PNC Financial Services Group Q2 2026 Earnings Call - Fee Income Surge and FirstBank Integration Fuel EPS Beat; 18% Dividend Hike Marks Capital Confidence

Conference Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may now begin.

Bryan Gill, Director of Investor Relations, PNC Financial Services Group: Well, good morning and 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 Chief Financial Officer. 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 July 15th, 2026. PNC undertakes no obligation to update them. Now I’d like to turn the call over to Bill.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Thank you, Bryan, and good morning, everyone. As you saw, PNC delivered an impressive second quarter. We generated $2.1 billion of net income or $4.81 per diluted share. Our results included FirstBank integration costs and other significant items. Collectively, these items reduced earnings per share by $0.04, resulting in an adjusted diluted EPS of $4.85. Now Rob’s going to take you through all those details on our financial results in a couple of minutes. Let me just hit a few highlights. Business momentum remains really strong. We continue to win new clients and deepen existing relationships. DDA growth continues at a healthy pace, while client acquisition across our corporate and private banking businesses continues to grow meaningfully. Net interest income grew on the back of continued commercial loan growth, as well as favorable deposit mix and pricing.

Fee income performance was a particular highlight, increasing 10% linked quarter and 20% year-over-year. Growth has been broad-based across every fee category, underscoring the value of our diversified business model. We also generated positive operating leverage and improved our efficiency ratio. Credit performance remains strong, reflecting the strength of our economy as well as the quality of our portfolio. The consistency of our financial strength was evident in the Fed’s latest stress test results. For the fourth year in a row, PNC’s start to trough capital depletion was the lowest in our peer group, further demonstrating our best-in-class resiliency. With this in mind, our board approved an increase to our quarterly common stock dividend of $0.30 or 18% to $2 per share. Beyond these financial results, we continue to make meaningful progress on the things that will drive our future success.

We successfully completed the conversion of FirstBank, opened new branches in high growth markets, introduced a new mobile banking platform, all the while continuing to advance client and infrastructure technologies. None of these efforts are about the next quarter. They’re about making PNC a better bank for our customers and positioning the company for sustained growth over the long term. In summary, we had a great quarter. Importantly, we are well-positioned to drive further growth across our company. Before I turn it over to Rob, as always, I just want to thank our employees for everything they do for our company and our customers. With that, Rob will take you through the quarter. Rob?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Thanks, Bill. Good morning, everyone. Our balance sheet is on slide four and is presented on an average basis. For the linked quarter, loans of $363 billion grew $12 billion or 4%. Securities balances increased 2% to $147 billion during the quarter, and the portfolio yield improved nine basis points to 3.45%. Average deposit balances of $457 billion were stable, consistent with seasonal patterns. Borrowings were $79 billion, an increase of $16 billion, reflecting higher FHLB advances. Our tangible book value was $111 per common share, up 2% linked quarter, and up 7% compared with the same period a year ago. Our return on tangible common equity was 17.9% in the second quarter. We continue to be well-positioned with capital flexibility. During the quarter, we returned $1.3 billion of capital to shareholders, which included $690 million of common dividends and $610 million of share repurchases.

Going forward, we expect third quarter repurchases to approximate this same level. As Bill just mentioned, our board recently approved a $0.30 increase to our quarterly cash dividend on common stock, raising the dividend 18% to $2 per share. We remain well-capitalized with an estimated CET1 ratio of 9.9%. Slide five shows our loans in more detail. Loan balances averaged $363 billion in the second quarter, an increase of $12 billion or 4% linked quarter. The total average loan yield decreased three basis points linked quarter to 5.47%. Virtually all of the loan growth was in C&I, reflecting strong new production and higher utilization across almost every loan category. CRE balances increased $690 million during the quarter, driven primarily by growth in retail and industrial exposures.

Consumer loans declined by $730 million as growth in credit card balances partially offset expected declines in residential real estate and auto loans. Slide six covers our deposit balances in more detail. Average deposits were stable with the prior quarter as higher consumer balances were offset by a seasonal decline in commercial deposits. Our total rate paid on interest-bearing deposits decreased five basis points to 1.91% in the second quarter, reflecting lower rates paid across all deposit categories. Notably, average non-interest-bearing balances grew 4% linked quarter and represented 23% of total deposits. Turning to the income statement As Bill mentioned, I want to provide a bit more detail regarding the integration costs and significant items in the quarter. When combined, these items had a minimal impact on our net income and earnings per share. First, we incurred $127 million of integration costs related to the FirstBank acquisition.

Beyond these integration costs, we had several significant items. We participated in the Visa exchange program and monetized half of our Visa Class B-2 shares, resulting in a $448 million pre-tax gain. We also recorded a negative $85 million Visa derivative fair value adjustment associated with our remaining Visa Class B-3 shares, primarily related to the extension of anticipated litigation resolution. In addition, we repositioned a portion of our securities portfolio through the sale of approximately $4 billion of available-for-sale securities, resulting in a $139 million loss. We reinvested the proceeds into securities with yields approximately 120 basis points higher than the securities sold. Finally, we contributed $140 million to the PNC Foundation, which supports our communities and early childhood education initiatives. All in, the FirstBank integration costs and significant items, when combined, resulted in a nominal reduction to our second quarter EPS of $0.04.

Turning to slide eight, we highlight our income statement trends. Comparing the second quarter to the first quarter of 2026, total revenue was $6.9 billion and grew $710 million, or 12%, and included both integration costs and significant items totaling $218 million. Non-interest expense of $4.1 billion increased $330 million, or 9%, and included a $140 million PNC Foundation contribution, as well as $121 million of integration expense. We generated 3% positive operating leverage, and PPNR grew 16%. Provision was $191 million. Our effective tax rate was 21%. As a result, our second quarter net income was $2.1 billion, or $4.81 per common share, and $4.85 as adjusted. Comparing the second quarter of 2026 to the same time last year, net income grew by $412 million, resulting in EPS growth of 25%. Turning to slide nine, we detail our revenue trends.

While the quarter included integration costs and significant items within the other non-interest income, our revenue growth was driven primarily by the underlying strength of our franchise. We generated 4% growth in net interest income and 10% growth in fee revenue. Net interest income of $4.1 billion increased $146 million and included the benefit of commercial loan growth and higher non-interest-bearing deposit balances. Our net interest margin was 2.96%, an increase of one basis point. Fee income was $2.3 billion and increased $200 million, or 10%. Looking at the details, asset management and brokerage increased $20 million, or 5%, driven by increased client activity and higher average equity markets. Capital markets and advisory revenue increased $114 million, or 25%, reflecting record M&A advisory fees and strong activity across our other capital markets businesses.

Card and cash management increased $34 million, or 5%, driven by seasonally higher consumer transaction levels and growth in treasury management product revenue. Lending and deposit services increased by $6 million, or 2%, primarily due to increased customer activity. Mortgage revenue increased $26 million, or 22%, largely attributable to negative residential mortgage servicing rights valuations recognized in the first quarter. Other non-interest income of $489 million increased $364 million, which included the $218 million of integration costs and significant items, as well as positive private equity valuation adjustments. Compared with the second quarter of 2025 and excluding integration costs and significant items, total non-interest income increased $444 million, or 21%. Importantly, this performance was driven by strong organic growth with broad-based increases across our businesses. Turning to slide 10, second quarter expenses increased $330 million, or 9%, linked quarter.

Expenses in the second quarter included integration expense and significant items totaling $261 million. The first quarter of 2026 included $97 million of integration expense. Excluding the impact of integration costs and significant items, non-interest expense increased to $166 million, or 5%, linked quarter. The growth reflected increased business activity, higher marketing spend, as well as continued investments. We remain focused on expense management and we’re on track to reach our goal to reduce costs by $350 million in 2026 through our continuous improvement program. As a reminder, this 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 11. Overall credit quality remains strong, with improvements in NPLs, delinquencies, and net loan charge-offs.

Non-performing loans of $2 billion decreased $216 million, or 10%, and represented 0.55% of total loans, down from 0.62% last quarter. Total delinquencies declined $122 million to $1.4 billion, and now represent 0.39% of total loans. Total net loan charge-offs were $226 million, and our NCO ratio was 25 basis points. At the end of the second quarter, our allowance for credit losses totaled $5.5 billion, or 1.48% of total loans. To summarize, PNC reported a strong second quarter of 2026, and we’re well-positioned for the second half of the year. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 2.1% in 2026, with the unemployment rate holding steady and ending the year at approximately 4.3%. We expect the Federal Reserve to keep rates stable throughout 2026.

For ease of comparability with our prior guidance, our full-year outlook excludes the impact of FirstBank integration charges and significant items. Considering our reported first-half operating results, third 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 of approximately 12.5%. We expect full-year net interest income to be up 15%-15.5%. We expect non-interest income to be up approximately 9%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 13%. Non-interest expense to be up approximately 8.5%, and we expect our effective tax rate to be approximately 19.5%. Our outlook for the third quarter of 2026 compared to the second quarter of 2026 is as follows.

We expect average loans to be up 1%-2%, net interest income to be up between 3% and 3.5%, fee income to be down 5%-5.5%, other non-interest income to be in the range of $150 million-$200 million. We expect adjusted non-interest expense to decline 2%-3%, and in the third quarter, we anticipate approximately $50 million of integration expenses. We expect third quarter net charge-offs to be approximately $225 million. With that, Bill and I are ready to take your questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. As a reminder, if you would like to ask a question, please press 2 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 questions. Our first question today is coming from John McDonald of Truist Securities. Please go ahead.

John McDonald, Analyst, Truist Securities: Thanks. Good morning. Rob, wanted to ask-

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Hi

John McDonald, Analyst, Truist Securities: You had some very strong loan growth through the quarter. Could you speak a little bit to the cadence of the loan and deposit growth as the quarter progressed? There seems a little bit different dynamics between the period end and average. Maybe just broadly to how you plan on funding the strong loan growth throughout the year.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah, sure. Good morning, John. The loan growth in the first half and in the second quarter continued to be pretty strong, which is a good thing. When we take a look at the second half, we still see loan growth, but not at the same rates. We are pointing to effectively sort of GDP growth in our guidance going through the balance of the year. More loan growth, but not to the same extent. In terms of funding, as we look forward, we do expect deposits to grow through the second half of the year. That’ll be a key component to the funding as it replaces some wholesale debt that we picked up in the second quarter.

John McDonald, Analyst, Truist Securities: Okay. Got it. Was that just about some, the funding that you picked up on the FHLB side this quarter, was that just some temporary dynamics, and you expect that you also had good NIB growth this quarter? Maybe just comment on that and the outlook there.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. Your second question first. Non-interest-bearing deposits were higher than we expected. Virtually all of that was on the commercial side related to our treasury management business and some escrow monies that come through. That’s a good thing. I would expect that to continue, not at the same rate. We’re at 23% of our total deposits, and we have that pretty steady through the balance of the year.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: I think the funding, John, you should just assume we sort of optimize against every lever, whether it’s wholesale funding or what we’re doing on deposits. The drops this quarter in corporate deposits are pretty easy to turn back on. There’s a bit of a seasonal effect, but there’s also a rate effect. You saw we grew deposits in retail, which is the most important thing. The home loan advances this quarter were, think of it as the cheapest alternative to fund loans relative to other things. That changes all the time. I wouldn’t read too much into that.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: No, it’s just flexing to the optimal cost.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah.

John McDonald, Analyst, Truist Securities: Got it. Okay, great. Thanks, guys.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Sure.

Conference Operator: Thank you. Our next question is coming from John Pancari of Evercore ISI. Please go ahead.

John Pancari, Analyst, Evercore ISI: Good morning.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: John.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Good morning.

John Pancari, Analyst, Evercore ISI: On the loan growth side, I appreciate the trends here. You’ve seen some pretty good strengthening. Can you maybe just talk about the areas of strengthening? What do you see in terms of demand and pipelines and utilization? Then separately on the loan spread front, any shift in spreads that’s observable here just amid the competitive backdrop? Thanks.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. Inside that, I would say the loan growth has been strong. Again, we expect loan growth to continue, not at the same rate. That’s just a function of maybe some pull forward in terms of borrowings or some pent-up borrowing demand. We’ll see. As far as the mix, we don’t see a lot of spread compression from a competitive standpoint. We do have some spread compression in the continuation of what we saw in the first quarter, which is most of the lending that we’re doing is to the high credit quality, lower spread entities. Those are who are borrowing now. It’s good business. It’s sufficient return, particularly given that those loans often come with treasury management and/or capital markets. There’s a little bit of dilution to the portfolio spreads, but that’s more mix than competitive pressures.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: The other thing, we continue to have the new markets outpace the legacy markets just in terms of growth as we grow share there. For the first time, I’m sure this isn’t true, but for the first time I can remember, we had strong growth across every category inside of the C&I franchise and utilization increases.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Broad-based.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah. It’s broad-based. We’re gaining share all on the back of what feels like a pretty strong economy.

John Pancari, Analyst, Evercore ISI: Okay. Thank you. That’s helpful. I know you don’t really guide on more specifically around the margin, but just trying to get an idea, just given some of the pricing dynamics that you’re seeing in the backdrop in the environment. Just wanted to get an idea of how you’re thinking about the margin could traject through the back half of the year that’s kind of baked into your guidance here. I know you saw a modest expansion in the quarter by about a bit. Just how are you thinking about how that could play out as you look through the back half?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. Let me address that, John, because there’s a lot of focus on NIM. We had said that we expect to go above 3% by the end of the year, and we still are standing next to that. That’s that. The second piece is if you chunk down the NIM components, and it sort of gets to your earlier question, the components of our second quarter NIM. What helped our second quarter NIM, which went up a net one basis point, was obviously the decline in the rate paid on the interest-bearing, as well as the increased non-interest-bearing deposits. That helped NIM. What constrained NIM was the point that I was making earlier, is these commercial loans that are coming in at a pretty good rate, and the majority of those being the higher credit quality, lower spread. That constrains NIM.

When you think about it and you look at it, those loans carry the fees along with them. From an EPS perspective, those loans are hugely accretive. On a standalone basis, they’re dilutive to NIM. If we didn’t have those loans, just for illustration purposes, if we didn’t have that loan growth in the second quarter, our NIM would have easily popped above 3%. We’re given a choice between lower NIM, higher EPS or higher NIM and lower EPS. We’ll take EPS every time.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Having said that, we’re still on the-

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: We’re on record for 3% the back half of the year.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Much of that driven through the continual repricing of fixed rate assets.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Well, that’s the longer term issue. The longer term issue is the steepness of the yield curve. We still have a lot of fixed rate assets to reprice, so that’ll determine that. I just mentioned that for illustration purposes because I think a lot of the focus on NIM is on the funding side and the issues there, but there’s also the loan dynamic.

John Pancari, Analyst, Evercore ISI: Right. Got it. Thanks for that detail. I appreciate it.

Conference Operator: Thank you. Our next question is coming from Ebrahim Poonawala of Bank of America. Please go ahead.

Ebrahim Poonawala, Analyst, Bank of America: Hey, good morning. I guess maybe Bill Rob sticking with loan growth. You mentioned the high credit quality, low spread lending, which is good to hear from a credit quality standpoint.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Ebrahim Poonawala, Analyst, Bank of America: Is this different from history in terms of this kind of loan growth? This is kind of what you would expect in a good C&I environment where market spreads are tight. One, is there something different about the quality or the type of borrower or the type of borrowing that’s happening? Then I have a follow-up to that, but maybe if you could start there. Thanks.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. I wouldn’t say anything is way different, I would say that the preponderance of the loan growth is in that higher credit quality, lower spread loans, which is probably mix-wise a little bit higher than average run rate. It’s not off the charts.

Ebrahim Poonawala, Analyst, Bank of America: Got it. I guess as a follow-up to that, you had all the big banks report like there’s a significant energy around the economy, around AI, CapEx spend. We are seeing that in the financing markets. When you sort of bring it back to you’re the second bank today that talked about broad-based C&I growth. I’m just wondering, one, are you picking up some of that business tied to data center lending, et cetera? Second, when you think about the broad-based growth, are there other engines of the economy at work here, be it reshoring, manufacturing, et cetera? Or are you able to sort of connect the dots between second derivatives of AI CapEx driving that loan demand for PNC?

Bill Demchak, Chairman and CEO, PNC Financial Services Group: It’s too broad-based to lay it all on AI. At the margin it’s impacting what we’re doing. As I said before, it’s coming from kind of all sectors. Which is, I’ve heard the different explanations as to why it’s showing up. People are otherwise used to the chaos in the environment and have figured out that they need to operate through it and grow. The M&A environment is more robust. Look, the economy’s strong. People are spending money. While I appreciate the impact AI is having on GDP, that can’t be the only driver of the loan growth that we’re seeing given the industry dispersion and the geographic dispersion.

Ebrahim Poonawala, Analyst, Bank of America: Noted. Thank you.

Conference Operator: Thank you. Our next question is coming from Erika Najarian of UBS. Please go ahead.

Erika Najarian, Analyst, UBS: Hi. Good morning. Rob, if I could just start with you. To your point, there’s a lot of focus on net interest margin trajectory because of the funding dynamic.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Erika Najarian, Analyst, UBS: The Street currently has an exit rate of 3.08% for fourth quarter of 2026. As we think about where the loan growth is coming from, is that too fast of a ramp relative to the other opportunities in terms of fixed asset repricing and obviously maybe optimizing some of the wholesale funding that you put on this quarter to core funding?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. Again, we don’t give NIM guidance, nor do we manage to it. That said, I always give NIM guidance, we’re above three, Erika. The precise level at the exit run rate.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Why do you care?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: is difficult.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: At the end of the day, we’ll stick to our guide, and we’ll get there. If we grow EPS and NII at 2% higher and have a lower NIM, to Rob’s earlier point, why do you focus on it?

Erika Najarian, Analyst, UBS: I personally don’t care. I think that the NII dollars are more important, and I couldn’t quote you what JPMorgan’s NIM was for this quarter, so I think you’re right. I’m just thinking about why the stock is down despite the beat and raise. That’s why I’m trying to clarify that question.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: More sellers than buyers. Look, maybe the simplest thing to say across the space is we have healthy asset growth through loan growth which is coming from client acquisition and economic activity. We have a great ability to fund it. We’re growing our retail franchise. Retail deposits are increasing. Corporate deposits we didn’t pay up for, and they went down in the quarter, but we can make those whatever we want.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Not as great deposits.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: We’re very liquid today. It’s not a huge focus inside the company even though the mechanical outcome, as we’ve said since the beginning of the year, will push us over 3% by the end of the year.

Erika Najarian, Analyst, UBS: To that end, just to take a step back, clearly the company is doing well. You’ve talked about organic NII dollar growth of about $1.2 billion this year, I guess as we think about sort of what’s your plan over the next few years, is that NII dollar growth replicable for a sustainable period of time? Additionally, you printed a pretty nice ROTCE this quarter. I guess I’m wondering about the path to the 20% that you’ve mentioned previously.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Well, maybe I could jump in there a little bit. We’re not going to get into 2027 guidance, but we’re on record saying that we’ve got a lot of fixed rate asset repricing that goes well into 2027 and beyond. That’s constructive for NII in 2027. As we get closer to the end of the year, we’ll sharpen that up for you. As far as the ROTCE goes, we’re on record saying that we’d hit 18% annualized exit rate fourth quarter 2026. We’re sticking to that as well. We’re tracking to that. We point out this quarter we’re at 17.9%, so arguably we’re in the vicinity.

Erika Najarian, Analyst, UBS: Okay. Thank you.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Sure.

Conference Operator: Thank you. Our next question is coming from Mike Mayo of Wells Fargo. Please go ahead.

Mike Mayo, Analyst, Wells Fargo: Hi. Just a little bit more color on loan growth. Certainly it’s growing faster than you had thought. Can you talk about line utilization and the potential for loans to grow even faster, and how much you’re assuming line utilization will increase as part of your higher guide?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Oh, yeah. Hey, Mike, it’s Rob. As we pointed out in the second quarter, utilization has increased for us, and it’s been pretty broad based. When we look into the second half, we have continued loan growth. We have an expectation that the utilization would at least hold, maybe go up a little bit. That’s all part of our thinking in terms of sort of moderating the loan growth to roughly GDP.

Mike Mayo, Analyst, Wells Fargo: Okay. Look, your stock price has outperformed this year when you look at it, and it’s caught a bid. Do you ever wonder about this party that’s taken place elsewhere as relates to AI and this CapEx AI super cycle and all the mega IPOs and mega financings, and mega mergers that you’re not part of, and it’s like, wow, we’re not part of that, but we have our own area. What’s the counterargument to that whole super cycle? Is there enough to go around in a trickle-down effect? Bill, if you have thoughts on that because you’ve been on both sides of that kind of Wall Street mega cycle.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Many ways to answer that. I guess I’d offer the following. The first is you just look at who we are and our growth rate. Our EPS is what? Up 25% year-on-year. We’re growing single double digits on every line item on revenue and growing customers in a space that does not focus heavily on capital markets. Yet our capital markets revenue is up 80% year-on-year. Are we in the middle of a deal that pays $100 million in fees? No, we aren’t. Are we actually growing the core franchise at a pace, importantly, at a pace that is less cyclical than the boom you’re seeing in the super cycle right now? We are.

It’s an alternative to something that I think is more volatile, yet we’re dropping real dollars to the bottom line in a healthy economy and gaining share as we do it.

Mike Mayo, Analyst, Wells Fargo: Okay. Appreciate the answer.

Conference Operator: Thank you. Our next question is coming from Manan Gosalia of Morgan Stanley. Please go ahead.

Manan Gosalia, Analyst, Morgan Stanley: Hey, good morning. Rob, I wanted to check in on the trends on deposit costs. The five basis points improvement this quarter, it’s pretty good given the environment. Have you noticed anything in terms of the trajectory as you went through the quarter? Just given the increased focus on deposit competition, I’m wondering if you’re seeing anything, any underlying trend in either the overall portfolio or in specific geographies on deposit costs.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. We track that obviously pretty closely. We declined in terms of rate paid in the first quarter. Our outlook, we do have rate paid drifting back up to first quarter levels. That’s all part of our guidance. Mostly in terms of back book repricing and some of the things that we want to do with our deposits. That’s the track that we’re on.

Manan Gosalia, Analyst, Morgan Stanley: I guess in terms of the competitive environment, I guess what do you think is driving that? Is that just the rate outlook and the fact that rate cuts have come out of the forward curve and maybe we have a rate hike or two coming up? Is that the only thing that’s driving it? Is there just more competition overall? Can you talk a little bit more about that dynamic?

Bill Demchak, Chairman and CEO, PNC Financial Services Group: I think a couple things. Let’s separate what’s going on in wealth and corporate and assume correctly that those are competitive yields and you can kind of dial them up and down with rate. On the retail side, to the extent you are in effect a commercial bank without a retail franchise, things are really tight, right? That’s where you’re seeing CD rates posted, brokered CDs at really high rates. If you’re growing and own a good retail franchise, it’s less severe. If you look inside of what we’ve done in retail, the growth in DDA households, the increase in balance and the actual drop in rate quarter-on-quarter of a basis point, right?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Would kind of lead you to a conclusion that if your company’s balanced here between retail and just commercial lending, you actually are in a pretty good spot, and I think we are. I don’t think everybody is, and we’ve talked about it forever, but retail share is moving aggressively to the larger players, and it’s making it more difficult to fund if you’re smaller and don’t focus on it.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah, I think that’s right. I think that’s why even though we do expect some increase in our rate paid, it’s not dramatic.

Manan Gosalia, Analyst, Morgan Stanley: Great. Thank you.

Conference Operator: Thank you. Our next question is coming from Matt O’Connor of Deutsche Bank. Please go ahead.

Matt O’Connor, Analyst, Deutsche Bank: Good morning. I was hoping to circle back on the capital market revenues. I guess the fact that a lot of the revenues in the industry are being driven by some of these bigger headline deals, yet your revenues were so strong. Just remind us a little bit about what the mix is, maybe kind of generally from a product point of view, size of customer. Then just also any comments on how well it’s integrated with the rest of the firm as a feeder system. Thank you.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Sure, Matt. Our capital markets was up overall, but each category was up. Harris Williams, which is about 40% of our capital markets business, had a record quarter. Beyond that, loan syndication, Solebury Capital, trading all up. Broad-based.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Inside of there, you have derivatives and FX and our share of investment grade underwriting has gone way up. It’s a healthy market. We participate in it.

Matt O’Connor, Analyst, Deutsche Bank: Just in terms of the interconnectivity with the other businesses, like C&I loan growth. Is that driving some of the hedging here? Obviously that would make sense, but sometimes it’s different targeted customer bases.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: It’s all correlated, and you’re exactly right. Loan growth gives rise to derivative activities. Oftentimes, even in a middle market instance where there’s going to be some loan, which is syndicated, and there might be some bonds associated with it. We’re inside of that also. It is all correlated. It’s on the back of the size of the financings that are going on inside of the U.S. economy.

Matt O’Connor, Analyst, Deutsche Bank: Okay. Thank you.

Conference Operator: Thank you. Our next question is coming from Gerard Cassidy of RBC Capital Markets. Please go ahead.

Gerard Cassidy, Analyst, RBC Capital Markets: Hey, Bill. Hey, Rob.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Hey, Gerard.

Gerard Cassidy, Analyst, RBC Capital Markets: You guys have been good over the last two, three years in getting out in front of the commercial real estate story. Obviously, there was a lot of fear following the pandemic about office space and the issues around it. Your credit continues to improve in commercial real estate, and now you’re growing commercial real estate mortgages. Can you share with us some color? What are you guys seeing there? What are the opportunities to grow that portfolio further?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah. Gerard, you’re spot on. We’ve worked through the commercial real estate office portfolio. Still some work to do there, but we did release some reserves as we worked through that book. As far as loan growth, we inflected in the first quarter for the first time after I don’t know how many quarters of declines. We see that continuing. In fact, the pipelines are forming in commercial real estate in a very constructive way across all the categories. Multifamily, industrial, and retail pipelines are all up. We would expect commercial real estate to be a bigger component of our loan growth going forward.

Gerard Cassidy, Analyst, RBC Capital Markets: Very good. Is there any data center construction loans, just out of curiosity? I assume not, or not many.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Nothing major.

Gerard Cassidy, Analyst, RBC Capital Markets: Yeah.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Bill, you may know in terms of any data centers.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: We’re involved in the space. We’ve been involved in project construction loans forever inside of the real estate space. Tangentially, but not with big risk and not big size.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Gerard Cassidy, Analyst, RBC Capital Markets: Okay, good. As a follow-up, can you share with us, obviously, First Bank is closed, it’s integrated. What were some of the positive surprises you guys discovered in that process? What were some of the issues that maybe required extra effort that you may not have had anticipated?

Bill Demchak, Chairman and CEO, PNC Financial Services Group: I don’t know if they’re surprises or not, but perhaps the biggest thing that we proved to ourselves was that we could do an acquisition of that size without slowing down at all the rest of the company in terms of technology deployment or product rollout. You’ll notice in the middle of this whole thing, we put out a new mobile banking platform. Normally you do a deal, you get to freeze stuff. We didn’t have to freeze stuff. Second thing was the data factory that we built, patented, in its first form with BBVA, worked even better inside of this integration. Third thing, I think we’re the first bank, correct me where I go wrong here, Rob.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Ever to do the early access-

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah

Bill Demchak, Chairman and CEO, PNC Financial Services Group: where basically people could log in and credential before you did the actual account switch. All of that was great. What we underestimated on this one was the, I’m just going to call it a lack of digital awareness on a relative basis to our existing client base that maybe First Bank customers had. We had a lot of branch traffic that was there to activate a debit card or to download a mobile app, and things that we otherwise might have expected would happen outside of the branch caused traffic in the branch that we underestimated and caused some confusion, and we’re going to have to improve on that going forward. All in all, mechanically, and the conversion is so much more than the-

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah

Bill Demchak, Chairman and CEO, PNC Financial Services Group: mechanics. Mechanically, it went really well. I’m super proud of the team of people that got this done, both on the PNC side and importantly on the FirstBank side. Super proud and thankful for the employees inside the FirstBank branches that went through a couple of days of real heavy volume.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Heavy lifting. Yeah.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: The thing to add to that, Gerard, too, just in terms of the financials. Everything that we expected in terms of the price we paid, the return we would have, the accretion, it’s all there and then some. From a financial perspective, we’re in a really good place.

Gerard Cassidy, Analyst, RBC Capital Markets: Very good. Thank you guys.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah.

Conference Operator: Thank you. The next question is coming from Ken Usdin of Autonomous Research. Please go ahead.

Ken Usdin, Analyst, Autonomous Research: Hey, guys. Rob, I know you touched on the capital market strength before. We see obviously the fee guide that you gave that would assume that that’s probably coming off a little bit. Bill, you mentioned the super cycle, though. I’m just wondering, Rob, if you could kind of walk us through just your expectations for the fee areas that you usually give us, which is a good run through. How strong do you think this capital market flow through could be, and did you see any pull forward into this really strong second quarter result from a closings perspective? Thanks.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Want me to go first with the-

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah, go ahead.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: That sort of tells the story too. For the third quarter, Ken, in terms of the fee sort of component breakdowns, we do feel like we pulled some of capital markets forward into the second quarter. The second quarter was elevated. When you look at the third quarter guide for the fee breakdown, it’s largely around the capital markets that we think will probably be down about 20% quarter-over-quarter. The rest of the fee categories are sort of flattish to up, depending on sort of what happens with market conditions. That’s the big driver to get us down the 5.5% that we talked about.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Just on the side, you come off a record quarter, and everybody looks at the activity and says, "Oh, we can’t do that again.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Right.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: We knock down our estimates going into the third quarter. It’s a handful of big deals that show up.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah

Bill Demchak, Chairman and CEO, PNC Financial Services Group: That makes a difference.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: That’s right.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: inside of the size of things that are getting done in this market. That’s our best guess for now.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: For the third quarter. For the full year, so if you just sort of dial it back for the full year, asset management’s having a great year with the equity markets up, so they’re up high single digits. Capital markets for the full year will be up close to 25%-30% year-over-year.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Good.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: That’s in our guidance. Card and cash management, mid to high single digits. Lending and deposit services, mid-single digits. Mortgage, just to round it out, probably flattish to down, depending on sort of hedge gains and sort of how that works out.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: The guide on capital markets, I mean, just to be clear, it’s volatile.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: That’s right.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: You know, and so we-

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Especially in a 90-day period.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Yeah.

Ken Usdin, Analyst, Autonomous Research: Yeah. No, totally. Sorry?

Bill Demchak, Chairman and CEO, PNC Financial Services Group: I just said we’re in the right places. We’re in the right deals. We’re winning business. It’s kind of a function of what’s actually happening in the broader market.

Ken Usdin, Analyst, Autonomous Research: Yeah, exactly. That’s why I’m pointing to that point, which is that it just seems like the potential for this type of result to continue seems pretty good. Thanks for that color. Thanks, guys.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Sure.

Conference Operator: Thank you. The next question is coming from David George of Jefferies. Please go ahead.

David George, Analyst, Jefferies: Hi. Thanks for taking the questions. Can you give us an update on sensitivity to rates on NII? If we get a hike or two, what would that impact be?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Very small in 2026. We’ve said it for a while. We’re sort of in a neutral position to rates, so 25 basis points up or down. Very little impact to 2026.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: As you go forward, it becomes a function of how the rest of the curve reacts were they to raise rates. Within the range that we’d otherwise contemplate, there’s still a healthy pickup next year just because of the continual repricing.

David George, Analyst, Jefferies: Got it. Thanks for that. Shifting over to capital CET1 at 9.9%. You mentioned the buyback in the third quarter should be similar to the second quarter level. Is this 9.9% kind of the new comfort range that you guys would point to?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Yeah, I think so. We’ve said 10%. We were actually very close to rounding to 10%, but we rounded down to 9.9%. Our operating target is around 10%, and that’s where we expect to be.

David George, Analyst, Jefferies: Thanks very much.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Sure.

Conference Operator: Thank you. The next question is coming from Saul Martinez of HSBC. Please go ahead.

Saul Martinez, Analyst, HSBC: Hi. Good morning. Thanks for taking my question. Back on loan growth. Do you guys feel like there’s an element of conservatism being built into the second half guidance of roughly in line with nominal GDP growth? I get the comments about pull forward, everything else you are talking about seems pretty constructive. The utilization rates kind of ticking higher, economy doing well, CRE returning to growth, M&A financing. Is the bias if you’re going to be wrong more to the upside? Just curious if you think that’s a logical conclusion.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Got it.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Well, I’d say.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: Re-guide your guide, Rob.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: I’m just saying our guide is our guide, and that’s what we think. We’ve guided to lower numbers, they come in higher. We’ve guided to higher numbers, they’ve come into lower. The guide’s the guide.

Bill Demchak, Chairman and CEO, PNC Financial Services Group: I think that the only thing I’m comfortable in saying is if there is loan growth across the economy, we will get more than our fair share simply because of the newer markets we’re operating in and the share growth. It’s become so hard to predict what’s happening with loan growth. We kind of pick a real simple base case and hopefully outperform.

Saul Martinez, Analyst, HSBC: Got it. Okay. Fair enough. Nobody asks about credit anymore, for good reason. Obviously, it’s been really strong. Are there areas that you are monitoring where you think there are vulnerabilities? Even if it’s not a big part of your portfolio, where do you think they’re, either from a sector standpoint, product, income categories, where do you feel like there is more fragility?

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: I’d interact. Overall credit quality is very good on both the consumer side and the commercial side. We don’t see any big pockets forming. We follow sort of the pressures in the healthcare industry. There’s pressures in the distillery sector. There’s some pressures in transportation around fuel costs, those sorts of things, all the things that you read about and are well aware. I wouldn’t say there’s any big pocket or anything that particularly worries me beyond that.

Saul Martinez, Analyst, HSBC: Okay. Got it. Thank you.

Conference Operator: Thank you. Our next question is coming from Chris McGratty of KBW. Please go ahead.

Chris McGratty, Analyst, KBW: Great. Thanks. Hope I didn’t miss it, any comment on credit spreads over the past three months with improving loan growth? Thank you.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Sorry, I didn’t catch that. Did you?

Chris McGratty, Analyst, KBW: Credit spread.

Oh, sorry, Rob.

Credit.

Just a comment on credit spreads.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: We’re not seeing a lot of competitive pressure on the spreads. We are seeing some spread change relative to the mix change of higher credit quality, lower spread loans into our portfolio. Apples to apples spreads are pretty similar quarter-over-quarter.

Chris McGratty, Analyst, KBW: Thank you.

Conference Operator: Once again, that is star one, if you would like to register a question at this time. Our next question is a follow-up coming from Erika Najarian of UBS. Please go ahead.

Erika Najarian, Analyst, UBS: I promise this isn’t about NIM or loan growth.

Saul Martinez, Analyst, HSBC: I thought you were going to say, "I read the stuff now.

Erika Najarian, Analyst, UBS: Well, it’s good. There was a news article last week about banks, including PNC, potentially being interested in a debit card network. I’m just wondering, of course, you’re not going to comment on any live deals, but what a debit card network, or how a debit card network could be beneficial to PNC? Do you have any sort of notion on how difficult it is to convert a PIN network to signature?

Saul Martinez, Analyst, HSBC: We aren’t going to comment on any particular deal. I think it’s a safe assumption, hypothetically, that the work set associated with a conversion like that would be pretty material. Leave it at that.

Erika Najarian, Analyst, UBS: Got it. Thank you.

Conference Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Gill for closing comments.

Saul Martinez, Analyst, HSBC: Okay. Well, thank you all for joining our call this morning, and please feel free to reach out to the IR team if you have any further questions. Thanks.

Rob Reilly, Executive Vice President and Chief Financial Officer, PNC Financial Services Group: Thanks everybody.

Saul Martinez, Analyst, HSBC: Thank you.

Conference Operator: Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines or log off the webcast at this time. Thank you for your participation.