Greetings. Welcome to The PNC Financial Services Group Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow today's formal presentation. Please note that today's conference is being recorded. At this time, it is now my pleasure to turn the conference over to Bryan Gill, Executive Vice President and Director of Investor Relations. Mr. Gill, you may now begin.

Well, good morning. Welcome to today's conference call for The PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC. 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 and pnc.com under Investor Relations. These statements speak only as of July 16, 2025, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill.

Thank you, Bryan, and good morning, everyone. As you've seen, we had a very strong second quarter fueled by our accelerated new customer acquisition while deepening relationships with existing customers across our businesses. Loan growth increased even through an uncertain macro environment, and we delivered on what we said we would. Our approach to growing our businesses remains consistent. The disciplined way we go to market, bringing the best of PNC's people, products, and services to customers across our expanded franchise, has continued to produce results. We reported net income of $1.6 billion or $3.85 per diluted share. During the quarter, loans grew 2%, reflecting strong commercial loan growth fueled by the highest level of new production in ten quarters. At the same time, we increased revenue 4% while holding non-interest expenses stable, which resulted in another quarter of positive operating leverage and 10% PPNR growth. By now, you've seen our stress test results. We maintained our regulatory minimum stress capital buffer of 2.5%, and our start-to-trough capital depletion of 80 basis points was the lowest in our peer group. And as announced on July 3, our Board increased our common dividend by ten cents or 6% earlier this month. Rob is going to go through our performance in more detail, but first, I'd like to share some of our business highlights from the quarter. I mentioned we continue to see strong results from the execution of our national growth strategy. In CNIB, we saw strong growth in loans and commitments, and our credit trends continue to be very good. Looking at fees, our capital markets and advisory trends remain solid. And as expected, treasury management continues to produce strong results. In retail banking, we are accelerating customer growth. Our consumer checking accounts grew by 2% year over year, including 6% growth in the Southwest. We also saw record debit and credit card activity this quarter. And we remain on track with our $1.5 billion branch investment, which we plan to open more than 200 branches in our expansion markets. Within our asset management business, we had positive net flows, and new client acquisition increased 16% linked quarter. Inside of that, growth in our expansion markets accelerated, as discretionary assets under management grew nearly three times that of legacy markets, albeit off a small base. In closing, we continue to demonstrate the strength of our national franchise and deliver on our objectives. We are poised to further capitalize on our growth potential, and I remain very optimistic about our future. And finally, I just want to take a minute to thank our talented employees for their efforts, which are vital to all of our success and growth. With that, Rob will take you through the quarter.

Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average basis. For the linked quarter, loans of $323 billion increased $6 billion or 2%. Investment securities of $142 billion were stable, and our cash balance at the Federal Reserve was $31 billion, a decrease of $3 billion. Deposit balances increased $2 billion and averaged $423 billion, and our borrowings remained stable at $65 billion. At quarter end, AOCI was negative $4.7 billion, an improvement of $555 million or 11% compared with March 31. Our tangible book value increased to approximately $104 per common share, which was a 4% increase linked quarter, and a 17% increase compared to the same period a year ago. We remain well-capitalized with an estimated CET1 ratio inclusive of AOCI to be 9.4% at quarter end. We continue to be well-positioned with capital flexibility. During the quarter, we returned approximately $1 billion of capital to shareholders, which included $640 million in common dividends and $335 million of share repurchases. As Bill just mentioned, our Board recently approved a ten-cent increase to our quarterly cash dividend on common stock, raising the dividend to $1.70 per share. And we expect repurchases in the third quarter to be between $300 million. Our recent CCAR results underscore the strength of our balance sheet, and as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5%. Slide five shows our loans in more detail. During the second quarter, we delivered solid loan growth. Loan balances averaged $323 billion, an increase of $6 billion or 2% compared to the first quarter. The growth was driven by C&I, which increased $7 billion or 4%, reflecting strong new production and higher utilization. Commercial real estate loans declined $1 billion or 4%, as we continue to reduce certain exposures. And during the second quarter, our CRE office balances declined $500 million. Consumer loans were stable as growth in auto balances was offset by a decline in residential real estate loans. And our total loan yield of 5.7% was stable with the first quarter. Slide six details our investment securities and swap portfolios. Average investment securities remained stable at $142 billion. During the second quarter, our securities yield was 3.26%, an increase of nine basis points. And as of June 30, our duration was estimated to be 3.4 years. Our period-end securities balances increased $5 billion or 3%, the majority of which were residential mortgage-backed securities with an average yield of 5.4%. Regarding our swaps, active received fixed-rate swaps totaled $40 billion on June 30, with a receive rate of 3.62%, which increased 13 basis points linked quarter. Forward starting swaps were $16 billion with a receive rate of 4.07%, and approximately 40% of these swaps will become active in 2025. Slide seven covers our deposit balances in more detail. Average deposits increased $2 billion, driven by growth in CDs, both brokered and direct, with the balance of consumer and commercial deposits remaining stable during the quarter. Non-interest-bearing balances increased $1 billion and remained 22% of total deposits. And our rate paid on interest-bearing deposits stayed essentially flat at 2.24%, up just one basis point. Turning to Slide eight. We highlight our income statement trends. Comparing the second quarter to the first quarter, total revenue was up $209 million or 4%, and non-interest expense was stable, which allowed us to deliver 4% positive operating leverage and 10% growth in PPNR. Provision was $254 million, reflecting considerations and portfolio activity, including loan growth. Our effective tax rate was 18.8%, and second-quarter net income was $1.6 billion or $3.85 per share. In the first half of the year compared to the same time last year, we've demonstrated strong momentum across our franchise. Total revenue increased $557 million or 5%, driven by higher net interest income and fee income growth. Non-interest expense increased $79 million or 1%, reflecting increased business activity, technology investments, and higher marketing spend. And net income grew $321 million, resulting in EPS growth of 14%. Turning to Slide nine, we detail our revenue trends. Second-quarter revenue of $5.7 billion increased $209 million or 4% linked quarter. Net interest income of $3.6 billion increased $79 million or 2%. The growth was driven by higher loan balances, the continued benefit of fixed-rate asset repricing, and one additional day in the quarter. And our net interest margin was 2.8%, an increase of two basis points. Non-interest income increased $130 million or 7%. Inside of that, fee income increased $55 million or 3% linked quarter to $1.9 billion. Looking at the details, capital markets and advisory revenue increased $15 million, reflecting a broad-based increase in capital markets activity, much of which occurred late in the quarter. Card and cash management revenue grew $45 million or 7%, driven by seasonally higher consumer spending and growth in treasury management. Mortgage revenue decreased $6 million or 4%, primarily due to lower residential mortgage servicing activity. And other non-interest income of $212 million increased $75 million, primarily reflecting Visa-related activity and other valuation adjustments. Turning to Slide ten, our expenses remain well-controlled and were stable linked quarter. Seasonally higher marketing spend and continued technology investments were more than offset by our disciplined expense management. And as we previously stated, we have a goal to reduce costs by $350 million 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 on track to achieve our full-year target. Our credit metrics are presented on Slide eleven. Overall, credit quality remains strong with improvements in non-performing loans, delinquencies, and charge-offs. Non-performing loans of $2.1 billion were down $180 million, driven by declines in both C&I and commercial real estate non-performing loans. Total delinquencies of $1.3 billion declined $128 million or 9% compared with March 31, reflecting both lower consumer and commercial delinquencies. Net loan charge-offs were $198 million, down $7 million, and represent a net charge-off ratio of 25 basis points. And our allowance for credit losses totaled $5.3 billion or 1.62% of total loans at the end of the second quarter, which included considerations. In summary, PNC reported a solid second quarter, and we're well-positioned for the second half of 2025. Regarding our view of the overall economy, we're expecting continued economic growth in the second half of the year, resulting in real GDP growth of approximately 1.5% in 2025. And unemployment to increase to around 4.5% over the next twelve months. We expect the Fed to cut rates once in 2025, with a 25 basis point decrease in December. Considering our reported first-half operating results, third-quarter expectations, and current economic forecasts, our full-year 2025 guidance is as follows: For the full year 2025 compared to the full year 2024, we expect average loans to be up approximately 1% versus our prior guidance of stable. We expect full-year net interest income to increase approximately 7%, up from our previous guidance of up 6% to 7%. We now expect non-interest income to be up approximately 4% to 5%, down slightly from our previous guidance of up 5%, primarily reflecting the continued level of heightened economic uncertainty. Taking the component pieces of revenue together, we continue to expect total revenue to be up approximately 6%. We continue to expect non-interest expenses to be up approximately 1%. And we expect our effective tax rate to be approximately 19%. For the third quarter of 2025 compared to the second quarter of 2025, we expect average loans to be up approximately 1%. Net interest income to be approximately up 3%, fee income to be up between 3% and 4%, other non-interest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up between 2% and 3%. We expect non-interest expense to be up approximately 2%. And we expect third-quarter net charge-offs to be in the range of $275 million to $300 million. And with that, Bill and I are ready to take your questions. Thank you.

We'll now be conducting a question and answer session. Before pressing the star keys. One moment, please, while we poll for questions. Thank you. And our first question today will be coming from the line of David George with Baird. Please proceed with your questions.

Question on the pickup you had in loan growth in the quarter. A lot of it looks like it's coming from commercial. There's a pickup in line of credit utilization, but we'd like to get some color or context around that growth and how sustainable you think it might be, and then I've got a quick follow-up as well.

Yeah. Sure. Good morning, David. It's Rob. Yeah. So loan growth was strong in the second quarter, and it really was a combination of an uptick in utilization in part due to obviously some tariff-related considerations. But importantly for us, on top of that was also new production in large part from our growth markets, which is, you know, simply the fruition of years of working toward that. So it really was a combination that drove those higher levels. When we look to the balance of the year, the balance of 2025, we don't have quite the same loan growth repeating. We do have some more loan growth than what we thought. So we raised, as you saw in our full-year guidance, average loans from stable to up 1%.

Okay. To that end, staying on NII between the pickup in loan growth, Rob, and you added, as you mentioned, additive securities portfolio towards the end of the quarter and your inherent positioning with asset repricing and swaps coming off, presumably you continue to be in a pretty favorable NII position going into the back half and then the next year. Just want to get a sense of how you're thinking about the trajectory of NII in the back half and into 2026.

Yeah. Sure. So because of the items that you mentioned, we did up our guidance for the full year from up 6% to 7% to up 7% for NII. And the momentum will continue into 2026. You know, we won't get into specific guidance, but, you know, we expect a similar and sustained trajectory.

Sounds good. Thanks.

Sure.

The next question is from the line of Chris McGratty with KBW. Please proceed with your questions.

Great. Good morning. Thank you. Bill, kind of a big picture question for you. It feels like we're at a really important spot for the industry. Given what's happening in Washington, the political environment, and the deregulatory environment. I'm interested in how your updated views of how this may play out for PNC. You've talked about, you know, the benefits, but also the frustration with scale over the years and also balancing with what is seemingly a little bit better organic growth outlook. Thank you.

Ignoring what's happening in DC, we're on a good path. The new markets and new clients are giving us an organic growth opportunity that we haven't seen in years. At the margin, Washington comes in and out, regulations get easier and harder, and we succeed in all of those environments. So we're in an environment today where regulation gives us a bit of a tailwind, which is a good thing. And, you know, you'll see that not just in some of the capital ratios and adjustments in Basel III endgame and so on and so forth, but also I think through time and the amount of money we actually spend on, you know, what I'm just going to call busy work. Responding to regulatory things that don't necessarily have a lot to do with core risk in the bank. But, you know, all of that helps at the margin. I guess the backdrop of a company that's actually growing clients and growing business at a pretty healthy clip. We feel pretty good about where we are.

Thank you. The next question is from the line of John Pancari with Evercore ISI. Please proceed with your questions.

Good morning. Just wanted to get some additional color on your fee income outlook for the full year. Your fee trends came in pretty solidly in the second quarter. You cited the upside to capital markets and a little bit of upside in other, but you had nudged your fee guidance lower. It looks like, you know, The Street was already there, but you had nudged it lower due to economic uncertainty. If you could maybe just elaborate on what's keeping you from getting a little bit more confident there. I know you've cited that you're seeing record pipelines in your capital markets business. So maybe just talk about the puts and takes there and the rationale in nudging that lower?

Yeah. Sure, John. So, you know, if we go back to our January expectations relative to total non-interest income growth, you know, we've set up 5%. We've got a small revision to that downward, so you know, we're now saying 4% to 5%. So that's a 1% decline on an $8.4 billion number. So, you know, pretty small. And we chalk that up to sort of the heightened uncertainty that emerged after January that we're all well aware of. And we've seen some soft spots in the first quarter with corporate spending activity. Mortgage is a touch less. Then as we discussed in a recent conference, private equity valuations, which is in other non-interest income, have some headwinds relative to our expectations in January, but it's pretty small. And to your point, you know, the major categories, asset management's ahead of where we expected in January. Capital markets is right on what we expected in January. So, you know, we think it's seasoned pretty good, and they're obviously pretty resilient given, you know, everything that we've been through with the turbulence.

Got it. Okay. Thanks for that. And then just separately, we've been hearing some of the banks citing somewhat higher or intensifying competitive pressure around loan pricing. A couple of the banks are citing tighter spreads that's impacting some of their fixed asset loan pricing benefit. Can you maybe talk about what you're seeing out there in terms of loan pricing, particularly as loan growth is accelerating, and I know your loan yields were flat this quarter. Is competition at all impacting that, or is that really just the swap dynamics?

No. I think when you look at our spreads, our spreads are pretty consistent. So, you know, there's always competition. There's certainly no spread expansion. But we haven't seen a lot of contraction. If anything, we might have a little bit of spread pressure just because our asset mix, our loan mix tends to recently be sort of on a higher credit quality, but nothing that's thrown us off our yields. But when, you know, rates are fairly steady, spreads are fairly steady, the yields are pretty steady. Right? Competition seems pretty rational.

Yeah. Not much change. Okay. Great. Thank you.

Next question is from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

Rob, just wanted to ask a little on the margins margin dynamic. Excuse me. I think in the past, you all have talked about the margins potentially expanding up toward, like, 2.90 by the end of the year. Is that something you're still sort of pointing towards or hoping to achieve? I guess as I think of things, the asset repricing story is pretty much become self-evident at this point. It's terrific. I would imagine deposit benefits just get tougher if the Fed isn't cutting as aggressively. I think you said you only have the one rate cut in December in your model. So maybe how you're thinking about that trajectory would be great, please.

Sure. And I think you summed it up well that nothing's changed. You know, we're still tracking to that 2.90 range by the end of the year that I said on the first quarter earnings call.

Okay. Perfect. Thank you. And then I guess a small one. Any rationale behind the thought that third-quarter charge-offs would increase? I guess, you know, it feels like there's been a couple quarters in a row where the expectation has turned out to be, you know, worse than the reality, which is, you know, a good thing. But just curious if there's anything behind the thinking there.

Yeah. Lower charge-offs are definitely a better thing, Scott. So, yeah, charge-offs have come in favorably year to date relative to our expectations. We did lower our guide, meaning, improved. We've been running at estimating $300 million a quarter. We've been doing closer to $200 million. We lowered our guide to $275 million to $300 million because there is still this sort of pipeline of charge-offs related to commercial real estate office that we know is gonna pull through. All fully reserved. So not an economic impact, but at some point, they will flow through. And yeah, we expect that to occur over the next several quarters.

Gotcha. But other than that, credit quality is very good.

Yeah. No. It seems that way. So but appreciate the color. Thanks a lot, Rob. Sure.

Next question is coming from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

Hey, good morning. I guess, sorry if I missed this, Rob. Just talk to us how you're thinking about capital levels. I mean, you have a bunch of, like, regulatory changes sort of on the come, but as we think about the right target CET1 capital for PNC, a world with banks triple your size are seeing requirements coming lower. How do you think about it? Like, I was going back. There've been times when you operated with the 9.5 CET1. Just what the thought process is even if you're not willing to sort of commit to a certain target today. Would love to hear how you think about your capital relative to larger peers. Just as we think about just the relative competitive advantage versus disadvantage. Thanks.

Alright. Sure. Yeah. Well, so hi, Ebrahim. It's Rob. So, yeah, we're so you saw we print CET1, the 10.5 with AOCI, included 9.4 in our recent stress tests that require 7%. So we're in a healthy excess capital position. You know, the short answer is we think at the levels that we are right now with rules still yet to be finalized, deals about right. We did up our share repurchases as a result in the second quarter and said that we're going to sustain that $300 million to $400 million of repurchases into the third quarter. You know, obviously, the highest and best use of our capital is for loans. You know, we're pointed to and hopeful that we'll be able to use that capital towards that loan growth. But, you know, generally speaking, in terms of our capital levels, we feel like we're in the right place right now. We've got some flexibility. We've upped our share repurchases. We increased the dividend. So I think we're in a good spot.

The only thing I'd add, you might have seen a comment letter that BPI put out about one of the rating agencies, which is the binding constraint for the industry right now. And so we're all, you know, even in today's environment, higher than we need to be vis a vis regulatory rules. But we're not necessarily there vis a vis rating agencies rules. So there's some pushback on that. And that applies to all of us, not just, you know, our size or smaller or the giant banks. It's one of the things we're all dealing with that we need to work our way through.

We've heard that. So thanks for clarifying that. And I guess just one follow-up, like, on loan growth and capital markets, like, is momentum picking up as we think about just conversations with clients and all of these? I'm just trying to get a sense of is there upside to growth outlook for the back half into 2026? Should we be excited about that? Or is it still early days yet are still watching tariffs closely and like, where do you kind of shake out between those two views?

The one thing I will say on loan growth because we've been terrible predicting it, as an industry in all honesty. Yeah. We don't put a prediction out there. But as I've said before, if there is loan growth in the industry, we will participate in it and likely do better just given our efforts in the newer markets. The momentum is really good at the moment. But as we've seen, that can be disrupted pretty easily by, you know, the political environment in tariffs.

The next question comes from the line of Steven Alexopoulos with TD. I want to start maybe following up on what you just said in response to Ebrahim's question. So the commercial loan growth is coming from the newer markets, the higher growth MSAs. Is this really a function of new bankers and share gains? Are you guys seeing broad-based improved optimism across those faster-growing MSAs?

It's largely share gain.

Got it. Okay. So more specific to PNC. Okay. Bill, this is my first time on your call. And I wanted to take a minute and revisit the scale argument. We just had the big four banks report. I look at your results compared to them, you guys are very efficient. You look at the retail banks really solid, good organic growth, growing checking accounts. But you don't have the complexity of a trillion-plus bank. To me, you seem to be in the sweet spot. But I know you've talked quite a bit about needing more scale. What's the benefit to doing a larger deal moving much above your current size? Because you seem to be in a great spot right now?

But you didn't hear us talk about doing a large deal. You just said bigger is better than, you know, left to our own devices in organic growth, we will get there. But the argument for scale largely is around the very visible concentration consolidation of retail share in the U.S. And to succeed long term as you watch the very big banks grow. You know, we need to be in all markets and have really good products and low cost. To serve those clients because that feeds the rest of our engine. Right? I am 100% convinced we can grow our C&I franchise organically. There's a race on retail deposits, and that's why we have this big focus on the investment in building branches and, you know, we're refurbishing. I don't remember the number, Rob, but the majority of our old branches were pulling out. We're probably halfway through now the rollout of a new online banking. We're gonna put out new mobile. You know, with Jetek AI and client service, all of the things you need to do to win in this space. You know, with that comes the ability to spread marketing dollars, the ability to spread technology dollars, you know, and everything else. It is kind of self-evident. In scale itself.

And particularly the technology dollars, which are increasing. Yeah.

Our next question from the line of Betsy Graseck with Morgan Stanley. Please proceed with your questions.

Hi, good morning.

Good morning.

Four percent positive operating leverage, very impressive. And I just wanted to get and I know you've always got continuous improvement every year, wash rinse repeat, helping drive that bus. How does AI impact the degree to which you can get even more efficient from here? Is it just starting and we have to wait five years? Or is it heavily embedded already in the results and it's here today or some other answer. Just wondering. Thank you.

That's actually a really good way to state the question. So I can give you a million ways where you and thinking about AI. But the more interesting question is how is it gonna make how is it gonna help you make more money or save costs? And, you know, in the what's in use today that is saving us a lot of money, you know, principally in fraud-related areas. So you see, you know, charges go way down. In document sort that helps our employees get answers faster, in data lake creation, and burst through capacity to clouds that help us deliver more accurate models faster. And then the basic how do you save money through time, Betsy, is this continuation of automation that we've had largely in our back office for the last ten years. This may accelerate it, but continuous improvement for years has been figuring out how to do the same workload with less, and AI is gonna be a big part of that. It's we're looking at it and everything we do.

Okay. Thanks. So it's early days?

I just don't think there's gonna be this gigantic change in the cost base. I think you're just gonna see, at least in our instance, our ability to keep expenses on the low end as it relates to people even as we invest in the technology. It'll be the same trend. Go through our line. Go through our employee cost line versus our tech line for the last ten years. And I just think it continues, and AI is the next leg of that. In effect. More interesting longer term is away from, you know, the cool stuff we all talk about in AI, you know, the you could be faster. You could solve models for all that stuff. Is the how might it change the overall delivery of financial services? And that occupies a lot of our time. So, you know, we keep talking about the tools. We don't actually talk about the clients. And how you end up delivering financial services in a world where, you know, advice can be computer-generated. You know, through it and mobile and that's where we're spending all our time.

Got it. Thanks so much. Appreciate it though.

Yep.

Our next questions are from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

Good morning. I just wanted to get any thoughts you have on deposit pricing and how you're thinking about growth. Slide seven, you show just, you know, a very modest tick up in the rate paid. I think as you grew the brokered, and just thoughts going forward. You've got plenty of deposits to grow loans given that loan to deposit ratio is so low, but I guess if you wanna grow deposits still.

Yeah. Hey, Matt. It's Rob. So, yeah, you're right on it. You know, rate paid in the quarter was pretty stable, up just one basis point over the first quarter. For the balance of the year, we do project more deposit growth. And the rate pay could actually go up a little bit. Not huge, barring any rate cuts in addition to what we already expect at the end of the year. And that'll probably be more just sort of mix-oriented rather than anything step change-wise.

Just as an aside, we are at least in the conversation as it relates to our new builds. In the newer markets. As to whether we should purposely be more competitive in those markets to gain share faster. We're much more interested in actually just growing DDA households. But some of the optics, at least in some of the research pieces, in investors' minds or how fast are you actually growing deposits? Thus far, through this whole cycle, we've had one of the lowest cost deposit bases out there. And haven't had to chase rate at all. But it's at least part of our conversation internally right now as to whether or not we might change strategy on that particular part. Of the markets we're trying to grow.

And we do that all the time. It's deliberate and, you know, we'll pick our spot. But, you know, generally speaking, we are pretty stable. It might drift up a bit, but not saying of big magnitude.

Okay. That makes sense. And then just on the DDA accounts, and I'm sorry if you disclose this, but do you give the level of the DDA accounts in any split between kind of the growth markets and the legacy markets in terms of growth rates? Thanks.

Yeah. So we've grown, you know, year to date, we've grown DDAs 2% and within that 6% growth in the Southwest. So you see that dynamic playing out there.

This is another just as an aside, this is an example of this issue for scale and needing to be in all markets. So we're going down into the southwest, southeast and gaining share. At a rapid pace. At the same time, our growth rate in our legacy markets because we have the big banks building branches net to us here in Pittsburgh is slowing down. Right? And so we're a player who can maintain market leading, you know, can grow and maintain market leading share in each market. And over time, that's gonna happen. But that means you need to be in the markets. Which is why we're going so heavy into the build that we're doing.

Okay. Thank you. Makes sense.

The next questions are from the line of Ken Usdin with Autonomous Research. Please proceed with your questions.

Hey, thanks guys. Good morning. Just a question, Rob, you've mentioned and it's been some one of the slides about starting to lock in higher yields and repricing risk. And it looks like there wasn't a lot of new activity with, you know, with the swaps book and the securities book was flat. So I'm just wondering if you can kinda help us understand what you might be able to do as you look further out and start to think about protecting, you know, NII as you look ahead. Yeah.

Yeah. Sure, Ken. So, yeah, we spoke about that on the first call. So, you know, from our perspective in terms of 2025, NII is largely baked. As we look into additional years out, then that relates to the earlier question, we see ourselves sustaining that trajectory. So, you know, most of what we're doing and we've done a lot is sort of sustaining that growth rate. Sustaining that growth rate. And most of, you know, what we've done is sort of largely in place. So not a lot of activity relative to that in the last ninety days, but, you know, we're well-positioned and feel good about the NII trajectory.

Okay. Great. Got it. And then just one follow-up on the fees. I know you covered the fee categories and such, but just like within that Capital Markets business, you've got Harris Williams and you've got kind of the other related Capital markets stuff. I think you said in the past that Harris Williams kind of been fairly steady, but just wondering what you're seeing across the two sides of those businesses and what activity feels like, you know, underneath the surface. Thanks.

Yeah. I, you know, capital markets, you know, we feel good about it. Like I said, we are tracking to what we expected back in January. Harris Williams, which is our largest component of the capital market, segment is about 30-40% of it, and they're tracking right on to what we expected, which is above last year. And last year was a pretty good year. So what we saw at the end of the first quarter was just a, you know, a pickup on our bread and butter FX and derivative-based business. Volumes.

So Harris Williams is kind of a headline item, but remember, we have, you know, trading businesses and foreign exchange and derivatives and straight fixed income. We have new issue business. We've syndicate there's a lot of stuff in there.

No. That's right. And to Bill's point, that was a little bit soft in the first quarter. That has come back in the second quarter. We expect to continue into the third quarter.

Okay. Okay. Got it. Alright. Thanks, guys.

Sure.

The next question is from the line of Bill Carcache with Wolfe Research. Please proceed with your questions.

Thanks. Good morning, Bill and Rob. Following up on the acceleration in loan production comments, are you hearing anything from clients on whether bonus depreciation and the tax bill could serve as a potential catalyst for incremental loan growth from your commercial clients?

Not directly. I mean, intuitively, it should. But I don't know that I've heard of anybody running out ready to spend something to invest the bill passed.

Right. Got it. And then on the topic of charging fintechs for consumer bank data, can you discuss how you're thinking about fintech data access fees?

We're in discussions on it. I applaud what JP did. I think they're exactly right. I think there's a big cost to keeping this data secure and producing it in a form that's readable for our clients. So we're, you know, we're thinking about it.

Okay. And then, Bill, following up on your scale comments, does seeing some of your competitors enter into M&A transactions make you feel a greater sense of urgency in any way? Do you worry about falling behind certain peers by perhaps not taking advantage of a favorable regulatory environment under the current administration and at a time where others are more active?

No.

Okay. Fair enough. That's all I had. Thank you.

Yeah. Thanks, Bill.

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

Hey. Could you share some light on the loan growth and, you know, how much you would consider from your traditional middle market relationship-based sources? If you, by the way, if you mentioned utilization already, I might have missed it, but how the utilization did compared to more capital markets-oriented type loan growth. And by the way, I thought you said you weren't gonna have any loan growth. Are you assuming no loan growth this year? So I guess that's a bit more than expected. But I guess what I'm getting at is you said the loan growth might not all be. You sound and you had a disproportionate amount from your CIB. So it sounds like more of your loan growth is that capital markets variety as opposed to that kind of bread and butter middle market loan. Is that a correct conclusion? And if not, if you could educate me.

No. That isn't what happened, Mike. Two things. One was we saw a continuation of utilization increase largely in sort of our asset-backed areas and some middle market. And then secondly, we just grew a lot of clients. You know, the new markets are coming online. The prescreen activity and deal activity coming out of our new markets is multiples. What it is out of the legacy, and it's, you know, starting to bear fruit. And it's, you know, our traditional bread and butter clients of middle market to small or large corporate together with TM relationships and everything else we do is part of delivering all of PNC to new clients. And across all industries, it was broad-based. Across all our assets. It's just us executing. You know, the issue I didn't say we weren't gonna grow loans. I said we would, you know, if there was loan growth out there, we'd get more than our fair share. But, you know, as you've seen, it's, you know, in this quarter, it's been somewhat flatlined for a while. But our share gains, utilization increase, you know, paid dividends this year. Or this quarter.

Alright. So is loan growth back to the industry or is it back for PNC? And, I mean, you're implied market share gains more than it's coming back to the industry or is the appetite of your clients increasing?

My guess is you're gonna the utilization increase you'll see broad-based just on the back of people front running tariff impact in their inventory levels. But the, you know, a big chunk of our growth is just organic growth. New clients in new markets, and I suspect we'll stand out on that.

Correct.

And the two words where you said not repeating, what did you mean by that?

Well, maybe I can jump in. I just say in terms of loan growth, you know, the tariff-driven increase in utilization across broad assets is probably in some form present at all banks. Where we're different, you know, these growth markets. That are adding to that loan growth that are independent of sort of the reaction to the current environment.

The utilization number, does it go up or down from here is really upon tariffs. You know, if tariffs went completely away and people would drop their inventories to all levels you'd see in you'd see utilization across the industry decline again. So I which is one of the reasons which to forecast aggressive loan growth.

Alright. So the market share you're saying is more a permanent driver of loan growth. The tariff-driven part of that loan growth ways to be seen.

Correct.

Got it. Alright. Thank you.

The next questions are from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions.

Hi, Bill. Hi, Rob. Bill, your comments about the BPI making the letter to the rating agencies about capital requirements may turn out to be the binding and straight rather than the regulatory requirements. In your guys' estimation, based upon your working experience with both the regulators and the credit agencies rating agencies, do they kinda work together or is this kind of a divide that is something new? Or do they ignore one another in the past? How is this going to maybe play out is what I'm trying to get at.

Rob may have different comments. I don't think they talk to each other. I got on methodologies, on anything. It's frustrating. There's an opportunity to reconcile the two of you. To the extent that they do that, you know, it's obviously up to them.

Right. Possibly the capital framework conference next week in Washington might shed some light on that possibly. And Bill and Rob, your guys' thoughts on this one, it's more of a macro question. Obviously, there's been a lot of talk about stablecoin. You've got the coin act down in Washington that's likely to be passed very soon. What are your guys' view on Stablecoins and how it may impact the payments business for PNC as well as deposits? Any thoughts there?

Yes. Let me take a bit of a broader angle on the whole thing and let's talk about crypto and payments and stablecoin, how we may or may not play. I should say how we will play. First off, you should expect to see from us announcements with respect to using our payment technology to help crypto companies. So, you know, now we are allowed to bank people in that business. And just given our raw capabilities, you would expect that, you know, we'll get some meaningful clients there. Secondly, we will enable our clients in the very near term to be able to use cryptos, the CFRC, you know, to have a wallet and to trade it. Thirdly, you would expect my expectation is an industry solution with respect to an industry-led stable coin, and we would clearly be part of that. Now what does all that necessarily mean in terms of payments in Stablecoin? And does it massively change the ecosystem today? I think despite, you know, a lot of the hype, there isn't really a cost advantage driving the use of Stablecoin, at least in domestic commerce. There's use cases in terms of external transfers out of the country. There's use cases of just storing dollars out of the country. Some of which will be stopped by the stablecoin bills simply because I know your customer rules. You know, whether it takes off in cross-border commerce, probably less bullish than some. But if it does, we will have it enabled inside of our Pinnacle platform such that somebody gives us a payment file, and our job is to optimize the cost of executing those payments. We'll be fully capable of using Stablecoin in that payment stream. You know, the same way we use wire or we use ACH or we use p card. Another tool. Yeah. It's just another thing. As it relates to deposits, you know, don't am I worried that it's somehow gonna drain deposits from the system? I am not. It's a good fear factor if you wanna, you know, if we wanna rile people up. But, you know, practically, there's trillions of dollars in money funds today that you could move in and out of using ACH linkages. We're competitive on rates. You know, if there's a bank scare and where does it run to, you know, we saw that in 2023. It already added the money funds. Maybe some will run to stablecoin at some point in the future, but, ultimately, it comes back into our account we've seen. So I, you know, there's gonna be another payment tool. We're gonna add it to the Quiver tools that we have. We're gonna empower our clients if they wanna use it. Because we do what our clients want. I think the revenue opportunities for us beyond just serving clients day to day are likely to be seen in our payment business. In our treasury management business as we enable both new clients and then blockchain technology for existing clients.

Very helpful. Thank you.

Yep.

Thank you. The next question is from the line of Saul Martinez with HSBC. Please proceed with your questions.

Hey, good morning. Just a real quick one on your retail lending strategy. You know, your auto book has grown a bit. Cards are, you know, sort of flattish to, you know, to down. Can you just give us an update on what your strategy is here, what you're doing? Do you expect these businesses to grow? Is it important to grow? And do you need to or does it make sense to look at inorganic growth for this to be for these businesses to become relevant to as a part of your business mix?

We'll answer the back part first. It is extremely unlikely that we would look at inorganic growth in the retail credit space. Simply because in most instances, the thing that's available to buy is broken, and we are not experts at fixing a broken wrench. We are building that expertise. We have heavy investment in card. We would love to grow card balances, and we think we can do that simply through deeper penetration with our existing client base. Our auto book has been growing largely because we didn't run for the hills, you know, in the slight bubble of on a beer or last year, I guess. Looking our W a diet that others are on. Yeah. Know, so we're gonna keep investing organically on product capability, credit underwriting, marketing offers, convenience for clients, as it relates to the ability to open accounts online and so on and so forth. And, hopefully, the deepened cross-sell penetration of our existing clients. You won't see us buy somebody.

Yeah. Thanks. That's helpful.

The next question is a follow-up from the line of Gerard Cassidy with RBC. Please proceed with your questions.

Thank you. Bill, Rob, can you guys comment obviously, they had the big meeting of recurring a melon yes I think it was yesterday with the AI investments. What could that mean for the Pennsylvania or the Pittsburgh area in terms of economic activity and obviously, I assume you guys will benefit from that as well.

Yeah. No. Thanks for the question. I spent the better part of money in Tuesdays. It's as part of that conference. It's pretty exciting. There's, you know, we announced $92 billion of Pennsylvania largely around building the energy and data structure in sorry. Data infrastructure to support AI. You know, we have, you know, as a state, sort of all of the core resources or, I'm in the right FEMA zone. We have, you know, lots of natural gas. We have analytic and, you know, college resources and talented people and, you know, people are kinda coming together to cause it to happen. So it's pretty exciting. The place is bustling. I, you know, that one of the things independent of my PNC job is I sit on the Allegheny conference, which looks at the ten county zone here in the take up of available build spaces, so think land and large in, you know, mega project sites some of which have been there for years, they're disappearing fast. And it's pretty exciting.

Very good. I appreciate it. Thank you.

Thank you. At this time, I've reached the end of our question and answer session. And I'll hand the call back to Bryan Gill for closing comments.

Well, thank you all for joining our call today and your interest in and support of PNC, and please feel free to reach out to the IR team if you have any follow-up questions.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines and have a wonderful day.