The PNC Financial Services Group, Inc. (PNC) Earnings

Management highlights

- Completed acquisition of First Bank, mid-June conversion on track. - Organic loan growth at three-year high, net interest margin expanded, 13% fee income growth. - Credit quality strong, returned significant capital to shareholders. - Strong momentum across businesses, continued investments in tech and branch network. - No broad impact from market concerns like energy prices, AI, private credit on customers/credit quality. - Focus on discipline execution of strategy.

Guidance

Second quarter 2026: Average loans up 2%-3%, net interest income up ~3%, fee income up 2.5%, other non-interest income $150-$200 million, total revenue up ~3.5%, non-interest expense (excluding integration) up ~2%, net charge-offs ~$225 million. Full year 2026: Average loan growth ~11%, net interest income up ~14.5%, non-interest income up ~6%, total revenue up ~11%, non-interest expense (excluding integration) up ~7%, effective tax rate ~19.5%, integration costs ~$325 million ($98 million in Q1, ~$150 million in Q2, remaining in second half).

Segment performance

Balance sheet: Average loans were $351 billion, up $23 billion (7%) linked quarter; investment securities $145 billion, up $2 billion (2%); deposit balances $458 billion, up $19 billion (4%); borrowings $63 billion, up $3 billion (4%). Loan growth: Organic loan growth hit three-year high; commercial and consumer loan growth; legacy CNI loans up $15 billion, CRE balances reached inflection point, consumer loans down $1 billion. Deposit growth: Average deposits up $19 billion (4%) due to First Bank acquisition, partially offset by reduction in brokered CDs; non-interest-bearing balances 22% of total deposits; total rate paid on interest-bearing deposits down 18 basis points to 1.96%. Income statement: Total revenue $6.2 billion, up $94 million (2%); net interest income $4 billion, up $230 million (6%), net interest margin 2.95% (up 11 basis points); non-interest income $2.2 billion, down $136 million (6%); fee income up 13% year-over-year. Credit quality: NPL and delinquency ratios improved; NPLs $25 million (1%), 0.62% of total loans; total delinquencies $1.6 billion; net loan charge-offs $253 million, allowance for credit losses $5.5 billion (1.52% of total loans). NDFI loans: Lowest risk, ~90% investment-grade or equivalent, 80% asset securitizations (trade receivable securitizations), 20% CLOs secured by private credit provider assets, no losses expected.

Risks & headwinds

- Concerns about banks' exposure to non-depository financial institutions, but PNC's NDFI loans are low risk, no systemic exposure expected. - Potential spread widening in certain NDFI-type credits, but PNC's exposure in relevant areas is managed with low risk. - Interest rate volatility impact on MSR valuations, as seen in this quarter's mortgage revenue decline due to heightened rate volatility.

Analyst Q&A

• Q: Talk about deposit growth approach and difficulty in growing low-cost core deposits.

  A: Focus on growing retail clients, opening branches (8 so far in 2026, ~50 planned), strong digital acquisition; deposit growth expected to stay at current levels with incremental growth in back half of 2026.

• Q: Customer sentiment and growth outlook.

  A: Activity levels don't align with low consumer/small business confidence surveys; spending patterns, loan growth, etc. show no dramatic change.

• Q: Loan growth outlook.

  A: First quarter had strong loan growth, second quarter expected to be flattish with paydowns offsetting new production, back half growth not at first quarter rate.

• Q: Capital management with Fed proposals.

  A: RWAs expected to reduce ~10%, impact on rating agencies' methodologies and capital allocation to be worked through.

• Q: Fee income outlook, especially capital markets.

  A: Harris-Williams pipelines strong, capital markets revenue expected to be at first quarter levels in second quarter, still up double digits full year.

• Q: Cost savings from First Bank acquisition and continuous improvement program.

  A: Full-year expense guide up 7% including First Bank operating expenses; integration costs ~$325 million, residual in second half; continuous improvement program aims for $350 million cost savings in 2026.

• Q: Deposit pricing competition by geography.

  A: No particular geography harder, growth in clients and deposits strong.

• Q: Borrower sentiment, pipelines, loan pricing.

  A: Pipelines strong, new production skewed to higher credit quality, lower spread; commercial real estate balances reached inflection point.

• Q: Private credit portfolio risk.

  A: Private credit portfolio low risk, most NDFI loans investment-grade or equivalent, negligible risk.

• Q: Interest rate positioning and hedging.

  A: Economic value of capital flat, locking in forward curve rates, MSR hedging impacted by high realized volatility.

• Q: Use of excess capital from RWA reduction.

  A: Will figure out deployment when Basel III proposal is approved, currently focused on organic growth and buybacks.

• Q: Competition and loan growth.

  A: Growing by entering new markets, specialty lending, integrated relationships; market-based corporate loans half of loans, growing at twice the rate.

• Q: Retail expansion update.

  A: Retail expansion working, learned about branch building, metrics on track to break even in ~3 years.

• Q: Leverage lending guidelines impact.

  A: Mostly helped banks do good business, not much impact on existing good lending.

• Q: Deposit costs if Fed doesn't cut.

  A: Can hold line on deposit costs, back book repricing a dynamic.

• Q: Spread movement in NDFI lending.

  A: Likely spread widening in certain NDFI-type credits but PNC's exposure hard to track in detail.

• Q: Loan growth and provisioning.

  A: Provision expense expected to increase with loan growth, reserve ratios solid but tied to loan growth.

• Q: ROTCE outlook.

  A: ROTCE finished 2025 at ~18%, expected to go down in 2026 due to First Bank acquisition, then drift higher in 2027 due to operating leverage and growth.