PNC Financial Services (PNC) Q2 2021 Earnings Call Transcript

PNC Financial Services (PNC -1.11%)
Q2 2021 Earnings Call
Jul 14, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Pema, and I'll be your conference operator today. At this time, I would like to welcome everyone to the PNC Financial Services Group earnings conference call. [Operator instructions] As a reminder, this call is being recorded.

I will now turn the call over to the director of investor relations, Mr. Bryan Gill. Sir, please go ahead.

Bryan Gill -- Investor Relations

Well, thank you, Pema, and good morning, everybody. Welcome to today's conference call for the PNC Financial Services Group. Participating on this call are PNC's chairman, president, 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 materials are all available on our corporate website, pnc.com under Investor Relations. These statements speak only as of July 14, 2021, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Bill Demchak -- Chief Executive Officer

Thanks, Bryan. Good morning, everybody. As you've seen we accomplished a lot in the second quarter, and most important was the closing of the acquisition of BBVA USA on June 1st. Obviously this created a fair amount of noise in our reported results, adding one month of BBVA USA operating results and the impact of purchase accounting adjustments as well as merger-related impacts.

Rob's going to take you through all of that in a couple of minutes. But putting those things aside, we had a pretty good quarter driven by solid net interest income, strong fee growth, continued improvements in credit quality, and announcement of higher capital returns. While loans increased primarily due to the acquisition, we did have spot loan growth in both consumer and C&I in the legacy PNC balance sheet. We've seen loan utilization rates stabilize within our corporate and institutional banking business.

However, they remain near historic lows. And while new loan approvals have rebounded actually to the highest level in a couple of years, that's been offset by continued paydowns. Within the legacy -- within the PNC legacy consumer book, we saw loans grow in the quarter, which was encouraging, and we're confident that strong economic growth is ultimately going to drive strong loan growth. But it remains an open debate as to the timing of that loan growth relative to the second half of '21 and into '22.

During the quarter we continue to deploy excess liquidity through $10 billion of net security purchases. Going forward and considering the significant recent rally in treasuries, we'll be disciplined as we look to reduce our elevated cash position. You saw that our recent CCAR results underscore the strength of our balance sheet and our commitment to returning capital to our shareholders. Following the results, we announced a 9% increase in our quarterly common stock dividend and a $2.9 billion share repurchase program.

Importantly we're well-positioned with substantial capital and liquidity to continue to support our customers and invest in our businesses. Regarding BBVA, I couldn't be more pleased with where we are. PNC and BBVA employees have hit the ground running and are making great progress in preparing for a successful conversion and integration. The deal significantly expands our footprint, gives us access to 29 of the top 30 MSAS across the country with a coast to coast franchise and it provides us with an opportunity for growth for years to come.

All of our original deal metrics are the same or better than we estimated, and Rob's going to take you through those. And finally, the underlying growth opportunities in the new markets are outstanding. Across this footprint, employees are making joint calls and we are seeing deal pipelines build, especially as we present our enhanced capabilities and scale of the new markets. We continue to believe the revenue synergy opportunity is significant as we look to drive BBVA's U.S.

-- BBVA USA's non-interest income contribution to total revenue closer to legacy PNC's mid-40% level. On the integration front, we're leveraging our past investments in technology and automation to expedite the process, drive synergies, and reduce complexity. We're moving the data from more than 600 BBVA USA applications to PNC applications, taking a lift and shift approach that allows us to simplify the customer conversion. I also want to mention that our continued rollout of low cash mode, which was available to 2.5 million virtual wallet customers as of the end of June, we're planning to roll it out to the remaining 1.1 million virtual wallet customers by the end of this month and look forward to making it available to BBVA customers upon conversion later this year.

Since announcing the product in April, we've delivered over 10 million low cash mode alerts and has seen strong engagement with the experiences. It helps to address a major frustration for many of our customers across the industry. Over time, we expect it to drive significant growth in new and existing customer relationships as we execute our national expansion strategy. Finally, I'd like to close by thanking our legacy PNC and the new BBVA USA employees for all of their hard work that allowed us to close this deal early and prevent and prepare for conversion and long term success.

With that, I'll turn it over to Rob for a closer look at our results and then we'll take your questions.

Rob Reilly -- Chief Financial Officer

Thanks, Bill, and good morning, everyone. As Bill just mentioned, and notable during the second quarter, we successfully completed our acquisition of BBVA USA, significantly expanding our footprint, which now includes growth markets throughout the Sunbelt region. Our balance sheet is on Slide 4 and is presented on a spot basis. While we typically cover our average balance sheet, we'll focus this quarter on spot balances due to the timing of the June 1 closing of the acquisition.

Overall linked quarter balance sheet growth was driven by the acquisition, of course, which contributed $60 billion in loans, $18 billion of investment securities, and $82 billion of deposits at quarter end. Excluding those additions during the quarter, legacy PNC loan balances declined $3 billion, investment securities increased $10 billion and deposits declined by $4 billion, and I'll cover the drivers in more detail over the next few slides. We ended the quarter with a tangible book value of $93.83 per share and an estimated CET 1 ratio of 10%, substantially above the levels we anticipated at the time of the deal announcement. As a result, we're well-positioned with significant capital flexibility.

And as Bill just mentioned, we recently announced a $0.10 increase to our quarterly cash dividend on common stock, raising the dividend to $1.25 per share. Additionally, we reinstated our share repurchase programs of up $2.9 billion for the fourth quarter period beginning in the third quarter of 2021. Slide 5 shows our period-end loans and deposits, accounting for the acquisition and highlighting the relative contributions. Total loans were $295 billion at quarter end.

And with the acquisition, our loan mix remains consistent at approximately two-thirds commercial and one-third consumer. Total deposits were $453 billion at June 30th. And our rate paid on interest bearing deposits is now five basis points, a one-basis-point decline linked quarter. Taking a closer look at loans, commercial loan balances of $200 billion increased $35 billion.

BBVA contributed $39 billion and spot PNC legacy growth of approximately $1 billion was offset by a $4.5 billion decline in PPP loans. Consumer loans were up $23 billion, represented by $22 billion of acquired loans as well as growth in legacy PNC consumer loans, primarily in the residential real estate portfolio. The yield on loan balances was stable at 3.38% percent compared to the first quarter and reflected the combined loan portfolio. Slide 6 details the change in our spot securities and federal reserve balances over the past year.

Securities balances were $127 billion at the end of the second quarter, $28 billion increase linked quarter due to the addition of $18 billion of securities from the acquisition and $10 billion in net purchases. Our Fed cash balances decreased $14 billion linked quarter, reflecting continued deployment into securities and the payment of $11.5 billion dollars for the acquisition. Despite the linked quarter decline, our liquidity position remains in excess of our LCR requirements. As you can see on Slide 7, our second-quarter income statement includes the impact of the acquisition.

Our reported EPS was $2.43, which included an initial provision for BBVA USA of $1 billion and integration costs of $111 million. Adjusted for these items, the EPS was $4.50 in the second quarter. Second-quarter revenue was $4.7 billion, up $447 million compared with the first quarter, reflecting the acquisition as well as strong organic fee growth. Expenses increased $476 million or 18% linked quarter, including $181 million of significant items related to integration expenses and litigation reserves as well as one month of BBVA operating expenses and higher legacy PNC business activity.

The provision of $302 million included a provision recapture of $704 million related to improve credit quality and macroeconomic factors as well as balance reductions, which was more than offset by $1 billion initial provision in connection with the acquisition. As a result, total net income was $1.1 billion in the second quarter. Now let's have got to discuss the key drivers of this performance in more detail. Turning to Slide 8, these charts illustrate our diversified business mix with non-interest income representing 45% of total revenue in the second quarter.

Net interest income of $2.6 billion was up $233 million or 10%. And net interest margin of 2.29% was up 2 basis points, both of which reflect the impact of the acquisition. Second-quarter fee income of $1.6 billion increased $229 million or 16% linked quarter. Within that, legacy PNC fees grew by $167 million and BBVA USA's one month of operations contributed $62 million.

Taking a more detailed look at the performance in each of our fee categories, asset management revenue increased $13 million or 6% as a result of higher average equity markets; consumer services fees grew $73 million or 19%, primarily due to increased transaction volume and higher merchant services revenue; corporate services increased $133 million or 24% driven by higher MSA advisory activity and treasury management product revenue; service charges on deposits grew $12 million or 10% due to the addition of BBVA USA; other non-interest income of $468 million declined $15 million linked quarter and included a negative visa derivative adjustment, lower security gains, as well as higher private equity revenue. In total, non-interest income of $2.1 billion increase $214 million or 11% compared to the first quarter, driven primarily by legacy PNC fee growth as well as $80 million of non-interest income from the acquisition. Turning to Slide 9, our second-quarter expenses were up by $476 million or 18% linked quarter and included $181 million of significant items related to integration expenses and the addition to legal reserves.The remainder of the increase was driven by BBVA's one month operating expenses of $179 million as well as increased business activity and marketing for legacy PNC. Obviously with the acquisition, our operating expenses are going to be higher going forward.

Nevertheless, we remain disciplined around our expense management. And as we've previously stated, we have a goal to reduce PNC stand-alone expenses by $300 million dollars in 2021 through our continuous improvement program, and we're on track to achieve our full year target. Additionally we're confident we'll realize the full $900 million in net expense savings of BBVA USA's expense base in 2022. Our credit metrics are presented on Slide 10 and reflect the impact of the acquisition.

Apart from the addition of the acquired loans, credit performance improved considerably within the legacy PNC portfolio. Non-performing loans were $2.8 billion at June 30th, and $871 million were related to the acquired loans. PNC legacy non-performing loans declined $230 million due to decreases in both commercial and consumer. Total delinquencies were $1.3 billion at June 30th, of which the acquisition impact was $291 million.

Legacy PNC's delinquencies declined $147million. Net charge-offs for legacy PNC were $58 million, the lowest level since 2007 with an annualized charge-offs to total loans ratio of 10 basis points. Acquired low net charge-offs were $248 million, which was largely the result of required purchase accounting treatment for the acquisition. Slide 11 shows a change in our allowance for credit losses during the second quarter.

Within our legacy portfolio, we rereleased reserves by approximately $700 million related to both improved credit quality and macroeconomic factors. Upon closing the acquisition, we established a $2.2 billion ACL for the acquired loans or 3.5% through fair value loan marks of $1.2 billion related to purchase credit deteriorated loans and an initial provision of $1 billion related to non-PCV loan. The initial BBVA USA ACL to total loans of 3.5% was subsequently reduced to 3.1% at the end of the quarter as a result of portfolio changes. So in total as a result, our total quarter year end reserves for the combined entity were $6.4 billion, representing 2.16% of consolidated loans outstanding.

Turning to Slide 12, now that we've closed the BBVA USA acquisition, I wanted to provide an update to some of the deal metrics, all of which are the same or have improved since our deal announcement. As you know, the purchase price was an all cash fixed price and with approximately $11.5 billion at closing. And as I've already mentioned, tangible book value per share and the CET 1 ratio are favorable relative to our original expectations. We continue to project an internal rate of return in excess of 19%, earnings per share accretion of more than 20%, and an annualized expense reduction of $900 million in 2022.

Additionally our expectations for non-recurring merger and integration costs is approximately $980 million, the majority of which we expect to be recognized in 2021 consistent with our initial expectations. Taking a look at the credit metrics, these have all improved since we've announced the deal. And as a result, the ACL to total loans for BBVA USA is better than our original expectations. In addition and as anticipated, our net purchase accounting adjustment is nominal with a net fair value premium of $322 million, the majority of which will be amortized over the next several years.

For the second quarter due to the maturity of some short-dated acquired assets, we realize a $30 million benefit to net interest income, which will not recur. In summary, PNC reported a strong second quarter, highlighted by the successful acquisition of BBVA USA. We expect this transaction to add significant value to our shareholders as we begin to realize the potential of the combined franchise. In regard to our view of the overall economy, our current expectations are for GDP to surpass prerecession levels sometime during the third quarter and for the Fed funds rate to remain near zero throughout 2021.

Looking at the third quarter of 2021, which will now include a full quarter impact of BBVA USA's operations compared to the second quarter of 2021, we expect total spot loan balances to be up modestly, which includes a $3.5 billion decline in PPP loans. On a percentage basis, we expect NII to be up in the mid teens. We expect fee income to be up in the mid-single digits. We expect total non-interest expense, excluding integration expenses, to be up in the high single digits.

We expect other non-interest income to be between $325 million and $375 million, excluding net securities gains in these activities. And we expect third quarter net charge-offs to be between $150 million and $200 million. For annual guidance, taking into account our first half operating results and the addition of six more months of BBVA USA's forecasted operating results, plus our expectation for modest loan growth in the second half of the year, we expect revenues to be up between 12% to 14% and expenses, excluding integration costs, to be up between 13% and 15% for the full year 2021 compared with PNC stand-alone 2020. We acknowledge some upside exists in spot loan growth during the second half of the year but that remains to be seen, and as a result is not included in our guidance.

And with that, Bill and I are ready to take your questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Good morning.

Rob Reilly -- Chief Financial Officer

Hi. Good morning, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

So it's great to see the loan growth start to pick up here. The first question I have is just on how we should think about the loan growth in your book now that BBVA has come in. Is there going to be a churn period here where you've got some loans in that book that you're likely to be exiting and then growing through that churn? Or would you suggest that that's not really big enough to matter when we're thinking about the loan growth?

Bill Demchak -- Chief Executive Officer

It's the margin that's going to matter but it's it's extended over a bunch of years. We're not going to sell portfolios or --

Rob Reilly -- Chief Financial Officer

Rapid exit.

Bill Demchak -- Chief Executive Officer

Rapid exit. So through time, we will mature things in those balances. We'll likely run off from certain industries as we grow balances from other target industries but that stretches over two, three, four years.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. Great. All right. And then separately, your Harris Williams business, obviously, is already national but does the BBVA footprint that you've added now do anything for them in their business with middle market?

Bill Demchak -- Chief Executive Officer

At the margin, right, it just adds a larger network of potential clients and conversations. So, yes they, obviously, are in all of these markets to some extent already but now we have more clients and we'll, therefore, have more dialogue so I would expect that will help.

Rob Reilly -- Chief Financial Officer

Yes, that is about for sure. So we'll be able to introduce our new commercial clients through BBVA USA to Harris Williams if they haven't already been introduced.

Bill Demchak -- Chief Executive Officer

Yes.

Betsy Graseck -- Morgan Stanley -- Analyst

Great. Yes, that was a really strong result from them this quarter. And then just lastly, the dividend hike that you recently announced, how do you think about that from the perspective of payout ratio? And I'm just wondering, should we expect that your full run rate of the BBVA USA expenses coming out is already in how -- in your earnings outlook when you were thinking about setting that dividend up?

Bill Demchak -- Chief Executive Officer

I'm trying to think of a simple way to answer this. So long story short, there's room on the dividend on our forward income. We were in a bit of a fire drill because we managed to close the deal a month sooner than we thought which meant that we kind of had CCAR results in the deal closed which then threw us into the fire drill to figure out what we could do in -- I'm not going say in a hurry but on short notice, which is what we did.

Rob Reilly -- Chief Financial Officer

Acceleration.

Bill Demchak -- Chief Executive Officer

Acceleration of kind of what we've thought. So there's room on that certainly as we go forward and we just thought it was important to get something done and not miss this cycle, which is what we acted on.

Rob Reilly -- Chief Financial Officer

[Inaudible] I'm sorry. We've said years that we expect with this model and this business mix that a 40% to 50% payout ratio on the dividend is our target range.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. Great. All right. Yeah, that was my gut feel that there was room there so I appreciate that that commentary.

Thanks so much.

Bill Demchak -- Chief Executive Officer

Sure.

Operator

And thank you for your question. Up next we have a question from the line of Bill Carcache with Wolfe Research. Please proceed with your question.

Bill Carcache -- Wolfe Research -- Analyst

Thank you. Good morning, Bill and Rob.

Rob Reilly -- Chief Financial Officer

Hey, good morning.

Bill Carcache -- Wolfe Research -- Analyst

You guys have made impressive progress in your national expansion strategy. As you look ahead, how integral is the acquisition of additional branches to your furthering your national expansion on paper? It's easy to do a traditional analysis where you look at PNC's revenues per branch and BBVA's revenues per branch to isolate opportunity to improve productivity and what that would mean in terms of incremental revenues per branch. But when you try to sell the idea of acquiring additional branches to generalists, there's a natural pushback on why those branch acquisitions are necessary in the first place given what we're seeing with the digitization of the business. RBC is a great example where we saw your branch count rise sharply in 2012 before falling significantly for the better part of the next decade.

So how important was it to acquire those branches to begin with? I know there's a lot there but I was hoping you could speak to that point in general.

Bill Demchak -- Chief Executive Officer

I wouldn't focus so much on branches as I would on clients. So in the future, could you see us do smaller deals in market to gain greater share? Possibly. Now, the values today just seem way too high to me but possibly. But the purpose of that wouldn't be to get branches per say that it would be to get clients and then we would optimize the branch network as we did with RBC after the fact.

Rob Reilly -- Chief Financial Officer

And some natural conversion to solution centers from additional branches, which we -- as to your point, Bill, we've been doing.

Bill Carcache -- Wolfe Research -- Analyst

Right. Understood. With -- separately, with the curve having flattened a bit since your comments last quarter, has there been any change to your thought process around deploying a larger percentage of your liquidity into securities? And within that, how worried are you about giving up some of your future assets sensitivity in exchange for the near term NII benefit. We're hearing different philosophies from different banks, but would just love to get your thoughts.

Bill Demchak -- Chief Executive Officer

I guess, first off, as you saw, we went at it pretty aggressively before we saw the big rally here. We still have a lot of liquidity. We barely put a dent in our liquidity even after writing the check for BBVA USA, so we're still very asset-sensitive. Having said that, the recent rally is going to cause us to slow down and be more tactical than we had been during the last quarter and we'll watch how this plays out.

I personally believe that the current rally is way overdone and I don't fully understand it and we're likely to -- or not likely. We will slow down relative to what we saw in the last quarter.

Rob Reilly -- Chief Financial Officer

And our expectations of that are built into our guidance.

Bill Demchak -- Chief Executive Officer

Yes.

Bill Carcache -- Wolfe Research -- Analyst

Got it. And if I could squeeze in one last one, I want to ask if you could look ahead a bit longer term at the opportunity to drive efficiency improvements. If the forward curve is right and we get one hike around the end of 2022 and another in the middle of '23 and assume no further steepening. There are a lot of moving parts there but could you just speak to your confidence level and being able to drive your efficiency ratio into that sort of high 50% range?

Bill Demchak -- Chief Executive Officer

The math takes you there. The question is simply a function of -- when we look out to '22 function of the tailwind integration costs as to whether you see it you know what period of time you'll actually see it. But the math takes you there once we get the costs out of the BBVA franchise and what we would expect that revenue environment to look like.

Bill Carcache -- Wolfe Research -- Analyst

Great. Thank you for taking my questions.

Bill Demchak -- Chief Executive Officer

Sure.

Operator

Thank you. And up next, we have a question from the line of Mike Mayo with Wells Fargo Securities. Please go ahead sir.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi.

Bill Demchak -- Chief Executive Officer

Hey, Mike.

Rob Reilly -- Chief Financial Officer

Morning, Mike.

Mike Mayo -- Wells Fargo Securities -- Analyst

So. I guess I have a short-term question a long-term question. The long-term question is what inning are you in in your tech transformation and you spent seven years at getting your common infrastructure together and that prepares you well for the BBVA integration. So that's kind of the good news and what inning are you in.

But then I think the bad news is you're guiding this year for slightly negative operating leverage at the last slide. I mean I know you don't like having that. And why is that worse than expected when you should be having some synergies from BBVA? Thanks.

Rob Reilly -- Chief Financial Officer

Let me do the short term one. The -- no, I'm glad you asked that question, Mike, because at first read you might conclude that but that's not what we're saying. What we're saying in the guidance for full year with revenue percentages going up less than expense percentages, that's simply the overlay of the BBVA USA acquisition six months into our results. They are -- they have a higher efficiency ratio so that's -- if you think about it, that's largely the opportunity there.

PNC stand alone, we said at the beginning of year it was gonna be stable. We were going to fight for positive operating leverage. Halfway through, revenues up low single digits expenses are up low single digits so we're still fighting. And as I mentioned, in my comments prior to the Q&A, we're going to keep putting.

And Bill, I don't know if you want to do the long term.

Bill Demchak -- Chief Executive Officer

Do you follow that, Mike? I mean it's simple. We layered on a less efficient organization on top of us and it's causing the math to be what it is. The legacy PNC business is kind of on target for what we said. And then the opportunity side is to drive the new organization down to --

Rob Reilly -- Chief Financial Officer

PNC level.

Bill Demchak -- Chief Executive Officer

[Inaudible] level of efficiency -- yes, or better.

Mike Mayo -- Wells Fargo Securities -- Analyst

OK. And then the [Inaudible] question.

Bill Demchak -- Chief Executive Officer

Yes, the issue on technology -- I mean, think about -- look, we're 80% of the way along where we would like to be in terms of what I would just call a modern platform across everything from data centers to the way that we developed to the way we do automated testing and deploy and so on and so forth. So we're pretty far along. I think what happens down the road with technology is much more about client-facing technology and the ability to compete effectively in the new ecosystem of fintechs and where payments are going and all of that stuff. And we're prepared for that.

We're going to invest hard into that. We have the core technology behind us to allow us to play in that space, but that's where the fights is going to be. And I think that game is just getting started.

Mike Mayo -- Wells Fargo Securities -- Analyst

[Inaudible]

Rob Reilly -- Chief Financial Officer

[Inaudible] And the metaphor. The game is going into extra innings. Technology is going to be around for a long time.

Mike Mayo -- Wells Fargo Securities -- Analyst

And where do you think -- I mean you're -- I appreciate a number like 80% on building a modern platform but again after seven or eight years of doing that, where do you think the average bank is in that transformation because you've been talking about this more than others.

Bill Demchak -- Chief Executive Officer

Yeah, I -- look, I don't know. I don't have an informed view. It's hard to figure out what other people are actually doing. If I just think about our ideal state compared to where we are, PNC's ideal state might be different than some -- what somebody else aspires to.

I still see us with certain applications that need to be reengineered to kind of be plug and play through API. Other people may or may not care about that. So we're playing our own game. Our goal obviously is to be able to use technology as an advantage not just in terms of cost but also in terms of speed of market and creativity as to what we can offer to clients.

Rob Reilly -- Chief Financial Officer

And we're well on our way.

Bill Demchak -- Chief Executive Officer

Yeah.

Mike Mayo -- Wells Fargo Securities -- Analyst

OK. Thanks a lot.

Operator

Thank you for your question. And now we have a question from the line of John Pancari with Evercore ISI. Please go ahead, sir.

John Pancari -- Evercore ISI -- Analyst

Good morning.

Bill Demchak -- Chief Executive Officer

Hey, John.

Rob Reilly -- Chief Financial Officer

Hey, John.

John Pancari -- Evercore ISI -- Analyst

I just want to see if you could give a little more color on loan demand. Typically on the commercial side, are you starting to see any signs of capex activity beginning to influence line drawdowns. And if you are, where and what areas are you seeing some strength in and what borrower segments? Thanks.

Rob Reilly -- Chief Financial Officer

Yeah. Hey, John, it's Rob. Can I give you a little bit of color there? The -- generally speaking, utilization rates were up a little bit quarter over quarter though not much. Where we are seeing continued growth that we started to see as green shoots in the first quarter is in our business credit asset base book.

Real growth there that is encouraging because that tends to be a leading indicator of loan demand. So that's largely where we've seen the growth. But on the margin, we would expect to see in terms of getting to where strong loan growth would becoming more utilization across the general middle market book, which is yet to show up.

Bill Demchak -- Chief Executive Officer

So I mean the good news inside all of that is we're actually winning a lot of clients and we're extending facilities at a pace beyond that where we've been for a bunch of years. The problem is they're just not drawing under the --

Rob Reilly -- Chief Financial Officer

Credit facility, that's right.

Bill Demchak -- Chief Executive Officer

Yes, so we're in a good place for when loan demand comes back and we continue to grow client share and we see that, by the way, on the fee growth that we're getting through to them and other --

Rob Reilly -- Chief Financial Officer

Activities picked up.

Bill Demchak -- Chief Executive Officer

Right, yeah.

Rob Reilly -- Chief Financial Officer

So we've made -- we've definitely advanced in the first quarter.

John Pancari -- Evercore ISI -- Analyst

Right. Got it. OK. And then on the M&A front, I know you're still digesting the BBVA deal and everything, but as you look at other markets, are there any other markets geographically that you think a deal would make sense to give you a more critical mass just like you looked at the southeast that way? I just wanted to see if you could talk a little bit about your footprint how you think about that.

And separately, Bill, I'm curious what your take is on President Biden's executive order, particularly implying more scrutiny around bank mergers. Does that change how you think about deals? Thanks.

Bill Demchak -- Chief Executive Officer

Well, yes to the second. On the first issue, you should just assume that we look at all the same stuff that you do. I'm not going to give you an area of the country we look and you've seen us through time make decisions based on value -- value creation for shareholders so that may or may not mean in additional geographies. It may or may not mean filling in an existing geography.

It will very likely mean we'll continue to do small add-on acquisitions that give us product a capability for clients. The executive order -- I'm looking at competition among banks -- I mean it's a practical matter that would actually have to change for the bank approval process to change would be more about the Fed's rules on approving mergers than I think it would be coming out of President Biden's order. I'm not expert on it but I think it is safe to say that a larger deal in today's environment would get much more political scrutiny and noise than we did with the BBVA than with -- that weighs on us.

John Pancari -- Evercore ISI -- Analyst

Got it. All right. Thanks. It's helped.

That helps.

Operator

And thank you for your question. We now have a question from the line of Scott Siefers with Piper Sandler. Please go ahead, sir.

Scott Siefers -- Piper Sandler -- Analyst

Good morning, guys. Thanks for taking the question. Maybe -- Rob, I can sort of back into things based on the guidance but just would be curious to hear your thoughts on how the net interest margin rate moves from here just like lots of moving parts between shifting some of the cash and securities layering and a whole quarter BBVA and then we've got the fair value premium amortization as well. So any thoughts there would be appreciated.

Rob Reilly -- Chief Financial Officer

Yes, that's a lot there, Scott. We -- back in the first quarter, we said -- we called it a drop in NIM. We're still holding that. I do think NIM will drift higher not necessarily by a lot but I think we've seen the bottom.

Scott Siefers -- Piper Sandler -- Analyst

OK. Perfect. And then just on the reserves, I think sort of pre-adjustments that were made for COVID but post CCIL adoption, I think you guys were around a 145-ish reserve. Is that a good number to assume you'll gear down toward even with BBVA now in the mix?

Rob Reilly -- Chief Financial Officer

Well, our day one was 154, not 145. That was PNC stand-alone. And then if you do some of the math, you blend in BBVA day 1, we're going to be a little bit higher on that on average. So as we've said like -- the answer to that question all along has been if you consider those times normal, back to normal would be somewhere in that neighborhood.

Scott Siefers -- Piper Sandler -- Analyst

Yeah. OK, perfect. All right. Good.

Well, I appreciate the thought.

Operator

Thank you. [Inaudible] We now have a question from the line of Gerard Cassidy with RBC. Please go ahead, sir.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you. Good morning, Bill. Good morning, Rob.

Rob Reilly -- Chief Financial Officer

Hey, Gerard.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Bill, can you share with us when you think back to the National City deal and the RBC deals that you guys did over 10 years ago, and granted they're different than the BBVA deal, but obviously that experience has given you confidence on this deal. Can you share with us when do you think the BBVA gets fully integrated based upon the experiences that you guys have with those prior two deals? Is it three years out, four years. How long does it really become seamless where you can tell everything is running very smoothly?

Bill Demchak -- Chief Executive Officer

There's a lot embedded in that question. I mean the basic service structure, so what happens in a branch the applications the product delivery all of that stuff basically will be done by the end of this year, right. So the real question then becomes how do we get the client penetration and growth rates in the newer markets, the fee penetration, to grow to legacy you know PNC markets. And what we found in RBC is in some of those newer markets set that took somewhere around three years, I guess, Rob, we expect it'll be faster today first because BBVA actually had a reasonable book of business that we could cross-sell into immediately.

And secondly, we just kind of have a better playbook. We've been at it for a while. So we have the teams built today. They're calling today.

And I generally would expect we'd --

Rob Reilly -- Chief Financial Officer

Yeah, I think I'd be a little fast and I think the receptivity to the PNC brand is probably a little more than it was 10 years ago. So that helps too.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. And then I apologize if you addressed this early in your comments but, Bill and Rob, do you guys have any timing on the share repurchase program? I think you said it's going to be over four quarters but I know there's no restrictions now like the old CCAR test a limit on how much you give by. Have you given any thought on how you want to calibrate the repurchases?

Rob Reilly -- Chief Financial Officer

Well, we're gonna do it opportunistically. So we will do it. Ideally, we'll put together like we always have some auto pilot program and then on top of that some discretionary piece. And the discretionary piece will be the variable, obviously.

That's what we've done in the past. That's what we'll continue to do so some more flexibility there obviously and we'll take advantage of that.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. Thank you.

Operator

Thank you. And our next question comes from the line of Terry McEvoy from Stephens. Please proceed with your question.

Terry McEvoy -- Stephens Inc. -- Analyst

Thanks. Good morning. Just two questions here. I wonder if you could discuss the strength in consumer services fees.

Last quarter it was up what $442 million just on a stand-alone basis, and I know in the release it said increased business activity. I was wondering if you could provide any more color there.

Rob Reilly -- Chief Financial Officer

Yeah. Hi, Terry, this is Rob. Yeah, we did. We saw a lot of activity there.

And most of that is just more consumer activity as you'd expect as the economy comes back on track. Inside of that, where we saw particular strength was debit card spend. Debit card spend is a big component of it, and the acceleration there was really strong. It may be more color than you want but what showed up this quarter, as they said in debit card spend, what our team was telling us was a lot of micro purchases that had gone away.

So cups of coffee and morning purchases on the way to work are now part of the part of the volume again.

Terry McEvoy -- Stephens Inc. -- Analyst

Perfect. And then as a follow up, just the corporate service fees, maybe if you could talk about the pipelines there and is the quarterly run rate now, is that a $600-plus million in revenue quarterly run rate today?

Rob Reilly -- Chief Financial Officer

Well, I would say just in terms of the color -- so you got to take a look at it now obviously with combined form and put in a full three months of BBVA but corporate fees also as we said earlier are showing increased activity. We are a little elevated in the second quarter because a Harris Williams, which had twice the volume of the first quarter. So you've got to take that into account but your math is in the right run rate place.

Terry McEvoy -- Stephens Inc. -- Analyst

Great. Thank you, Rob.

Rob Reilly -- Chief Financial Officer

Sure.

Operator

Thank you. And we now have a follow-up question from the line of Bill Carcache with Wolfe Research. Please proceed.

Bill Carcache -- Wolfe Research -- Analyst

Thanks for the follow up. I just had a quick one on the money transfer business and the opportunity that you see there. Some investors have expressed concerns over disintermediation risk in that business as the cost of transfer money continues to fall and competitors in the space leverage technology to help consumers transfer money more cheaply. Is disintermediation risk in legacy BBVA's money transfer business a concern for you guys? And if you could discuss how you're thinking about the growth outlook for that business and opportunities that you guys may have to maybe leverage technology and just speak to that opportunity in general that would be helpful.

Bill Demchak -- Chief Executive Officer

Well, I think the whole product including the business transfer service is disintermediation product. I mean it was what we have is the same thing that other people are building and frankly doing and more scale. The key to success on it is to make sure that you have distribution receiving in networks, which we do have through Latin America and Europe, and that you have compliance bill to build it. So it's a competitive space.

I'm glad we had the product. I think the actual product is going to be table stakes for banks, our ability to grow it and scale it. We're going through different use cases that bring on potential corporate disbursements and other things that we hadn't thought of before. But I think it becomes a table stakes products that started through disintermediation kind of your original question right.

This was built outside of the banking system. BBVA just happened to have built one that we're now integrating into our core platform. So so we're pretty excited by it and I think time will tell how that product evolves and who uses it.

Rob Reilly -- Chief Financial Officer

And in terms of [Inaudible], the financial impact isn't large. So it's more the upside than anything.

Bill Carcache -- Wolfe Research -- Analyst

Understood. Thank you.

Operator

Thank you. There are no further questions.

Bill Demchak -- Chief Executive Officer

I will --

Rob Reilly -- Chief Financial Officer

Very good.

Bill Demchak -- Chief Executive Officer

Thanks, everybody, and we'll see you at the end of the third quarter.

Rob Reilly -- Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Bryan Gill -- Investor Relations

Bill Demchak -- Chief Executive Officer

Rob Reilly -- Chief Financial Officer

Betsy Graseck -- Morgan Stanley -- Analyst

Bill Carcache -- Wolfe Research -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

John Pancari -- Evercore ISI -- Analyst

Scott Siefers -- Piper Sandler -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Terry McEvoy -- Stephens Inc. -- Analyst

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