah. That's an excellent point.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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.

[Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo]

All right. That's helpful. Thank you.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Great.

[Operator]

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

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

Hi, Bill. Hey, Rob.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Hey, Gerard.

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

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 Gannon 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 at which you're growing it?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

I apologize.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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, 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.

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

Yeah, go ahead.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Sorry. No, you go ahead.

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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.

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

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 that 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?

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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. 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.

[Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets]

Very good. Thank you very much.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah.

[Operator]

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

[Erika Najarian, Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance at UBS]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah. 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 the second `quarter and then maybe by our estimates, maybe go up 1 basis point or 2 basis point generally speaking.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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 guidance, not material, and we'll still hit the 3%.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

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

[Erika Najarian, Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance at UBS]

Yeah.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

It was generally steady. Obviously, there's a risk if loan growth continues to exceed and there's pressure on those deposits. That would be a good thing.

[Erika Najarian, Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance at UBS]

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

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Yeah. Drill down on that. Where inside of NDFI, the spot everybody's focused on is in private credit and inside of our bucket in that, our $7 billion is 90% CLOs. AAA tranches I imagine have widened. I imagine facilities to BDCs are going to widen as the fear factor steps in. We have like $500 million out to BDCs.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Even less.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

It's just not there.

[Bill Demchak, Chairman and CEO at PNC Financial Services Group]

Huge in the flow. Yeah.

[Erika Najarian, Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance at UBS]

Yeah. Got it. Perfect. Thank you.

[Operator]

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

[John McDonald, Managing Director at Truist]

Hi. Thanks. Good morning, Rob.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah.

[John McDonald, Managing Director at Truist]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah, well, sure, that'd 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. What we've seen tend to be higher credit quality, so it's not as much, but I would expect provision expense to go up with the growth in loans.

[John McDonald, Managing Director at Truist]

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?

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

No. The same what we said back in January. Just to remind everybody, we finished the fourth quarter of 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 the fourth quarter of 2026. The really important part is we would expect to drift higher as we go into 2027. That's still the plan.

[John McDonald, Managing Director at Truist]

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

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

Yeah, that's right.

[John McDonald, Managing Director at Truist]

Okay, got it. Thank you.

[Rob Reilly, EVP and CFO at PNC Financial Services Group]

You bet.

[Operator]

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

[Bryan Gill, EVP and Director of Investor Relations at PNC Financial Services Group]

Well, thank you all for joining our call today and for your interest in PNC, and 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.

Participants

Analysts

• Bill Demchak, Chairman and CEO at PNC Financial Services Group
• Bryan Gill, EVP and Director of Investor Relations at PNC Financial Services Group
• Chris McGratty, Head of U.S. Bank Research at KBW
• David Chiaverini, Equity Research Analyst of U.S. Large-Cap and Mid-Cap Banks at Jefferies
• Ebrahim Poonawala, Managing Director and Head of North American Banks Research at Bank of America
• Erika Najarian, Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance at UBS
• Gerard Cassidy, Managing Director and Head of U.S. Bank Equity Strategy at RBC Capital Markets
• John McDonald, Managing Director at Truist
• John Pancari, Senior Managing Director and Senior Research Analyst at Evercore
• Ken Usdin, Co-Head of Autonomous U.S. and Senior Analyst of U.S. Large-Cap Banks at Autonomous Research
• Manan Gosalia, Head of U.S. Midcaps Banks Research at Morgan Stanley
• Matt O'Connor, Managing Director of U.S. Banks Equity Research at Deutsche Bank
• Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo
• Rob Reilly, EVP and CFO at PNC Financial Services Group
• Scott Siefers, Managing Director and Senior Research Analyst at Piper Sandler