The PNC Financial Services Group, Inc. (NYSE:PNC) Q1 2025 Earnings Conference Call April 15, 2025 10:00 AM ET

Company Participants

Bryan Gill - EVP and Director of IR
Bill Demchak - Chairman and CEO
Rob Reilly - EVP and CFO

Conference Call Participants

John Pancari - Evercore
Bill Carcache - Wolfe Research
Betsy Graseck - Morgan Stanley
Scott Siefers - Piper Sandler
Ebrahim Poonawala - Bank of America
Mike Mayo - Wells Fargo
Ken Usdin - Autonomous Research
Erika Najarian - UBS
Gerard Cassidy - RBC Capital Markets
John McDonald - Truist Securities
Matt O'Connor - Deutsche Bank

Operator

Greetings, and welcome to The PNC Financial Services Group, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Bryan Gill, Executive Vice President and Director of Investor Relations. Thank you. You may begin.

Bryan Gill

Well, good morning, and welcome to today's conference call for The PNC Financial Services Group, Inc. 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, which are included in today's earnings release materials and our SEC filings and other investor materials, 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.

I'd like to turn the call over to Bill.

Bill Demchak

Thank you, Bryan, and good morning, everyone. As you've seen, PNC had a strong first quarter of 2025. But before we go into the results, I want to spend a second just on the current environment.

Obviously, there's been an increased level of volatility due to uncertainty regarding tariffs that have 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 this 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. And 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 counts 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 Wiedman, 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've known Mark for 20 years, and we are fortunate that the timing was right for him to join our team. I'd also like to thank our employees for everything they do for our company and our customers.

And with that, I'll turn it over to Rob to take you through the quarter.

Rob Reilly

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 advances.

And 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, 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%, and as of March 31, approximately 20% of the portfolio was floating rate, and our duration was estimated to be 3.4% years.

Our active received fixed rate swaps totaled $39 billion on March 31, and the weighted average received rate increased 27 basis points linked quarter to 3.49%, 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%.

Bryan Gill

Turning to slide seven,.

Rob Reilly

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 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 three 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 diesel 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 ten.

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. We expect the level to vary quarter to quarter as we work through these loans. Importantly, our overall credit quality remains strong across our portfolio.

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.

We'll obviously closely monitor this as these factors continue to develop. For the full year 2025 compared to the full year 2024, we expect average loans to be stable, which equates to spot loan growth of 2% to 3%. We expect full-year net interest income to be up 6% to 7%. We expect non-interest income to be up approximately 5%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 6%.

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% to 2%, fee income to be up 1% to 3%, other non-interest income to be in the range of $150 million and $200 million. Taking the component pieces of revenue together, we expect total revenue to be up 1% to 3%. We expect non-interest expense to be stable.

We expect second quarter net charge-offs to be approximately $300 million. And with that, Bill and I are ready to take your questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. You may press star two if you'd like to remove your question from the queue.

Our first question comes from John Pancari with Evercore. Please proceed with your question.

John Pancari

Morning. On the loan growth front, solid end of period loan growth in C&I as you cited. And 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. And is there any of that transient in terms of potential line draws just to fund some inventory buildup ahead of tariffs and therefore more of a pull forward or anything like that. And is any of it maybe precautionary line draws given the recessionary backdrop.

Thanks.

Rob Reilly

You want me to I'm sorry. My Bill is gonna answer that. Hey, John.

Good morning. It's Rob. Yeah.

So we were encouraged by the increase in the outstandings through the quarter and when you look in our financial supplement, you'll see it was pretty broad-based across most of our loan categories. You know, we have been calling for this for some time in terms of increased utilization, which we saw in the quarter. So that tracks to what we thought at the beginning of the year.

As far as, you know, some of this defensive or these tariff-driven, it's hard to say. It's it's not all of it for sure. Maybe there's a little bit of it in there.

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

Bill Demchak

Yeah. It's it's interesting that you know, in all the dialogue that I've kinda had with clients, nobody's saying they're purposely building inventory in advance of the tariffs, having said that, you know, most of our lines finance working capital. So almost definitionally, there's some inventory built going on.

Got it.

John Pancari

Okay. No. That's helpful.

And then separately on the capital markets front, understandably trends there are pressured given the the backdrop and you saw that pressure this quarter. Can you talk maybe perhaps about pipelines you expect. Are you seeing any erosion in any of the pipelines out there on the M&A side or capital market side just given the uncertainty, any deals getting pulled. Or the pipelines remaining robust and it's just a matter of getting the you know, getting the pig through the Python.

Rob Reilly

Yeah. Sure. Sure.

The, you know, the capital markets was a little lighter than what we expected although, you know, still pretty good. You know, for us, forty percent of our capital markets, categories Harris Williams are M&A advisory, and they very good quarter in line with expectations, whereas a little softer was in some of our foreign exchange and just some of our client activity. So when we look forward, you know, Harris Williams in particular, their pipeline right now is close to twenty percent higher than it was this time last year.

The pipelines look good, John. They had a good year last year. And they had a very good year last year.

So, you know, we're we're encouraged by that.

John Pancari

Okay. Great. Thank you.

Operator

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

Bill Carcache

Thank you. Good morning Bill and Rob. Appreciate your commentary around uncertain environment leading you to keep your reserve rate relatively flat.

If we were to go down the mild recession path and unemployment rose, say, slightly above five percent, 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 should you need to.

Rob Reilly

Can answer that. I mean, in terms of our expenses, we feel really great about the way that we've lined up the year. You know, we've got positive leverage.

Expenses up one percent off the, of the twenty four print. You know, naturally, if we get into a scenario where there's lower activity, some of that self-correcting in terms of expenses associated with revenue that you wouldn't have. But, you know, we're we're disciplined.

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

Bill Demchak

Yeah. The the other offset under you know, some presumption that we actually went into a mild recession. And, you know, the the forward curve is correct, and there's, you know, four cuts this year.

We actually have it with more cuts mild up, you know, an amount of upside in our NII just at the margin. So I I don't know that a mild recession dramatically changes our outcome here.

Bill Carcache

That's helpful. Thank you. And it's interesting in light of all the commentary around how companies are putting investments on hold, giving the uncertain environment 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 you know, capital markets become a less attractive option for some of your clients.

Bill Demchak

I gotta go back. I've been saying this for a year. I it's it's not clear to me what caused the utilization to go down. It's not entirely clear to me as to why it's going up.

You know, if if if there is sort of some offset, you know, capital markets new issuance slows down, then the pricing in the loan book. But I you know, one of the reasons we leave it largely out of our forecast in terms of being a main driver, it's it's been a bit confusing for the last year. So.

Bill Carcache

Thank you for taking my questions, Bill and Rob.

Operator

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

Betsy Graseck

Betsy. Good morning. Bill, I did want to just ask a few questions regarding the president role.

And I wanted to understand a little bit more about what you are expecting, Mark, to be doing for PNC. And I know there's many of us on the call who know Mark well with what he's been doing over BlackRock for many years. But there might be others who are a little bit less familiar with him.

So maybe you could help us understand why Mark is the right person for this role and does this have well, and how you anticipate he will be growing the business as president. Thank you.

Bill Demchak

No. Thank you for the question, Betsy. You know, known Mark for a lot of years going back to know, being on the board of BlackRock, and we actually had he he and his financial advisory team come in here at one point.

You know, during or shortly after the crisis just to double check everything we were doing on the balance sheet. Mark's gonna come in and be the president. He's gonna run our businesses.

He comes in with a broad-based skill set. He's managed through crises. He's you know, advised on balance sheets.

He's a student of the markets. He's tech forward. He's been with a fast-growing company. I mean, he's a great talent.

And it was kinda serendipity that that that he was available. Know, we have a super strong team here, but when you see talent like that available, you add it. And I I don't know if it's any more complicated than that.

Betsy Graseck

Okay. Just I'm also wondering about the opportunities for doing more with private credit. I don't know if that's part of the equation here as well.

Given what you're doing already with private credit side and what Mark brings to the table there.

Bill Demchak

No. It it's you know, Mark is a well-rounded student of finance and markets and management and leadership. In a way, it it it was interesting.

We were talking to the press about this. We we got questions on, oh, does this mean we're gonna go big into asset management. Or private credit or private equity or something else.

And the answer to that is no. We're gonna do exactly what we're doing, and he's adding skill sets to what we're doing. Today.

There's no change in our strategy. There's no change in we wanna be or how we're gonna execute. He's just gonna help us with our game plan.

Betsy Graseck

Alright. Thanks very much.

Operator

Our next question comes from Scott Siefers with Piper Sandler.

Scott Siefers

Rob, I think in the past, you've talked about a three percent margin by the end of the year. 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 is helpful. But, you know, just sort of given all the moving parts, these days, maybe if you could sort of refresh your thoughts on you know, that number and anticipated path to get there.

I can put together a couple of the pieces with what Bill had said about the, you know, the forward curve more rate cuts etcetera, but would be curious to hear your thoughts.

Rob Reilly

Yeah. Sure, Scott. Now we we talked about this on every earnings call that we don't give official NIM guidance, but then I give NIM guidance.

So means is, you know, if he's wrong. Yeah. That's right. That's right.

Yeah. That's right. Thanks, Bill.

So, yeah. So we we got out of the gate pretty good there at the two seventy eight that saw in the first quarter. You know, we said at the beginning of the year, we still feel that we can approach three percent.

So I think, you know, the two ninety range has in the fourth quarter.

Scott Siefers

Okay. Perfect. Okay.

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

I mean, it's not huge by any means, but, you know, it's a little higher than you you've run recently. Any anything particular driving that, or is that just kinda standard normalization.

Rob Reilly

No. No. There is something particular to that, Scott.

So thanks for that question. It's it's really the lumpiness of the CRE office charge offs. So when you look at our information, they were down pretty good in the first quarter, but that's situation where it's a handful of deals that can either sort of fall timing wise into one quarter or another quarter.

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

Bill Demchak

Okay. It would probably slow stuff is you know, to be Reserve. Yeah.

That's right. Yeah. Okay.

Scott Siefers

Perfect. Alright. Thank you very much.

Operator

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

Ebrahim Poonawala

Good morning. I guess maybe so you talked about loan growth and sort of client sentiment there. Just talk to us around the fragility across the customer base, be it consumer or commercial.

Given concerns maybe we are in a recession, we could fall into a recession. I'm just wondering how you look at the balance sheets for your customers and, like, how bad do things need to go where the credit outlook deteriorates in a meaningful way.

Bill Demchak

You know, the easiest way to think about this maybe is is you you know, between today and three weeks ago, nothing's changed. What's 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 it all changed the business model, to succeed inside of a world with tariffs. So you know, it it is without question slowed down activity in the near term is people try to figure this out.

But it hasn't yet turned into you know, any sort of credit deterioration nor you know, just given the quality of our book, nor do I think it's you know, dramatic outcome for clients unless those very tariffs drive us into a a a steep recession. You know, and then we're gonna have a standard credit cycle.

Ebrahim Poonawala

Got it. And I guess maybe, Rob, for you, if you mentioned the way the NIM may exit, I guess, twenty five, Just think talk to us about how you're thinking about balance sheet management from an Alco perspective. You took some actions, I guess, middle or late last year to lock in the NII.

Or the record NII for twenty five. I'm just wondering how are you thinking about, like, from a cash or the bond book Are are things that you're doing as you think about just the forward outlook beyond twenty five.

Rob Reilly

Yeah. Sure. So so as we said, you know, twenty five is 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 doesn't have a lot of loan growth. So if that it happens, that'll be on top of that. So you're right.

Where our eyes are now is sort of the outer years into twenty six and beyond. And we have taken some actions to lock in that, which is the continuation of the fixed rate asset repricing. That we're on.

So that's where our heads are, and that's where the focus is.

Ebrahim Poonawala

Got it. Thank you.

Operator

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

Mike Mayo

Hi. I had a follow-up on the question about the new President Mark Wiedman. You described.

Bill, I think you said exactly what you are doing currently at PNC is, but you'll still be doing, So my question to you is, how did you how did you get them. I mean, there's so many people leaving the bank industry for private equity and non-banks and fintech and sometimes anywhere they can get to. And so why is he coming to such a heavily regulated industry with so much oversight, with so much skepticism, with so much cynicism, with so much questioning, some know, it's it's a slog.

Being in the back end industry and he's choosing to come So what in the world was your sales pitch to him to get him to come to keep PNC doing exactly what it's doing.

Bill Demchak

I mean, you'll you'll get to ask him that question that some point, Mike. But but I I I think it's as simple as saying that what's going on in banking today is fascinating. Right.

It is it it's it's not you know, my dad's bank. It's it's driven by technology. There's you know, scale matters.

We have new entrants coming in all sides of what we do. Which could be exciting or or or dangerous depending on how you look at it. You know, you think through crypto and private credit and payment engines and all the other things that are happening.

It's a very dynamic place. Notwithstanding you know, all the oversight we get. And I'm sure Mark is listening to this call.

I'm not wondering what he got himself into. Scriptship. Right.

Mike Mayo

You you mentioned scale matters, and you not the first time you said that, what's your current appetite for 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 you so where where do you stand.

Bill Demchak

I don't think you're gonna see it in the near future either. Know, a couple of things. Scale matters.

We can get that through organic growth, and we're actually And You know, I I I I talk too much about, you know, the long term future and people wanna seem to think about next quarter. In the long run, I think there's gonna be big consolidation in the banking industry. The you know, the speed of growth of the very giant banks so I think scale matters.

I think in the course of that consolidation, if we outperform, in our or in our organic growth, we will have the right to be an acquired In today's world, you know, for a variety of different reasons, not the least of which is we wouldn't issue our shares at this price. At these relative prices. Nobody's a seller and to try to do a deal with the volatility going on in rates right now and the potential mark on credit makes it impossible.

So I I I need to just shut up about doing deals because I I kinda talk about what happens over the next ten years, and everybody thinks it's next quarter. Yeah. And it isn't.

You know, the meantime, we're growing just fine. We have lots of capital. You know, and ability to support our clients, and we're likely going into an environment where being a bank is a pretty important thing for the US economy, and we'll take advantage of that.

Mike Mayo

Last year, follow-up. You said you would not issue shares at this price, so does that mean you would be accelerating share buybacks.

Bill Demchak

It's a pretty good assumption. Alright. Thank you.

Operator

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

Ken Usdin

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. And there's there's obviously expectation in the guide that things get better from here albeit with the uncertainty.

So can you just talk us through, like, just how that advisory outlook feels. And, I guess, maybe if you flush out the fees a little bit more, just what expectations to, you know, drive that second that kind of from here improvement that's in the full year guide. Thanks.

Rob Reilly

Yeah. Hey. Sure, Ken.

It's it's Rob. So in regard to the full year fee guide just in terms of our categories, the way that we report them, They're largely largely similar to what we thought at the beginning of the year. You know, albeit in the first quarter, you know, asset management did a little better than we thought Capital markets a little bit less.

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

Ken Usdin

Okay. Great. Thank you.

And then just one question on on the deposit side. You're getting to this point of stability and DDAs and such. But when you think about the new rate environment, what do you what do you see as 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.

Rob Reilly

Well, I'd say I'd start with the second part of that question first. As as as far as the mix goes, we're at twenty two percent of non-interest bearing. And we've been pretty stable there for a while and expect that to continue.

You know, all else being equal, we do expect that you know, our rate paid will be going down over the course of the year. Not dramatically, but, you know, gradually and steady that we've been on for some time. So that's still our thinking.

Ken Usdin

Okay. Thanks, Rob.

Rob Reilly

Sure.

Operator

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

Erika Najarian

Hi. Good morning. Just a few follow-up questions.

So, Bill, you know, nobody really asked this question much until we saw the Mike Lyon's announcement. But, you know, to follow-up with all the questions about Mark, you know, how much time are you going to give PNC in your current role do you think as we think about the succession planning.

Bill Demchak

I mean, how long am I gonna be here.

Erika Najarian

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

Always think you're, like, fifty two. I'm totally sixty two. I can be around for a while.

Okay. That's great. That's the answer I think your investors wanted to hear.

Because I I you know, given given the announcement of Mark coming in, right, I think that that question ramped back up. So that was that was the first question. Okay.

You'll be around for a while. Fair. Yeah.

Second, 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.

Rob Reilly

Yeah. Right now, Eric, in terms of our economic scenarios, we're just at five percent. But recall, you know, we've got reserves that are beyond that for things such as tariffs, on top of those modeled outputs.

Got it.

Erika Najarian

Okay. Thanks, guys.

Operator

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

Gerard Cassidy

Thank you. Hi Bill. Hi Rob.

Rob, can you share with us, are you guys have done a good job in attacking your commercial real estate challenges and working through that portfolio. And at the same time, you've been able to keep your non-interest expense growth in check. Can you can you carve out of that What is it costing you to work through these commercial real estate problems.

So none of us expect them to end anytime real soon, but are there some expense savings coming once you get through that process.

Rob Reilly

Oh, maybe a little on the margins, Gerard, but that's not 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

Got it. Okay. And then brought a question Bill, on your comment about share repurchases.

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. And could that influence either even more buybacks once you get to know what your CET1 ratio could be. After Basel three endgame comes out.

Bill Demchak

You know, my my guess at the margin is our capital need you know, will be less in the future than it is today, all else equal. I think, you know, the the immediate changes were likely likely to see in regulation Lot of talk on the SLR, which you call the treasury markets down a little bit. You know, some some refocus from all the regulators on the core risk in a bank.

So that's a supervision thing that doesn't change capital, but rather changes behavior. And 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.

But I don't know that there's a massive change that's ahead for us.

Gerard Cassidy

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

Rob Reilly

Hey. Hey, Gerard. It's Rob.

So, you know, a couple things on that. Yeah. Just to finish up on that answer that Bill gave.

You know, obviously, know, once things settle down in terms of where all the rules come, you know, we can then take a assessment in terms of where our actual targets are. So, you know, we 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

Very good. Thank you, Rob. I'm sorry.

Bill Demchak

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

Rob Reilly

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

Gerard Cassidy

Yeah. Very good. Thank you.

Operator

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

John McDonald

Hey, guys. Couple of quick clarifications. Just sorry, one more on the buyback.

So 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.

Rob Reilly

Yeah. That's right. In regard to that, as a share buyback, so we bought more in the first quarter than we had in the previous quarters. It's our expectation in the second quarter that we'll do more to Bill's point.

Because we really like the the share price. But we're not talking about a step change. You know, some more, but nothing that, sort of that breaks the current path.

John McDonald

Okay. Got it. And then on the fee income outlook for the year, you mentioned in the beginning comments, were you just pointing out the obvious risk that you've got some market sensitive fees in there and it kinda depends on the macro.

Rob Reilly

Yeah. That's right.

John McDonald

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

Rob Reilly

Chuck, do you wanna answer that, Bill, on the new markets and then I can circle back on the on the catalyst. Look. We're we're having a sidebar.

I'm gonna ask you to reask that question. So Bill would like to buy more shares, which we're going. He definitely do.

The answer to my to your question was it doesn't break the build in our capital levels. Yeah. So it's it's you you you'll see a level change in what we have been buying but we'll still probably have track on growing cap.

Correct. Yeah. It's particularly the the AOCI Poland That's right.

Fossil cap.

John McDonald

Okay. So I asked your question. That the new markets and expansion markets, how are they going.

Bill Demchak

They're driving our growth. Know, across all lines of business. Our our DDA customer growth our that customer growth is coming from new markets, our net inflows and 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.

So it's it's really working.

Rob Reilly

And also THC and our corporate thing. Yeah. So that gets to these John, where we continue to grow loan commitments even though they're not funded.

Which bodes well for future loan growth. The majority of that was coming through the expansion markets this quarter.

John McDonald

Got it. That's helpful. Rob, and you're going just make a comment on the card book and how that's going.

With the new product and credit card.

Rob Reilly

Oh, okay. Yeah. It's going great.

Yeah. Going great. We continue to grow customer account there.

So, know, excited about the trajectory there.

Operator

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

Matt O'Connor

Good morning. Just to follow-up on the rate the if rates are a little bit higher or lower than what you expected. But just conceptually, how is the balance sheet positioned here for movements on both the short and and long end.

As we think about more medium term. And then kind of what's the goal or talked about locking in some of the fixed rate asset we price in the next couple of years, but which way are you trying to lean. Thanks.

Bill Demchak

There's a lot embedded in that question. We are at the margin better off if there are more cuts in the front end than we currently have in our forecast, which I think is a two week. We're gonna probably increase that.

So at the margin better off this year as a function of more cuts. Ultimately, you know, where the trajectory of NII continues to grow know, twenty five, twenty six even twenty seven is a function of term rates staying high. At the moment, they're higher you know, than than we had assumed, than our in our forecast.

So you know, what we've been doing you know, the forward starting swaps this quarter is locking in some of that known outcome. In twenty six. And and that's kind of the way we're like, if everything stayed just where it was, you know, with with the forecaster, we'd be great.

So it's let's let's realize that because you know, that's a that's a big improvement. Over the course of the next several years, and that's how we're running the balance sheet today.

Matt O'Connor

Obviously, taking a low yield.

Bill Demchak

Yeah. That's helpful. And then just on the short end, like, I assume more cuts is helpful to a certain point.

Not that market's producing this now, but, like, what's that point where you're like, hey. If we get below three or whatever it is, you know, then we kind of run out of room for a price deposit, for example. Like, what's that tipping point.

Bill Demchak

I'm not sure there is one as long as the back you know, it's as long as five to tens depends if you know, if the curve gets steeper as they cut, Doing this in my head, but I think we're fine. Yeah. That's right.

Matt O'Connor

Okay. Thank you.

Operator

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

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

Bill Demchak

Thanks everybody. Thank you.

Operator

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