PNC Financial Services Group Aktie

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.

Your next question is coming from Scott Siefers from Piper Sandler.

Rob, I was hoping you could maybe sort of delve into your thoughts on NII momentum for the year. It can be a little noisy given that you had some stand-alone thoughts previously. I think you all had been saying like $1 billion or more of growth, if I recall correctly. Now we've got FirstBank into the guidance. Maybe if you can just sort of help bridge the gap and go through any places where you're feeling incrementally better or worse or any change on how you see NII projecting through the year?

Sure. So our guidance with FirstBank for the year, as you've seen, is up 14% in NII. Inside of that, to your question, PNC stand-alone, we're somewhere between 7.5% and 8%, which is comfortably above the $1 billion that we said in the earnings call in the third quarter. So we feel good about it. I mean, obviously, those are pretty good numbers, and that's helping us generate the positive operating leverage that looks very comparable to last year, and that's very good.

Okay. Good. And then I was glad to see you guys were able to sort of clean up last quarter's noise related to the deposits with lower cost this quarter as we'd hoped. Maybe you could spend just a quick second on how you see deposit costs playing out for, say, next 50 basis points or so of Fed funds rate cuts that we've got kind of baked into the guide?

Yes. And just to clarify for those who weren't on the third quarter call, that was a mix shift in terms of the commercial deposits that we added that were outsized at the time just to level set that. As we go into '26, we continue to see rate paid coming down. We'll see that in the first quarter, even if we don't get a rate cut, which we don't expect just simply because the December rate cut will play through. And we're calling for 2 rate cuts, 1 in July and 1 in September. And when the -- if and when those occur, rate paid will continue to go down.

But I guess I mean it's worth mentioning independent of whether we're right or wrong on the timing of those 2 rate cuts, it doesn't impact our outcome on NII materially one way or the other.

That's right.

And next question today is coming from Betsy Graseck from Morgan Stanley.

Bill, could I ask you to unpack a little bit. In your prepared remarks, you commented very quickly on the investments that you've been making. We'll know in the branches and in technology, et cetera. Could you give us a sense as to how far along in this investment trajectory you are? I mean, I know technology is ongoing, right? But like it was pretty quick, and I was hoping we could unpack a little bit where you are relative to where you want to be and how FirstBank integrates into all that?

Yes. I guess in its simplest form, our new initiative CapEx expense, all embedded in our guidance is higher this year than it's ever been. I think depending on how you want to look at tech spend, we maybe spend $3.5 billion and it's going to go up 10% plus or minus through the year. And inside of that, AI is 20% of that increase, beyond what we spend already. Most of it is just the number of things we have to drive momentum, right? So we're -- with the ongoing branch build, and that will continue. So it's putting us in front of more clients. rebuild of our payments capabilities. Think of it as along the same lines of the rebuild of our online banking where we're breaking it down to micro services. So it's more resilient and faster to be able to change. modernization of our data centers. So we're always on.

All of our applications will be cloud native and will run in a synchronous transmission between backup data centers. Continued investments in people in the new markets, including investments in people inside of the Colorado, Arizona markets to take advantage of the FirstBank footprint. All of that's inside of the guide we gave. And all of that, the ability to do that and still control expenses kind of comes on the back of this continuous improvement program, which we're going to execute again in '26 and a lot of the savings in '26 coming out of our automation efforts, some of which are related to AI, but some of which are just straight up automation to allow us to continue the investment profile we've had for years.

And is that savings in the form of system savings, headcount savings, I mean I'm assuming it's a mix, but how much is headcount driving that?

[ House ] savings is a piece of it. The most obvious example there is simply using agentic AI for coding, but a lot of it is contract savings in tech as we shut down old systems and roll in new systems. So we're shutting down redundant things and running on a single one, trying to think inside of what's in that [indiscernible].

Well, I would say, Betsy, just to jump in. I mean the continuous improvement program is something that we've had for a number of years that's in our DNA. And when we do our budgeting, every part of the company is expected to contribute some CIP savings, which is just efficiency off of our increasingly larger spend. So it is as broad-based as it could be.

Yes. CIP is decades long, right?

That's right.

But to give you an idea of the scope, maybe this will help, between [ 22 and 25 ], we were able to get 40 points of operating leverage through automation in our retail operations and care center operations. Sorry, we were able to get -- it's probably closer to 30. When we look at AI between 25 and 30, we see another 40 points of operating leverage. We have 171 different opportunities outlined and $1.4 billion of total addressable spend that we're able to go after through. I mean we use the term AI, but I just think of it as the same march that we've been along with automation that has given us all those efficiencies between 22 and 25.

And all of that is in our guidance.

Next question is coming from Gerard Cassidy from RBC Capital Markets.

To follow up in your comment about the ROTCE coming out of the end of this year, many companies now give out these ROTCE targets. Obviously, you don't. But I'd like to get your insights on just how you guys approach looking at ROTCE and how you manage it?

Sure. No. Thanks, Gerard. And it relates to John's question there. We don't have an explicit target because we've always viewed it as an outcome rather than something that we manage to. That said, when you take a look at our levels, comparable appears they're pretty good. And we're pretty optimistic in terms of what we're going to be able to do in '26 and beyond. So we see the level that we're at now, which is pretty good at 17% going to 18% this time next year and then higher from there. So we watch it. Everything that we do contributes to it, but we just don't start out with a target.

Yes. And part of the issue with the target, it's so dependent on operating environment in terms of shape of the yield curve and credit costs. And it's also dependent on capital management. And I hate the idea of setting a target on return on capital and then imaging the capital itself to hit that return. They ought in some ways, be disconnected. We can always just -- we could always just drive our capital.

And That's where the variables are. So we saw that -- as an industry, we saw that in the last couple of years when negative AOCI showed up. Nobody thought that was a good thing, but it helped our ROTCE.

Yes, exactly.

No, very helpful. And then Bill and Rob, with the chance of being called the [indiscernible] again, as I was on one of your peers peer calls earlier in the week about this question. I'll try to rephrase it. The setup for you folks and in your peers for 2026 looked really, really good. And for guys like all of us on the call that has been around a while, you always get nervous because we're bank guys. Can you look at any risks on the -- other than the obvious geopolitical risk, we get that, but what are you guys kind of looking at just to make sure that you don't get blindsided. I don't mean just for you guys, but just the industry gets kind of hit over the head with something that we don't expect.

It has to be some exogenous variable because the base economy, I just don't see big cracks that are going to be realized in '26. So you get up every morning and you read a headline on credit card rates are on this or on that [indiscernible] tonight. It could be anything, right? By the way, it could be good things, too. But the basic business of running the bank against the economy with customer demand and the health of the consumer, we have a lot of tailwinds this year, and it should be a great year for banks.

Next question is coming from Erika Najarian from UBS.

Maybe one for you, Bill. As we take a step back into the year, I think a lot of investors are contemplating the push pull in investing in mining centers versus regional banks. And maybe from your purview, as you think about the opportunities for regional banks, particularly in direct lending, which is just C&I lending or commercial lending. How much do you think potential Fed cuts, the leverage lending limits going away and sort of the certainty or better certainty in the macro, is that going to spur more direct lending opportunities for regional banks? Or are you agnostic to it relative to the cat market opportunity? And also just remind us, your peers talked about significant advisory opportunities for 2026. And then just remind us how much of a SKU in advisory you may have in cap markets?

Let me start by saying we're a national bank, not a regional bank. So I don't know what regional banks are going to do with the leverage lending guidance. What it does for us is allow us to make smart loans, not necessarily riskier loans. But basically, the guidance is written would actually capture a lot of things as leverage and high risk when they weren't. And by clearing that up, the ability to do some of our specialized businesses that are secured or that are first out increases pretty dramatically, and we're pretty excited by that. But it's not like an open -- we're not treating it like an open invitation to run out and take more risk. That's not what the -- that's not what the game is. On the advisory side, capital markets broadly did really well this year. As we go into next year, we -- it's not as large a percentage of our total company, perhaps as it is at the money centers, but the mixes aren't wildly different inside of that mix, we are more heavily weighted to advisory probably than the giant banks. And in that sense, Harris Williams backlog, their activity level through the fourth quarter is as high as it's ever been. So pretty optimistic about the opportunity set there.

And just a follow-up question on the ROTCE. Obviously, I heard you lot and clear, 18% and going higher is better than your peers. And as I just take a step back, this is sort of a compound question, Bill. The way you answered the earlier question, it sounds like you don't want to necessarily just put targets out there because you want the flexibility for the capital allocation when there are growth opportunities, which makes sense. But also as we think about longer-term returns, is 18 plus sort of above through the cycle? Or is that sort of closer to like a through-the-cycle range for a PNC all in? And just asking it this way because you're the JPMorgan of smaller national banks, and they have a through the cycle target?

Why don't we just kind of reason that out for a second, and it's not going to become a target. But if you assume for a second that we're running, I don't know where we are this quarter, [ 2.88 ] NIM or something and through [indiscernible] and we run where? 2.50 to 3?

Yes. That's right.

And so let's say that accepts out interest rate volatility. And then let's assume for a second that our credit costs are running on the low side for -- through the cycle number. We probably have even upside, downside on the NIM from here. We have downside on the credit cost. So through the cycle, maybe slightly lower. However, as we plan out with the scale efficiencies we get through some of our cost initiatives and just client growth. It kind of offsets that. So the outcome -- the mechanical outcome that Rob talks about when you cross through 18% keep going. I mean I could show you on a piece of paper where it crosses 20 in the not-too-distant future. During that period of time, if credit normalizes and our charge-offs go up, double, we're not going to hit that, which is why we don't want to put that target out there. We're operating in a great space. It's elevated from our history. We ought to be able to keep it somewhere around here, but there's a lot of variables swinging around it. I don't want to make uneconomic choices to hit a target that was artificially created.

Next question is coming from Stephen Chubak from Wolfe Research.

So I wanted to start with a discussion on the capital markets outlook. Bill, at a conference in December, you indicated you're starting to see increased capital markets activity, particularly in the middle market space. I was hoping you could just contextualize what you're seeing in terms of pipeline, how they compare to year ago levels. And just how you're thinking about growth in capital markets fees in the coming year, given the strong exit rate we saw in '25 as well as some of the factors driving more robust activity that you cited?

Maybe Rob can give you detail on our numbers. But before we go there, what I was referring to at that conference and has in fact, come to fruition is that the log jam and middle market investments, the willingness to do M&A, the willingness to take down credit to get a deal done has opened up where it was kind of on hold for a long period of time because of tariffs and people trying to figure out how they operate and they're afraid to buy into something when there was so much volatility and potential outcomes. We saw that kind of pipeline crack in the fourth quarter. You see it in there and it's real [indiscernible] results. By the way, you would see it in our spot C&I loan numbers at the end of the year as we've just seen more activity on financings into acquisitions. Inside of our forecast, Rob, it isn't a sign, all that activity drives the rest of our capital markets activity. So when people are doing loans and deals, there's derivatives, there's bond issuance, there's loan syndication and so on and so forth.

Just to finish that. So in terms of our outlook for '26 capital markets, we're expecting it to be up high single digits.

Okay. Great. And then just a question on NIM. I know in the past, you've noted you could achieve north of 300 bps at some point in the coming year, acknowledging that, that's an output, do you feel like normalized NIM because you were alluding to this in your prior response, Bill, whether that could still settle in the low 300 range as you optimize wholesale funding, restrike the securities book, prosecute on some of the initiatives to grow operational deposits, including some mix shift from FirstBank. It feels like you can run sustainably above that for a bit, but just was hoping you could provide some context.

Look, I think that's right, assuming we stay in an upward sloping yield curve in a similar environment. If we get into a world where we have 200 points of inversion, we're not going to be running at 3%.

But our plans in '26 are to reach that 3% level in the second half of '26, somewhere during the third quarter, maybe the end of the third quarter.

Next question today is coming from Ken Usdin from Autonomous Research.

Yes, just a follow-up on the last question. Thanks for giving the outlook on the capital market side. Rob, just with the moving parts of the FirstBank adds. I'm just wondering if you can kind of help us through just where you expect to have lead the fee growth, which obviously ended the year in almost all categories on a high note.

Yes, sure, Ken. So for the full year, we're saying noninterest income up 6%. In terms of the subcategories of that just in the order that we report them, we've got Asset Management up mid-single digits. As I just said, Capital Markets up high single digits Card and cash management up mid- to high single digits and then lending deposit services and mortgages each up low single digits. And then to add to that, for the full year is $100 million of what are basically FirstBank's fees.

When we get past integration, we'll be able to put that $100 million into each of those categories. But at the moment, it's just simply an add-on. So you put all that together, that's the up 6%.

Okay. And I guess, same question, I don't know if you're able to do it or willing, but is there any way to help us kind of understand where the the FirstBank NII contribution is inside the total NII.

Yes, sure. So [indiscernible] came up a question earlier. So we're saying up 14%, inside of that PNC is 7% to 8% of that.

Okay. And that will include, obviously, all the purchase accounting benefits.

So that's right. Yes, that's right. You got it, Ken.

Next question is coming from Mike Mayo from Wells Fargo.

I'm going to start with data, a very simple question, and then I'll have a more complex question. But what's the difference between a national bank and a regional bank? Because when you answered the prior question, you said we're a national -- I know you're a national Main Street bank, and you had that position for several years now. But it seems like there's an important distinction in your mind, whether it's for growth or efficiency or returns or brand. So if you could elaborate on that.

I think maybe the distinction is as much aspiration as it is where we are from the starting point. I mean we are national in terms of our presence, both with C&I and retail, we're across the country. But more importantly, perhaps, is the strategic direction and belief that ultimately to succeed, particularly with the retail platform, you have to have a national and ubiquitous presence and share in each market that allows you a fair fight. I think the distinction between that a regional bank, a regional bank that's trying to protect its moat in a shrinking market as the large banks in PNC come into their market. is a tough place to be. And that's why I draw that distinction.

All right. I guess you're saying you still target like the 30 largest MSAs you can shift resources and people and attention as you see opportunities. You don't have to just defend a few of them. I guess, is that what you're saying?

Yes. I don't think anybody has an ability to defend home turf here. We -- the branch builds that are going on with the giant banks and ourselves and at least one other of the smaller banks in the country, we're coming into your market. If you're not coming into our market to come fight us, we're coming to your market to come fight you, and we're going to get some percentage of your market as is JP and BofA, and ultimately, if you're not growing, you're shrinking. So perhaps it's just a nuance in strategy or the realization of long-term survivability at least in our view is dependent on the ability to take the fight to all the markets in the U.S. and win.

A national platform.

Yes.

And then as a follow-up to that then. So if I heard you rest, you have your ongoing continuous improvement program. And as part of that, you have record investment spend in 2026, record tech spend, record AI spend, and even with that, you have 400 basis points of positive [ optimum leverage ] in your guide. So I guess even with you doing all that, are you spending enough given the higher level of competition from the bigger banks?

Yes. I think we are. I mean, part of what you spend is what you can achieve. So you push too hard, you start wasting money. For the places where we compete, Mike, so you think about what we do in wealth or retail or our C&I middle market, smaller large corporate and related product capabilities, I think our tech spend is at least on par. And I think our product set is more than competitive. And I think our core infrastructure as it relates to running in everything being cloud native and built off of micro services and the ability to build products is as good as anybody. Where we lose right, on tech spend is some of our larger friends who've reported so far, they could choose to go build another Visa or MasterCard or Stripe or Shopify, right?

They could choose to build a whole another business inside of their existing operating platform, where what we're doing with our tech spend is optimizing the businesses we're in today. And I think that is the big difference.

[Operator Instructions]

Our next question is coming from Saul Martinez from HSBC.

Wanted to ask about loan growth and the 8% guidance for growth in average loans it seems to imply still a pretty fairly modest growth on an organic basis. If you're stripping out FirstBank, I get to something in the neighborhood of about 3%. And correct me if that math is wrong, you obviously expressed some optimism about C&I picking up, CRE stabilizing here. So that headwind is mitigated. I think you still probably have some headwinds in resi, but you just could walk me through some of the assumptions that are embedded in the loan growth and whether there's an element of conservatism built into that.

Yes. No, that's a good question. So we're calling for our full year forecast 8% average loan growth, which does include FirstBank, PNC on a stand-alone, we're at approximately 4% loan growth. So you have that number there. And all the categories you mentioned, that's what we see, too. So we still see some momentum coming in here in terms of C&I. Ideally, real estate will inflect at some point here in the first half of '26. On the consumer side, we don't have a whole lot of growth built in. We do it in auto card. But as you mentioned, resi mortgage as part of our deliberate management is going down a bit.

Okay. Okay. That's helpful. And then the only other question I have is just more of a clarification on the fee guidance. The numbers you gave, Rob, for asset management cap markets in the different categories. That's on a stand-alone basis and then you would overlay about $100 million from FirstBank and that will -- that $100 million would get -- would fall in those categories in some distribution. Is that correct?

Yes. That's exactly right. And FirstBank didn't have a whole lot of fees there. So that $100 million getting headed to a $9 billion plus number.

Next question is coming from Chris McGratty from KBW.

Rob, on the dollar of contribution from First Bank in 2027, I guess where could you be positively surprised? I know it's early.

I would say the synergies on the revenue side. I do -- I think there's a lot of excitement. There's a lot of enthusiasm. FirstBank has excellent relationships across those communities. And some of those relationships are likely, I would think, to utilize PNC products and services that FirstBank didn't have. So we don't have a whole ton of that built into it. But obviously, we find it appealing.

Okay. Great. And then related to the high single-digit capital markets expectations. You talked in your prepared remarks about the log jam just being opened. Is this high single digit, the full potential that you think the team on the field can achieve? Or is there still an element of your holding back for a little bit of uncertainty?

That's what we think we can achieve as it was all our guidance.

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

I was hoping you could update us on your interest rate positioning and I guess, post the closing of FirstBank, I don't think that would have impacted that much, but just kind of just a full picture of how you're positioned from here for changes in absolute rates?

Sure, Matt. That came up a little bit earlier. FirstBank doesn't change a whole lot. Where we've been for some time, which is largely neutral. So our NII guide isn't reliant on rate cuts. So if they happen or they don't happen, that's pretty much on the margin.

Okay. And then I guess there's a lot of moving pieces as we think about the rate curve. I mean there's obviously focused to lower, I guess, both the low end and the short end and the longer term. And [indiscernible] a few years since we've had some volatility. So I'm just wondering how you're thinking about protecting yourself from maybe unusual movements in rates and how that impact your thinking of subsidies book?

So you should think about our book at least in the near term, as we are kind of indifferent to the front end of the curve. So we're just balance out on wherever Fed funds would sit between gains and losses on loan yield and deposit gains losses and so forth. We are exposed on the reinvestment rate of fixed rate, assuming we don't change the duration of the balance sheet, right? We have assumptions built in there on the forward curve on where we can reinvest rolling off money. We have for -- this is an ongoing program, and we did this in '25, and we've done a lot of it in '26, we lock those forward maturities at opportunistic times with forward starting swaps, right? So when we kind of say, look, we're pretty good independent on what rates does it's because we've taken advantage and locked a lot of forward.

And Matt, you know that -- we started that at the beginning of last year. So that's unchanged.

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

I guess, Bill, just going back to the long-term competitiveness of the franchise. As you think about where some of the financing activity, revenue pools are shifting, just talk to us, when you think about investment spend, like should PNCB adding a lot more in terms of capital markets capabilities and on the wealth management front. Just how do you think about those 2 businesses, in particular, either for '26 and over the medium term?

Good question. So a couple of things. we're focused on a couple of things we're not focused on. Focused on is the size of the wallet of private capital entities, which we do a tremendous amount of business with today, either through lending and asset-based lending or the business with Harris Williams or Solebury or Capcom Lines or on and on and on, getting better organized in covering them as a client versus having product-centric coverage, I think, opens up a big opportunity going forward. Inside the capital market space, in particular, investments in places we have grown through the years are -- we've had derivatives in syndicated loan syndications and FX forever and that grows with our client base.

We have built from scratch a fairly good and growing fixed income business, largely high grade, moving at the margin to higher yield. We have invested and don't intend to invest into the equities business. I think that is a business that is going to be completely driven by giant scale players and automation and not a place where there's going to be big margins for somebody like us. And so I think we'll continue to grow that business and invest in people, but I don't think we need to buy anything to do it. I think it's investing in research at the margin, salespeople at the margin and making sure that our bankers covering our clients are aware of our capabilities on the debt syndication side. But no, we would no giant shifts to do anything there other than continue the trajectory we've been on. I should know this number, right? What's the total annual number that we make out of our collective cap? What do we make in '25 in our total...

In total capital, a couple of billion.

Yes. I mean it's a big business for us. People tend to say, "Oh, that Harris Williams". Harris Williams is a piece of it. We do an awful lot of capital markets business for their clients.

That was helpful, Bill. And just one other question. There's been obviously a lot of discussion around stable coins, interest payments, including this week. And what you're seeing is just the influence that the crypto industry has in DC. You've dabbled a little bit in terms of partnerships with Coinbase. Just give us your sense around how you're following this legislation whether or not you think there is a risk to industry deposits and how shareholders of banks should think about it?

That's a good question. So the fight right now in D.C. is over some terminology in the Genius Act that they're trying to fix with the CLARITY Act with respect to whether rewards count is interest paid on stable points, which was forbidden in the Genius Act. As a practical matter, a stablecoin was created and is marketed and touted as a payment mechanism that makes payments more efficient. That remains to be seen, but it isn't marketed nor is it regulated as an investment vehicle. And I think if they actually want to pay interest on it, then they ought to go through the same process, then it looks to me an awful lot like a government money market fund.

So I think banks are sitting here saying, if you want to be a money market fund, go ahead and be a money market fund. If you want to be a payment mechanism, be a payment mechanism, but money market funds shouldn't be payment mechanisms and you shouldn't pay interest. And the crypto industry has a lot of lobbying power to say, no, we want it all. but we'll see how this plays out.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Bryan for any further 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 follow-up questions. Thanks.

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.

Okay. So good afternoon, everybody. I'm delighted to introduce our next panelist. He needs no introduction, Bill Demchak, production Bill Demchak, CEO and Chairman of PNC. I think this is 11th time you've been here if I can count. By the way, I think that actually is a record. So thank you very, very much for your support. It's great to have you back.

A lot to talk about, but let's just start off with your view of the macroeconomic backdrop. So a couple of things. The first is, what have you seen in the fourth quarter from a spending standpoint? Has anything changed? And then how are you thinking about the economic trajectory next year, both from a growth, but also from an interest rate perspective, just given the fact that we will have a new head of the Fed next year.

So economy today still feels strong. Consumers are spending. Our average consumer balance continues to increase actually across all our cohorts, which is pretty interesting. Credit is good. Employment feels strong, notwithstanding the varying outputs we get. We track which of our customers on a static cohort going back 10 years, received unemployment and that hasn't increased over the last year. Couple of basis points. .

We see GDP next year kind of like this year, close to 2%, no heroics one way or the other. We expect a couple of rate cuts towards the end of this year, and then we think they're probably going to sit there independent, I would say, of next fed chair. So we're in a pretty good spot. I'm not terribly worried about anything.

Okay. And then this whole K-shaped economy narrative. I mean how do you see that tracking heading into next year? Do you think it's going to continue to diverge? Or do you think it starts to narrow at some level?

K-shape in terms of corporate lenders or K-shaped in terms of consumers...

More on the consumer side.

We actually don't see that in consumer largely because of who we bank. So as I said, even in our lower income, so I think lower direct deposit number accounts that we have, the bank, the balances are actually increasing. Spend is up the change in spend, so the categories that money is being spent on has changed, but we don't see the stress there. .

Okay. So before we talk about some of your strategic priorities, maybe you can give us an update on the fourth quarter, how are things tracking? Has anything changed on net interest income fees or expenses since you last spoke?

Yes. No, you should assume that the guide is still good. The margin fees are going to be better than what we expected, and you'll have some commensurate increase in expenses against the guide. Markets came back. If you think about all the way back to the first quarter, capital markets is a little light. We talked about fee guidance maybe being down. We've kind of captured that back in momentum this quarter. And pipelines into next year looks really strong. .

Okay. But the change in fees is entirely capital markets? Or are there other?

It's actually across the board, but largely driven by pickup mean not surprisingly, right, loan syndications, Harris Williams, some of the stuff we do in FX driven. It's just a really strong quarter in capital markets.

Okay. So let's talk about strategic priorities. Look, how have they shifted over the course of the year. I mean it feels like a lot has changed relative to a year ago, but from your perspective, how the strategic priorities changed, if at all? And look, how has -- the way that you spent your time evolved over the course of this year?

I don't know that our strategic priorities have changed in 10 years in the sense that it is our view that we are of such a size today that ultimately, we need scale in the markets we choose to operate importantly, retail scale to allow the rest of our franchise to continue to grow. I'm an old-school believer that you ought to have retail funding against your C&I growth and not rely on wholesale funding. We've been on that mission for a lot of years. And to succeed in that mission, we've invested a lot of money.

Next year, and you've seen it in our announcements. So we just talk about what are we working on next year, right? We announced an increase in our branch build. We're going to build 300 branches. We have been at that pace ever. We are doing a complete refresh in our data centers for resilience and capacity. So we will always be on this notion you actually can't have downtime. We are continuing the journey of taking all of our code inside the company down to micro services. So we've done that with online banking. We're in the middle of rolling it out with mobile, we'll have it. We're going to redo all of our TM system, which is kind of state-of-the-art but break that down into micro services. All that means is the ability to plug and play and change and adapt and be fast at new products to market is faster.

You might have seen -- just an example of that, we talked about in July or August that we're going to introduce crypto to our wealth clients we're going to partner with Coinbase. We took that live this week. It's like 4 or 5 months. Because we can plug and play. And that's why it's important to sort of to have that capacity. We have big investments into our credit card platform, not just in the form of people. We've done models on underwriting and online sizing and on front end, on our marketing. We're rolling out rewards in retail. It's just going to be a busy year in terms of execution. And then of course, First Bank comes online. The integration of that is pretty easy, but the incremental opportunity set, particularly in commercial as we build into their markets, we'll go out pretty hard next year. So lots to do. Lot of momentum.

Okay. So let's talk a little bit about the momentum. And maybe we can start off with loan growth and your expectations around that. So you had very good growth in C&I in Q3. Maybe you could touch on what's driving that, maybe talk about the loan growth dynamics that you've seen in the fourth quarter. And then I think one of the other things you've talked about is commercial real estate loan growth inflecting positively next year. Is that still your expectation? And how much of a tailwind could that be when we think about the loan growth picture for PNC overall?

So our guide for the quarter was, I think, 1% plus or minus on average, and we'll be there inside of that, right? We've actually been growing C&I loans, I think I look at about 4% over the last couple of years. If you back out real estate, real estate has gone down 14%. And then in our total loan book, we've been purposely and we will continue to run off residential mortgages. We didn't have a lot of it, but in the end, even a little of it turned out to be a lousy holding for a bank balance sheet.

We're going to inflect as we go into next year on real estate, which ought to cause the whole opportunity set to sort of increase. I think we had that jump in utilization in the first quarter, which has held kind of roughly there hasn't moved either way. We've had lots of production. So DHE has gone up inside of C&I.

And the other thing that we've just recently seen, which is a bit of a change, and this is just this quarter is we're starting to see increased activity with strategic middle-market buyers and M&A. They've really been on the sideline all year because of tariffs. Private equity was transacting and large deals were getting transacted. We haven't seen a lot of bank deal funding for middle market M&A and that's kind of just picked up this quarter, which bodes well for next year.

The other thing I wanted to ask about is the OCC has just changed the guidance on levered lending. I mean how significant is that? And do you need the Fed to move as well?

My suspicion is the Fed will do it. Full disclosure, I spent a lot of time on trying to get that change. The reason isn't that we want to do leverage lending. The reason is if we want to do smart lending that falls in the way they currently define it. And much of the -- so the big debate right now on private markets, private lending, private lending is different than leverage lending. Can be the same, but it can also be just investment-grade private lending. A lot of the stuff we'd otherwise like to do, our highest return businesses and asset-base, for example, were falling under leverage lending guidance that was causing us not to do business we'd otherwise like to do. So I think you're not going to see us enter any -- enter into anything necessarily new, but you will see us expand some of the buckets we've held back because of the way they define it, which is exciting.

So at the margin, it will make the banking industry, you think, more competitive relative to some of the...

Yes, we can finally do smart business. I mean a big part of why I think [indiscernible].

Maybe can you give an example of something now that you can do that you...

We do a big business of first-out lending in our asset-based book where we were hired by a private equity firm to be arranger of the loan, the auditor of the loan and to run the intercreditor agreements between a senior secured and A term loan, a B loan. We're fully secured. We have 150%, 200%, 300% collateral on our little 10% piece, but it's a criticized loan because by the OCC definition, it has to amortize at least 50% over 3 years. So I have a riskless 10% piece that's paying me 3% in SOFR plus 5% that I can't do because it's a criticized loan under the old guidance, right?

I don't really care whether that thing can amortize or not, and I'm perfectly happy to liquidate the company because I'm going to get my money back. That's the best example. I mean it's just -- it drives dumb outcomes and causes banks to do riskier things that fit within some silly definition that somebody made up.

Okay. And then on the other side of the balance sheet, deposit growth, again, I think we saw a step-up in commercial deposit growth in Q3. What have you seen so far this quarter, how a deposit beta is tracking post the more recent rate cut? And then just more broadly, are you seeing any change in the competitive environment?

So remember, in the third quarter, we had a jump in commercial deposits. The bulk of that was our clients figuring out that our on-balance sheet rate was better than our sweep rate. We didn't change it. It's just that money market rates became less competitive against what we could pay. So we had balanced growth, which caused the hiccup in the NIM growth. We try to make money. We don't necessarily focus on NIM. And so we took a lot of deposits that dropped our NIM a basis point, but made us a lot of money.

This quarter, corporate deposits are up again, but not at the same pace. Retail deposits are doing great. We actually don't see the pressure that everybody is talking about on deposits. If anything, we've tried to shy away from corporate deposits this quarter just because we got grief last quarter. And on the consumer side, we're not pushing anything. We have a little -- our beta is tracking to our -- I think we said we'd get to 41% or something over there, Rob. So people talk about it. I don't know that we see it.

Okay. So let's take these pieces and talk about the net interest income outlook for next year. And I think you previously talked about $1 billion of growth in NII, you talked about hitting the 3% net interest margin at some point in '26. Does that still hold? And then I guess, if we do see better loan growth next year, is there an upside case to the $1 billion number that you predicted?

Yes, a couple of things. First of all, yes, it holds. I think Rob said $1 billion, I think I said comfortably over $1 billion. That does not include First Bank, which I want to talk about some point. Yes. Loan growth beyond the 1% or 2%, we otherwise would assume would help.

So maybe it's a good point to talk about First Bank in terms of how we should think about that.

Yes. So -- we will obviously give combined guidance with fourth quarter earnings, assuming which should happen, First Bank will close before we do first quarter earnings. First Bank itself will be EPS neutral to a couple of pennies, including the charge next year. So everything we're talking about is just PNC sitting there, standing there doing its own business, right? We ought to grow NII north of $1 billion. We're going to grow fees. We're going to grow expenses, credit is in good shape. You can start doing some math.

Now First Bank shows up in the picture. We'll take the integration costs early part of the year. And then our exit run rate is a full $1 better, right? We said we'd make $1 more from this thing post the first charge. So it doesn't cost anything in the first year. And then we're at a $1 better run rate. On top of the guide I just gave you that showing NII going up $1 billion, expenses under control and fees growing also, by the way, capital probably going down. Through more aggressive repurchases.

Okay. That's a pretty good picture. So maybe we can talk about efficiency improvements as part of that outlook. You've done a very, very good job, I think, in terms of the continuous improvement program and reduction in operational roles over the last few years. Can you talk a little bit about where we've got to in terms of process optimization for the firm, where you see the greatest opportunities? And then, look, the other thing I'm very interested in hearing about is that there has obviously been a change in both the regulatory and the supervisory environment to a degree. Is that a tailwind in any way as you think about the ability to drive efficiency improvements from here?

Yes. So just to rewind for a bit. I think we've we probably have 2,000 plus or minus fewer operational people inside of our mid-back office in the retail bank over the last handful of years. Simple soundbite, our head count is the same as it was 10 years ago, when we were 1/3 of the size, all through the process of automation, branch optimization, so on and so forth. That should continue. The big buzz right now is it's going to continue because AI is going to drive it. But we've been on a journey of automation for years, and AI may well be an accelerant.

It will most definitely be an accelerant in our tech head count as we are already using agents against the programmer role. When we run our plan, every year we're running a 5-year strategic plan. We're running below 60% today. That improves in a plan materially over time. What I would tell you is I don't know that you can run a bank that is investing in its future much below the mid-50s. Math on our plan might show us getting better than that, but practically, we'll be investing in growth when that happens.

I mean, so a couple of things. I mean, first, can you just touch on some of the bigger use cases for AI? And maybe have those -- how have those changed? And then look, secondly, how should we think about these efficiency improvements? Because if you kind of go back and look at the banking industry over a long period of time, a lot of these efficiency improvements get passed on to the customer in terms of just better pricing. Do you think that's going to be different going forward as we think about how it changes the return profile of the industry from here?

So we are in -- no bank ever wants to say this. But in the retail space, we are in a commodity business in a consolidating industry. Who wins in that space. You have to be the low-cost provider with a very good product with ubiquitous presence. To be a low-cost provider, you need to be leading edge in technology and automation and pull manual label sources out of that. If you go back through time and look at our expense base shifting from -- sorry, to technology from physical plant and people, right? That will continue. And I think it's a necessary ingredient ultimately to succeed in what is a consolidating retail environment for a largely commodity based, people are better at it, but I offer a checking account, you offer a checking account. Some people can grow faster than others. So it has a large impact. I think in the end, it does not improve margins long term. We haven't seen it do so.

So go back to -- we use our mortgage operations, for example. We've taken 27% in the last couple of years of the cost out of servicing a single loan. And we've done that, think about -- look at our retail operations. I just think that then comes with the next new investment to continue to grow their franchise. Maybe I'm wrong. But I think the day you sit back and try to harvest you lose. All the way back to when we did National City, we've been massively investing every year in future growth of the company, with our technology, putting people into new markets as we open markets, building new branches, investing in people. By the way, for 10 years, we've had positive operating leverage every single year, if you back up individual acquisitions. I'm going to run this year north of 4%, and we're going to run next year higher than that. Still investing a lot of money. But I think if you want to win in this consolidating space, you're going to invest a lot of money through time. And the good thing with us is we don't have any jump that we have to do. We've just been doing it consistently.

Yes. So let's talk about some of the growth initiatives. You obviously talked about the 300 branches. A few questions. First, why 300? Like why is that the right number? How did you kind of come up with that? Second, you're both building branches, but you're also buying branches, where you're buying banks effectively, you bought a bank. Talk about the economics of new branches versus building branches. And then if we put this all together, you've talked about the 7% market share that represents critical mass. Is that still the right number? And look, how are you tracking towards that in some of these markets where you've obviously got...

So the 7% -- some people use 8%, but I think the science is pretty well developed that once you get 7% or 8% branch share in the market, you have disproportionate deposits per branch share. So if I have 7% branch share, I get 8% deposits or something in a mature market. Our digital accounts, which we open, I actually don't know our percentage of openings, but it's quite high these days. Some high 90s-plus-percent of our digital accounts are open within a couple of miles of where we have a branch. So some assumption that you can live on digital without branches, we've kind of disproven. By the way, we tried that in a couple of markets when we were just doing a few de novo branches. .

Why do we build versus buy? 10 years from now, go back to this investment point. There's going to be no one who is made us for building 300 branches. I'm only building 300 because we've never tried to build that many and our real estate group is losing their minds. The return is pretty good. Ultimately, you put them in the right place. It's better oftentimes, not always, but often times than actually buying presence in the market because many of the things for sale in a particular market are old FDIC failed underinvested branches on the wrong corners, and I need to build branches anyway.

So we're going at this as hard as we can. It leads to the same outcome we've been talking about for 10 years, which is ultimately getting density in the top 30 MSAs that we want to operate in, and we'll continue to do that.

Okay. So we're going to talk about capital in a minute. But before we do that, maybe we can talk a little bit about the outlook for some of the fee lines. You talked about the fourth quarter coming in better on capital markets, there seems to be tremendous optimism around the outlook for capital markets...

Next year.

Next year. Obviously, your franchise is slightly different. So maybe you can just talk a little bit about your expectations. And have they changed since you last spoke in terms of the opportunity set in capital markets?

Not changing our targets, but we have as we said, the back end of this year, picked up and it's likely to continue into next year. The businesses that we're in, just as a side, largely middle market, small or large corporate leader in loan syndications, both investment-grade, high-yield asset based, big player in real estate, derivatives, foreign exchange, investment-grade bonds, high-yield bonds, we own Solebury, which is involved in most of the IPO business has probably got 50% market share in IPO advisory.

So we're in all of the spaces we're just not in the business of committing large amounts of capital bridge financing to then be taken out by equity. And so we like where we are. We think it's going to continue to grow. We think we have a very strong franchise. That collective franchise, by the way, is well over $1 billion in revenue.

Okay. So let's talk about capital. And I know there's a lot of different moving pieces around what's going to happen to regulatory capital reform. But how is your thinking about steady-state capital requirements changed? And maybe if you can just help us think through if regulatory capital is no longer the backdrop, and it becomes either internal stress testing or rating agencies. What do you think is the right level of capital to run PNC at? If the decision is up to you versus some regulatory...

So our current binding constraint is basically Moody's. We were affirmed at our current rating in the 10% target, which is where we'll run. That's well in excess of what we need from a regulatory standpoint. One thing that will help us, I believe, as they go through Basel III endgame is they'll probably get risk rating we will probably get risk rating relief for our corporate credit book, which will lower risk-weighted assets, which would change that number, both for Moody's and for regulatory. Either way, we're running at 10.7% today, and we generate a lot of capital. So we're sitting on a capital capacity as we go into next year, well north of $5 billion in today's world to get to the, short answer to your question, against where our share price is and opportunities, you're going to see it be a pretty aggressive share repurchases.

And just on that, Moody's is going to give you credit for the capital relief you get from Basel III endgame?

They do their ratings based on their capital ratio is also based on risk-weighted assets. So I assume so. I didn't say the world is rational. .

Okay. Okay. So before we...

By the way, when we run stress is just to get to there, like if you throw out all the third-party rules, so you run a stress test, even our real severe stress test. Even last year, we stressed down to 9.7% or something. This year's stress test will be a lot lighter. We run literally dozens of them, and we could run lower than where we are. We don't see a need to. It doesn't hurt you to carry excess capital as long as you're not doing something stupid with.

So maybe we can -- before we talk about credit, let's talk about uses of the excess capital. And I guess there's a couple of questions. I mean it does sound like you are thinking about increasing the cadence of the buyback. Is that for this quarter? Is that for next year? But it would also be just helpful to get an update in terms of how you're thinking about deployment of excess in terms of both growth in the business, capital returns, but also just organic

Yes. So we'll always deploy first to grow the business. We have a fantastic organic opportunity. We're not going to shortcut that through some shortage of capital. At the moment -- actually, I'll step back. Fourth quarter, we said we would do $300 million to $400 million. We've done $300 million to $400 million. As we go into next year, you should assume that's a higher number as we work our way down to a 10% target from 10.7%, while we're making -- I don't know what the number is, $7 billion plus a year. So buyback will be larger.

The question you really want to ask is whether we'll spend that capital on M&A. And I can't tell you how frustrated I am by this year's performance and kind of the misunderstanding of what we may or may not do vis-a-vis long-term plan. First point, I was very public in advocating that banks need the ability to compete and bank should be allowed to merge, Otherwise, we're going to see consolidation at the very top without any challengers. Second point, we're 165 years old, and that doesn't mean I have to change that overnight. I just want the ability to.

Third point, I don't think this current regulatory environment that there's any window whatsoever related to the political environment. I think that may be true for G-SIBs who are contemplating large deals. But I think it is well accepted at this point that on both sides of the aisle, it is important to create challenger banks to the G-SIB. So I don't think we're under any window pressure that you have to get some deal done any time in the near future.

Next point is there's no large banks for sale. Independent if we wanted to even do anything. If you heard anybody come up here and say, "I'm interested in selling, I know they all want to buy. And at the worst, they'll say, I won't buy anybody else. I'm going to buy back my shares, but I sure as hell don't want to sell. And then you have a whole group of small banks who all want to sell who had their share price run up at multiples higher than our multiple, given our growth trajectory that I just told you about. Why the hell would we buy them? We look at First Bank and people say, "Oh, you pay 2.4x book. Oh my got heart attack on First Bank.

First Bank was on every deal we've done since I've been sitting in the seat, the highest cash-on-cash return deal we've ever done. So the amount of money we invest $4 billion and we get back this in our earnings, we already told you it's north of $1 a share, right? So it's north of $400 million. It's actually appreciably north of that, put say, $400 million without the accretion accounting. Just cash on cash yield. We've never gotten that in any other deal we've done.

So looking at tangible book value and earn back when you are not looking at the opportunity to take cash -- cost out and the degree of certainty of the money you can earn is it a wrong metric to look at. The bank deal is getting done saying, hey, I have no tangible book value dilution, but oh, I'm stopping share repurchases for the next 20 years. And I just bought this crappy a** franchise that isn't going to make me any money, right? You want to buy a good franchise where you get good return on what you bought. And I would just tell you, First Bank was actually the best one we ever did. We bought RBC at onetime book. They didn't make nearly the return, not even half the return we get out of First Bank.

Now having said all that, that thing, First Bank is the most unique bank I've ever seen. I've had all these small banks come and talk to me. Everybody wants to be sold at 2.5x book. They're all business banks. They're not retail banks. First Bank is first and foremost a retail bank that deals with the retail deposits and has a retail customer share. And go back to all our strategic priorities, going back 10 years, what is it I want to do? I want to grow retail share and that franchise did it. But some assumption that we ought to trade 2 points off a multiple that would be worthy of our growth rate. Because if we're going to do something dumb and overpay for somebody who's either not for sale or masquerading as a retail bank is a really bad assumption.

Let me ask you a couple of questions. I mean, the first is, can you just remind us of the financial hurdles, any acquisition needs to meet for you to consider? And then, look, secondly, I do think there is this view that's been emerging over the course of this year that we are going to see this acceleration in regional bank consolidation next year. I mean do you buy into that? And then the third thing is, look, is there a combination out there that would concern you from a competitive standpoint?

So what are financial metrics we look at? I mean everything you would think put together. But ultimately, we're saying how much money, whether cash or stock because they're kind of fungible. I could issue stock, I could issue cash. Just how much proceeds, am I giving to something? What am I getting back both in near-term earnings and franchise value? And what is the degree of difficulty in doing it, including credit risk, including cost takeout, including do I have to rebuild all the branches, including, including, including. So as logical as you think we would be when you put -- putting this much cash up and I'm going to get this back and here's my net present value. That's what we look at.

This metric of when's your tangible earn back, what's your dilution, what's your -- you can't look at that in isolation because it's not giving you the picture of whether it's a good return or not. Why is there going to be a lot of activity in the next couple of years? I think at this point, like every small bank is for sale. They've driven a price up where most people who would be acquirers, even though they really want to acquire struggle with any of the metrics associated with it. I don't think there's a large bank deal that gets done in any way, shape or form. And I don't particularly get worried. I mean you do any combination you want, I think that any really big combination who would clog up a math for us in some way, shape or form, probably comes with so much execution risk that I've just doubled down on our investment in organic growth.

I mean these deals -- by the way, some notion -- it's truly some notion that I can do banker math and put 2 things together and wave a magic wand and actually execute and cause that outcome, is a super dangerous notion. Like a deal that was the same size as us or even half the size of us comes with material execution risk, compliance risk, systems risk, degrees of complexity in doing operational conversion, personality conflict, dual heads of everything, we don't need that. We're growing like a weed, just don't know what we're doing.

Okay. So we've got a minute left. And you did touch on this, but I do want to ask this specifically, which is look, as you talked about, your operational trends this year have actually been very good. On our numbers, I think we have you growing PPNR kind of low double digit, maybe even higher over the course of this year. Other than the M&A piece, what do you think people are missing when it comes to the investment case of PNC over the next...

I don't think I think the market is way too focused on who's going to buy whom as opposed to what is a good franchise. I think there's absolutely no differentiation on a bank that is actually able to grow because it's growing clients and business versus one who is mortgaging their future or just recovering from a disaster. I think there's way too much focus on let's guess who the next person to be sold is and let's guess on the next person who's going to buy.

And we felt -- look, we've -- every single financial metric we look at, we're basically at the top of our peer group this year. And by the way, we were last year too. And by the way, we probably will be next year. And we actually sit at the bottom of our peer group in total shareholder return this year. all because people think I will do something stupid. So it's really frustrating. I mean, literally, it's like the whole world has bet that I'm going to do something stupid, that's caused the stock to go down.

And I won't I think that's a great note to end it on. Bill, thank you very, very much for joining us. I'd love to have you back next year.

I'm Gerard Cassidy, the President of the BancAnalysts Association of Boston. Thank you all for attending. Thank you very much. I appreciate that.

With us today, we have PNC Financial, which we all obviously know, it's about $569 billion in total assets. Market cap is over $70 billion. And presently, they have over 2,200 branches throughout the United States. Last quarter, they had a return on tangible common equity of about 17%.

Businesses are broken into three areas primarily, Retail Banking, Corporate & Investment Banking and Asset Management. To my immediate right is Rob Reilly, who many of you already know, Executive Vice President and CFO. I was chatting with Rob beforehand. He's been CFO since 2013. And some of you might remember before that, he headed up their Asset Management area for a number of years.

To his right is Alex Overstrom. And for a few of us in this room, myself, Charlie and Brent, who have been doing this for a number of years, we like some of the famous baseball players, the Griffeys, the Boones, and the Bonds. Alex's father presented here as part of Shawmut National back in mid- to early 1990s. So, we have -- his is the first father-and-son combo with the Beavers Head. So...

I don't know if that bodes well or not, but we'll go for it.

So, thank you, Alex. He is Executive Vice President, Charge of Retail Banking at PNC. Prior to that, he was the Head of Small Business and Deputy Head of Retail Banking, and he joined PNC from Goldman Sachs in 2014.

And I'm going to turn the mic over to Rob, who then will hand it over to Alex, and then we'll open it up for a fireside chat. Rob?

Thanks, Gerard. You've handled it all. Thank you for having us. This is now my 13th year. So, I was a little stun when you said way back in the '90s, which some of us were there. But a pleasure to be here with you this morning.

Alex is going to walk you through some new initiatives on the Retail Bank, that you might have read about in a press release this morning. We're hopeful that you'll get a sense in terms of our enthusiasm for our organic growth efforts, which we initiated at least verbally last year at BAB and laid it out and Alex is going to bring you up to speed.

Great. Perfect. Thanks, Rob. And great to be here, Gerard. Thank you for the introduction. It is great to be back in Boston, close to my hometown of Hartford.

As Rob mentioned, I'm going to spend a little bit of time today highlighting the Retail business, talking a little bit about the drivers of our recent performance, our strategic priorities and the opportunities we see ahead to continue to accelerate our growth.

Before I do that, I'll reference the statement on forward-looking information and non-GAAP information, and we'll leave that there.

Maybe just to start with a little bit of context on the business. We operate one of the largest Retail Banking franchise in the United States, $243 billion of low cost deposits, $97 billion in loans. We've got a team of 27,000 that serves the holistic needs of more than 15 million consumers and small businesses around the country. And that organization, this collective organization has generated $15 billion of net revenue over the last 12 months.

If you look at our reach, it is both extensive and expanding. We serve 26 of the 30 largest U.S. markets, including 9 of the 10 fastest growing. And our coast-to-coast branch network puts us within easy reach of more than 40% of the U.S. population.

So, you think about the scale, it's driving a very attractive financial performance. Over the last 3 years, we've grown our net revenue at a 14% compound annual growth rate driven by both net interest income and fee income. And during the same period, we've also lowered our direct expenses by nearly $300 million, resulting in a flat expense base and a significant improvement in our efficiency ratio. And the outcome of that has been the very strong growth you see in PPNR on the slide.

Our success is anchored in a straightforward, client-focused strategy, start by being our customers' primary bank, deliver consistently outstanding service, what we talk about being client obsessed inside of the PNC organization. And ultimately earn the opportunity to support these clients holistically as their needs and their financial goals evolve with time. And while it's simple, this strategy is at the heart of our Retail Business and guides really all of our investments that we make inside of the franchise, whether that's scaling our presence nationally across physical and digital channels investing in experiences that make it easier for customers to choose PNC as their primary bank or building capabilities that allow us to better serve clients' needs throughout their life cycles. Everything that we do is oriented around the customer.

Let me start with a little bit of color on how we scaled our presence nationally to position the business for growth. You can see we've evolved our branch network significantly over the last several years with more than 40% of our branches now in our fast-growing expansion markets, and that's up from less than 20% in 2018.

This strategic shift is helping drive improved productivity across distribution channels. In our branches, we continue to achieve record levels of DDA sales as investments in our team members, in marketing, and the client experience continue to pay dividends.

In digital, our work to optimize the sales journey to reduce friction has allowed us to grow consumer DDA sales 30% year-on-year, with digital now representing a meaningful portion of our overall sales. This combination has propelled overall customer growth with consumer DDAs growing 2% year-on-year, including 6% in our fast-growing Southwest markets.

Given this strong performance, we see a compelling opportunity to continue to invest. And to the point Rob referenced earlier this morning, we announced plans to expand our branch builds to 300 by 2030, up from the 200 we announced a year ago at this conference. And this announcement really reflects the strong momentum we have in our business and the significant organic growth opportunity we see in front of us.

If you look at these builds, they'll bring markets like Nashville, Chicago, Sarasota, Fort Myers fully to scale, increasing their density and accelerating ultimately our growth.

Now importantly, these branches come on top of our planned acquisition of FirstBank, which, if approved, will make us the #1 Retail Bank in Denver and a leading player in Phoenix. Our overarching objective in these investments is to drive scale and relevance, really to position ourselves as the leading bank in our key markets.

And to that end, by the end of this decade, we expect to be at scale in 18 of the top 30 U.S. markets, up from just 6 today. And you can see on the right-hand side of the slide, this type of scale drives performance, not only in the branches themselves, but across channels with digital sales per capita nearly 6x higher in markets where we have a presence.

Long term, we see a $20 billion-plus deposit growth opportunities from these organic builds with returns well in excess of our cost of capital even under conservative assumptions.

Now, stepping back more broadly across our channels, we're investing to create seamless integrated customer experiences. Today, 77% of our clients are digitally active. We're seeing very strong growth in our mobile users and we actually recently completed the migration of all of our clients to our new online banking platform. And now we're leveraging a genetic development to build our new mobile app, which we expect to roll out in the first half of 2026.

We're mostly making it easier for clients to choose PNC as their primary bank, adding digital direct deposit, switching, refreshing our debit card suite and enabling instant debit card issuance through our mobile app.

Now crucially, we're still investing in, in fact, increasing our investment in our in-person experiences so that every client entering one of our branches is treated with genuine hospitality and care. And these investments are reflected in our rising Net Promoter Scores, which are up 10 points over the last 3 years across our branch network, driving solid improvements in client retention and helping to fuel the growth we talked about.

Finally, while we built a strong foundation, we have a significant opportunity in front of us to expand how we serve our clients throughout their life cycles. Take investing, as an example, we built a phenomenal platform with a newly rebranded PNC Wealth Management, manages close to $90 billion of investment assets, generates close to $1 billion of revenue. And yet we're only beginning to unlock the full potential of our affluent client base. And we've got several initiatives underway to further accelerate our progress.

These include adding dedicated advisers and bankers focused on this affluent segment. introducing a securities-based lending solution to help clients manage their liquidity and providing customers with rewards for doing more with PNC.

Likewise, you think about credit card, when we've made strides introducing new products growing client spend, our market share among our own clients is still well below what we see as our potential. We've added a number of highly seasoned card experts to lead our team over the last 12 months. And we're executing on a set of plans to address the opportunity that we see in front of us.

That said, we recognize it will be a multiyear journey to realize our ambitions of becoming the #1 card provider for our core PNC customers.

So in closing, we'd say our strategy is working. We're accelerating our underlying client growth, delivering strong financial results and doubling down on the organic investments to sustain and build on that momentum that we see. We believe the opportunities ahead of us are significant. We're excited about what we're doing and what's to come.

And with that, Rob and I are happy to take your questions.

Alex, thank you for the presentation, and maybe we'll start with some questions for you first, and then we'll go to Rob and we'll open it up to the audience.

Can you share with us, when you talk about that 7% branch share, does the expansion plan get you into that number that you need to get to the expansion range?

Yes. That's exactly right. Everything we're sort of trying to do, what we announced today, we talked about in the slide is all about sort of driving that local scale in these key markets, which are now 20 or so that we're investing in. We think that sort of 7% range is sort of where you begin to create that sense of ubiquity, that sense of convenience that really accelerates your growth. And we see it already in our own markets, in terms of the checking acquisition, checking share. And then ultimately, that leads, we think, to positive and accelerating deposit share.

So, all of the markets that we're investing in and we're targeting that 7%. And then obviously, you get down into the sort of very localized micro market strategies, but that's sort of the macro objective.

Yes. One of the numbers that jumps out at us all on that screen, on the slides was the flat expense growth that you guys have shared. How do you balance the need for the branch expansion with keeping those expenses flat? What are the puts and takes that you get?

Yes. I appreciate you asking that in front of our CFO. It's been -- we didn't spend as much time talking about it in the presentation, but it's been a very big focus since I got in the seat 3 years ago, I would say a couple of levers that we've been pulling and we'll continue to pull. One was frankly optimizing that work. We've talked a lot today about how we grow it. But there's been a nice opportunity to optimize that we exited a bunch of branches where we frankly were overly dense, supermarket branches, prune the ATM network and frankly, address opportunities in our staffing across the broader network.

The other thing where we've seen just a tremendous amount of cost takeout has been sort of our operational and middle office areas, I think we've taken out probably more than 2,000 people over the last couple of years in those areas just as we've begun to automate more processes and just drive more efficiency through that.

So, our objective is, we want to invest, we want to invest to grow. And we think it's really important to sort of do our part to self-fund as much of that investment as we can through automation, through technology and just sort of rigorously running the business every day.

And Gerard, you're familiar. So that's -- for those of you that know us well, that's part of our continuous improvement program, where we take our efficiency dollars and use those to offset investments.

Rob, coming to you. Maybe you could share with us how the guidance for the quarter is going?

Yes, sure. So we posted our Q 4 days ago, where we reaffirmed our guidance. So, no change, in the last 4 days.

That's good.

Sorry to not be dramatic more on that. But yes, feeling good about the quarter.

Okay. Can we talk about NII for 2026. On the call, you referenced the $1 billion number.

$1 billion growth. Right.

Yes. Yes. And can you share with us the dynamics of the falling front end of the curve and what that might do?

Yes. It's -- like we experienced in '25, we're well into repricing our fixed rate assets that were put on much lower yields years ago. So, between now and the end of '26, we will have $65 billion, approximately $65 billion more of assets to reprice. So that's the preponderance of it when we talk about '26. That will be the big driver.

When we get out into January, and we've got full year guidance for you, we'll have some more specifics. All in, we would expect incremental loan growth simply because we think the CRE runoff that has been a headwind for loan growth in the last couple of years will inflect probably in the first quarter of '26, maybe late in the first quarter. But that alone, net-net, everything else being equal, will be better for loan growth.

Yes. Can I just follow-up on the CRE coming about inflection. Is there any property types or any color on what's driving that?

Yes, I think it's just following the office fallout that we've worked through the slowdown in some construction that we had actually a little bit of a gap as that funded up. So loans that we have made earlier in this year will start to fund in '26. So that's what that's about.

Got it. Okay. Maybe we can talk a little bit about deposit pricing in the quarter. Through the rate cutting cycle, do you still expect the cumulative deposit beta in the mid-40% range?

Yes. Yes, for sure. I mean, deposit paid rates are coming down. Our cumulative beta right now is down 37% or something like that, but that's because it's choppy on the front end as rate cuts come late in the quarter and time in the quarter. So, rate paid is definitely -- it has come down. It will continue to come down. Our expectation is another rate cut in December, as we've said. So, we'll get to that mid-40 down beta pretty quickly, and that's in line with our expectations.

Got it. And maybe also to talk about what happened in the third quarter, the increase in interest-bearing commercial deposits. Can you share with us what are you looking for in this quarter?

Sure. Yes. So, as you know, we had a big increase in our commercial interest-bearing deposits in the third quarter, and that was a onetime event really which related to customers -- commercial customers of ours who had deposits off our balance sheet and money market funds.

And because of the way rates were moving, when they did the math on the fee, they were paying for the fund and the yield, it actually made sense to come over to our balance sheet even though we didn't increase our rate paid.

So, we like when our commercial clients like to have deposits with us. It is NII accretive. So we feel good about that, but there's not more of that to do. So, when we get into the fourth quarter, we'll see some growth in commercial interest-bearing not to the same degree, but there are some seasonal increases that we see. So, it will be in line with that.

Got it. Obviously, you've got a very strong capital, 10% CET1 ratio. Is that the right number? Or how are you...

Yes, I think so. So, we finished the quarter at 10.7% in CET1. As you know, you all know, the capital rules are still in flux, but generally are working in our favor. We'll have to see the dust settle down on that before we get precise, super precise. But I'd say 10% is a good number. So we're at 10.7% -- 10% for right now is a good number.

Got it. And maybe then with the excess capital, any thoughts about buybacks?

Yes. Yes. So we stated for the fourth quarter we expect share repurchases of between $300 million and $400 million. We really like our share price right now. I'll say that again. We really like our share price right now. So, we'll be at the higher end of that range. And then, all else being equal, going into '26, I'd expect share repurchases to increase from there.

Got it. Maybe, Alex, coming back to you. Are there any markets that you're not in today that over time, you might look to expand into?

It's interesting. So, you sort of look at our footprint, we're in 26 of the 30 largest markets. So we like the opportunity in the markets we're in. What you saw in the announcement today is really us bringing a lot of those markets plus some other ones to the degree of scale we think is opportunistic to accelerate our growth. So, in the near term, our focus is really operating in the markets we've got and growing those. Over the long arc of time, would we want to get into more? Sure. But the near-term focus is really scaling up in the markets, several of which we announced today.

Sure. And to add to that, we're in all the right markets where there's a lot of growth. So the idea is to build on what we've already got going in those markets.

We all know that density and market share is really important, particularly with deposits. And everybody is aspiring to do that. Can you share with us, what you might be doing differently than your peers that gives you the success that you've been -- that you put on those lines?

In sort of our view, we sort of think about winning and losing the retail banking or in around sort of two things. One, delivering really good customer service as much as that may sound like a happy idea. It really matters in this business and getting that right is key. And then, really good products and experiences for digitally and in the product set. So for us, it's all about doing those things and then doing them at scale in the markets that we're in.

And so, the investments you see today are all about bringing those things to more of our customers in more neighborhoods and surrounding them, whether it's renovating all of our branches over the next several years. The digital investments we talked about, make it easier for clients to choose PNC as their primary bank. It's -- in some ways, it is a relatively simple approach, but we think getting the basics right, executing them well and doing that at scale is what's driven the success and will continue to drive the success going forward.

At this conference, many of the banks talked about the resiliency of the consumer, as you may have heard Bank of America had an Investor Day on Wednesday. They also talked about the resiliency of the consumer. Can you share with us what you're seeing on consumer spending in your concern?

It is -- I mean, that is the word I would have used. It is actually remarkable. We were just looking at the sort of deep dive on the October numbers. The consumer is hanging in there. Spending is robust. And it's -- whilst a little bit stronger at the upper end, it's still actually hanging in there among lower-end customers. So, that's been, frankly, given all of the turbulence perhaps a little bit surprising, even with the government shutdown, what we've seen is customers that have been impacted by that or drawing down some savings in other places in order to allow themselves to continue to spend to some degree.

So, it looks pretty solid right now. The employment numbers that we see through our customer data appears okay. So it's still a pretty good picture. Obviously very dependent as we go forward on sort of the employment situation but...

And we keep a close eye.

Yes. Sure. Right now, it's okay.

Maybe we could dig down a little deeper on the consumer loan growth. What are you doing? What are you seeing to drive that growth as you go forward?

Yes. I would just say we're not sort of chasing consumer loan growth. What we're trying to do is make sure we serve our customers and serve them well.

And I would sort of break our business into a couple of buckets. You sort of think about what we've got in the home lending side, home equity mortgage, auto, we've got a very, very strong platforms there. Autos, we've had a very nice year and continue to grow that business. Home equity is doing well. Mortgage obviously been a little bit more subdued. But we've got the right solutions. We've got the right products. We do a very good job bringing those to our customers.

Where I think the biggest opportunity is, frankly, what we talked about today. We're undersized in card by a lot. We haven't grown that business over the last couple of years. I think that's beginning to inflect if you start looking at the balances, but it's a lot of work that we've got ahead of us in order to get that to where we think ultimately we can make it a more meaningful part of the business. So, that's the investments that we've got.

And then in the affluent space, we do a decent job on some of those sort of more traditional products. We talked about introducing a securities-based line of credit. We think that's an attractive opportunity for us is sort of an incremental driver of growth, but those are sort of the two biggest areas of focus at this point.

I don't know, Rob, if you have anything.

Yes. No, that's well said.

Yes. Coming back to card, on credit card, how will you guys measure the success of what you're achieving in the card space?

That's a great question. So first, we got to get a team that really understands the space, knows how to execute, knows what great is. I feel like we've got that group in place. They're now beginning the journey of that investment to really build a best-in-class platform for our customers. And I would really want to make sure people understand that we're not trying to play a national card game and prospect in the card space. What we're trying to do is really serve and deliver for our core customers. So, that's the overriding objective that we've gotten.

So, when we look at that beginning to inflect on the balance is getting that to sort of sustainable year-over-year-over-year growth that will be an early sign, continuing to grow our spend. We've actually done a very good job in terms of growing customer spend. We made a record quarter in the third quarter, and we feel good on the trajectory as we go into the fourth quarter.

And then ultimately, the longer tail on that is going to be actually driving up that attach rate among our core customers. Obviously, every day that goes by, we add more customers into the denominator. So, we're fighting against ourselves in some ways, but that also creates the opportunity. But those, I would say, are sort of the things that we look at, I think the earliest thing you'll begin to see is the spend and the balances and then over time, the attach rate.

Yes. And the key, Gerard, as you know, is the core customer offer. So we're not looking to go where no bank has ever gone before. We're looking for our fair share. And as Alex said, we're putting a lot of work into it. And generally speaking, our core customers are very receptive to the offer.

Yes. They want to do business with us. We need to put out that value proposition that makes sense for them. And again, all of this still in the prime, super prime space, no change in credit appetite or anything else like that.

Rob, obviously, you guys talked about scale today, the announcement. M&A activity is picking up in our industry. Of course, everybody knows your FirstBank deal that you did about a month ago. There's a lot of speculation and chatter about what's next for the bigger deals. Your name is, PNC is often included in there as an acquirer, which may be weighing on the valuation. Can you give us some your thoughts and color how you guys think about M&A going forward?

Yes. Well, so a couple of things on that. One, on the FirstBank acquisition we announced a month ago, as Alex referenced, our expectation is to close it at the first of the year, pending regulatory approval, which we're optimistic about.

And just to touch on that, we're really excited about it. So we're excited about it at the time that we did it. We were drawn to what we saw as a pretty unique consumer interest-bearing and non-interest-bearing deposit franchise, that was independent from their commercial activities. Really attractive. We structured in a way, the IRRs are very good. And getting to know the people and getting towards -- working towards close, we're more excited. Our new colleagues are cultural fit and we're seeing big opportunities. So really, really feel good about that acquisition.

In regard to acquisitions and how that's weighing on our stock price, it is. And in my estimation, our estimation, I think investors are overweighting our willingness to do a transaction at any cost. And we see that in our valuation. We're trading at a discount now on a PE basis to our multiples for the first time since I've been at BAB, which I think is like 11 or 12 years, I mean.

So, and it's not because of our operating performance or our track record. If you look at our operating performance year-to-date in '25, we're at or near the top of the pack in our peer group in NII. We're at or near the top of the peer group in revenue, because our fees have been very good.

Importantly, in terms of core profitability, PPNR, the peer group is up 7%. They're having a good year. We're having a better year. We're at 12%. So, we're doing all the things that we want to do, a lot of that coming from our organic growth efforts that are now contributing. So they're not all on the comp.

But with that valuation in that move, clearly, there is some portion of our shareholders that don't want us to do a deal. And we hear that. Bill and I were talking about it yesterday. Bill Demchak, our CEO. And he and I, as you've noted, we are the longest tenured combo of CEO and CFO in our peer group. And we quickly realized we're large shareholders too. So, we're very much aligned personally with our shareholders as it should be.

And here's maybe your headline, Gerard, we're not masochists. So like most people, we're not going to hurt ourselves. So, if a deal can't happen and organic growth is passed, so be it. But we won't lose our discipline. We won't lose our focus on what's best for our shareholders. And I think at the moment, the valuation is putting some of that in. And if you feel that way, it's untrue and you're misinformed.

Yes. in the past, there's been some quotes about maybe growing to a $1 trillion size. And if that is fair, what's that path? I mean, is that still a big jump for you?

Yes. I mean, $1 trillion number is just an arbitrary number. And really what that's about is, we want more scale. But so does everybody. So the largest bank in the country, we all know who that is, they want more scale. The smallest bank in the country, I don't know if anybody knows who that is, but I assure you they want more scale, right? .

So in our case, we're less reliant on anything immediate in terms of scale, because we have more than most. So it's just a target and how you get there is a combination of organic growth, which we feel great about, and acquisitions if they happen to make sense. But I can assure you, if we get to $1 trillion, at that point, we'll want more scale, too. So there's nothing magical about that number, other than just making the point, scale matters.

Right. Got it. Why don't we open it up to some questions from the audience? Are there any questions? Yes. Pierce?

He wants to follow-up on the masochists thing.

Pierce Crosby from [indiscernible] I wanted to ask you about the -- how to think about the financial impact about the expansion branches that are sort of still in, I don't know if you want to call it infancies or at least just maturing. Would you say that they are a drag on absolute profitability today in returns on equity? Or I'm looking at them in the basket, not obviously the newest ones, but all of them together. Or is it more a case where since they haven't necessarily grown enough to generate too much in loans yet. So it's not necessarily attracting capital and the expenses that you are spending. They are at least covered by the revenue. They're not where you want them to be.

But, how should we think about what's sort of in the run rate and then as they mature, what are sort of those impacts on sort of margins, returns and so forth? And also a sense of the order of magnitude of it of whether this is sort of nitpicking or sort of an adjustment that we should be thinking about.

I get it. Alex, what do you...

Let's start with the localized level. Maybe just to sort of think about even at just an individual branch, so you can sort of give you a sense. You make a capital investment to open the branch thinking more on a cash flow basis just because I think that's an easier way, economic way to think about it. And so that money is invested. And then, there's basically a J curve where you begin to earn back to a breakeven point. We've conservatively modeled a little bit less than 4 years to break even.

And then after that, you're sort of in the positive and fairly quickly thereafter get to payback and then it's pretty attractive. So, you can sort of think about you have a series of J curves that sort of come online as you build the branches. But as each one of those season, it gets more and more and more profitable as you begin with a hole and then it basically inflects and becomes quite attractive.

Yes. And that's pretty much what we've been doing even on the corporate side in terms of these de novo markets, these waterfalls in terms of vintages that the vintages that we did 5 years ago are now paying for the new vintage that's coming. So it is neutral. I mean, I suppose if we stopped, which we don't want to do, we could improve some short-term returns, but that's all part of the plan and fairly obvious.

Betsy Graseck, Morgan Stanley. Thanks so much for coming here today. So, I totally get your point that you're going to be applying a very high bar to any potential opportunities. And you might not be looking, but there might be some who are looking to partner with you, right, in the sense that you want more scale, the smallest -- everyone wants more scale, and we're seeing this across industries, and we have this unique time frame right now where regulators seem to be supportive of corporate actions at this moment. So, when you were speaking with Bill, the other day. How did that factor into the conversation around how you're thinking? Is there -- because I'm sure you speak with lots of folks in the industry. So, should we be surprised if there's an opportunity that emerges in this environment?

Yes. So it's a good question. I sort of go to the place that we've been in the business. And I'm talking like the old guy. But we've been in the business for a long time, and we've got a track record in terms of making acquisitions that made sense for our shareholders. We're very proud of that, and there's things that we betted that we didn't do, that we're glad we didn't do.

So, the notion that this time is somehow different, simply because the regulatory environment is generally viewed as more conducive to approving mergers. It doesn't mean that we're going to lose our discipline or lose our experience or lose our focus on the shareholders. So could more opportunities net-net come up? Potentially. But nothing really changes in terms of the way that we assess it.

And I think it's important. It's important because it's back to this valuation aspect. We're not distinct in that regard. So, if we get back into a position where we have a premium again, because at the moment right now, our shareholders are saying, don't do it. We do what we always do. If an opportunity were to come up, we'd look at it. But here's the thing, so with a lot of other banks, to your point, right? So we're not that distinct.

Julian?

Can I ask a general question about competitive position between regional banks and the money center banks. I mean you're in a very luxurious position, you're large, you're high quality. I'm curious how the competitive position is changing at the margin in general between those two groups because you have competition from private debt, you have lower capital requirements for the money center banks and really -- not really seeing that for the regional banks. And then also, some people think that maybe the biggest banks, the money sector banks may benefit more from cost cutting via AI. So, how do you think the competitive position changing between the two groups?

Yes, sure. Well, I think it's best -- especially in this period, it's probably best to talk about that in terms of our client segments, because the competition is different. So Alex, maybe you can just speak about that on the Retail side, and then I'll talk about Commercial and our Wealth and then the overall bank.

Yes. I would say, we feel pretty good on -- first and foremost, I would say, when we think about the world is 9,000 banks and credit unions out there. There's a couple that are bigger than us, but we're bigger than 8,994 of them. By the way, it takes like 4,000 of them combined to equal our retail franchise. So, we feel pretty good to Rob's earlier point on our relative scale. So, we're going after a lot of that share, and we feel like we're doing that successfully in winning and we're doing it as we continue to expand in the markets.

And what we try to do is bring the capabilities of one of the larger banks in the country, which we have a totally comprehensive product set, the ability to support our customers in all sort of periods and try to do it in a way that's very local, very high touch, very relationship based.

This concept of client obsession, sort of, hospitality like we mean that, and we think we can treat our clients and treat our teams in a slightly different way than perhaps the biggest player, and we like that positioning. We think that's relatively unique in our model in the Retail space, and that's been what's allowing us to take share.

Yes. And it's similar on the Commercial side in the sense that, that competition is nothing new to us. We compete against all the large banks across the country, across all asset sizes. We don't win them all, but we win our fair share. And again, I point back to the PPNR growth. The large banks are in our peer group. Averages have been about 7%. They've had a good year. We've got a better year.

Actually, Rob, maybe I can follow up with a question aside from deposit market share. At this conference, the other topic that's been talked about a lot is the loans to the non-depository financial institutions and private credit. Obviously, you guys are present there. Can you give us some color on how you chose that business? And you've done a very good job obviously with minimal losses over the years.

Yes. No, thanks, Gerard, because that's a topic of the moment. The short answer is, we feel really good about the loans that we have, and they do represent the lowest risk loans in our commercial loan book, our total loan book for that matter.

But let me break it down for you a little bit so you know what's inside the bucket, because -- as you know, the FDIC expanded the definition. So what otherwise looks like growth in that category for us was loan reclassification.

And the buckets that we have stick with me here, we have four buckets that comprise about 20% of our loans, $60 billion. The largest bucket inside of that, which is about 40% of the $60 billion or $25 billion or so are asset securitization. So I think trade receivables securitization, CLOs, both of which use the same structure, which is a bankruptcy remote special purpose entity that diversified assets go into and then we lend on conservative advance rates to that entity.

The short answer is, we've been doing that since 1995, the trade receivables and we've had zero loss -- zero losses. Naturally, with all the attention around it, we recently did just a check on all the collateral and the compliance, which we oversee. We use some third parties, but we're the eyes on and we liked what we saw. So, that's the biggest component of the bucket.

The next, where we are a little outsized. And you'll recall, when I tell you, capital commitment lines to private equity funds. We purchased a few years ago Signature Bank's capital commitment line business, when they were working Signature Bank out. And we're now 30% of that bucket is capital commitment lines. And those are short-term secured by the capital commitments of pension funds, institutions, high net worth individuals.

Again, short term, just the commitment, not the use of the funds that go into levered transactions. So, again, zero losses.

The third -- so there's two more buckets left, 15% each. The third is real estate. So real estate investment trusts, real estate funds, subscription facilities, similar, we've been in that business a long time, virtually no losses there. And I say virtually, we were talking about this. We had one like 5 years ago, small loss, and we're still talking about it. We're still upset about that. But that book is in very good shape.

And then lastly, it's just all other, which are loans to insurance true financial institutions. Mortgage warehouse lines, some equipment leasing, no subprime consumer or anything along those lines. So put all that together, it's 90-plus percent investment grade or investment-grade equivalent. Zero losses, zero criticized, zero watchlist, zero NPLs, zero charge-offs. So no, it's different than what you read.

And really, just as an observer, defending NDFI, these aren't NDFI, these are marginal borrowers that use too much leverage or asset class. And we've seen that over the years at BAB. Haven't we, Gerard?

Yes.

So client selection is huge.

Yes. Well, with that, we're down to the last few seconds. I want to thank both of you for coming again to BAB. Please join me in a round of applause thanking PNC.

Thank you. Good job, Gerard.

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 turn the call over to 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 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, 2025, 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 had an excellent quarter, building on a great year so far. Our results for the third quarter reflect an impressive performance across the entire franchise. We reported net income of $1.8 billion or $4.35 per share. We grew customers, loans and deposits and continue to deepen relationships across our businesses and geographic footprint, with positive trends in our legacy and fast-growing expansion markets.

Our NII growth trajectory continued as expected, coupled with very strong fee growth and well-controlled expenses. And as a result, we delivered record revenue and PPNR as well as another quarter of positive operating leverage. Credit quality continues to remain strong with a net charge-off ratio of only 22 basis points. While there are obvious potential downside risks to the U.S. economy, our customers remain on solid footing. From a consumer perspective, spending has been remarkably resilient across all segments and corporate clients are expressing cautious optimism about their business outlook. Ultimately, this is driving a sound economy.

Looking at our business lines, we continue to execute on our strategic priorities. In Retail Banking, consumer DDAs grew 2% year-over-year, including 6% growth in the Southwest, driven by strength across our branch and digital channels. Customer activity in the quarter remained robust, with record Debit Card transactions and Credit Card spend as well as record levels of investment assets in PNC Wealth Management, our newly re-branded brokerage business. We continue to invest in future growth. By the end of the year, we will have opened more than 25 new branches, and importantly, we remain on track to complete our 200-plus branch builds by the end of 2029.

In C&I, we saw record noninterest income driven by broad-based performance across fee income categories and pipelines remain strong. Within our Asset Management business, we continue to see client growth and positive net flows from both legacy and expansion markets with the expansion markets growing at a faster pace.

Before I pass it over to Rob, I wanted to say how excited we are about the recent announcement to acquire FirstBank. Kevin Klassen and his team have built a premier bank in the Colorado region, with a focus on strong customer service and an enviable branch network. Upon closing, this deal will propel PNC to the #1 market share position in retail deposits in branches in Denver. It will also more than triple our branch footprint in Colorado while adding additional presence in Arizona. And finally, as always, I'd like to thank our employees for everything they do for our company.

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 of $326 billion grew $3 billion or 1%. Investment securities of $144 billion increased $3 billion or 2%, and our cash balance at the Federal Reserve was $34 billion, an increase of $3 billion. Deposit balances were up $9 billion or 2% and average $432 billion, and borrowings increased $1 billion to $66 billion. AOCI at September 30 improved $605 million or 13% compared with the prior quarter and was negative $4.1 billion. Our tangible book value of $107.84 per common share increased 4% linked quarter and 11% compared to the same period a year ago.

We remain well capitalized with an estimated CET1 ratio of 10.6% and an estimated CET1 ratio, inclusive of AOCI of 9.7% at quarter end. We continue to be well positioned with capital flexibility. During the quarter, we returned $1 billion of capital to shareholders, which included $679 million in common dividends and $331 million of share repurchases, and we expect fourth quarter share repurchases to continue to be in the range of $300 million and $400 million.

Slide 5 shows our Loans in more detail. During the third quarter, we delivered solid loan growth. Balances averaged $326 billion, an increase of $3 billion or 1% compared to the second quarter. Average commercial loans increased $3.4 billion or 2%, driven by growth in the C&I portfolio, partially offset by a decline in commercial real estate loans of $1 billion. Growth in C&I was driven by strong new production, particularly in Corporate Banking and Business Credit. And during the third quarter, utilization remained slightly above 50%. Commercial real estate balances declined $1 billion or 3% as we continue to reduce certain exposures. Consumer loans were stable as growth in auto and credit card balances was offset by a decline in residential real estate loans. The total loan yield of 5.76% increased 6 basis points compared with the second quarter.

Slide 6 details our investment securities and swap portfolios. During the third quarter, average investment securities increased approximately $3 billion or 2%, driven by purchasing activity late in the previous quarter. Our securities yield was 3.36%, an increase of 10 basis points. And as of September 30, our [ duration was ] 3.4 years. Regarding our swaps, active received fixed rate swaps totaled $45 billion on September 30 with a receive rate of 3.64%, and forward starting swaps were $9 billion with a receive rate of 4.11%. Importantly, our securities portfolio is well positioned for a steepening yield curve that will support substantial NII growth in 2026.

Slide 7 covers our deposit balances in more detail. Average deposits increased $9 billion or 2% during the quarter, driven by particularly strong growth in commercial interest-bearing deposits, which were up 7%. Noninterest-bearing balances of $93 billion were stable and were 21% of total deposits. Total commercial deposits grew approximately $9 billion or 5% linked quarter. The growth was due in part to seasonality, but also reflective of both new and expanded client relationships. Our total rate paid on interest-bearing deposits increased 8 basis points to 2.2% in the third quarter, reflecting the outsized growth in interest-bearing deposits and the resulting change in our deposit mix, along with slightly higher consumer rates paid.

Going forward, we anticipate our rate paid on deposits will decline in the fourth quarter because of the full quarter impact of the September Fed rate cut and our expectation for additional cuts in October and December.

Turning to Slide 8, we highlight our income statement trends. Comparing the third quarter to the second quarter, total revenue was a record $5.9 billion and was up $254 million or 4%, and noninterest expense of $3.5 billion increased $78 million or 2%, which allowed us to deliver more than 200 basis points of positive operating leverage and record PPNR of $2.5 billion. Provision was $167 million and declined $87 million compared to the second quarter. Our effective tax rate was 20.3%, and third quarter net income was $1.8 billion or $4.35 per diluted share. In the first 9 months of the year compared to the same time last year, we've demonstrated strong momentum across our franchise.

Total revenue increased $1 billion or 7%, driven by record net interest income and record fee income. Noninterest expense increased $213 million or 2% reflecting increased business activity as well as continued investments in technology and branches. And net income grew $638 million, resulting in diluted EPS growth of 17%.

Turning to Slide 9. We detail our revenue trends. Third quarter revenue increased $254 million or 4% compared to the prior quarter. Net interest income of $3.6 billion increased $93 million or 3%. The growth reflected the continued benefit of fixed rate asset repricing, loan growth and 1 additional day in the quarter. And our net interest margin was 2.79%, a decline of 1 basis point, reflecting the outsized commercial deposit growth I previously mentioned. Importantly, our expectation is for NIM continue to grow going forward and we still expect to exceed 3% during 2026. Noninterest income of $2.3 billion increased $161 million or 8%. Inside of that, fee income increased $175 million or 9% linked quarter, reflecting broad-based growth across categories.

Looking at the details. Asset management and Brokerage income increased $13 million or 3% driven by higher equity markets and included positive net flows. Capital Markets and Advisory revenue increased $111 million or 35%, driven by an increase in M&A advisory activity as well as higher underwriting and loan syndication revenue. Card and Cash Management revenue was stable as seasonally higher credit and debit card activity was offset by lower merchant services. Lending and deposit services revenue increased $18 million or 6% due to increased activity and client growth. Mortgage revenue increased $33 million or 26% reflecting elevated MSR hedging activity and higher residential mortgage production. And Other noninterest income of $198 million included negative Visa derivative fair value adjustments of $35 million, primarily related to Visa September announcement of a Litigation Escrow Funding.

Notably, we continue to see strong momentum across our lines of business and throughout our markets, and year-to-date noninterest income of $6.3 billion grew $337 million or 6% compared to the same period last year.

Turning to Slide 10. Our third quarter expenses were up $78 million or 2% linked quarter. The growth was largely in personnel costs, which increased $81 million or 4% and included higher variable compensation related to increased business activity. The Equipment expense increased $22 million or 6%, reflecting higher depreciation related to investments in technology and branches. Importantly, all other categories declined or remained stable. Year-to-date noninterest expense increased by $213 million or 2%, and as we previously stated, we have a goal to reduce costs by $350 million in 2025 through our continuous improvement program, and we're on track to achieve that goal. As you know, this program funds a significant portion of our ongoing business in technology investments.

Our credit metrics are presented on Slide 11. Overall credit quality remains strong. Nonperforming loans of $2.1 billion were stable linked quarter. Total delinquencies of $1.2 billion declined $70 million or 5% compared with June 30, reflecting lower commercial and consumer delinquencies. Net loan charge-offs were $179 million, down $19 million and represents a net charge-off ratio of 22 basis points. Provision was $167 million, resulting in a slight release of loan reserves, primarily due to an improved outlook for our CRE portfolio, reflecting both lower loss rates and continued runoff.

At the end of the third quarter, our allowance for credit losses totaled $5.3 billion or 1.61% of total loans.

In summary, PNC reported a solid third quarter. Regarding our view of the overall economy, we're expecting real GDP growth to be below 2% in 2025 and unemployment to peak above 4.5% in mid-2026. We expect the Fed to cut rates 3 consecutive times with a 25 basis point decrease at the October, December and January meeting. Looking at the fourth quarter of 2025, compared to the third quarter of 2025, we expect average loans to be stable to up 1%. Net interest income to be up approximately 1.5%, fee income to be down approximately 3% due to elevated third quarter capital markets at MSR levels. 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 stable to down 1%. We expect noninterest expense to be up between 1% and 2% and we expect fourth quarter net charge-offs to be in the range of $200 million to $225 million.

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

[Operator Instructions] Our first question today is coming from Scott Siefers from Piper Sandler.

Rob, was hoping you could please expand upon your thoughts on the margin performance and outlook. I guess, in particular, hoping you could especially touch on that idea of the third quarter commercial deposit growth, sort of what it might have done to the third quarter margin? And then why what occurred with the third quarter margin, meaning just slight compression isn't necessarily representative of the path you'd expect going forward? I think you suggested we could still get to like a 3% number at some point in 2026. So maybe sort of the -- what happened with that deposit growth, what effect did it have? And then what are we looking for going forward?

Yes. Sure, Scott. So let's start with the last part there first. We do, as I mentioned in the comments, we do still expect our NIM to continue to expand and hit the 3% and above sometime during 2026. So no change there in terms of the trajectory. The difference in the quarter was the outsized commercial interest-bearing deposit growth. So we grew $9 billion, which was easily the most that we've ever grown commercial interest-bearing deposits in any quarter, particularly in 2025, and even though we kept our rate paid on commercial interest-bearing deposits flat to actually down 1 basis point in the quarter, it affected our NIM because of the mix change.

Commercial interest-bearing deposits, as you know, are priced higher than consumer. So when you put that into the weighted average, that cost us 4 basis points, 4 or 5 basis points [indiscernible] that would have otherwise been there had we not grown those deposits. And I think it's a good question to make sure you understand what's going on there, but it's also a good point -- good for us to point out that NIM is an outcome, not something that we manage to. So this is a good example. Lots of our commercial clients want to put deposits with us, so we can do that in an NII accretive-way. It cost us a couple of basis points for NIM, and that's a good thing. So going forward, continue to expect NIM to expand. It's just that outsized growth sort of on an apples-to-apples basis reset at the weighted average.

Okay. Perfect. And then I was hoping you could just touch on expenses and just a little more thought on why they go up in the fourth quarter? I guess, just given the revenue backdrop, from my perspective, might have thought maybe a little more lift in the third quarter. I'm just not sure how all the accruals work.

[indiscernible] aspects to some of our expenses, they don't fall uniformly in each quarter. The difference is, back in July, when we gave full year guidance, we expected expenses to be up for the full year 1%. We're pointing now to 1.5%. But if I go back to July, the noninterest income expectation was up 4.5%, and we're pushing 6%. So that delta in terms of the out-performance on the fees, drove our expense a little bit higher, but those, as you know, are [indiscernible] expenses.

Next question is coming from Betsy Graseck from Morgan Stanley.

Bill, I wanted to understand a little bit about how you're thinking about scale in this environment. I know you've spoken about that recently, but we've had some deals since then. And what should we be anticipating as we move forward here in this time frame where we have opportunities to maybe move the needle more than we had in the past.

I think you should look at our organic growth success. We're particularly in the new markets where we've laid out a path importantly to be able to grow our Retail franchise at the pace we grow our C&I franchise. And that's the whole longterm. When we talk about scale when you have two giants gathering up retail share unless we can keep pace, share in C&I doesn't necessarily do us any good. We're on track to do that. We did the FirstBank acquisition because it was kind of a really focused retail-gathered dominance in a particular state or a couple of markets, opportunity to accelerate what we are doing.

But you shouldn't expect that to be the norm. You shouldn't expect us to kind of chase a deal frenzy. We'll look at things should they arise, but we'll be selective as we've always been.

Okay. And then, Rob, on the C&I loan growth is very impressive. I just want to understand how much of that NDFI versus non? And then separately on the CRE, commercial real estate runoff. How much longer should we anticipate that's going to continue? Because it's obviously taking away from some of the balances here. And I'm wondering when we're going to get to CRE actually growing?

Yes. No, that's a good question, Betsy. Let's add the second one first in terms of the commercial real estate balances. We would expect that to inflect at the beginning of next year. So we're near the end in terms of the sort of the rundown of those balances. We are doing new deals. But as we work through, obviously, the issues in office, et cetera, we'd expect that to turn positive going into '26. And the first part of the question was the NDFI.

Yes, the no growth there. All the growth that we had in C&I was outside of that. I know there's a lot of focus on NDFI. We still feel -- this isn't part of your question, but it's implied. We feel very good about the credit quality there, the composition. As you know, the vast majority of ours is an asset securitization, bankruptcy remote, investment-grade clients, and the extent that we're involved with private equity, it's some capital commitment lines that have very low loss rate. NDFI is not part of our story this quarter.

Next question is coming from John Pancari from Evercore ISI.

Just back to the margin and NII. I just want to see if you can -- I appreciate the color you gave around the deposit dynamics and what impacted the blended deposit costs for the quarter. And maybe if you could talk about the left side of the balance sheet in terms of your updated thoughts around the fixed asset repricing opportunity. Has that changed at all given the moves along the curve in the 10-year? And then also, we've had couple of banks flagged some tightening loan spreads on the commercial front. I want to see if you're also seeing that impact and how that could impact your loan yields as you look out?

Yes, sure, John. But why don't I broaden that out a little bit for NII. So NII for the full year, we're pointing to up 6.5%. As we go into '26, as we said previously, we expect that trajectory to continue and actually increase PNC on a stand-alone basis, so not including FirstBank. We'll have these numbers for you in January, but PNC Bank on a stand-alone basis in '26. Consensus for NII is growth of about $1 billion, and that's -- we see that and we agree with that. We'll have more for you on an update, obviously, in January. But the point is that our NII trajectory is in place. The fixed rate asset repricing is still there going into '26 with momentum.

John, part of the shortfall against previous guys just in the third quarter was simply the shift -- into the fourth quarter is a shift on our expectation of Fed cuts. So what's hitting us is if they cut late in the fourth quarter, our deposits don't necessarily catch up in the first. So what happens is we'll make a little less in the fourth quarter make a little more in the first quarter. But nothing has changed whatsoever in our NII outlook. The only thing that has changed is like a month shifting on when we had cuts, which affects where it lands.

And then with the end of the calendar year in December, sort of we have the negative effect of that those cuts occurring in December and the positive happening after December. So that explains why the delta of our expectations in NII for Q4 were different than July.

Okay. That's very helpful. And thanks for the color on the 2026 NII. That was going to be my part to the question. Therefore, my follow-up would be around the loan growth outlook. What are you seeing right now in terms of broader commercial loan demand? Are you -- we've had some banks flag still some lackluster commercial demand and not yet seeing CapEx pull through. What are you seeing on that front? Are you seeing some strengthening there? Or is it still somewhat a wait-and-see type of approach?

At the margin, I guess, a little strengthening, but what we've seen activity in is M&A, financing syndications, utilization, thinking Rob, really hasn't changed.

Yes. It hasn't gone down because we had to pick up in the second quarter. It was sustained to...

The first and the second, and then we've held it.

Yes. We're continuing to see some solid growth in unfunded commitments.

So you kind of back all the moving parts out in the sense that the car utilization didn't change. We actually grew balances asset real estate at a pretty healthy clip, but our pipelines are strong. So I had a kind of just to rephrase my question that things, I guess, feel good in loan growth outside of this, waiting for the inflection in real estate.

And as Bryan just mentioned, I don't know if you heard that our DAG continues to grow. So our commitments continue to grow front-funded in some part. But there's -- when clients put those in place, there's the expectation that they're going to use them.

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

I guess maybe Rob or Bill, I would love to get your perspective on how you're thinking about the right level of capital for P&C. If I look at the adjusted for AOCI at 9.7%. One of the larger banks brought down kind of where they're operating the bank to 10%, 10.5% yesterday. So as a result, now that, that should be take where you run the bank, but I would love to hear if you think is 9.5% to 10% is the right place? Is it 9%? Just how are you thinking about it? And is there still Moody's, of course, upgraded some of your ratings or the outlook recently. So is there a push and pull with the rating agencies around this topic?

Why don't you go and start, Rob.

Well, so yes, you bring good question. Right now, our CET1 is 10.6% on AOCI just at just below 10%. So we're in a good position relative to our capital. We had always said that our operating guideline with the Basel III rules and capital rules still fluid that we would operate between 10% and 10.5%. We're at the high end of that. But given some recent developments, the Moody's that you had cited that was previously a binding constraint. It's possible that we would work to the lower end of those ranges and possibly even lower. But we'll assess all that with our Board as we go into the new year.

Yes. We're going to have to do some work because some of the thought process on the rating agencies has actually changed. And then we'll see what happens with risk-weighted assets and anything that comes down Basel III proposals. But it's in flux, and we are at the high end of whatever that flex may be resulted in.

Good. And just on the other side of it, I'm not sure, Rob, if you laid out what your expectations on GDP growth going into next year were. But between loan demand picking up or credit worsening, like what do you see as the more likelier outcome, like do you expect this between the tax bill and overall and rate cuts to drive loan demand higher? Or are you seeing more increasing businesses come under pressure of somewhat stagnant economy and that could lead to more credit issues?

Yes. I think -- and Bill may want to jump in here, too. I mean, I think as Bill said in his opening comments, despite some of the obvious things going on around the world where the economy looks pretty good. And as we go into the '26, we see some strength around the loan but possibilities that we just talked about. And credit quality is very good. Criticized assets are down, nonperformers are flat, delinquencies are down, charge-offs are down, our expectation for charge-offs are down. So we feel pretty good going into the new year.

The survey that we just did in partnership with Bloomberg with corporate CFOs surprised us to the upside. Majority were bullish, not just on their -- actually, vast majority were bullish, not just on our own company, but on the economy, which kind of surprised me. A big part of that theme was the ability and the work sets they've done to kind of work through tariffs, whatever they might be. Just sharpen up their own companies, both in terms of resiliency and just cost efficiencies. The consumer remains [indiscernible] deposits are growing. It's we've got a whole bunch of things that could land on us, but none of them are there and none of them are certain.