PNC FINANCIAL SERVICES GROUP, INC. Q3 FY2026 earnings call

• Strong Organic Growth: PNC delivered robust results driven by consistent strategy execution and successful First Bank conversion. Corporate and Institutional Banking (CNIB) saw 5% average loan growth and 17% YoY growth, with expansion markets adding ~500 new client relationships YTD.
• Retail & Wealth Momentum: Retail banking added 215,000 net new checking accounts in 2026. Credit card balances grew 12% and brokerage assets grew 9% YoY. Asset management fees increased ~10%, with AUM in expansion markets growing five times faster than legacy markets.
• Balance Sheet Optimization: Loans grew $9 billion to $372 billion. Securities yields increased to 3.59%. Deposit costs rose modestly due to mix shifts toward interest-bearing balances, but funding optimization reduced borrowed funds on a spot basis.
• Expense Discipline: Excluding integration costs, non-interest expense decreased 3%. The company is on track to achieve $350 million in cost reductions through its continuous improvement program.
• Credit Quality: Non-performing loans increased to $2.2 billion primarily due to CRE office pull-throughs and one large commercial credit. Delinquencies declined to 0.34% of total loans. Underlying net charge-offs remained stable excluding student loan transfer impacts.

Total revenue was $6.6 billion, a decrease of 5% linked quarter. Net interest income was $4.2 billion, up approximately 2%. Fee income was $2.1 billion, down 6%. Total non-interest expense decreased 8% to $3.8 billion. Net income was $2.1 billion ($5.09 per diluted share, adjusted). Return on tangible common equity exceeded 18%. Loan growth averaged 2% for the quarter, with C&I loans up 4% and CRE loans up 4%, while consumer loans declined 1%. Average deposits increased 1% to $461 billion. Spot deposits grew 4% to reflect strong commercial inflows.

• Full Year 2026 Outlook: Expected full-year average loan growth of ~13.5%. Net interest income expected to rise 15.5%. Non-interest income projected to increase ~10.5%. Total revenue expected to grow ~13.7%. Non-interest expense expected to rise ~9.5%. Effective tax rate anticipated at ~19.5%.
• Q4 2026 Expectations: Average loans expected to grow ~2.5%. Net interest income projected to increase ~4%. Fee income expected to rise ~3.5%. Other non-interest income targeted at ~$250 million. Adjusted non-interest expense expected to increase ~5%. Net charge-offs forecast at ~$250 million.
• Economic Assumptions: Base case assumes GDP growth above 2% in 2026. Fed rate hikes expected at December 2026 and March 2027 meetings, targeting a range of 4.25-4.50%.
• NIM Recovery: Management expects Net Interest Margin to reach 3% or above in Q4 2026, driven by loan growth momentum and favorable repricing.

• Net Interest Margin Compression: High-quality, lower-spread loan growth constrained NIM, causing a 2 basis point decline in Q3. Mix shifts and higher funding costs also pressured margins.
• Capital Markets Volatility: Capital markets fees dropped 25% in Q3 due to elevated activity in Q2; future performance depends on pipeline sustainability amid potential economic uncertainty.
• CRE Office Exposure: Continued pull-through of previously reserved CRE office loans contributed to rising non-performing loans, though reserves are deemed adequate.
• Deposit Cost Sensitivity: Rising interest rates may increase deposit betas as non-interest-bearing balances convert to interest-bearing accounts, potentially increasing funding costs.
• AI Implementation Costs: Significant infrastructure investments for AI/agentic workforce transformation require substantial capital expenditure and operational changes, with long-term productivity benefits not yet realized.

Q: Analyst asked about confidence in NIM reaching 3% in Q4 given compression from high-quality, low-spread loans and rising deposit costs. / A: CEO noted that 50% of loan growth occurred in the last two weeks, benefiting Q4 NII. CFO explained that low-spread loans grew hotter than expected, constraining NIM. They remain confident in the trajectory as underlying drivers remain strong and fee income offsets spread compression.

Q: Analyst inquired about client sentiment regarding higher rates and whether there is a tipping point impacting growth dynamics. / A: CEO stated that pipeline remains strong and outsized growth is largely driven by record pace of onboarding new clients in expansion markets. He indicated no immediate tipping point, noting that business activity continues despite rate environment.

Q: Analyst sought clarity on NII growth expectations for 2027 compared to peers who previewed slower growth. / A: CFO acknowledged that fixed-rate asset repricing provides certainty for 2027. He confirmed that annualized NII run rate in 2027 will exceed 2026 levels, agreeing with consensus estimates of roughly $1 billion incremental growth.

Q: Analyst asked about the drivers behind the spurt in loan growth in the final two weeks of the quarter and its sustainability. / A: CEO clarified that syndication deals take time and are not instantaneous reactions to rate changes. He attributed the volume to strong pipelines and new market penetration, viewing it as part of sustained organic momentum rather than a temporary anomaly.

Q: Analyst questioned PNC's M&A appetite following the First Bank acquisition and current organic momentum. / A: CEO expressed hesitation to pursue large M&A deals as they could distract from critical AI infrastructure transformation and organizational efficiency efforts. He emphasized that leading this internal transformation is strategically more important than bulk acquisitions at this time.