fireside chat. Thank you, everybody. We have PNC Financial Services Group. I was saying to Bill a moment ago that selfishly, I was very happy to see this big news announcement during BAB.
Yeah.
Thank you for helping us out.
We saved it just for you.
Thank you.
We aim to please.
Yes. Everybody knows Bill and Rob, obviously. Bill is the Chairman and CEO of PNC, and he joined PNC back in 2002, if I recall, as the Chief Financial Officer. Rob Reilly has been there his whole entire career, I think.
Yeah.
Back in 1987?
Correct.
When you were a youngster.
Yeah.
And-
We all were. We all were, Gerard.
That is true. Now, we are not. But really, it is great to have both of you here.
Great to be here.
Again, they also had the news about building out, expanding your branch expansion as well.
Yeah.
Congratulations on that news as well. Bill, let's start with the announcement, since it's such a big one.
Yeah.
It came out last night. Rob was promoted to Executive Vice Chairman. That takes effect in March. Alex Overstrom, who's here, is going to be the new CFO.
Yep.
Maybe share a little bit about these moves and why you feel this was the right time to make them.
Yeah. We just have so much going on in the company right now. The growth opportunities, you think about what's going on in AI, just the potential changes to the industry by the changes we see in economy, political landscape, technology, consolidation in banking, all these different things. Rob and I and Mark kind of get together and say, "Look, we ought to put big people at big problems. We ought to rotate some talent, get new people in new seats, and go after this opportunity." Because I've never seen a landscape like this where I think we have as big an opportunity as we do to break out here. Rob's been solving problems with me for, what's our-
Long time.
14, 15, whatever the period of time is. It's getting him to be able to do that directly beyond the day job is kind of important. Alex, who's just done, he's in the crowd here, just done a phenomenal job for our retail bank, broadening skill sets. One of the things, little inside information, we had our board meeting this week. Board was talking to Alex, and Alex was talking about the success we have had in retail. Part of that was a function of moving talent around and hiring in new talent and finding people who knew what great was, which is an important statement, right?
As you go into these things, just getting the very best people in the most important seats to cause the biggest change in an opportunity set that we've never seen before, and that's kind of what we're up to.
Very good.
53 quarters as CFO, but I wasn't counting. But we go back even before that.
He's going to tell you about his, how many, three quarters where you've missed your guidance?
We've beat more than we met, pretty consistently, as this crowd knows.
There you go. Alex has got big shoes to fill.
Yeah.
That's for sure. Maybe since you still are the CFO-
Yeah, sure. Of course.
Earnings obviously came out about three weeks ago, and you guys provided guidance for the fourth quarter. How are things trending so far this quarter, Rob?
Yeah, Gerard, right on track. As you know, we issued our 10-Q earlier this week and affirmed the guidance. So, no change in guidance. We're having a great year, as you know, through the third quarter, and we expect a good fourth quarter, and we're tracking to that.
Got it. On the call, you mentioned some of the consensus numbers for NII for 2027.
Right.
You guys coming in around $1 billion-$1.1 billion above the 2026 level, that is.
Yeah, right.
Is that the right range? I am not sure we should interpret it as guidance for 2027.
Yeah. I mean, it's way too early. I remember in my first BAB presentation years ago, I said, "I'm not going to be providing next year's guidance." Here I am talking about next year. That's how things change. No, the issue was around the peer group, obviously, when talking about 2027 and this continuation of what we've seen, which is this fixed-rate asset repricing that we've seen in 2026 that we expect to continue into 2027 with a high degree of certainty.
Right.
Because of that magnitude, we were able to talk about 2027 NII loosely on a GAAP basis.
Yeah.
Bryan wanted me to make sure I got that across, that $1 billion-$1.1 billion above where we finish NII in 2026 is about the way we're thinking about it now, too. That's not official guidance. We'll have that for you in January, as we always do on the earnings call, and we'll take it from there.
Yep. Not to ask, obviously, for specific numbers, but when you look beyond 2027, just what are the drivers for PNC's earnings? You mentioned the fixed asset repricing.
Sure. Yeah.
Does that play out just next year and then it kind of expires in 2028?
No, it goes well into 2028.
Okay.
But it eventually will tail off. But as you know, we've had a lot of loan growth, and we'd expect that to continue. That's on the NII part, and Bill, you can chime in on our businesses. The fee businesses are all on track, doing well. Obviously, that relies on a good economy that we see holding up, and the expansion markets that we've talked about for years here at BAB. Now we're multiple years into the compounding effect of that.
Yeah.
The growth rate is really
The client flows, you heard me say it on the call, surprised us so far this year. Just new client business.
Right.
The other thing about the out years, we give you some idea where NII is going to go, and you will remember when we put the swoosh up because everybody thought banks were dead forever, and we could mechanically see through repricing that we were going to have NII growth, kind of independent of what was going to go on with loans. That is going to happen for the next couple of years. Part of the reason we have some degree of certainty on that is the securities book we hold, while we had lots of notional, we had short duration, so it reprices very quickly. We can visibly see this is going to mature on this date, and assuming some forward curve, you are going to reprice and get that income.
It is not rocket science for us to be able to tell you $1 billion-$1.1 billion next year, and similar large size as we go out.
Right.
Eventually, that burns off. But because our book was kind of large notional, shorter, not a lot of mortgage-backed and fixed-rate loans on our balance sheet, we are just repricing quicker than what you might see from some other
We got to it faster.
Yeah.
That has been the case for a while.
Yeah.
Maybe shifting over to deposits, what are you guys seeing in competition across your footprint?
Yeah.
Is it becoming more aggressive? Is the competition being more aggressive?
For sure.
Yeah. It's interesting. You're seeing a little bit of a bifurcation. Smaller banks and the online banks are pushing funding to fed funds flat, right? They're in the brokered CD market a lot. They're putting offers out that are basically at market rates for marginal funding. It's kind of funny, you hear all this stuff, "Oh, deposit pricing's going to get really efficient." Well, they've pushed it right to the edge at the start. We have promo CDs that have been working for us that are kind of along the funds curve out to a year kind of thing. But no, there's pressure. Loan growth has been greater than people thought. You see consumers at the lower end of the income statement spending down their balances for the first time.
Yeah.
I'm sure you saw today, we announced the extension of our branch build. We're pretty excited about getting in front of more people and continuing our ability to grow deposits at the same rate we grow loans. But it's getting tougher.
Yeah.
Yeah, I would just add to that. I think it is tougher, but not beyond our expectations for the environment that we are in.
Right.
More pressure on the time deposit side, for sure. The other dynamic Bill mentioned is on the consumer spend down, those recycle as commercial deposits. We do see increases in commercial interest-bearing deposits. Pretty much as you would expect.
Yeah. When you think about the cumulative deposit betas, and you think back to 2022 and 2023 when rates went from zero to over five.
Right.
And you guys had your cumulative deposit beta, if I recall, in the mid-40s.
Yeah, a little higher.
A little higher, high 40s. What do you think about this time? We are starting at a higher level of rates. What do you think you guys might run into?
Yeah, well, the betas in the short term will bounce around a little bit as the world sort of settles into the rate environment. But we would expect it to settle in at our historical levels of low 50s, mid 50s.
Okay.
You got to go back, though. Whether it is high 40s, mid 50, what happened coming out of COVID was the shift from non-interest bearing to interest bearing, much more. So that was the pain in NII. It was not, for us in the industry, it was not that interest-bearing rates were necessarily changing differently than they had in the past.
Oh, okay. Got it.
Yeah. Just massive flows from these low rate, zero rate, because money market funds were paying a basis point. Once they paid something-
Right
All that lazy money moved.
Oh, absolutely.
That was more than an anomaly. We would expect this time to be more consistent with others.
Right.
Yeah.
Bill, you have come out recently with some thoughts and insights on agentic AI shifting deposits around. Can you share with us those insights and your views on where that might be going?
I think, look, it is easy to see that through time, the ability to move accounts and move money is going to get faster. You cannot argue that point. We have been that way for a long time, right? You can move money in and out of money funds. There is $7 trillion in money funds. You can move money once you connect through a direct bank account, back and forth all you want. It will get easier and competition will get higher, and we have seen that through flows through money funds. I think what people forget, though, is that the mindset of people, and we see it in our balance profile, right? The money you keep in your checking account or in your, think about it as your spending profile versus your investing account, that spending profile money is not really going to change, I do not think.
Right.
I think the investment accounts are going to get more efficient through time, right? To compete in that world, you have got to be a low-cost, high consumer touch and service provider. Because at the margin, over a longer period of time, it will get more efficient. That is natural. It has done that. We have been doing that for 20 years.
Yep. Going to the-
But Bill, on the earnings call, Bill was asked about a bot moving it all around. What did you say? "You got to be out of your mind.
Well, no, that's a-
I'm in your camp, by the way.
Yeah.
No, no, that's a whole different issue, right? The notion of agentic execution versus agentic suggestion, I think, is a very different thing.
Oh, yes.
What I've been on record saying is we won't let an agent come in and click buttons, in effect, move money on your behalf without you in the loop, authentication on us, agreeing to the transaction.
Or table stakes.
Yeah.
Oh, yeah. No, very much so. Shifting to the other side of the balance sheet, you guys touched upon the loan growth.
Yeah
You've been impressed with it this year. I think you've been also saying that a good portion is coming from higher quality-
Right
credits.
Yeah, that's right.
Which means lower spreads.
Right.
But it also, you have attractive economics. Can you provide more color on why the higher quality is coming in this time around, maybe?
Yeah. Well,
Not that it was bad quality.
No, not that it was bad quality. Yeah, we saw that, and it continues, that the active borrowers in 2026 were the large corporates-
Yeah
and the higher credit quality. In our case, we're a leader in asset-backed financings.
Yes.
We're really talking about the best loans.
Which is also large corporate clients.
They're the best loans in the commercial book.
Right.
Very, very low expected loss.
Yeah.
I think we got into it a little bit because of the constraint that loans like that in isolation put on NIM, was something that we've talked about. I think we've clarified that in addition to those loans, when we do those loans, more often than not, there's a fee component to it.
Right.
In our capital markets business, which is up 40% in the year, or treasury management, that in total, those transactions, those loans clear our return hurdles.
Okay.
Not simply on the NII. You could actually have a very high-returning transaction. One of the reasons our ROTCE has gone up, with NIM being constrained.
Got it. Yes. Has there been much loan growth around the AI data center build-out for you folks, or maybe that second or third derivative around it?
No, I think direct exposure to data center build, I think it's $1.4 billion, and it's only-
Small, yeah.
and it's only to the established hyperscalers, and it's with real solid contracts. When you look at the blast radius of if this thing really went wrong, you could find $4 billion-$5 billion of exposure, but that's all the way down to local construction firms, and as far as you can think that it might impact before it would slow down the whole economy.
Right.
Which I don't think is going to happen.
Yeah.
Yeah.
This may be more of a subjective answer, but are you guys seeing any competition where your competitors are lowering underwriting standards, or you're seeing crazy pricing deals as we've seen in past cycles-
Yeah
... toward the end of the cycle? Has that materialized at all?
No. What I would say is spreads have been under pressure for a period of time. This recent bounce, kind of driven a little bit by private credit, a little bit by data center action, has stabilized to increase things. I think some of the easy volume that came in towards the tail end of the data center financing, people will probably not like in the end, as contracts got a little weaker and there's project risk embedded.
They didn't know that at the time.
Yeah.
Yeah. Nothing deliberate that we've seen.
Got it. Coming back to fees, Rob, you touched on it with your loan growth comment.
Yeah.
It's a meaningful contributor, as you know, to revenue growth, as you said.
Right.
Particularly capital markets.
Yeah.
How durable is the performance, and where's the greatest opportunity to grow the fee revenues across the franchise?
Yeah, I think it looks pretty good. I mean, we're having a great year in terms of fee growth. If we just go through the categories as how we report them, our asset management group is up double digits. A lot of that is because of the equity markets, but it's not entirely due to that. These expansion markets are contributing to all the fee lines, asset management in particular, with new flows. Capital markets is having a great year across the board. Harris Williams, of course, is our M&A advisory shop that is the largest component, at about 40% or so, and they're up 40% year-over-year.
Yeah.
Beyond that, our advisory businesses are similarly up, and a lot of sort of the loan-related activity, that's what I was talking about in terms of loan syndications, underwriting fees, that's where that shows up. Card and cash management doing great. Treasury management is a wheelhouse product for us.
Oh, it is.
We are best in class. It is so important in our expansion markets and really is the bedrock of commercial relationships. Our credit card, we talked about that. That is part of what Bill was talking about in terms of bringing on great people who know what is great.
Yeah.
We have done that. We are tracking now to balances. So we feel good about that. Lending and deposit services is consistent. The only one that we are not doing a lot of growth in is mortgage, which is, as you know, is pretty small for us.
Yeah.
That has been pretty quiet. But all in, we are having a record fee year.
Yeah. But I think, to your question, if you looked at our fee lines and you said, "What are cyclical to capital markets activity or market levels?
Yeah.
Across that, we probably have half that are exposed, some are counter-cyclical. Treasury management's really sticky in some of the other ones. But, look, it's a great year in capital markets. We see it all in the G-SIBs, and were there to be a slowdown, we'd have some slowdown, not nearly to the level they would.
Yeah.
Yeah.
Just because of the different composition.
Yeah.
Right. You guys always have had good expense discipline, and I'm curious, how do you manage the investments, the branch expansions, the technology spending, with the discipline and keeping that positive operating leverage going forward?
Well, you served that up for me. You got to have a good CFO. Alex is well-schooled in that, so that's going to continue. No, in all seriousness, as you know, we've had a continuous improvement program that is part of our DNA in our company.
Yep.
Positive operating leverage is essential to our strategies. I think we probably have as good as, if not the best record of delivering it over the whatever period you want to talk about. That comes from a place in terms of within our DNA, understanding we need to fund with expense reductions.
Yeah, just recycle. The other thing, Rob and I were talking about this a couple of weeks ago. I can't think of a time since we've run together where we have shorted investments.
Never, yeah.
We've actually, where we said, "All right, well, let's slow this down because we need to print a number." I can't think of a single instance that we did that. I can remember early on, just go back in history, where we used to say, "We're not overspending, we're under-earning.
Yeah.
Everybody got mad at us, but we've been on an investment cycle for 15 years.
Yep.
This notion of harvest, first grow, right? You're investing, you're growing your top line, you look at the growth in the company over a period of time. Importantly, to Rob's point, harvest stuff that is not as important as growth categories you have. That's a strong muscle in our company.
Yep.
We will open it up to this floor after this question. On your fourth quarter expense guidance, Rob.
Yeah
Tell us or share with us how the growth in fees has been so strong and you have some probably incentive comp that has to go in.
Yeah.
Is that a good jumping off point into 2027, whatever the number turns out to be in the fourth quarter?
Well, like I said in my first bat, we are not giving 2027 guidance. Other than the NII, not guidance, on a GAAP basis.
Yes.
No, in all seriousness, yeah, so fees in the fourth quarter are tracking a little bit higher than what we would have expected at the beginning of the year, but it is being driven by the fee revenue.
Yes.
Capital markets, we expect to have a good quarter. In addition to that, and we mentioned this on the call, our private equity business, which is in other non-interest income-
Right
out of the fees-
Right
is having a very good quarter. So that's driving the expenses up higher than-
Yeah
but we will take that all day. The important point there is, we are pointing for the full year of 4+ points in positive operating leverage.
Right.
Which is great.
Oh, yeah. Very good. Maybe, Johnny, if you can bring the microphone over here to Mike.
Hey, Bill. [inaudible] .
Yeah, hey.
Why are you here? I feel like I'm at the Stone Pony and Bruce Springsteen just walked in or something.
Oh, there you go. Geez. Yeah. Does that make me the-
I just missed you, Mike.
I'll make it multiple choice. Answer number one is because you want to reinforce the management changes. Answer number two is the new branch initiative, reinforce that. Number three is the political change, certainly is going to be on your mind. Or number four, acquisitions and your appetite. Is it A, B, C, or D, or what are you thinking? It is great having Rob with you.
No, it's super simple, right? Rob and I have been together forever, and we've announced this thing, and I'm here to show you that we're still together and we got a lot to do. I take all the mystery out of whatever it is you conspiracy theories people might come up with. It's no more complicated than that.
Which is worth saying, yeah.
Yeah. I'm just off a week of strategic planning board sessions, so it was kind of good to get out of town and do something different.
Well, maybe on some of the specifics, as far as your acquisition appetite and the political landscape.
Yeah
Given the changes from this week.
Yeah, I honestly don't believe that the changes in political landscape have anything to do with our ability to acquire or not. I think we could have gotten a deal done, it would have been delayed longer in the prior administration. I think that there's a recognition that over time, challenger banks are a good thing to the G-SIBs. Having said all of that, where we sit today, and I think I said this on the earnings call, the opportunity in front of us to reset our operating framework using AI is so massive, and it's going to happen so quickly, that if you took your eye off the ball from that opportunity set to do a larger integration, you could wake up in two or three years and be done, because you'd have to freeze everything.
Small deals, so we did FirstBank with a smaller team, and we did it without slowing anything else down. So they're still kind of out there, but I would tell you, the prices are You can't pay anywhere near the prices where people trade today.
Doesn't work -
It just doesn't work. I mean, a lot of the smaller institutions are pretty stretched out on funding, heavy on CRE, need big investment, which we didn't need in FirstBank into branch networks to actually accomplish our objective of increasing our retail share. It's tough to see that happening in the near future, and then the opportunity cost of getting that wrong, given what we see in AI, makes it even harder.
I think we did talk about that on the earnings call. Stated in a different way, there was always the variables that you had around acquisitions in terms of returns and whether it works or whatever. That hasn't changed. But the new variable is what Bill is talking about-
Yeah
which is another consideration when you're looking at these things in terms of what the distraction costs might be.
Julie?
Credit quality has been very benign for a very long time. I am curious if short-term interest rates rise much faster or further than we expected, bond yields spike, where would you look for pain? I am particularly thinking about commercial real estate, where you are kind of underweight, leveraged loans, maybe some parts of NDFI. Beyond yourself, where do you think rivals might come unstuck in a tail scenario?
Well, look, in a tail scenario, consumer gets hit. Our delinquencies have actually been declining largely because we have been kind of morphing what we do inside the business, not necessarily because of overall credit quality inside of the consumer exposure. You have heard all the worries about private credit and in a higher rate environment and just the refinancing wall. That almost has to be true, the ability to refi at the same notional and higher rates than when they originated it. Inside our book, I do not see anything that I worry about particularly. We actually went through this exercise out of curiosity in the board meetings this week, where if you just did a straight one-notch downgrade on our entire credit book overnight, it is worth $600 million-$800 million in provision. Our S4 scenario was worth what, Rob?
$2 billion .
Yeah. If you took our worst-case economic-
Yeah, that was-
and just said, "All at once, what does it do?" It's $2 billion. We're in good shape no matter what happens to the economy here. By the way, notwithstanding all the headlines and the noise and the market volatility, the economy's really strong. You saw that in the numbers today.
Yeah.
There might be winners and losers, but I'm not terribly worried about the economy over the next couple of years. I'm not at all worried about our credit book over the next couple of years. I think there will be cracks. I think some of the excesses we all know about are going to start showing up, if for no other reason because the refinancing risk in a higher rate environment is going to be tougher.
Any comments on commercial real estate in particular? Not necessarily-
Yeah. Look, the notion that everybody was going to get bailed out because they could refi at a lower rate, I think is off the table. As you know, when all of this stuff hit, we hit reserves really hard.
On the commercial real estate office.
Yeah. Purposefully, because hoping for rates is a hope, not a plan. You'll see through time, and you have seen our charge-offs kind of go up and down as we move that through the criticized and the watch list and the charge-off, and we're reserved against all that.
We've worked that book down considerably.
Yeah.
Up front here. Scott?
Bill, you've been, I guess, among the more outspoken on this agentic AI thing.
Shocking.
Yeah. I'm curious, when we think about stablecoins, there's not a lot of demand for them, but the entire industry is preparing for the eventuality of maybe there being demand.
Yeah.
I would imagine, right now there's probably not a ton of demand for Muse or whatever to actually go into a system, but presumably the industry has to prepare for it. It's a little different with agentic AI in that there are these huge liability questions.
Yeah.
Then you've also got, presumably the industry's got to manage its liquidity much differently. So what's your best guess as to how this might evolve from sort of a demand standpoint and then how the industry prepares for it as well?
Yeah. So, I almost want to ask you to give the mic to Alex, because when Muse hit and even before it, I would tell you that retail banks across the country have kind of focused on nothing but that. How do you compete with a technology that exists, right, and will get better? I think our answer to that, and you're going to start seeing it in the-
You'll see it when we start rolling out features inside of our mobile and online banking using agentic coding and agentic control, is in the first instance, give our customers the ability to do very easily anything they want to do with their bank information, with their bank finances, with find this, find that, transact this, and replace the whole notion that you need to go somewhere else to make that easy.
So, build a decent defense against it, and we're far along the path to be able to do that. I think the eventuality of, are you going to hand control to an agent over transactional outcomes, either goods or services and money? I think we're just years away from that, because the liability framework is not set up for that. In its most basic form, you think of the card networks and other ways you transact. There's rules. Product is broken, product doesn't show up, who pays it? There's fraud, who pays it? Something broke, who do you call to get it fixed? Until that is set up in an agentic environment, it just doesn't work, because the first time there is a problem, if you read the Muse disclosures, it basically says, "We're not responsible for anything that this crazy thing does." So go ahead and use it.
Right.
But don't call us when it breaks. In the end, I think the fact that the technology exists is very different than having the market framework to allow it to succeed. So I think there's a bit of a delay to it, but in the meantime, we have to get on our horse and make sure that we're serving our clients and giving them technology that is as good as what we're seeing from potential disruptors.
Johnny, over here on your right.
Hi. Manan Gosalia, Morgan Stanley. As you think about more banks focusing their branch expansion strategies in similar markets in the Southeast and Texas, I guess, is the bar for how many branches you need to open in these regions, has that gone up in terms of the deposit rates you need to offer in these markets to gain share? Has the bar just basically moved higher now?
Can you pass the mic forward?
Yeah.
Yeah. Put Alex on the spot. Let's test him out.
It's a good question. Look, I would start by saying, it gets a lot of attention, but of the 8,500 banks and credit unions in the U.S., there's just a handful that are really actually opening up new branches ourselves and three or four others. I think we've been really clear, and frankly, so have our peers have been, around the level of investment needed, the degree of density you've got to get inside of each of those local markets. We're seeing, as we progress towards that 7% branch share, the benefit we're seeing in DDA production and deposit balance growth, not just inside of those branches, but also across the market in digital production as well, and the knock-on effect Bill mentioned, credit card, PNC Wealth Management, and the asset management business, both in our type of bank and inside of retail.
I think we feel really good about the density. We obviously look at it every day. We underwrite every single one of those branches individually. We track their performance every day at an individual branch level. But so far, it's exceeded our expectations and gave us the comfort and frankly encouragement to keep pressing forward. We're very excited around what we announced today in Georgia and South Carolina.
Remember the goal here, which, when you look at stats on market share growth across the market, you have literally just a handful of banks, mostly the big banks, that are consolidating retail in this country at the expense of everybody else. We're actually growing. Our growth rate is higher than our share rate, so we're participating in that. But what we're in here is a ground for the retail market share in the U.S. I don't really care how we get that share. We can build branches everywhere. We'll do digital. We'll do whatever we want. But when the music stops, you have to have critical share if you want to be a real retail player in the country.
If 10 years from now branches are completely irrelevant, which I don't think they will be, but if they were, and we end up with material share, happy to write them off. It was a great investment. We've got to do this today because the game is going to end. I think there's only four or five players that even realize a game is going on. And we've got to be a winner that comes out of the back end of that.
I'd add to that, where we're a little bit different than some of the others is we're going into markets that we entered years ago through our
Yeah
purchase of BBVA USA. We're not going in de novo. We're going in really with the second level of investment that is on top of the first level of investment that has exceeded our expectations. As Alex and Bill mentioned, it's about getting to a more critical mass on the branch market share to where you actually get exponential lift of growth once you achieve that. We're not going into new places and introducing ourselves. That's a different game.
Yeah. By the way, we tried that once. It didn't work.
Well, that's a harder thing for obvious reasons. I just think that's really important when you think about all that.
Maybe shifting over to capital for a minute, with the Basel III endgame-
Yeah
coming, hopefully it will be finalized by the end of the year. What are the implications for PNC's capital requirements in establishing maybe a more definitive CET1 ratio?
Yeah, I can answer that. As you know, under the current calculations, our target is 10%. We are a little bit below that just because the loan growth has exceeded our expectations, and we continue share repurchases, which is important. But we are in the right place. With the Basel III, when it first shows up, we will lift, and I have said this on the earnings call, approximately 1 point or so.
Yeah.
There is the negative, or I am sorry, the negative impact of AOCI phase-in, but that happens over five years. So, we expect our negative AOCI, to Bill's point, with the short duration, to diminish over the next five years. But even if you fully load it in, we are at our target levels.
Yeah.
We're in a good place from a capital perspective. We generate a lot of capital. The rules are working in our favor because they sort of reward what is our wheelhouse of these private loans using [inaudible] , the higher credit quality ratings and getting less capital against those. We're like the poster child for that.
Yeah.
We feel good.
Yeah. How about, with rates rising and obviously AOCI would increase?
Yeah
Is there any interest to increase the HTM portfolio? Then with the new FASB comments about maybe giving you guys the ability to hedge that?
Yeah
Does that give you some optionality?
You could always hedge it. There was degrees of difficulty and mismatch if you had prepayable assets in that book, so straight mortgages. That doesn't really change a whole lot. What I would tell you about our AFS book versus our held-to-maturity book, we have set a stress limit in terms of how much capital in a stress interest rate scenario we could draw down through AOCI, and we manage it to that, and it's not a material amount.
That's right. Yeah.
The mix on where we'll notional be will be driven by outcomes, knowing that we don't want to lose more than I don't want to guess the number, but it's less than 1 point of capital or something in a stress as a function of AOCI drawing down, which I think is a good way to run it.
Yep. We are not actively looking to change our mix.
Got it.
Yeah.
You mentioned on the call, your third quarter call, about repurchasing, continuing-
Yeah
to repurchase stock in the fourth quarter. How are you thinking about the repurchases? I know you do not want to talk about 2027, but any thoughts about 2027 on this?
Yeah. Let me go back to that. We're not providing 2027 guidance. We've done a lot of repurchasing, as you know-
Yeah
through 2026, and we'll continue that. That's part of this capital generation and our ability in terms of where we are. I don't have official guidance for 2027, but what I can tell you is, our business model is we generate a lot of capital.
Yeah.
Typically, in typical times, we generate more capital than we can deploy intelligently.
Right.
We'll have to take a look in terms of where loan growth, all the things you would look at, but I would expect right now that our share repurchase would continue. I can't give you an amount, but in a meaningful way.
Got it.
We like our share price.
Yeah. Got it. Maybe we're running out of time, so to summarize here at the end, there's a lot of big regional banks, and Bill referenced four or five, and you really know what's going on in terms of retail banking. How should investors be thinking about your positioning in this environment, and the reasons for coming in with their capital, and with the changes that you guys announced, and how that's going to benefit you guys going forward?
Yeah. I'm always amazed by the willingness to put the same multiple on every institution, independent of what you really believe their long-term viability is. The short-term nature of how people are looking at things. I think we're set up to be a winner. We have a growth path in front of us that is all about execution, which is partly related to why we did some of these moves.
Yeah.
Never had the energy, literally since I've been in the building, that we have in the energy today around the opportunity set. Why is that? It's all the new markets we've entered. It's the branch builds. It's the power. We've laid this technology foundation for the better part of 15 years-
Sure
in terms of our data centers, our data construction. We've spent more in data construction, getting one source of truth all in the same place, readable quickly, than we spent on AI. Our data centers themselves with GPU chips. We're set up to take advantage of this. We've got this massive new client onboarding through all these new markets. We've got capital. We've got a clean loan book. We've got a great management team. Yet all, we sit there and we match up against somebody else who-
Doesn't have those things.
It doesn't have those things. I literally look, if somebody put me in the seat of that other company, what would I do? I'd probably sell it. Which maybe is why it has the same multiple, yeah. But that's a hell of a way to invest, guessing who's going to get sold next.
Coming back, just, I know we're out of time, but a real quick one. On the 15-year, and you're right about your investing in data centers.
Yeah.
The money that was spent 15 years ago, is that already obsolete? I mean, obviously, you guys-
Yes, because we've, and you'll see it in our tech numbers, the depreciation numbers that are right now coming online from our complete refresh, or further investment. That's all in our forecast, and that's nothing new. But yeah, we've redone it.
Yeah.
But importantly, through that whole process, we didn't jump into the cloud.
Right.
We didn't jump into the cloud, because you can't It's hard to get out. If you're storing data up in the cloud and now you're in an agentic AI environment, the ability to move the data back out of the cloud to use on AI is crazy expensive. It's just this mindset that we're going to own our own, we're going to build our own, we're going to control our own data, we're going to know what it is, we're not going to shortcut. We're going to make the investments in compute, in switches, in resiliency in data center, synchronous transmission between our east-west pairs. Then you get to an opportunity like we see right now with agentic AI, and you're ready for it. You don't have to hire somebody else to come in and build your agents. You don't have to make stuff up.
It's like right in front of us, and we're executing on it.
Yeah, I think-
Yeah
That's an important point. The equipment itself, in terms of what needed to be refreshed-
But we do that every three years.
changed. We do that.
Yeah.
But to Bill's point, the dynamic, the energy, the investment in our technology capabilities has been something that's been in place for the better part of the last 10 years.
Good.
Yeah.
Yeah.
Please join me in a round of applause. Thank you, Bill and Rob.