PNC (PNC) Q4 2025 Earnings Call Transcript

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Date

Friday, January 16, 2026 at 9 a.m. ET

Call participants

• Chairman and Chief Executive Officer — William S. Demchak
• Executive Vice President and Chief Financial Officer — Robert Q. Reilly
• Director of Investor Relations — Bryan Gill

Takeaways

• Net Income -- $7 billion for the year, representing diluted EPS of $16.59 and 21% annual EPS growth.
• Revenue -- Record annual revenue up $1.5 billion or 7%; Q4 revenue reached $6.1 billion, rising $156 million or 3% from the prior quarter.
• Operating Leverage -- Positive 5% for 2025, with annual noninterest expense up 2% against 7% revenue growth.
• Return of Capital -- $1.1 billion returned in the quarter, including $676 million in dividends and about $400 million in share repurchases; quarterly buybacks set to increase to $600 million-$700 million for 2026.
• FirstBank Acquisition -- Closed on January 5 with a $4.2 billion purchase price (30% cash, 70% stock); estimated to add $1 per share in annualized earnings run rate by year-end 2026.
• Average Loans -- $328 billion for Q4, up $2 billion or 1% linked quarter; 3% annual growth, driven by $10 billion increase in commercial loans, partially offset by $1 billion decline in consumer loans.
• Deposits -- Average balances of $440 billion, up $8 billion or 2% sequentially; noninterest-bearing deposits at $95 billion comprise 22% of total average deposits.
• Net Interest Income (NII) -- $3.7 billion for Q4, up $83 million or 2% quarter over quarter; net interest margin rose 5 basis points to 2.84%.
• Noninterest Income -- $2.3 billion for Q4, increasing $73 million or 3% sequentially; full-year noninterest income reached $8.7 billion, up 8% from 2024.
• Credit Quality -- Nonperforming loans rose $81 million or 4% from Q3; NPLs now represent 0.67% of total loans versus 0.73% a year ago.
• Tangible Book Value -- $112.51 per common share, up 4% from the prior quarter and 18% year over year.
• CET1 Ratio -- Estimated at 10.6% at year-end; expected to decline by 40 basis points post-FirstBank but remain near a 10% target.
• Guidance for 2026 -- Projected average loan growth of 8%, total revenue up approximately 11%, net interest income up about 14%, noninterest income up roughly 6%, and noninterest expense excluding integration up 7%; effective tax rate anticipated at 19.5%.
• Q1 2026 Expectations -- Average loans up 5%, NII up 6%, fee income down 1%-2%, total revenue up 2%-3%, and noninterest expense up 4% (excluding integration costs) compared to the prior year.
• Continuous Improvement Program -- $350 million cost savings goal achieved for 2025 and targeted again for 2026, funding technology and business investments independently of FirstBank integration.
• Technology Investments -- CEO Demchak explained, "new initiative CapEx expense...is higher this year than it's ever been," with technology spend projected to increase over 10%; artificial intelligence (AI) is 20% of that increase.
• Capital Markets and Advisory -- Capital markets revenue rose $57 million or 13% QoQ, driven by M&A advisory; capital markets revenue expected to grow high single digits in 2026.
• Asset Management and Brokerage -- Increased by $7 million or 2% QoQ, aided by positive markets and net flows.
• Merger and Integration Costs -- FirstBank integration expenses expected to total approximately $325 million in 2026.
• Share Count Impact -- Diluted shares outstanding to average about 406 million in Q1 2026, reflecting shares issued for the FirstBank acquisition.

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Risks

• Nonperforming loans increased $81 million or 4% on a linked-quarter basis, as reported by CFO Reilly.
• Consumer loans declined by $1 billion or 1% for the year, attributed to weakness in residential real estate lending.
• Provision for loan losses in Q4 totaled $139 million, indicating persistent, though modest, credit costs.

Summary

PNC Financial Services Group (NYSE:PNC) reported record annual results, driven by robust loan and deposit growth, disciplined expense control, and well-executed capital management. Management’s strategic focus is set on technology investment, efficiency initiatives, and completed integration of the FirstBank acquisition—projected to deliver meaningful earnings accretion and further geographic expansion. The outlook for 2026 includes double-digit revenue growth expectations and higher quarterly share repurchases, supported by capital ratios near targeted levels. Guidance assumes solid operating leverage, a significant increase in technology-related spending—especially in cloud and AI capabilities—and careful monitoring of credit quality as business volumes expand.

• CFO Reilly said, "600 to 700 is a quarterly pace that we expect to continue through 'twenty six." through 2026, signaling a steady return of capital stance.
• Management indicated FirstBank is expected to contribute an annualized earnings run rate of approximately $1 per share by the end of 2026, with operational efficiencies anticipated to amplify this impact.
• CEO Demchak stated, "We are national in terms of our presence," outlining the company’s strategic distinction from regional peers and focus on nationwide market share expansion.
• Technology and automation remain central to expense management, with Reilly noting over "171 different opportunities outlined and a billion four of total addressable spend." for efficiency gains through 2030.
• FirstBank’s closing involved a purchase price of approximately $4.2 billion and required the issuance of 13.9 million shares, with integration costs forecast at $325 million for 2026.

Industry glossary

• CET1 Ratio: Common Equity Tier 1 capital ratio—a regulatory measure of a bank's core capital strength relative to its risk-weighted assets.
• Operating Leverage: The difference between the rates of revenue growth and expense growth, reflecting efficiency improvements.
• PPNR: Pre-Provision Net Revenue; income before accounting for credit loss provisions, used to assess underlying profitability.
• MSR: Mortgage Servicing Rights; an asset representing the contractual right to service mortgage loans for a fee.
• NPL: Non-Performing Loans—loans on which borrowers are not making interest or principal payments as scheduled.
• AOCI: Accumulated Other Comprehensive Income; reflects unrealized gains and losses excluded from net income, such as mark-to-market changes on securities.
• CIP: Continuous Improvement Program; PNC’s enterprise-wide initiative for recurring cost savings and process enhancements.

Full Conference Call Transcript

Bryan Gill: Greetings, and welcome to the PNC Financial Services Group Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now my pleasure to introduce your host Bryan Gill. 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,

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 included in today's earnings release materials as well as our SEC filings and other investor materials. Are all available on our corporate website, pnc.com, under investor relations. These statements speak only as of 01/16/2026, 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

Rob Reilly: successful year for PNC. 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 5, we closed the acquisition of FirstBank and we're all excited about the opportunity in front of us. And I'd like to welcome FirstBank employees to PNC. You know, we ended 2025 with substantial momentum. Marked by meaningful client growth across all of our businesses. 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 standalone 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 this while also 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 about what we're gonna be able to accomplish together.

With that, I'll turn it over to Rob to take you through the numbers. Rob?

Rob Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide three and is presented on an average basis. For the linked quarter, loans of $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 averaged $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, dividends were $676 million share repurchases were approximately $400 million and were 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 four 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 and 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 and 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 a billion dollars or 1% as growth in auto balances was more than offset by a decline in residential real estate loan.

Slide five 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 six. 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 non interest 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 grew a $156 million or 3%. Non interest expense of $3.6 billion increased $142 million or 4% And as a result, we delivered record PPNR of 2 and a half billion dollars. 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 seven. 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 five basis points. Non interest 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 and A advisory revenue. Bardan Cash Management declined $4 million or 1% This 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 non interest 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, for the full year 2025, noninterest income of $8.7 billion grew $633 million or 8% compared to 2024. Turning to slide eight. 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 nine. 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 a $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 First Bank employees have made great progress in preparing for successful conversion and integration. Which is scheduled for June 2026.

I also wanna 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 a $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 majority of which will be recognized in the 2026. Importantly, we anticipate achieving substantial operational efficiencies across the first Bank 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.

Bill Demchak: To summarize,

Rob Reilly: PNC reported a strong fourth quarter which contributed to a very successful 2025. Well positioned to continue this momentum into 2026, 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 two times 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 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 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 positive operating leverage. Nearly all of which is driven by PNC on a standalone 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 2026 compared to the 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 one to 2%, other non interest income to be in the range of a 150 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 200,000,000 and we expect diluted common shares to average approximately $4.00 6,000,000 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: Thank you. We'll now be conducting a question and before pressing star one. Our first question is coming from John Pancari from Evercore ISI. Your line is now live. Good morning.

Rob Reilly: Hey. Good morning. Morning, John.

John Pancari: Just a question, actually, straight to capital. On buyback front, I know you bought back $400 million in fourth quarter. You guided to this $600 million to $700 million in the deck. And then Rob, in your comments there, it sounds like you were pointing to that 6 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 'twenty six?

Rob Reilly: Yes. John, you're spot on there. 600 to 700 is a quarterly pace that we expect to continue through 'twenty six.

John Pancari: Got it. Okay. All right. And then also related to capital I know your CET1 came in at ten point six and you guided to the 10.4 with the 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? 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 2025. ROTCE and the fourth quarter was around 18 How can we think about a good medium term target for PNC?

Rob Reilly: 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 First Bank, 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's 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 flux, but we 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 2025 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 First acquisition and we deliver on the guidance that we expect to deliver by this time next year. And again, is just math, we don't have targets. But this time next year, we'll be at 18% heading higher.

John Pancari: Got it. Okay. Thanks, Robert. Appreciate it. Sure. Thank you. Next question is coming Scott Siefers from Piper Sandler. Your line is now live. Good morning, guys. Thanks for taking the question. Hey, Rob, 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 know, you had some stand alone thoughts previously. I think you all had been saying, you know, up like $1 billion or more of growth, if I recall,

Scott Siefers: correctly. Now we've got First Thanks into the guidance. Maybe you can just sort of bridge the gap and go through any places where you're feeling incrementally know, better or worse or any change on how you see NII projecting through the year?

Rob Reilly: Sure. So our guidance with First Bank 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 7.58% 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, those are pretty good numbers and that's helping us generate the operating leverage that looks very comparable to last year. And that's very good. Perfect.

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

Rob Reilly: 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 2026, we continue to see a 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 two rate cuts in July and one in September. And when those if and when those occur, rate paid will continue to go down.

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

Scott Siefers: Perfect. Good. Bill and Rob, thank you for taking the questions.

Rob Reilly: Yeah. Sure, Scott.

Operator: Thank you. The next question today is coming from Betsy Graseck from Morgan Stanley. Your line is now live. Hi, good morning. Betsy.

Betsy Graseck: 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 all know in the branches and in technology, etcetera. 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 first Bank integrates into all that. Thank you.

Bill Demchak: Yeah. You know, I guess you know, in its simplest form, our new initiative CapEx expense, all embedded in our guidance.

Rob Reilly: Is higher this year than it's ever been. I think if you depending on how you how you wanna how you wanna look at tech spend, maybe spend $3.5 billion and it's going to go up 10% plus or minus. For 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 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 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 First Bank 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. We're going to execute again in 2026 and a lot of the savings in 2026 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.

Betsy Graseck: 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?

Rob Reilly: Account savings is a piece of it. The most obvious example there is simply using AgenTeq AI for coding. But a lot of it is, you know, contract savings and tech as shut down old systems and roll in new systems. So, you know, we're you know, shut shutting down redundant things and running on a single one. I'm trying to think inside of what's in that completely. Well, would say, Betsy, just to in, I mean, 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 CIT savings.

Is just efficiency off of our increasingly larger spend. So it is it is as broad based as it could be.

Betsy Graseck: Yeah. No. I see IT is decades long. Right?

Rob Reilly: That's right. But to give you an idea of the scope, maybe this will help. You know, between 2225, 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 2530, we another 40 points of operating leverage. Have 171 different opportunities outlined and a billion four of total addressable spend. That we're able to go after through. I mean, we'll we'll use the term AI, but I just think of it as the same march that we've been along with automation that is given us all those efficiencies between 2225.

Rob Reilly: And all of that is in our guidance. Yeah.

Betsy Graseck: Okay. Super. Thanks so much.

Operator: Thanks. Next question is coming from Gerard Cassidy from RBC Capital Markets. Your line is now live. You. Good morning, Bill. Good morning, Rob.

Gerard Cassidy: Rob, to follow-up on your comment about the ROTCE coming out of the end of this year, many companies now give out these ROTC 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?

Rob Reilly: Sure. No. Thanks, Gerard. And it relates to John's question there. We don't 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 to peers, they're pretty good. And we're pretty optimistic in terms of what we're going to be able to do in 2026 and beyond. So we see the level that we're at now, which is pretty good, 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.

Bill Demchak: Yeah. And part of the issue with the target you know, it's so dependent on operating environment. In terms of shape of the yield curve. 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 managing the capital itself to hit that return. They ought to in some ways be disconnected. We can always just we could always just drive our capital. Well, that's where the variables that's where the variables are. So we saw that as an industry, we saw that in the couple of years when negative AOCI showed up. Nobody thought that was a good thing. But it helped our TCE. Yeah. Exactly.

No. Very, very helpful. And then Bill and Rob, with the chance of being called a commudgeon again, as I was at 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 your peers for 2026 look really, really good. And, you know, for guys like all of us on the call that have been around a while, you know, we just get nervous because we're bank guys. Can you look at, you know, any risks on the other than the obvious geopolitical risk? We get that.

But are there what are you guys kinda looking at just to make sure that, you know, you don't get blindsided? Because I don't mean just you guys, but just the industry gets kind of hit over the head with something that we don't expect.

Bill Demchak: It has to be some exogenous variable because the base economy, I just don't see big cracks that are gonna be realized in 2026. So you know, you get up every morning and you read a headline on credit card rates or on this or on that. You know, I it could be anything. Right? By the way, it could be good things too. But the basic business or 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.

Gerard Cassidy: I agree. I appreciate it, Bill. Thank you. Yes.

Operator: Thank you. Next question today is coming from Erika Najarian from UBS. Your line is now live.

Erika Najarian: Hi, good morning. Maybe one for you, Bill. As we take a step back into the year, I think a lot of you know, contemplating, you know, the push pull and investing in money centers versus regional banks. And maybe from your purview, as you think about the opportunities regional banks, particularly in direct lending, which is just C and I lending or commercial lending. How much do you think potential Fed cuts the leverage lending limits going away, and 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 cap markets 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?

Bill Demchak: 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 leveraged and high risk when they weren't. And by clearing that up, you know, the ability to do some of our specialized 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 in the you know, we're not treating it like an open invitation to run out and take more risk there. 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 are wildly different Inside of that mix, we are more heavily weighted to advisory probably than the giant banks And you know, in that sense, Harris Williams you know, backlog their activity level through the fourth quarter is as high as it's ever been.

So pretty optimistic about the opportunity set there.

Erika Najarian: And just a follow-up question. On the ROTCE. Obviously, I heard you loud and clear. 18% and going higher is better than your peers. You know, and as I just take a step back, you know, this is sort of a 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 you know, for the capital allocation when there are growth opportunities which makes sense.

But also, as we think about you know, longer term returns, is 18 plus sort of above through the cycle or is that sort of closer to like a through the cycle you know, range for, you know, a PNC? All in. And, you know, just asking it this way because you are the JPMorgan of, you know, smaller national banks, and they have a through the cycle, you know, target.

Bill Demchak: Why don't we just kinda reason that out for a second? It's not gonna become a target. If you assume for a second that we're running, I don't know where we are this quarter, two eighty eight in them or something into this work. We've and we run, where, two fifty to three? Yeah. That's right. Yeah. And so, you know, let's say that accepts out interest rate volatility, and then let's assume for a second that our credit costs are running you know, on the on the low side for through the cycle number. You know, we probably have even upside downside on the NIM from here. We have downside on the credit costs.

So through the cycle, slightly lower. However, as we plan out with the scale efficiencies we get through some of our cost initiatives and just client growth, it kinda 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 wanna put that target out there. We're operating in a great space. It's elevated from our history.

We ought to be to keep it somewhere around here, but there's a lot of variables swinging around. And I don't want to make uneconomic choices to hit a target that was artificially created.

Erika Najarian: That was very helpful, though. Thank you, guys.

Operator: Thank you. Next question is coming from Steven Trubak from Wolfe Research. Your line is now live. Good morning, Bill and Robin. Thanks for taking my questions.

Steven Trubak: So 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 pipelines how they compare to year ago levels? Just how you're thinking about growth in capital markets fees in the coming year given the strong exit rate we saw in '25? Well as some of the factors driving more robust activity that you cited?

Bill Demchak: Maybe Rob can give you detail on numbers. But before we go there, what I was referring to at the at that conference and his in fact, come to fruition is that the logjam in middle market investments the willingness to do M and 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 something when there was so much volatility and potential outcomes. We saw that kind of pipeline crack in the fourth quarter. See it in the Harris Williams results.

By the way, you would see it in our spot C and 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, and as an aside, all that activity drives the rest of our capital markets activity. So when people are doing loans and deals, there's there's derivatives, there's bond issuance, there's loan syndication, and so on and so forth.

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

Steven Trubak: 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, acknowledge 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 First Bank, Feels like you can run sustainably above that for a bit, but just was hoping you could provide some context.

Bill Demchak: Look. I think that's right. Assuming we stay in an upward slumping yield curve. In a similar environment. If we get into a world where we have 200 points of inversion, we're not gonna be running at 3%.

Rob Reilly: But our plans in 2026 are to reach that 3% level in the 2026. Somewhere during the third quarter, maybe end of the third quarter.

Steven Trubak: That's great. Thanks so much for taking my questions.

Operator: Thank you. Next question today is coming from Ken Usdin from Autonomous Research. Your line is now live.

Ken Usdin: Hey, good morning. Thanks guys. 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 FirstBank ads, 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? Thanks.

Rob Reilly: Yes, sure, Ken. So for the full year, we're saying a 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 a $100 million of what are basically first banks 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 that's the up 6%.

Ken Usdin: 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 kinda understand where the FirstBank NII contribution is inside the total NII?

Rob Reilly: Yeah. Sure. So, I actually came up on the question earlier. So we're saying up 14% inside of that PNC is 7% to 8% of that. Seven Sure. Okay. Yeah. Right. Okay. And that would include, obviously, all the percent accounting benefits that Yeah. That's right. Right. Yeah. That's right. Now got it, Ken. Oh, okay. Got it. Thanks. You. Next question is coming from Mike Mayo from Wells Fargo. Your line is now live.

Mike Mayo: I'm going to start with 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've 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 brands. So you could elaborate on that.

Bill Demchak: I think maybe the distinction is as much aspiration as it is where we are from the starting point. We are national in terms of our presence, with C and 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 an each market that allows you a fair fight I think the distinction between that and a regional bank, a regional bank that's trying to protect its moat in a shrinking market as the large banks at PNC come into their market. Is a tough place to be.

And that's why I draw that distinction.

Mike Mayo: Alright. And I guess you're saying you still target, the 30 largest MSAs so 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?

Bill Demchak: Yeah. I don't I don't think anybody has an ability to defend home turf here. Right? We you know, 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 gonna get some percentage of your market as is JP and B of A. And ultimately, if you're not growing, you're shrinking.

And, you know, 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 flight to all the markets in The US and win.

Rob Reilly: A national platform. Yeah.

Mike Mayo: And then as a follow-up to that then. So I heard you correctly. 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 ARPU 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?

Bill Demchak: Yeah. I think we are. I mean, part of what you spend is what you can achieve. So you know, you push too hard, you start wasting money. For the places where we compete Mike, so you think about what we do in welfare retail or our C and I middle market, small or large corporate. 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 a everything being cloud native and build off of micro services and the ability to do products is as good as anybody.

Where we lose right, on tech spend is, you know, 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's the big difference. All right. Thank you.

Operator: Thank you. Our next question is coming from Saul Martinez from H. Your line is now live. Hey, good morning, guys. Thanks for taking my question. Wanted to ask about loan growth and you know, the 8% guidance for growth in average loans it seems to imply still pretty fairly modest growth on an organic basis.

Saul Martinez: Know, stripping out FirstBank. I get to something in the neighborhood of about 3%. And, you know, correct me if that math is wrong, you obviously expressed some optimism about you know, C and I picking up, CRE stabilizing here. So that headwind is mitigated. I think you still probably have some headwinds in resi, but just walk me through some of the assumptions that are embedded in the loan growth and you know, whether there's an element of conservatism built into that?

Rob Reilly: Yeah. No. It's that's a good question. So we're calling for our full year forecast 8% average loan growth, which does include First Bank, PNC on a stand alone, we're at approximately 4% loan growth. So you have that number there. And all the all the categories you mentioned, that's that's what we see too. So we still see some momentum coming here in terms of C and I Ideally, real estate will inflect at some point here in the '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 is part of our deliberate management is going down a bit.

Saul Martinez: 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 a 100,000,000 from FirstBank and that will that $100,000,000 would get you know, with would fall in those categories in some distribution. Is that is that correct? That's Okay. That's exactly Okay. That's exactly right. And FirstBank didn't have a whole lot of fees there. So that hundred million getting added to a 9,000,000,000 plus number. So Yeah. Yeah. Fair point. Okay. Awesome. Thanks so much.

Operator: Thank you. And that question is coming from Chris McGratty from KBW. Your line is now live.

Chris McGratty: Great. Good morning. Rob, on the dollar of contribution from FirstBank and 2027, I guess, where could you be positively surprised? I know it's early.

Rob Reilly: Oh, I would say, you know, the synergies on the revenue side. I do I think there's a lot of excitement. There's a lot of enthusiasm. First Bank 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, you know, obviously, we find it appealing.

Chris McGratty: Okay. Great. And then related to the high single digit capital markets expectation, you talked in your prepared remarks about the log Jam just being opened. Is this 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 you're holding back for little bit of uncertainty?

Bill Demchak: No. That's what we think we can achieve. As with all our guidance.

Chris McGratty: Got it. Thank you. Sure.

Operator: Thank you. Next question is coming from Matt O'Connor from Deutsche Bank. Your line is now live.

Matt O'Connor: Good morning. I was hoping you could update us on your interest rate positioning. And I guess post the closing of First Bank, I don't think that would have impacted that much. But just kind of give us a full picture of how you're positioned from here for changes in absolute rates.

Rob Reilly: Sure, Matt. That came up a little bit earlier. Yes, First Bank doesn't change a whole lot. We've been for some time, which is largely neutral So, I mean, 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.

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

Bill Demchak: 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 we're just balanced out on wherever Fed funds would set 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 just as 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 we kind of say, look, we're pretty good independent of what rates does. Because we've taken advantage and locked a lot of that forward. And, Matt, you know that's we started that at the beginning of last year. So that's unchanged.

Matt O'Connor: Okay. Alright. Thank you.

Operator: Thank you. Next question is coming from Ebrahim Poonawala from Bank of America. Your line is now live.

Ebrahim Poonawala: Good morning. 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 BNC be adding a lot more in terms of capital markets capabilities? And on the wealth management front. Just how do you think about those two businesses in particular either for '26 and over the medium term?

Bill Demchak: 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 Solbury. 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 markets space, in particular, investments in places we have grown through the years are in we've had derivatives and syndicate loan syndications and FX forever, and it grows 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 gonna be big margins for some of it. Somebody like us.

And so I think you know, 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 on the debt syndication side. But, no, we with no giant shifts to do anything there other than continue the trajectory we've been on. Right. I should know this number. Don't know. Right? What's the total annual number that we make out of our collective capital? What do we make in '25 in our total In total capital, couple of billion. Yeah.

I mean, it's a big business for us. You know, people tend to say, oh, that's Harris Williams. You know, Harris Williams and piece of it. We do an awful lot of capital markets business for their clients.

Ebrahim Poonawala: That was helpful, Bill. And just one other question. There's been obviously a lot of discussion around stablecoins, interest payments, including this week. And what we are seeing is just the influence that the crypto industry has in DC. 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.

Bill Demchak: That's a good question. So the fight right now in DC is over a some terminology in the Genius Act that they're trying to fix with the Clarity Act with respect to weather rewards count is interest paid on stable points, which was forbidden in the Genius Act. As a as a practical matter, you know, coin was created and is marketed and touted as a payment mechanism, that makes payments know, 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 wanna 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. I think banks are sitting here saying, if you want to be a money market fund, go ahead and be a money market fund. Wanna be a payment mechanism, be a payment mechanism. But money market funds shouldn't be payment mechanisms, and you shouldn't pay interest. And know, the crypto industry has a lot of lobbying power to say, no. We want it all. But we'll we'll see how this plays out.

Ebrahim Poonawala: Helpful. Thank you.

Operator: Thank you. We reached the end of question and answer session. I'd to turn the floor back over to Bryan for any further or closing comments.

Bryan Gill: 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.

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

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