The PNC Financial Services Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 15, 2025
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Operator

Greetings and welcome to the PNC Financial Services Group First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Gill, Executive Vice President and Director of Investor Relations.

Operator

Thank you. You may begin.

Bryan Gill
Bryan Gill
EVP, Director of Investor Relations at The PNC Financial Services Group

Well, good morning, and welcome to today's conference call for the PNC Financial Services Group. I am Brian 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, Investor Relations.

Bryan Gill
Bryan Gill
EVP, Director of Investor Relations at The PNC Financial Services Group

These statements speak only as of 04/15/2025, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Thank you, Brian, and good morning, everyone. As you've seen, PNC had a strong first quarter of twenty twenty five. But before we go into the results, I want to spend a second just on the current environment. Obviously, there's been an increased level of volatility due to uncertainty regarding tariffs that has dominated the headlines over the past two weeks, roiling the markets and raising concerns of a potential recession. As you would expect, we continue to monitor and evaluate the situation, communicating with our clients to gauge their understanding of the potential impact on their businesses and daily lives.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

However, it's still very early and the fluidity of the news coming out of Washington makes difficult to narrow the range of potential outcomes for the broader economy at this point. Irrespective of that outcome, we have demonstrated time and again that we will perform well in periods of uncertainty. The foundation success has been built upon the strength of our balance sheet, client selection, our interest rate risk positioning, our diversified business mix, leading technology and our people, and that has not changed. As always, we will continue to focus on the things we can control with an emphasis on providing superior products and services to meet the needs of our customers, while executing on the organic growth opportunities in front of us. And we saw that play out this quarter as we grew customers and deepened relationships across our coast to coast franchise.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We delivered another quarter of strong results, generating net income of $1,500,000,000 or $3.51 per share. While loan growth remained challenging for the industry, we were pleased to see 3% growth on our spot C and I loans as well as strong new commitments during the quarter. As expected, total revenue this quarter was primarily impacted by lower day count and seasonality, but expenses were well controlled and our net interest margin expanded. Importantly, we remain on track to deliver positive operating leverage and achieve record NII for the year. Credit quality is strong and we remain well reserved.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Rob is going to cover that in some more detail in a few minutes. Finally, we continue to build our capital levels during the quarter while also providing significant shareholder returns through dividends and share repurchases. In summary, we delivered strong results in the quarter and we remain well positioned to deliver on our strategic priorities. Before I turn it over to Rob for more detail on our financial results, I'd like to welcome Mark Wiedemann, who we appointed to the role of President last week. I'm thrilled Mark has joined us in this role.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Mark brings deep experience in financial services that will complement the strength of our existing team. I have known Mark for twenty years, and we are fortunate that the timing was right for him to join our team. I'd also like 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 quarter.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide three and is presented on an average basis. For the linked quarter, loans of $317,000,000,000 declined $2,000,000,000 or 1%. Notably on a spot basis, loans increased $2,000,000,000 or 1% compared to December 31. Investment securities of $142,000,000,000 decreased by $2,000,000,000 and our cash balance at the Federal Reserve was $34,000,000,000 a decrease of $3,000,000,000 or 9%.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Deposit balances declined $5,000,000,000 or 1% and averaged $421,000,000,000 Borrowings of $65,000,000,000 were lower primarily due to a reduction in FHLB advances. And at quarter end, AOCI was negative 5,200,000,000 an improvement of $1,300,000,000 or 20% compared with December 31. Our tangible book value increased to $100.4 per common share, which was a 5% increase linked quarter and a 17% increase compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.6% as of March 31. We estimate our CET1 ratio inclusive of AOCI to be 9.4% at quarter end.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And during the first quarter, we returned approximately 800,000,000 of capital to shareholders through both common dividends and share repurchases. Slide four shows our loans in more detail. Average loan balances of $317,000,000,000 declined $2,000,000,000 or 1% driven by lower commercial real estate and consumer loans. Importantly, on a period end basis, total loans grew more than $2,000,000,000 or 1% as strong growth in C and I loans was partially offset by continued runoff in the CRE office portfolio and lower consumer balances. C and I loans were $181,000,000,000 on March 31, an increase of $5,000,000,000 or 3% reflecting broad growth across loan categories.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

This represented the largest increase in C and I balances since the fourth quarter of twenty twenty two and was driven by higher utilization rates and new loan production. Regarding utilization, we saw positive trends in the first quarter with increases in each consecutive month and ending the quarter at 50.3% or 80 basis points higher than year end. Slide five details our investment securities and swap portfolios. Average investment securities decreased $2,000,000,000 to $142,000,000,000 as prepayments and maturities outpaced purchases. During the first quarter, our securities yield was stable at 3.17%.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And as of March 31, approximately 20% of the portfolio was floating rate and our duration was estimated to be three point four years. Our active received fixed rate swaps totaled $39,000,000,000 on March 31, and the weighted average received rate increased 27 basis points linked quarter to 3.49% and up from 2.2% this time last year. Our forward starting swaps now total $20,000,000,000 including $9,000,000,000 that were added during the first quarter, which will roll on through 2026. With the addition of these swaps, we've reduced our interest rate and further locked in a portion of our fixed rate asset repricing. Slide six covers our deposit balances in more detail.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Average deposits decreased $5,000,000,000 or 1% to $421,000,000,000 Consumer and commercial deposits followed seasonal trends. Consumer deposits of $210,000,000,000 increased $4,000,000,000 or 2% and commercial deposits of $2.00 $6,000,000,000 declined $5,000,000,000 or 2%. Lastly, we have a small amount of brokered CDs totaling $5,000,000,000 which declined $3,000,000,000 as part of our funding plan. Our rate paid on interest bearing deposits declined 20 basis points during the first quarter to 2.23 and our cumulative deposit beta through March was 51%. Turning to Slide seven, we highlight our income statement trends this quarter.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

First quarter net income was $1,500,000,000 or $3.51 per share. Compared to the same period a year ago, we've demonstrated strong momentum across our franchise. Total revenue increased $3.00 $7,000,000 or 6% driven by higher net interest income and fee growth. Non interest expense increased $53,000,000 or 2% reflecting increased business activity, technology investments and higher marketing spend. And net income grew $155,000,000 resulting in EPS growth of 13% year over year.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Comparing the first quarter to the fourth quarter, total revenue of $5,500,000,000 decreased $115,000,000 or 2% in large part due to seasonality. Non interest expense of $3,400,000,000 declined $119,000,000 or

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

3%. Provision was $219,000,000 reflecting changes in macroeconomic factors and portfolio activity. And our effective tax rate was 18.8%.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Turning to Slide eight, we detail our revenue trends. First quarter revenue of $5,500,000,000 declined $115,000,000 or 2% linked quarter. Net interest income of $3,500,000,000 decreased $47,000,000 or 1%. The decline was driven by two fewer days in the quarter, partially offset by the benefit of lower funding costs and fixed rate asset repricing. And our net interest margin was 2.78%, an increase of three basis points.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Fee income of $1,800,000,000 decreased $30,000,000 or 2% linked quarter. Looking at the details, asset management and brokerage income increased $17,000,000 or 5% driven by higher brokerage client activity and positive net flows. Capital markets and advisory fees decreased $42,000,000 or 12% reflecting lower M and A advisory and trading revenue. Card and cash management was stable as higher treasury management revenue was offset by seasonally lower consumer spending. Lending and deposit services revenue decreased $14,000,000 or 4% in part due to seasonality.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Mortgage revenue increased $12,000,000 or 10% reflecting higher MSR hedging activity. And our other non interest income of $137,000,000 decreased $38,000,000 and included $40,000,000 of negative Visa derivative adjustments, primarily related to litigation escrow funding. As a reminder, PNC owns 1,800,000.0 Visa Class B shares with an unrecognized gain of approximately $950,000,000 as of March 31. Turning to Slide nine, we detail our non interest expense trends. On a linked quarter basis, non interest expense declined $119,000,000 or 3% as a result of fourth quarter asset impairments as well as seasonality.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

We remain focused on expense management and as we've previously stated, we have a goal to reduce costs by $350,000,000 in 2025 through our continuous improvement program. As you know, this program funds a significant portion of our ongoing business and technology investments and we're confident we will achieve our full year target. Our credit metrics are presented on Slide 10. Non performing loans of $2,300,000,000 were stable quarter over quarter with a small decrease in consumer. Total delinquencies of $1,400,000,000 were up $49,000,000 or 4% compared with December 31, which included approximately $55,000,000 of California wildfire forbearance activity.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Net loan charge offs were $2.00 $5,000,000 down $45,000,000 representing a net charge off ratio of 26 basis points. The decline was largely driven by lower CRE office charge offs related to the timing of resolution on certain office properties, and we expect the level to vary quarter to quarter as we work through these loans. Importantly, our overall credit quality remains strong across and our allowance for credit losses totaled 5,200,000,000 or 1.64% of total loans at the end of the first quarter. This level of reserves includes an increase in the downside weightings of our CECL economic scenarios along with some considerations for tariffs. As you know, the proposed tariffs on April 2 were more severe than anticipated.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

If these tariffs are implemented as proposed and remain in effect for an extended period, it's quite possible the probability of a recession will go up. We're actively assessing our portfolios and analyzing a wide range of factors, both positive and negative, that could impact our commercial and consumer exposures. However, we view the current environment is too fluid to reasonably change our estimates at this time. In summary, PNC reported a solid first quarter and we're well positioned for the remainder of 2025. Our full year guidance is unchanged.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

However, given the uncertainty of the proposed tariffs and the potential for disruption in client activity, our non interest income could be pressured throughout the balance of the year and we'll obviously closely monitor this as these factors continue to develop. For the full year 2025 compared to the full year 2024, we expect average loans to be stable, which equates to spot loan growth of 2% to 3%. We expect full year net interest income to be up 6% to 7%. We expect non interest income to be up approximately 5%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 6%.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

We expect non interest expenses to be up approximately 1% and we expect our effective tax rate to be approximately 19%. For the second quarter of twenty twenty five compared to the first quarter of twenty twenty five, we expect average loans to be up approximately 1%. Net interest income to be up 1% to 2%, fee income to be up 1% to 3%, other non interest income to be in the range of 150,000,000 and $200,000,000 Taking the component pieces of revenue together, we expect total revenue to be up 1% to 3%. We expect non interest expense to be stable and we expect second quarter net charge offs to be approximately $300,000,000 And with that, Bill and I are ready to take your questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from John Pancari with Evercore. Please proceed with your question.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Good morning.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Hi, John.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Good morning, John.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

On the loan growth front, solid

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

end

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

of period loan growth in C and I as you cited. I know you cited higher line utilization and improved loan production. Can you just give us a little more color around the drivers and what specific areas in C and I are you seeing that? And is there any of that transient in terms of potential line draws just to fund some inventory buildup ahead of tariffs and therefore more of a pull forward or anything like that? And is any of it maybe precautionary line draws given the recessionary backdrop?

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Thanks.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

want me I'm sorry, Bill is going answer. Hey, John. Good morning, it's Rob. Yes, so we were encouraged by the increase in the outstandings through the quarter.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And when you look in our financial supplement, you'll see it was pretty broad based across most of our loan categories. We have been calling for this for some time in terms of increased utilization, which we saw in the quarter. So that tracks to what we thought at the beginning of the year. As far as some of this defensive or these tariff driven, it's hard to say, it's not all of it for sure. Maybe there's a little bit of it in there.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

But generally speaking, we didn't see we saw growth, we didn't see massive growth or a massive shift. So 80 basis points, or I'm sorry, 80 on the utilization isn't huge, but it was in line with gradual normalization.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

It's interesting. In all the dialogue that I've kind of had with clients, nobody is saying they're purposely building inventory in advance of the tariffs. Having said that, most of our lines finance working capital. So, definitionally, there's some inventory built going on.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Got it. Okay. No, that's helpful. And then separately on the capital markets front, understandably, trends there are pressured given the backdrop, and you saw that pressure this quarter. Can you talk maybe perhaps about pipelines you expect?

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Are you seeing any erosion in any of the pipelines out there on the M and A side or capital markets side, just given the uncertainty, any deals getting pulled or the pipelines remaining robust and it's just a matter of getting the pig through the python?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes, sure. Sure. The capital markets was a little lighter than what we expected, although still pretty good. For us, 40% of our capital markets categories, Harris Williams, our M and A advisory and they actually had a very good quarter in line with expectations, where expectations, whereas a little softer was in some of our foreign exchange and just some of our client activity. So when we look forward, Harris Williams in particular, their pipeline right now is close to 20% higher than it was this time last year.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

So the pipelines look good, John.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

They had a good year last year.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And they had a very good year last year. So we're encouraged by that.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Okay, great. Thank you.

Operator

Our next question comes from Bill Carcache with Wolfe Research. Please proceed with your question.

Bill Carcache
Equity Research Analyst at Wolfe Research

Thank you. Good morning, Bill and Rob. I appreciate your commentary around uncertain environment leading you to keep your reserve rate relatively flat. If we were to go down the mild recession path and unemployment rose, say, slightly above 5%. Can you speak to how you're thinking about the level of expense leverage that you have?

Bill Carcache
Equity Research Analyst at Wolfe Research

And what are the areas where you would look to achieve efficiencies should you need to?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

I can answer that. I mean, in terms of our expenses, we feel really great about the way that we've lined up the year. We've got positive operating leverage, expenses up 1% off the 24 print. Naturally, if we get into a scenario where there's lower activity, some of that self correcting in terms of expenses associated with revenue that you wouldn't have. But we are disciplined.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

We won't back off the investments, Bill, that we've lined up. But there could be some opportunities if we get there, which we're not expecting to.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

The other offset under some presumption that we actually went into a mild recession and the forward curve is correct and there's four cuts this year. We actually have it with more cuts mild up an amount of upside in our NII just at the margin side. I don't know that a mild recession dramatically changes our outcome here.

Bill Carcache
Equity Research Analyst at Wolfe Research

That's helpful. Thank you. And it's interesting in light of all the commentary around how companies are putting investments on hold given the uncertain environment to see your spot utilization has been increasing since the beginning of the year. Could you speak to perhaps the potential for increased opportunities in loan growth if credit spreads were to continue to widen as capital markets become a less attractive option for some of your clients?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes. I'm going to go back and say this for a year. It's not clear to me what caused the utilization to go down. It's not entirely clear to me as to why it's going up. If there is sort of some offset where capital markets new issuance slows down, then talking to in the loan book.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

But I think one of the reasons we leave it largely out of our forecast in terms of being a main driver, it's been a bit confusing for the last year or so.

Bill Carcache
Equity Research Analyst at Wolfe Research

Thank you for taking my questions, Bill and Rob.

Operator

Our

Operator

next question comes from Betsy Graseck with Morgan Stanley. Please proceed with your question.

Betsy Graseck
Betsy Graseck
Managing Director at Morgan Stanley

Hi, good morning.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Hi, Betsy.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Good morning.

Betsy Graseck
Betsy Graseck
Managing Director at Morgan Stanley

Bill, I did want to just ask a few questions regarding the President role. And I wanted to understand a little bit more about what you are expecting Mark to be doing for PNC. And I know there's many of us on the call who know Mark well with what he's been doing over BlackRock for many years, but there might be others who are a little bit less familiar with him. So maybe you could help us understand why Mark is the right person for this role? And does this have well, and how you anticipate he will be growing the business as President?

Betsy Graseck
Betsy Graseck
Managing Director at Morgan Stanley

Thank you.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

No, thank you for the question, Betsy. I've known Mark for a lot of years going back being

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

on

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

the Board of BlackRock and we actually had he and his financial advisory team come in here at one point during or shortly after the crisis just to double check everything we were doing on the balance sheet. Mark is going to come in and be the President and he's going to run our businesses. He comes in with a broad based skill set. He's managed through crises. He's advised on balance sheets.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

He's a student of the markets. He's tech forward. He's been with a fast growing company. And he's a great talent. And it was kind of serendipity that he was available.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We have a super strong team here, but when you see talent like that available, you add it. And I don't know it's any more complicated than that.

Betsy Graseck
Betsy Graseck
Managing Director at Morgan Stanley

Okay. Just I'm also wondering about the opportunities for doing more with private credit. I don't know if that's part of the equation here as well given what you're doing already with private credit side and what Mark brings to the table there.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

No. It's Mark is a well rounded student of finance and markets and management and leadership. It was interesting we were talking to the press about this. We got questions on how does this mean we're going to go big into asset management or private credit or private equity or something else? And the answer to that is no.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We're going to do exactly what we're doing and he's adding skill sets to what we're doing today. There's no change in our strategy. There's no change in what we want to be or how we're going to execute. He's just going to help us with our game plan.

Betsy Graseck
Betsy Graseck
Managing Director at Morgan Stanley

Thanks very much.

Operator

Our

Operator

next question comes from Scott Syphers with Piper Sandler. Please proceed with your question.

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

Good morning, Thanks for taking the question. Rob, I think in the past you've talked about a 3% margin by the end of the year. Kind of feels to me like based on the first quarter results maybe you got out of the gates a bit quicker than you would have thought which is helpful. But just sort of given all the moving parts these days, maybe if you could sort of refresh your thoughts on that number and anticipated path to get there. I can put together a couple of the pieces with what Bill had said about the forward curve, more rate cuts, etcetera, but would be curious to hear your thoughts.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes, sure, Scott. We talked about this on every earnings call that we don't give official NIM guidance, but then I give NIM guidance. That means is,

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

if he's wrong.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes, that's right.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Thanks, Bill. So, yes, so we got out of the gate pretty good there at the $2.78 that you saw in the first quarter. We said at the beginning of the year, we still feel that we can approach 3%. So I think the two ninety range is reasonable in the fourth quarter.

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

Okay. Perfect. Okay. Thank you. And then maybe just a little bit of a ticky tack one, the slightly higher net charge off expectation into the second quarter.

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

I mean, it's not huge by any means, but it's a little higher than you've run recently. Anything particular driving that or is that just kind of standard normalization?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

No, no, there is something particular to that, Scott. So thanks for that question. It's really the lumpiness of the CRE office charge offs. So when you look at our information, they were down pretty good in the first quarter. But that's a situation where it's a handful of deals that can either sort of fall timing wise into one quarter or another quarter.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

So we'd expect those charge offs to go back to the levels that we were experiencing in the third and fourth quarter. And that's part of the 300 guidance.

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

Important club stuff is reserved.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes. That's right.

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

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

R. Scott Siefers
R. Scott Siefers
Managing Director at Piper Sandler Companies

Sure.

Operator

Our next question comes from Ebrahim Poonawala with Bank of America. Please proceed with your question.

Ebrahim Poonawala
Ebrahim Poonawala
Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch

Good morning. I guess maybe so you talked about loan growth and sort of client sentiment there. Just talk to us around the fragility across the customer base, be it consumer or commercial, given concerns maybe we are in a recession, we could fall into a recession. I'm just wondering how you look at the balance sheets for your customers and like how bad do things need to go where the credit outlook deteriorates in a meaningful way?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

The easiest way to think about this maybe is between today and three weeks ago, nothing's changed. What's happened though, is everyone's trying to figure out what the steady state will be with tariffs and how they need to, if at all, the business model to succeed inside of a world with tariffs. So it is without question slowed down activity in the near term as people try to figure this out, but it hasn't yet turned into any sort of credit deterioration nor just given the quality of our book nor do I think it's a dramatic outcome for clients unless those very tariffs drive us into a steep recession and then we're going to have a standard credit cycle.

Ebrahim Poonawala
Ebrahim Poonawala
Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch

Got it. And I guess maybe Rob for you, you mentioned the maybe NIM may exit I guess '25. Just think talk to us about how you're thinking about balance sheet management from an ALCO perspective. You took some actions, I guess, middle or late last year to lock in the NII or the record NII for '25. I'm just wondering how are you thinking about like from a cash or the bond book, are things that you're doing as you think about just the forward outlook beyond 25%?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes, sure. So as we've said, '25 pretty locked in and that's why we're confident in terms of our guidance. I will remind everybody that our NII guidance for the full year doesn't have a whole lot of loan growth. So if that happens, that'll be on top of that. So you're right, where our eyes are now is sort of the outer years into 2026 and beyond.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And we have taken some actions to lock in that, which is the continuation of the fixed rate asset repricing that we're on. So that's where our heads are and that's where the focus is.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Got it. Thank you.

Operator

Our

Operator

next question comes from Mike Mayo with Wells Fargo. Please proceed with your question.

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

Hi. Had a follow-up on the question about the new President, Mark Weidman. You described, Bill, I think you said exactly what you are doing currently at PNC is what you'll still be doing. So my question to you is, how did you get them? I mean, there's so many people leaving the bank industry for private equity and non banks and fintech and sometimes anywhere they can get to.

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

And so why is he coming to such a heavily regulated industry with so much oversight, with so much skepticism, with so much cynicism, with so much questioning? It's some you know, it's it's a smog being in the banking industry, and he's choosing to come. So what in the world was your sales pitch to him to get him to come to keep PNC doing exactly what it's doing?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

I mean, you'll get to ask him that question at some point, Mike. But I think it's as simple as saying that what's going on in banking today is fascinating, right? It's not my dad's bank. It's driven by technology. There's scale matters.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We have new entrants coming in all sides of what we do, which could be exciting or dangerous depending on how you look at it. You think through crypto and private credit and payment engines and all the other things that are happening. It's a very dynamic place, notwithstanding all the oversight we get. And I'm sure Mark is listening to this call and now wondering what he got himself.

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

You

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

mentioned scale matters and you've not the first time you said that. What's your current appetite for getting that greater scale? You said scale matters more than ever before, I think, in the history of banking. We have not seen that much consolidation. Imagine so where do you stand?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

I don't think you're going to see it in the near future either. A couple of things. Scale matters, can get that through organic growth and we're executing on that. I talk too much about the long term future and people want to seem to think about next quarter. In the long run, I think there's going to be big consolidation in the banking industry.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We see how the speed of growth of the very giant banks and so I think scale matters. I think in the course of that consolidation, if we outperform in our organic growth, we will have the right to be an acquirer. In today's world, for a variety of different reasons, not the least of which is we wouldn't issue our shares at these price at these relative prices. Nobody is a seller and to try to do a deal with the volatility going on in rates right now and the potential mark on credit makes it impossible. So I need to just shut up about doing deals because I kind of talk about what happens over the next ten years and everybody thinks it's next quarter.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Ten months.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

And it isn't. The meantime, we're growing just fine. We have lots of capital and ability to support our clients and we're likely going into an environment where being a bank is a pretty important thing for The U.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

S. Economy and we'll take advantage of that.

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

My short follow-up. You said you would not issue shares at this price. So does that mean you would be accelerating share buybacks?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

It's a pretty good assumption.

Mike Mayo
Mike Mayo
Managing Director at Wells Fargo

All right. Thank you.

Operator

Our

Operator

next question comes from Ken Usdin with Autonomous Research. Please proceed with your question.

Ken Usdin
Senior Research Analyst at Autonomous Research

Hey, good morning. I was just wondering, obviously, talked about in the first quarter, we saw a little bit softer capital markets, M and A and trading. And there's obviously expectation in the guide that things get better from here, albeit with the uncertainty. So can you just talk us through like just how that advisory outlook feels? And I guess maybe if you flush out the fees a little bit more, just what expectations drive that second that kind of from here improvement that's in the full year guide?

Ken Usdin
Senior Research Analyst at Autonomous Research

Thanks.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes. Hey, sure, Ken. It's Rob. So in regard to the full year fee guide, just in terms of our categories, the way that we report them, they're largely similar to what we thought at the beginning of the year. Albeit in the first quarter, asset management did a little better than we thought, capital markets a little bit less.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

But when we look at the full year, it still sort of holds asset management mid single digits, capital markets mid single digits, maybe a little bit better if the pipelines all pull through. Card and cash management, which is our steady Eddie is solidly mid single to high single digits. Lending and deposit services, low single digits. And mortgage, as we said, we expect to be down maybe as much as 10% or more. So when you put all that together, you get the mid single digits that we were expecting at the beginning of the year.

Ken Usdin
Senior Research Analyst at Autonomous Research

Okay, great. Thank you. Then just one question on the deposit side. Getting to this point of stability and DDAs and such, but when you think about the new rate environment, do you see as far as your ability to continue to ratchet down deposit pricing? And what do you think the mix of deposits looks like as well?

Ken Usdin
Senior Research Analyst at Autonomous Research

Thank you.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Well, I'd say I'd start with the second part of that question first. Far as the mix goes, we're at 22% of non interest bearing. And we've been pretty stable there for a while and expect that to continue. All else being equal, we do expect that our rate paid will be going down over the course of the year, not dramatically, but gradually and steady that we've been on for some time. So that's still our thinking.

Ken Usdin
Senior Research Analyst at Autonomous Research

Okay. Thanks, Rob.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Sure.

Operator

Our next question comes from Erika Najarian with UBS. Please proceed with your question.

Erika Najarian
Erika Najarian
Managing Director & Equity Research Analyst at UBS Group

Hi, good morning. Just a few follow-up questions. So Bill, nobody really asked this question much until we saw the, Mike Lyon's announcement. But to follow-up with all the questions about Mark, how much time, are you going to give P and C in your current role, do you think, as we think about the succession planning?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Mean how long am I going to be here?

Erika Najarian
Erika Najarian
Managing Director & Equity Research Analyst at UBS Group

Yes, I guess I mean it's a very direct question clearly but Jamie Dimon often talks about being around for a few more years. I often have to look up your age because you always look so much younger than your actual age. I always think you're like 52.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

I'm probably

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

62, I could be around for a while.

Erika Najarian
Erika Najarian
Managing Director & Equity Research Analyst at UBS Group

Okay, that's great. That's the answer I think your investors wanted to hear because given the announcement of Mark coming in, right, I think that question ramped back up. So that was the first question. Okay, you'll be around for a while. Fair.

Erika Najarian
Erika Najarian
Managing Director & Equity Research Analyst at UBS Group

Second question is a quick follow-up, Rob. I'm sorry if I missed this during prepared remarks, but what is the unemployment rate that your reserve is implying in terms of what it's built on?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes. Right now, Eric, in terms of our economic scenarios, we're just at 5%. Recall, we've got reserves that are beyond that for things such as tariffs on top of those modeled outputs.

Erika Najarian
Erika Najarian
Managing Director & Equity Research Analyst at UBS Group

Got it. Okay. Thanks guys.

Operator

Our next question comes from Gerard Cassidy with RBC Capital Markets. Please proceed with your question.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Thank you. Hi Bill. Hi Rob.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Hi Gerard.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Can you share with us, you guys have done a good job in attacking your commercial real estate challenges and working through that portfolio. And at the same time, you've been able to keep your non interest expense growth in check. Can you carve out of that what is it costing you to work through these commercial real estate problems? So none of us expect them to end anytime real soon, but are there some expense savings coming once you get through that process in a couple of years maybe?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Maybe a little on the margin, Gerard, but that's not a big driver. We've got some pretty talented bankers that, when we work through that, we'll have other things for them to do.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Got it. Okay. And then a broader question, Bill, on your comment about share repurchases. Can you give us your thoughts and opinions about what's going on in the regulatory environment? We have a number of nominees for the different regulatory agencies.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

The Treasury Secretary has been quite outspoken about having the regulations ease up a bit. What are your thoughts on that? And could that influence either even more buybacks once you get to know what your CET1 ratio could be after Basel III endgame comes out?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

My guess at the margin is our capital need will be less in the future than it is today all else equal. I think the immediate changes we're likely to see in regulation, a lot of talk on the SLR, you call the treasury markets down a little bit. Some refocus from all the regulators on the core risk in a bank. So that's a supervision thing that doesn't change capital, but rather change behavior. And at the margin, that's a good thing for us.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Maybe save a little bit of money on some of the things that we're doing that frankly don't be done. But I don't know that there's a massive change that's ahead for us.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Okay. And can you just remind us your obviously your CET1 ratio is similar to your regional peers in terms of the minimum. And what kind of comfort or what kind of buffer do you guys like to keep above that required level?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Gerard, it's Rob. So a couple of things on that. Just to finish up on that answer that Bill gave. Obviously, once things settle down in terms of where all the rules come, we can then take an assessment in terms of where our actual targets are. So we've got a lot of capital flexibility.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

We continue to build capital. We need to see those things settle down and then we can zero in on a target.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Very good. Thank you, Rob.

Operator

As a reminder, I'm sorry.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

So just before we jump to another question that comment kind of where our peers are. I mean, I would just remind everybody that our drawdown in CCAR has been through time less than basically anybody in the peer group. We're starting from a point with the SCB that in effect penalizes us when we build to our capital ratio versus others. And that's unlikely to change the way we run our bank.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And Gerard, that goes back to a few years ago when we were all focused on this. The correct peer comparison in our view is the post stress capital levels.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes.

Gerard Cassidy
Gerard Cassidy
Managing Director at RBC Capital Markets

Very good. Thank you.

Operator

Our next question comes from John McDonald with Truist Securities. Please proceed with your question.

John McDonald
John McDonald
Senior Research Analyst at Truist Securities

Hey guys, couple of quick clarifications. Just sorry, one more on the buyback. So the idea is buyback accelerating, Rob, but within the context of your capital ratio still growing a bit near term until you get more clarity?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

That's right. In regard to the share buybacks, so we bought more in the first quarter than we had in the previous quarters. It's our expectation in the second quarter that we'll do more to Bill's point, because we really like the share price. But we're not talking about a step change, some more, but nothing that sort of breaks the current path.

John McDonald
John McDonald
Senior Research Analyst at Truist Securities

Okay, got it. And then on the fee income outlook for the year, you mentioned in the beginning comments, we're just pointing out the obvious risks that you've got some market sensitive fees in there and it kind of depends on the macro?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes, that's right.

John McDonald
John McDonald
Senior Research Analyst at Truist Securities

Okay. And then maybe just a quick update strategy wise, just how things are going on the national expansion and some of the consumer initiatives, the new card product?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Chuck, do you want to answer that, Bill, on the new markets and then I can circle back on the capital.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

We're having a sidebar. I'm going ask you to re ask that question.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

So Bill would like to buy more shares, which we're going to definitely do. The answer to my to your question was it doesn't break the build in our capital levels though.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes. So it's you'll see a level change in what we have been buying, but we'll still track on growing capital. Yes. Particularly the AOCI Poland

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

That's right.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

That's That's fossil capital. Sorry, I asked

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

you a question.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

The new markets and expansion markets, how are they going?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

They're driving our growth across all lines of business. DDA customer growth, that customer growth is coming from new markets. Our net inflows in wealth basically were driven by new markets and they've continued to out produce on a relative basis our legacy markets, even as our legacy markets grow. So it's really working.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

And also THE and our corporate bank. So that gets to these, John, where we continue to grow loan commitments even though they're not funded, which bodes well for future loan growth. The majority of that was coming through the expansion markets this quarter.

John McDonald
John McDonald
Senior Research Analyst at Truist Securities

Got it. That's helpful. Rob, and you're going to just make a comment on the card book and how that's going with the new product in credit card?

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes, going great. Yes, it's going great. We continue to grow customer count there. So excited about the trajectory there.

John McDonald
John McDonald
Senior Research Analyst at Truist Securities

Thanks.

Operator

Our next question comes from Matt O'Connor with Deutsche Bank. Please proceed with your question.

Matt O'Connor
Matt O'Connor
Analyst at Deutsche Bank

Good morning. Just to follow-up on the rate sensitivity. I think you said little impact from if rates are a little bit higher or lower than what you expected. But just conceptually, how is the balance sheet positioned here for movements on both the short and long end as we think about more medium term? And then kind of what's the goal?

Matt O'Connor
Matt O'Connor
Analyst at Deutsche Bank

Like you talked about walking in some of the fixed rate asset repricing in the next couple of years, but which way are you trying to lean? Thanks.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

There's a lot embedded in that question. We are at the margin better off if there are more cuts in the front end than we currently have in our forecast, which I think is a two. We're going to probably increase that. So at the margin better off this year as a function of more cuts. Ultimately, where the trajectory of NII continues to grow 25, 20 six, even 27% is a function of term rates staying high.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

At the moment, they're higher than we had assumed in our forecast. What we've been doing, the forward starting swaps this quarter is locking in some of that known outcome in 2026. And that's kind of the way we're like if everything stayed just where it was with the forward curve, we'd be great. So let's realize that because that's a big improvement over the course of the next several years and that's how we're running the balance sheet today.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Obviously, taking

Matt O'Connor
Matt O'Connor
Analyst at Deutsche Bank

That's helpful. And then just on the short end, like I assume more cuts is helpful to a certain point, and not that the market is predicting this now, but like what's that point where you're like, hey, if we get below three or whatever it is, then we kind of run out of room to reprice deposits, for example. Like what's that tipping point?

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

I'm not sure there is one as long as the back as long as five to 10, depends if the curve gets steeper as they cut. Doing this in my head, but I think we're fine.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Yes. That's right.

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Yes.

Matt O'Connor
Matt O'Connor
Analyst at Deutsche Bank

Okay. Thank you.

Operator

We

Operator

have reached the end of the question and answer session. I'd now like to turn the call back over to Brian Gill for closing comments.

Bryan Gill
Bryan Gill
EVP, Director of Investor Relations at The PNC Financial Services Group

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

William Demchak
William Demchak
Chairman & CEO at The PNC Financial Services Group

Thanks everybody.

Robert Reilly
Executive VP & CFO at The PNC Financial Services Group

Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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Earnings Conference Call
The PNC Financial Services Group Q1 2025
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