PNC Financial Services Group Aktie

Greetings, and welcome to The PNC Financial Services Group Q3 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Bryan Gill, Executive Vice President and Director of Investor Relations. Bryan, please go ahead.

Well, good morning, and welcome to today's conference call for The PNC Financial Services Group. I am Bryan Gill, 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 October 15, 2026, and PNC undertakes no obligation to update them.

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

Thank you, Bryan, and good morning, everyone. The PNC delivered another strong quarter, reflecting the consistent execution of our strategy and the strength of our franchise. As you saw, we generated $2.1 billion of net income or $5.09 per diluted share as adjusted, while delivering a return on tangible common equity of more than 18%. Rob is going to take you through the financial results in more detail in a second.

But I wanted to start off by highlighting the substantial client momentum we've been experiencing all year, which has continued through the third quarter. All of our businesses are experiencing robust growth, in part driven by the high growth rates of our expansion markets and most recently, the successful conversion of First Bank. In Corporate and Institutional Banking, our national platform continues to generate impressive growth. Expansion markets have added approximately 500 new client relationships year-to-date, contributing materially to a 5% average C&IB loan growth during the quarter, a 17% growth year-over-year. Beyond loans, capital markets fees are up 40% year-to-date, and treasury management revenue is up 8%.

In Retail Banking, we continue to grow clients organically, adding 215,000 net new check-in accounts so far in 2026 with total accounts up 2% year-over-year, including 6% growth in our Southwest markets. And we continue to deepen relationships with credit card balances up 12% and brokerage assets, up 9% year-over-year. At the same time, we continue to invest in capabilities to enhance our franchise with the introduction of both the new mobile app and total rewards program as well as our continued branch expansion. Asset management fees are up approximately 10% year-to-date and assets under administration totaled $0.5 trillion. Favorable equity markets have obviously helped here. But once again, our expansion markets have accelerated our growth.

In these markets, AUM is growing 5x faster than our legacy markets, albeit off a smaller base. When we step back and look at the year as a whole, we have grown considerably faster than we anticipated coming into 2026. We are bringing new clients into the franchise, expanding relationships across businesses and markets and converting that activity into durable growth in loans, deposits and fee income. As we enter the final quarter of the year, we remain focused on disciplined growth, prudent risk management and continued investment in the capabilities that strengthen our competitive position. As always, I would like to thank our employees for their hard work and commitment.

And with that, I'll turn the call over to Rob to take you through the details of the quarter. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 5 and is presented on an average basis. For the linked quarter, loans of $372 billion grew by $9 billion or 2%. Security balances increased 3% to $151 billion. Average deposits increased $4 billion or 1% to $461 billion, and the borrowings increased $7 billion to $86 billion. However, on a spot basis, deposits increased $17 billion and borrowed funds declined $6 billion, reflecting continued optimization of our funding mix. Our tangible book value was $108 per common share, down 3% linked quarter, entirely driven by the decline in AOCI and was stable compared with the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 9.8%. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.4 billion of capital to shareholders, which included approximately $800 million of common dividends and $560 million of share repurchases. Going forward, we expect fourth quarter repurchases to approximate the same level. And our return on tangible common equity was more than 18% in the third quarter.

Slide 6 shows our loans in more detail. During the third quarter, average loans increased $9 billion or 2% to $372 billion. C&I balances increased $9 billion or 4%, reflecting broad-based growth across our businesses and higher utilization. Commercial real estate balances increased $2 billion or 4%, driven by strong new production.

Consumer loans declined $1 billion or 1% as growth in credit card was more than offset by lower residential mortgages as well as the transfer of our student loan portfolio to held for sale. You may recall, we stopped originating student loans last year. and the transfer represents the final step in exiting this nonstrategic business. We expect the sale to have a de minimis financial impact. In regard to loans overall, Spot loans grew $11 billion in the quarter, contributing to the strong loan growth we've had throughout the year, all of which substantially exceeded what we expected at the beginning of the year. Through the first 9 months of 2026, we've added $47 billion or 14%, while approximately $15 billion came through the First Bank acquisition, more than $30 billion of the growth has been generated organically, reflecting strong client activity and execution across our franchise.

Slide 7 details our investment securities and swap portfolios. We continue to maintain a high-quality short duration position. During the third quarter, average investment securities increased $4 billion or 3%. Our securities yield was 3.59%, an increase of 14 basis points. And as of September 30, our duration was 4.1 years.

Looking ahead, we expect approximately $5 billion of fixed rate securities to run off during the fourth quarter at a weighted average yield of 2.65%. Our received fixed swap portfolio totaled $83 billion at quarter end, with an average received fixed rate of 3.92%, which increased 17 basis points from last quarter. Importantly, we have a clear path for continued fixed rate asset repricing over the next several years. Overall, we remain well positioned for a rising rate environment, which will support net interest income, capital generation and balance sheet flexibility.

Slide 8 covers our deposit balances in more detail. Average deposits increased $4 billion to $461 billion during the third quarter, driven by growth in interest-bearing balances. Noninterest-bearing deposits were $101 billion and represented 22% of total deposits. Notably, period end deposits increased $17 billion or 4% compared to June 30. The strong growth was driven by commercial interest-bearing deposits, which increased $11 billion or 7%. In addition, brokered CDs grew $7 billion. The commercial deposit growth was due in part to seasonality, but also reflective of both new and expanded client relationships. In regard to deposit costs, our total rate paid on interest-bearing deposits increased 7 basis points to 1.98%, including brokered CDs. Excluding brokered CDs, the rate paid increased 5 basis points to 1.96%. The increase was primarily driven by mix as growth was concentrated in interest-bearing balances.

Turning to Slide 9. We highlight our income statement trends, comparing the third quarter to the second quarter of 2026. Total revenue was $6.6 billion, a decrease of $313 million or 5%, while noninterest expense decreased $347 million or 8% to $3.8 billion. Excluding integration costs and significant items from both quarters, revenue declined $61 million or 1% as higher net interest income was more than offset by lower noninterest income. On the same basis, noninterest expense decreased $113 million or 3%, reflecting disciplined expense management. We generated positive operating leverage and grew PPNR. Provision was $189 million, stable with the previous quarter.

Our effective tax rate was 20%. Third quarter net income was $2.1 billion or $5.09 per common share as adjusted to exclude the impact of $48 million of after-tax integration costs and significant items. Importantly, we continue to demonstrate strong momentum across the franchise. Through the first 9 months of the year, PPNR increased $1.2 billion or 17% compared to the same period last year, driving 19% growth in diluted EPS.

Turning to Slide 10, we detail our revenue trends. Third quarter net interest income of $4.2 billion increased approximately $100 million or 2%, driven by commercial loan growth and higher yields on interest-earning assets, partially offset by increased funding costs. Our net interest margin was 2.94% and decreased 2 basis points. The modest decline in net interest margin was largely a function of the mix in loan growth and to a lesser extent, increased funding costs. Consistent with what we've seen throughout the year, loan growth during the third quarter continued to be concentrated in high credit quality, lower spread loans. Again, while these loans generate attractive overall economics through fee income and broader client engagement, by definition, they constrain NIM. Importantly, the underlying drivers of NII growth remained strong, and based on our expectations for loan growth, we calculate that our net interest margin will reach 3% or above in the fourth quarter.

Fee income was $2.1 billion and decreased $137 million or 6%. Looking at the details. Asset management and brokerage increased $7 million or 2%, driven by higher average equity markets and increased client activity. Capital Markets and Advisory revenue decreased $144 million or 25%, reflecting elevated second quarter activity. Card and Cash Management revenue decreased $3 million as higher treasury management product revenue was more than offset by First Bank integration-related fee waivers.

Lending and deposit services increased $12 million or 3%, reflecting increased client activity. Mortgage revenue decreased $9 million or 6%, primarily driven by lower residential volumes. And other noninterest income was $214 million and included a negative $25 million impact from significant items related to net fees activity. Notably, we continue to see strong momentum across our lines of business and throughout our markets. And through the first 9 months of the year, our noninterest income totaled $7.3 billion, up $979 million or 15%, compared to the same period last year.

Turning to Slide 11. Third quarter expenses decreased $347 million or 8% compared with the second quarter. Third quarter results included $27 million of integration costs compared to $261 million of integration costs and significant items in the second quarter. Excluding these items from both quarters, noninterest expense decreased $113 million or 3%. We remain focused on expense management, and we're on track to reach our goal to reduce costs by $350 million in 2026 through our continuous improvement program, which, as a reminder, is independent of the First Bank acquisition. And this program will continue to fund significant portions of our ongoing business and technology investments.

Our credit metrics are presented on Slide 12. Overall, credit quality remained strong. Nonperforming loans increased $167 million or 8% to $2.2 billion. The increase was primarily driven by the pull-through of previously reserved CRE office loans as well as one large commercial credit. Total delinquencies declined $135 million to $1.3 billion and now represent 0.34% of total loans, down from 0.39% last quarter. Net charge-offs were $257 million or 28 basis points of average loans and included $35 million associated with the student loan transfer. Excluding that impact, underlying net charge-offs remained consistent with our prior quarter. At the end of the third quarter, our allowance for credit losses totaled $5.4 billion or 1.42% of total loans.

To summarize, PNC reported a strong third quarter of 2026, and we're well positioned for the remainder of the year. Regarding our view of the overall economy, our base case assumes GDP growth to be above 2% in 2026, with continued modest job gains and the unemployment rate holding steady. We expect the Fed to increase rates to additional times with a 25 basis point increase at the December 2026 and March 2027 meetings, ultimately reaching a range between 4.25% and 4.5%. For ease of comparability with our prior guidance, our full year outlook excludes the impact of First Bank integration charges and significant items. Considering our reported 9-month operating results, fourth quarter expectations and current economic forecasts, our outlook for the full year 2026 compared to 2025 results is as follows: We expect the full year average loan growth of approximately 13.5%. We expect full year net interest income to be up 15.5%. We expect noninterest income to be up approximately 10.5%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 13.7%. Noninterest expense to be up approximately 9.5%, and we expect our effective tax rate to be approximately 19.5%.

Our outlook for the fourth quarter of 2026 compared to the third quarter of 2026 is as follows: We expect average loans to be up approximately 2.5%. Net interest income to be up approximately 4%. Fee income to be up approximately 3.5%. Other noninterest income to be approximately $250 million. We expect adjusted noninterest expense to increase approximately 5%, and we expect fourth quarter net charge-offs to be approximately $250 million.

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

[Operator Instructions] Our first question today is coming from John Pancari from Evercore ISI.

Appreciate the color that you gave on the margin dynamics. You saw the compression in the quarter and deposit costs up 70 bps or 5 bps ex the brokered. Can you maybe discuss, given the deposit dynamics, but also your continued growth in the lower spread, higher-quality loans. Maybe just discuss the confidence in that or higher margin by the fourth quarter. And maybe just as you think of that, those dynamics impacting the margin as you look at 2027. And I guess maybe just a little bit of color on what the trade-off is, how you're looking at lower spread quality loans in terms of the impact on NII and as you look out from here.

Thanks, John. I'll hit it. I'm not going to talk about NIM because it's an outcome. So Rob, kind of says, "Hey, we'll be over [ 3 on a ] forecast." Many things could change that. I will talk about NII though. A couple of things happened, one is 50% of our loan growth occurred in the last 2 weeks of the quarter. So we didn't get the benefit of that in NII even though we sort of saw it in pipeline. So that rolls forward and kind of Rob's forecast. The other thing somewhat surprisingly is spreads overall, where spreads on average decline was up 3 basis points-or-so. And some of that was kind of high-yielding loans paying down. And some of it was just new production, as we've talked about in kind of higher quality stuff dropping the average, which has surprised us at the margin. And then the third piece, we didn't have some escrow balances we thought we'd have, which would impact noninterest bearing. So like you stick a calendar end date on this stuff and you miss something and you get it back. We're confident with the momentum and where we're going and the growth and all of the above...

Which is part of our guide.

Yes. All that's embedded in kind of what we put out there forward.

Yes. John, I just would add to that a little bit. In terms of NIM generally speaking, everything that we thought would happen in the quarter happened, Rate paid went up exactly what we thought on core deposits. The brokered CDs added to that a bit. But we didn't expect to do brokered CDs. As you know, we just toggle between the cheapest wholesale funding. The difference was the high credit quality low-spread loans came in hotter than what we thought, and that constrained. And that's the biggest difference in terms of NIM relative to our expectations. When we go forward, into the fourth quarter, our calculation is to reach 3 or higher on NIM, even though we don't give NIM guidance. But the reason and the easy way to understand that is we see loan yields going up. We see that offset by deposit costs going up. So they offset each other. And then the securities fixed rate repricing will be the delta that lists NIM. And that's just a calculation.

Got it. All right. I appreciate it. And then on the lower spread lending and higher quality loans, could you just maybe elaborate a little bit more in terms of the type of lending, and you gave a little bit of color there on the spread, but maybe the average origination yield. And I know you've talked about the trade-off on fee income as well and then higher quality from the credit side. Maybe give us an idea of the type of credit loss assumption as you put these loans on your books.

Sorry, credit loss assumption?

Very low.

Yes.

It's a lot of growth in the corporate finance book broadly. I think every category in our breakdown of corporate loans increased this quarter.

Except other.

Yes, except other. Growth -- based by growth in real estate on a percentage basis. Also, just paydown of higher spread loans had an impact right? It's hard for new production to actually drop the total average spend by 3. And so what we saw was the mix of our existing loans to pay downs bias towards riskier stuff paying off, which is kind of a good thing, but it drops our spread.

Yes. No, that's right. And we're a leader in trade receivables asset-backed. That's been strong all year. But what we point to, John, and we said this on the second quarter call, you got to see capital market fees are up 40%. So when you put that together, a lot of those loans are driving those fees. So together, accretive to NII accretive to earnings accretive to ROTCE, not necessarily NII because of the fee portion of that. So if you just look at NII and NIM in isolation, you're not seeing the whole transaction.

Next question is coming from Scott Siefers from TD Cowen.

I guess the first question, so you guys have had -- there's a lot of really good lending momentum, particularly in C&I. I was hoping you could speak sort of broadly to client sentiment and how if at all, their thinking is being impacted by higher rates. I'm guessing -- I think, Bill, you mentioned a second ago, like half of the quarter's total loan growth occurred in the last two weeks. So I guess, I'm guessing not much. But I would love to hear your thoughts there. And then is there sort of a tipping point in your mind where higher rates do start to impact the growth dynamic and client health, et cetera. How do you think about those cross rents?

Rob and I were talking about this last night actually. Just the -- what is the spurt at the end of the quarter necessarily mean or not mean I don't think we came to a conclusion. I would tell you, part of the outsized, if not we had loan growth everywhere. I was going to say part of the upside, if not all of it, though, just the pace of it is in our new markets. The new clients that we are onboarding that are a record pace and our model is working. So that's just driving volume. Intuitively, higher rates this goes forward is going to crimp CapEx and otherwise slow borrowing, but we're not seeing any instance of that yet, and our pipelines remain strong.

And we'll see. You got to imagine some of that is in anticipation of rates going up on the margin, at least a piece of it, but we don't know...

The pipeline is still strong.

Yes, the pipeline is strong. That is true.

Okay. Perfect. And then maybe to drop it down, I guess, a little bit of a follow-up on some of the fee dynamics. I think at the the larger banks, this notion of sort of a cooling in capital markets activity since, call it, post Labor Day has been a big factor. Just curious how you're thinking about things like particularly at Harris Williams. It seems like very good activity, but just how you're thinking about the overall capital markets trajectory.

Yes. No, we feel good about it. Like I said, we've had a very good year-to-date. We had a really strong second quarter that we didn't expect to continue into the third quarter. But the pipelines are good. We expect -- I imagine we'll get into the fee walk down, but we expect capital markets fees to be up almost 15% quarter-over-quarter in the fourth quarter, reflecting those pipelines. So it looks good.

Your next question is coming from Erika Najarian from UBS.

Just as a follow-up on that, I got a few questions on the run rate of expense growth in the fourth quarter, but it sounds like I'm going to be answering my own question, Rob, with the capital markets trajectory up 15% quarter-over-quarter, that's really related to cat market. So that's not necessarily a pull for as we think about expense growth in 2027, right? .

Yes, that's right, that's right. We'll...

Got it. Yes, Goldstar. And just on net interest income, some of your peers, unfortunately, JPMorgan going to be a vague previews on net interest income growth for the year. And correct me if I'm wrong, Rob, but I'm calculating something like 10% First Bank net interest income growth for 2026. The Street is at about 6.5%, given the momentum that you have in your new markets, and you mentioned that you're well positioned for a rising rate environment. Should the rate of NII growth slow down by that much in '27?.

Did you say, unfortunately, the peers that talked about 2027...

Unfortunately, they've already previewed the '27. So now we kind of have to ask you about '27, even though it's still October.

So that was a very long way to ask whether we had guidance on NII for 2027.

I got to try. I got to shoot my shot.

I think I can help you out there. So as you mentioned, in regard to 2027 NII, obviously, that's out there a ways. So it's a bit premature for guidance, certainly precision guidance. But in fairness, given the certainty around the fixed rate asset repricing, which has been part of our story in '26, will be in '27 and beyond that. And the magnitude of that, it does add some certainty that you typically wouldn't have this far in advance. So when we look at it, clearly, in '27, we'll exceed in net interest income, our annualized run rate of what we project to finish '26. And when we look at the consensus in terms of where you are, you sort of hit it, that's $1 billion to $1.1 billion above 2026 in terms of growth. And I think we would agree with that range. When we get out into January, of course, we'll have more precision around it. But the fixed rate asset repricing and the mechanical nature of that is real. It continues for PNC and the magnitude is big.

Our next question today is coming from Manan Gosalia from Morgan Stanley.

Can you talk about some of the deposit beta dynamics you expect from here, just given that the rate paid on core deposits was up, we're going to get further Fed tightening. Anything different going on with the start of this rate hike cycle relative to the prior one?

Good morning, Manan. No, I don't think so. I think in terms of our expectations in terms of betas, within an increasing rate cycle, we'll see what we've seen in the past. So on the front...

One exception, though, Rob, you got to remember the track in whatever it was [ 23%, ] I try to forget change was driven by noninterest-bearing moving to interest-bearing. Most of that, right, the excess deposits out of the system, coupled with the kind of base balances are, I would say, pretty constant. And so now we're going to see face interest rate betas move in conjunction with history probably. The impact of that being a lot less than it once was.

Yes. I mean that was a special time for all of us when rates went up 5 basis points. So set that one aside in terms of the typical rising rate environment. We'll see increased betas on the corporate side for sure on the wealth side, less so on the lower end consumer retail side. But I think we'll settle out in some sort of cumulative beta in the mid-50s like we've done in the past.

And part of this -- part of that drive is just deposit flows from corporates, which come in naturally a higher beta, higher rate. And we've seen growth. Some of it is seasonal, some of it just coming on the back of loan growth in effect, growth in deposits coming through corporate flows that at the margin raise your interest-bearing deposit cost, even though it's all profitable, as part of that big junk you said for [ stuff, ] that's at the end of the quarter.

Yes. That's right, that's right. And that's good stuff.

Yes. Got it. So I guess as we think about that comment you made on 50% of the growth coming in the last 2 weeks of the quarter, any more color on what drove that? Was it because the long end of the curve went up, it became more expensive to borrow in the capital markets? Any comment on the sustainability of that level of growth.

You got to remember that somebody doesn't wake up and say I'm going to do a syndication today. So they're in the works, and it's a pipeline and they kind of hit on that point. So I can't things just don't happen quickly enough for one of the economic factors to have caused everybody to go in two weeks in the lending market, right? That happens in the bond market, but not in the lending market.

Our next question is coming from Ken Usdin from Autonomous Research.

Just one quick follow-up. And Rob, I'll take you up on the fee line breakdown. But as relates to capital markets were going to be up, but wouldn't that have been already contemplated in your full year guide. So just wondering on that 5% step-up the expenses. Are you also just maybe pulling forward some other investments into the fourth quarter, too? Or is there some seasonality in there as well? Just wanted to kind of flesh that out. And then yes, if you can give the fee lines, that would be great too.

Sure, of course, Ken, why don't we do that complete the fee forecast. So for the fourth quarter, we say fees will be up approximately 3.5%. Inside of that relative to our categories, Capital Markets is the big mover up about 15%. Mortgage will be down. Mortgage has been a big category for us, but obviously, given where rates are and the seasonality, that will be down. And then the other categories, asset management, credit card, treasury management, lending and deposit services, I would say, are all stable. Maybe they could do a little better, but that's just what we're thinking at the moment. So that's the fees. On the expenses, part of it is taking up actually what we expect to do not only in capital markets, but also in our private equity, you'll see that our other noninterest income guide is up for the fourth quarter. We'll do a little bit better there than we thought. So there's some revenue-driven expenses as part of that, but also some seasonality. The important part, obviously, and you know this is the positive operating leverage that we're pointing to still in excess of 4% between 4.5%, which is fantastic.

Absolutely. And just a follow-up. With the AOCI move, it's no longer in your materials, but do you have what the CET1 was with AOCI? And I heard -- so on the deck that you're going to keep the $600 million buyback in the fourth quarter. Anything to think about as we go forward, you're obviously generating a lot of organic capital and the push and pull between where your capital ratios are and your ability to continue that type of buyback.

Yes, sure. So we feel good about our capital position. We rounded down to 9.8%. Our target is and that was simply a result of loans coming in higher than we expected, which drove up RWA. So we did have a meaningful repurchase in the third quarter. We expect to do something similar to that in the fourth quarter. So feel good about capital. On the AOCI front, naturally, you got to think about the Basel III rules that are just around the corner or somewhere along those lines, which will increase us, including AOCI, but obviously, the benefit of the private ratings will increase our capital ratings by about a point or so. So feel good about that positioning. Loading AOCI into the CET1 ratio is a little bit of a stale measure because of those Basel III considerations. But if we did that we dropped to low 9s, but certainly above 9% and still a pretty healthy TCE ratio.

Next question is coming from Ebrahim Poonawala from Bank of America.

I just wanted to go back, Bill, I think you mentioned -- you gave two stats in your opening remarks 500,000 -- 500 new commercial clients and 215,000 checking account -- clients year-to-date. Just talk to us in terms of, one, should we measure low-cost deposits as a way to measure whether or not that strategy is working out and client conversion has been successful. And tied to that, how difficult is it to convert those clients into driving core deposit growth -- low-cost deposit growth?

So separate the two, retail share has been a real focus, and so we're proud of the DDA growth. Part of that is coming on the back of the branch builds and just for presence in markets part of it's being good at what we do. Ultimately, yes, that drives growth in noninterest-bearing and interest-bearing and full relationships. You'll hear, as we go forward, some of the things we're going to do in credit card that kind of cement the full relationship with these new clients, but that's to come on the C&IB side we're adding the same kind of clients we always have had, right? We don't -- this isn't sort of a new segment of something we're trying to do. We're just doing what we've always done in new markets and gaining share, all of which kind of just builds the franchise. So my whole point in the introduction is the client momentum and growth in this company has never been as fast as as good as this, we're executing. And that growth effectively replicates right? We're not changing what we do. So it just replicates who we are in a larger size, which is what we've been pursuing.

Got it. Got it. And I guess maybe just moving to expenses, I think we debate whether AI deployment is going to boost productivity and maybe that will lead to lower expense growth for the banks versus there's a lot of discussion about spend on cyber risk due to AI. Just if you don't mind, where do you shake out on sort of at least as we think about the next 12 to 24 months, is the cost drag a bigger thing -- bigger deal than the productivity gains?

No. I mean it's such a long answer to that. I want to figure out. We've -- look, the incremental cyber costs associated with the AI frontier models, I think you see in our run rate today. The cost as we work towards going to call it an genic workforce, the fundamental transformation of the company into one that has an ability to deploy agents across workloads. Today, you see that mostly in creeping depreciation expense on the back of all of our data center rebuilds, remembering that we put GPU chips in our data centers. Much of the work in preparation for all this was done in past years. So our data lake and data configuration, all in one place, one source of truth digitized policies, procedures, papers, HR systems, they recognize agent's employees, the risk framework, on access control, all of that stuff has been built. What comes next is the reengineering of the company using AI harnesses, which would speed the development and ultimately lower the cost associated with technology development and maintenance followed quickly by product development delivery that aids revenue. We've been purposely quiet on all of the above. I think one of our peers said it will show up and we have something positive to show you and quit talking about that until it shows up. But I would sure everyone that we have a well thought-out program that isn't about bells and whistles that will ultimately allow for a transformation in this company.

Well, especially when you talk about it in a 2-year or 3-year time frame.

Yes.

And that's helpful because I think there's a sense of banks kind of falling behind on agent, especially on the revenue and the client side, but it sounds like you are already far along in terms of maybe we wait and watch in terms of what's to come.

What I would say is it's so easy to get hooked on the bells and whistles and cool toys that come with AI. But to succeed long term, I think you need to have the core infrastructure that allows you to do this at scale and importantly, it allows you to do it yourself without vendor support without compute costs coming from third parties and with your own personnel instead of vendors. And that's the path we're pursuing.

[Operator Instructions] Our next question today is coming from Gerard Cassidy from RBC Capital Markets.

Rob. Bill, talking about build and muscles on AI and all the toys that go with it. Can -- what's your guys view a lot of management have been asked this question on the third quarter calls about the AI agentic agents moving deposits around and forcing deposit costs up for the industry. What's your take on that?

So I mean, in its most basic form, there's no question that deposit movement is going to become more efficient. By the way, that's happened progressively for years. And is it going to accelerate? Maybe. But at some point in time, given the movement in technology, you're going to see more competition in deposits. It's not shown up in the moment. the current attempts of this with some of the new agentic applications that have come out where frankly, they try to come in and transact on your behalf inside of your accounts, incredibly unsafe, that's going to happen that idea, yes. And for that to ultimately take place, there's going to have to be loss passed on liability shifting it's going to have to happen through secure connections and authentication and human in the loop. So it's big splashy headlines, cool thing, not going to happen on my watch, that something can come in here and transact on your behalf without you knowing it. It's incredibly dangerous thing, independent of the fact that I run I would just applies everybody that that's probably bad. But your basic premise. I mean, look, it's things have gotten more -- there's been capital market portals that allow you to shop money market funds for a basis point. You can sweep into a deposit account, you can put it in a money fund, you can do it here. All of that stuff is going to get easier, and this is going to happen over time. And to win in that period of time, we're going to have to offer our clients technology that is as good as these third-party providers. So we can allow them to do what they want. Importantly, we're going to need to produce it cheaply to keep their business.

And maintain the service aspect of a transaction account.

Very good. And coming back to your opening comments, Bill, you were talking about coming into the year. The client momentum has been stronger than you had maybe originally anticipated. Can you try to frame out where -- aside from the new business, I understand you got the 500 new client relationships that you identified. But from the existing relationships, where is the economic I know it's AI-related probably. But what are you guys seeing in terms of what's driving this momentum? And do you think it's sustainable going into '27?

Look, I mean, clearly, there's we're not large in the data center finance space, but there is impact from the capital that has gone into data centers and tangential businesses. And that's driven some of it. But I also think we see this in some of the activity in Harris Williams. I think people have basically gotten used to an uncertain world, and so they kind of have to get on with their business. And so everybody was kind of holding and waiting and waiting to see have just figured out this is a new norm. And the economy is rampant. So there's opportunity sets for people. I think that's what's driving it. I mean the clouds are as dark as they've ever were, but economies still strong, and people are investing into it, maybe it's more complicated than that.

Well, I'd add, I'd add to that. So what Bill just described, I think all the banks are benefiting from. I think we're benefiting from that obviously as well. But in addition, might be a little bit different because of the compounded success of our expansion markets, which just keeps showing up.

This is all you got. This is share gain...

Yes. It just keeps showing up, and it is driving our numbers higher than industry average as you see it in the [indiscernible], you see it in the momentum.

And coming back to it, Rob, on the growth with those 500 new client relationships, are you replacing their banks, or are you just a complement to maybe an existing banking relationship that these new customers have.

It's both.

It's both for sure.

We have a definition in turn what is a primary client, and it's basically enough share of wallet to check that box as opposed to just do an ancillary business.

Yes, the larger corporates is typically a multibank deal. The smaller middle market will be the new bank in some instances.

Our next question is coming from Mike Mayo from Wells Fargo.

Just more questions on the commercial loan growth, just maybe slice and dice a few different ways. So for every $100 of additional commercial loan growth, how much would you say is additional industry growth versus market share because I think the industry is picking up the commercial loan growth? And then how much of it would you say is kind of AI CapEx related versus non-AI cap ex related or other? And then the third part would be how much of this would be kind of new markets in, say, the Texas or the Southwest.

All easy questions.

Yes, [indiscernible]

So let's do it this way, Rob...

Yes, [indiscernible] take on Simon.

What was the new markets growth rate was, what was it 2, 3x the legacy markets?

In C&IB?

Yes. So take that -- all that excess growth rate is per share, is one way to think of it. It's hard to come up with an answer on how much of the AI CapEx is driving loan growth broadly across the economy because there's clearly potential effects on any sort of heavy equipment, transportation, energy component [indiscernible] that's driving it. I just don't know that I have an accurate answer to that. Maybe the negative of it, Mike, is the more worse something, right? So if the CapEx broadly slows down related to AI. Do we think even though we don't lend directly to that, that it was slower loan growth, yes...

A knockdown effect, yes.

Yes.

And what's the size of the new markets versus the legacy? I mean, I guess it's growing 2 to 3x faster off a smaller base.

Well, right now, in corporate banking, the majority of our end market loans are in the expansion markets.

So the balances are actually bigger.

Yes, yes, yes.

So you're growing 2 to 3x faster in the new markets, the new markets at this point are bigger than legacy markets.

X our national businesses, yes, that's true.

And as far as Texas or the Southwest in particular because that's been a hot area recently. Is that -- how fast is that growing the 2 to 3x faster, or is it even still faster?

It's -- that's the obvious one, and it's growing at that rate. But California is growing.

Florida.

Florida, yes. The business we're getting out of in Colorado.

And then there is some industry tailwind now, right, with CapEx picking up overall. I mean, how much is that contributing? And do you think this is kind of a multiyear change? Because I just go back a couple of years ago, there wasn't much growth, and now there's growth again. Is this like 1 quarter, 1 year, the next 5 years? I know nobody has a crystal ball, but you're closer to it than we are.

Yes. Look, I think it has legs for the time being. I think there's a lot of things that could knock delays up. Pipelines are strong. Activity levels are strong, and that's going to continue. But we all see stuff that can cause that to stop. I can't see out that far or getting better than you can.

Next question is coming from David Chiaverini from Jefferies.

Can you remind us of PNC sensitivity to rates and positioning of the balance sheet?

Yes. We're on record, and you can see that in terms of our guidance we've worked hard relative to short-term rates that were pretty neutral. So anything that happens in the short term in terms of rate increases for '26 in particular, basically. Obviously, and we've said this before, and it's obvious, the steeper the yield curve in a good economy is better for us because of this fixed rate asset repricing dynamic that if we can price these loans that are on our books at higher levels, that's accretive. So we're well positioned for that environment. And that's part of our confidence in terms of our NII growth.

And then hitting on credit quality, solid trends overall. You mentioned about the NPL increase CRE office and one large commercial credit. If you're able to share or willing to share what industry was the large commercial credit in and your outlook from here on credit?

Sure. And on the one large credit, it's in the service providers. You can see that in our detail of loans. Nothing particularly thematic about it's just a company that's hit some cash flow issues. The other part of the NPLs, that's important to point out is the continued pull-through of the already reserved CRE office loans. So we've worked that book down pretty well. We still have a lot of reserves. But as we have said for years, that will flow through nonperformers and ultimately, charge-offs. But again, that's all been paid for. Outside of that credit quality is good, consumer, you can see that in the consumer numbers, delinquencies are down, C&IB, corporate with the occasional deal or two very strong.

Maybe if I can squeeze one more question just on the M&A appetite, what you're latest thoughts are there. First Bank acquisition clearly are seeing some nice tailwinds and success there, but provide your latest thoughts on the M&A front.

Sure, I'll take that. I -- so a couple of things. One is our organic growth is surprising even us. You see that in the client numbers and the pace and size of pipelines. And two, as I look into the foundation we are putting forth on AI and the necessary organizational change and efficiencies that will come with that. I'm hesitant to slow that down which would perhaps necessarily be the case where we did do an acquisition of any size. So put differently, I think the world is going to change in the next couple of years, and we want to lead that. If that gets slowed down because we otherwise got into some big M&A deal, I think you could destroy massive value. It doesn't -- there's always small things and Rob always says this, we see everything that shows up and you can never say never. Maybe there's some small things. But at the moment, our momentum is fantastic. And the the transformation we're going to go through, I think, is strategically more important than bulk.

It needs to stay top of mind.

Yes.

Next question today is coming from Chris McGratty from KBW.

More of a question on risk tolerance. I think in your prepared remarks, you talked about the growth in the quarter with high quality and lower risk. I guess, is there any change in either PNC's or client risk tolerance that you're observing with the changes in the macro and the rates recently?

None inside of the way we're deploying capital. I'm not sure I understood client risk tolerance question.

Maybe demand for credit, yes.

It's -- you'll hear us say this over and over again for years. We kind of stay inside of our basic structures and types of clients and grow the book. through increasing clients as opposed to jumping into new risky buckets.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

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

Thanks, everybody.

Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

We're going to get going. Next up, very pleased to have PNC Financial Services from the company making his debut performance on stage at this conference, Mark Wiedman, the President. And as you know, who's been here 18th consecutive years or so, Rob Reilly, Chief Financial Officer. I guess, Mark, maybe we'll start with you. I think given this is your first time here as part of PNC. Just maybe share a little bit about your background and how you wound up at the company.

Sure. Well, I spent 21 years in a former subsidiary of PNC called BlackRock. And there, I did 2 things that connected me to PNC over time. One is I spent a large part of my career there advising banks, including actually PNC along the way, on balance sheet questions. So healthy banks like a PNC and then some not so healthy where I led the work in restructuring AIG's credit book, credit derivative book, Bear Stearns, Morgan Stanley's recapitalization and the like during the crisis.

I actually started a company called PennyMac as part of that. And we saw the opening that, frankly, banks were going to create was for the nonbanks, the creation of PennyMac back in 2008. And then separately, I spent time at BlackRock, I would say, scaling and growing businesses in the capital market space generally, like, for example, iShares.

All that came together back in '23 when PNC and BlackRock jointly looked to acquire a bank we did not acquire quite famously in 2023 in the crisis. And so when Bill called and said, would you consider working with an organization I've known for years and years, it felt very natural.

Got it. And maybe as a follow-up, can you give us some insight into what you've learned about PNC since you joined the company? And just what you see as the biggest opportunities where you can make an impact? And maybe what are your top priorities for the next 12 to 18 months?

Sure. I think the -- where we see the opportunities is really about doing what we do really well better. So 2 things I think we're really good at that lead -- that will lead to further growth are, one, we're very good at putting the client at the center of the business. And then the second is being local because we think that what our clients are looking for is an organization, a bank that will work with them that has national capabilities, but keeps it local.

And that's the challenge that we face, the opportunity. In terms of like getting closer to the client, there are areas where we're super strong where we understand the client intimately and put the client first as we organize. And we're really good, for example, in real estate or in treasury management. And I put those capabilities up against anybody. Then there's places where we can be a lot larger, and it's really about understanding who our clients are and deepening. So cards, an area where we've underperformed.

Fundamentally, this is about developing a deeper relationship with our customers, retail customers. And if you look at us compared to peer banks, we should be at least able to double our penetration with clients. It's just left -- we haven't thought them as a client. On the corporate side, thinking about sponsors as clients is an opportunity for us. More and more, they own a lot of the portfolio companies we lend to.

So you've got to talk to them at the peak and bring it all together, treat them as a client. many of our treasury management clients have one complaint with us. They think we're really, really good, but there's one thing we can't do, which is follow them internationally in payments and lending.

So we're going to be building out those capabilities, helping those U.S. clients serve their needs in other places, whether it be lending into a global revolver or simply making payments for them in other spots in the world, particularly in Europe. So that's where the opportunity is for us. It just literally is following the client to their needs, and that's where the growth comes from.

Got it. Maybe just talk big picture. The 10-year broke 10% -- 5% this morning. Fed meets on Wednesday, a lot of debate in terms of what the rate backdrop looks like. Maybe just talk about kind of what you're thinking, how you're positioned?

Sure, sure. So a couple of things on that. I mean we are now basically with where the world is. I didn't see what are the probabilities now of a rate hike, 90-plus or so. So we're in that camp. And for us, beyond that, probably another 25 basis point increase in December and then another in March is sort of our current thinking.

For us, for '26, though, it's pretty neutral. As you know, we're in a neutral spot. So not a big impact in terms of anything that we see in '26, maybe marginally a little bit better, but significant in the outer years as the yield curve steepens, as you mentioned.

And I guess maybe spend a moment just on the more macro environment, which does feel different -- much different today than we spoke here a year ago. Just how are you thinking about the outlook of the U.S. economy in that backdrop?

Do you want to take a shot at that, Mark, and then I can fill in.

I think it's -- the big surprise for this year is how strong the economy has been. And I'm sure we're going to talk about AI and AI CapEx. But I'd emphasize broad-based earnings growth where earnings year-on-year are up 36% in the S&P 500. We're seeing it in our nonpublic customers. And the consumer. The consumer is surprising us.

She's resisting gas prices. She's resisting worries about tariffs and she's spending. And so what we're seeing in every income cohort, including low-income cohorts, they're up 4% year-on-year. They have the much rumored post-COVID wall that the consumer was going to hit didn't happen. And so what we're seeing is their spending and their balance sheets are improving.

So if you look at their balance sheets versus 2019, what they have with us in current accounts, they're up 20% post inflation since 2019. So it's a story basically of a very strong resilient consumer who's willing to pay more, which is what's leading to that earnings growth on the company side. So overall, that's leading to a lot of very broad lending demand across almost all the sectors that we're working with. So pretty strong about the underlying real economy.

Yes. I think we're a little surprised like the world is how strong the economy is and actually improved incrementally here in the third quarter with the labor numbers to Mark's point about the consumer, like other peers, we've seen consumer delinquencies decline. So it's strong.

I guess you both mentioned a strong consumer. I guess kind of double-clicking within that, any kind of notable changes in behavior kind of worth pointing out recently?

Well, gambling, fastest-growing area that we're seeing in spending is gambling, upscaling, increasing their spending on travel and entertainment at higher end, not so much money on home improvement. Those are examples, but that reflects broader trends that we're seeing.

Yes. As I said, you've seen all the data. The consumer is surprising that the consumer spend rate is up even ex gasoline. And then on the commercial side, we were talking about it earlier. Credit is in very good shape. There's a risk-on environment across our commercial base that we're seeing, and that's reflected in our results.

So you mentioned broad-based lending demand, resilient consumer, increased spending. The next question, Rob.

Yes, our full year guidance and third quarter guidance stays the same. We expected a good third quarter, and we're tracking to it.

You don't want to give us just within the ranges?

No, I think the ranges are pretty good. You take a look at the numbers, we're -- like I said, we're on track to have a very good year. We've had a good year. We're on track to continue to have a very good year, and we're sticking to it.

All right. We're going to have to double-click one by one now.

Okay.

I'll start with loan growth. So the first half was strong, as you noted. We talked about strong levels of new production, high utilization rates. Third quarter guidance actually implies a slowdown. Just maybe spend a moment on what you're seeing in terms of borrower demand, client activity across the commercial book.

Yes, sure. So to your point, the first half of '26 was really strong for us in terms of loan growth, even independent of the First Bank acquisition, which we announced at your conference here last year, which successfully closed in January. But even that aside, saw a really strong commercial growth, predominantly commercial growth in our higher credit quality names that we've talked about, and that continues.

We expect further growth, but at a rate a little bit less than what we saw in the first half more in line with historical growth in strong economies, which we sort of target to GDP range. So still good growth. The pipelines support that growth is broad-based. One thing that we point out is commercial real estate as a loan category has inflected to growth after how many years, Jason, of the other way, long stretch of declines.

So it's constructive and again, congruent with the growth in the economy. And that's on the commercial side. On our consumer side, we see some growth. We've got some offsets there. Credit card, as Mark pointed out, is our emphasis, a little bit less in terms of balance sheeting mortgages. We're still originating them, but we don't balance sheet them as aggressively. And auto is an area that isn't a real emphasis for us at the moment.

I guess, when you think about the consumer side, is that intentional due to the environment? Is it...

Well, yes, I'd say -- so the credit card is intentional relative to the opportunity that we have. And we've made a lot of great strides there. Everything else is intentional. Auto loans, as I mentioned, if you take a look at PNC over the years, our box doesn't really changed. It's one of our lower return assets. And when a lot of people are doing auto loans, we're not doing them. And when they're not doing them, we are doing them. And that's just where we are right now.

Got it. And then Mark talked about AI-related CapEx spending earlier. Maybe just kind of one of the themes that we've been debating and just how is that spilling over into the broader economy. I look at some of your markets, whether it's Texas, Pennsylvania, Virginia, the MidAtlantic should benefit from this data center infrastructure development. Just are you seeing any meaningful opportunities emerge in how that impacts?

Yes. So a lot of dimensions to that, obviously. In terms of the credit book and the loan book, I would say we're participating in that, but my words gradually rather than transformationally and very selective in terms of the credit quality, the high-end credit quality, consistent with our book. There is the ecosystem aspects, like you said, in terms of power, transportation, construction, that's all part of our borrowing base. So we're participating in that, but not to an extent that, that's driving our overall growth.

And maybe shifting gears to deposits. This kind of received heightened attention of late. Just maybe an update what you're seeing in terms of mix and balances and pricing and competitive landscape.

Yes. So our deposits are good. Our deposit story for the third quarter is that our deposits on a spot basis are growing faster than our loans. That is coming from the commercial side, which is in part seasonal because consumer tends to sort of flatten out during the third quarter for us. Our rate paid will go up as we talked about in the -- consistent with what we talked about on our second quarter call, consistent with first quarter levels, all of which is due to mix. So it's commercial paid higher.

So we'll be up that 5 basis points or so that we talked about. Very much in line with everything that we talked about. The strength of P&C, obviously, is the granularity of our interest-bearing -- consumer interest-bearing book, which holds the rate paid down. And I would expect with some rate hikes that we'll see some more action on the CD front. We're starting to see some of that in longer terms, and that portends in our future, but that's a good thing.

I guess if the Fed hikes on Wednesday, how do you think about deposit betas over there?

I think the deposit betas will be about what they've been historically, about 50%. Typically, they lag, as you know. So we can move a little bit in front of that, but I think it will be very consistent. The big thing for us will be with the higher rates will be over and above the deposit dynamics will be the repricing of our fixed rate asset securities. So outside of the deposits, we still have a lot of that to do. And obviously, in a higher rate environment, that will be conducive.

Correct. Right. Yes. I guess maybe thinking about net interest income, I know on the second quarter earnings call, you and Bill were both pretty direct that you don't manage the NIM. But can you maybe discuss why your strategy historically emphasized generating net interest income rather than maximizing NIM?

Yes, sure. So I mean -- so NIM is important. We're sticking to that we'll go above 3% by the end of the year, so you can relax in terms of that. The conversation really was, though, just about our fundamental business approach. So as I had mentioned in terms of our loan growth, it has been disproportionately at the high credit quality, lower spread side, which has a tendency to compress your NIM.

But that's just looking at the transaction in isolation. The vast majority of the time when we book those loans, we also book capital markets fees or treasury management or something along those lines that when you look at it together in terms of that transaction, it's accretive to revenue, it's accretive to NII, it's accretive to EPS, it's accretive to ROA, et cetera, but compresses NIM a little bit. So it's too narrow of a view for what we do. That's what we do.

If you take a look, I think, Jason, if you go back other than right after the crisis, there's no time in our history where the credit alone provides sufficient enough return for the capital applied. You need those alternative revenue sources. That's PNC's business -- so we'll do our business model all day long. If that's a couple of basis points of NIM compression, so be it.

Got it. But you're still going to guess, exit the year with a NIM 3% plus. You talked about a better fixed rate asset repricing opportunity given the backup of rates. You're already going to do 15% NII growth -- over 15% NII growth this year with First Bank benefiting. I guess as you start to think about kind of the 2027 outlook for NII and NIM, as you're putting together your budget, just how are you circling all that out?

Yes. So not to get into guidance. We'll get into that in terms of '27 and '28. But we're constructive in a higher rate environment, all else being equal and assuming that the economy holds in there with a steeper yield curve, we're going to do better.

Okay. Maybe shifting gears to the fee income side of the balance sheet. Just maybe where...

The income side of the balance sheet?

The fee income side.

Okay. Fee income. Okay. Got you.

Fee income side of the income statement. This is my sixth in a row.

We're watching.

We're watching. As I think about the next few years, just where do you see the greatest incremental fee income opportunities developing?

Do you want to take?

Sure. So it's all about going -- deepening our relationships with our existing customers and expanding into our expansion markets. And then that take on the corporate side, it's about capital markets activities, debt and derivatives associated almost always with some kind of lending situation.

Second, our M&A advisory business with Harris Williams and treasury management. And put all that together, that's 40% of our corporate bank. So -- and it's up dramatically on last year, and we're seeing clients wanting to do more and more with us going forward. So that's a huge driver for us.

On the consumer side, it is about cards, debit cards, the expand our credit card business. All these are fee generating together feels pretty good. And it's all about an integrated relationship with the customer as opposed to just looking at the lending relationship.

I'd say if you take a look at the way that we report it, our fee businesses are having a good year, and we expect that to continue. Asset Management, obviously, because of the equity markets is benefiting, although we don't rely completely on the equity markets, but that's helpful. This is just the order that we report them. Capital markets is having a record we're aware of that. Where we're a little bit different, and Mark mentioned this, is a big percentage of our capital markets business is M&A advisory through Harris Williams, which is having yet again another record year.

The card and cash management is a steady Eddie, and we see growth there. The only fee category that's flat, and that's within our expectations is mortgages, where there's not a whole lot of that. But we're not big in mortgages and particularly reliant on that. So fee businesses are healthy. And I think you didn't ask this, but they're big businesses in and of themselves where we're making investments. And in these growth markets, the application, particularly in First Bank most recently, and the receptivity of the client base to those fees is really strong.

I guess we've heard about investments in card, needed investments in international payments, investing in these new markets. We got to spend on technology, you have to spend on AI. Just how should we think about balancing between kind of maintaining positive operating leverage and investing in the franchise for the next several years?

Well, positive operating leverage is the table stakes for us. We -- I think, if not the longest record in delivering positive operating leverage year-to-year, we're pretty close to the best. So that remains an objective. And we've got a continuous improvement program in place that you know that has been successful in terms of being able to offset what we invest in. And we're investing at a pretty good clip. There's no question about that. So I think we'll be able to maintain that. This isn't '27 guidance or '28 guidance, but positive operating leverage is really important, and we'll sustain it.

And maybe just talk about your kind of approach to AI, just how you plan to leverage it over time? Where do you expect to ultimately drive efficiencies across the company?

Why don't you start, Mark, and then I can add in.

So a few key levers that we see as being big opportunities for us and potentially for banks generally. One is continued automation. About 15 years ago, we had the same number of employees we have today, we doubled the bank. Productivity growth has been automation. And we know there's a lot more to be unlocked with AI. We've got a Big 5 program, which is the areas that we're targeting for improvements, including retail operations, commercial loan servicing, fraud, et cetera.

And what we're seeing is the deeper and deeper we go, we find more and more applicable capabilities across the bank. I think that's a pretty generic story across all banks of some scale that are thinking about where they can automate and where there's opportunity for them to actually get more efficient and actually fund a number of the things you described.

The area where I think we are turning a couple of areas we're turning on the positive side, and then I'll give a little bit of what we're concerned about is around technology spend and software development, where in the last year, we implemented agent assistance to developers, and we're able to put out our mobile app and our total rewards, which is basically treating our retail customers as an integrated client as opposed to individual products.

Pulling all that together, we're able to do that about 40% more efficient than we've been able to do software development in the past. What we're seeing now as we think about using agents as the center of how we develop software as opposed to just assisting is 5 to 10x productivity improvements. So things that would have taken 10 weeks get done in a week or less. That changes the scale dynamics, we think, in the industry.

It's going to, over time, benefit, we think, banks that actually have the ability to build that software in-house that can actually have -- alter the relationship with vendors, for example, early days as to how -- and that's a big frontier for us. And so that's a big priority. We are taking control of our destiny also in how we spend money on compute, both by owning our own data centers and actually owning our own GPUs and actually bringing in our own actually proprietary LLMs, actually SLMs, small language models because it turns out you don't need the whole kit and caboodle for most of the problems we have to solve.

Put all that together, that's a lot of opportunity. Where is the worry? The worry is risk, risk management, cyber, obviously. But I'd also say, as we've seen very notably in public discourse in the last few days, making sure our agents are doing what they're supposed to do and not doing something else is a top priority for us.

So we got to walk cautiously because that's going to be a challenge, I think, for every large organization using AI is the agents going -- be a little bit too aggressive in what they're trying to get done. So we're trying to make sure we keep that under control. But broadly, it's a big opportunity. Over time, that creates margin. Does it get competed away? Reasonable question. But that is a huge priority for us for the bank.

I think what I would add to that is just from a P&C perspective. So last year, and we talked about it last year, out of the box, we just said, hey, there's a big cost save opportunity -- but let's focus on the biggest impact areas. And as Mark mentioned, that was the big 5 that we talked around, which was coding, operations, AML, et cetera.

I think the update this year and what we've been working on that I think you'll find interesting, and Bill talked a little bit about this on the second quarter earnings call was this decision to do more in-house and driving it ourselves as opposed to relying on vendors is where we're going.

So as Mark said, we're doing our own compute. We're using the frontier models with the hyperscalers, but we've got open weave models in our data centers with no data sharing in the Chinese models. And where we're doing developing, when you talk about agentic development of harnessing capabilities. We're doing that in-house, too, and not relying on vendors. And there's 2 reasons for that.

One is it appeals to our general high control nature of our own data. But Mark alluded to it, there's a big difference in terms of the efficiencies in terms of being able to focus on the task, which might not require the highest cost approach, which often vendors either deliberately or nondeliberately or can't do. And that's a big thing for us in terms of just our approach and our thinking.

Interesting. Yes. Maybe shift gears, credit environment, somewhat unique. We have strong loan growth, credit quality, very benign. Just any industries where you're intentionally being more selective or underwriting standards remain particularly important...

I'd say, generally -- and you've heard it over and over again, credit is really good, both commercial and consumer. On the commercial side, no big pockets, nothing that is thematic or bubbles building. Obviously, there's some pressure with health care with changes in the Affordable Care Act.

We were talking about -- we have some distilleries around a secular change in people drinking less, maybe some on the margin transportation oriented, obviously, in terms of the price of fuel. But nothing that you point out and say, hey, something is really going on here, which is good. And we were talking earlier about the economy improving in the quarter, our criticized assets have come down, our nonperformers, all the leading indicators are improving. So things are good.

I would just add in addition, there's one sector, and Rob you touched on this earlier, where we've been very selective relative to the broader credit activity, not so much in banking, but broadly in the financial system, which is around AI infrastructure and data centers, where we've been very selective around extremely well-structured credits that have the protection of a hyperscaler behind them and a high credit quality hyperscaler and a contract that we see as bulletproof. And what that's meant is we've been selective.

We've invested in a number of projects, but we are doing so very carefully because one worry we have is a lot of contracts may end up not actually being so bulletproof, and we don't want to be involved in that kind of lending that we'll leave that to others. So we've been very selective there. Broadly, however, in most of our sectors, almost all, credit keeps improving from a pretty healthy base even at the beginning of the year.

That's right. Sounds good. I guess shifting to capital. The regulatory environment, more constructive than it's been in several years. Just how are you thinking about kind of long-term capital targets, regulatory reform ultimately reduces required capital across the industry? Is it realistic to expect a reduction?

Yes. Well, I'd say a couple of things there. One is where we are right now, roughly 10% CET1 ratio, it feels like the right place to be right now. The Basel rules, when they get completed and if they get completed along the lines of what everybody thinks, we're likely to add a point of capital. At some point, we have to select whether it's the expanded risk-based approach or the standardized approach.

Right now, the expanded approach looks a little better, which makes sense because of the discount on the private middle market credits that is sort of our wheelhouse. So that sort of fits logically. So that will add a point. We obviously work that down. Ideally, the way that we do that is through loan growth. But beyond that, capital return, which has been part of our story for a while, will continue.

Ultimately, that's your question in terms of, hey, where do -- where does it ultimately -- can you come down from those levels? We'll see. The stress test certainly suggests that we can as an industry. And if that's the case, because we stress better than most, if not the best finance reason, whatever it will be, we'll be the lowest, right?

I guess against that, you talked about exiting this year with an 18% ROTCE based on your guidance update. Sounds good. But as you kind of book beyond year-end, just how do you -- do you see opportunities for further improvement or is kind of maintaining that level more appropriate way to think about the business over time?

Yes. Well, we -- so when I came up at the end of last year, we said, hey, we would expect to exit ' 26 at 18% ROTCE, even though we don't provide targets, right? But we needed to work through our first bank. We don't provide NIM either, but I always provide that too, because they're outcomes. And in all seriousness, what we really wanted to point to was based on our business composition, we have a higher return businesses.

And that's why whatever the industry is and wherever the industry is, we're at the high end of that range in terms of those ROTCEs. So we said, okay, throw at 18%. We think we're comfortable with 18%. I'll point out, we reached 17.9% in the second quarter. So I'd argue that we're in that neighborhood.

And all else being equal, it's going to ebb and flow depending on where you are, but we would see that increasing. But the point is -- the key point is we have, on average, better than average high-return businesses.

Got it. And maybe just update us on your branch expansion efforts. In the past, we've talked about 7% branch share in those markets. Why is that the right number?

Yes, I can start, Mark, and maybe you fill in a little bit. The -- so yes, we have an aggressive plan in terms of building out our branches. We've committed to building another 300 on top of the 2,300 that we have and all the places that you would expect in these high-growth markets that we've entered in the last handful of years, either organically or through acquisition. The key is, though, we're furthering our investments in those markets as opposed to entering those markets.

And that's a big distinction because going in cold is a lot different than going in on a base of success. In a lot of those markets, we've established a 3% market share, branch market share. We think if we can get to 7%, and we know this through the markets where we have 7%, you get an exponential lift in terms of that critical mass in terms of business. So that's the next step of a multiyear plan that we've had in place as we've gone into those markets, now investing into the success of those markets to reach exponential gains. And it's happening.

Just to add, there's -- branch builds is one of the legs of our broader national expansion. The other legs are marketing. So if you've been seeing our ads, which we think are pretty funny, I hope you think so, too. And actually having a really good digital offering, which we didn't have before. All those pieces are working together. And what we're discovering is, one, last year, we did about 25 branches.

This year, we're doing about 55. We're learning we can do it. We've picked the right sites that the revenue we're picking up in those branches is tracking above or at the targets we had. So we kind of know what we're doing. And we see that leading through the end of the decade. So we'll get to about -- our big challenge is we're in lots of states, but we're not thick enough in those states.

And so just to give you an example, when we reach above that 7% really an S curve, you start to see increasing returns to deepening your branch presence. And below it, you have kind of -- you have to kind of get up there to get up to maybe 20% increase in productivity simply by hitting that 7%. That's the upside we get.

It also leads when we have branches, and this is a little counterintuitive. Our marketing to purely digital customers is 6x more effective if there's a branch nearby, even if the customer never walks in the branch because Americans like to see the branch. So you put that together with the marketing and a good digital experience, and we see growth in the Southeast, in the Southwest and obviously, in our Keystone or home markets as well.

Got it. And then I guess on First Bank, you maybe touched on it, but you converted in June. Maybe just give us an update how things are going so far? Any notable kind of early wins? And just what's been the reception of the PNC products and services to that customer base in Colorado?

Yes, I'd say -- so we closed -- we announced it here last year. We closed in January and we converted in June. And I would say every financial measure that we expected last September, we've either hit or exceeded, which feels good. The cultures of the 2 companies, which we suspected were very compatible when we met, proved to be very true. And Mark was pointing this out earlier when we were talking about it, many of the First Bank executives and folks are now part of PNC's executive team, taking on greater responsibilities across the organization. So that's really good.

The surprise to the upside has been -- we knew that First Bank had a high profile in Denver and the surrounding communities. And the whole idea was to our products and services that First Bank didn't provide, we'd be able to leverage the high-profile nature. That's happened much faster than what we would have thought.

So a lot more looks in our commercial book and prospects, a lot more looks in our asset management products and services, which is actually the fastest-growing market right now in our footprint for asset management. Those types of things we expected to happen, but not as quickly as they have.

I mean it's really -- it's the private bank. First Bank had all these relationships but didn't have wealth management private banking capabilities. And so what we found is by literally -- I mean, much faster than, for example, we found with BBVA and RBC is that actually introducing them to PNC capabilities has led to Colorado now being our fastest-growing market, which was not what we expected.

We did not expect to see such fast growth. But that reflects really on the quality of the team that we brought into PNC, and we aim to retain 100% of the client-facing staff. That's what you get when you make that kind of commitment.

All right. So there's -- I would say PNC has obviously consistently highlighted significant organic growth runway. But as you look out over the next several years, is that organic opportunity sufficient enough to achieve your long-term objectives?

Or is there a point where M&A becomes an attractive way to accelerate growth? What would transactions need to look like to clear that hurdle? And Mark, I saw you quoted in the Ohio paper a couple of weeks ago talking about National Banking.

Quoted out of context. Keep going.

But just -- let's address that. But maybe just talk to just M&A in general.

Yes, I'd say our response to that is very consistent with what we've been saying. So no big updates there. We do have a very aggressive organic growth strategy in place that we feel will be very successful in a reasonable amount of time. And that's what we do every day when we go into the office every day, that's what we do. So I do think it's sufficient. On the acquisition front, when a bank deal comes up, would we look at it?

Of course, we would look at it, and so would everybody else even if they tell you that they wouldn't. The key is that we would be very disciplined about that. Part of the issue is -- so all I can say is take a look at our track record in terms of our discipline. Part of the issue improving the risk is seeing the deals we do, but you don't get to see the deals that we don't do. And if you did, I think you'd be very assured that we have the shareholders' interest in mind that if we do anything, it absolutely has to be the best move for the shareholders or we don't do it.

And we're not reliant on it. So if an opportunity presents itself, of course, like I said, we'd establish it. I would say right now, in terms of current valuations of these potentially what you would logically sort of determine as an acquisition target or an acquisition candidate. I think the valuations are very high right now, and I think the bar to get over is really high. So I think it's unlikely.

I'd just add on organic growth. It's kind of an abstract word. It's pretty simple. It's about clients asking us to do more with them. So in the corporate bank, what we're finding is particularly in the Southwest, in the West, in the Southeast, which are our expansion markets, companies are saying, could you do more for us?

In reality, I only have 2 large national competitors that I deal with. Can you be that third? Can you work with us? And that's why it's led to today, more than half of our geographically tied loans are actually in our expansion markets. That's continuing to grow. And in the expansion markets, we're growing double the speed of our Keystone or legacy markets. So it's that client pull forward is the reason we emphasize the organic growth.

So I want to be clear on this, Jason, because we get asked this a lot. So the question is, is our organic growth sufficient enough for our purposes? Yes. Are we reliant on acquisitions to meet our objectives? No. Are we capable of buying somebody? Yes. Is that price right now in terms of those dynamics conducive to that? No.

And then I'd add to that, which probably would slow us down is if anything in terms of the acquisitions were to impede our AI priorities, we would pass on the acquisition because we wouldn't want to miss out in terms of everything that AI has potentially to deliver by being distracted by some big acquisition. So I just want to be very clear about that.

That's helpful. I guess maybe as we kind of begin to wrap up, good environment for banks, PNC in particular. So maybe what do you think is still underappreciated aspect of PNC's earnings story today? And why should investors be excited about the next several years...

Well, to me, it's about the compounding effects of our expansion markets. We have done it in the Southeast, more to go. We're doing it in the Southwest and the West. And it's not really about where our retail footprint is, and obviously, that will expand. Our corporate bank is a national bank and in the retail footprint where we're expanding, all these are places where we have lots and lots of client-driven growth ahead of us.

That I would say is whether it's underappreciated or appreciated, that's the center of what we're focused on every day. That and the AI transformation, those are the 2 things we're talking about in every management meeting.

Yes. And I would add to that. Obviously, these growth markets we're really excited about it, and we're investing in them. And I think the First Bank acquisition has only increased our enthusiasm in terms of what we can do. We have -- I mean, it's a great banking environment. Banks are doing well. But inside of that, at PNC, a lot of energy and a lot of enthusiasm that just continues to compound, that's the right word, that has us really excited.

I guess, Mark, in the final minute, your biggest positive surprise joining PNC and maybe one thing that obviously disappointed, but biggest opportunity.

Sure. Biggest positive surprise, the culture of the bank runs deep. I was a little surprised to find that. Most financial institutions, culture is a pretty thin thing that is on the wall. And what surprised me is whether I'm sitting in like an office in San Diego or Raleigh, people talk about the same reasons they're at the bank. They care about the bank, which I met the top management and the Board when I interviewed, but I had -- I didn't know that would be there.

That's really great because I go to sleep thinking no one is going to -- people care about the institution, they're going to mess with it in the dark. That's really important. I'd say the biggest opportunity is -- we are a very client-oriented bank but haven't been 100% consistent in that application and how we've gone to market. So there are products where we've led with the product, not the client relationship. That's in the retail bank. It's about simply bringing the entire customer relationship together.

That's an obvious opportunity with the launch of our Total Rewards, which has gotten take-up from customers much faster than we expected because customers want more from us, but we got to treat them as a customer. Same thing would be true with sponsors or with TM clients who want us to actually, for example, do your own sterling. Those -- as long as we meet those needs, which are right in front of us, I actually think that organic growth path we talked about is ours to lose.

Perfect. On that note, please join me in thanking Mark and Rob for...

Thank you.

Next up, Bank of America in the lunch room, where we had breakfast.

Greetings, and welcome to the PNC Financial Services Group Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may now begin.

Well, good morning, and 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 industry materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of July 15, 2026, and PNC undertakes no obligation to update them.

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

Thank you, Bryan, and good morning, everyone. As you saw, PNC delivered an impressive second quarter. We generated $2.1 billion of net income or $4.81 per diluted share. Our results included FirstBank integration costs and other significant items. Collectively, these items reduced earnings per share by $0.04, resulting in an adjusted diluted EPS of $4.85. Now Rob is going to take you through those details on our financial results in a couple of minutes, but let me just hit a few highlights.

Business momentum remains really strong. We continue to win new clients and deepen existing relationships. DDA growth continues at a healthy pace while client acquisition across our corporate and private banking businesses continues to grow meaningfully. Net interest income grew on the back of continued commercial loan growth as well as favorable deposit mix and pricing. And fee income performance was a particular highlight, increasing 10% linked-quarter and 20% year-over-year. Growth has been broad-based across every fee category, underscoring the value of our diversified business model.

We also generated positive operating leverage and improved our efficiency ratio. Credit performance remained strong, reflecting the strength of our economy as well as the quality of our portfolio.

The consistency of our financial strength was evident in the Fed's latest stress test results. For the fourth year in a row, PNC start-to-trough capital depletion was the lowest in our peer group, further demonstrating our best-in-class resiliency. With this in mind, our Board approved an increase to our quarterly common stock dividend of $0.30 or 18% to $2 per share.

Beyond these financial results, we continue to make meaningful progress on the things that will drive our future success. We successfully completed the conversion of FirstBank, opened new branches in high-growth markets, introduced a new mobile banking platform, all the while continuing to advance client and infrastructure technologies. None of these efforts are about the next quarter. They're about making PNC a better bank for our customers and positioning the company for sustained growth over the long term.

In summary, we had a great quarter. And importantly, we are well positioned to drive further growth across our company. Before I turn it over to Rob, as always, I just want to thank our employees for everything they do for our company and our customers.

And with that, Rob will take you through the quarter. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis.

For the linked-quarter, loans at $363 billion grew $12 billion or 4%. Securities balances increased 2% to $147 billion during the quarter, and the portfolio yield improved 9 basis points to 3.45%. Average deposit balances of $457 billion were stable, consistent with seasonal patterns. And borrowings were $79 billion, an increase of $16 billion, reflecting higher FHLB advances.

Our tangible book value was $111 per common share, up 2% linked-quarter and up 7% compared with the same period a year ago, and our return on tangible common equity at 17.9% in the second quarter.

We continue to be well positioned with capital flexibility. During the quarter, we returned $1.3 billion of capital to shareholders, which included $690 million of common dividends and $610 million of share repurchases. Going forward, we expect third quarter repurchases to approximate this same level.

As Bill just mentioned, our Board recently approved a $0.30 increase to our quarterly cash dividend on common stock, raising the dividend 18% to $2 per share. And we remain well capitalized with an estimated CET1 ratio of 9.9%.

Slide 5 shows our loans in more detail. Loan balances averaged $363 billion in the second quarter, an increase of $12 billion or 4% linked-quarter. And the total average loan yield decreased 3 basis points linked-quarter to 5.47%. Virtually all of the loan growth was in C&I, reflecting strong new production and higher utilization across almost every loan category.

CRE balances increased $690 million during the quarter, driven primarily by growth in retail and industrial exposures. And consumer loans declined by $730 million as growth in credit card balances partially offset expected declines in residential real estate and auto loans.

Slide 6 covers our deposit balances in more detail. Average deposits were stable with the prior quarter as higher consumer balances were offset by a seasonal decline in commercial deposits. Our total rate paid on interest-bearing deposits decreased 5 basis points to 1.91% in the second quarter, reflecting lower rates paid across all deposit categories. Notably, average noninterest-bearing balances grew 4% linked-quarter and represented 23% of total deposits.

Turning to the income statement. As Bill mentioned, I want to provide a bit more detail regarding the integration costs and significant items in the quarter. When combined, these items had a minimal impact on our net income and earnings per share.

First, we incurred $127 million of integration costs related to the FirstBank acquisition. Beyond these integration costs, we had several significant items. We participated in the Visa exchange program and monetized half of our Visa Class B-2 shares, resulting in a $448 million pretax gain. We also recorded a negative $85 million Visa derivative fair value adjustment associated with our remaining Visa Class B-3 shares, primarily related to the extension of anticipated litigation resolution. In addition, we repositioned a portion of our securities portfolio through the sale of approximately $4 billion of available-for-sale securities, resulting in a $139 million loss. We reinvested the proceeds into securities with yields approximately 120 basis points higher than the securities sold.

Finally, we contributed $140 million to the PNC Foundation, which supports our communities' early childhood education initiatives.

So all in, the FirstBank integration costs and significant items, when combined, resulted in a nominal reduction to our second quarter EPS of $0.04.

Turning to Slide 8, we highlight our income statement trends, comparing the second quarter to the first quarter of 2026. Total revenue was $6.9 billion and grew $710 million or 12%, and included both integration costs and significant items totaling $218 million. Noninterest expense of $4.1 billion increased $330 million or 9% and included $140 million PNC Foundation contribution as well as $121 million of integration expense.

We generated 3% positive operating leverage and PPNR grew 16%. Provision was $191 million. Our effective tax rate was 21%. As a result, our second quarter net income was $2.1 billion or $4.81 per common share and $4.85 as adjusted. Comparing the second quarter of 2026 at the same time last year, net income grew by $412 million, resulting in EPS growth of 25%.

Turning to Slide 9, we detail our revenue trends. While the quarter included integration costs and significant items within the other noninterest income, our revenue growth was driven primarily by the underlying strength of our franchise. We generated 4% growth in net interest income and 10% growth in fee revenue. Net interest income of $4.1 billion increased $146 million and included the benefit of commercial loan growth and higher noninterest-bearing deposit balances. Our net interest margin was 2.96%, an increase of 1 basis point.

Fee income was $2.3 billion and increased $200 million or 10%. Looking at the details, asset management and brokerage increased $20 million or 5%, driven by increased client activity and higher average equity markets. Capital markets and advisory revenue increased $114 million or 25%, reflecting record M&A advisory fees and strong activity across our other capital markets businesses. Card and cash management increased $34 million or 5%, driven by seasonally higher consumer transaction levels and growth in treasury management product revenue. Lending and deposit services increased by $6 million or 2%, primarily due to increased customer activity. Mortgage revenue increased $26 million or 22%, largely attributable to negative residential mortgage servicing rights valuations recognized in the first quarter.

And other noninterest income of $489 million increased $364 million, which included the $218 million of integration costs and significant items as well as positive private equity valuation adjustments.

Compared with the second quarter of 2025 and excluding integration costs and significant items, total noninterest income increased $444 million or 21%. Importantly, this performance was driven by strong organic growth, with broad-based increases across our businesses.

Turning to Slide 10. Second quarter expenses increased $330 million or 9% linked-quarter. Expenses in the second quarter included integration expense and significant items totaling $261 million, while the first quarter of 2026 included $97 million of integration expense. Excluding the impact of integration costs and significant items, noninterest expense increased $166 million or 5% linked-quarter. The growth reflected increased business activity, higher marketing spend as well as continued investments.

We remain focused on expense management, and we're on track to our goal to reduce costs by $350 million in 2026 through our continuous improvement program, which, as a reminder, is independent of the FirstBank acquisition. And this program will continue to fund a significant portion of our ongoing business and technology investments.

Our credit metrics are presented on Slide 11. Overall, credit quality remains strong with improvements in NPLs, delinquencies and net loan charge-offs. Nonperforming loans of $2 billion decreased $216 million or 10% and represented 0.55% of total loans, down from 0.62% last quarter. Total delinquencies declined $122 million to $1.4 billion and now represent 0.39% of total loans. Total net loan charge-offs were $226 million and our NCO ratio was 25 basis points.

At the end of the second quarter, our allowance for credit losses totaled $5.5 billion or 1.48% of total loans.

To summarize, PNC reported a strong second quarter of 2026, and we're well positioned for the second half of the year. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 2.1% in 2026, with the unemployment rate holding steady and ending the year at approximately 4.3%. We expect the Federal Reserve to keep rates stable throughout 2026.

For ease of comparability with our prior guidance, our full year outlook excludes the impact of FirstBank integration charges and significant items. Considering our reported first half operating results, third quarter expectations and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows.

We expect full year average loan growth of approximately 12.5%. We expect full year net interest income to be up 15% to 15.5%. We expect noninterest income to be up approximately 9%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 13%. Noninterest expense to be up approximately 8.5%. And we expect our effective tax rate to be approximately 19.5%.

Our outlook for the third quarter of 2026 compared to the second quarter of 2026 is as follows. We expect average loans to be up 1% to 2%. Net interest income to be up between 3% and 3.5%. Fee income to be down 5% to 5.5%. Other noninterest income to be in the range of $150 million to $200 million. We expect adjusted noninterest expense to decline 2% to 3%. And in the third quarter, we anticipate approximately $50 million of integration expenses. And we expect third quarter net charge-offs to be approximately $225 million.

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

[Operator Instructions] Our first question today is coming from John McDonald of Truist Securities.

Rob, I wanted to ask you guys, some very strong loan growth through the quarter, could you speak a little bit to the cadence of the loan and deposit growth as the quarter progressed? There seems a little bit different dynamics between the period-end and average? And maybe just broadly to how you plan on funding the strong loan growth throughout the year?

Yes, sure. So John, the -- yes, loan growth in the first half and in the second quarter continued to be pretty strong, which is a good thing. When we take a look at the second half, we still see loan growth but not at the same rates. We are pointing to effectively sort of GDP growth in our guidance going through the balance of the year. So loan growth, but not to the same extent.

And in terms of funding as we look forward, we do expect deposits to grow through the second half of the year. So that will be a key component to the funding as that replaces some wholesale debt that we picked up in the second quarter.

Okay. Got it. And was that just about the funding that you picked up on the FHLB side this quarter, was that just some temporary dynamics and you expect that -- you also had good NIB growth this quarter. Maybe you can just comment on that and the outlook there.

Yes. So noninterest-bearing, to your second question first, noninterest-bearing deposits were higher than we expected. All of that -- virtually all of that was on the commercial side, related to our treasury management business and some escrow monies that come through. So that's a good thing. And I would expect that to continue not at the same rate. So we're at 23% of our total deposits and we have that pretty steady through the balance of the year.

I think the funding, John, you should just assume we sort of optimize against every lever, whether it's wholesale funding or what we're doing in deposits. The drops this quarter in corporate deposits are pretty easy to turn back on. There's a bit of a seasonal effect, but there's also a rate effect. You saw we grew deposits in retail, which is the most important thing.

And the home loan advances this quarter where think of it as the cheapest alternative to fund loans relative to other things, and that changes all the time, I wouldn't read too much into that.

No. it's just flexing to the optimal cost.

Yes.

Our next question is coming from John Pancari of Evercore ISI.

On the loan growth side, I appreciate the trends that you're seeing, some pretty good strengthening. Can you maybe just talk about the areas that are strengthening, what do you see in terms of demand and pipeline, and utilization? And then separately, on the loan spread front, any shift in spreads that's observable here just amid the competitive backdrop?

Yes. So inside that, I would say the loan growth has been strong. Again, we expect loan growth to continue not at the same rate. And that's just a function of maybe some pull forward in terms of borrowings or some pent-up borrowing demand spend, and we'll see.

As far as the mix, we don't see a lot of spread compression from competitive standpoint, but we do have some spread compression and continuation of what we saw in the first quarter, which is most of the lending that we're doing is for the high credit quality, lower spread entities. Those are who are borrowing now. It's good business. It's sufficient return, particularly given that those loans often come with treasury management and/or capital markets. So there's a little bit of dilution to the portfolio spreads, but that's more mix than competitive pressures.

The other thing, we continue to have the new markets outpace the legacy markets just in terms of growth as we grow share there. And for the first time, I'm sure this isn't true, but for the first time I can remember, we had strong growth across kind of every category inside of the C&I franchise, and utilization increases. So yes, it's broad-based. We're gaining share kind of all on the back of what feels like a pretty strong economy.

Okay. That's helpful. And then I know you don't really guide on -- more specifically around the margin, but just trying to get an idea, just given some of the pricing dynamics that you're seeing in the backdrop, in the environment, just wanted to get an idea of how you're thinking about this margin could traject through the back half of the year that's kind of baked into your guidance here. I know you saw a modest expansion in the in the quarter by about 1 bp. Just how are you thinking about how that could play out as you look through the back half?

Yes. So let me address that, John, because there's a lot of focus on NIM. So we had said that we expect to go above 3% by the end of the year, and we still are standing next to that. So that's that.

The second piece is, if you [ chunk down ] the NIM components, and it sort of gets to your earlier question, the components of our second quarter NIM, what helped our second quarter NIM, which went up a net 1 basis point, was obviously the decline in the rate paid on the interest-bearing as well as the increased noninterest-bearing deposits. So that helped NIM.

What constrained NIM was the point that I was making earlier is these commercial loans that are coming in at a pretty good rate, and the majority of those being the higher credit quality, lower spread, that contains NIM. So when you think about it and you look at it, those loans carry the fees along with them. So from an EPS perspective, those loans are hugely accretive. On a stand-alone basis, they're dilutive to NIM. So if we didn't have those loans, just for illustration purposes, if we didn't have that loan growth in the second quarter, our NIM would have easily popped above 3%. So we're given a choice between lower NIM, higher EPS, or higher NIM and lower EPS, we'll take EPS every time.

But having said that, we're still on the...

We're on record for 3% for back half of the year.

Much of that driven through the continual repricing of fixed-rate assets.

Well, that's the longer-term issue. So the longer-term issue is the steepness of the yield curve. We still have a lot of fixed-rate assets to reprice. So that will determine that. But I just mentioned that for illustration purposes because I think a lot of the focus on NIM is on the funding side and the issues there, but there's also the loan dynamic.

Our next question is coming from Ebrahim Poonawala of Bank of America.

I guess, maybe, Bill, Rob, sticking with loan growth. So you mentioned the high credit quality, low spread lending, which is good to hear from a credit quality standpoint. Is this different from history in terms of this kind of loan growth? Or this is kind of what you would expect in a good C&I environment where market spreads are tight? So one, like is there something different about the quality or the type of borrower, the type of borrowing that's happening? And then I have a follow-up to that, maybe if you could start there.

Yes, I'd say -- I wouldn't say anything is like way different. But I would say that the preponderance of the loan growth is in that higher credit quality, lower spread loans, which is probably -- makes life a little bit higher than average run rate, but it's not off the charts.

Got it. And I guess, as a follow-up to that, you had all the big banks report like there's a significant energy around the economy, around AI CapEx spend. We're seeing that in the financing markets. When you sort of bring it back to -- you're the second bank today that talked about broad-based C&I growth. I'm just wondering, one, are you picking up some of that business tied to data center lending, et cetera? And second, when you think about the broad-based growth, are there other engines of the economy at work here, be it reshoring, manufacturing, et cetera? Or are you able to sort of connect the dots between second derivatives of AI CapEx driving that loan demand for PNC?

It's too broad-based to lay it all on AI. At the margin, it's impacting what we're doing. But it's -- as I said before, it's coming from kind of all sectors, which is I've heard the different explanations as to why it's showing up. People are otherwise used to the chaos in the environment and figured out that they need to operate through and grow. The M&A environment is more robust. Look, the economy is strong and people are spending money.

But it's not -- while I appreciate the impact AI is having on GDP, that can't be the only driver of the loan growth that we're seeing given the industry dispersion and the geographic dispersion.

Our next question is coming from Erika Najarian of UBS.

Rob, if I could just start with you, to your point, there's a lot of focus on net interest margin trajectory because of the funding dynamic. The Street currently has an exit rate of 3.8% for fourth quarter 2026. As we think about where the loan growth is coming from, does that -- is that too fast of a ramp relative to the other opportunities in terms of fixed asset repricing and, obviously, maybe optimizing some of the wholesale funding that you put on this quarter to core funding?

Yes. So again, we don't give NIM guidance, nor do we manage to it. That said, I always give NIM guidance. So we're above 3, Erika, the precise level at the exit run rate.

Why do you care? It's -- at the end of the day, we'll stick to our guide and we'll get there. But if we grow EPS and NII at 2% higher and have a lower NIM, or what you heard in Rob's earlier point. Why do you focus on it?

So I personally don't care. I think that the NII dollars are more important. And I couldn't quote you what JPMorgan's NIM was for this quarter. So I think you're right. I think just like -- I'm just thinking about why the stock is down despite the beat and raise. So that's why I'm trying to clarify that question.

More sellers than buyers. Look, maybe the simplest thing to say across the space is we have healthy asset growth through loan growth, which is coming from client acquisition and economic activity, and we have a great ability to fund it. We're growing our retail franchise. Retail deposits are increasing. Corporate deposits, we didn't pay up for and they went down in the quarter, but we can make those whatever we want.

We're very liquid today. And so it's not a huge focus inside the company, even though the mechanical outcome, as we said since the beginning of the year, will push us over 3% by the end of the year.

To that end, just to take a step back, clearly, the company is doing well. You've talked about organic NII dollar growth of about $1.2 billion this year. And so I guess as we think about sort of what's your plan over the next few years, is that NII dollar growth replicable for a sustainable period of time? And additionally, you printed a pretty nice ROTCE this quarter, I guess I'm wondering about the path to the 20% that you mentioned previously.

Well, maybe I could jump in there a little bit. So we're not going to get into '27 guidance, but we're on record saying that we've got a lot of fixed rate asset repricing that goes well into '27 and beyond. So that's constructive for NII in '27. And as we get closer to the end of the year, we'll sharpen that up for you.

As far as the ROTCE goes, we're on record saying that we'd hit 18% annualized exit rate fourth quarter '26. We're sticking to that as well, and we're tracking to that. We pointed out this quarter we're at 17.9%. So arguably, we're in the vicinity.

Our next question is coming from Mike Mayo of Wells Fargo.

Just a little bit more color on loan growth. Certainly, it's growing faster than you had thought. Can you talk about line utilization and the potential for loans to grow even faster and how much you're assuming line utilization will increase as part of your higher guide?

Mike, it's Rob. So as we pointed out in the second quarter, utilization has increased for us, and it's been pretty broad-based. When we look into the second half, we have continued loan growth. We have an expectation that the utilization would at least hold, maybe go up a little bit. But that's all part of our thinking in terms of sort of moderating the loan growth to roughly GDP.

Okay. And do you ever -- like, look, if you -- your stock price has outperformed this year when you look at it and quite a bit. But do you ever wonder about this party that's taken place elsewhere as it relates to AI and this CapEx AI super cycle and all the mega IPOs and mega financings and mega mergers that you're not part of? And it's like, wow, we're not part of that, but we have our own area. What's the counterargument to that whole super cycle? Or is there enough to go around in a trickle-down effect? Bill, if you have thoughts on that because you've been on both sides of that kind of Wall Street mega cycle.

So many ways to answer that. I guess I'd offer the following. The first is you just look at who we are in our growth rate, our EPS just went up 25% year-on-year. We're growing single double digits on every line item on revenue and growing customers, in a space that does not focus heavily on capital markets, yet our capital markets revenue is up 80% year-on-year.

So are we in the middle of a deal that pays $100 million in fees? No, we aren't. But are we actually growing the core franchise at a pace, importantly, at a pace that is less cyclical than the boom you're seeing in the super cycle right now? We are. So it's an alternative to something that I think is more volatile yet it's -- we're dropping real dollars to the bottom line in a healthy economy and gaining share as we do it.

Our next question is coming from Manan Gosalia of Morgan Stanley.

Rob, I wanted to check in on the trends on deposit costs. So the 5 basis points improvement this quarter, it's pretty good given the environment. Have you noticed anything in terms of the trajectory as you went through the quarter just given the increased focus on deposit competition? I'm wondering if you're seeing anything -- any online trend in either the overall portfolio or in specific geographies on deposit costs.

Yes. So we track that obviously pretty closely. We declined in terms of rate paid in the first quarter (sic) [ second quarter ]. Our outlook, we do have rate paid drifting back up to first quarter levels. That's all part of our guidance, mostly in terms of back book repricing and some of the things that we want to do with our deposits. So that's the track that we're on.

So I guess in terms of the competitive environment, I guess, what do you think is driving that? Is that just the rate outlook and the fact that rate cuts have come out of the forward curve and maybe we have a rate hike or 2 coming up? Is that the only thing that's driving it? Is there just more competition overall? Can you talk a little bit more about that dynamic?

I think a couple of things. What's happening, let's separate what's going on in wealth and corporate and assume correctly that those are competitive yields and you can kind of dial them up and down with rate.

On the retail side, to the extent you are, in effect, a commercial bank without a retail franchise, things are really tight, right? That's where you're seeing CD rates posted, brokered CDs at really high rates. If you're growing and own a good retail franchise, it's less severe. And if you look inside of what we've done in retail, the growth in DDA households, the increase in balance and the actual drop in rate quarter-on-quarter of 1 basis point, right, would kind of lead you to a conclusion that if your company is balanced here between retail and just commercial lending, you actually are in a pretty good spot.

And I think we are. I don't think everybody is. And we've talked about it forever, but retail share is moving aggressively to the larger players, and it's making it more difficult to fund if you're smaller and don't focus...

Yes, I think that's right. And I think that's why even though we do expect some increase in our rate base, it's not dramatic.

Our next question is coming from Matt O'Connor of Deutsche Bank.

I was hoping to circle back on the capital market revenues and I guess the fact that a lot of the revenues in the industry are being driven by some of these biggest bigger headline deals and yet your revenues were so strong. Like just remind us a little bit about what the mix is, maybe kind of generally from a product point of view, size of customer. And I guess also any comments on like how well it's integrated with the rest of the firm as a feeder system.

Yes. Sure, Matt. So our capital markets was up overall, but each category was up. Harris Williams, which is about 40% of our capital markets business, had a record quarter. But beyond that loan syndication, Solebury trading all up broad-based.

And inside of there, you have derivatives and FX and our share of investment-grade underwriting has gone way up. It's a healthy market we participate in.

And then just in terms of the interconnectivity with the other businesses, like when we see loan growth, like is that driving some of the hedging here? I mean, obviously, that wouldn't make sense, but sometimes it's different targeted customer bases.

It's all correlated. And you're exactly right, loan growth gives rise to derivative activities, oftentimes if it is a even in a middle market instance where there's going to be some loan and there's going to be -- it's syndicated and there might be some bonds associated with it, we're inside of that also. So it is all correlated, and it's on the back of the size of the financings that are going on inside of the U.S. economy.

Our next question is coming from Gerard Cassidy of RBC Capital Markets.

You guys have been good over the last 2, 3 years in getting out in front of the commercial real estate story. Obviously, there was a lot of fear following the pandemic about office space and the issues around it. Your credit continues to improve in commercial real estate and now you're growing commercial real estate mortgages. Can you share with us some color, what are you guys seeing there? What are the opportunities to grow that portfolio further?

Yes, Gerard, so you're spot on. We've worked through the commercial real estate office portfolio. Still some work to do there, but we did release some reserves as we work through that book.

As far as loan growth, we inflected in the first quarter for the first time after I don't know how many quarters of declines. And we see that continuing. In fact, the pipelines are forming in commercial real estate in a very constructive way across all the categories. So multifamily, industrial and retail pipelines are all up. So we would expect commercial real estate to be a bigger component of our loan growth going forward.

Very good. And is there any data with that construction loan? It's just so -- I assume not or not many.

Nothing major. You may know, data centers, nothing...

We're involved in the space. We are involved in project construction loans forever inside of the real estate space. So tangentially, but not with big risk and not big size.

Okay. Good. And then as a follow-up, can you share with us, obviously, FirstBank has closed, it's integrated, what were some of the positive surprises you guys discovered in that process? And then what were some of the issues that maybe required extra effort that may not had anticipated?

So I don't know if there's surprises or not, but perhaps the biggest thing that we proved to ourselves was that we could do an acquisition of that size without slowing down at all the rest of the company in terms of technology deployment or product rollout. So you'll notice in the middle of this whole thing, we put out a new mobile banking platform, right? So normally, you do a deal, you've got to freeze stuff. We didn't have to freeze stuff.

Second thing was the data factory that we built [indiscernible] in its first form with BBVA looked even better inside this integration. Third thing, I think we're the first bank, correct me where I go wrong here, but ever to do the early access, where basically people could log in and credential before you did the actual account switch. So all of that was great.

What we underestimated on this one was the -- I'm just going to call it lack of digital awareness on a relative basis to our existing client base that maybe FirstBank customers had. So we had a lot of branch traffic that was there to activate a debit card or to download a mobile app and things that we otherwise might have expected would happen outside of the branch caused traffic in the branch that we underestimated and caused some confusion. And we're going to have to improve on that going forward.

But all in all, it -- mechanically -- the conversion is so much more than the mechanics. But mechanically, it went really well. Super proud of the team, the people that got this done both on the PNC side, importantly, on the FirstBank side. Super proud and thankful for the employees inside the FirstBank branches that went through a couple of days of real heavy volume.

Heavy lifting, yes. The thing to add to that, Gerard, too, just in terms of the financials, everything that we expected in terms of the price we paid, we would have the accretion, it's all there and then some. So from a financial perspective, we're in a really good place.

The next question is coming from Ken Usdin of Autonomous Research.

Rob, I know you touched on the capital market strength before. I know, we see, obviously, the fee guide that you gave that would assume that that's probably coming off a little bit. Bill, you mentioned the super cycle of -- and I'm just wondering, well, Rob, if you could kind of walk us through just your expectations for the fee areas that you usually give us, which is a good run through. And then just how strong do you think this capital markets flow-through could be? And did you see any pull forward into this really strong second quarter result from a closings perspective?

Do you want me to go first with the...

Go ahead.

Well, then that sort of tells the story too. So third quarter, Ken, in terms of the fee sort of component breakdowns, we do feel like we've pulled some capital markets forward into the second quarter. So the second quarter was elevated. So when you look at the third quarter guide for the fee breakdown, it's largely around the capital markets that we think will probably be down about 20% quarter-over-quarter.

The rest of the fee categories are sort of flattish to up depending on sort of what happens with the market conditions. But that's the big driver to get it to down 5.5% that we talked about.

And just an aside, I mean, it's like you come off a record quarter and everybody looks at the activity and says, oh, we can't do that again. So we knock down our estimates on into the third quarter. It's a handful of big deals that show up that was a difference, inside of the size of things that are getting done in this market. But that's our best guess for now.

Well, for the third quarter. But then for the full year, so if you just sort of out back for the full year, asset management is having a great year with the equity markets up. So they're up high single digits. Capital markets for the full year will be up close to 25% to 30% year-over-year. That's in our guidance. Card and cash management, mid to high single digits. Lending and deposit services, mid-single digits. And then mortgage, just to round it out, probably flattish to down depending on sort of hedge gains and sort of how that works out.

The guide on capital markets, I mean, just to be -- it's [indiscernible].

Especially in a 90-day period.

I'd just say we're in the right places, we're in the right deals, right? We're winning business. So it's kind of a function of what's actually happening in the broader market.

Yes. Exactly. That's why I'm pointing to that point, which is that it just seems like the potential for this type of result to continue seems pretty good. So thanks for that color.

The next question is coming from David Chiaverini of Jefferies.

Can you give us an update on sensitivity to rates on NII? If we get a hike or 2, what would that impact be?

Very small in '26. And we've said it for a while, we're sort of in a neutral position of rates at 25 basis points up or down. Very little impact to '26.

As you go forward, it becomes a function of how the rest of the curve reacts were they to raise rates. But within the range that we'd otherwise contemplate, there's still a healthy pickup next year just because of the continual repricing.

Got it. And shifting over to capital, CET1 at 9.9%. You mentioned the buyback in the third quarter should be similar to the second quarter level. Is this 9.9% kind of a new or comfort range that you guys would point to?

Yes, I think so. We've said 10%. We were actually very, very close to ramping to 10%, but we rounded down to 9.9%. Our operating target is around 10%, and that's where we expect to be.

The next question is coming from Saul Martinez of HSBC.

Back on loan growth. Is there -- I mean do you guys feel like there's an element of conservatism being built into the second half guidance of roughly in line with nominal GDP growth? I get the comments about pull forward, but everything else you are talking about seems pretty constructive. The utilization rates kind of ticking higher, economy doing well, CRE returning to growth, M&A financing. Is there -- is the bias if you're going to be wrong, more to the upside? Just curious how -- if that's -- do you think that's a logical conclusion?

I'd say...

Reguide your guide, Rob.

Yes, I'm just saying, our guide is our guide, and that's what we -- we've guided to lower numbers and they come in higher. We've guided to higher numbers, they come into lower. So the guide is the guide.

I think that the only thing I'm comfortable in saying is if there is loan growth across the economy, we will get more than our fair share simply because of the newer markets we're operating and the share growth. But it's become so hard to predict what's happening with loan growth. We kind of pick a real simple base case and hopefully outperform.

Got it. Okay. Fair enough. And then I mean, nobody asked about credit anymore, for a good reason. We've obviously -- it's been really strong. I mean are there -- I mean, are there areas that you are monitoring that -- where you think there are vulnerabilities? And even if it's not a big part of your portfolio, where do you think they're -- either from a sector standpoint, product, income categories, where do you feel like there is more fragility?

I didn't -- I mean our overall credit quality is very good on both the consumer side and the commercial side. And we don't see any big pockets forming. We follow sort of the pressures in the health care industry. There's pressures in the distillery sector. There's some pressures and expectation around fuel costs, those sorts of things, all the things that you read about and are well aware. But I wouldn't say there's any big pocket or anything that particularly worries beyond that.

Our next question is coming from Chris McGratty of KBW.

Great. I hope I didn't miss it, but any comment on credit spreads over the past 3 months with improving loan growth?

Sorry, I didn't catch that.

Sorry. Just a comment on credit spread.

No, we're not seeing a lot of competitive pressure on the spreads. We are seeing some spread change relative to the mix change of higher credit quality, lower spread loans into our portfolio. But apples-to-apples, spreads are pretty similar quarter-over-quarter.

[Operator Instructions] Our next question is a follow-up coming from Erika Najarian of UBS.

I promise this isn't about NIM or loan growth. Quick follow-up. Well, it's good. It's good. There was a news article last week about banks, including PNC, potentially being interested in a debit card network. And I'm just wondering, of course, you're not going to comment on any live deals, but what a debit card network or how a debit card network could be beneficial to PNC? And do you have any sort of notion on how difficult it is to convert a PIN network to signature?

We aren't going to comment in particular. I think it's a safe assumption hypothetically that the work set associated with a conversion like that would be pretty material. I'll leave it at that.

Thank you. At this time, I would like to turn the floor back over to Mr. Gill for closing comments.

Okay. Well, thank you all for joining our call this morning, and please feel free to reach out to the IR team if you have any further questions. Thanks.

Thanks, everybody.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines or log off the webcast at this time. Thank you for your participation.

Okay. Great. All right. Up next, we have PNC. We're delighted to have with us today Bill Demchak, Chairman and CEO; Rob Reilly, CFO. Bill, Rob, thanks so much for joining us.

Good to be here with you, Manan.

Bill, let's get into the environment as we've been starting a lot of these conversations. You have a broad view into the economy across a diverse set of markets. What are you seeing across the bank? Are you seeing any impact from high energy prices or any of the concerns that are out there in the economy?

We're not. You're not going to hear a different story from us than you're probably getting from all of your clients. Corporate activity is very strong. Capital markets activity very strong. Retail, high-end or higher net worth consumer spending is up 6% year-on-year. Even in the lower income brackets, ex energy spend is still up 3%, 4% year-on-year. Deposit balances across all cohorts are up.

So consumer is healthy, a little struggle at the lower side. But I would tell you, even in our consumer book, our delinquencies in card and in other products are materially lower than they were last year. So much better credit this year than last year, healthy consumer, strong corporates things feel good in the moment. Lots of things to worry about in the future. But in the moment, things feel really good.

All right. Rob, maybe you should bring this to the second quarter. With about 2/3 of the quarter behind us, how are things tracking?

Yes, I'd say they're tracking well. We're having a good quarter. We guided to having a good quarter, and we're having it. Essentially, our guidance remains where we have it. What I would say, though, is 2 months into the 3-month period, we're probably tracking to the high end of the ranges of our guidance. So revenue, a little bit on the higher end, both NII and fees there. So we feel good. And credit remains very good. We've guided to charge-offs of $225 million. And right now, we're tracking right to that. So I expected a good quarter, and we're having a good quarter.

And any updates for the full year?

Yes, we'll hold the full year right now. Obviously, we've got a way to go with the second quarter. And then when we get out into July with our earnings call, we'll have the quarter complete, and we'll have a more near-term vision of the second half, and we can update you then.

All right. Perfect. And then Rob, I know that there's -- that you've disclosed you intend to participate in the Visa share exchange offer this quarter. Can you provide a little bit more detail about that for investors? And also -- if you can also tell us how you're going to use the proceeds of that?

Yes, sure. Yes. Thanks, Manan. So over and above what I just said about the guidance and our performance, Visa aside, that's not part of our guidance nor is it contributing to what I just said. What is contributing to what I just said, though, is we did like to participate in the exchange of our B shares, sort of the second installment of that monetization, which will result in a gain for us of about $400 million, a little bit more than that.

We'll do what we did similar to the last time we had the exchange, although the exchange was twice the amount. We'll offset that with a foundation contribution, extend the swaps of our remaining B shares. So we'll continue to have another $400 million behind us at some point that we'll exchange.

And then we'll take a look -- like we did the last time, we'll take a look at some securities. If we got some low-yielding securities, we might reprice some of those. So most of the gain will be offset. If there's some that isn't offset, that's just some additional capital flexibility. And again, that's on top of the guidance.

And that would be all this quarter...

All this quarter. Yes.

Okay. Perfect. All right. Great. So with that, maybe we can peel back a little bit. Bill, in your CEO letter, you called 2025 one of the strongest years for PNC, and you spoke about not just the organic investments you're making, but also retail scale as pillars of the business and pillars of the strategy. So as you look out over the medium term, what are the most important strategic priorities for you?

Well, in the short term, it's the successful conversion of First Bank, which is coming up in a couple of weeks. We're well set up to do that. We've obviously spent a lot of time on it. This build-out of retail where we get density in markets where we already exist, but try to get over 7% market share, the 300 branch builds we've talked about will bring us to over 7% in '26 of the 40 large MSAs or 50 large MSAs that we operate in, up from kind of 14 today, and we'll do that by 2030. We have to get that done.

Retail is up for grabs right now and is being consolidated by the largest banks. You gained share when you have 7% presence in a market, including digital share. We open -- what's the number, 5, 6, 7x the number of digital account openings when we have branch density. So you remember, we tried once upon a time to build 10 branches and open digitally. It didn't work. When you have branch density and open digitally, it's 7x, and that's what we're doing. So that's high on our list.

This whole technology agenda, reinvesting in our platforms to allow in multiple cases for agentic to take hold. We are building our own AI factory in the back NVIDIA. We will have our own GPU compute. We will not be as reliant on burning external tokens than what we will do internally for our own large language models. That's a big deal, not today, tomorrow, even the next day. But ultimately, as we roll forward and the impact that AI can have on the productivity of a bank, that productivity can be taken away by the cost of tokens unless you're optimizing that expense base, which we're doing.

And then finally, just the continual execution, which we've had for years in wealth and C&I, in particular, and taking our model to new markets, being patient, persistent, consistent in our offerings. And there's a very real appetite amongst our C&I clients to bring in a third or fourth bank against the dominant 2 big players in the space, and we win share because of that. We have more shots on goal because of that. And you see it in our loan growth relative to perhaps some of our competitors.

Yes. I think we'll dig into each of those opportunities. So maybe in the near term, you spoke about the First Bank conversion. I think that's later this month.

Yes.

So how is that integration tracking? What are the competitive dynamics you're seeing in those markets right now?

Mechanically, we've run 3 mocks. We're very comfortable with what we're doing. We've actually improved our data factory from the BBVA deal and patented our new data factory, which allows us to do the lift and shift we've talked about for a period of time. The bigger deal with the conversion is how are you keeping wowing your new customers and employees. You remember, we kept all of the frontline employees from First Bank. They are terrific. We spent a lot of time training on new products.

By and large, we are lowering fee levels from what First Bank charge to its customers. We've offered, I think, for the first time for any bank conversion, early access to First Bank customers, so you can actually log in, pre-credential your stuff in PNC and get used to our functionality, both on the corporate and the consumer side. We'll have branch buddies in the branches. We've even ended up -- and we didn't know this going in. We've actually hired almost 400 of their technologists and set up a tech hub in Colorado. It turns out they actually had a lot of very good engineering talent in that bank having built most of their own systems as opposed to relying on vendor.

So a lot of good things, a lot of good progress on trying to do some things that we got a little bit wrong in BBVA, try to fix those. And importantly, did all of that without stopping anything else in the bank, right, with side -- I don't want to call it a side project because we had people who really worked hard on this, but it didn't cause us to lose our strategic momentum and anything else we were trying to accomplish.

Does that make the integration easier than having built their own core systems?

It's a really good question. What happens in a smaller deal is what makes it harder or easier is mapping to products and mapping to data. When an organization has clean data that they know how to define, it's a lot easier for an acquirer, right? We have a data factory. I just need to map their data into my factory and then put it into our applications. If they don't know what their data is, it's hard. First Bank is pretty good.

Got it. All right. So Bill, you spoke about AI. And I think you've said about $1.5 billion of addressable spend that AI can help take out over time. Remind us what the use cases are and longer term, what that means for expense ratios?

In the initial instance, we've identified 200 different opportunities inside of this $1.5 billion spend. The big 5 that were focused on in the immediate term is inside of our care center support, commercial mortgage servicing. Help me on to go through it.

I would. So we start with the coding, agentic coding software, which is our largest retail operations, the client care center, AML, commercial servicing.

And AML fraud. But part of the reason I'm kind of jumping through those things, what we are and everybody else is doing, right, at the moment is furthering the process of automation that we've been going down for the last 20 years. So we're helping -- AI is helping us accelerate some automation. It's not yet changing process and organization structure.

And where we spend a lot of time without exact answers yet is this AI-based operating system that allows you to, in effect, replace our production line mentality that we do in customer service segments or in development -- technology development or many other things where today, a human being does something or a committee does something, they submit it, it goes through a filter check, it's submitted to the next thing and the next thing. And an AI in an agentic development environment, that can all get done through a single agent that's controlling other agents. When that happens and it will happen, the productivity opportunity inside of our organization will be well in excess of what we're going to pull out of that $1.5 billion. It's a massive opportunity set for us down the road.

How far down the line do you think that is?

I don't think anybody has done it yet. I think there's a couple of large tech companies who are getting close. I don't think anybody has done it in financial services because of the regulatory audit trail that you need to the extent you're going to use agentic for coding. I think it's doable. But the moment you're able to start just changing fundamental process in favor of agentic process, it pulls an awful lot of cost out and importantly, changes the productivity level and your client service level. But you can be very iterative on product development and reacting to things that are in the moment when and if you do that.

And that kind of goes back to this whole cost equation where you get lots of people now saying, "Hang on a second, these tokens are really expensive," which they are. Part of this engine is making sure that you're building a harness around your development that actually points you to the most efficient compute that oftentimes isn't the $35 token, it's the $1.50 token or may well be our token inside of our own data centers where we will be running our own open source large language models.

So I want to double-click into that because not many are talking about optimizing the cost of tokens there. So I guess what is the process there? Is it giving people more training? Is it having that overlying layer that allocates the token usage? How do you optimize that cost?

Yes. I don't think -- look, at the end of the day if you just turn people loose to burn tokens, they're going to burn tokens. And I think the bill for those tokens go up as they start pricing compute at even a breakeven cost, which they're not today. A harness against your product development allows you to look at the problem you're trying to solve and choose the best model to solve that problem. And in many instances, you don't need the best model. You need the third best model.

Some models are better at mathematical computation. Some models are better at text reading and organization. Some models are better at simulation. So you got to figure that out, and you need to optimize your spend. The harness that you build in development is what allows you to do that. That harness doesn't exist at scale right now. We have tiny harnesses that run our -- we just built a new rewards platform using agentic. We just built a new mobile banking platform using agentic. They all have very product-specific harnesses around that development that doesn't operate system-wide yet.

Got it. And then if we think about -- so a lot of that is on the cost side. What about the revenue side? Are there more opportunities there as well?

There's going to be. I mean, at the margin, you'll be more creative in the products you offer. We build our rewards platform, for example, where for the first time ever, we can start rewarding our more affluent customers with multiple products with linkages that improve retention with us. The thing that we think about a lot, though, is how does the whole human being seem to think sequentially. And AI offers the opportunity to just completely game change what is financial services. I don't know how that's going to happen. I mean some people talk about agentic commerce. I don't know, but that's the thing we spent a lot of time gaming out how does something just fundamentally change in financial services through the availability of this product. That's -- if there's a big revenue shift, that's where it's going to come from.

Got it. Okay. Let's pivot on to loan growth. You just noted that PNC has delivered some of the stronger organic loan growth numbers in the peer group. And there's been some strong growth in the expansion markets as well. Can you talk about what's driving that strength in the commercial loan growth side right now?

Look, shots on goal. I mean a couple of things. We -- first of all, we have a strong specialty lending area. Don't read that as higher-risk lending area, but rather things that take more than commodity capital. So our asset-based lending, securitization business, equipment finance, real estate business, other things.

But secondly, because we planted the seeds back in the newer markets starting in the Southeast with RBC, 10 years ago, 11 years, 13 years ago moved. We did BBVA. We opened some new markets cold. We're just doing First Bank. We have very low banker turnover. We hire good people. We keep them. We're patient, persistent, consistent. We call on clients with good ideas. And if you pick the right clients and you call on them for 5 years as bankers turn over everywhere else, you get the business. That wave of new business that we started 13 years ago, that's what keeps us going.

Our growth in newer markets is 2x our legacy markets. Our loan balances from new markets are now larger than our loan balances in legacy markets. We have 5 markets that have higher sales productivity than Pittsburgh today. That's why -- so at the end of the day, if there's HA growth, we're going to have growth. We ought to be better in every instance than HA if it's sensible growth because we'll have more shots on goal because of our newer markets. And I don't think people fully appreciate that...

And that's why the branch expansion strategy because it gets you deeper into these expansion markets.

Yes. I mean, part of the ability to expand. We're really good at C&IB -- C&I. We can go into markets. We have good product sets. We're local. We know that engine. We know how to do it. We've done it for years. Ultimately, that runs out of steam if you can't fund it with a commensurate retail base. So we're going heavy after retail, these branch builds. We're going to be 300 branches over the course of the next 4 or 5 years. We'll do 60 this year and grow that at a pace with the opportunity set we see in C&I, which is wildly fragmented. I guess all the -- against all odds, I don't think anybody in the country has more than 4% or 5% share in corporate bank.

So let's talk about that funding side. So what are you seeing today across consumer and commercial deposit markets? We're increasingly hearing from some banks that it is getting more and more competitive out there. What are you seeing from both the consumer and the commercial side?

Not bad. Maybe you jump in here, Rob.

Yes, sure. Look, on the retail side, we will have growth in spot deposits. We will have -- on the corporate side, growth in noninterest-bearing, shrinkage and interest-bearing just because of some seasonal things and our rate paid balances up and our rate paid will be flat to down.

Yes, so everybody -- I don't know if the noise is coming out of smaller banks that are already running a high loan-to-deposit ratio or just don't have other levers to pull, but we're growing deposits. We're not paying up for them. Importantly, we're growing households inside of our retail network at a pace that we haven't been able to do for years. And we're not paying up for the deposits to do that. So things are kind of working.

Yes, that's well said. And the only thing that I would add to that, what we're seeing so far, at least on a period-end basis or spot-end basis is higher noninterest-bearing deposits from the commercial side. To the extent that they hold, our spot deposits will grow pretty nicely.

Yes. And also -- look, there's -- without question, there's a fight to show deposit growth in certain markets for new entrants and so forth. And so it's logical that in some markets, somebody might choose to pay up to grow share. We're not doing that.

Got it. Okay. So I mean, the core metric there is more household growth and more core deposit growth. So the other piece on the deposit competition side has been around AI-driven cash optimization and what that might do. I guess what are your views there?

I don't understand where all that's coming from. Look, we've been on a journey in banking for years for cash optimization. The ability to move money quickly with little burden will be more driven by open banking and API connectivity than it will be on AI. I don't need AI to figure out that if it's super easy and I care, I can just move money into my Vanguard account or my Fidelity account or just shop PNC internally for the best rate.

I think it's logical to think that over time, our average consumer balance is $10,000 or something in our checking accounts. People aren't trying to invest that extra $1,000 to earn another 20 basis points. The monies that are above that, that jump from being my transactional accounts, this true for corporates as well, into now it's an investment account, it's an excess. I want to earn something on it. That market has become more and more efficient over time and your choices today are the $7 trillion money fund business or increasingly on us. Our wealth clients largely earn the same they would earn from a money fund today. So the whole noise I'm going to have a cash mixture and I'm going to whiz it all around through open banking, and I'm going to arb the last basis point out of this person with an $8,000 balance. It sounds like somebody made that up on a sound bite. You guys all ran with it. You don't need that.

Well, maybe if I can push you a little bit on that. So I guess it does make sense from the wealth management side, corporate and institutional side. These deposits are fully optimized or close to being fully optimized. But I guess when you look at the...

Would you make it -- so assume corporate is, assume wealth is on retail, the money is -- I mean, we can argue about what a straight deposit plus operating account ought to be where you keep in your checking account. We saw -- when rates jumped to 5%, that boundary was pretty well defined, right? All the lazy money moved in a hurry and then you just had transaction balances. The money that moved in a hurry is still not priced at SOFR minus 5 where the corporate money is. And over time, maybe it becomes so efficient that it does. It's not AI-driven. That's open banking driven. That's competition driven. It's just basic common sense. How do you win in that environment? By the way, that's not today. That might even be tomorrow. I mean how much money do you leave in your sweep account at Schwab that pays you zero.

Not that much. Got it. All right.

It just -- it will happen, but how do you win in that environment. You got to be a low-cost producer with really good products and services that somebody doesn't want to trade away from you for 50 basis points on $2,000.

For the record, Manan accounts at Morgan Stanley.

Yes. All right. Perfect. So let's round out the conversation on the NII and NIM side. You spoke about the fixed asset repricing story. How are you thinking about the trajectory of that repricing story from here, especially given the belly of the curve is higher, the long end of the curve is higher. Help us think through that.

Yes. It continues, obviously, in terms of the repricing, and that's part of our guidance that we have. And what we've said before is' '26 is pretty much mechanical now because we're neutral. So a 25 basis point hike or a cut is not going to take us off of our numbers. And we also said we expect to inflect NIM at 3% in the latter half of this year, and we're sticking to that. We're pretty close now at 2.95%. So everything that we thought would occur is, in fact, occurring.

Okay. Perfect. So everything is on track.

On track.

I should -- we always get questions on how much fixed rate is rolling off this quarter. It's kind of the wrong question, right? We have a balance sheet that has liabilities with certain assumptions and rate paid and then we have assets with certain assumptions, rate paid and they roll down. What we've been able to do, if you just look at the forward rate, we will grow NII at a good clip for the next several years. Our management of that has been locking in forward rates at opportunistic times such that we reduce that volatility of earnings against that forward curve. But the momentum you've seen in our NII that we've largely locked in for this year, we will, through time, lock in for '27 and for '28 against forward curve movement. Right now the way everything is moving, it's in our favor, right? We're making more and we'll make more in the future than we had assumed even 6 months ago.

But that's a good point. That's what we've been doing for several years now. So this isn't a departure in terms of the way that we manage what is a constructive look for the next couple of years.

Got it. All right. So let's move on to fees. And one area where we've seen continued outperformance is on the Harris Williams side. And you are getting some periods of market volatility here, but it still feels like it's been fairly consistent. What are you hearing from clients around M&A activity and sponsor appetite right now?

Harris Williams has done well through all cycles. They're going to have a great quarter and a great year. Remember, they focus on private equity buyers and sellers, larger middle market as opposed to large corporate. And that environment has kind of opened up and pipelines are good and activity levels are good.

But I'd remind you, inside of our capital markets franchise, Harris Williams kind of gets all the headlines on top line number. They're not even, I don't know, third or fourth on our actual bottom-line contributor. We look at business we get from debt underwriting loan syndications, foreign exchange derivatives and trading. We have $1.5 billion capital markets business. And we would expect and it'd be correct in expecting that our activity across all those books is up commensurate with market activity and some of the comments you've seen from the large capital markets players. It's a good quarter in fees and Harris Williams will be part of that.

Got it. And well, maybe on the wealth management side, that's become a bigger focus for you as well. Can you dig in on the strategy of that business, where you see the biggest growth opportunities here?

Our competitive advantage in that business, which we have sometimes forgotten over time, is that we are actually a bank and not just a wealth manager. And we don't always act like a private bank. We haven't been terribly effective in lending money to rich people, which is if you look at loan growth in many of our competitors, that's been a healthy source of growth over many years.

We have done an okay job, but we need to do much better connecting with our existing clients in that platform. So we cover because of our C&I franchise. We actually know all the clients we would aspire to cover in a wealth relationship. And of course, we ought to be able to do that. So our growth, which, by the way, has been paced by our new markets is coming on the back of linkages with existing clients and then offering our single competitive advantage is that, hey, we're a bank. We can take deposits. We can lend you money. Of course, we can help you manage money. But that's becoming a more and more generic thing against the ability to fulfill all of your financial services needs.

The other piece to that, that I think is important, Bill touched on it, is the expansion market opportunity. So when we acquired BBVA USA, they didn't have a wealth management business or not much of one, and First Bank, of course, didn't. So part of our plan in terms of the organic growth is staffing wealth teams in all of these markets that we're in. We've done that. They're fully staffed, and they are picking up momentum as we go, which feels really good.

And as you expand your branches in different areas as well...

That's part of that ecosystem.

That's part of that ecosystem. Got it. Okay. And then we -- so I guess as we're on that topic of just branch density and growing these in your local markets, have you learned anything from the branch expansion strategy that you've done so far? And when you're expanding into new regions, what learnings are you taking from what you've already done in different geographies?

It's a couple of things. One is things are going better than we had assumed in terms of activity levels in new branches. Secondly, higher front rates changes the whole economics of branch banking. So we're in a good environment for that. I think we've gotten much better with still a lot to learn on how you activate a new branch, right? It's a big deal. You're in some exciting part of a new market and a new city, and how do you actually bring it to life.

One of the things, Mark is in the audience here, talks about all the time, Mark Wiedman, our President, is how do you use marketing to bring the brand alive in markets where people don't necessarily know exactly who PNC is and what we stand for. So all of that stuff, building a branch or building 50 branches in a particular market is a massive statement and an arrival. And we've already been in the market. We're all of a sudden saying, we're investing a lot in new market. How do you bring that alive? What marketing do you do? How do you activate it? How are you out and about in the town? We're getting better at it. But look, it's been a long time since the bank built 50 branches in a year. JP has done it. I don't know who else is doing it.

Beyond that, though, within the new markets, if you think about it, Bill referenced it, really going back 13 years to RBC, we've been pretty much nonstop going to new markets, introducing ourselves and building teams and building businesses for the better part of the last 13 years. And when you -- like anything in life, when you do a lot of it, you get better at it. So that's why we've got a lot of confidence when we go into a First Bank situation. We know what to do.

So you brought up First Bank, so I guess, there's a lot of organic growth opportunity here. But at the same time, you have excess capital. We're in an environment where it's easier to do bank M&A. I guess when you think through the strategy, how are you balancing being patient versus taking advantage of what might be a smaller window of opportunity here?

I think it's a myth that the opportunity set won't exist to do M&A in the future. I think the anomaly in history was the Biden administration, not today's period. I think there's a well-accepted argument now that both the Democrats and the Republicans agree on that we need competitive scale in banking below the G-SIFIs. So I don't worry about some window to be able to do something. I worry about doing something smart that makes our shareholders' money and fits our long-term strategic objective.

One of the things that was quite unique with First Bank was they were a pure retail franchise. Every single one of their branches across Colorado and Arizona, they built themselves. They weren't old FDIC-assumed bankruptcy branches in the wrong places. They were a retail bank with real retail clients and real retail deposits and their deposits weren't tied to their commercial lending, incredibly unique franchise. And they also -- the reason they came to market had more to do with generational wealth of the private owners than it did that they had failed or they were trying to get a hype. It's just a different situation. There are not sellers today. It's too easy. It's easy being a bank today, right? You're going to make more money today and tomorrow than you made yesterday, and you're going to tell your Board that and your Board is going to be happy, you're going to get a bigger bonus and nobody is going to sell unless they're really broken.

So what do you do? You do what we've done for 165 years. You hold a little capital. You watch. Someone's going to break. It always breaks. We're in the business of banking. And when you're the person with cash in your pocket and a good balance sheet, when someone breaks, you take advantage of it. That's not today. But we don't need it. We can do this organically. We have a good plan to execute organically, and we're on pace to do it.

So let me ask another question on capital, and I'll look quickly across the room if there's any questions. But as we think about Basel Endgame and the changes that we're seeing there, I think you've called out it reduces your RWAs by about 10%. How are you thinking about any incremental capital deployment opportunities here on the organic side?

Well, I would say the -- if you take a look at the Basel rules, we had said in the first quarter call that it would reduce our RWA under both methods by about 10%. As we're getting more and more nuances figured out, the expanded approach actually is a little bit better for us, maybe 10 or 20 basis points or so. And we'll keep you up to date in terms of as we continue to work through all of that.

But to answer your question, we're running right now at 10% CET1 under the old method. And that feels like the right level for us right now. You can make the argument that we could run lower. But at the moment, the opportunity cost of some of that extra capital, particularly with the eye toward maybe loan growth, which is the highest and best use of our capital in the near future, 10% is the number we feel good about.

Got it. Any questions in the room? So I think we covered a lot here. We were very efficient with the time. We're just about out of time. So maybe, Bill, to conclude, as you look across the bank today, any parts of the business that you think are underappreciated by investors?

I just think the organic growth opportunity that we've set up in front of us. People forget, I think, the investment that we've already made. We don't need to make it. We're in these markets. We have the technology backbone to succeed. We've front-hired people, right? So we've had people on the ground in these markets who are just now becoming productive. And I think we can look at an organic growth path as long as the eye can see right now in a favorable rate environment with a good credit backdrop. And I just don't know that there are a lot of banks out there that we compete with who have that same vision of the future and opportunity set in the future.

All right. Perfect. With that, we're out of time. So Bill and Rob, thanks so much for joining us today.

Thank you, Manan.

Thank you.

Greetings, and welcome to the PNC Financial Services Group Q1 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to Bryan Gill, Executive VP and Director of Investor Relations. Thank you, Bryan. You may begin.

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, 2026, and PNC undertakes no obligation to update them.

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

Thank you, Bryan, and good morning, everyone. As you've seen, we're off to a really strong start this year. We achieved a great deal this quarter, and we continue to build upon the strength of our franchise. As you know, we completed the acquisition of FirstBank early in the quarter, and we're well on our way to a mid-June conversion. Our financial performance was solid. Organic loan growth hit a 3-year high net interest margin expanded meaningfully, and we had 13% year-over-year fee income growth. Our credit quality remains strong, and we returned significant capital to shareholders. Importantly, beyond the financial results, we continue to see strong momentum across our businesses with notable increased client activities, we continue to make meaningful investments in our technology and our branch network. While, we recognize that there are many market concerns out there from energy prices to AI to private credit, we are not seeing anything that suggests these issues are broadly impacting our customers or our credit quality in the near term.

Specifically in regard to the increased attention on bank's exposure to non-depository financial institutions, Rob is going to walk through some of the details as it relates to our exposure, but the sound bite you ought to walk away with here is that we don't see any loss content in this book and certainly don't see any exposure to a systemic event, which, by the way, we don't expect, but were there to be on a systemic event in private credit. I can't speak to what other banks have in this category is the definition seems to capture random things. But we are very outsized in our corporate receivables financing relative to others, which is a low spread business with negligible risk. Importantly, the bulk of our loans actually have nothing to do with private credit despite the regulatory category in which they reside.

Overall, our focus remains on disciplined execution of our strategy, which is clearly reflected in our results this quarter. Looking ahead, we are entering into the second quarter with a lot of momentum, and we continue to be excited about the opportunities in front of us. Finally, as always, I want 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 numbers. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis. As Bill just mentioned, during the first quarter, we successfully completed our acquisition of FirstBank. And as a result, our overall balance sheet growth includes the impact of the acquisition, which represented $15 billion in loans and $22 billion in deposits. For the linked quarter, loans of $351 billion grew by $23 billion or 7%. Investment securities of $145 billion increased $2 billion or 2%. Deposit balances were up $19 billion or 4% and average $458 billion. And borrowings increased by $3 billion or 4% to $63 billion. Our tangible book value was $109.42 per common share, down 3% linked quarter due to the acquisition, but up 9% compared with the same period a year ago. We continue to be well positioned with capital flexibility.

During the quarter, we returned $1.4 billion of capital to shareholders, common dividends and share repurchases were approximately $700 million each. And we continue to expect quarterly repurchases to be in the range of $600 million to $700 million going forward. We remain well capitalized with an estimated CET1 ratio of 10.1%, down 50 basis points from year-end 2025. The decline was primarily driven by the FirstBank acquisition, accounting for roughly 40 basis points, with the remainder attributable to strong loan growth. Regarding the recent Basel III proposal, we expect the changes to be a net positive for our CET1 ratio relative to the current framework. Our initial assessment reflects a reduction of approximately 10% of our RWAs were $45 billion to $50 billion. The reduction amount is the same under both the revised standardized and the expanded methodologies in line with our previous expectations.

Slide 5 shows our loans in more detail. Loan balances averaged $351 billion in the first quarter, an increase of $23 billion or 7% linked quarter. The growth reflected both higher commercial and consumer balances. Compared to the same period a year ago, average loans increased $34 billion or 11%, and the total average loan yield of 5.5% decreased 10 basis points linked quarter. On a spot basis, loans increased $29 billion or 9% from year-end, including $15 billion from the FirstBank acquisition and $14 billion of growth in legacy PNC loans. Specific to our legacy business, C&I loans increased $15 billion, driven by broad-based growth across businesses, reflecting strong new production and higher utilization rates. CRE balances reached an inflection point and increased approximately $100 million, and we expect moderate growth through the remainder of the year. And consumer loans declined $1 billion due to lower residential mortgage balances.

Slide 6 covers our deposit balances in more detail. Average deposits were $458 billion, up $19 billion or 4%, driven by the addition of FirstBank balances and partially offset by a reduction in brokered CDs. Excluding those items, deposit trends were consistent with typical seasonality as growth in consumer balances more than offset a seasonal decline in commercial deposits. Noninterest-bearing balances continue to represent 22% of total deposits. And our total rate paid on interest-bearing deposits decreased 18 basis points to 1.96% in the first quarter reflecting lower rates.

Turning to Slide 7. We highlight our income statement trends. Comparing the first quarter to the most recent fourth quarter and again, including the impact of the FirstBank acquisition. Total revenue was $6.2 billion and grew $94 million or 2%. Noninterest expense of $3.8 billion increased to $165 million or 5%, of which $97 million was integration expense. Excluding integration costs, noninterest expense increased 2% and PPNR grew 1%. Provision was $210 million, and our effective tax rate was 19%. As a result, our first quarter net income was $1.8 billion or $4.13 per common share and $4.32 when adjusted for integration costs.

Turning to Slide 8. We detail our revenue trends. First quarter revenue increased $94 million or 2% compared to the prior quarter. Net interest income of $4 billion increased $230 million or 6%. The growth was driven by the addition of FirstBank as well as lower funding costs and commercial loan growth. Our net interest margin was 2.95%, an increase of 11 basis points. Noninterest income of $2.2 billion decreased $136 million or 6%. Inside of that, fee income decreased $44 million or 2% linked quarter.

Looking at the details. Asset management and brokerage increased $9 million or 2% due to higher average equity markets and client activity. Capital Markets and Advisory revenue declined $26 million or 5%, reflecting lower M&A advisory activity off elevated fourth quarter levels, partially offset by higher underwriting and trading revenue. Card on cash management increased $5 million or 1% as higher treasury management revenue was partially offset by seasonally lower credit card activity. Lending and deposit services decreased by $2 million or 1%. Mortgage revenue decreased $30 million or 20%, largely attributable to a $31 million decline in MSR valuations given the heightened rate volatility during the quarter. And other noninterest income of $125 million included $32 million of Visa derivative costs as well as negative private equity valuations, partially offset by $28 million of net security gains. Compared to the same period a year ago, we've demonstrated strong momentum across our franchise. Importantly, fee income grew $240 million or 13%, driven by broad-based growth in our businesses.

Turning to Slide 9. First quarter expenses increased $165 million or 5% linked quarter, which included $97 million of integration costs. Noninterest expense, excluding the impact of integration expense increased $68 million or 2% as the addition of FirstBank's operating expenses more than offset lower legacy PNC expenses. We remain focused on expense management. And as we've previously stated, we have a goal to reduce costs by $350 million in 2026 through our continuous improvement program, which is independent of the FirstBank acquisition. And this program will continue to fund a significant portion of our ongoing business and technology investments.

Our credit metrics are presented on Slide 10. Overall, credit quality remains strong. Our NPL and delinquency ratios each improved on both a linked-quarter and year-over-year basis, reflecting the strong credit quality we continue to see across our portfolio. And the linked quarter growth in balances was entirely attributable to the addition of FirstBank. Nonperforming loans increased $25 million or 1% and represented 0.62% of total loans, down from 0.67% last quarter. Total delinquencies increased $115 million to $1.6 billion, and our accruing loans past due declined to 0.43%, down from 0.44% last quarter. Total net loan charge-offs of $253 million included $45 million of purchase accounting related to the acquisition. Excluding these acquired charge-offs, our NCO ratio was 24 basis points. At the end of the first quarter, our allowance for credit losses totaled $5.5 billion or 1.52% of total loans.

I want to take a moment to cover the details of our NBFI loans, which are highlighted on Slide 11. We discussed this topic at recent investor conferences and importantly, nothing has changed in terms of the composition of the book or the underlying risk. NBFI loans continue to represent our lowest risk loans. Approximately 90% of our NBFI loans are investment grade or investment-grade equivalent, and all have robust collateral monitoring requirements. Because there's been a lot of focus on the regulatory reporting category of business credit intermediaries, we've further broken out the components in detail on the slide. This category for PNC includes asset securitizations, primarily trade receivable securitizations, of which PNC is an industry-leading provider. These are loans to bankruptcy remote subsidiaries of corporate borrowers, secured by diversified pools of receivables. These loans represent approximately 80% of the business credit intermediary category for PNC. The remaining 20% of our business credit intermediaries category, approximately $7 billion, is mostly comprised of CLOs secured by private credit provider assets. These are well-structured assets, all supported by senior positions with substantial excess collateral.

So again, we've been in these businesses for a long time, and we've experienced virtually no losses going back 25-plus years. We feel very good about the risk content of our NBFI loans, and based on the composition of these low-risk assets, expect 0 losses going forward.

To summarize, PNC reported a strong first quarter, and we're well positioned for the remainder of 2026. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 1.9% in 2026 and the unemployment rate to drift slightly higher to 4.6% year-end. We do not expect the Federal Reserve to cut rates during 2026. Our outlook for the second quarter of 2026 compared to the first quarter of 2026, it as follows: We expect average loans to be up 2% to 3%, net interest income to be up approximately 3%, fee income to be up 2.5%, other noninterest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up approximately 3.5%. We expect noninterest expense, excluding integration expenses to be up approximately 2%, and we expect second quarter net charge-offs to be approximately $225 million.

Considering our first quarter operating results, second quarter expectations and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows: we expect full year average loan growth to be up approximately 11%. We expect full year net interest income to be up approximately 14.5%. We expect noninterest income to be up approximately 6%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 11%. Noninterest expense, excluding integration expenses to be up approximately 7%. The and we expect our effective tax rate to be approximately 19.5%.

As a reminder, our expectation for nonrecurring merger and integration costs is approximately $325 million. We recognized $98 million in the first quarter and anticipate approximately $150 million in the second quarter, with the remaining balance to be recognized in the second half of the year.

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

[Operator Instructions] Our first questions come from the line of Ebrahim Poonawala with Bank of America.

I guess maybe Rob, Bill, just if you could talk about deposit growth. As we think about period, we've not been here in better part of the last 15 years when rates are higher for longer. I think as you mentioned in the forward curve, we may not get any rate cuts. Just give us a sense of the algorithm to grow core deposits in this environment? Like how do you think about it? What's the approach? And how difficult do you think it's going to be for PNC and the industry to actually grow low-cost core deposits.

I guess I would just frame it a bit different and talk about growth in DDA accounts and retail clients broadly, which in turn causes deposits to grow. So I don't think about the average balance somebody holds is a function of how high rates are, and how competitive outside alternatives are. Think about shots-on-goal is a number of [indiscernible] clients we have. So our focus has been on growing retail clients, which is the key to growing deposits long term. The particular rate environment where rates are just kind of steady for a period of time. And people are fighting to expand. You see at the margin, and you've heard competitors talk about this that in certain price categories, people are paying up to maintain balances and/or attract new clients. But look, we're opening branches we've opened so far this year, we're going to go put our total for the year, another 50 or so. Our digital acquisition has been really strong, and we just need to continue that ultimately will lead to deposit growth.

And we do, Ebrahim, just as a reminder, we do have deposit growth expectations for the year, sort of staying at these levels. We had a good first quarter sort of staying at the levels with some incremental growth in the back half of '26.

Understood. Got it. And I guess maybe just separately, around customer sentiment, I think all sorts of risks over the last month, including calculation, what higher oil prices and energy prices would mean for the consumer. Just talk to us if we saw some decline in sentiment over the course of the last month? Or do you think -- are you as constructive when you think about just growth outlook? Obviously, the guidance suggests nothing has dramatically changed. But I'm wondering, we came in with a lot of excitement around the tax incentives for businesses, consumers. Is all of that more or less mostly intact?

Look, I don't know that we can square for you the headline surveys on consumer confidence or small business confidence, which are all not great, how we square that with what we actually see. So when you look through spending patterns, growth in savings, activity levels, loan growth, everything we see day to day in our business is almost a complete odds with the surveys you see on confidence.

Yes. I would just add to that. I mean in terms of sentiment, obviously, there has to be a higher level of concern. But to Bill's point, the activity hasn't changed.

Endings accelerated.

Our next questions come from the line of Scott Siefers with Piper Sandler.

Actually, I wanted to sort of follow up on that sentiment question and also about what is [indiscernible] loan growth. You had a pretty good performance in the first quarter. And when I look at the guide, it doesn't necessarily imply much growth in future quarters of the first quarter base, but I inferred at least that your commentary on utilization rates sounded good, it sounds like they're increasing. Are you seeing anything specific that would cause you to be conservative, or are you just sort of approaching with an abundance of caution?

Well, sure. I can answer that, Scott. Clearly, we saw more than what we expected in terms of loan growth in the first quarter. And on an average basis, that's going to pull into the second quarter. On a spot basis going into the second quarter, we actually see it sort of staying flattish because we do have some paydowns that are coming that will offset continued new production. So that gets you through the second quarter. And then when you look at the back half of the year, we're pointing to growth but not at the rate that we've seen in the first quarter or that we expect in the second quarter. And to your point, that is related to concerns that ultimately end up reducing the visibility of what can happen in the second...

Long story short, you followed us long enough. We're never going to go out there and say loan growth is going to be this big number. We can't predict it, but we banked some in the first quarter. So we put that in as or basin go forward. And if we're pleasantly surprised, that will be great. .

And it will be accretive, that's right.

Okay. Good. And then, Rob, maybe just some expanded thoughts on how capital management might change should these the Fed proposals or NPRs indeed come through. How much more aggressively might you think about things? Or what are sort of the governing factors you think about? You get this big relief, but then unclear the ratings agencies are necessarily on board. So what are sort of the puts and takes you see or the kind of factor you think as you walk through the...

Yes, sure, Scott. So both methodologies -- under both methodologies, we see a reduction in our other BAs of about 10%, as I mentioned in the opening comments, which is a good thing. We're still in the proposal stage or comment page, stage rather, of the proposal. So we have to work through all the nuances there. But at first blush, because AOCI is blended in under both methodologies over the 5 years upfront. There is no AOCI. It's close to a full point of capital for us.

The other issue, you mentioned the rating agencies and inside of their rating methodologies, they look at risk-weighted assets. So I haven't actually thought through the notion of, hey, we have less. So does this actually just pull through how they're going to look at us as well. But I kind of think it will.

But I don't know if we've gotten that discussion point with our rating agencies. But they had adjusted their expectations with the change of these proposals. So they've worked the numbers down under the current framework. So it's logical to expect that it would extend into the new methodologies it.

Our next questions come from the line of Manan Gosalia with Morgan Stanley.

Maybe just a follow-up on the capital question. So you noted that the ERB adoption benefit is similar to adopting the revised standardized approach. Would it still make sense to adopt the ERB as it relates to maybe the flexibility that it could give you in managing the business going forward? Maybe if you wanted to lean in on the investment grade credit side or lower LTV CRE. Just wanted to know how to think about this going forward.

Yes, I think you're right. On the surface, the ERBA because of the benefit coming through investment-grade equivalent loans, which are sort of our wheelhouse. That makes that methodology appealing. But we're still in the analysis stage here. There's still a lot of nuances to figure out. And obviously, in terms of if there's any changes after the comment period but you're on the right track.

Got it. And maybe if I can ask the loan growth question and maybe compared to the NII guide. So I guess you're pretty close to the 3% NIM number you had indicated, and you're taking the loan growth guide up by 3 percentage points. And then the NII guide is going up, but maybe to a lesser extent. Is there anything that we should be thinking about on loan spreads or deposit rates that you're baking in now that's different to where we were at the start of the year?

Right, let's start at the beginning. So I'd say the short answer to your question is it's loan mix on the new production piece. So if you go back to January, when we call it for 8% average loan growth, what we did is we just used average spreads on the new production through 2026. Where we find ourselves today after the first quarter is we've generated on a relative basis, a much higher volume of higher credit quality deals, which, by definition, carry relatively lower spread. Still attractive spreads, still attractive returns, particularly given the noncredit portion of those relationships. So it's just a mix change that when we look out for the full year, we'll have higher volume on relatively lower spreads. And as you point out, that results and higher NII than we thought in January, which is a good thing.

And as far as NIM -- we might as well cover NIM because I'm going to ask the question. We saw a nice increase there in the first quarter relative to our expectations. We still expect to go above 3% in the second half. But as you pointed out, we're at 2.95%. So if we're going to be above 3% in the second half, you can do the math there in between. But most of the expansion of that is still coming from the fixed rate asset repricing. That continues to be very strong.

Our next questions come from the line of John Pancari with Evercore.

On the fee side, I know your capital markets rev decreased a bit off the particularly solid fourth quarter, particularly on the M&A front. Can you maybe update us on the outlook here in terms of pipelines, and how you'd be thinking about M&A and your other capital markets revenue just given the current backdrop?

Yes, sure. I missed the first part of the question, but it is all about capital markets and sort of a...

He was just saying that Harris Williams draw...

Harris Williams, okay, yes, yes, sorry. Now, I've got that. So Harris Williams had a strong quarter actually in the first quarter. It was off the elevated levels of the fourth quarter, but higher than what we expected. And the good news is their pipelines are strong. So going into the second quarter, we expect them to be at the levels that they've been in the first quarter, which, again, more than what we thought. So strong activity there, and that is leading to the guide. So in the second quarter, we had capital markets essentially being at the same level. And then more importantly, for the full year, still up double digits.

Got it. Okay. Great. And then on the capital front, I appreciate the buyback color in terms of the expectation for the second quarter. Maybe just more broadly, if you could talk about capital allocation priorities. And Bill, maybe if you could just give us the update again on where you stand on M&A interest just given the backdrop we're in, and the activity and the regulatory posture to deals. Just want to get your updated thoughts.

Please, I asked you about M&A.

So real simply, right, obviously, like to use our capital on clients and our business. We have increased our buyback just given capacity to do so. We have, and you should expect that we will continue to have healthy dividends. So in the ordinary course, we'd otherwise be giving back more capital to shareholders than perhaps we have in the last and full year, Rob, is that accurate?

Yes. The M&A side, the noise and activity levels, forgetting about us, just kind of what I see going on around us seems to have got down. We're not we're focused on growing our company organically. We have great momentum on that. We keep our eyes open, but you've heard me say a lot of times, I just don't think there's going to be a lot of activity, particularly with us. It's an easy year for banks people are happy to do what they want to do, and we're not going to push on a string nor do we need to.

Our next questions come from the line of Ken Usdin with Autonomous Research.

I was just wondering, obviously, we see the outlook for the cost still intact for the year and then hires first to second. Can you just remind us expected closing of FirstBank and then the magnitude of sales you're expecting and then how that cascades to a run rate as you get through the rest of the year?

Yes, sure, Ken. So again, our full year guide holds in terms of expenses up 7%, which includes the operating expenses of FirstBank. You didn't ask the question, though, in terms of sort of how the expenses have fallen in the quarter. Some people have asked that relative to the first quarter, we spent a little less than we expected, that will fall into the second quarter, largely around technology investments and the timing of those investments. On FirstBank itself, everything is going well. We are still planning to convert mid-June. So everything is holding there. We expect, as I said, $325 million or so of integration charges. And then we'll see the decline of their run rate, obviously, in terms of the second half of there'll be some residual integration charges in the second half, but the majority will be completed in the second quarter, which -- in my comments, I pointed out it will be about $150 million. So that's all in our guidance. That's all there. It's on track, and we feel good about it.

Got it. And so then we -- I would assume that the cost saves would run rate by the fourth quarter and then that's given you a point...

Yes, yes. I think that's a good place to start.

Okay, cool. Great. And Rob, can you actually dig on that point a little bit, does the push off of some spending from versus second? That was going to be my follow-up, actually. So...

Yes, yes, yes.

Is that demonstrate the flexibility that you guys have or -- go head.

No. I mean, of course, we have flexibility, but that wasn't what drove, it was just in terms of the timing can slip into the second quarter in terms of what we plan to do in the last couple of weeks of the first quarter. Nothing major.

Our next questions come from the line of David Chiaverini with Jefferies.

So on deposit pricing competition, are there any differences in competitiveness by geography in your footprint?

Not really.

I was going to say in a retail name, Midwest right there were comments on just the Midwest being kind of tight with high promo offers by a few of the competitors. But it depends -- in part of the country, people doing big promo CDs in other parts of the country they are...

CD.

It's on their money market funds. People are fighting for deposits, and people are fighting for clients.

Particularly harder in any geography.

Yes, maybe, but we're -- as it relates to us, you can see our growth and our growth in clients has been really strong. And we don't have to go and lead with our faces here on price.

Yes. No, that's fair. It sounds like it's mostly stable. So that's good. And then shifting on to the loan side. Can you talk about borrower sentiment pipelines and then the competitiveness on the loan pricing front?

Yes. So again, first quarter was really strong. It's always competitive. Our -- like I said, our new production was skewed towards the higher credit quality, lower spread and the pipelines look strong, a continuation of that into the second quarter, which I mentioned earlier. So pipelines are good.

The only thing we've really seen on spread widening as you get into any of the space on what I'll call leveraged lending. We don't do much of that. But in business credit, we've seen spreads move. Our partnership with TCW on cash flow lending. Those spreads have got 50 basis points. New production just because of the kind of scare around what's going on...

Make sure, this is good thing.

Yes. This is good thing.

The other thing to mention is around loans is that we did see an inflection point on our commercial real estate balances, which we called for in the first quarter of '26. So as you know, that's been a headwind for a number of quarters, and we've reached that inflection point as we expected.

Our next questions come from the line of Chris McGratty with KBW.

Bill and Rob, you talked a lot about your confidence in the credit of the private credit portfolio in EFI lending. I guess, where would that rank in the wall of worry within the company. It seems like the markets, to your point, overestimating the kind of loss content. But we're in the risk curve does that live?

It's not even on the curve. I mean if you go through that whole bucket, the riskiest piece and the whole thing is that little $5 billion slice that is to REITs and leasing and this and that and the other thing. It's not like a AAA CLO senior tranche from static maturity. To my memory, there's never actually been a loss in the history of the product and the AAA corporate. The BDC exposure is really small. Even if that whole market blows up, which I don't think it's going to, that just causes that product early in. You have to have massive corporate defaults at low recovery rates to get hit on that. So I just -- like you want to talk -- remember when we highlighted our real estate book, we said, "Hey, we're worried about this. We're working through it." We preserve a lot of it are in office like this isn't even on the page of what we're looking at. This is nothing. I mean, it's a great business. It doesn't worry me. I worry about trucking companies, and I worry about people who are dependent on fuel, and what's going to happen to discretionary spending. This isn't in that list.

And just as a follow-up to that real estate piece that you point to that the most risk is very little risk. That's on a relative basis. But I think we had 1 loss back in 2014 in that category, and we're still talking about it.

On the [indiscernible], yes.

It's -- I mean I get with Ian and the market has seen liquidity events in a small slice of what is private credit and it has scared everybody. And maybe it should if you're somehow trying to get money out in a hurry, but that isn't where we are a senior position, I guess diversified pool of loans with a low advance rate. We've been doing this for 3 years.

And then just to add to that, and this is important because a lot of people focus on it, that category business credit intermediaries. The vast majority of ours are trade securitizations. So people sometimes mistakenly call that whole category, private credit. And for us, it's quite the opposite.

So we stayed in just to hammer on this point. way back in the financial crisis when corporate receivable securitizations used to be done through CP. It kind of all stopped with the reversal at money funds. And a handful of us just started doing it on balance sheet. Really high credit quality, not a great spread, great return on economic risk kind of lousy return on liquidity, decent return on regulatory capital. And we're, by far, a market leader in it, and that's what's blown up that category for us when you look at comparisons of how much we have in the book, but it is not risky. It's a great business, and we're going to keep doing it as an aside. We're going to have some conversations with the regulators on the uselessness of what they've defined as [indiscernible].

Great color. Just my follow-up. The -- I think it was $350 million you talked about is the savings. I'm interested beyond this year, you've got the cost savings from this program and also the FirstBank deal. Is there more -- I guess, is there more behind this potential to cut costs as you -- as the narrative around AI and technology investments? Is there another benefit that yields in the next couple of years?

Yes, this is a short answer. I don't like -- I don't know that it's a standout structural change in the efficiency of banks in the sense that we've been automating for years and years and years and largely kept our headcount flat as we over triple the size of the company. That sort of thing continues. AI allows that to continue. Maybe it accelerates through time, maybe you can establish a competitive advantage early on to be a leader in it, but everybody is eventually going to catch up, and we're going to get to a place where banking, same trend we've been on forever and ever. Banking is going. The winner is going to be low-cost providers of really good products with trust behind it. We're going to squeeze costs out of the production of what we basically offer to customers, and you're going to need to do that to win in a consolidated industry.

But that's likely over multiple years. So for '26 -- 2026, our continuous improvement, $350 million of savings is part of our guide, which is up 7%. .

[Operator Instructions] Our next questions come from the line of Matt O'Connor with Deutsche Bank.

Can you guys talk about your interest rate positioning right now? And I guess how you're thinking about hedging because I thought the best hedges are put on when maybe the market doesn't really know where rates might go, which is kind of a right now, we like that. So what do you -- where are you right now? And what are you kind of more concerned about protecting your downside or outside.

Sort of a technical answer. We are basically economic value of capital [indiscernible]. So duration is zero, and our equity, we're flat to overall rate movement inside of our balance sheet. Having said that, we have continue the process as you've seen us do in last year into this year of locking in forward curve rates, particularly when we see some volatility to the upside that the belly of the curve. So we've done that well. It gives us greater certainty around some of our comments we've talked about with respect to certainly with '26, but even '27 and into '28 as we lock down some of these rates.

So neutral in '26. And looking to lock in some in '27 and '28, similar to what we did last year.

Yes. Part of this discussion, though, of course, is don't we're going to have really good NII trajectory for the next couple of years. We're going to do that despite being flat total rate exposure, which means we're not trading our future like 5 years out, for the ability to produce really strong NII in the first couple of years.

Okay. That's helpful. And then, I guess, specifically within MSR heads, the residential and commercial. I understand this is not like the broader interest rate risk management. But I'm wondering is there anything kind of to read through there you've had pretty strong net gains the last several quarters. And this time, I think it was more offsetting. Just anything interesting to point out there.

Look, we got chopped up, right? I mean, that's a massively negative in fax book and your short options every which way you try to hedge it and realized fall was way higher than implied as we try to hedge out that risk we got chopped up. It happens, and you're exposed to it anytime you have rate swings as aggressively as we saw in the course quarter around some of the news. And you're right, through time, that tends to be an income-producing line item for us where usually we're plus, I don't know...

Not a driver to the point.

We got [indiscernible] this quarter...

The heightened rate volatility was the driver of an unusually large negative for us.

But it wasn't like nobody screwed up. It wasn't a trading thing. It was literally realized volatility is higher than what was implied. So anything that has optionality and in effect gets hurt in that environment.

Our next questions come from the line of Mike Mayo with Wells Fargo.

To the extent that RWA with Basel III might be 10% less. How would you plan to use that extra capital? And when might you start meaning into using more capital or maybe you're doing so already. Clearly, you're lead into using capital with a loan growth that you had and you expect, but maybe more buybacks, a deal? How do you think about using that excess capital and when?

It's down the road. We've increased our buyback. We've seen good deployment to our growth in the franchise. We'll see when this thing even gets comments are in and it gets approved and it gets done and then there will be a whole new environment, and we'll figure out what we do at that point in time. But it's a nice problem to have. We're going to drop a point of capital into our pocket. We'll figure it out when it shows up.

How do you see competition? It seems like the industry is all playing offense or everyone front-footed you've been growing unused lines of credit, and I guess that's unused commitments. I mean, and that's playing out to a certain degree. So you've already been competing, but others are coming back more in force. And so how do you see competition generally, especially with regard to loan growth. How are you getting so much more loan growth than the industry? To what degree are you competing on price? And I don't know, it just seems like everyone has an excess capital and in no situation historically. You've seen competition swing a little too far. I don't think you're there, but trying to take off.

That isn't our -- I mean we -- look, we're bringing all these new markets online. We have more shots on goal. So we're just -- we're seeing more opportunities as opposed to trying to rebid the same deal I've been in for 22 years in our local market. So that's a big part of it, and that's why we you saw when we kind of went through the Southeast now it's accelerating with BBVA and FirstBank markets. The other issue is we have a much more, I don't know, what to call it, specialty lending, don't read that as high risk, but we're in a lot of lending products that aren't commodity capital. So whether it's our corporate receivables business or asset-based lending or were equipment finance, we're in a lot of things that isn't simply throwing money out as a generic good. And I think at the margin, that always helps us outperform.

The other piece to that is -- oh, I'm sorry...

No go ahead.

Just expansion of the new market, what we call our expansion markets for our market-based corporate loans. So our national businesses aside, they're not half our loans.

And growing twice the pace.

That's a big driver.

I'm sorry, I missed what you said there. How much do you -- [indiscernible] you loans?

51% more than half of our market-based loans. So we have national businesses that are not market-based. But in all the markets that we've entered within the last 12 years, half of our corporate loans are in those markets.

That's interesting. And what was that percentage to say, a few years ago?

40. I don't know the number, 30, the price started at 30 depending on where you are. Yes. It's growing at [indiscernible]

It's growing 2x the rate?

Yes, generally speaking.

And do you want to call out any of the expansion markets, in particular, being a little bit stronger than others?

Well, we've done very well in the Southeast where we've been the longest. But then certainly with the Southwest, Texas and California, Colorado now because we're online there.

California has been in some ways shockingly strong. It's just -- it's a target-rich environment that the amount of commercial middle market clients that are within the zip codes of California great clients, great fee. And the other thing I'd just remind you is we haven't done this by just doing loans like our fee income percentage in these new markets is actually equal to or higher than legacy markets.

Yes. It's an excellent point.

Yes. So it sounds like we're running out throwing money at people were like it's an integrated relationship, and we're really good at it, and we're growing.

Our next questions come from the line of Gerard Cassidy with RBC Capital Markets.

Bill, following up in your comments about the focus on organic growth. Can you share with us an update? I think it was at the BAB conference in November. Robyn and Gunner gave us more details about the retail expansion that you guys are undertaking. Can you share with us how is that going? What are you learning from the process? And are you pleased with the pace at which you're growing it?

I'm chuckling here because Alex is going to be amused that older brother gave the presentation. I apologize -- it's all good. First of all, it's working what have we learned through the process. It's actually hard to build 60 or 100 branches a year. The site location, the teams that you need in each market to pull this off, we've kind of created a production factory around it. We've learned a lot about how to create a massive buzz around the new branch opening that is particularly when we're trying to, in effect, get our fair share in a newer market where we're building a lot of branches. We haven't leaned into pricing to attract new customers necessarily, which is an accelerant if we want to use it, but they're working really well.

And you...

Go ahead.

Sorry, sorry.

Gerard, you go ahead.

I was -- and then on the metrics, I mean, you kind of crystallized what you need in deposits or the type of deposits to bring a branch up to say breakeven? And generally, how long does it take to reach that point?

Yes. So everything is on track as Alex pointed out back in November. If we sort of pen in 3 years to kind of get to breakeven, actually, we're running a little better than that right now. But everything to this point is on plan, and we're excited about it.

Very good. Coming away from this growth. I know you know, Bill, because you've talked about it, there's been a change in the leverage lending guidelines by the FDIC and OCC. Have you been able to optimize any of your lending but these I think it went into effect in December that those restrictions went away. But are you seeing any benefits from that where you're winning new business because you're able to have some flexibility and optionality now?

That's a good question. Most of our struggle with that was that it was capturing business that we were going to do anyway, no matter how much they yield it is because it was a really good business, and they just had the definition wrong. I'm actually not -- maybe at the margin, we've seen some acceleration in some of that stuff. But mostly, what that did is it opened the window for banks just to do good smart business and not try to write a 4-paragraph description of what is a good or a bad loan. What you just can't do today.

Our next questions come from the line of Erika Najarian with UBS.

Just a few quick follow-ups. Bill and Rob, I know you were asked a lot about the deposit opportunity, which you answered fully. Just wondering, just pulling up if the Fed doesn't cut this year, where -- how do you think deposit costs behave? Do you think that you could hold the line on deposit costs if that doesn't cut?

Hi, Erika, this is Rob. Yes, I do think I think so. If the Fed doesn't cut, which is our expectations that they won't deposit costs stay fairly steady through the second quarter and then maybe by our estimates, maybe go up a basis point or 2. But generally speaking...

The pressure up isn't from necessarily competition, but rather just repricing back book is this kind of roll. Running back to customers to a closer to market level, which at the margin will cause our deposit cost to go up over the next period if that doesn't move. But it's not -- it's all in our guidance. It's not material. And we'll still hit the 3%.

And that back book repricing is a dynamic that's been in place for a while. That's not new. So it was certainly steady. But obviously, there's a risk if loan growth continues to exceed and on those deposits, but that would be a good thing.

Got it. And just finally, Bill, one of your peers, David Salman actually talked about widening spreads. -- in certain pockets of NBFI lending. Are you observing similar spread expansion in certain DFI-type credits?

So drill down on that. We're inside of MDIs, right, the spot everybody is focused on a credit and inside of our bucket in our $7 billion is 90% CLOs, AAA tranches, I imagine, have wide I imagine facilities to BDCs are going to widen this people as the fair factor steps in. We have like $500 million of last [indiscernible]. So like beyond me figuring out that there's a spread movement in there is kind of unlikely because we're huge in the flow.

Our next questions come from the line of John McDonald with Truist.

Rob, I was kind of wondering, as loan growth is picking up here, your reserve ratios look solid, but any need to start to provide a little bit for loan growth as we look ahead?

Yes. Well, sure. That will be part of it. In fact, if you take a look at our provision increase quarter-over-quarter, that was largely driven by the loan growth that we saw. So that comes along with loan growth. These tend to be -- and what we've seen tend to be higher credit quality. So it's not as much, but I would expect provision expense to go up with the growth in loans.

Okay. And then on ROTCE, any updated thoughts? I think you talked earlier about exiting the year at kind of an 18% ROTCE heading higher next year. Any updates there?

No, no. The same what we said back in January. So just to remind everybody, we finished the fourth quarter of '25 at approximately 18% ROTCE. That was elevated a little bit by the tax reserve release in the quarter. And what we said, and we still believe we're going to go down during '26 because of the First Bank acquisition and the impact on that. Then when we deliver everything that we intend to deliver, in '26 along our guidance, we'll be back to that approximately 18% in the fourth quarter of '26. But the really important part is we would expect to drift higher as we go into '27. And that's still the plan.

Got it. Got it. And that's just a function of operating leverage and growth next year in terms of moving higher?

Yes, that's right.

We have reached the end of our question-and-answer session. With that, I would like to turn the floor back over to Bryan Gill for closing comments.

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

Ladies and gentlemen, thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.

As many of you know, PNC Financial Services Group has a market cap of about $80 billion. Total assets now are about $574 billion. The stock trades at about 1.8x tangible book and it has over 2,400 branches throughout the United States.

With us today, we're pleased to have Mike Thomas, Executive Vice President and Head of Corporate and Institutional Banking. He's had a 27-year career with PNC and he has headed up the real estate area in the past as well as having many of their divisions like Midland loan services report up to them. So we're really pleased that you're able to join us today, Michael.

Thanks for having us. Great to be...

Maybe let's start off one of the topics for this year for the industry, specifically for PNC, it's about commercial and industrial loan demand. And so can you talk to us about what you're seeing? What are the drivers of that? And what's the outlook you think for 2026?

Yes. Well, we've had really good growth out of our C&I book. We have really 2 things going on last year. Once Liberation day came and the volatility entered the market, we do what we always do. We spend a lot of time with clients trying to help them kind of work their way through the difficulties. We thought we would have some struggles at the beginning of the year.

It was a little bit slower, but we came on strong towards the end. We ended up with really good momentum. And that was driven by pretty broad-based activity across C&I, at the same time, we were working through some issues within the real estate book related to office, which have been well documented. So that was a bit of a headwind. All in all, we ended up with about a 9% growth in the fourth quarter, which was really good, solid growth for us.

In the C&I book, we were down a bit as we expected to be and had planned for within real estate. So ended up the year with about 5% growth in that book. And as I say, it was really led by -- across our corporate banking book in our business credit area as well. Our ABL teams have had some good growth. So we would expect that to continue into '26. The good thing for us is from a real estate perspective, we think we're at the tail end of the reduction in that book. And so we'll begin to see some inflection, which I'm sure we'll get into here. But overall, the clients have weathered the volatility really, really well. Shockingly for us, we've heard from a lot of them that the volatility that they've had to navigate really since the pandemic has made them a much more responsive business and they've learned to deal with the tariffs, et cetera. So they've built resiliency into the business, which helped them to grow over the last year.

That's such an important point, I think, which investors sometimes overlook about the pandemic, what your customers and other corporates had to go through to get through that. And now the resiliency that they're seeing from that, those lessons.

Yes, we've had some surprises as we've talked to clients and we did a survey of our C&I clients last year and they came back and said that they actually thought that, that volatility had net-net helped their business, which is a very surprising result for us sure.

Now certainly, we've seen impacts. If you look at consumer discretionary, consumer staples, some other places, you've seen margin compression in a couple of those but they've largely been able to pass along a lot of the tariff impacts and -- but they've gotten very flexible in their supply chain management. They've gotten much more efficient, and it's allowed them to be better businesses.

Got it. I know we'll talk about real estate in a second, but coming somewhat linked to it. We've seen the stories of all the data centers being built in the United States. But from the C&I side, are you guys seeing any evidence of the guys -- the folks in the field saying that the HVAC company or others that have lines of credit or drawing on them to fulfill their business and building out these data centers?

Well, we do see some of that. And we've got businesses that, I think, intersect well with data centers at the periphery. We do some data center lending. It's a relatively small part of our book. We've got about $2 billion or so of exposure to the large data center companies. But we also do equipment finance. We do some renewable energy project finance, et cetera. That is -- as an adjacency to the data centers. And as you say, HVAC and lots of other places intersect with that industry, and we have seen some pickup in business for sure in some of those places.

Got it. Coming now to real estate. As you pointed out, it looks like you're at the tail end. Rob has talked about Rob Riley maybe an inflection in commercial real estate portfolio this year. Maybe share with us when do you think it could inflect in any specific areas within real estate its such a broad category where you could see some growth?

Yes. Well, we're beginning to see it now. We still think that we've got a shot at seeing that inflect in the second quarter. Now what we'll actually see from a spot basis in the first quarter, we'll see some growth for the first time. But on an average loan basis, I think that will -- there's a timing issue there that will slip into the second quarter.

Most importantly, if you look at our pipelines, we're about 300% up in our real estate banking lending book from a pipeline perspective. So the opportunities are there. And it's -- again, it's fairly broad-based. We've been more focused on multifamily in recent years because we continue to have a housing shortage in this country. And so lots of opportunity there. But importantly, there are some other places that have been underinvested in over the course of the last few years coming out of the pandemic because there's just been a deemphasis on real estate.

So if you think about retail, for example, at one point, it seemed like retail was a dead industry for us. But the lack of investment there over the last couple of years has actually really strengthened the performance in the retail book. So we're beginning to see some more investment that's coming. We think we'll see opportunity there. And then industrial and warehouse, again, had also slipped a bit over the last few years, and we're beginning to see some more opportunities there. And even in the office space, as that's gotten cleaned up, we had a -- post our BBVA acquisition, we peaked at about $10 billion of office exposure. We're down to right around half of that today.

The books gotten cleaned up. Performance is strength and you've seen a lot more return to office mandates and as a result, in places like New York and a couple of other strong markets, we've actually had opportunities to go and do some additional lending into office as well that have been pretty strong with really strong sponsors.

So I think we'll see more broad-based real estate opportunities going into the remainder of the year.

Got it. And -- are those opportunities more in the construction loan side or commercial real estate mortgage side when the pipeline is up that much, they mostly construction loans or mortgages a combination of both?

Well, it's a combination. We'll see it in construction for sure. But real estate investment trust, for example, will have more opportunities this year. So we'll do more financing there. We've got some opportunities to do fixed rate mortgages, some 3- to 5-year term loan sorts of loans for multifamily.

So you'll see it in a lot of different places. Importantly for us, our real estate business is not just a lending business. We do a lot of things there. So the commercial loan servicing business is impacted positively when you have more activity, you start to see more CMBS activity. We get a lot of business that comes through our multifamily platform. So we do long-term fixed rate loans for Fannie and Freddie. We do tax credit investing. All of those things are impacted when real estate starts to come back, and we've seen great activity in all those places.

One of the questions that investors are wrestling with is deposit growth. And when you look at the loan-to-deposit ratios for the industry, they're still low relative to history. But now as loan growth accelerates, could we see more competition for deposits? What are you guys seeing on the commercial -- the corporate side, obviously, in the consumer. But what are you seeing on that from a deposit standpoint?

Yes. Well, I think the deposit competition is always strong. So we're always in a fight for deposit side. We had some good growth last year, we were up about 8% versus our 5% growth on the loan side. So we did reasonably well. And maybe most importantly, we were able to do that without impacting our rate paid. And I think a lot of that was because we had new client growth. We did see some defensive building of liquidity for our clients as well. So there are a number of reasons that we got that growth, but we had strong results, and we're continuing to see that. We've been very disciplined about how we pay rate there. And as we've seen the Fed cuts come, we've maintained our ability to move our deposits.

The deposit beta has been about 85% last year. We expect it to continue to be somewhere in the mid-80s. So I think we will continue to do reasonably well there.

And coming back to the pandemic again and resiliency, are your customers keeping more deposits on hand just for liquidity purposes due to what we went through during the pandemic or no this we're back to pre-pandemic kind of thinking?

Well, in some cases, yes. I'm not sure I would make a broader statement about what they're doing there. I think coming out of the pandemic, they become more efficient generally. What you did see in light of Liberation Day was the buildup of inventories to try and get through that. And so you saw some drawdown within individual businesses so that they could fund inventory. They've worked through a lot of that as we've gotten through the year. And I think now it's pretty much BAU. Although the uncertainty in the market certainly causes them to think about having more balances on average than they've historically had.

The markets are very concerned about what's going on in the software lending area that you're well aware of and the potential disruption from AI. Can you share with us your exposures there? And what are you guys doing to manage the risk and also may be some opportunities that might arise.

Yes. And what's interesting. So our biggest exposure there is in our recurring revenue book. That's about, call it, $5 billion, $5.3 billion in exposure. And maybe we'll spend a second just talking about what we do there. We've been focused on managing that book actively for years now. We've been in the space for 15 years plus. But we lend in a super senior position. We lend in that book out of our business -- what we call business credit. It's the place where we have the most active management and scrutiny of our portfolio. We are, call it, 1x recurring revenue. From a leverage perspective, we are often backed by last out capital there. It's all private equity-owned firms, the valuations on that book are routinely in the, call it, 6 to 8x. So we've got the right leverage. We've also got the right structure. We've got covenants that allow us to be first at the table. We can control whether or not we need to sell the loan, sell the company, pull more cash flow into the loan.

So we've got a lot of ability to impact our outcomes there. But maybe most importantly for us, and this is applicable to lots of places within our book, it's client selection. So we think a lot about AI, and we have been for a few years now. And we try to make sure that we're banking companies that have a very strong business model. And what I mean when I say that is they need to be part of the system of record for their customers. They need to be heavily woven into the business of their customer we like them to have what we call a little bit of a moat around their business.

Now there's nothing that's not going to be impacted at some level with AI. But we believe if they've got really good data that's proprietary that insulates them a little bit from the large language models that are coming in, that are really helpful. And we also like to bank innovators. So I think one thing that gets lost in some of this conversation is a lot of these software firms are incorporating AI solutions into their business.

So they're not just sitting there waiting to be picked off. In many cases, they're the ones that are going to be doing the picking off, so to speak. So we spent a lot of time thinking about this portfolio and these businesses. We have a team that's very experienced. The equity and the debt that's behind us is also very experienced, specifically in technology and software and we do quarterly portfolio reviews. And every single time we have some loan credit action, we assess it not just for the current performance, but we also assess it for impacts from AI, et cetera. So that's a book that continues to perform well.

We haven't had any issues, knock on wood there. But we manage it closely.

Sure. Speaking of AI, just to follow up. Obviously, there's a lot of concern that AI could lead to some meaningful layoffs, higher unemployment rate in this country. And when you guys think about that, are you looking at it differently with your underwriting? Like you said, you've been in the business for quite some time. Share with us what you're thinking now where maybe there could be elevated unemployment?

Yes. Well, I think we try to underwrite on a through-the-cycle basis. So we don't change our credit box. We don't change the way that we think about underwriting unless we have a real reason to think there's been some sort of a sea change. We haven't seen that show up in our book. But certainly, as we underwrite transactions, we think about the impacts of AI, not only on that business, but on the general economy.

So as I say, we haven't really seen it show up yet in the books. I think there are going to be gives and gets. There'll be folks that get hurt, there are going to be folks that improve. And that's a big part of how we think about underwriting generally.

Yes. Absolutely. Someday I'll be AI robot it appears. How about -- when you -- outside of the whole AI software discussion, are there any other areas of credit that you're keeping your eye on? Not the downtown office, which you guys are very clear about. But outside those 2 areas, anything else that you're keeping an eye on?

Well, there's nothing specific. I think in a moment of volatility like we're seeing today, there are obvious areas that you want to take a look at. So when you think about the conflicts in Iran, there are energy impacts. There will be some benefits there certainly within the -- some of our companies, but there will be others that will be impacted transportation, trucking, those sorts of places by higher energy prices to the extent that this is not transitory.

So we think about that. We certainly think a lot about the consumer in all of this. So if we get to a place where we think we start to see a pickup in inflation again and how that might impact the consumer, given the K-shaped economy that we've got, you start to think a lot more about consumer discretionary, consumer staples, those sorts of things. But there's nothing right now that has popped up as a particular area of concern. It's more kind of general shock to the system and how do you model that through your portfolio by portfolio.

Got it. One of the tailwinds or bank stock investors aside from the credit being benign generally is the regulatory changes in Basel III endgame proposals should be coming in the next 2 to 3 weeks apparently from what we're hearing. Can you share with us how it might impact your business -- the capital ratios within your business and what you're looking for potentially in this proposal?

Yes. Well, I think the most important thing is what we think that we might get is not going to impact our minimum capital. We'll have plenty of cushion there to our 7%. And it won't really impact or move the needle on how we do our business. We're always thinking about capital efficiency. But we do think that we'll get some relief from a risk-weighted assets perspective, I think as much as $40 billion of risk-weighted assets. We could get some relief there. That's largely related to how they treat investment-grade assets. Before you were really looking for investment-grade assets that had a public security we may now have the ability to look at assets that don't have a public security attached to it.

So that would allow us to include more of our book. There's also some positive impact potentially to how we think about mortgages and mortgage servicing that I think would be helpful. We do expect also that ACI would be included. But we'll see. When the proposal comes out, we'll take a look at it, and we'll react accordingly. But I don't think it has a material impact to how we operate the business.

Got it. Okay. if we can pivot over and shift over to fees, one of the hallmarks of B&C is the treasury management business and it continues to grow. Can you share with us the outlook here for the treasury management business, but also everybody seems to be rushing into treasury management you guys have been doing it for a while. But just -- how do you differentiate yourself from maybe the new players coming in and doing it and share with your thinking there?

Well, I think first of all, -- it's a big business for us. It's probably $4 billion plus in revenue, roughly 40% or so of our business. So it's a big business. We've gotten there through a lot of investment. It's a business that has a need for continuous innovation, technology investment. So that's difficult for folks that want to rush into the business. It tends to be a pretty big barrier to entry. But in terms of how we differentiate ourselves, I think it's really how we go to market in that business.

Treasury management is a place where you can get really close to your client. And that works well with how we think about client management. We're a high-touch business despite the fact that we bring really sophisticated products and capabilities, advisory capabilities, et cetera, we try to be high touch with our clients. And coming to them with a platform approach to treasury management, where we talk about their holistic business, we embed ourselves in the payments that they do with their customers. that all lends itself to what we like to do in helping people to run their businesses better. So I think it's our approach and how we partner with our clients to be able to do their business better. That's really what's allowed us to get the growth that we've gotten.

Certainly. As part of that whole fee structure, you also have access, obviously, the capital market products to help your clients with those needs. Maybe you can share with us how is it complementary to the treasury products of the capital markets and how do you leverage the full suite of products where you give the plethora of products to your customers?

Yes. Well, it's a great point because again, if I go back to how we think about client management, we are trying to be great partners to great businesses, and that means wrapping our arms around them with all the things that we do well. And we put the client front and center. So we're very focused on issuers and all of the capabilities that we've built out within that space, whether it's Harris Williams, it's Solbury the continuous build-out of our debt capital markets businesses -- all of that has been very focused on being a good advisory partner for them.

So what does that mean in practice? It means that our product partners are calling alongside our bankers very, very often in the field with our clients, even if there's not a particular deal on the table. So from an advisory standpoint, that's actually really, really helpful. Because we become go-to for solutions. And then when there is an opportunity to transact, we're hopefully at the front of the line. And so our debt capital markets bankers are rates and FX bankers, our advisory teams, we actually have a team that advises just on value creation and value drivers and kind of the nuts and bolts of how companies run their business, they will all go out with our bankers and spend lots of time with clients. And just having that ecosystem available to them all the time is a huge impact for our clients and builds trust, and that's how we've been able to grow those businesses.

Sure, sticking with capital markets. There's been a fair amount of optimism about the capital markets business this year. Some of the larger banks have given thoughts that year-over-year, we could see mid-teen growth in your investment banking activities. Can you share with us what you're seeing in activity, your pipelines in this area?

Well, our pipelines continue to be strong. We had a really strong year last year in debt capital markets in our rates business, FX business. We would see that continuing into the first quarter here. And we would expect that we'll have mid- to high single-digit growth in the advisory businesses and capital markets businesses.

So those are still working well. As we got to the end of last year, we really strengthened in Harris Williams pipeline. We'll be up -- I think at the end of the fourth quarter, we were up 50% on the pipeline for Harris Williams and up over 30% in the pipeline for Solebury. And we've had similar kinds of pipeline strength within the capital markets businesses as well.

Fortunately, we continue to see -- even despite the volatility, the markets are operating in an orderly way. They're very constructive around debt issuances. So we're getting all of the opportunities that we expected to get so far. And so we're pretty happy with the momentum.

Got it. And that growth you mentioned is a year-over-year number on the capital margin. We've recently seen some acquisitions, some of your peers buying capabilities. Are there any areas that you may want to fill in with an acquisition? Or are you comfortable with the products that you currently have?

Yes. I mean I think we're always looking. We actually just bought a business last year that provides some advisory services on capital raising into the private equity space We've, over time, bought some other Solbury and Harris Williams were notable years ago. And then we've done more in the treasury management space as of late. So we're always looking for opportunities. We don't see a big hole there today based on what we hear from our clients and how we're advising them that we think we've got to fill, but we're open to it.

Got it. PNC has done a good job of expanding into other geographies, especially with your area and also increasing productivity in existing markets. How much more on the productivity side do you see in the existing markets? And then also, can more improvements come from the expansion markets as well?

Yes. Well, that's our most exciting opportunity. We've talked about it quite a bit. I think there's lots of room there, which is the most exciting part because we've had great growth. And as you know, it takes a long time in many of these markets to be able to grow our client relationships. As you enter into some of the BBVA markets, which is where we've had the highest levels of growth. In many cases, you're encountering clients that don't know your name very well. And that can take 2 or 3 years to really get in and get the right opportunity with them.

So we're now at that place where we've had lots of connectivity, we've spent lots of time with them and we think that, that will bear fruit. But even with that kind of long runway we've still been able to make great progress. So we had 700 new clients that we -- that were largely concentrated in expansion markets in the Southwest. And we've grown by, I think, 150% our new lead relationships and syndicated facilities in those same markets over the course of the last year. And that momentum continues. So I'd love to see that at the same time that we think that we've just scratched the surfaces in markets like L.A. and San Diego and San Francisco and markets in Texas, where we've got still relatively small market share.

So we'll continue to go after that opportunity. We'll build out teams as we grow. I think we've got lots of opportunity to continue to grow. The other thing that's really, I think, exciting for us was the first bank acquisition. So that's -- Denver was a market where we had strong teams. But now we have the opportunity to go to market where we've actually got the largest market share. And from a name recognition standpoint and a client relationship standpoint, we lead to the front of the line. And that's really exciting for our teams. It's largely been talked about as a retail story and small business, but it's actually going to impact us into C&IB as well. And so our commercial bankers, our real estate bankers are tax credit multifamily bankers, all of a sudden have access to a set of clients who have great client relationships but did not have the ability to access a lot of the more sophisticated products and capabilities that PNC has.

So I think it's going to be an unbelievable opportunity for us to grow in that market as well. With this growth, how do you guys balance the growth versus prudent risk management, Yes.

Well, I think the best way for us to do that is to maintain our commitment to being ourselves. We've got a long history. It's 160-plus years of doing this. We've been growing and expanding for quite some time. We really started the expansion in 2012 with RBC, and we've continued that. And every step along the way, we've been very, very disciplined about how we go into these markets. Our credit box, as I mentioned earlier, doesn't stretch and change because we're in a new market or we're encountering a new industry. So I think that's the important thing is it just continue to operate the way that we have because the growth has been there and we haven't felt like we needed to go and do something different. It's important to us that we show up in our communities that we're serving all of our constituencies.

So we have this regional president model that we talk about a lot. That's important for how we show up in a market and really serve our community, our customers, our employees and our clients. And when we get there and we put that team on the ground, and we're showing up with one set of solutions that's all coordinated and people see that we're serious about being there for the long run. That works. That moves the needle. So as long as we're doing that, we maintain our discipline. We've got plenty of opportunity to grow without doing anything outside of our risk appetite.

Good. Well, we're running out of time, but I would like to wrap up the discussion on just if you could summarize the strategic priorities for your business and how those priorities will position your group for sustainable growth in success in the upcoming years?

Yes. Well, we touched on a couple of them already. The expansion markets are by far our largest opportunity. When we think about the growth that we're going to get over the next 5 years. There's probably 40% of it or so that comes from our expansion market opportunities. That's across everything that we do. And we're capitalizing on that. We've got good new client growth. We've got the right teams calling on it. We make sure that we have good continuity with our teams, good employee retention, et cetera. And so that's a big opportunity that we'll continue to go after.

Next is treasury management, which we talked about as well. That is a very important business for us for a lot of reasons. First of all, the growth has been significant. It is a very sticky business for us. Our client retention there is about 98%. So that allows us to maintain great relationships and get really embedded into and close to our clients. And that helps to drive the larger relationship with all the products that we go after and we continue to invest there. And then we also are very focused on building out advisory capability within the capital markets businesses. And so for the balance sheet that we've committed, it's important for us to be able to get kind of our fair share of the activity that our clients are engaging in. And increasingly, that's across the capital structure. So our ability to advise them on term loan Bs and other places of the capital markets, loan syndications, their bond businesses, et cetera. just growing our capability there and being able to help them with all of their needs will be really, really important for our growth.

Those 3 things are the biggest areas of focus for us.

Well, great. Please join me in a round of applause. Thank you, Mike, for joining us today.

Thank you. Appreciate it.

So we have PNC Financial. From PNC, we have Rob Reilly, CFO. So Rob, thank you so much for joining us.

Of course, great to be with you.

And maybe just to kick things off, we were talking about this earlier. Broadly, I think the operating outlook coming into this year seems very constructive, particularly for the banking sector in terms of just the domestic economy, all of that. Give us a state of -- a mark-to-market on just the state of the world, where -- what your expectations were coming in, in terms of underpinning the guidance, et cetera?

Yes, sure. Sure. And that's all part of it. We share sort of the consensus view that's coming out of this conference. We are constructive. We were going into '26. We remain constructive for all the reasons that we've talked about in terms of continued growth, the momentum that we saw coming off of '25 going into '26. Labor looks like it's stabilized. We'd have to keep an eye on that. But we've got a generally stimulus-oriented set of circumstances that you're aware of that you talked about in terms of tax legislation, et cetera. We keep an eye on tariffs. The tariffs don't seem to be the headwinds that everybody thought that they would be. And of course, we've got a lot of emerging items going on geopolitically, but net-net, we're constructive.

Got it. And even though it's been like a little over a month this year, we've seen a fair amount of like geopolitical macro uncertainty. I'm just wondering, when you look at that like -- has any of this kind of derailed activity when you sit with loan committees, et cetera?

No. No, not really. Not really, Ebrahim. Everything that we expected in terms of coming out of the gate is holding. And again, we entered the year with a lot of momentum and strong pipelines, and that's all pulling through.

Got it. So maybe let's just drill into your outlook and the guidance for 2026. And I think maybe taking the macro positivity around loan growth and I think your loan growth, give or take, was about 3% year-over-year. And better or worse, on like the rule of thumb for banks over time is nominal GDP.

Yes, that's right.

So is that conservative? Are there aspects to the balance sheet that's kind of dragging down a little bit.

Nothing particularly unique. So our guidance for the full year is up 8%, but that includes the FirstBank acquisition. So the stand-alone is, to your point, it's like roughly half of that. Nothing particularly different than the rest of the industry. We were talking about that. When you get into loan guidance in January, it's a function of 3 things. One is the momentum that you have going into the year, the pipeline that you have going into the year. We know those things.

But the third part is the tricky part, which is what's going to happen in the year. So in our view, just like everybody else is, there's an educated guess to it. If somebody guides to 6% and we're at 4%, that means they just guessed higher, typically particularly on the commercial side, we're at H.8, maybe even a little better than that through normal circumstances just because of the growth markets that we have. So if loan growth picks up more than what most people expect, we'll be right there, but that's just our thinking at the moment.

And I guess, it's funny like we've talked about loan growth picking up for so many years...

Yes. We have.

Like are they proof points even in like the last 6 to 8 weeks, where it feels like this is actually...

Yes, I think so. We finished pretty strong in the fourth quarter. In fact, our fourth quarter loan generation was the strongest quarterly loan generation that we've had in some time particularly on the commercial side. So that's been there. We've had a headwind of CRE, as you know, for the last couple of years. We see that inflecting sometime late in the first quarter. So that will be helpful. And as I mentioned, the pipelines are pretty strong. So I would definitely say year-over-year, definitely heightened. And our customers tell us that, too, when you've talked about this in the conference, capital expenditures outside of AI data centers have been non-existent for 3 years. They have to show up at some point, that's a big part of our loan usage, use of proceeds. So that all is adding up to being fairly constructive.

Got it. And on the C&I side, I think the one thing that gets tossed around is the tax incentives and the tax -- the bonus depreciation. Is that materializing yet or...

Yes, correct. Yes, right. Yes, I think that's just part -- it's just one variable that's contributing to the overall constructive view. One of the things, in addition to the loan growth that we achieved in the fourth quarter -- similarly in the fourth quarter, but really for the better part of 2025, we've been adding loan commitments, but with direct hard exposure that were unfunded at record levels. So that's a pretty good early indicator that there's an intent to borrow because customers pay for that. There's a payment that you need to make for those committed facilities that they've yet to draw down. So those going up measurably is a solid indicator of intended loan usage.

And you don't think we need -- two years ago, it was like the borrowers are waiting for rates to be cut like none of that.

I don't think so. I think that's sort of a leftover when you go from 0 to 5%. Now we're in increments back to sort of 25 basis points or something like that. I don't think those get in the way of our commercial borrowers strategic decisions.

Got it. And then I think, Rob, you mentioned at the end of -- you expect CRE to sort of bottom out by the end of 1Q. Just talk to us, the dynamic between pay-downs and payoffs that you are getting as opposed to new origination activity, which I understand has been mostly stalled over the last year?

Yes. Yes. So there's a couple of components to that. Most of the industry and the banks rightfully so were focused on the CRE office portfolio that for the better part of the last couple of years, we've been working down. That's coming or slowing down to the point where that won't be the headwind that it's been for loan growth. Beyond that, into multifamily and construction loans, multifamily is still healthy. There's a couple of areas of the country where it's an overbuilt, but the underlying fundamentals, particularly around the housing shortage in the United States bode well for that.

Well, the other thing that it wasn't as focused on as much was just the construction loans or the lack of construction loans in the last couple of years that fund up that are now beginning. So we sort of have that air pocket working through. If you go back to COVID, everybody thought retail was dead and that you wouldn't be building another retail shopping center ever again and that's starting to come back online. So I think CRE is going to enter a period here of sort of BAU for lack of a better word, going into the second half of '26.

Got it. And I think C&I, you said running better than H.8 right now.

Yes, it is.

Are there aspects to -- is it PNC and is it the growth market? Or are you also seeing some of this reshoring or manufacturing type like investment going on...

A little bit of that, but mostly it's the growth markets for us. Yes, the growth markets are definitely growing at a faster rate than we would expect. So in terms of our outperformance, that's where it's coming from. But those growth markets are places where on-shoring manufacturing facilities are happening. So it could be a combination.

Maybe let's just talk about that. I think when you did the BBVA Compass acquisition, it provided the growth markets. When we think about When we think about -- like I have this conversation with investors, like what's the growth runway? Is it a 3-year runway, 5-year that you sort of outsized and gain.

It's multiple, it's multiple year. Yes. I pushed that out even past the 5 in terms of what's available to us. Everything -- so that was all of -- back to 2021 when we closed that deal. Everything that we expected to do back then, we've done or exceeded. And the growth path is a multiyear, which opportunity for us at double -- close to double-digit growth off a small base. And that's what's got us so excited about our organic growth opportunity and frankly, why we think we have one of the better ones, if not the best in our peer group.

And are there certain markets within that, that particularly sort of...

Yes, yes. What you would expect, Texas, for sure, California because of the size of the economy. And then for our wealth business, in addition to Texas and California, Florida, which we view as a growth market and an expansion market, largely through our acquisition of RBC USA in 2013. Yes.

So I guess, when you think about those markets and just the investment spend, where are you in that cycle in terms of hiring bankers, adding branches like you talked about adding...

Yes. Yes. So we've done a lot of that in terms of the staffing up. We feel pretty good about our staff levels in all of the markets, but we're growing. So of course, we're increasing our staff level. So the question is sort of where we're investing. Our priorities are largely around technology, as you know, and we can talk a little bit more about that in this year, we'll refresh our data centers, which will be national in scale and scope and support running synchronous operations, which is part of evolving to a national footprint.

Our payments capabilities are something that PNC is a leader in, particularly on the commercial side, we continue to invest strongly there. And then on our consumer platform, we'll be introducing a rewards platform in '26, which is an exciting new mobile app. And then, of course, the branch expansion of 300 new branches. And of those 300 new branches, what's important to know about that over the next 5 years is we're investing in markets that we're already growing -- we already have a position there, in some cases, low single market deposit share. Our whole goal is to increase that penetration up to mid-single digit, maybe 7% is our magic number. And that's what that's all about. And that's differentiated from just going someplace new and getting started.

And just within that, and I think you've talked about -- I think Bill's has talked about the 7% as branch density number before things sort of brand recognition-wise kick in. But just talk to us about the broader deposit growth environment, how competitive it is? And just from a household acquisition standpoint, what's PNC's strategy in terms of it?

Yes. I mean for us, it's around the density that we're talking about. So clearly, in terms of consumer deposits, it's about client service, products and services, which we have. But the density is the real opportunity there, and we see it. So where we have that density, our branches are 20% more productive in sales and services. Even on the digital front, we're like 6x more productive where we have density, which sort of is a little bit counterintuitive. So it's about the density aspect. And we've grown deposits pretty good. I mean, in '25, we were up 3% -- we have one of the lowest rate paid. So we're doing it the hard way. And we want to continue that, and that's what those investments are about.

And do you think like how would you assess the competitive -- I mean it's always competitive to be...

Yes. It's always competitive, but I wouldn't say it's at food fight level.

It's not like if loan growth picks up, like does that kind of feel...

Potentially, in terms of those fundings. But we've heard some of that, but particularly on the commercial side, we grew our deposits pretty good in '25 without taking the rate paid up. In fact, we brought it down. So that's -- like I said, it's always competitive, but it doesn't feel like it's heightened competitive pressure.

Got it. And you mentioned the 300 branches. Just give us a mark-to-market on how many do you expect -- like where did things stand at the end of the year? How many...

Yes, good question. So we added 26 in 2025 of the 300. And then in '26, we'll do more than double that, so mid-50s and then importantly, in terms of the sitings and the locations for just about almost all the 300, we're there. So we're on track. Everything, like I said, on track or maybe a little bit better. You had asked about sort of the breakeven points, and we've sort of pointed to 3 years roughly, but it's a little bit better than that in these growth markets. But we fully expect over the course of those years that we could generate $20 billion of incremental consumer deposits with this investment.

On the branch point, just talk about not all banks are opening the branches or have a strategy around branch expansion. I think like Bill -- just talk about the science behind a branch opening around finding location.

Yes, it's a lot, it's a lot. And it takes scale and like anything, when you do in life, when you do a lot of it, you get better at it. So we know what we're doing. But it's fully within the capabilities of our Realty Services group, which reports to me. But it's a lot of work, a lot of people and a lot of resources.

You mentioned about nationalizing data centers.

Yes.

I guess, pardon my ignorance. What does that mean? Like just what does that do...

Yes, it was simply -- yes, just simply in terms of the infrastructure. So the ability to: one, be current in terms of everything that we're supporting. I think the big deal is and we can talk a little bit about this with a national footprint now, having data centers that can run simultaneously that if in 1 area, it goes down, the other area can pick it up so you don't lose anything in terms of customer interface or running the bank. That's a big deal and something that a national footprint requires.

So let's talk about the national footprint, right.

Yes, sure.

And I think -- just talk to us, I mean, you've been with PNC for a long time as you think about...

38 years.

Yes. So the evolution from a regional bank into a national bank in terms of the footprint, the lending businesses, et cetera. Like how does that change management strategy in terms of the priorities, how you'll think about go-to-market, et cetera. Like is it just -- because sometimes the pushback will be, is it national in namesake only? Or is there more sort of substance...

No, no, there's more substance to that. I mean -- and we bristle a little bit with that name. So the regional bank, we've bristle out a little bit because we do differentiate ourselves as national for a number of reasons. One is just the scale. So when you're in 30 of the top 30 MSAs in the country, you're in 10 of the top fastest-growing MSAs in the country. You're something more than a REIT and you're not confined to a region. So what are you? We call that national, we want to have density -- increase our density in those markets, but we're in those markets in a material way.

The technology that's required to support that, like data center and also the delivery of products and services on a national basis is a higher level of challenge than if you're just confined to a region for the obvious points.

And then our products and services scale well. So you take a look at our capital markets business, which is a big business. You take a look at our treasury management, our asset management business. Those are complete products that go up against anybody in the world, whether they're GSIBs, non-GSIBs or nonbanks. And that's a national bank.

Fair enough. I guess maybe just switching gears for a minute to revenue and NII outlook and I think the guidance is about 14% growth this year.

That's pretty good.

Pretty good. But then as we look through one, as far as this year is concerned, just talk to us about what are the puts and takes around what could make it better or worse as we think about it?

Yes. So I would say, so we've guided to 14%, which obviously includes the addition of FirstBank to a full run rate because we closed on January 5. So well before -- essentially a full year of FirstBank. PNC stand-alone inside of that is about 8%. And what we're going to see in '26, similar to what we saw in '25 is the continuation of our fixed rate asset repricing, which is largely mechanical. So we have $50 billion of fixed rate assets on our balance sheet that will reprice this year and thereon in terms of loans and investment securities on our books for 2% or 3%. You reprice them at today's rates. So that part is good, and that's a big part of it. Obviously, the loan growth will contribute to it. What could change that and where we're exposed is obviously the yield curve. So when we go to reprice those assets, if the yield curves are a little steeper, we'll do a little better, if it's a little flatter, we'll do a little bit worse, still up.

Are you thinking about like the 5-year part of the curve.

Yes, that's about right. Yes, that's about right. And the -- and then loan growth if it exceeds our expectations, that would be part of it. But it looks very good for NII growth in '26, similar to what we did in '25.

And is -- so when we look at the $50 billion of back book repricing, are we nearing an end to that tailwind like ...

No, that keeps going -- yes, yes, into '27 and beyond. So we're at the right point of the rate cycle in that regard. And PNC is on the front end of that because our duration was shorter than most going into this point of the rate cycle.

Understood. And -- so when you think about just the rate backdrop and just the repricing that should continue next year, what actions are you taking from a balance sheet standpoint? Are you -- it feels like you could have a debate whether a year from now, the Fed could be...

Yes. No, we're looking at that. Yes. So '26 is pretty locked. Similar to what we did last year was we took a little bit off the table for the bottom part of '26 and into '27, and we're doing that now, too, because the world can change your point, not super aggressively, but locking in some of these rates into '27 and '28 with forward-starting swaps, that sort of thing, which is what we've done. Nothing terribly high in terms of percentage, but just sensible because it looks good.

Got it. And when you think about the net interest margin, I know it's sort of an output to everything that's going on with the balance sheet. But is slightly over 3% the best case outcome here? Or like just how do you think...

I think so, you know this, Ebrahim. We don't give -- I never have given formally NIM guidance, but on every earnings release call within 1 minute, I'm giving NIM guidance. So I'll do it again here. So our net interest margin will continue to expand. We've said that we will go above and are likely to go above 3% in the back half of '26. Beyond that, without getting into guidance in the '27 and '28, we'll drift higher than that. Our strategic plan when we look out over a multiyear period. But of course, there's a lot of variables out there that aren't locked in. We sort of live in that just about 3%, 3.15% kind of range.

That's like when you think about the business mix?

When we think about the business mix. And that's getting out there pretty far, but that's the way we think about it.

I think maybe switching to -- on the fee income side, I think part of the conversation over the last day has been maybe some broadening out into middle market?

Yes.

And I'm just wondering, are you seeing that within -- on the investment banking cycle of PNC?

Yes. So we're seeing that with all of our fees. Actually, all of our fee business is asset management, capital markets treasury management within the capital markets, '25 was pretty interesting for us because we ended up achieving what we had guided at the beginning of the year, which was 18% up in capital markets fees in '25. It was looking like it was out of reach after Liberation Day in April and in the second quarter, the world stopped. But we more than made up for it in the back half of the year and the pipelines going into '26 are strong, which is why we're guiding to high single digits for Capital Markets in '26.

Within -- importantly, within capital markets for PNC because it's different from bank to bank, about 1/3 of our capital markets. So call it, about $1.5 billion, $1.6 billion in fees. There's some NII with that, but set that aside, if -- you call it $1.6 billion, about 1/3 of that is our Harris Williams M&A advisory firm, which had a record quarter in the fourth quarter. And their pipelines are still very strong. But 2/3 of it relates to loan activity, loan syndications, asset-backed financings, derivatives tradings for our customers, all of which had an exceptionally strong second half of '25, and we expect that to continue. So the capital markets unit for PNC is very strong.

And when you think about that business and I think Bill gave a very detailed response on the earnings call around the strategic sort of view of the bank. But are there sort of gaps to fill there like do you think...

No, our products are there. We don't operate within the equity space or anything along those lines because we just don't see the margins there or the traction from that -- from a financial perspective. So as we covered on the call, I love our products and services and just we want to do more of them and increasingly, we get the opportunity to do more.

You mentioned Asset Management. I recall a year ago, we were talking about like a huge priority for PNC trying to convert like C&I business owners as they get into liquidity and bringing that in-house. Just give us a sense of is that -- how well is that working...

Yes, it's going well -- yes, going well. I mean, hey, we grew almost 10% last year. The new markets, the growth markets tend to be more affluent, so it's more target rich. The other thing about the new markets too, again, when we bought BBVA, they didn't have an asset management, so we had to grow this home. Same with RBC. We staffed up the -- it's the highest return business in the bank. And we've got the right coverage. What's appealing about the new markets is as opposed to the legacy markets, they're not dragged down by trust distributions. So if you think about our legacy business, a lot of the private bank were just private trust banks over 100 years. So in the trust business, you got to fight the outflows that are -- what you were hired to do to distribute the money to be able to get net asset growth. In our new markets, there aren't any old trust. So it's pure growth.

Got it. Yes. And FirstBank, I know it's a relatively small transaction, but any sort of fee revenue opportunities there to cross-sell and...

Yes. Yes. So on FirstBank in general, one is we're thrilled. We're thrilled with the combination. We were excited about it when we announced it in September, last September. When we closed in January, we're even more excited if that's possible. The cultures have come together really nicely. Kevin Classen, who is the CEO of FirstBank, as you know, is staying on to be our Regional President of the Mountain areas. So the opportunity for us, once we get together, obviously, the priority is a flawless conversion, which is our goal and our expectation. Beyond that, just the relationships that Kevin and his team have are conducive to being open to the expanded products and services that we bring naturally. So they didn't do a whole lot of corporate banking. They didn't do a whole lot of asset management. The didn't do a whole lot of capital markets, but they have relationships with companies that do and need those services. So that's exciting.

You had -- when we had talked before this, you had said, have we learned anything from them. They're very good in terms of client service. We're going to retain all the client-facing employees. The one area that they've had success in that large banks have largely abandoned over the years is the smaller end commercial real estate customer, which large banks had sort of vacated, including PNC and operated with Tier 1 developers. They have a long history of very -- of a very good business there with very small losses. So that's something that we're going to examine -- we're going to keep in place, which is good for the continuity of their relationships. But as we understand that, that might be something actually we may expand into our business and something that they bring to the table, but that remains to be seen.

Understood. Maybe pivoting a little bit to the expense side. think your guidance implied about 400 basis points of positive uplift.

Not bad.

So no, it's a pretty strong guidance. So I just think when you think about it, and you always had this culture of like constant savings and efficiencies every year.

Yes, that's right. Continuous improvement.

Yes, continuous improvement. Just talk to us about that as we look forward, 400 basis points is great, but how do you -- what do you think is like a sustainable rate of change?

Yes. So positive operating leverage is really important to us. And I mentioned we have a running 5-year strategic plan that we renew annually. And whenever we start, we start with positive operating leverage is not negotiable. And that's resulted in a great track record. So if you take a look at the last 10 years at PNC, we delivered positive operating leverage in each of those 10 years with the exception of 2021 when we folded BBVA USA in midyear. So their expenses naturally percentage-wise went up more than the revenue. So we've delivered positive operating leverage. I would think best-in-class maybe -- at least tied for best-in-class, if not best-in-class. And that's not just a fluke that's delivered.

So you're right. In terms of where we are now in the rate cycle, we're running higher than what we would typically at 400. But I would say sort of normal through the cycle, we'd look for a couple of hundred basis points. I think mid-single-digit revenue growth, maybe a little higher, low single-digit expense growth, which by definition is that positive operating leverage. So not necessarily 400 is sustainable, but a healthy margin there on a deliberate basis.

But just going back to the record over the last 10 years, it's very impressive. I don't know how many banks.

I don't know either. They can't have more than 10.

So is there an aspect to like a toggle where kind of on a constant basis, you're able to -- so there's enough flex at the bank to -- if the revenue environment is not so great, you're able to pull back on expenses.

On the margin, but we didn't do that. If you go back 10 years ago, when the rate cycle wasn't working for us, we were increasing our technology spend measurably. And we took a lot of heat for that. We took a lot of heat. We were still able to generate positive operating leverage, but a lot of your folks in your business were saying why are you doing this at the wrong time, and we're glad we did in hindsight. And we think that has resulted in the differentiation that we have today in technology in a lot of respects.

So we won't do anything that's unintelligent to deliver it. With our continuous improvement program that we've talked about that we've had in place, we do have this internal muscle across the organization, across the budgeting where every area of the bank comes in with whether they're going to save that next 12 months from our current run rate that then can be applied and used for our investments and by definition, keep expense growth low single digit. If you didn't have that, your expenses would be mid-single digit expense growth.

I guess maybe just around the operating backdrop, everything seems very constructive. When you think about credit quality. I mean the markets are surprised by the sell-off in the software stocks last week. Business services, et cetera, around AI disruptions.

Yes, that's right.

Either AI disruption or outside of that, like are there areas of the sort of portfolio where you're seeing weakness, you're closely monitoring?

The short answer is we're not seeing weakness in any thematic way on the commercial side or even the consumer side. Clearly, there's some stress on the lower end consumer, but we don't really operate in that space. I'm glad you asked about the software news last week. So I would just sort of frame it out for you. We do have credit exposure there. It's relatively small, $5 billion in loans, which is less than 1.5% of our total loans. And house within our business credit, our secured finance area, which is where we do most of the monitoring.

We don't think -- for what it's worth, we don't think the AI disruption is necessarily existential problem in terms of where we extend credit because in many of these cases, these software publishers are embedded in our systems with proprietary data, all the things that we [ shared ] about, so we'll probably see more of sort of a flattening of their growth curve than going out of business and we have a very small portfolio.

We lend conservatively into that. And again, most of it is proprietary. We're users of a lot of it. So we can't flip a switch and say, hey, AI is taking part of it, and feel good about that.

Yes. I mean a lot of these are cash-rich businesses.

It's a cash-rich business.

So their growth outlook is being recalibrated, but I don't think they're going away anymore.

Yes. Well said.

Fair enough. I guess we just hosted a panel on the regulatory outlook.

Yes, I got the tail-end of that.

Yes. As we think about just from a regulation standpoint, all the policy debates that are going on, what's the most -- 2 or 3 most impactful things that for PNC and sort of your peer group that you're thinking about and focused on?

Yes. I would say the biggest one that we're focused on is the Basel III Endgame as that comes through because as proposed, the new definitions of RWA calculations as it relates to being able to use our internal ratings for middle market companies is a significant reduction of our RWA. So that's the big one there, up to maybe $40 billion of our $400-plus billion of -- so 10% of our RWA, which is our denominator. So that's a big one.

The leverage finance, the change in leverage finance will help us on the margin, not so much that we're going to rush into doing a whole bunch of leveraged finance deals. But as you know, the rules as defining a leveraged finance transaction often captured non-levered or things that were mitigated by structure or by definition. So we'll be able to participate a little bit more in there. But I'd say the biggest change for us is just how we operate. So -- and Bill talked about this a couple of earnings calls ago, the resources, the calories spent on MRAs and compliance with a 0 tolerance for in our view, in many cases, nonmaterial types of items. The resources that, that took were enormous. So the ability to free those resources up and deploy them someplace else is a big deal.

Got it. Yes. I think what we heard from the panel was that maybe Basel Endgame is restricted to the G-SIBs with an opt-in for the large regional bank. I'm not sure if you heard so...

Yes. No, that's right. I mean I think AOCI has already been...

Discounted, right?

Included, yes.

It sounds like you would opt in if that was the option just given what it does for the RWA?

Yes. Yes.

I guess I think the big bang news for me, outside of your guidance, was the 18% ROTC entering 2027 at last check, I'm not sure if consensus had fully picked this up. So just unpack that a little bit around -- I'm assuming you expect to hit that towards the end of the year. And then how the sustainability, are there like one-off things that are supporting that also?

Yes. Yes. So just the whole concept of ROTCE, let's just talk about that. So to dial in, we finished 2025 fourth quarter exit rate at 18%. As I mentioned on the call, that was elevated because we had a large tax reserve release in the fourth quarter that elevated that. So call it 17%. And then I said, as we get into '26, we need to obviously complete the FirstBank integration. We need to deliver on the guidance that we provided. And by this time next year, we'll be at 18% again drifting higher. That's what I said. You would sort of imply, well, maybe some of the numbers were pointing to 17%, but I would point that out to timing and close enough for those purposes.

But ROTCE, what's important to understand about PNC is why are we always at the high end. And the answer to that is just the construct of our businesses. So we talked about the fee businesses, 40% of our revenues come from noninterest income, largely recurring and not necessarily risky through the cycle, maybe capital markets a little bit and asset management to an extent. But that's in contrast to other peers that don't have that full set of products in whole. They might have parts, they might want to grow it, et cetera.

So just generally speaking, we -- our portfolio of business is our higher return business. So naturally, you're going to have a higher return on whatever your denominator is. At 18%, that's pretty good. That's at the top of the peer group. We don't have a target. We're the one bank that doesn't have a target even though we're at the high end of the range. And the reason for that is simply because the largest variable in determining that, as you know, is interest rates, which are outside of our control. So to say we've got a target and the biggest variables outside of your control never seem to make sense to us.

And the other thing that I'd point out is it's a useful measure. And I understand why you focus on it, but ROTCE in isolation, it could go up for bad reasons. So how about a whole bunch of negative AOCI in your denominator and your ROTCE is going up, and it could go down for good reasons in terms of the opposite of that. So it's good to keep track of. The takeaway is PNC is at the high end of the pack above where a lot of our peers' targets are and aspirations are fundamentally in terms of what our businesses are all about.

And you've been at the bank for a long time, when you just look at the return profile, would you say PNC and maybe to a less and broader extent the industry, is it getting a lot more efficient in terms of every dollar spent on things.

Yes, I think so. I think so. The other thing just to that construct is you got to risk-adjust your ROTCE. So what's your R? Is your R not -- recurring fees through the cycles, is you R a lot of high-risk loans -- so you got to look at that, too, the composition of the ROTCE is what's important.

And I guess while on that, AI, there's a lot of fascination over AI could or could not do. Just your view on AI spend today at the bank and what do you expect it will deliver for PNC?

Yes. So our technology spend. We go through this all the time. We say our technology spend's like $3 billion out of our $14 billion, $15 billion. But when we wanted to pull that together, it's easy to pull together with the technology group spends, but then you get into like what's not technology anymore, right?

So I don't know, maybe it's all of our spend did along those lines. But what we -- where we are, which is further than we've been is we've targeted about $1.5 billion of addressable spend that we think AI can diminish, if not take it out, over a long period of time. And those 5 areas are software, the use of software, maybe using it less or along the lines of what we're talking about, our retail operations, which has all kinds of opportunity for automation.

The third -- the third is the one that always jumped out first for us when AI first came up, which is AML compliance. It's just a natural large data sets that you feed in looking for the anomalies that could be able to identify. So we're making progress there. We've got it in the client care center, which is the industry is doing. And then for us, because we do a lot of commercial loan processing, particularly through our Midland mortgage servicing, Israel application there. So all of that, it's about $1.5 billion of addressable spend that we're on. And that's -- we call it the big 5 at the bank, and we're on that.

And how do you go about this. Is there are a bunch of new LLM models and AI models. Is it just do you work with [indiscernible] firm or you...

Everybody, everybody, a lot in-house. We're inclined to use our own cooking for the most part. But one of the nice things about having the national scale is if we can't find them, they find us.

And how long do you think to realize that $1.5 billion? Is it a 2-year process? 5-year process?

Well, we'll see. We'll see. I mean it's definitely what we plan to do in the next 12 months is built into our guidance and our continuous improvement. The acceleration beyond that, who knows?

You have pretty good visibility...

Yes. I don't think so. I mean, so think about where we were a year ago, we didn't have that dial. I couldn't give you that number. We kind of knew the general areas. But in each of these cases, I mean, it's happening. So in our -- I give you an example, our mobile app that we're introducing, our new mobile app that we're introducing, 100% of that was agentic coding. And the last time we did that, it wasn't.

Got it. I guess one last question. In terms of capital return, I think, again, another big bank could update $600 million or $700 million per quarter in buybacks. Talk to us around that relative to the stock valuation. Just how do you think about the return on that buyback.

Yes. Yes. I'm glad you asked that. So typically speaking, and the history has told us that once it reaches 2x price to tangible book, you sort of dial it back. And here we are above 2x, and we're dialing it up, for 2 reasons. One is we're coming off of pretty low levels anyway. But secondly, and more importantly, is our capital generation is very strong right now. So you take a look in terms of our outlook, you take a look in terms of where we are even with the share repurchases, we maintain a lot of capital flexibility. So at this point, it makes sense to continue. It's obviously something that you keep in mind when you look at the price to tangible book value in terms of dialing that back, but we're not there yet.

I guess last question tied to capital, I would be remiss not to ask you about bank M&A. So I appreciate you're not going to do something stupid. You know the math. Just talk to us in terms of other...

Appreciate that. Appreciate that, Ebrahim.

Are there a lot of like FirstBanks out there? Like how should shareholders think about what...

I think '25 was a pretty good example. So at the beginning of '25 when we were talking to you, you said, what do you expect to happen in the bank M&A space. And our expectation was there'd be a lot of activity between that $10 billion and $100 billion size bank that in many respects, sort of hit the scale wall and that there'd be very little in terms of $100 billion-plus selling because they don't view themselves at that scale wall and they've got pretty robust outlooks themselves. And that played out.

What's interesting is looking at it in hindsight, in that $10 billion to $100 billion space, we think we got the best of the bunch. We were aware of FirstBank for a while. But when you take a look at it in terms of what they represent as a $30 billion bank, really compelling, particularly around the consumer franchise and the consumer deposit franchise that is independent of their commercial lending operations, which is pretty unique.

So we set a pretty high bar in terms of what's attractive for us. So I appreciate you saying we never -- we wouldn't do anything stupid. I would expect more activity in that $10 billion to $100 billion, whether PNC plays in that, I'd say probably not because we like what we got. And then the $100 billion and above, don't expect much activity.

On that note, thank you very much.

Yes. Thank you.

Greetings, and welcome to the PNC Financial Services Group Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may begin.

Well, good morning, and 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 January 16, 2026, and PNC undertakes no obligation to update them.

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

Thank you, Bryan, and good morning, everyone. As you've seen, by virtually all measures, 2025 was a successful year for PNC. We earned $7 billion in net income or $16.59 per share. Strong performance across all our lines of business resulted in record revenue, 5% operating leverage and 21% EPS growth for the year. As you've likely seen on January 5th, we closed the acquisition of FirstBank, and we're all excited about the opportunity in front of us, and I'd like to welcome the FirstBank employees to PNC. We ended 2025 with substantial momentum, marked by meaningful client growth across all of our businesses and our ongoing branch expansion, and we're poised to accelerate that growth in 2026.

As Rob will highlight in a second, we're positioned to generate meaningful positive operating leverage again this year. Importantly, we expect to do so on a PNC stand-alone basis and also with the addition of FirstBank. Further, we will exit 2026 with FirstBank's fully integrated results, which we expect will add approximately $1 per share to the 2027 results. Finally, we expect to achieve all of this while also executing one of the largest investment agendas we've ever pursued, including all of our technology initiatives, payments capabilities and consumer rewards platforms and of course, our branch expansions.

Now before I wrap up, I want to thank all of our employees for everything they do for our company and our customers, including our new teammates from FirstBank. I'm incredibly excited about what we're going to be able to accomplish together. And with that, I'll turn it over to Rob to take you through the numbers. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 3 and is presented on an average basis. For the linked quarter, loans of $328 billion grew by $2 billion or 1%. Investment securities of $142 billion decreased $2 billion or 2%. Deposit balances were up $8 billion or 2% and average $440 billion and borrowings decreased $6 billion to $60 billion. AOCI as of December 31 was negative $3.4 billion, an improvement of $669 million or 16% compared with the prior quarter. Our tangible book value of $112.51 per common share increased 4% linked quarter and 18% compared to the same period a year ago.

We remain well capitalized at quarter end with an estimated CET1 ratio of 10.6% or 9.8% when including AOCI. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.1 billion of capital to shareholders. Common dividends were $676 million. Share repurchases were approximately $400 million, and we're at the high end of our estimated range. Going forward, we expect to further increase our quarterly share repurchases to a range of $600 million to $700 million.

Slide 4 shows our loans in more detail. Loan balances averaged $328 billion in the fourth quarter, an increase of $2 billion or 1% linked quarter. The growth was driven by higher commercial balances. On a spot basis, loans grew $5 billion or 2%, reflecting broad-based new production across our C&I franchise. Total loan yield of 5.6% decreased 16 basis points linked quarter driven by lower interest rates. Compared to the same period a year ago, average loans increased $9 billion or 3%. Commercial loans grew $10 billion or 5% as strong growth in C&I was partially offset by a decline in CRE loans. Notably, we believe that our CRE balances have largely stabilized, and we anticipate moderate growth in 2026. Consumer loans declined $1 billion or 1% as growth in auto balances was more than offset by a decline in residential real estate loans.

Slide 5 covers our deposit balances in more detail. Deposits averaged $440 billion, an increase of $8 billion or 2% and included seasonal growth in commercial deposits. Noninterest-bearing balances of $95 billion increased $2 billion or 2% and represent 22% of total average deposits. Our total rate paid on interest-bearing deposits decreased 18 basis points to 2.14% in the fourth quarter, reflecting lower rates.

Turning to Slide 6. We highlight our income statement trends. For the full year of 2025 compared to 2024, we've demonstrated strong momentum across our franchise. Total revenue increased $1.5 billion or 7% driven by both record net interest income and noninterest income. Noninterest expense was well controlled and increased by 2%, which resulted in 5% positive operating leverage and 15% PPNR growth. Net income of $7 billion was up $1 billion, and full year diluted EPS grew 21% to $16.59 per share.

Comparing the fourth quarter to the third quarter, total revenue was a record $6.1 billion and grew $156 million or 3%. Noninterest expense of $3.6 billion increased $142 million or 4%. And as a result, we delivered record PPNR of $2.5 billion. Provision was $139 million. Our effective tax rate was 12.7%, reflecting favorable resolution of several tax matters. And our fourth quarter net income was $2 billion or $4.88 per diluted share.

Turning to Slide 7. We detail our revenue trends. Fourth quarter revenue increased $156 million or 3% compared to the prior quarter. Net interest income of $3.7 billion increased $83 million or 2%. The growth was driven by lower funding costs, loan growth and the continued benefit of fixed rate asset repricing. And our net interest margin was 2.84%, an increase of 5 basis points. Noninterest income of $2.3 billion increased $73 million or 3%. Inside of that, fee income increased $54 million or 3% linked quarter.

Looking at the details. Asset management and brokerage increased $7 million or 2% driven by both higher equity markets and positive client net flows. Capital markets and advisory revenue increased $57 million or 13% driven by M&A advisory revenue. Card and Cash Management declined $4 million or 1% as higher treasury management revenue was more than offset by other seasonally lower activity. Lending and deposit services increased $7 million or 2% and included higher loan commitment fees. Mortgage revenue decreased $13 million or 8%, reflecting lower MSR hedging activity down from elevated third quarter levels. And other noninterest income of $217 million increased $19 million, primarily due to higher private equity revenue. The Visa derivative adjustment in the fourth quarter was negative $41 million, primarily related to Visa's December announcement of a litigation escrow funding. Notably, we continue to see strong momentum across our lines of business and throughout our markets. And for the full year 2025, noninterest income of $8.7 billion grew $633 million or 8% compared to 2024.

Turning to Slide 8. Our fourth quarter expenses were up $142 million or 4% linked quarter. The growth was driven by increased business activity and seasonality, partially offset by a reduction to the FDIC special assessment accrual. Full year noninterest expense increased $310 million or 2% reflecting business growth and continued investments in our franchise. As you know, we had a goal of $350 million in cost savings through our 2025 continuous improvement program and we successfully completed actions to exceed that goal.

Looking forward to 2026, our annual CIP target is once again $350 million, which is independent of the FirstBank acquisition. And this program will continue to fund a significant portion of our ongoing business and technology investments.

Our credit metrics are presented on Slide 9. Overall, credit quality remains strong. Nonperforming loans increased $81 million or 4% linked quarter. At year-end, NPLs represented 0.67% of total loans, down from 0.73% last year. Total delinquencies of $1.4 billion on December 31 represented 0.44% of total loans, up slightly quarter-over-quarter, but importantly unchanged from the same period a year ago. Net loan charge-offs were $162 million, down $17 million and represent a net charge-off ratio of 20 basis points. And provision was $139 million, reflecting a slight release of loan reserves. At the end of the fourth quarter, our allowance for credit losses totaled $5.2 billion or 1.58% of total loans.

Turning to Slide 10. As you know, we successfully completed the FirstBank acquisition earlier this month, greatly expanding our presence in high-growth communities across Colorado and Arizona. Importantly, PNC and FirstBank employees have made great progress in preparing for a successful conversion and integration, which is scheduled for June of 2026. I also want to provide an update to some of the deal metrics, all of which are the same or better than we had originally estimated. As you know, the purchase price was 30% cash and 70% stock and was approximately $4.2 billion at closing. And we issued 13.9 million shares of common stock as part of the consideration. At closing, tangible book value is estimated to be $109 per share, exceeding our expectations at deal announcement. The reduction to our CET1 ratio is estimated to be approximately 40 basis points, which is in line with our original expectations. And we continue to project an internal rate of return of approximately 25%. Our expectation for nonrecurring merger and integration costs is approximately $325 million, the majority of which will be recognized in the first half of 2026.

Importantly, we anticipate achieving substantial operational efficiencies across the FirstBank franchise. And as a result, we expect FirstBank to generate an annualized earnings run rate of approximately $1 per share by the end of the year. To summarize, PNC reported a strong fourth quarter, which contributed to a very successful 2025. We're well positioned to continue this momentum into 2026. And with the addition of FirstBank, we're poised to enhance our growth trajectory. Regarding our view of the overall economy, we're expecting continued economic growth over the course of 2026, resulting in approximately 2% real GDP growth and unemployment to remain near 4.5% throughout the year. We expect the Fed to cut rates 2x in 2026 with a 25 basis point decrease in July and another in September.

Looking ahead, FirstBank's results will be reflected in our financial statements and accordingly, our guidance is based on the projected financial results of the combined company. Our outlook for the full year 2026 and compared to 2025 results is as follows: we expect full year average loan growth to be approximately 8%. We expect total revenue to be up approximately 11%. Inside of that, our expectation is for net interest income to be up approximately 14% and noninterest income to grow 6%. Noninterest expense to be up approximately 7% excluding an estimated $325 million of integration expense. And we expect our effective tax rate to be approximately 19.5%.

Based on this guidance, we expect to generate approximately 400 basis points of positive operating leverage, nearly all of which is driven by PNC on a stand-alone basis.

Looking ahead to the first quarter on Slide 12. Our guidance, as I just mentioned, includes the impact of the FirstBank acquisition. Our outlook for the first quarter of 2026 compared to the fourth quarter of 2025 is as follows: we expect average loans to be up approximately 5%. Net interest income to be up approximately 6%, fee income to be down 1% to 2%, other noninterest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up 2% to 3%. We expect noninterest expense, excluding integration expenses to be up approximately 4%. We expect first quarter net charge-offs to be approximately $200 million and we expect diluted common shares to average approximately $406 million in the first quarter, which includes the impact of shares issued as part of the FirstBank acquisition.

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

[Operator Instructions]

Our first question is coming from John Pancari from Evercore ISI.

Just a question, actually straight to capital. On the buyback front, I know you bought back $400 million in the fourth quarter. You guided to the $600 million to $700 million in the deck. And then Rob, in your comments there, it sounds like you were pointing to that $600 million to $700 million quarterly pace as something that could continue. If you could just clarify on that? Is that a fair assumption as we look through '26?

Yes. No, you're spot on there, that $600 million to $700 million is a quarterly pace that we expect to continue through '26.

Got it. Okay. All right. And then also related to capital, I know your CET1 came in at 10.6%, and you guided to the 10.4% with FirstBank deal. Could you just remind us of your -- of what -- how we should think about a targeted CET1 as you look through 2026 considering the deal and considering growth and buybacks. And then how should we think maybe about a good medium-term ROTCE target for you guys? I know you came in around [ 16.5% ] full year for '25 ROTCE and the fourth quarter was around 18%. How can we think about a good medium-term target for PNC?

Okay. Well, that's a lot there, John, but let's take it as you asked it. In terms of our CET1 ratio, to be clear, we finished the year at 10.6%. With the acquisition of FirstBank, we'll take that down 40 basis points to somewhere around 10.2%, 10.3% in terms of where we are now. With the share repurchases that we expect in the first quarter, we would expect to end the first quarter somewhere around that range. We've said that we've got a target right now, and that target is obviously short term because there's a lot of capital rules that are still in fluff, but we've said 10%. So in the first quarter, we'll be in that 10.2%, 10.3%, working our way down from 10.6%.

In terms of ROTCE, you're right. We actually exited fourth quarter of '25 elevated -- somewhat elevated because of the tax reserve release. But I'd say we're at 17% right now as our exit rate into '26. When we get through '26 with the FirstBank acquisition and we deliver on the guidance that we expect to deliver by this time next year, and again, this is just math, so we don't have targets. But this time next year, we'll be at 18%, heading higher.