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Organic loan growth reached a three-year high, driven by broad-based commercial production and increased utilization rates across legacy and expansion markets.

Net interest income increased to $4.0 billion, driven by the addition of FirstBank, lower funding costs, and commercial loan growth, while net interest margin reached 2.95%.

Management attributed strong fee income growth of 13% year-over-year to broad-based momentum in asset management, brokerage, and capital markets.

The FirstBank acquisition added $15 billion in loans and $22 billion in deposits, with full system conversion scheduled for mid-June 2026.

Expansion markets now represent over 51% of market-based corporate loans, growing at twice the pace of legacy markets through a target-rich environment in the Southeast and West.

Management clarified that Non-Depository Financial Institution (NDFI) exposure is primarily low-risk corporate receivables financing with negligible historical loss content.

Operational efficiency is being maintained through a continuous improvement program targeting $350 million in cost reductions to fund ongoing technology and branch investments.

Full-year 2026 guidance assumes no interest rate cuts by the Federal Reserve and a stable GDP growth rate of approximately 1.9%.

Net interest margin is expected to exceed 3.0% in the second half of 2026, supported by continued fixed-rate asset repricing.

Management expects average loan growth of approximately 11% for the full year, though spot growth may remain flattish in Q2 due to anticipated paydowns.

Capital allocation strategy prioritizes organic growth and dividends, with share repurchases expected to continue at $600 million to $700 million per quarter.

The Basel III proposal is anticipated to be a net positive, potentially reducing risk-weighted assets by $45 billion to $50 billion.

Integration costs for the FirstBank acquisition are projected at $325 million for the full year, with $150 million expected in the second quarter.

Mortgage revenue was impacted by a $31 million decline in MSR valuations resulting from heightened rate volatility during the quarter.

Credit quality remains a focus, with management monitoring discretionary spending sectors like trucking and fuel-dependent businesses despite current strong metrics.

A 50 basis point decline in CET1 ratio was primarily driven by the 40 basis point impact of the FirstBank acquisition and strong organic loan growth.

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Management is focusing on growing the total number of retail clients through branch expansion rather than just competing on price.

PNC plans to open approximately 55 new branches this year to drive long-term core deposit growth.

Management dismissed systemic risk concerns, noting 80% of their NDFI category consists of trade receivable securitizations which are bankruptcy-remote and low-risk.

The remaining exposure is largely senior-position CLOs with substantial collateral, where the bank has seen virtually no losses in over 25 years.

Growth is being driven by entering new markets in the Southwest and California, where PNC is winning integrated relationships rather than just commodity lending, specifically targeting commercial middle market clients within California ZIP codes.

Management noted that fee income percentages in these new markets are equal to or higher than legacy markets, indicating high-quality relationship growth.

The bank experienced 'choppy' results in mortgage servicing rights due to realized volatility exceeding implied volatility in a negatively convex book.

Management characterized this as a market volatility event rather than a structural hedging failure or trading error.

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