Prepared remarks
Greetings and welcome to the PNC Financial Services Group Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryan K. Gill. Thank you, Bryan. You may now begin.
Well, good morning, and welcome to today's conference call for The PNC Financial Services Group. I am Bryan K. Gill, the director of investor relations for PNC. Participating on this call are PNC's chairman and CEO, Bill Demchak, and Robert Q. 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 07/15/2026. PNC undertakes no obligation to update them. Now I would like to turn the call over to Bill.
Thank you, Bryan, and good morning, everyone. As you saw, PNC delivered an impressive second quarter. We generated $2.1 billion of net income, or $4.81 per diluted share. Our results included First Bank integration costs and other significant items. Collectively, these items reduced earnings per share by $0.04, resulting in an adjusted diluted EPS of $4.85. Now Rob is going to take you through all those details on our financial results in a couple of minutes, but let me just hit a few highlights. Business momentum remains really strong. We continue to win new clients and deepen existing relationships. DDA growth continues at a healthy pace, while client acquisition across our corporate and private banking businesses continues to grow meaningfully. Net interest income grew on the back of continued commercial loan growth as well as favorable deposit mix and pricing. And fee income performance was a particular highlight, increasing 10% linked quarter and 20% year over year.
Growth has been broad based across every fee category, underscoring the value of our diversified business model. We also generated positive operating leverage and improved our efficiency ratio. Credit performance remained strong, reflecting the strength of our economy as well as the quality of our portfolio. The consistency of our financial strength was evident in the Fed's latest stress test results. For the fourth year in a row, PNC's start-to-trough capital depletion was the lowest in our peer group, further demonstrating our best-in-class resiliency. With this in mind, our board approved an increase to our quarterly common stock dividend of $0.30, or 18%, to $2 per share. Beyond these financial results, we continue to make meaningful progress on the things that will drive our future success: successfully completed the conversion of FirstBank, opened new branches in high-growth markets, introduced a new mobile banking platform, all the while continuing to advance client and infrastructure technology.
None of these efforts are about the next quarter. They are about making PNC a better bank for our customers and positioning the company for sustained growth over the long term. In summary, we had a great quarter, and importantly, we are well positioned to drive further growth across our company. Before I turn it over to Robert, as always, I just want to thank our employees for everything they do for our company and our customers. And with that, Robert will take you through the quarter. Robert?
Thanks, Bill. And good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis. For the linked quarter, loans of $363 billion grew $12 billion, or 4%. Securities balances increased 2% to $147 billion during the quarter, and the portfolio yield improved 9 basis points to 3.45%. Average deposit balances of $457 billion were stable, consistent with seasonal patterns. And borrowings were $79 billion, an increase of $16 billion reflecting higher FHLB advances. Our tangible book value was $111 per common share, up 2% linked quarter, up 7% compared with the same period a year ago. And our return on tangible common equity was 17.9% in the second quarter. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.3 billion of capital to shareholders, which included $690 million of common dividends and $610 million of share repurchases.
Going forward, we expect third quarter repurchases to approximate the same level. As Bill just mentioned, our Board recently approved a $0.30 increase to our quarterly cash dividend on common stock, raising the dividend 18% to $2 per share. And we remain well capitalized with an estimated CET1 ratio of 9.9%. Slide 5 shows our loans in more detail. Loan balances averaged $363 billion in the second quarter, an increase of $12 billion, or 4% linked quarter. The total average loan yield decreased 3 basis points linked quarter to 5.47%. Virtually all of the loan growth was in C&I, reflecting strong new production and higher utilization across almost every loan category. CRE balances increased $690 million during the quarter, driven primarily by growth in retail and industrial exposures. Consumer loans declined by $730 million as growth in credit card balances partially offset expected declines in residential real estate and auto loans.
Slide 6 covers our deposit balances in more detail. Average deposits were stable with the prior quarter, as higher consumer balances were offset by a seasonal decline in commercial deposits. Our total rate paid on interest-bearing deposits decreased 5 basis points to 1.91% in the second quarter, reflecting lower rates paid across all deposit categories. Notably, average noninterest-bearing balances grew 4% linked quarter and represented 23% of total deposits. Turning to the income statement, as Bill mentioned, I want to provide a bit more detail regarding the integration costs and significant items in the quarter. When combined, these items had a minimal impact on our net income and earnings per share. First, we incurred $127 million of integration costs related to the FirstBank acquisition. Beyond these integration costs, we had several significant items. We participated in the Visa Exchange Program and monetized half of our Visa Class B2 shares, resulting in a $448 million pre-tax gain.
We also recorded a negative $85 million Visa derivative fair value adjustment associated with our remaining Visa Class B shares, primarily related to the extension of anticipated litigation resolution. In addition, we repositioned a portion of our securities portfolio through the sale of approximately $4 billion of available-for-sale securities, resulting in a $139 million loss. We reinvested the proceeds into securities with yields approximately 120 basis points higher than the securities sold. Finally, we contributed $140 million to the PNC Foundation, which supports our communities and early childhood education initiatives. So all in, the FirstBank integration costs and significant items, when combined, resulted in a nominal reduction to our second quarter EPS of $0.04. Turning to Slide 8, we highlight our income statement trends. Comparing the second quarter to the first quarter of 2026, total revenue was $6.9 billion and grew $710 million, or 12%, and included both integration costs and significant items totaling $218 million.
Noninterest expense of $4.1 billion increased $330 million, or 9%, and included $140 million PNC Foundation contribution as well as $121 million of integration expense. We generated 3% positive operating leverage and PPNR grew 16%. Provision was $191 million. Our effective tax rate was 21%. As a result, our second quarter net income was $2.1 billion, or $4.81 per common share, and $4.85 as adjusted. Comparing the second quarter of 2026 to the same time last year, net income grew by $412 million, resulting in EPS growth of 25%. Turning to Slide 9, we detail our revenue trends. The quarter included integration costs and significant items within other noninterest income. Our revenue growth was driven primarily by the underlying strength of our franchise. We generated 4% growth in net interest income and 10% growth in fee revenue. Net interest income of $4.1 billion increased $146 million and included the benefit of commercial loan growth and higher noninterest-bearing deposit balances.
Our net interest margin was 2.96%, an increase of 1 basis point. Fee income was $2.3 billion and increased $200 million, or 10%. Looking at the details, Asset Management and Brokerage increased $20 million, or 5%, driven by increased client activity and higher average equity markets. Capital Markets and Advisory revenue increased $114 million, or 25%, reflecting record M&A advisory fees and strong activity across our other capital markets businesses. Card and Cash Management increased $34 million, or 5%, driven by seasonally higher consumer transaction levels and growth in treasury management product revenue. Lending and deposit services increased by $6 million, or 2%, primarily due to increased customer activity. Mortgage revenue increased $26 million, or 22%, largely attributable to negative residential mortgage servicing rights valuations recognized in the first quarter. And other noninterest income of $489 million increased $364 million, which included the $218 million of integration costs and significant items, as well as positive private equity valuation adjustments.
Compared with the second quarter of 2025, and excluding integration costs and significant items, total noninterest income increased $444 million, or 21%. Importantly, this performance was driven by strong organic growth, with broad-based increases across our businesses. Turning to Slide 10, second quarter expenses increased $330 million, or 9% linked quarter. Expenses in the second quarter included integration expense and significant items totaling $261 million, while the first quarter of 2026 included $97 million of integration expense. Excluding the impact of integration costs and significant items, noninterest expense increased $166 million, or 5% linked quarter. The growth reflected increased business activity, higher marketing spend, as well as continued investments. We remain focused on expense management and we are 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 FirstBank acquisition.
This program will continue to fund a significant portion of our ongoing business and technology investments. Credit metrics are presented on Slide 11. Overall credit quality remains strong with improvements in NPLs, delinquencies and net loan charge-offs. Nonperforming loans of $2 billion decreased $216 million, or 10%, and represented 0.55% of total loans, down from 0.62% last quarter. Delinquencies declined $122 million to $1.4 billion and now represent 0.39% of total loans. Net loan charge-offs were $226 million and our NCO ratio was 25 basis points. At the end of the second quarter, our allowance for credit losses totaled $5.5 billion, or 1.48% of total loans. To summarize, PNC reported a strong second quarter of 2026, and we are well positioned for the second half of the year. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 2.1% in 2026, the unemployment rate holding steady and ending the year at approximately 4.3%.
We expect the Federal Reserve to keep rates stable throughout 2026. For ease of comparability with our prior guidance, our full-year outlook excludes the impact of FirstBank integration charges and significant items. Considering our reported first-half operating results, third-quarter expectations and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows: We expect full-year average loan growth of approximately 12.5%. We expect full-year net interest income to be up 15% to 15.5%. We expect noninterest income to be up approximately 9%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 13%. Noninterest expense to be up approximately 8.5% and we expect our effective tax rate to be approximately 19.5%. Our outlook for the third quarter of 2026 compared to the second quarter of 2026 is as follows. We expect average loans to be up 1% to 2%.
Net interest income to be up between 3% to 3.5%. Fee income to be down 5% to 5.5%. Other noninterest income to be in the range of $150 million to $200 million. We expect adjusted noninterest expense to decline 2% to 3%. In the third quarter, we anticipate approximately $50 million of integration expenses. And we expect third quarter net charge-offs to be approximately $225 million. And with that, Bill and I are ready to take your questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. Our first question today is coming from John McDonald of Truist Securities. Please go ahead.
Thanks. Good morning. Robert, wanted to ask, you had some very strong loan growth through the quarter. Could you speak a little bit to the cadence of the loan and deposit growth as the quarter progressed? There seems a little bit different dynamic between the period end and average. And maybe just broadly do you plan on funding the strong loan growth throughout the year?
Yes, sure. So good morning, John. Loan growth in the first half and in the second quarter continued to be pretty strong, which is a good thing. When we take a look at the second half, we still see loan growth but not at the same rates. We are pointing to effectively sort of GDP growth in our guidance going through the balance of the year. So overall loan growth, but not to the same extent.
And in terms of funding, as we look forward, we do expect deposits to grow through the second half of the year. So that will be a key component to the funding as it replaces some wholesale debt that we picked up in the second quarter. Okay. Got it. And was that just about some of the funding that you picked up on the FHLB side this quarter, was that just some temporary dynamics and you expect that you also had good NIM growth this quarter. Maybe just comment on that and the outlook there.
Yes. So noninterest-bearing deposits were higher than we expected. Virtually all of that was on the commercial side related to our treasury management business and some escrow monies that come through. So that is a good thing.
Yeah. I would expect that to continue, not at the same rate. So we are at 23% of our total deposits and we have that pretty steady through the balance of the year. I think the funding, John, you should just assume we sort of optimize against every lever, whether it is wholesale funding or what we are doing on deposits. You know, the drops this quarter in corporate deposits are pretty easy to turn back on. There is a bit of a seasonal effect, but there is also a rate effect. You saw we grew deposits in retail, which is the most important thing. In the FHLB advances, you know, this quarter were, think of it as the cheapest alternative to fund loans relative to other things, and that changes all the time. I would not read too much into that. It is just flexing to the optimal cost.
Yeah. Got it.
Got it. Okay. Great. Thanks, guys.
Sure.
Thank you. Our next question is coming from John Pancari of Evercore ISI. Please go ahead.
Good morning. On the loan growth side, appreciate the trends that you have seen — some pretty good strengthening. Can you maybe just talk about the areas of strengthening? What do you see in terms of demand and pipelines and utilization? And then separately on the loan spread front, any shift in spreads that is observable here amid the competitive backdrop? Thanks.
You want me?
So inside that, I would say the loan growth has been strong. Again, expect loan growth to continue not at the same rate, and that is just a function of maybe some pull forward in terms of borrowings or some pent-up borrowing demand. And then we will see. As far as the mix, we do not see a lot of spread compression from a competitive standpoint, but we do have some spread compression in continuation of what we saw in the first quarter, which is most of the lending that we are doing is to high-credit-quality, lower-spread entities.
Those who are borrowing now — it is good business. It is sufficient return, particularly given that those loans often come with treasury management and or capital markets. So there is a little bit of dilution to the portfolio spreads, but that is more mix than competitive pressures. The other thing, we continue to have the new markets outpace the legacy markets just in terms of growth as we grow share there. And for the first time — I am sure this is not true, but for the first time I can remember we had strong growth across kind of every category inside of the C&I franchise. And utilization increases. So it is broad based. We are gaining share on the back of what feels like a pretty strong economy.
And then I know you do not really guide more specifically around the margin, but just trying to get an idea, given some of the pricing dynamics that you are seeing in the backdrop and the environment, just wanted to get an idea of how you are thinking about how this margin could project through the back half of the year that is kind of baked into your guidance here? I know you saw a modest expansion in the quarter by about a bit. Just how are you thinking about how that could play out as you look through the back half?
Yes. So let me address that, John, because there is a lot of focus on NIM. We had said that we expect to go above 3% by the end of the year and we still are standing next to that. So that is that. The second piece is if you jump down the NIM components and it sort of gets to your earlier question, the components of our second quarter NIM — what helped our second quarter NIM, which went up a net 1 basis point, was obviously the decline in the rate paid on the interest-bearing deposits as well as the increased noninterest-bearing deposits. So that helped NIM. What constrained NIM was the point that I was making earlier: these commercial loans that are coming in at a pretty good rate and the majority of those being the higher-credit-quality, lower-spread. That constrains NIM. So when you think about it and you look at it, those loans carry the fees along with them. So from an EPS perspective, those loans are hugely accretive. On a standalone basis, they are dilutive to NIM. So, you know, if we did not have those loans, just for illustration purposes, if we did not have that loan growth in the second quarter, our NIM would have easily popped above 3%.
So, you know, we are given a choice between lower NIM, higher EPS or higher NIM and lower EPS. We will take EPS every time. But having said that, we are still on the record for 3% in the back half of the year.
And much of that is driven through the continued repricing of fixed-rate assets. The longer-term issue is the steepness of the yield curve. We still have a lot of fixed-rate assets to reprice, so that will determine that. But I just mentioned that for illustration purposes because I think a lot of the focus on NIM is on the funding side. There is also the loan dynamic.
Got it. Thanks for that detail. I appreciate it.
Thank you. Our next question is coming from Ebrahim Poonawala of Bank of America. Please go ahead.
Hey, good morning. Maybe, Bill, Robert, sticking with loan growth. So you mentioned the high-credit-quality, low-spread lending, which is good to hear from a credit quality standpoint. Is this different from history in terms of this kind of loan growth, or is this kind of what you would expect in a good C&I environment where market spreads are tight? Like, is there something different about the quality or the type of borrower or the type of borrowing that is happening? Then I have a follow-up to that, but maybe if you could start there. Thanks.
I would not say anything is way different, but I would say that the preponderance of the loan growth is in those higher-credit-quality, lower-spread loans, which is probably mix-wise a little bit higher than average run rate. But it is not off the charts.
Got it. And I guess as a follow-up to that, you had all the big banks report that there is significant energy around the economy around AI CapEx spend. We are seeing that in the financing markets. When you bring it back to you — you are the second bank today that talked about broad-based C&I growth. I am just wondering, are you picking up some of that business tied to data center lending, etc.? And second, when you think about the broad-based growth, are there other engines of the economy at work here, be it reshoring, manufacturing, etc.? Or are you able to sort of connect dots between second derivatives of AI CapEx driving that loan demand for PNC?
It is too broad based to lay it all on AI. At the margin, it is impacting what we are doing, but it is coming from kind of all sectors. You know, I have heard different explanations as to why it is showing up: people are otherwise used to the chaos in the environment, and they figured out that they need to operate through it and grow. The M&A environment is more robust. The economy is strong and people are spending money. But while I appreciate the impact AI is having on GDP, that cannot be the only driver of the loan growth that we are seeing given the industry and geographic dispersion.
Got it. Thank you.
Thank you. Our next question is coming from Erika Najarian of UBS. Please go ahead.
Hi, good morning. Robert, if I could just start with you: to your point, there is a lot of focus on net interest margin trajectory because of the funding dynamic. The Street currently has an exit rate of 3.08% for fourth quarter 2026. As we think about where the loan growth is coming from, is that too fast of a ramp relative to the other opportunities in terms of fixed-asset repricing and obviously maybe optimizing some of the wholesale funding that you put on this quarter to core funding?
Yes. So again, we do not give NIM guidance nor do we manage to it. That said, I always give NIM guidance. We are above 3%, Erika. The precise level at the exit run rate — why do you care? At the end of the day, we will stick to our guide, and we will get there. But if we grow EPS and NII, you know, at 2% higher and have a lower NIM — or to Robert's earlier point, why do you focus on it? I personally do not care.
I think that the NII dollars are more important. We are on record saying that we have a lot of fixed-rate asset repricing that goes well into 2027 and beyond, so that is constructive for NII in 2027. As we get closer to the end of the year, we will sharpen that up for you. As far as the ROTCE goes, we are on record saying that we would hit an 18% annualized exit rate by fourth quarter 2026. We are sticking to that as well and we are tracking to that. We point out this quarter we are at 17.9%, so arguably we are in the vicinity.
Okay. Thank you.
Thank you. Our next question is coming from Mike Mayo of Wells Fargo. Please go ahead.
Hi. Just a little bit more color on loan growth. Certainly, it is growing faster than you had thought. Can you talk about line utilization and potential for loans to grow even faster and how much you are assuming line utilization will increase as part of your higher guide?
Hey Mike, so as we pointed out in the second quarter, utilization has increased for us and it has been pretty broad based. When we look into the second half, we have continued loan growth. We have an expectation that utilization would at least hold and maybe go up a little bit. But that is all part of our thinking in terms of moderating loan growth to roughly GDP.
Okay. And you ever — look, your stock has outperformed this year and caught a bid. But do you ever wonder about this party that has taken place elsewhere as it relates to AI and this CapEx AI super cycle and all the mega IPOs and mega financings and mega mergers that you are not part of? It is like, wow, we are not part of that, but we have our own area. What is the counterargument to that whole super cycle? Or is there enough to go around and a trickle-down effect? Bill, if you have thoughts on that because you have been on both sides of that kind of Wall Street mega cycle.
Many ways to answer that. The first is you just look at who we are and our growth rate: our EPS is up 25% year over year. We are growing single- to double-digits on every line item on revenue and growing customers in a space that does not focus heavily on capital markets, yet our capital markets revenue was up materially year on year. So if we are not in the middle of a deal that pays $100 million in fees, we are still actually growing the core franchise at a pace that is less cyclical than the boom you are seeing in the super cycle right now. We are an alternative to something more volatile, and we are dropping real dollars to the bottom line in a healthy economy and gaining share as we do it.
Okay. Appreciate the answer.
Thank you. Our next question is coming from Manav Ghisalya of Morgan Stanley. Please go ahead.
Hey, good morning. Robert, I wanted to check in on the trends on deposit costs. The 5 basis points improvement this quarter is pretty good given the environment. Have you noticed anything in terms of the trajectory as you went through the quarter? Just given the increased deposit competition, I am wondering if you are seeing any underlying trend in either the overall portfolio or in specific geographies on deposit costs?
We track that pretty closely. We declined in terms of rate paid in the first quarter. Our outlook is that we do have rate paid drifting back up to first-quarter levels; that is part of our guidance. Mostly in terms of back-book repricing and some of the things that we want to do with our deposits. So that is the track we are on.
So I guess in terms of the competitive environment, what do you think is driving that? Is that just the rate outlook and the fact that rate cuts have come out of the forward curve and maybe we have a rate hike or two coming up? Is that the only thing driving it? Is there just more competition overall? Can you talk a little more about that dynamic?
I think a couple of things. Let's separate what is going on in wealth and corporate and assume correctly that those are competitive yields and you can dial them up and down with rate. On the retail side, if you are effectively a commercial bank without a retail franchise, things are really tight — that is where you are seeing CD rates posted and brokered CDs at really high rates. If you are growing and own a good retail franchise, it is less severe. If you look at what we have done in retail, the growth in DDA households, the increase in balance, and the actual drop in rate quarter on quarter lead you to conclude that if you have a mix between retail and commercial lending, you are in a pretty good spot, and I think we are. I do not think everybody is. Retail share has been moving aggressively to the larger players, and it is making it more difficult to fund if you are smaller and do not focus.
That is right, and I think that is why even though we do expect some increase in our rate paid, it is not dramatic.
Great. Thank you.
Thank you. Our next question is coming from Matt O'Connor of Deutsche Bank. Please go ahead.
Good morning. I was hoping to circle back on the capital markets revenues and the fact that a lot of the revenues in the industry are being driven by some of these bigger headline deals and yet your revenues were so strong. Maybe you could remind us a little bit about what the mix is from a product point of view, size of customer, and any comments on how well it is integrated with the rest of the firm as a feeder system? Thank you.
Sure, Matt. Our capital markets overall was up, and each category was up. Harris Williams, which is about 40% of our capital markets business, had a record quarter. Beyond that, loan syndication, sales and trading are all up.
You have derivatives and FX in there and our share of investment-grade underwriting has gone way up.
It is a healthy market. We participate in it.
And in terms of the interconnectivity with the other businesses, when we see C&I loan growth, is that driving some of the hedging here? I mean, that would make sense, but sometimes it is different targeted customer bases.
It is all correlated and you are exactly right. Loan growth gives rise to derivative activities. Often, even in a middle-market instance where there is a loan and it might be syndicated, there might be some bonds associated with it, and inside of that there is related activity. So it is all correlated and on the back of the size of the financings going on in the U.S. economy.
Okay. Thank you.
Thank you. Our next question is coming from Gerard Cassidy of RBC Capital Markets. Please go ahead.
Hey, Bill. Hey, Robert. You guys have been good over the last two to three years in getting out in front of the commercial real estate story. Obviously, there was a lot of fear following the pandemic about office space and the issues around it. Your credit continues to improve in commercial real estate and now you are growing commercial real estate mortgages. Can you share some color on what you are seeing there? What are the opportunities to grow that portfolio further?
You are spot on. We have worked through the commercial real estate office portfolio; still some work to do there, but we did release some reserves as we worked through that book. As far as loan growth, it inflected in the first quarter for the first time after many quarters of declines, and we see that continuing. Pipelines are forming in commercial real estate in a very constructive way across all categories: multifamily, industrial and retail — pipelines are all up. So we would expect commercial real estate to be a bigger component of our loan growth going forward.
Very good. Is there any data center construction loans? I assume not many.
Nothing major, although tangentially there is some involvement in data centers. We have been involved in project construction loans within the real estate space for a long time, but not with big risk or big size in data centers.
Okay, good. And then as a follow-up, can you share with us — obviously, FirstBank is closed, it is integrated. What were some of the positive surprises you discovered in that process? And what were some of the issues that required extra effort that you may not have anticipated?
I do not know if there were surprises per se, but perhaps the biggest thing we proved to ourselves was that we could do an acquisition of that size without slowing down the rest of the company in terms of technology deployment or product rollout. You will notice in the middle of this whole thing we put out a new mobile banking platform, so normally you do a deal and you slow things down; we did not. The data factory we built initially with BBVA performed even better in this integration. We were the first bank, correct me if I am wrong, to do early access where people could log in and credential before the actual account switch. All of that was great. What we underestimated was a relative lack of digital awareness among some FirstBank customers compared with our existing client base. We had a lot of branch traffic to activate debit cards or to download the mobile app that we might have expected to happen outside the branch. That caused traffic and some confusion we underestimated and will improve going forward.
But all in all, mechanically it went really well. I am super proud of the teams on both the PNC side and the FirstBank side. From a financial perspective, everything that we expected — the price we paid, the return we would have, the accretion — it is all there and then some. So from a financial perspective, we are in a really good place.
Very good. Thank you, guys.
Thank you. The next question is coming from Ken Usdin of Autonomous Research. Please go ahead.
Hey, guys. Robert, I know you touched on the capital markets strength before and we see the fee guide that you gave that would assume that's probably coming off a little bit. Bill, you mentioned the super cycle, and I am wondering if you could walk us through your expectations for the fee areas you usually give, and how strong do you think this capital market flow-through could be? And did you see any pull-forward into this really strong second quarter result from a closings perspective? Thanks.
For the third quarter, in terms of the fee component breakdowns, we did pull some of capital markets forward into the second quarter, so the second quarter was elevated. When you look at the third quarter guide for the fee breakdown, capital markets is the area we think will be down about 20% quarter over quarter. The rest of the fee categories are sort of flattish to up depending on market conditions, but that is the big driver to get to the down 5% to 5.5% we talked about. For the full year, asset management is having a great year with equity markets up, so they are up high single digits. Capital markets for the full year will be up close to 25% to 30% year over year in our guidance. Card and cash management mid- to high-single digits, lending and deposit services mid-single digits, and mortgage probably flattish to down depending on hedge gains and how that works out.
The guide on capital markets is volatile. You come off a record quarter and everyone looks at the activity and says we cannot do that again, so we knocked down our estimates for the third quarter accordingly.
But we are in the right places and winning business, so it is a function of what is happening in the broader market. Thanks for that color.
Thank you. The next question is coming from David Schieterini of Jefferies. Please go ahead.
Hi, thanks for taking the questions. Can you give us an update on sensitivity to rates on NII? If we get a hike or two, what would that impact be?
Very small in 2026. We have said for a while we are sort of neutral to rates in the short run; 25 basis points up or down has very little impact to 2026. As you go forward, it becomes a function of how the rest of the curve reacts but within the range we contemplate there is still a healthy pickup next year because of continued repricing.
Got it. Thanks for that. And on capital, CET1 at 9.9% and you mentioned buybacks in the third quarter should be similar to the second quarter level. Is 9.9% kind of the new comfort range that you would point to?
Yes, I think so. We have said 10%. We were actually very close to reaching 10%, but we rounded down to 9.9%. Our operating target is around 10% and that is where we expect to be.
Thanks very much.
Thank you. The next question is coming from Saul Martinez of HSBC. Please go ahead.
Hi, good morning. Back on loan growth, do you feel like there is an element of conservatism being built into the second-half guidance of roughly in line with nominal GDP growth? I get the comments about pull forward, but everything else you are talking about seems pretty constructive. Utilization rates ticking higher, economy doing well, CRE returning to growth, M&A financing. Is the bias more to the upside if you were to be wrong?
Our guide is our guide. We have guided lower at times and come in higher; we have guided higher and come in lower. The guide is the guide. The only thing I am comfortable saying is if there is loan growth across the economy, we will get more than our fair share simply because of the newer markets we are operating in and our share growth. It is hard to predict loan growth, so we pick a simple base case and hopefully outperform.
Got it. And on credit, are there areas you are monitoring where you see vulnerabilities even if not a big part of your portfolio? Sectors or products with more fragility?
Overall credit quality is very good on both the consumer side and the commercial side. We follow pressures in healthcare, some pressures in the distillery sector, and some pressures in transportation around fuel costs. All the things you read about. But I would not say there is any big pocket or anything particularly worrisome beyond that.
Okay. Got it. Thank you.
Thank you. Our next question is coming from Chris McGratty of KBW. Please go ahead.
Great. Thanks. Hope I did not miss it, but any comment on credit spreads over the past three months with improving loan growth? Thank you.
Sorry, I did not catch that — credit spreads?
We are not seeing a lot of competitive pressure on the spreads. We are seeing some spread change relative to the mix change — higher-credit-quality, lower-spread loans into our portfolio. But apples-to-apples spreads are pretty similar quarter over quarter.
Thank you. Our next question is a follow-up from Erika Najarian of UBS. Please go ahead.
I promise this is not about NIM or loan growth. Quick follow-up: there was a news article last week about banks including PNC potentially being interested in a debit card network. I know you are not going to comment on any live deals, but how could a debit card network be beneficial to PNC and do you have any notion on how difficult it is to convert a PIN network to signature?
We are not going to comment, particularly on live situations.
Hypothetically, the work effort associated with a conversion like that would be pretty material. Leave it at that.
Got it. Thank you.
Thank you. At this time, I would like to turn the floor back over to Mr. Bill for closing comments.
Okay. Well, thank you all for joining our call this morning, and please feel free to reach out to the IR team if you have any further questions.
Thanks.
Thanks, everybody.
Thank you. Thank you.
Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines or log off the webcast at this time. Thank you for your participation.