Greetings and welcome to the PNC Financial Services Group Q32026 Earnings Conference Call. At this time all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0 on your telephone keypad. It's now my pleasure to turn the call over to Bryan Gill, Executive Vice President and Director of Investor Relations. Bryan, please go ahead.

Well, good morning and welcome to today's conference call for the PNC Financial Services Group. I am Bryan Gill, Director of Investor Relations for PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of October 15, 2026, and PNC undertakes no obligation to update them. Now, I'd like to turn to call over to Bill.

Thank you, Bryan, and good morning, everyone. The PNC delivered another strong quarter, reflecting the consistent execution of our strategy and the strength of our franchise. As you saw, we generated $2.1 billion of net income, or $5.09 per diluted share, as adjusted, while delivering a return on tangible common equity of more than 18%. Rob's going to take you through the financial results in more detail in a second. But I wanted to start off by highlighting the substantial client momentum we've been experiencing all year, which has continued through the third quarter. All of our businesses are experiencing robust growth, in part driven by the high growth rates of our expansion markets, and most recently, the successful conversion of First Bank. In corporate and institutional banking, our national platform continues to generate impressive growth. Expansion markets have added approximately 500 new client relationships year-to-date, contributing materially to a 5% average CNIB loan growth during the quarter and 17% growth year-over-year. Beyond loans, capital markets fees are up 40% year-to-date and treasury management revenue is up 8%. In retail banking, we continue to grow clients, organically adding 215,000 net new checking accounts so far in 2026, with total accounts up 2% year-over-year, including 6% growth in our Southwest markets. And we continue to deepen relationships with credit card balances up 12% and brokerage assets up 9% year-over-year. At the same time, we continue to invest in capabilities to enhance our franchise with the introduction of both a new mobile app and Total Rewards Program, as well as our continued branch expansion. Asset management fees are up approximately 10% year-to-date and assets under administration total a half a trillion dollars. Favorable equity markets have obviously helped here, but once again, our expansion markets have accelerated our growth. In these markets, AUM is growing five times faster than our legacy markets, albeit off a smaller base. When we step back and look at the year as a whole, we have grown considerably faster than we anticipated coming into 2026. We are bringing new clients into the franchise, expanding relationships across businesses and markets, and converting that activity into durable growth in loans, deposits, and fee income. As we enter the final quarter of the year, we remain focused on disciplined growth, prudent risk management, and continued investment in the capabilities that strengthen our competitive position. As always, I would like to thank our employees for their hard work and commitment. And with that, I'll turn the call over to Rob to take you through the details of the quarter.

Rob? Thanks, Bill, and good morning, everyone. Our balance sheet is on slide five and is presented on an average basis. For the linked quarter, loans of $372 billion grew by $9 billion or 2%. Security balances increased 3% to $151 billion. Average deposits increased $4 billion or 1% to $461 billion, and the borrowings increased $7 billion to $86 billion. However, on a spot basis, deposits increased $17 billion and borrowed funds declined $6 billion, reflecting continued optimization of our funding mix. Our tangible book value was $108 per common share down 3% linked quarter entirely driven by the decline in AOCI and was stable compared with the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 9.8%. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.4 billion of capital to shareholders which included approximately $800 million of common dividends and $560 million of share repurchases. Going forward, we expect fourth quarter repurchases to approximate the same level. And our return on tangible common equity was more than 18% in the third quarter. Slide six shows our loans in more detail. During the third quarter, average loans increased $9 billion or 2% to $372 billion. C&I balances increased $9 billion, or 4%, reflecting broad-based growth across our businesses and higher utilization. Commercial real estate balances increased $2 billion, or 4%, driven by strong new production. Consumer loans declined $1 billion, or 1%, as growth in credit card was more than offset by lower residential mortgages, as well as the transfer of our student loan portfolio to held for sale. You may recall we stopped originating student loans last year, and the transfer represents the final step in exiting this non-strategic business. We expect the sale to have a de minimis financial impact. In regard to loans overall, spot loans grew $11 billion in the quarter, contributing to the strong loan growth we've had throughout the year, all of which substantially exceeded what we expected at the beginning of the year. Through the first nine months of 2026, We've added $47 billion, or 14%. While approximately $15 billion came through the first bank acquisition, more than $30 billion of the growth has been generated organically, reflecting strong client activity and execution across our franchise. Slide 7 details our investment securities and swap portfolios. We continue to maintain a high quality, short duration position. During the third quarter, average investment securities increased $4 billion, or 3%. Our securities yield was 3.59%, an increase of 14 basis points. And as of September 30th, our duration was 4.1 years. Looking ahead, we expect approximately $5 billion of fixed-rate securities to run off during the fourth quarter at a weighted average yield of 2.65%. Our receive-fix swap portfolio totaled $83 billion at quarter end, with an average receive-fix rate of 3.92%, which increased 17 basis points from last quarter. Importantly, we have a clear path for continued fixed-rate asset repricing over the next several years. Overall, we remain well-positioned for a rising rate environment, which will support net interest income, capital generation, and balance sheet flexibility. Slide 8 covers our deposit balances in more detail. Average deposits increased $4 billion to $461 billion during the third quarter, driven by growth in interest-bearing balances. Non-interest-bearing deposits were $101 billion and represented 22% of total deposits. Notably, period end deposits increased $17 billion, or 4%, compared to June 30th. The strong growth was driven by commercial interest-bearing deposits, which increased $11 billion, or 7%. In addition, brokered CDs grew $7 billion. The commercial deposit growth was due in part to seasonality, but also reflective of both new and expanded client relationships. In regard to deposit costs, our total rate paid on interest-bearing deposits increased seven basis points to 1.98%, including brokered CDs. Excluding brokered CDs, the rate paid increased five basis points to 1.96%. The increase was primarily driven by a mix as growth was concentrated in interest-bearing balances. Turning to slide nine, we highlight our income statement trends, comparing the third quarter to the second quarter of 2026. Total revenue was $6.6 billion, a decrease of $313 million, or 5%. while non-interest expense decreased $347 million or 8% to $3.8 billion. Excluding integration costs and significant items from both quarters, revenue declined $61 million or 1% as higher net interest income was more than offset by lower non-interest income. On the same basis, non-interest expense decreased $113 million or 3% reflecting disciplined expense management. We generated positive operating leverage and grew PPNR. Provision was $189 million, stable with the previous quarter. Our effective tax rate was 20%. Third quarter net income was $2.1 billion, or $5.09 per common share, as adjusted, to exclude the impact of $48 million of after-tax integration costs and significant items. Importantly, we continue to demonstrate strong momentum across the franchise. Through the first nine months of the year, PPNR increased $1.2 billion, or 17%, compared to the same period last year, driving 19% growth in diluted EPS. Turning to slide 10, we detail our revenue trends. Third quarter net interest income of $4.2 billion increased approximately $100 million, or 2%, driven by commercial loan growth and higher yields on interest-earning assets, partially offset by increased funding costs. Our net interest margin was 2.94% and decreased two basis points. The modest decline in net interest margin was largely a function of the mix in loan growth, and to a lesser extent, increased funding costs. Consistent with what we've seen throughout the year, loan growth during the third quarter continued to be concentrated in high credit quality, lower spread loans. Again, while these loans generate attractive overall economics through fee income and broader client engagement, by definition, they constrain NIM. Importantly, the underlying drivers of NII growth remain strong, and based on our expectations for loan growth, we calculate that our net interest margin will reach 3% or above in the fourth quarter. Fee income was $2.1 billion and decreased $137 million, or 6%. Looking at the details, asset management and brokerage increased $7 million, or 2%, driven by higher average equity markets and increased client activity. Capital markets and advisory revenue decreased $144 million, or 25%, reflecting elevated second quarter activity. Card and cash management revenue decreased $3 million, as higher treasury management product revenue was more than offset by First Bank integration-related fee waivers. Lending and deposit services increased $12 million, or 3%, reflecting increased client activity. Mortgage revenue decreased $9 million, or 6%, primarily driven by lower residential volumes. Another non-interest income was $214 million and included a negative $25 million impact from significant items related to Net Visa activity. Notably, we continue to see strong momentum across our lines of business and throughout our markets. And through the first nine months of the year, our non-interest income totaled $7.3 billion, up $979 million, or 15%, compared to the same period last year. Turning to slide 11, third quarter expenses decreased $347 million or 8% compared with the second quarter. Third quarter results included $27 million of integration costs compared to $261 million of integration costs and significant items in the second quarter. Excluding these items from both quarters, non-interest expense decreased $113 million or 3%. We remain focused on expense management and we're on track to reach our goal to reduce costs by $350 million in 2026 through our continuous improvement program, which as a reminder is independent of the first bank acquisition. And this program will continue to fund significant portions of our ongoing business and technology investments. Our credit metrics are presented on slide 12. Overall credit quality remains strong. Non-performing loans increased $167 million, or 8%, to $2.2 billion. The increase was primarily driven by the pull-through of previously reserved CRE office loans, as well as one large commercial credit. Total delinquencies declined $135 million to $1.3 billion and now represent 0.34% of total loans, down from 0.39% last quarter. Net charge-offs were $257 million, or 28 basis points of average loans, and included $35 million associated with the student loan transfer. Excluding that impact, underlying net charge-offs remained consistent with our prior quarter. At the end of the third quarter, our allowance for credit losses totaled $5.4 billion, or 1.42% of total loans. To summarize, PNC reported a strong third quarter of 2026 and we're well positioned for the remainder of the year. Regarding our view of the overall economy, our base case assumes GDP growth to be above 2% in 2026 with continued modest job gains and the unemployment rate holding steady. We expect the Fed to increase rates two additional times with a 25 basis point increase at the December 2026 and March 2027 meetings. Ultimately reaching a range between 4.25 and 4.5%. For ease of comparability with our prior guidance, our full year outlook excludes the impact of first bank integration charges and significant items. Considering our reported nine months operating results, fourth quarter expectations, and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows. We expect a full-year average loan growth of approximately 13.5%. We expect full-year net interest income to be up 15.5%. We expect non-interest income to be up approximately 10.5%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 13.7%. Non-interest expense to be up approximately 9.5%. And we expect our effective tax rate to be approximately 19.5%. Our outlook for the fourth quarter of 2026 compared to the third quarter of 2026 is as follows. We expect average loans to be up approximately 2.5%, net interest income to be up approximately 4%, fee income to be up approximately 3.5%, other non-interest income to be approximately $250 million. We expect adjusted non-interest expense to increase approximately 5%, and we expect fourth quarter net charge-offs to be approximately $250 million. With that, Bill and I are ready to take your questions.

Thank you. We're now conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from John Pancari from Evercore ISI. Your line is now live. Good morning.

Hey, good morning, John. I appreciate the color that you gave on the margin dynamics. You saw the compression in the quarter and deposit costs up 7 pips or 5 pips extra brokered. Can you maybe discuss, given the deposit dynamics, but also your continued growth in the lower spread, higher quality loans, maybe just discuss the confidence in that 2% or higher margin by the fourth quarter and maybe just how you think of that There's dynamics impacting the margin as you look at 2027. And I guess maybe just a little bit of color on what the trade-off is, you know, how you're looking at the lower spread of our quality loans in terms of, you know, the impact on NAI and as you look out from here. Thanks.

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

Yeah, you know, all that's embedded in kind of what we put out there forward. Yeah, you know, John, I just would add to that a little bit, you know, in terms of NIMH. Generally speaking, everything that we thought would happen in the quarter happened. Rate paid went up exactly what we thought on core deposits. The brokered CDs added to that a bit, but we didn't expect to do brokered CDs. As you know, we just toggled between the cheapest wholesale funding. The difference was the high credit quality, low spread loans came in hotter than what we thought, and that constrained them. That's the biggest difference in terms of NIM relative to our expectations. When we go forward, Thank you for that I appreciate it.

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

Credit loss assumption? Very low. Yeah. It's, you know, a lot of growth in the corporate finance book broadly. I think every category in our breakdown of corporate loans increased this quarter. That's right.

Except other.

Yeah, except other. Growth in, you know, paced by growth in real estate on a percentage basis. You know, also just pay down of higher spread loans had an impact. Right, it's hard for new production to actually drop the total average spent by three. And so what we saw was the mix of our existing loans to pay downs, you know, bias towards riskier stuff paying off, which is kind of a good thing, but it drops our spread.

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

Got it. Okay. Very helpful.

Thank you. Next question is coming from Scott Seepers from TD Cowan. Your line is now live.

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

Yeah. You know, Rob and I were talking about this last night, actually, just the, you know, what does this spurt at the end of the quarter necessarily mean or not mean? I don't think we came to a conclusion. I would tell you part of the outsized, if not all of it though, just the pace of it is in our new markets. The new clients that we are onboarding that are a record pace and our model is working, so that's just driving volume. Intuitively, The pipeline is still strong. Yeah, pipeline is strong. That's true. Okay.

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

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

All right, terrific. Thank you very much.

Thank you. Next question is coming from Erica Najarian from UBS. Your line is now live.

Yes, thank you. Hey, just as a follow-up on that, I got a few questions on the run rate of expense growth in the fourth quarter, but it sounds like I'm going to be answering my own question, Rob. With the capital markets trajectory up 15% quarter-over-quarter, That's really related to cap markets, so that's not necessarily a pull through as we think about expense growth in 2027, right? That's right.

Well done.

Got it. Yay, gold star. And just on net interest income, some of your peers, unfortunately, JP Morgan and BFA gave previews on net interest income growth for the year. And correct me if I'm wrong, Rob, but I'm calculating something like 10%. X First Bank Net Interest Income Growth for 2026. The street is at about 6.5%. Given the momentum that you have in your new markets, and you mentioned that you're well-positioned for a rising rate environment, should the rate of NII growth slow down by that much in 2027?

Did you say, unfortunately, the peers that talked about 2020?

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

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

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

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

Got it. Thank you.

Thank you. Next question today is coming from Manon Gosalia from Morgan Stanley. Your line is now live.

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

Good morning, Manoj. I don't think so. I think, you know, in terms of our expectations in terms of betas, you know, within an increasing rate cycle, we'll see what we've seen in the past. So, you know, in the front,

One exception, though, Rob. You've got to remember that back in, you know, whatever it was, 23, I try to forget. The big change was driven by non-interest-bearing moving to interest-bearing. You know, most of that, right, the excess deposits out of the system coupled with the kind of base balances are, I would say, pretty constant. And so now we're going to see, you know, face interest rate betas move in conjunction with history probably. Thank you for joining us. Thank you for joining us.

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

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

Got it. Very helpful.

Thank you. Thank you. Next question is coming from Ken Usman from Autonomous Research. Your line is now live.

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

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

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

Yeah, sure. So we feel good about our capital position. We rounded down to 9.8. Our target is 10. And that was simply a result of loans coming in higher than we expected, which drove up RWA. We did have a meaningful repurchase in the third quarter. We expect to do something similar to that in the fourth quarter, so feel good about capital. On the AOCI front, naturally, you've got to think about the Basel III rules that are just around the corner or somewhere along those lines, which will increase us, including AOCI, but obviously the benefit of the private ratings will increase our capital ratings by about a point or so. So feel good about that positioning. You know, loading AOCI into the CET1 ratio is a little bit of a stale measure because of those Basel III considerations. But if we did that, you know, we'd drop to low nines, but certainly above nine and still a pretty healthy TCE ratio.

Got it. Great. Thanks, Ira.

Sure. Thank you. Next question is coming from Ibrahim Poonawalla from Bank of America. Your line is now live.

Ibrahim Poonawalla Hey, good morning. Ibrahim Poonawalla I just wanted to go back. Bill, I think you mentioned you gave two stats in your opening remarks, 500 new commercial clients and 215,000 checking account clients here to date. Just talk to us in terms of, one, should we measure low-cost deposits as a way to So separate the two. Retail share has been a real focus, and so we're proud of the DDA growth.

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

And I guess maybe we're just moving to expenses. I think we debate whether AI deployment is gonna boost productivity and maybe Thank you very much.

I mean, it's such a long answer to that, I want to figure out how I address it. Look, the incremental cyber costs associated with the AI frontier models, I think you see in our run rate today. The cost as we work towards, I'm going to call it an agentic workforce, the fundamental transformation of the company, into one that has an ability to deploy agents across workloads. Today, you see that mostly in creeping depreciation expense on the back of all of our data center rebuilds remembering that we put GPU chips in our data centers. Much of the work in preparation for all this was done in past years. So our data lake and data configuration all in one place, one source of truth, digitized policies, procedures, papers, HR systems that recognize agents as employees, the risk framework on access control, all of that stuff has been built. What comes next is the reengineering of the company using AI harnesses, which would speed the development and ultimately lower the cost associated with technology development and maintenance followed quickly by product development delivery that aids revenue. We've been purposefully quiet on all of the above. I think one of our peers said it, you know, we'll show up when we have something positive to show you and quit talking about that till it shows up. But I would I want to assure everyone that we have a well-thought-out program that isn't about bells and whistles that will ultimately allow for a transformation in this company.

Especially when you talk about it in a two-year, three-year time frame.

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

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

Understood. Thank you.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question today is coming from Gerard Cassidy from RBC Capital Market. Your line is now live.

Hi, Bill. Hi, Rob. Morning, Gerard. Gerard. Bill, talking about bells and whistles on AI and all the toys that go with it, what's your guys' view? A lot of Managements have been asked this question on these third quarter calls about the AI agentic agents moving deposits around and forcing deposit costs up for the industry. What's your take on that?

So, I mean, in its most basic form, there's no question that deposit movement is going to become more efficient. By the way, that's happened progressively for years. and, you know, is it going to accelerate? Maybe. But at some point in time, you know, given the movement in technology, you're going to see more competition in deposits. It's not showing up in the moment. The current attempts at this with some of the new agentic applications that have come out where, you know, frankly, they try to come in and transact on your behalf inside of your accounts. incredibly unsafe. It's not going to happen. Bad idea.

Yeah.

And for that to ultimately take place, there's going to have to be laws passed on liability shifting. It's going to have to happen through secure connections and authentication and human in the loop. So it's, you know, big splashy headlines, cool thing, not going to happen on my watch that something can come in here and transact. on your behalf without you knowing it. It's an incredibly dangerous thing. Independent of the fact I run a bank, I would just advise everybody that that's probably bad. But your basic premise, I mean, look, it's things have gotten more, you know, there's been capital market portals that allow you to shop money market funds for a basis point. You can sweep into a deposit account. You can put it in a money fund. You can move it here. All that stuff's going to get easier, and this is going to happen over time. And to win in that period of time, we're going to have to offer our clients technology that is as good as these third-party providers so we can allow them to do what they want. Importantly, we're going to need to produce it cheaply, you know, to keep their business.

And maintain the service aspects of a transaction account.

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

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

And I think it's more complicated than that. Well, I'd add to that. So, you know, what Bill just described, I think all the banks are benefiting from. I think we're benefiting from that, obviously, as well. But in addition, PNC might be a little bit different because of the compounded success of our expansion markets, which just keep showing up. It's just, again, it's share gain. It just keeps showing up. And it is driving our numbers higher than industry averages. You see it in the H-8 data. You see it in the momentum.

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

It's both. It's both, for sure. You know, we have a definition in terms of what is a primary client, and it's basically You know, enough share of wallet to check that box as opposed to just doing ancillary business.

Yeah, the larger corporates, it's typically a multi-bank deal. The smaller middle market will be the new bank in some instances.

Great. Thank you, guys.

Thank you. Next question is coming from Mike Lyle from Wells Fargo. Your line is now live.

Hi. Just more questions on the commercial loan growth. Maybe slice and dice a few different ways. So for every $100 of additional commercial loan growth, how much would you say is additional industry growth versus market share? Because I think the industry is picking up the commercial loan growth. And then how much of it would you say is kind of AI CapEx related versus non-AI CapEx related or other? And then the third part would be how much of this would be Thank you.

Oh, easy question. So let's do it this way, Rob. That may be a take-home assignment. What was the new market's growth rate was, what was it, two, three times the legacy markets? In CNIB. Yeah. Yeah. Yeah. Yeah. You know, take that, you know, all that excess growth rate is pure share is one way to think of it. It's hard to come up with an answer on how much of the AI capex is driving loan growth broadly across the economy, because there's clearly tangential effects on, you know, any sort of heavy equipment, transportation, energy, You know, component producer. Yeah, that's driving it. So I just don't know that I have an accurate answer to that. Maybe the negative of it, Mike, is the more worrisome thing, right? So if the CapEx broadly slows down related to AI, do we think, even though we don't lend directly to that, that it would slow our loan growth? Yes, we do. A knockdown effect, yeah. Yeah.

And what's the size of the new markets versus the legacy? I guess it's growing two to three times faster off a smaller base.

Well, right now in corporate banking, the majority of our in-market loans are in the expansion markets. So the balances are actually bigger.

Yeah, yeah, yeah. You have to quit calling. Yeah, yeah.

So you're growing two to three times faster in the new markets, and the new markets at this point are bigger than legacy markets.

XR National Businesses, yeah, that's true.

And as far as Texas or the Southwest in particular, because that's been a hot area recently, is that, how fast is that growing? Is that two to three times faster, or is that even still faster?

It's, you know, that's the obvious one, and it's And then there is some industry tailwind, though, right, with CapEx picking up overall.

I mean, how much is that contributing, and do you think this is kind of a multi-year change? Because just go back a couple years ago, there wasn't much growth, and now there's growth again. Is this like one quarter, one year? The next five years, I know nobody has a crystal ball, but you're closer to it than we are.

Yeah. Look, I think it has legs for the time being. I think there's a lot of things that could, you know, knock the legs out.

You know, pipelines are strong. Activity levels are strong.

And that's going to continue. But we all see stuff that can cause that to stop. I can't see out that far, Mike, any better than you can.

All right, great. Thank you.

Thank you. Next question is coming from David Cavarini from Jeffries. Your line is now live.

Hi. Thanks for taking the questions. Can you remind us of PNC's sensitivity to rates and positioning of the balance sheet?

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

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

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

Graham, maybe if I can squeeze one more question. Just on the M&A appetite, what your latest thoughts are there? First bank acquisition clearly is seeing some nice tailwinds and success there, but provide your latest thoughts on the M&A front.

Sure, I'll take that.

So a couple of things.

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

Very helpful. Thank you.

Thank you. Next question today is coming from Chris McGrady from KBW. Your line is now live. Hello, Chris. Perhaps your phone is on mute.

Oh, there we go. Sorry about that. More of a question on risk tolerance. In your prepared remarks, you talked about the growth in the quarter was high quality, lower risk. I guess, is there any change in either PNCs Client risk tolerance that you're observing with the changes in the macro and the rates recently?

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

Demand for credit, yeah.

It's, you know, you'll hear us say this over and over again for years. We kind of stay inside of our Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over 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 additional questions.

Thanks, everybody. Thank you. Thank you. That does conclude today's teleconference and webcast. We just connect your line at this time and have a wonderful day. We thank you for your participation today.