Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Earnings Call Transcript & Summary

Good morning. My name is Keith, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the PNC Financial Services Group conference call. [Operator Instructions] And as a reminder, this call is being recorded. I'll now turn the call over to the Director of Investor Relations, Mr. Bryan Gill. Sir, please go ahead.

Well, thank you, and good morning, everyone. Welcome to today's conference call for the PNC Financial Services Group. On the call today are PNC's Chairman, President and Chief Executive Officer, Bill Demchak; and Rob Reilly, Executive Vice President and Chief Financial Officer. They will provide prepared remarks regarding today's announcement, and then we will open it up to address any questions you may have. 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 presentation materials as well as our SEC filings and other investor materials. These materials are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of November 16, 2020, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Thanks, Bryan. Good morning, everybody, and thank you for joining us on short notice today. You've obviously seen the announcement about the acquisition of BBVA USA, a strategic transaction that's going to help us create a leading national franchise and one that significantly accelerate PNC's growth and enhance our profitability. Starting with the RBC acquisition that established our presence in the Southeast, we've been consistently focused on expanding it into new markets with the ultimate strategic objective of building the national franchise, one that will leverage our industry-leading technology digital capabilities, high-quality products and services, and importantly, our main street relationship-based model. Over the last several years, these expansion efforts have been solely organic as we've opened retail solution centers and corporate banking offices in cities across the country, including Houston, Dallas, Boston, Minneapolis, Nashville and Denver. BBVA is going to supercharge these national expansion efforts with its highly attractive and complementary franchise. As one of the largest regional banks in the Sun Belt and the fourth largest commercial bank in Texas, BBVA USA will give us immediate scale in the fastest-growing regions of the country. We followed BBVA USA strategically for years and have always had them at the top or near top of our wish list. After spending a lot of time with the BBVA USA team during the due diligence period, we've gotten even more excited about the power of our combined franchises. Financially, the transaction is compelling with a 19% IRR and meaningful EPS accretion with what we believe are very achievable assumptions. We have a long track record of successful acquisitions, including most recently, RBC and National City. We have largely the same teams working on this transaction as we did on those running the same integration and go-to-market playbooks, so we're confident in our ability to execute. We also have a vastly enhanced technology background that will make the integration process much simpler than in past deals. In a world where asset price appreciation and low rates have curtailed attractive investment alternatives, the opportunity to generate this type of return on a very strategic investment of this size is an incredible opportunity. Earlier this year, we sold our investment in BlackRock to position our company with strong capital and liquidity amidst economic uncertainty and to take advantage of acquisition opportunities should they arise, and we're thrilled that this one did. We believe these 2 transactions line up well. The after-tax cash proceeds from BlackRock are in line with the cash purchase price of BBVA. Our tangible book value and earnings per share prior to the sale of BlackRock and after the acquisition of BBVA USA are essentially the same or even better. Our pro forma Tier 1 common equity ratio is essentially the same as it was prior to the sale of BlackRock, despite us building meaningful credit reserves against our own loan book portfolio since the sale of BlackRock and also adding reserves to BBVA's reserves close. Simply stated, we swapped a passive nonstrategic investment, and albeit what was a great company of BlackRock, for a highly strategic core business with BBVA that we can grow by simply doing what we've been doing well at PNC for the last 175 years. And we come out of it with comparable or better capital ratios, reserves, tangible book value and earnings per share. With that, I'm going to turn it over to Rob, who will go through the transaction in more detail.

Thanks, Bill, and good morning, everyone. Turning to Slide 4. You can see why we think BBVA USA is such a great fit. They currently have more than $100 billion of assets with the loan portfolio that, similar to PNC, is about 2/3 commercial and 1/3 consumer. This transaction will expand our franchise into attractive markets and provides meaningful opportunities for faster growth in our retail and commercial business. Their 637 retail branches will provide PNC with immediate access and greater concentration across very attractive growth markets in the Southwest. Most of BBVA USA's largest markets are expected to experience population growth over the next handful of years that is multiples higher than the national average. This deal will also significantly accelerate CNIB's ongoing de novo national expansion strategy. We'll have a large presence in Texas, which is the fastest-growing state in the United States, and increased scale in other recently entered markets like Denver and Phoenix. This deal also will provide a solid base for entry into California, which was next in our plans for de novo expansion. We see a tremendous opportunity to introduce our leading products and services into these markets. Slide 5 shows just how well the BBVA USA franchise complements our existing retail branch footprint. While there is some overlap in Alabama and Florida, the majority of their branch locations are situated in markets new to PNC across the Southern United States. Upon completion of the deal, PNC will have a retail or commercial presence in 29 of the top 30 MSAs in the country and serve markets that represent 65% of the total U.S. population. Moving to Slide 6. We're confident an expanded retail presence will enhance our ability to grow revenues in these Sun Belt states. Beyond our consumer opportunities, we'll introduce our wide array of PNC, commercial banking and asset management products and services to these new markets. Examples include our best-in-class treasury management products, extensive capital markets and advisory services as well as institutional and personal asset management. As you know, these products and services are widely utilized by PNC's customer base and this is something we'll look to extend through this acquisition. Moving to Slide 7. As Bill mentioned, over the past several months, we've had the opportunity to get to know the BBVA USA leadership team and many of their key employees as we progress through the due diligence process. We've been thoroughly impressed with the franchise as a competitor, and we look forward to becoming partners. BBVA USA's culture aligns closely with ours and of course, that's an essential component of our optimism for future success. So I want to take this opportunity to welcome in advance BBVA USA's employees to PNC. At PNC, we view our employees as our most valuable resource, and we believe that investing in talent and development, along with the commitment to diversity, is crucial to the future success of our company. So welcome again, and we look forward to working together to continue to grow this great company. As the PNC franchise expands and becomes more national in scope, our approach to banking has been and will continue to be operating as a Main Street bank. We execute with local bankers, local decision-makers and community involvement and investment to become part of the fabric of the communities where our clients and employees live and work. We leverage our Regional President model that forge strong relationships and make decisions based on what works best for each of their respective markets. Turning to Slide 8. You can see that the combined company will have more than $560 billion in assets and will be among the 5 largest U.S. banks in terms of assets loans, deposits and branches. We will remain core funded with solid capital and strong reserve levels. Importantly, upon closing, our CET1 ratio will be essentially unchanged from the first quarter level prior to the sale of BlackRock, and our projected returns will be strong. Turning to Slide 9. We think the terms of this acquisition will provide significant value to our shareholders. The purchase price is approximately $11.6 billion in an all-cash fixed price structure. The projected internal rate of return is expected to be in excess of 19%, well above our cost of capital, and we expect earnings per share accretion of more than 20%. Our accretion assumptions include no significant economic rebound or changes in interest rates. And while we do expect to generate meaningful revenue synergies we did not include those assumptions in our projections. Much of the return comes from achievable cost savings expected to be realized as we integrate BBVA USA after closing. Due to our increased scale and national presence, we'll be able to realize cost savings as well as the benefits of our leading technology. We see opportunities to reduce annualized expenses by $900 million through operational efficiencies, representing nearly 35% of BBVA USA's 2022 expense base. And we expect nonrecurring merger and integration costs of approximately $980 million. As of September 30, the allowance for credit losses or ACL to loans for PNC and BBVA USA was 2.6% and 2.9%, respectively. Upon closing, PNC expects to record an ACL of 3.9% of BBVA USA's total loans, a portion of which is recorded through purchase accounting fair value marks and the remainder of which is established through a day 1 loan provision of $1.6 billion. This represents an approximate 100 basis point increase from the current ACL level. When included with PNC's forecasted ACL to loans as of June 30, 2021, which we assume to remain at 2.6% for the purposes of this calculation. The ACL reserve percentage will be 2.9% of total loans of the combined company. It's important to note that additional credit marks will be substantially offset by positive noncredit marks, resulting in de minimis accretion impact. The deal is subject to customary regulatory approvals and closing conditions. This transaction implies a core deposit premium of 3.7% and a 1.34 price to tangible book value multiple for BBVA USA. The chart on the right highlights the historically attractive price for this deal. Over the last 10 years, the tangible book value per share of the KBW Bank index has traded above 1.34x, 95% of the time and is higher than that price today. Even more impressive is that the average price for Texas Bank deals during this period was 2.17x and Texas represents 50% of BBVA USA's deposit base. Turning to Slide 10. As Bill mentioned, we sold our passive investment in BlackRock earlier this year with the expectation that we could deploy the proceeds into an acquisition, which would provide a better long-term strategic fit, and importantly, an investment that we could control and grow. We believe this transaction will accomplish this objective. As the slide shows, we'll essentially be utilizing the after-tax proceeds from the BlackRock sale to purchase BBVA USA. The acquisition impact on tangible book value per share, inclusive of onetime merger costs and CECL impacts, is almost identical to the tangible book value per share impact of our BlackRock monetization. Said another way, the net result to tangible book value per share from both the BlackRock monetization and the acquisition of BBVA USA is essentially the same. Importantly, the expected earnings from this acquisition will replace the amount of estimated earnings we would have recorded from BlackRock had we held on to the state. At a high level, the BlackRock sale was about 20% dilutive to PNC's earnings, while BBVA USA is expected to be more than 20% accretive. As most of you know, acquisitions are not something new to us at PNC. Our prior success with the Nat City and RBC acquisitions gives us confidence that we will have the ability to execute and deliver on our integration and expense reduction plans related to this deal. On Slide 11, you can see the similarities between the RBC USA acquisition and BBVA USA. While BBVA USA is clearly larger in size, RBC was also acquired from a non-U.S. bank and expanded our presence into several new southern states. With BBVA USA, we plan to utilize the same successful playbook used in the RBC markets to build brand awareness among targeted customers and communities and introduce PNC's Main Street banking philosophy. Slide 12 demonstrates our proven track record of acquiring attractive strategic opportunities, identifying and reducing inherent risks and successfully growing the franchise to deliver shareholder value. The National City acquisition, which was completed during the great financial crisis, more than doubled the size of the company. Upon rightsizing the acquired loan portfolio by running off higher risk nonstrategic assets and the subsequent completion of the RBC deal, we have delivered strong, consistent growth throughout the past decade. And we've been able to realize significant efficiencies along the way by exceeding deal-related cost savings as well as initiatives like our continuous improvement program. Throughout this time, we've made significant investments in building our state of the art and scalable technology platform and digitizing and enhancing our product capabilities. These investments have positioned PNC extremely well as we look to deploy these technologies across the BBVA USA franchise. Turning to Slide 13. Despite the current environment, we've completed extensive due diligence on this transaction. The process has involved more than 350 PNC employees, including more than 100 loan specialists, leveraging virtual data rooms to review thousands of loan files as well as countless video meetings during the course of the last 6 weeks. We have a very experienced management team and one of the most tenured M&A teams in the industry. Most of them were with the company when we acquired RBC's USA operations and before that, during the National City integration. While the environment will pose some challenges, we're highly confident in our ability to successfully integrate BBVA USA into PNC with a focus on minimizing customer disruptions. So to summarize, we're absolutely thrilled to be acquiring BBVA USA. It will significantly accelerate our expansion efforts into attractive growth markets, is financially compelling and importantly, leverages our technology and acquisition expertise. And with that, Bill and I are happy to take your questions.

Keith, could we have the first question, please?

[Operator Instructions] Your first question comes from the line of Erika Najarian from Bank of America.

Congratulations. My first question is, looking at BBVA's performance, 66 basis points ROA in 2019, I think an efficiency ratio in the high 60s also last year or year-to-date, rather, I think the case for cost synergies and funding synergies is pretty clear when you look at the stand-alone franchise. I'm wondering, Bill, how you feel about the top line generation of this franchise. And I'm also wondering whether or not you think there's going to be investment needed to be able to grow this franchise to the scale that you want.

Good question and exactly the right question. Importantly, in our assumptions here, Erika, we actually focus principally on the cost reduction opportunity, we don't focus a lot on revenue synergies, but obviously, we think we'll be there. And we actually include investment of people, client-facing people, in the newer markets for PNC to generate in the out years accelerated earnings growth. So we've kind of -- we actually have the investment in there, but we don't have the revenues in there. And we think there's a massive top line opportunity here. If you look at our past track record when we got into the RBC markets, similar to RBC, BBVA just doesn't have fee-based products to sell to their corporate client base and we do. We've taken our expansion markets, but the ones acquired from low teens of fees to being more than 50% fees in terms of total revenue, and we fully expect we'll be able to do that with the BBVA markets. So we're going to take costs out, and that will get near term returns, and then we're going to grow this thing aggressively, including investment, which is already in the numbers to cross-sell and increase the fee generation that get out of the client base.

Got it. And Rob, as a follow-up, as we think about the cost savings of $900 million, could you give us a better sense of timing relative to the 2022, do you expect that to be an exit number? And also, could you give us a sense of where you're finding the $900 million? I'm sure a lot of people are just used to looking at dots on the map and seeing where that overlap because clearly, this is a different case here.

Sure. Sure. Good morning, Erika. I thought your question was going to be why couldn't we have announced this a week earlier for your conference. But we can't control everything. Okay. Okay. Okay. Hey, we're obviously really excited about this. And we do see an opportunity to capture the scale savings largely around our technology, but also in terms of third party costs vendor, et cetera. I do think that we will be able to realize the majority of that in 2022 but that's going to require a lot of work. And to Bill's point, we've done this before. The RBC USA acquisition was very similar in terms of profile. This is just larger, so we need to do what we did there. In that instance, as you know, we exceeded our cost savings estimates.

The other thing I would just throw in here in terms of kind of cost savings in a world where technology now runs as much of a bank as it does, at least at PNC, is we're going to be able to onboard virtually all of what they do into our technology platform. We're not taking their data centers. BBVA retains them. We'll have transition services agreement. So we don't have to shut down data centers. We literally are going to lift and shift into a scalable PNC platform that effectively takes that total cost down to nothing. In addition, technology beyond hardware that you think about, Erika, allows us to automate much of what we do in the risk and control space. So I think automated script testing and automated compliance controls and AML and all the other stuff that basically allows direct scaling of the investment we have in technology without pulling over costs from acquired entities like BBVA.

Which is in contrast. The technology option there is new relative to our previous acquisition.

Yes.

The next question comes from the line of Scott Siefers from Piper Sandler.

So I think first question, was this a negotiated transaction or was it an auction? And I guess, just more broadly, the stars kind of clearly aligned on a bunch of this stuff, right? It's not every day you have $10-plus billion of capital to invest in something. They have a complementary franchise, et cetera. So a lot of this is very logical. But with that said, I think we've all had time to sort of game theory, what you might do with it. And there are some other transactions out there that might have gotten you a little bit more, a little less in terms of cost savings franchise, et cetera. What was it that made this one, in your mind, sort of the best use of what to do with that slug of capital post BlackRock?

Well, BBVA has been the top of our target list for years, kind of for obvious reasons. When you look at the map and the strong entry that we get, in particular, into Texas. And in the end, I think PNC becomes a better owner of that franchise, given our ability to leverage costs in additional products. So I think, and you'll have to ask this of them, but I think they recognized the opportunity they had to work with this. This is a long dialogue we've had with them and a long conversation, long due diligence and it worked out. And I think cash mattered. So kind of motivated seller, motivated buyer, cash in hand, the right environment led to the deal.

Scott, I would add to that, just in a sense and you know, our organic strategy was for national expansion on the consumer side, largely through digital, but also new solution centers and cities. And then on C&IB, the opening of those offices. So really, the BBVA USA is perfectly complementary to that strategy. It just accelerates it dramatically and establishes a national presence.

It also -- it comes without a lot of, I'll call them governance challenges in the sense of headquarter cities and boards and seats and so on and so forth. So it's a bit easier to execute than a U.S. public company would have been.

Yes. Makes sense. And then the final question is, I guess, we're going into presumably a change in administration here over the next few months. Any thoughts or additional color you can give on sort of what makes you comfortable with sort of the regulatory time line and any noise you might anticipate, et cetera?

We've telegraphed this well when we spoke to regulators as we would in the normal course, prior to this announcement. BBVA and PNC together with the Main Street banking model doesn't introduce a systemic risk to the U.S. system by any measure. We're still one fit the size of the giant 4 banks out there we compete with. And the approval process through the Fed and the OCC is through application and measurement of risk scores, which we should trigger. So it's a bit of a mechanical process of course, complicated potentially by discussions with community groups and questions from other regulators and politicians. But look, I think this is ultimately good for both franchises and importantly, good for all 4 of our constituencies.

And Scott, as you know, we'll remain a category 3 bank as far as tailoring going. So that's helpful, I think, as well.

The next question is from the line of Gerard Cassidy with RBC.

Bill, can you share with us, when you think about BBVA, they never seem to be like the top-notch competitor, the ROA, it was pointing out, it was about 66 basis points last year. When you guys did your due diligence, what do you see -- aside from the fees, I know you already mentioned, obviously, you've got great treasury management fees that you're going to be able to sell to their customers, but what else do you think you're going to be able to do to bring this -- their assets or their business up to your profitability levels that you've been accustomed to in the last couple of years?

Look, I think it's a function of productivity. It is a function of fees and cross-sell and deeper client relationships than they were able to establish without that menu of things you talk to corporate clients about. I would tell you Gerard, they actually -- their core infrastructure of covering clients, underwriting loans, following credit is really good.

Very [indiscernible]

They had -- in my observation, a bit of a fractured delivery system in terms of products and services because some of it was local, some of it was international, some of it was out of New York, some of it was out of Houston. We bring clarity to that. We put our product people, client coverage people directly into the markets that we operate. So you have close decision-making on our side, product expertise in the moment. And we have good products. So I look at what they have done, and it does look largely similar to the challenges that RBC faced, and we know how to execute against that. And then we have a -- you can look at the progressive metrics in our newer markets and then our straight expansion markets and apply it to this, and it gets really exciting. We think we can execute on this.

And the technology component that Bill spoke about before. And for clarification, Gerard, that's RBC USA. We know you want us to say that.

Very true. Thank you for clarifying that, Rob. Following up on the due diligence comments you guys have made. Can you just share with us what the due diligence was like on the IT side in addition to the credit metrics, obviously, you guys dug deep into the credit, as you pointed out, but what other due diligence that you have to dig into? And how comfortable did you get on what you saw?

Yes. So I mean, we went deep into credit, as you can imagine. On the technology side, you basically take a look at applications that they are running. So you're looking at applications and you're looking at hardware. On the hardware side, we basically say we're going to port everything over to our data centers. And on the application side, with few exceptions, we'll actually port the data onto our applications. So in a big way the technology due diligence becomes one of -- can, in fact, we take what they do and run it on our technology base, both application and hardware. And the answer to that is yes. Now I would tell you, they have some special -- they've been heavy investors in technology, largely on the digital side. So think of that on the front end side to clients, and they have some really attractive products that probably haven't been brought to scale yet that we can help with. Those products will come over into our environment, but that's kind of an easy lift and shift as well. So we did all of that. We looked at all the contracts associated with technology to the extent that they are using third-party providers and the cost of breakage of that is inside of our onetime charge. And we did due diligence on their cyber coverage and so on and so forth.

The next question is from the line of Ken Usdin from Jefferies.

Just a look with the transaction. Just a couple of just clarifications on the slide deck math, if you don't mind. On the book value close, can you just walk us through presuming that's pro forma where you add the earnings of both companies? And can you help us understand how much restructuring charges are included in that as well in that $85.71?

The -- I'm sorry, the $85.71?

Sorry, the pro forma book value number. Sorry, $87.59, my bad, $87.59.

So he's gone up the chart from graph.

Yes, yes.

But that's post...

My mistake, Bill, my mistake.

The post close and post first day earnings charge -- everything is in there, right?

That's right. Yes, that's right. That's right. There's nothing not in there.

So all restructuring...

[indiscernible]

Everything is in there.

That's right. That's right.

Okay. Sorry for my statement before. And then on the credit mark and the other marks, Rob, you mentioned that there are some offsets. Can you walk through how that translates into what's included from an accretion perspective in that '22 accretion number that you talked about?

Yes. From -- that's a good question, Ken. From an accretion perspective, the credit marks are largely offset by the rate marks. So the impact going forward, which will make it very clean from a financial reporting perspective, will be very small unlike some of our past deals where the accretion was pretty large.

Okay. So mostly net. And then can you just help understand just some of the other merger metrics, like what are you using for CDI amortization? And are you 100% cost saves included on a full year basis is in that '22 number? Sorry for the [indiscernible] questions.

Yes, largely. And then on the smaller ones, the other intangibles are pretty small. As we get closer, we'll get you some more detail around those. But it's very small.

Okay. And last little one, just -- are you assuming that there'll be a regular way provision in the forward numbers for the BBVA side? Obviously, you get taken most of this through the mark and such, but we should probably assume that there's going to be a normal way provision on the BBVA business?

Yes. I mean, think about it this way and throw out all the crazy CECL terms for a second. Basically, we run their credit book through our models. And we add, in total, on day 1 financials, we had 600 and what million in reserves?

On that nonpurchase credit [indiscernible] is $1.6 billion. Day 1.

Through the day 1 but plus an additional impaired number. We had $600 million a total reserve. The day we close in effect. We don't have any -- in the ordinary course with purchase accounting, you mark the books down and then it accretes through and enhances your earnings for a couple of years, right? In this instance, that is directly offset by the interest rate mark because they had fixed rate loans. And so again, in that 20-plus percent accretion, think about what we're saying here. We have no accretion coming through discounted marks. We have cost saves, we don't have revenue synergies.

EPS accretion.

EPS accretion, yes. And we've got a 19% IRR and the ability to kind of grow this in the out years once the investments we put in place start producing that more broad based revenue. So that's what's going on inside of the numbers.

And within the book there -- sure. And taking the reserves from 2.9% in BBVA, will stay to 3.9%.

Yes, that's the easiest way to think about it.

That's the best way to look at it, Ken.

[Operator Instructions] Questions from the line of Mike Mayo from Wells Fargo.

A little bit more on how does the typical BBVA customer compare to the typical PNC customer for both wholesale and retail? And I'll leave you on the wholesale side, you've said this a few times. So what percent of fees are in the BBVA customer in commercial and how does that compare to PNC? Because you keep mentioning the ability to kind of narrow that gap.

Yes. So think of them in the low teens or even perhaps below that, and we'll get it to over 50% in...

On commercial.

On commercial within the first handful of years. I'm thinking we probably did that within 5 years with RBC, but I think, we can go back and look. The consumer side is similar to ours. They obviously are in footprint with massively higher growth rate in terms of households. But basically, they kind of lead digitally with their consumer base, as do we. Balances aren't wildly different. At the margin, Mike, they're a firm that -- and you see this in that we'll set their reserve higher than our reserve. They're a firm that plays in the same space as we do, but a little bit higher risk appetite than we would otherwise have. And embedded in our assumptions is the same way that we did with RBC and National City, we'll de-risk some of that portfolio over the course of time.

And I see -- I guess just if you could address the risk a little bit. So on the retail side, they have some sort of money transfer business that generates $100 million per year, I'm not familiar with that, but then maybe that highlights some of the extra risk. And on the commercial side, 1/4 of the loans that you're getting are CRE. And I'm sure it's a tough environment to get a lot of CRE. And I'm sure you looked at that as probably the biggest risk in the transaction. So how do you think about both of those risks?

Well, first off, the money transfer business is a fantastic business. It's one we're really excited about. And one, we think we can bring to scale. We'll obviously provide more details on exactly what that is over time. But it is a very creative and safe way to allow consumers to move money internationally. We did massive due diligence on that, Mike. The real estate side, you're exactly right. The degree of comfort I can give you on real estate is we effectively reunderwrote the entire book.

And the increase in reserves, sorry, as you would expect [indiscernible]

Yes. Reflection of that. Yes. So there's going to be pain points in the real estate book. But by the way, on the criticized and classified list names for their real estate, they did a really nice job in revaluing and marking those assets. Before we even get in and look and say, we need to add to it. They're actually a pretty good credit shop on the underwriting side. They just -- they played pre-COVID in a slightly riskier profile than we otherwise would, and that's giving rise to some of their higher credit metrics at the moment.

And then, Mike, I would just add -- I'm sorry, I would just add to that, I mean, the obvious that we're going into the fastest growing markets in the United States with the PNC model. And that has us very, very enthusiastic.

And then lastly, I mean, kind of teasing us with -- not including revenue synergies. On the other hand, you could have revenue loss. Just what's the book ends here? On the one end, you could have revenue loss of how much are you factoring in? On the other hand, you can have revenue synergies of how much?

You should assume that we modeled the revenue loss and didn't really model the revenue synergies.

Yes, which is fair. And then also point to that 20% EPS accretion in 2022.

Yes. Look at the EPS accretion. We've -- look, we do what we do, which is we go in, we assume we derisk, we assume...

Some shift.

We set -- we don't set the bar terribly high, but the thought process of jumping over that bar for you guys. The revenue synergies in the outside growth, I think, post '22...

That's right.

And accelerate as we go.

That's right.

If you go back to that chart where Rob talked through where you just look at our growth rate from post RBC through to pre-COVID, Mike. And by the way, if you backed accretion accounting out of there, we actually grew underlying revenues double-digit for a bunch of years. It didn't directly show up sometimes because we had accretion accounting running off at same time. So we -- look, we think we can do that with this franchise.

So do you want to put a number around the revenue synergy, the 2023 to 2026 story sounds like...

Come on, Mike. That's obviously stuff we're going to have to work on and present to you guys going forward.

But we're very bullish. A 5-year, 10-year look, we're very, very bullish.

The next question is from the line of Saul Martinez from UBS.

Congratulations on the deal. A couple of questions. And first, bear with me here on -- I'm going to get into the weeds a little bit on the CECL accounting and the credit market. I just want to make sure I fully grasp this, what you guys have said here. And so the 3.9%, I hear some chuckles in the back. But the 3.9% credit mark or ACL, that equates to about $2.6 billion of the $66 billion of BBVA.

Yes. That's right. That's right.

I think you mentioned, Rob, $1.6 billion of loan loss reserves closing. And so there's an additional, I guess, $1 billion of credit marks on the non-PCB component of it. But what you're also saying in that $1 billion of credit marks is largely offset by positive interest rate marks on their portfolio. So effectively, there's no fair value mark and no PAA built into that -- built into your forward estimates. Am I kind of putting the pieces together correctly?

That's pretty good. Yes, it's pretty good.

Yes. So I thought about [indiscernible] for the last year, but...

And again, our primary message...

It looks like the list. But sorry, I want to be clear about one thing, and correct me if I go sideways here. But that 3.9% reserve ratio is inclusive of the day 1 provision, which will lead to reserve for them plus the credit impaired mark.

Right. The PCD. Right. That's right.

Right. That we don't assume we'll go through it. It's just on the balance sheet.

Yes. The -- again, we want to direct everybody's attention this morning to the reserves because that's what matters. The CECL tutorial -- we'll have a CECL tutorial for you between now and closing, but you're on the right path. The distinction just is on that non purchase credit deteriorated, that's what goes through the day 1 provision. And so to speak, it's part of the double count. But I didn't want to get into that in too deep. So we have plenty of time to do that for you.

Got it. But in a nutshell, there's no PAA being built in the report?

No. That's key. That's -- yes. That's absolutely right.

Okay. And do you break out how much of the $66 billion you're classifying as PCD versus non-PCD? Or you're not breaking that out yet?

We haven't broken it out, but if it's -- if you want to do it, I mean, roughly, in terms of the reserves for the amount of the loans.