The PNC Financial Services Group - Earnings Call - Q1 2025
April 15, 2025
Executive Summary
- Q1 2025 EPS of $3.51 beat consensus ($3.39*), while total revenue of $5.45B was modestly below consensus ($5.48B*); NIM expanded 3 bps to 2.78% and efficiency improved to 62%.
- Spot C&I loans grew 3% QoQ, driving 1% spot loan growth; credit quality remained solid with NCOs at 0.26% and ACL/loans at 1.64%.
- Management reaffirmed full-year 2025 guidance (record NII +6–7%, total revenue ~+6%, expenses ~+1%, ETR ~19%) and guided Q2: loans +~1%, NII +1–2%, fees +1–3%, other noninterest $150–$200mm, NCOs ~$300mm.
- Capital return continued ($0.8B in Q1) with CET1 at 10.6% and TBV/share up 5% QoQ to $100.40; management indicated buybacks likely to increase near term given share price.
What Went Well and What Went Wrong
What Went Well
- Net interest margin expanded to 2.78% (+3 bps QoQ) as funding costs fell and fixed-rate assets repriced; management reiterated confidence in record NII for 2025 and approaching ~2.90% NIM by Q4 (“we still feel that we can approach 3%”).
- Commercial momentum: spot C&I +3% QoQ from higher utilization and new production; utilization ended at 50.3% (+80 bps vs YE).
- Capital and TBV: CET1 10.6%, AOCI improved by $1.3B, TBV/share +5% to $100.40; $0.8B capital returned (dividends + buybacks).
- Quote: “We grew customers and commercial loans, expanded our net interest margin, increased capital levels and maintained solid credit quality metrics… expect record net interest income and solid positive operating leverage in 2025.” – CEO Bill Demchak.
What Went Wrong
- Fee income -2% QoQ on seasonality and softer capital markets/trading; capital markets and advisory down 12% QoQ.
- Other noninterest income fell $38mm and included a negative $40mm Visa derivative adjustment related to litigation escrow funding.
- Provision rose to $219mm with higher downside scenario weighting (tariff risk); management guided Q2 NCOs to ~$300mm given lumpy CRE office resolutions.
Transcript
Operator (participant)
Greetings and welcome to the PNC Financial Services Group First Quarter 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Bryan Gill, Executive Vice President and Director of Investor Relations. Thank you. You may begin.
Bryan Gill (EVP and Director of Investor Relations)
Good morning. Welcome to today's conference call for The PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of April 15, 2025, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill.
William Demchak (Chairman and CEO)
Thank you, Bryan, and good morning, everyone. As you've seen, PNC had a strong first quarter of 2025. Before we go into the results, I want to spend a second just on the current environment. Obviously, there's been an increased level of volatility due to uncertainty regarding tariffs that has dominated the headlines over the past two weeks, roiling the markets and raising concerns of a potential recession. As you would expect, we continue to monitor and evaluate the situation, communicating with our clients to gauge their understanding of the potential impact on their businesses and daily lives. However, it's still very early, and the fluidity of the news coming out of Washington makes it difficult to narrow the range of potential outcomes for the broader economy at this point. Irrespective of that outcome, we have demonstrated time and again that we will perform well in periods of uncertainty.
The foundation of our success has been built upon the strength of our balance sheet, client selection, our interest rate risk positioning, our diversified business mix, leading technology, and our people, and that has not changed. As always, we will continue to focus on the things we can control, with an emphasis on providing superior products and services to meet the needs of our customers while executing on the organic growth opportunities in front of us. We saw that play out this quarter as we grew customers and deepened relationships across our coast-to-coast franchise. We delivered another quarter of strong results, generating net income of $1.5 billion, or $3.51 per share. While loan growth remained challenging for the industry, we were pleased to see 3% growth on our spot C&I loans, as well as strong new commitments during the quarter.
As expected, total revenue this quarter was primarily impacted by lower day count and seasonality, but expenses were well controlled, and our net interest margin expanded. Importantly, we remain on track to deliver positive operating leverage and achieve record NII for the year. Credit quality is strong, and we remain well reserved. Rob is going to cover that in some more detail in a few minutes. Finally, we continue to build our capital levels during the quarter while also providing significant shareholder returns through dividends and share repurchases. In summary, we delivered strong results in the quarter, and we remain well positioned to deliver on our strategic priorities. Before I turn it over to Rob for more detail on our financial results, I'd like to welcome Mark Weidman, who we appointed to the role of President last week. I'm thrilled Mark has joined us in this role.
Mark brings deep experience in financial services that will complement the strength of our existing team. I have known Mark for 20 years, and we are fortunate that the timing was right for him to join our team. I would also like to thank our employees for everything they do for our company and our customers. With that, I will turn it over to Rob to take you through the quarter.
Robert Reilly (EVP and CFO)
Thanks, Bill, and good morning, everyone. Our balance sheet is on slide three and is presented on an average basis. For the linked quarter, loans of $317 billion declined $2 billion, or 1%. Notably, on a spot basis, loans increased $2 billion, or 1%, compared to December 31. Investment securities of $142 billion decreased by $2 billion, and our cash balance at the Federal Reserve was $34 billion, a decrease of $3 billion, or 9%. Deposit balances declined $5 billion, or 1%, and averaged $421 billion. Borrowings of $65 billion were lower, primarily due to a reduction in FHLB advances. At quarter end, AOCI was negative $5.2 billion, an improvement of $1.3 billion, or 20%, compared with December 31. Our tangible book value increased to $100.40 per common share, which was a 5% increase linked quarter and a 17% increase compared to the same period a year ago.
We remain well capitalized with an estimated CET1 ratio of 10.6% as of March 31. We estimate our CET1 ratio, inclusive of AOCI, to be 9.4% at quarter end. During the first quarter, we returned approximately $800 million of capital to shareholders through both common dividends and share repurchases. Slide four shows our loans in more detail. Average loan balances of $317 billion declined $2 billion, or 1%, driven by lower commercial real estate and consumer loans. Importantly, on a period end basis, total loans grew more than $2 billion, or 1%. Strong growth in C&I loans was partially offset by continued runoff in the CRE office portfolio and lower consumer balances. C&I loans were $181 billion on March 31, an increase of $5 billion, or 3%, reflecting broad growth across loan categories.
This represented the largest increase in C&I balances since the fourth quarter of 2022 and was driven by higher utilization rates and new loan production. Regarding utilization, we saw positive trends in the first quarter with increases in each consecutive month and ending the quarter at 50.3%, or 80 basis points higher than year-end. Slide five details our investment securities and swap portfolios. Average investment securities decreased $2 billion to $142 billion as prepayments and maturities outpaced purchases. During the first quarter, our securities yield was stable at 3.17%. As of March 31, approximately 20% of the portfolio was floating rate, and our duration was estimated to be 3.4 years. Our active receipt fixed rate swaps totaled $39 billion on March 31, and the weighted average receipt rate increased 27 basis points linked quarter to 3.49% and up from 2.2% this time last year.
Our forward-starting swaps now total $20 billion, including $9 billion that were added during the first quarter, which will roll on through 2026. With the addition of these swaps, we've reduced our interest rate sensitivity and further locked in a portion of our fixed rate asset repricing. Slide six covers our deposit balances in more detail. Average deposits decreased $5 billion, or 1%, to $421 billion. Consumer and commercial deposits followed seasonal trends. Consumer deposits of $210 billion increased $4 billion, or 2%, and commercial deposits of $206 billion declined $5 billion, or 2%. Lastly, we have a small amount of brokered CDs totaling $5 billion, which declined $3 billion as part of our funding plan. Our rate paid on interest-bearing deposits declined 20 basis points during the first quarter to 2.23%, and our cumulative deposit beta through March was 51%.
Turning to slide seven, we highlight our income statement trends this quarter. First quarter net income was $1.5 billion, or $3.51 per share. Compared to the same period a year ago, we've demonstrated strong momentum across our franchise. Total revenue increased $307 million, or 6%, driven by higher net interest income and fee growth. Non-interest expense increased $53 million, or 2%, reflecting increased business activity, technology investments, and higher marketing spend. Net income grew $155 million, resulting in EPS growth of 13% year over year. Comparing the first quarter to the fourth quarter, total revenue of $5.5 billion decreased $115 million, or 2%, in large part due to seasonality. Non-interest expense of $3.4 billion declined $119 million, or 3%. Provision was $219 million, reflecting changes in macroeconomic factors and portfolio activity. Our effective tax rate was 18.8%. Turning to slide eight, we detail our revenue trends.
First quarter revenue of $5.5 billion declined $115 million, or 2%, linked quarter. Net interest income of $3.5 billion decreased $47 million, or 1%. The decline was driven by two fewer days in the quarter, partially offset by the benefit of lower funding costs and fixed rate asset repricing. Our net interest margin was 2.78%, an increase of 3 basis points. Fee income of $1.8 billion decreased $30 million, or 2%, linked quarter. Looking at the details, asset management and brokerage income increased $17 million, or 5%, driven by higher brokerage client activity and positive net flows. Capital markets and advisory fees decreased $42 million, or 12%, reflecting lower M&A advisory and trading revenue. Card and cash management was stable as higher treasury management revenue was offset by seasonally lower consumer spending. Lending and deposit services revenue decreased $14 million, or 4%, in part due to seasonality.
Mortgage revenue increased $12 million, or 10%, reflecting higher MSR hedging activity. Our other non-interest income of $137 million decreased $38 million and included $40 million of negative Visa derivative adjustments, primarily related to litigation escrow funding. As a reminder, PNC owns 1.8 million Visa Class B shares with an unrecognized gain of approximately $950 million as of March 31. Turning to slide nine, we detail our non-interest expense trends. On a linked quarter basis, non-interest expense declined $119 million, or 3%, as a result of fourth quarter asset impairments as well as seasonality. We remain focused on expense management, and as we've 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 confident we will achieve our full-year target.
Our credit metrics are presented on slide 10. Non-performing loans of $2.3 billion were stable quarter over quarter, with a small decrease in consumer. Total delinquencies of $1.4 billion were up $49 million, or 4%, compared with December 31, which included approximately $55 million of California wildfire forbearance activity. Net loan charge-offs were $205 million, down $45 million, representing a net charge-off ratio of 26 basis points. The decline was largely driven by lower CRE office charge-offs related to the timing of resolution on certain office properties, and we expect the level to vary quarter to quarter as we work through these loans. Importantly, our overall credit quality remained strong across our portfolio, and our allowance for credit losses totaled $5.2 billion, or 1.64% of total loans at the end of the first quarter.
This level of reserves includes an increase in the downside weightings of our CECL economic scenarios, along with some considerations for tariffs. As you know, the proposed tariffs on April 2 were more severe than anticipated. If these tariffs are implemented as proposed and remain in effect for an extended period, it's quite possible the probability of a recession will go up. We're actively assessing our portfolios and analyzing a wide range of factors, both positive and negative, that could impact our commercial and consumer exposures. However, we view the current environment as too fluid to reasonably change our estimates at this time. In summary, PNC reported a solid first quarter and we're well positioned for the remainder of 2025. Our full-year guidance is unchanged.
However, given the uncertainty of the proposed tariffs and the potential for disruption in client activity, our non-interest income could be pressured throughout the balance of the year and will obviously closely monitor this as these factors continue to develop. For the full year 2025 compared to the full year 2024, we expect average loans to be stable, which equates to spot loan growth of 2%-3%. We expect full-year net interest income to be up 6%-7%. We expect non-interest income to be up approximately 5%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 6%. We expect non-interest expenses to be up approximately 1%, and we expect our effective tax rate to be approximately 19%.
For the second quarter of 2025 compared to the first quarter of 2025, we expect average loans to be up approximately 1%, net interest income to be up 1%-2%, fee income to be up 1%-3%, other non-interest income to be in the range of $150 million-$200 million. Taking the component pieces of revenue together, we expect total revenue to be up 1%-3%. We expect non-interest expense to be stable, and we expect second quarter net charge-offs to be approximately $300 million. Bill and I are ready to take your questions.
Operator (participant)
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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 comes from John Pancari with Evercore. Please proceed with your question.
John Pancari (Senior Managing Director and Senior Research Analyst)
Morning.
Robert Reilly (EVP and CFO)
John.
William Demchak (Chairman and CEO)
Good morning, John.
John Pancari (Senior Managing Director and Senior Research Analyst)
On the loan growth front, solid and a period loan growth in C&I, as you cited. I know you cited higher line utilization and improved loan production. Can you just give us a little more color around the drivers and what specific areas in C&I are you seeing that? Is there any of that transient in terms of potential line draws just to fund some inventory buildup ahead of tariffs and therefore more of a pull forward or anything like that? Is any of it maybe precautionary line draws given the recessionary backdrop? Thanks.
Robert Reilly (EVP and CFO)
Oh, you want me? Oh, I'm sorry. Bill was going to answer that. Hey, John. Good morning. It's Rob. Yeah, we were encouraged by the increase in the outstandings through the quarter. When you look in our financial supplement, you'll see it was pretty broad-based across most of our loan categories. We had been calling for this for some time in terms of increased utilization, which we saw in the quarter. That tracks to what we thought at the beginning of the year. As far as some of this defensive or these tariff-driven, it's hard to say. It's not all of it for sure. Maybe there's a little bit of it in there. Generally speaking, we saw growth. We didn't see massive growth or a massive shift.
Eighty basis points, or I'm sorry, eighty on the utilization isn't huge, but it was in line with gradual normalization.
William Demchak (Chairman and CEO)
Yeah, it's interesting. In all the dialogue that I've kind of had with clients, nobody's saying they're purposely building inventory in advance of the tariffs. Having said that, most of our lines finance working capital, so almost definitionally, there's some inventory build going on.
John Pancari (Senior Managing Director and Senior Research Analyst)
Got it. Okay. No, that's helpful. Then separately, on the capital markets front, understandably, trends there are pressured given the backdrop, and you saw that pressure this quarter. Can you talk maybe perhaps about pipelines that you expect? Are you seeing any erosion in any of the pipelines either on the M&A side or capital markets side, just given the uncertainty and any deals getting pulled, or are the pipelines remaining robust, and it's just a matter of getting the pig through the python?
Robert Reilly (EVP and CFO)
Yeah, sure. The capital markets was a little lighter than what we expected, although still pretty good. For us, 40% of our capital markets category is Harris Williams or M&A advisory, and they actually had a very good quarter in line with expectations. Where it was a little softer was in some of our foreign exchange and just some of our client activity. When we look forward, Harris Williams in particular, their pipeline right now is close to 20% higher than it was this time last year. The pipelines look good, John.
William Demchak (Chairman and CEO)
They had a good year last year.
Robert Reilly (EVP and CFO)
They had a very good year last year. We are encouraged by that.
John Pancari (Senior Managing Director and Senior Research Analyst)
Okay, great. Thank you.
Operator (participant)
Our next question comes from Bill Carcache with Wolfe Research. Please proceed with your question.
Bill Carcache (Senior Equity Research Analyst)
Thank you. Good morning, Bill and Rob. I appreciate your commentary around the uncertain environment leading you to keep your reserve rate relatively flat. If we were to go down the mild recession path and unemployment rose, say, slightly above 5%, can you speak to how you're thinking about the level of expense leverage that you have and what are the areas where you would look to achieve efficiencies should you need to?
Robert Reilly (EVP and CFO)
I can answer that. I mean, in terms of our expenses, we feel really great about the way that we've lined up the year. We've got positive operating leverage, expenses up 1% off the 2024 print. Naturally, if we get into a scenario where there's lower activity, some of that's self-correcting in terms of expenses associated with revenue that you wouldn't have. We are disciplined. We won't back off the investments, Bill, that we've lined up, but there could be some opportunities if we get there, which we're not expecting to.
William Demchak (Chairman and CEO)
Yeah. The other offset, under some presumption that we actually went into a mild recession and the forward curve is correct and there are four cuts this year, we actually have it with more cuts, an amount of upside in our NII just at the margin. I do not know that a mild recession dramatically changes our outcome here.
John Pancari (Senior Managing Director and Senior Research Analyst)
That's helpful. Thank you. It's interesting in light of all the commentary around how companies are putting investments on hold, given the uncertain environment, to see your spot utilization has been increasing since the beginning of the year. Could you speak to perhaps the potential for increased opportunities in loan growth if credit spreads were to continue to widen as capital markets become a less attractive option for some of your clients?
William Demchak (Chairman and CEO)
Yeah. I'm going to go back and say this for a year. It's not clear to me what caused utilization to go down. It's not entirely clear to me as to why it's going up. If there is sort of some offset where capital markets new issue and slows down, then we'll probably see it in the loan book. One of the reasons we leave it largely out of our forecast in terms of being a main driver is it's been a bit confusing for the last year, so.
John Pancari (Senior Managing Director and Senior Research Analyst)
Thank you for taking my questions, Bill and Rob.
Operator (participant)
Our next question comes from Betsy Grasek with Morgan Stanley. Please proceed with your question.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Hi, good morning.
William Demchak (Chairman and CEO)
Hey, Betsy.
Robert Reilly (EVP and CFO)
Good morning.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Bill, I did want to just ask a few questions regarding the president role. I wanted to understand a little bit more about what you are expecting Mark to be doing for PNC. I know there are many of us on the call who know Mark well with what he has been doing over at BlackRock for many years, but there might be others who are a little bit less familiar with him. Maybe you could help us understand why Mark is the right person for this role, and does this have, well, and how you anticipate he will be growing the business as president. Thank you.
William Demchak (Chairman and CEO)
No, thank you for the question, Betsy. I've known Mark for a lot of years going back to being on the board of BlackRock. We actually had him and his financial advisory team come in here at one point during or shortly after the crisis just to double-check everything we were doing on the balance sheet. Mark's going to come in and be the president. He's going to run our businesses. He comes in with a broad-based skill set. He's managed through crises. He's advised on balance sheets. He's a student of the markets. He's tech-forward. He's been with a fast-growing company. He's a great talent. It was kind of serendipity that he was available. We have a super strong team here, but when you see talent like that available, you add it. I don't know it's any more complicated than that.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Okay. Just also wondering about the opportunities for doing more with private credit. I don't know if that's part of the equation here as well, given what you're doing already with private credit side and what Mark brings to the table there.
William Demchak (Chairman and CEO)
Yeah. Mark is a well-rounded student of finance and markets and management and leadership. It was interesting we were talking to the press about this. We got questions on, "Oh, does this mean we're going to go big into asset management or private credit or private equity or something else?" The answer to that is, "No, we're going to do exactly what we're doing." He's adding skill sets to what we're doing today. There's no change in our strategy. There's no change in who we want to be or how we're going to execute. He's just going to help us with our game plan.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Thanks very much.
Operator (participant)
Our next question comes from Scott Siefers with Piper Sandler. Please proceed with your question.
Scott Siefers (Managing Director and Senior Research Analyst)
Morning, guys. Thanks for taking the question. Rob, I think in the past, you've talked about a 3% margin by the end of the year. It kind of feels to me like based on the first quarter result, maybe you got out of the gates a bit quicker than you would have thought, which is helpful. Just sort of given all the moving parts these days, maybe if you could sort of refresh your thoughts on that number and anticipated path to get there. I can put together a couple of the pieces with what Bill had said about the forward curve, more rate cuts, etc., but would be curious to hear your thoughts.
Robert Reilly (EVP and CFO)
Yeah, sure, Scott. Now, we talked about this on every earnings call that we don't give official NIM guidance, but then I give NIM guidance, so.
William Demchak (Chairman and CEO)
That means if he's wrong.
Scott Siefers (Managing Director and Senior Research Analyst)
Yeah, that's right. That's right. Yeah, that's right. Thanks, Bill.
Robert Reilly (EVP and CFO)
Yeah, we got out of the gate pretty good there at the 2.78 that you saw in the first quarter. We said at the beginning of the year, and we still feel that we can approach 3%. I think the 2.90 range is reasonable in the fourth quarter.
Scott Siefers (Managing Director and Senior Research Analyst)
Okay. Perfect. Okay. Thank you. Maybe just a little bit of a ticky-tack one, the slightly higher net charge-off expectation into the second quarter. I mean, it's not huge by any means, but it's a little higher than you've run recently. Anything particular driving that, or is that just kind of standard normalization?
Robert Reilly (EVP and CFO)
No, no. There is something particular to that, Scott. Thanks for that question. It's really the lumpiness of the CRE office charge-offs. When you look at our information, they were down pretty good in the first quarter, but that's a situation where it's a handful of deals that can either sort of fall timing-wise into one quarter or another quarter. We'd expect those charge-offs to go back to the levels that we were experiencing in the third and fourth quarter, and that's part of the 300 guidance.
William Demchak (Chairman and CEO)
Okay. Part of stuff is.
Robert Reilly (EVP and CFO)
Preserved. Yeah, that's right.
Scott Siefers (Managing Director and Senior Research Analyst)
Yeah. Okay. Perfect. All right. Thank you very much.
Robert Reilly (EVP and CFO)
Sure.
Operator (participant)
Our next question comes from Ebrahim Poonawala with Bank of America. Please proceed with your question.
Ebrahim Poonawala (Head of North American Banks Research)
Good morning. I guess maybe you talked about loan growth and sort of client sentiment there. Just talk to us around the fragility across the customer base, be it consumer or commercial, given concerns maybe we are in a recession, we could fall into a recession. I'm just wondering how you look at the balance sheets for your customers and how bad do things need to go where the credit outlook deteriorates in a meaningful way?
William Demchak (Chairman and CEO)
The easiest way to think about this maybe is between today and three weeks ago, nothing's changed. What's happened, though, is everyone's trying to figure out what the steady state will be with tariffs and how they need to, if at all, change the business model to succeed inside of a world with tariffs. It is, without question, slowed down activity in the near term as people try to figure this out, but it hasn't yet turned into any sort of credit deterioration, nor just given the quality of our book, nor do I think it's a dramatic outcome for our clients unless those very tariffs drive us into a steep recession and that we're going to have a standard credit cycle.
Ebrahim Poonawala (Head of North American Banks Research)
Got it. I guess maybe, Rob, for you, you mentioned where the NIM may exit, I guess, 2025. Just talk to us about how you're thinking about balance sheet management from an outgo perspective. You took some actions, I guess, middle or late last year to lock in the NII or the record NII for 2025. I'm just wondering how are you thinking about from a cash or the bond book? Are things that you're doing as you think about just the forward outlook beyond 2025?
Robert Reilly (EVP and CFO)
Yeah, sure. As we said, 2025 is pretty locked in, and that's why we're confident in terms of our guidance. I will remind everybody that our NII guidance for the full year does not have a whole lot of loan growth. If that happens, that'll be on top of that. You're right. Where our eyes are now is sort of the outer years into 2026 and beyond. We have taken some actions to lock in that, which is the continuation of the fixed-rate asset repricing that we're on. That's where our heads are, and that's where the focus is.
Ebrahim Poonawala (Head of North American Banks Research)
Got it. Thank you.
Operator (participant)
Our next question comes from Mike Mayo with Wells Fargo. Please proceed with your question.
Mike Mayo (Managing Director)
Hi. I had a follow-up on the question about the new president, Mark Weidman. You described, Bill, I think you said exactly what you are doing currently at PNC is what you'll still be doing. My question to you is, how did you get him? I mean, there are so many people leaving the bank industry for private equity and non-banks and fintech and sometimes anywhere they can get to. Why is he coming to such a heavily regulated industry with so much oversight, with so much skepticism, with so much cynicism, with so much questioning? It is a smog being in the bank industry, and he is choosing to come. What in the world was your sales pitch to him to get him to come to keep PNC doing exactly what it is doing?
William Demchak (Chairman and CEO)
I mean, you'll get to ask him that question at some point, Mike. I think it's as simple as saying that what's going on in banking today is fascinating, right? It's not my dad's bank. It's driven by technology. Scale matters. We have new entrants coming in all sides of what we do, which can be exciting or dangerous depending on how you look at it. You think through crypto and private credit and payment engines and all the other things that are happening. It's a very dynamic place withstanding all the oversight we get. I'm sure Mark is listening to this call and now wondering what he got himself into.
Robert Reilly (EVP and CFO)
Right.
Mike Mayo (Managing Director)
You mentioned scale matters, and it's not the first time you said that. What's your current appetite for getting that greater scale? You said scale matters more than ever before, I think, in the history of banking. We have not seen that much consolidation. I imagine. Where do you stand?
William Demchak (Chairman and CEO)
I don't think you're going to see it in the near future either. A couple of things. Scale matters. We can get that through organic growth, and we're executing on that. I talk too much about the long-term future, and people want to seem to think about next quarter. In the long run, I think there's going to be big consolidation in the banking industry. We see how the speed of growth of the very giant banks. I think scale matters. I think in the course of that consolidation, if we outperform in our organic growth, we will have the right to be an acquirer. In today's world, for a variety of different reasons, not the least of which is we wouldn't issue our shares at these relative prices. Nobody's a seller.
To try to do a deal with the volatility going on in rates right now and the potential mark on credit makes it impossible. I need to just shut up about doing deals because I kind of talk about what happens over the next 10 years, and everybody thinks it is next quarter.
Robert Reilly (EVP and CFO)
Months.
William Demchak (Chairman and CEO)
Yeah. It isn't. In the meantime, we're growing just fine. We have lots of capital and ability to support our clients. We're likely going into an environment where being a bank is a pretty important thing for the U.S. economy, and we'll take advantage of that.
Mike Mayo (Managing Director)
Last short follow-up. You said you would not issue shares at this price. Does that mean you would be accelerating share buybacks?
William Demchak (Chairman and CEO)
It's a pretty good assumption.
Mike Mayo (Managing Director)
All right. Thank you.
William Demchak (Chairman and CEO)
Yeah.
Operator (participant)
Our next question comes from Ken Usdin with Autonomous Research. Please proceed with your question.
Ken Usdin (Managing Director and Senior Research Analyst)
Hey, good morning. I was just wondering, obviously, you talked about in the first quarter, we saw a little bit softer capital markets, M&A, and trading. There is obviously an expectation in the guide that things get better from here, albeit with the uncertainty. Can you just talk us through just how that advisory outlook feels? I guess maybe if you flesh out the fees a little bit more, just what expectations drive that kind of from-here improvement that is in the full-year guide? Thanks.
Robert Reilly (EVP and CFO)
Yeah. Hey, sure, Ken. It's Rob. In regard to the full-year fee guide, just in terms of our categories, the way that we report them, they're largely similar to what we thought at the beginning of the year, albeit in the first quarter, asset management did a little better than we thought, capital markets a little bit less. When we look at the full year, it still sort of holds asset management mid-single digits, capital markets mid-single digits, maybe a little bit better if the pipelines all pull through. Card and cash management, which is our steady eddy, is solidly mid-single, the highest single digits. Lending and deposit services, low single digits. Mortgage, as we said, we expect to be down maybe as much as 10% or more.
When you put all that together, you get the mid-single digits that we were expecting at the beginning of the year.
Ken Usdin (Managing Director and Senior Research Analyst)
Okay. Great. Thank you. Just one question on the deposit side. Getting to this point of stability and DDAs and such, but when you think about the new rate environment, what do you see as far as your ability to continue to ratchet down deposit pricing, and what do you think the mix of deposits looks like as well? Thank you.
Robert Reilly (EVP and CFO)
I would say I would start with the second part of that question. As far as the mix goes, we are at 22% of non-interest bearing. We have been pretty stable there for a while and expect that to continue. All else being equal, we do expect that our rate paid will be going down over the course of the year, not dramatically, but gradually and steady that we have been on for some time. That is still our thinking.
Ken Usdin (Managing Director and Senior Research Analyst)
Okay. Thanks, Rob.
Robert Reilly (EVP and CFO)
Sure.
Operator (participant)
Our next question comes from Erica Najarian with UBS. Please proceed with your question.
Erika Najarian (Managing Director and Equity Research Analyst)
Hi. Good morning. Just a few follow-up questions. Bill, nobody really asked this question much until we saw the Mike Lyons announcement. To follow up with all the questions about Mark, how much time are you going to give PNC in your current role, do you think, as we think about the succession planning?
William Demchak (Chairman and CEO)
I mean, how long am I going to be here?
Erika Najarian (Managing Director and Equity Research Analyst)
Yeah. I guess I mean, that's a very direct question, clearly, but Jamie Dimon often talks about being around for a few more years. I often have to look up your age because you always look so much younger than your actual age. I always think you're like 52.
William Demchak (Chairman and CEO)
I'm only 52. I can be around for a while.
Erika Najarian (Managing Director and Equity Research Analyst)
Okay. That's great. That's the answer I think your investors wanted to hear. Because given the announcement of Mark coming in, right, I think that question ramped back up. That was the first question. Okay. You'll be around for a while. Fair.
William Demchak (Chairman and CEO)
Yeah.
Erika Najarian (Managing Director and Equity Research Analyst)
Second question is a quick follow-up, Rob. I'm sorry if I missed this during prepared remarks, but what is the unemployment rate that your reserve is implying in terms of what it's built on?
Robert Reilly (EVP and CFO)
Yeah. Right now, Erica, in terms of our economic scenarios, we're just at 5%. But recall, we've got reserves that are beyond that for things such as tariffs on top of those modeled outputs.
Erika Najarian (Managing Director and Equity Research Analyst)
Got it. Okay. Thanks, guys.
Operator (participant)
Our next question comes from Gerard Cassidy with RBC Capital Markets. Please proceed with your question.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Thank you. Hi, Bill. Hi, Rob.
William Demchak (Chairman and CEO)
Rob.
Robert Reilly (EVP and CFO)
Hey, Gerard.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Can you share with us, you guys have done a good job in attacking your commercial real estate challenges and working through that portfolio. At the same time, you've been able to keep your non-interest expense growth in check. Can you carve out of that, what is it costing you to work through these commercial real estate problems? None of us expect them to end anytime real soon, but are there some expense savings coming once you get through that process in a couple of years, maybe?
Robert Reilly (EVP and CFO)
Oh, maybe a little on the margin, Gerard, but that's not a big driver. We've got some pretty talented bankers that when we work through that, we'll have other things for them to do.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Got it. Okay. Then a broader question, Bill, on your comment about share repurchases. Can you give us your thoughts and opinions about what's going on in the regulatory environment? We have a number of nominees for the different regulatory agencies. The Treasury Secretary has been quite outspoken about having the regulations ease up a bit. What are your thoughts on that? Could that influence either even more buybacks once you get to know what your CET1 ratio could be after Basel III Endgame comes out?
William Demchak (Chairman and CEO)
My guess at the margin is our capital need will be less in the future than it is today, all else equal. I think the immediate changes we're likely to see in regulation, a lot of talk on the SLR, which should calm the Treasury markets down a little bit, some refocus from all the regulators on the core risk in a bank. That is a supervision thing that doesn't change capital, but rather changes behavior. At the margin, that's a good thing for us. Maybe save a little bit of money on some of the things we're doing that frankly don't need done. I don't know that there's a massive change that's ahead for us.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Okay. Can you just remind us, obviously, your CET1 ratio is similar to your regional peers in terms of the minimum. What kind of comfort or what kind of buffer do you guys like to keep above that required level?
Robert Reilly (EVP and CFO)
Hey, Gerard, it's Rob. A couple of things on that. Just to finish up on that answer that Bill gave, obviously, once things settle down in terms of where all the rules come, we can then take an assessment in terms of where our actual targets are. We've got a lot of capital flexibility. We continue to build capital. We need to see those things settle down, and then we can zero in on a target.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Very good. Thank you, Rob.
Operator (participant)
As a reminder.
I'm sorry.
William Demchak (Chairman and CEO)
Just before we jump to another question, the comment kind of where our peers are. I mean, I would just remind everybody that our drawdown in CET1 has been through time less than basically anybody in the peer group. We are starting from a point with the SCB that, in effect, penalizes us when we build to our capital ratio versus others. That is unlikely to change the way we run our bank.
Robert Reilly (EVP and CFO)
Gerard, that goes back to a few years ago when we were all focused on this. The correct peer comparison in our view is the post-stress capital levels.
William Demchak (Chairman and CEO)
Yeah.
Gerard Cassidy (Managing Director and Large Cap Bank Analyst)
Very good. Thank you.
Operator (participant)
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from John McDonald with Truist Securities. Please proceed with your question.
John McDonald (Senior Research Analyst)
Hey, guys. A couple of quick clarifications. Just sorry, one more on the buyback. The idea is buybacks accelerating, Rob, but within the context of your capital ratio still growing a bit near term until you get more clarity?
Robert Reilly (EVP and CFO)
Yeah. That's right. In regard to the share buybacks, we bought more in the first quarter than we had in the previous quarters. It's our expectation in the second quarter that we'll do more, to Bill's point, because we really like the share price. We're not talking about a step change. Some more, but nothing that sort of breaks the current path.
John McDonald (Senior Research Analyst)
Okay. Got it. And then on the fee income outlook for the year, you mentioned in the beginning comments, are you just pointing out the obvious risk that you've got some market-sensitive fees in there, and it kind of depends on the macro?
Robert Reilly (EVP and CFO)
Yeah, that's right.
John McDonald (Senior Research Analyst)
Okay. Maybe just a quick update strategy-wise, just how things are going on the national expansion and some of the consumer initiatives, the new card product?
Robert Reilly (EVP and CFO)
Do you want to answer that, Bill, on the new markets, and then I can circle back on the capital?
William Demchak (Chairman and CEO)
We're having a sidebar. I'm going to ask you to re-ask that question.
Robert Reilly (EVP and CFO)
Bill would like to buy more shares, which we're going to definitely do. The answer to your question was it doesn't break the build in our capital levels, though.
William Demchak (Chairman and CEO)
Yeah. You'll see a level change in what we have been buying, but we'll still keep track on growing capital. It's particularly the AOCI pull and the post-Basel capital. Yeah. I'll ask you a question again.
Robert Reilly (EVP and CFO)
The new markets and expansion markets, how are they going?
William Demchak (Chairman and CEO)
They're driving our growth across all lines of business. Our DDA customer growth, net customer growth is coming from new markets. Our net inflows in wealth, basically, were driven by new markets, and they've continued to outproduce on a relative basis our legacy markets, even as our legacy markets grow. It is really working.
Robert Reilly (EVP and CFO)
And also THC in our corporate bank, that gets to these, John, where we continue to grow loan commitments, even though they're not funded, which bodes well for future loan growth. The majority of that was coming through the expansion markets this quarter.
John McDonald (Senior Research Analyst)
Got it. That's helpful. Rob, and you were going to just make a comment on the card book and how that's going with the new product and credit card?
Robert Reilly (EVP and CFO)
Oh, credit, yeah, it's going great. It's going great. We continue to grow customer count there. Excited about the trajectory there.
John McDonald (Senior Research Analyst)
Thanks.
Operator (participant)
Our next question comes from Matt O'Connor with Deutsche Bank. Please proceed with your question.
Matt O'Connor (Managing Director)
Good morning. Just to follow up on the rate sensitivity, I think you said little impact from inflation, a little bit higher or lower than what you expected. Just conceptually, how is the balance sheet position here for movements on both the short and long end as we think about more medium term? What is the goal? You talked about locking in some of the fixed rate asset reprice in the next couple of years, but which way are you trying to lean? Thanks.
William Demchak (Chairman and CEO)
There's a lot embedded in that question. We are at the margin better off if there are more cuts in the front end than we currently have in our forecast, which I think is at two, and we're going to probably increase that. At the margin, better off this year as a function of more cuts. Ultimately, where the trajectory of NII continues to grow 2025, 2026, even 2027 is a function of term rates staying high. At the moment, they're higher than we had assumed in our forecast. What we've been doing with the four starting swaps this quarter is locking in some of that known outcome in 2026. That's kind of the way we're like, if everything stayed just where it was with the forward curve, we'd be great.
Let's realize that because that's a big improvement over the course of the next several years. That's how we're running the balance sheet today.
Robert Reilly (EVP and CFO)
Obviously, taking low yield.
Matt O'Connor (Managing Director)
Yeah. That's helpful. Then just on the short end, I assume more cuts is helpful to a certain point. Not that the market's predicting this now, but what's that point where you're like, "Hey, if we get below three or whatever it is, then we kind of run out of room for price deposits," for example? What's that tipping point?
William Demchak (Chairman and CEO)
I'm not sure there is one as long as the back as long as 5s/10s. Depends if the curve gets steeper as they cut. I'm doing this in my head, but I think we're fine.
Robert Reilly (EVP and CFO)
Yeah, that's right. Yeah.
Matt O'Connor (Managing Director)
Okay. Thank you.
Operator (participant)
We have reached the end of the question and answer session. I'd now like to turn the call back over to Bryan Gill for closing comments.
Bryan Gill (EVP and Director of Investor Relations)
Thank you all for joining our call and for your interest in PNC. Please feel free to reach out to the IR team if you have any additional questions.
William Demchak (Chairman and CEO)
Thanks, everybody.
Robert Reilly (EVP and CFO)
Thank you.
Operator (participant)
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.