The PNC Financial Services Group - Q4 2025
January 16, 2026
Transcript
Operator (participant)
Welcome to the PNC Financial Services Group Earnings Conference Call. At this time, all participants are in listening-only mode. A question-and-answer session will follow the formal presentation. If you'd like to ask a question during this time, please press star one on your telephone keypad. If you'd like to withdraw your question, please press star two on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may begin.
Bryan Gill (Director of Investor Relations)
Good morning and welcome to today's conference call for the PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of January 16, 2026, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.
Bill Demchak (Chairman and CEO)
Thank you, Bryan, and good morning, everyone. As you've seen, by virtually all measures, 2025 was a successful year for PNC. We earned $7 billion in net income, or $16.59 per share. Strong performance across all our lines of business resulted in record revenue, 5% operating leverage, and 21% EPS growth for the year. As you've likely seen, on January 5th, we closed the acquisition of FirstBank, and we're all excited about the opportunity in front of us, and I'd like to welcome the FirstBank employees to PNC. We ended 2025 with substantial momentum marked by meaningful client growth across all of our businesses and our ongoing branch expansion. 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 executing one of the largest investment agendas we've ever pursued, including all of our technology initiatives, payments capabilities, and consumer rewards platforms, and of course, our branch expansions. Now, before I wrap up, I want to thank all of our employees for everything they do for our company and our customers, including our new teammates from FirstBank. I'm incredibly excited about what we're going to be able to accomplish together, and with that, I'll turn it over to Rob to take you through the numbers. Rob.
Rob Reilly (EVP and CFO)
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 31st, was -$3.4 billion, an improvement of $669 million, or 16% compared with the prior quarter. Our tangible book value of $112.51 per common share increased 4% linked quarter and 18% compared to the same period a year ago. We remain well capitalized at quarter end with an estimated CET1 ratio of 10.6%, or 9.8% when including AOCI. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.1 billion of capital to shareholders.
Common dividends were $676 million. Share repurchases were approximately $400 million, and we're at the high end of our estimated range. Going forward, we expect to further increase our quarterly share repurchases to a range of $600 million- $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&I franchise. Total loan yield of 5.6% decreased 16 basis points linked quarter, driven by lower interest rates. Compared to the same period a year ago, average loans increased $9 billion, or 3%. Commercial loans grew $10 billion, or 5%, as strong growth in C&I was partially offset by a decline in CRE loans.
Notably, we believe that our CRE balances have largely stabilized, and we anticipate moderate growth in 2026. Consumer loans declined $1 billion, or 1%, as growth in auto balances was more than offset by a decline in residential real estate loans. Slide 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. Non-interest-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.
Non-interest expense was well controlled and increased by 2%, which resulted in 5% positive operating leverage and 15% PPNR growth. Net income of $7 billion was up $1 billion, and full-year diluted EPS grew 21% to $16.59 per share. Comparing the fourth quarter to the third quarter, total revenue was a record $6.1 billion and grew $156 million, or 3%. Non-interest expense of $3.6 billion increased $142 million, or 4%, and as a result, we delivered record PPNR of $2.5 billion. Provision was $139 million. Our effective tax rate was 12.7%, reflecting favorable resolution of several tax matters, and our fourth quarter net income was $2 billion, or $4.88 per diluted share. Turning to slide 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 5 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&A advisory revenue. Card and cash management declined $4 million, or 1%, as higher treasury management revenue was more than offset by other seasonally lower activity. Lending and deposit services increased $7 million, or 2%, and included higher loan commitment fees. Mortgage revenue decreased $13 million, or 8%, reflecting lower MSR hedging activity, down from elevated third quarter levels.
Another 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 -$41 million, primarily related to Visa's December announcement of a litigation escrow funding. Notably, we continue to see strong momentum across our lines of business and throughout our markets, and for the full year 2025, non-interest 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 non-interest 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. Non-performing 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 31st 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.
Provision was $139 million, reflecting a slight release of loan reserves. At the end of the fourth quarter, our allowance for credit losses totaled $5.2 billion, or 1.58% of total loans. Turning to slide 10, as you know, we successfully completed the FirstBank acquisition earlier this month, greatly expanding our presence in high-growth communities across Colorado and Arizona. Importantly, PNC and FirstBank employees have made great progress in preparing for a successful conversion and integration, which is scheduled for June of 2026. I also want to provide an update to some of the deal metrics, all of which are the same or better than we had originally estimated. As you know, the purchase price was 30% cash and 70% stock, and was approximately $4.2 billion at closing. We issued 13.9 million shares of common stock as part of the consideration.
At closing, tangible book value is estimated to be $109 per share, exceeding our expectations at deal announcement. The reduction to our CET1 ratio is estimated to be approximately 40 basis points, which is in line with our original expectations. And we continue to project an internal rate of return of approximately 25%. Our expectation for non-recurring merger and integration costs is approximately $325 million, the majority of which will be recognized in the first half of 2026. Importantly, we anticipate achieving substantial operational efficiencies across the FirstBank franchise. And as a result, we expect FirstBank to generate an annualized earnings run rate of approximately $1 per share by the end of the year. To summarize, PNC reported a strong fourth quarter, which contributed to a very successful 2025.
We're well positioned to continue this momentum into 2026, and with the addition of FirstBank, we're poised to enhance our growth trajectory. Regarding our view of the overall economy, we're expecting continued economic growth over the course of 2026, resulting in approximately 2% real GDP growth and unemployment to remain near 4.5% throughout the year. We expect the Fed to cut rates 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 up approximately 14% and non-interest income to grow 6%. Non-interest expense to be up approximately 7%, excluding an estimated $325 million of integration expense, and we expect our effective tax rate to be approximately 19.5%. Based on this guidance, we expect to generate approximately 400 basis points of positive operating leverage, nearly all of which is driven by PNC on a 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 first quarter of 2026 compared to the fourth quarter of 2025 is as follows.
We expect average loans to be up approximately 5%, net interest income to be up approximately 6%, fee income to be down 1%-2%, other non-interest income to be in the range of $150 million-$200 million. Taking the component pieces of revenue together, we expect total revenue to be up 2%-3%. We expect non-interest expense, excluding integration expenses, to be up approximately 4%. We expect first quarter net charge-offs to be approximately $200 million. We expect diluted common shares to average approximately 406 million in the first quarter, which includes the impact of shares issued as part of the FirstBank acquisition. With that, Bill and I are ready to take your questions.
Operator (participant)
Thank you. I'll be conducting a question-and-answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You may press star two 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 one. Once again, that's star one to be placed in the question queue. Our first question is coming from John Pancari from Evercore ISI. Your line is now live.
John Pancari (Senior Managing Director and Senior Research Analyst)
Morning.
Bill Demchak (Chairman and CEO)
Hey, John.
John Pancari (Senior Managing Director and Senior Research Analyst)
Just a question, actually, straight to capital. On the buyback front, I know you bought back $400 million in fourth quarter. You guided to this $600 million-$700 million in the deck. And then, Rob, in your comment there, it sounded like you were pointing to that $600 million-$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 2026?
Rob Reilly (EVP and CFO)
Yeah. Hey, good morning, John. No, you're spot on there. That $600 million-$700 million is a quarterly pace that we expect to continue through 2026.
John Pancari (Senior Managing Director and Senior Research Analyst)
Got it. Okay. All right. Thanks. And then also related to capital, I know your CET1 came in at 10.6%, and you guided to the 10.4% with the FirstBank deal. Could you just remind us of how we should think about a targeted CET1 as you look through 2026, considering the deal and considering growth and buybacks? And then how should we think maybe about a good medium-term ROTCE target for you guys? I know you came in around 16.5% full year for 2025 ROTCE, and the fourth quarter was around 18%. How can we think about a good medium-term target for PNC? Okay.
Rob Reilly (EVP and CFO)
That's a lot there, John, but let's take it as you asked it. In terms of our CET1 ratio, to be clear, we finished the year at 10.6%. With the acquisition of FirstBank, we'll take that down 40 basis points to somewhere around 10.2%-10.3% in terms of where we are now. With the share repurchases that we expect in the first quarter, we would expect to end the first quarter somewhere around that range. We've said that we've got a target right now, and that target is obviously short-term because there's a lot of capital rules that are still in flux, but we've said 10%. In the first quarter, we'll be in that 10.2%-10.3%, working our way down from 10.6%. In terms of ROTCE, you're right. We actually exited fourth quarter of 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 2026. When we get through 2026 with the FirstBank acquisition and we deliver on the guidance that we expect to deliver by this time next year, and again, this is just math, so we don't have targets, but this time next year, we'll be at 18% heading higher.
John Pancari (Senior Managing Director and Senior Research Analyst)
Got it. Okay. Thanks, Robert. Appreciate it.
Rob Reilly (EVP and CFO)
Sure.
Operator (participant)
Thank you. Next question is coming from Scott Siefers from Piper Sandler. Your line is now live.
Scott Siefers (Managing Director and Senior Research Analyst)
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 had some standalone thoughts previously. I think you all had been saying up like $1 billion or more of growth, if I recall correctly.
But now we've got FirstBank's into the guidance. Maybe you can just sort of help bridge the gap and go through any places where you're feeling incrementally better or worse or any change on how you see NII projecting through the year.
Rob Reilly (EVP and CFO)
Sure. So our guidance with FirstBank for the year, as you've seen, is up 14% in NII. Inside of that, to your question, PNC standalone, we're somewhere between 7.5%-8%, which is comfortably above the $1 billion that we said in the earnings call in the third quarter. So we feel good about it. I mean, obviously, those are pretty good numbers, and that's helping us generate the positive operating leverage that looks very comparable to last year, and that's very good.
Scott Siefers (Managing Director and Senior Research Analyst)
Perfect. Okay. Good.
Then 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'd hoped. Maybe if you could spend just a quick second on how you see deposit costs playing out for, 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 (EVP and CFO)
Yeah. Just to clarify for those who weren't on the third quarter call, that was a mixed 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 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, one in July and one in September. And if and when those occur, rate paid will continue to go down.
Bill Demchak (Chairman and CEO)
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 on NII materially one way or the other.
Rob Reilly (EVP and CFO)
That's right. That's right.
Scott Siefers (Managing Director and Senior Research Analyst)
Perfect. Good. All right. Bill and Rob, thank you for taking the questions.
Rob Reilly (EVP and CFO)
Yeah. Sure, Scott.
Operator (participant)
Thank you. Next question today is coming from Betsy Graseck from Morgan Stanley. Your line is now live.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Hi. Good morning.
Bill Demchak (Chairman and CEO)
Betsy.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
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, etc. 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 it was pretty quick, and I was hoping we could unpack a little bit where you are relative to where you want to be and how FirstBank integrates into all that. Thank you.
Bill Demchak (Chairman and CEO)
Yeah. I guess in its simplest form, our new initiative, CapEx expense, all embedded in our guidance, is higher this year than it's ever been. I think depending on how you want to look at tech spend, we maybe spend $3.5 billion, and it's going to go up 10%± for the year.
Inside of that, AI is 20% of that increase beyond what we spend already. Most of it is just the number of things we have to drive momentum, right? So we're with the ongoing branch build, and that will continue. So it's putting us in front of more clients. Rebuild of our payments capabilities, think of it as along the same lines of the rebuild of our online banking where we're breaking it down to microservices so it's more resilient and faster to be able to change. Modernization of our data centers so we're always on. All of our applications will be cloud-native and will run in a synchronous transmission between backup data centers. Continued investments in people in the new markets, including investments in people inside of the Colorado, Arizona markets to take advantage of the FirstBank footprint. All of that's inside of the guide we gave.
All of that, the ability to do that and still control expenses kind of comes on the back of this continuous improvement program, which we're going to execute again in 2026. 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 (Global Head of Banks and Diversified Finance Research)
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?
Bill Demchak (Chairman and CEO)
Headcount savings is a piece of it. The most obvious example there is simply using Agentic AI for coding. But a lot of it is contract savings in tech as we shut down old systems and roll in new systems.
We're shutting down redundant things and running on a single one. Trying to think inside of what's in that continuous improvement.
Rob Reilly (EVP and CFO)
I would say, Betsy, just to jump in, I mean, the continuous improvement program is something that we've had for a number of years that's in our DNA. And when we do our budgeting, every part of the company is expected to contribute some CIP savings, which is just efficiency off of our increasingly larger spend. It is as broad-based as it could be.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Yeah. No, CIP is decades long, right?
Bill Demchak (Chairman and CEO)
That's right. That's right. But to give you an idea of the scope, maybe this will help. Between 2022 and 2025, 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 probably closer to 30.
When we look at AI, between 2025 and 2030, we see another 40 points of operating leverage. We have 171 different opportunities outlined and $1.4 billion of total addressable spend that we're able to go after through. I mean, we'll use the term AI, but I just think of it as the same march that we've been along with automation that has given us all those efficiencies between 2022 and 2025. And all of that is in our guidance.
Betsy Graseck (Global Head of Banks and Diversified Finance Research)
Okay. Super. Thanks so much.
Operator (participant)
Thank you. Next question is coming from Gerard Cassidy from RBC Capital Markets. Your line is now live.
Gerard Cassidy (Managing Director)
Thank you. Good morning, Bill. Good morning, Rob. Rob, to follow up on your comment about the ROTCE coming out of the end of this year, many companies now give out these ROTCE targets. Obviously, you don't.
But I'd like to get your insights on just how you guys approach looking at ROTCE and how you manage it.
Rob Reilly (EVP and CFO)
Sure. No. Thanks, Gerard. And it relates to John's question there. We don't have an explicit target because we've always viewed it as an outcome rather than something that we manage to. That said, when you take a look at our levels, comparable 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 (Chairman and CEO)
Yeah.
Part of the issue with the target, it's so dependent on operating environment in terms of shape of the yield curve and credit costs. And it's also dependent on capital management. And I hate the idea of setting a target on return on capital and then managing the capital itself to hit that return. They ought to, in some ways, be disconnected. We can always just drive our capital.
Rob Reilly (EVP and CFO)
Well, that's where the variables are. So we saw that as an industry. We saw that in the last couple of years when negative AOCI showed up. Nobody thought that was a good thing, but it helped ROTCE.
Bill Demchak (Chairman and CEO)
Yeah. Exactly.
Gerard Cassidy (Managing Director)
Very helpful. And then, Bill and Rob, with the chance of being called a curmudgeon again, as I was at one of your 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 looked really, really good, and for guys like all of us on the call that have been around a while, we just get nervous because we're bank guys. Can you look at any risks on the horizon other than the obvious geopolitical risk? We get that, but what are you guys kind of looking at just to make sure that you don't get blindsided? I don't mean just you guys, but just the industry gets kind of hit over the head with something that we don't expect.
Bill Demchak (Chairman and CEO)
Yeah. It has to be some exogenous variable because the base economy, I just don't see big cracks that are going to be realized in 2026, so you get up every morning and you read a headline on credit card rates or on this or on that. It could be anything, right?
By the way, it could be good things too, but the basic business of running the bank against the economy with customer demand and the health of the consumer, we have a lot of tailwinds this year, and it should be a great year for banks.
Gerard Cassidy (Managing Director)
I agree. I appreciate it, Bill. Thank you.
Bill Demchak (Chairman and CEO)
Yep.
Operator (participant)
Thank you. Next question today is coming from Erika Najarian from UBS. Now live.
Erika Najarian (Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance)
Hi. Good morning. Maybe one for you, Bill. As we take a step back into the year, I think a lot of investors are contemplating the push-pull and investing in money centers versus regional banks.
Maybe from your purview, as you think about the opportunities for regional banks, particularly in direct lending, which is just C&I lending or commercial lending, how much do you think potential Fed cuts, the leveraged lending limits going away, and sort of the certainty or better certainty in the macro, is that going to spur more direct lending opportunities for regional banks? Or are you agnostic to it relative to the cap markets opportunity? Also just remind us, your peers talked about significant advisory opportunities for 2026. Just remind us how much of a skew in advisory you may have in cap markets.
Bill Demchak (Chairman and CEO)
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 leveraged 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, the ability to do some of our specialized businesses that are secured or that are first out increases pretty dramatically, and we're pretty excited by that, but it's not like we're not treating it like an open invitation to run out and take more risk. 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, it's not as large a percentage of our total company, perhaps, as it is at the money centers, but the mixes aren't wildly different. Inside of that mix, we are more heavily weighted to advisory probably than the giant banks.
And in that sense, Harris Williams' backlog, their activity level through the fourth quarter is as high as it's ever been. So we're pretty optimistic about the opportunity set there.
Erika Najarian (Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance)
And just a follow-up question on the ROTCE. Obviously, heard you loud and clear. 18% and going higher is better than your peers. And as I just take a step back, this is sort of a compound question, Bill. The way you answered the earlier question, it sounds like you don't want to necessarily just put targets out there because you want the flexibility for the capital allocation when there are growth opportunities, which makes sense. But also, as we think about longer-term returns, is 18+ sort of above through the cycle, or is that sort of closer to a through-the-cycle range for a PNC all-in?
I'm just asking it this way because you are the JPMorgan of smaller national banks, and they have a through-the-cycle target.
Bill Demchak (Chairman and CEO)
Why don't we just kind of reason that out for a second? It's not going to become a target. But if you assume for a second that we're running, I don't know where we are this quarter, 288 or something and through this, and we run where 250 to 3.
Rob Reilly (EVP and CFO)
Yeah. That's right.
Bill Demchak (Chairman and CEO)
So let's say that abstracts out interest rate volatility. Then let's assume for a second that our credit costs are running on the low side for a through-the-cycle number. We probably have even upside, downside on the NIM from here. We have downside on the credit costs. So through the cycle, maybe slightly lower.
However, as we plan out with the scale efficiencies we get through some of our cost initiatives and just client growth, it kind of offsets that. So the outcome, the mechanical outcome that Rob talks about when you cross through 18% and keep going, I mean, I could show you on a piece of paper where it crosses 20% in the not-too-distant future. During that period of time, if credit normalizes and our charge-offs go up double, we're not going to hit that, which is why we don't want to put that target out there. We're operating in a great space. It's elevated from our history. We ought to be able to keep it somewhere around here, but there's a lot of variables swinging around, and I don't want to make uneconomic choices to hit a target that was artificially created.
Erika Najarian (Managing Director and Equity Research Analyst of Large-Cap Banks and Consumer Finance)
That was very helpful, though. Thank you, guys.
Operator (participant)
Thank you. Next question is coming from Steven Chubak from Wolfe Research. Now live.
Steven Chubak (Managing Director)
Hi. Good morning, Bill and Rob. Thanks for taking my questions. 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. And I was hoping you could just contextualize what you're seeing in terms of pipelines, how they compare to year-ago levels, and just how you're thinking about growth in capital markets fees in the coming year, given the strong exit rate we saw in 2025, as well as some of the factors driving more robust activity that you cited.
Bill Demchak (Chairman and CEO)
Maybe Rob can give us detail on growth numbers.
But before we go there, what I was referring to at that conference and has, in fact, come to fruition is that the logjam in middle market investments, the willingness to do M&A, the willingness to take down credit to get a deal done has opened up where it was kind of on hold for a long period of time because of tariffs and people trying to figure out how they operate, and they're afraid to buy into something when there was so much volatility and potential outcomes. We saw that kind of pipeline crack in the fourth quarter. You see it in the Harris Williams results. By the way, you would see it in our spot C&I loan numbers at the end of the year as we've just seen more activity on financings into acquisitions.
Inside of our forecast, Rob, 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 derivatives, there's bond issuance, there's bond syndication, and so on and so forth.
Rob Reilly (EVP and CFO)
Yeah. Just to finish that, so in terms of our outlook for 2026, capital markets, we're expecting it to be up high single digits.
Steven Chubak (Managing Director)
Okay. Great. And then just a question on NIM. I know in the past you've noted you could achieve north of 300 basis points at some point in the coming year, acknowledging that that's an output.
Do you feel like normalized NIM, because you were alluding to this in your prior response, Bill, whether that could still settle in the low 300 range as you optimize wholesale funding, restrike the securities book, prosecute on some of the initiatives to grow operational deposits, including some makeshift from FirstBank? Feels like you can run sustainably above that for a bit, but just was hoping you could provide some context.
Bill Demchak (Chairman and CEO)
Look, I think that's right, assuming we stay in an upward sloping yield curve in a similar environment. If we get into a world where we have 200 points of inversion, we're not going to be running at 3%.
Rob Reilly (EVP and CFO)
Our plans in 2026 are to reach that 3% level in the second half of 2026, somewhere during the third quarter, maybe the end of the third quarter.
Steven Chubak (Managing Director)
That's great. Thanks so much for taking my questions.
Operator (participant)
Thank you. Next question today is coming from Ken Usdin from Autonomous Research. Now live.
Ken Usdin (Senior Research Analyst Large-Cap Banks)
Hey. Good morning. Thanks, guys. Yeah. Just to follow up on the last question, thanks for giving the outlook on the capital markets side. Rob, just with the moving parts of the FirstBank ads, I'm just wondering if you could kind of help us through just where you expect to see the fee growth, which obviously ended the year in almost all categories on a high note. Thanks.
Rob Reilly (EVP and CFO)
Yeah. Sure, Ken. So for the full year, we're seeing non-interest income up 6%. In terms of the subcategories of that, just in the order that we report them, we've got asset management up mid-single digits. As I just said, capital markets up high single digits. Card and cash management up mid to high single digits.
And then lending, deposit services, and mortgages each up low single digits. And then, to add to that, for the full year is $100 million of what are basically FirstBank's fees. When we get past integration, we'll be able to put that $100 million into each of those categories, but at the moment, it's just simply an add-on. So you put all that together, that's the up 6%.
Ken Usdin (Senior Research Analyst Large-Cap Banks)
Okay. And I guess same question. I don't know if you're able to do it or willing, but is there any way to help us kind of understand where the FirstBank NII contribution is inside the total NII?
Rob Reilly (EVP and CFO)
Yeah. Sure. So it actually came up in question earlier. So we're saying up 14%. Inside of that, PNC is 7%-8% of that.
Ken Usdin (Senior Research Analyst Large-Cap Banks)
Seven. Okay.
Rob Reilly (EVP and CFO)
Yeah.
Ken Usdin (Senior Research Analyst Large-Cap Banks)
Okay. And that would include, obviously, all the purchase accounting benefits that.
Bill Demchak (Chairman and CEO)
Seven. Yeah.
Rob Reilly (EVP and CFO)
That's right. You got it, Ken.
Ken Usdin (Senior Research Analyst Large-Cap Banks)
Okay. Got it. Thanks.
Operator (participant)
Thank you. Next question is coming from Mike Mayo from Wells Fargo. Your line is now live.
Mike Mayo (Managing Director and Head of U.S. Large-Cap Bank Research)
I'm going to start with a very simple question, and then I'll have a more complex question. But what's the difference between a national bank and a regional bank? Because when you answered the prior question, you said, "We're a national." I know you're a national Main Street bank, and you'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 brand. So if you could elaborate on that.
Bill Demchak (Chairman and CEO)
I think maybe the distinction is as much aspiration as it is where we are from the starting point.
I mean, we are national in terms of our presence with C&I and retail. We're across the country. But more importantly, perhaps, is the strategic direction and belief that ultimately, to succeed, particularly with a retail platform, you have to have a national and ubiquitous presence and share in each market that allows you a fair fight. I think the distinction between that and a regional bank, a regional bank that's trying to protect its moat in a shrinking market as the large banks and PNC come into their market, is a tough place to be. And that's why I draw that distinction.
Mike Mayo (Managing Director and Head of U.S. Large-Cap Bank Research)
All right. 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 (Chairman and CEO)
Yeah.
I don't think anybody has an ability to defend home turf here. The branch builds that are going on with the giant banks and ourselves and at least one other of the smaller banks in the country, we're coming into your market. If you're not coming into our market to come fight us, we're coming to your market to come fight you. And we're going to get some percentage of your market, as is JP and B of A. And ultimately, if you're not growing, you're shrinking. So perhaps it's just a nuance in strategy or the realization that long-term survivability, at least in our view, is dependent on the ability to take the fight to all the markets in the U.S. and win.
Mike Mayo (Managing Director and Head of U.S. Large-Cap Bank Research)
A national platform.
Bill Demchak (Chairman and CEO)
Yeah.
Mike Mayo (Managing Director and Head of U.S. Large-Cap Bank Research)
And then as a follow-up to that, then, so I heard you correctly. You have your ongoing Continuous Improvement Program.
As part of that, you have record investment spend in 2026, record tech spend, record AI spend. Even with that, you have 400 basis points of positive operating leverage in your guide. I guess even with you doing all that, are you spending enough given the higher level of competition from the bigger banks?
Bill Demchak (Chairman and CEO)
Yeah. I think we are. I mean, part of what you spend is what you can achieve. You push too hard, you start wasting money. For the places where we compete, Mike, so you think about what we do in wealth and retail or our C&I middle market, small, 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.
I think our core infrastructure, as it relates to running with everything being cloud-native and built off of microservices and the ability to build products, is as good as anybody. Where we lose on tech spend is some of our larger friends who've reported so far. They could choose to go build another Visa, or Mastercard, or Stripe, or Shopify. They could choose to build a whole nother business inside of their existing operating platform, where what we're doing with our tech spend is optimizing the businesses we're in today. I think that's the big difference.
Mike Mayo (Managing Director and Head of U.S. Large-Cap Bank Research)
All right. Thank you.
Operator (participant)
Thank you. As a reminder, that star one to be placed in the question queue. Our next question is coming from Saul Martinez from HSBC. Your line is now live.
Saul Martinez (Head of US Financials Research)
Hey. Good morning, guys. Thanks for taking my question.
I wanted to ask about loan growth and the 8% guidance for growth in average loans. It seems to imply still pretty fairly modest growth on an organic basis. If you're stripping out FirstBank, I get to something in the neighborhood of about 3%, and correct me if that math is wrong. You obviously expressed some optimism about C&I picking up, CRE stabilizing here, so that headwind is mitigated. I think you still probably have some headwinds in Resi, but you just need to walk me through some of the assumptions that are embedded in the loan growth and whether there's an element of conservatism built into that.
Rob Reilly (EVP and CFO)
Yeah. That's a good question, so we're calling for in our full-year forecast, 8% average loan growth, which does include FirstBank. PNC on a standalone, we're at approximately 4% loan growth, so you have that number there.
And all the categories you mentioned, that's what we see too. So we still see some momentum coming in here in terms of C&I. Ideally, real estate will inflect at some point here in the first half of 2026. 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, residential mortgage is part of our deliberate management. It's going down a bit.
Saul Martinez (Head of US Financials Research)
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 standalone basis. And then you would overlay about $100 million from FirstBank, and that $100 million would fall in those categories in some distribution. Is that correct?
Rob Reilly (EVP and CFO)
Yeah. That's exactly right. That's exactly right.
And FirstBank didn't have a whole lot of fees there. So that $100 million is getting added to a $9+ billion number, so.
Saul Martinez (Head of US Financials Research)
Yeah. Yeah. Fair point. Okay. Awesome. Thanks so much.
Operator (participant)
Thank you. Next question is coming from Chris McGratty from KBW. Your line is now live.
Chris McGratty (Managing Director)
All right. Good morning. Rob, on the dollar of contribution from FirstBank in 2027, I guess where could you be positively surprised? I know it's early.
Rob Reilly (EVP and CFO)
Oh, I would say the synergies on the revenue side. I do. I think there's a lot of excitement. There's a lot of enthusiasm. FirstBank has excellent relationships across those communities. And some of those relationships are likely, I would think, to utilize PNC products and services that FirstBank didn't have. So we don't have a whole ton of that built into it. But obviously, we find it appealing.
Chris McGratty (Managing Director)
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 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 a little bit of uncertainty?
Rob Reilly (EVP and CFO)
That's what we think we can achieve, as with all our guidance.
Chris McGratty (Managing Director)
Got it. Thank you.
Operator (participant)
Thank you. Next question is coming from Matt O'Connor from Deutsche Bank. Your line is now live.
Matt O'Connor (Managing Director)
All right. Good morning. I was hoping you could update us on your interest rate positioning. And I guess post the closing of FirstBank, I don't think that would have impacted that much, but just kind of give us a full picture of how you're positioned from here for changes in absolute rates.
Bill Demchak (Chairman and CEO)
Sure, Matt.
That came up a little bit earlier. Yeah. FirstBank doesn't change a whole lot. We're where we've been for some time, which is largely neutral. Our NII guide isn't reliant on rate cuts. If they happen or they don't happen, that's pretty much on the margin.
Matt O'Connor (Managing Director)
Okay. Then I guess there's 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. It's been a few years since we've had some volatility. I'm just wondering how you're thinking about protecting yourself from maybe unusual movements in rates and how that impacts your thinking in securities book.
Bill Demchak (Chairman and CEO)
So you should think about our book, at least in the near term, as we are kind of indifferent to the front end of the curve. So we're just balanced out on wherever Fed funds would set between gains and losses and 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, just as an ongoing program, and we did this in 2025, and we've done a lot of it 2026, we lock those forward maturities at opportunistic times with forward-starting swaps, right? So when we kind of say, "Look, we're pretty good," independent of what the Fed does, that's because we've taken advantage and locked a lot of that forward.
Rob Reilly (EVP and CFO)
And Matt, we started that at the beginning of last year. So that's unchanged.
Matt O'Connor (Managing Director)
Okay. All right. Thank you.
Operator (participant)
Thank you. Next question is coming from Ebrahim Poonawala from Bank of America. Your line is now live.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research (US and Canadian Banks))
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, should PNC 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 2026 and over the medium term?
Bill Demchak (Chairman and CEO)
Good question. So a couple of things we're focused on, a couple of things we're not focused on.
Focused on is the size of the wallet of private capital entities, which we do a tremendous amount of business with today, either through lending and asset-based lending or the business with Harris Williams or Solebury or Capcom Lines or on and on and on. Getting better organized and covering them as a client versus having product-centric coverage, I think, opens up big opportunity going forward. Inside the capital market space, in particular, investments in places we have grown through the years are in, we've had derivatives and loan syndications and FX forever, and that grows with our client base. We have built from scratch a fairly good and growing fixed-income business, largely high-grade, moving at the margin to higher yield. We have invested and don't intend to invest into the equities business.
I think that is a business that is going to be completely driven by giant-scale players and automation and not a place where there's going to be big margins for somebody like us, and so I think we'll continue to grow that business and invest in people, but I don't think we need to buy anything to do it. I think it's investing in research at the margin, salespeople at the margin, and making sure that our bankers, when they're covering our clients, are aware of our capabilities on the syndication side, but no, with no giant shifts to do anything there other than continue the trajectory we've been on. I should know this number, and I don't. What's the total annual number that we make out of our collective capital? What do we make in 2025 in our total capital?
Rob Reilly (EVP and CFO)
In total capital, a couple billion.
Bill Demchak (Chairman and CEO)
Yeah.
I mean, it's a big business for us. People tend to say, "Oh, that's Harris Williams." But Harris Williams is a piece of it. We do an awful lot of capital markets business for their clients.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research (US and Canadian Banks))
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 D.C. You've dabbled a little bit in terms of partnerships with Coinbase. Just give us your sense around how you're following this legislation, whether or not you think there is a risk to industry deposits, and how shareholders of banks should think about it.
Bill Demchak (Chairman and CEO)
That's a good question.
The fight right now in D.C. is over some terminology in the GENIUS Act that they're trying to fix with the CLARITY Act with respect to whether rewards count as interest paid on stablecoins, which was forbidden in the GENIUS Act. As a practical matter, stablecoin was created and is marketed and touted as a payment mechanism that makes payments more efficient. That remains to be seen, but it isn't marketed, nor is it regulated as an investment vehicle. I think if they actually want to pay interest on it, then they ought to go through the same process. 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.
If you want to be a payment mechanism, be a payment mechanism," but money market funds shouldn't be payment mechanisms, and you shouldn't pay interest, and the crypto industry has a lot of lobbying power to say, "No, we want it all." We'll see how this plays out.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research (US and Canadian Banks))
Helpful. Thank you. Thank you.
Operator (participant)
We reached the end of our question-and-answer session. I'll turn the floor back over to Bryan for any further closing comments.
Bryan Gill (Director of Investor Relations)
Well, thank you all for joining our call today and your interest in PNC. And please feel free to reach out to the IR team if you have any follow-up questions. Thanks.
Bill Demchak (Chairman and CEO)
Thanks, everybody.
Rob Reilly (EVP and CFO)
Thank you.
Operator (participant)
Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.