PNC Financial Services Q3 2026 Earnings: Commercial Loan Growth Lifts NII as Fee Income Normalizes

PNC Financial Services reported third-quarter revenue of $6.6B and net income of $2.1B, or $4.97 per diluted share. Adjusted EPS was $5.09, up from $4.85 in the prior quarter, as commercial loan growth and lower adjusted expenses more than offset a normalization in capital-markets revenue and unfavorable Visa-related items.

The central development was continued balance-sheet momentum: average commercial loans rose 4% sequentially and 19% year over year, supporting a 2% sequential increase in net interest income. That growth came with some trade-offs, however, including lower loan spreads, a 2-basis-point decline in net interest margin, higher commercial nonperforming loans, and a larger accumulated other comprehensive income loss.

Earnings Snapshot

The Bigger Story

PNC’s earnings growth is increasingly being driven by commercial banking expansion rather than one-time items or rate-related margin expansion alone. Average commercial loans rose $10.4B sequentially to $269.2B, with growth in both commercial and industrial lending and commercial real estate.

Management said the increase reflected strong new production and greater utilization of loan commitments. It also said expansion markets generated about 500 new corporate and institutional banking client relationships year to date, while corporate loan growth has run faster in those markets than in legacy markets.

The quality of that growth is the important qualification. Management characterized much of the new production as high-credit-quality but lower-spread lending. Those loans can produce broader client relationships, treasury-management activity and capital-markets fees, but they constrain reported net interest margin relative to higher-yielding credit.

PNC is therefore prioritizing total relationship economics over NIM optimization. That strategy is working in the current environment, with net interest income up 15% year over year and capital-markets fees up 40% through the first nine months of 2026, according to management. Investors will need to determine whether the associated fee revenue remains durable enough to offset lower loan spreads over time.

Revenue and Operating Performance

Net interest income increased $99M sequentially to $4.2B, driven by commercial loan growth and higher yields on interest-earning assets. The increase came despite higher funding costs and a 2-basis-point decline in NIM to 2.94%.

Management said roughly half of third-quarter loan growth arrived in the final two weeks of the quarter, limiting the immediate contribution to quarterly NII. It also cited the payoff of some higher-spread loans and strong production in lower-spread, higher-quality corporate lending as factors that held back margin performance.

Commercial and industrial loans averaged $232.6B, up 4% from the prior quarter and 19% from a year earlier. Average commercial real estate loans increased 4% sequentially to $36.6B. Consumer loans declined 1% sequentially, reflecting lower residential mortgages and the transfer of a $1.4B student-loan portfolio to held for sale. Management said it had stopped originating student loans last year and expects the portfolio sale to have a de minimis financial impact.

Noninterest income fell 15% sequentially to $2.4B. The decline was partly a normalization from unusually strong second-quarter capital-markets and advisory activity, where revenue had reached $577M. Capital-markets and advisory revenue declined $144M sequentially to $433M, though it remained essentially flat with the year-earlier quarter.

The comparison was also affected by significant items. Second-quarter other noninterest income included a $448M gain tied to a Visa share exchange, while third-quarter results included $25M of negative Visa-related significant items. Excluding integration costs and significant items, noninterest income declined to $2.4B from $2.6B in the prior quarter.

Several underlying fee categories remained constructive. Asset management and brokerage revenue rose 2% sequentially and 11% year over year to $447M, while lending and deposit services revenue increased 3% sequentially and 7% year over year to $358M. Card and cash-management revenue was flat sequentially at $769M, as higher treasury-management revenue was offset by FirstBank integration-related fee waivers.

Profitability and Margins

GAAP net income rose to $2.1B from $2.06B in the second quarter, while diluted EPS increased to $4.97 from $4.81. Adjusted EPS, excluding FirstBank integration costs and significant items, rose to $5.09 from $4.85.

Third-quarter results included $36M of FirstBank integration costs and $25M of negative Visa-related significant items. Together, these items reduced net income by $48M after tax, or $0.12 per share. By comparison, second-quarter adjustments reduced EPS by $0.04.

Expense discipline helped offset the lower fee-income contribution. Total noninterest expense fell 8% sequentially to $3.8B, largely because the prior quarter included $261M of integration costs and significant items. On an adjusted basis, expenses declined 3%, or $113M, reflecting lower compensation expense and management’s cost actions.

PNC’s efficiency ratio improved to 57% from 60% in the second quarter. Pretax, pre-provision earnings rose 1% sequentially to $2.8B and increased 15% from the prior year.

The year-over-year expense picture remains less favorable. Adjusted expenses rose 8% from the third quarter of 2025, reflecting FirstBank operating costs and continued investments in business growth. Management said it remains on track to reduce costs by $350M in 2026 through its continuous-improvement program, excluding FirstBank integration efforts.

Demand, Customers and Pricing

Management described loan pipelines as strong and said commercial demand has not yet shown a meaningful response to higher rates. It cautioned, however, that higher borrowing costs would eventually be expected to slow capital spending and lending demand if they persist.

PNC’s expansion-market strategy remains a notable source of incremental growth. Management said retail banking added 215,000 net new checking accounts through the first nine months of 2026, with total accounts up 2% year over year and Southwest-market accounts up 6%. Credit-card balances increased 12% year over year, while brokerage assets rose 9%.

In corporate banking, management said the expansion markets have become a substantial contributor to in-market commercial balances, rather than simply a small incremental source of growth. The strategy is producing loan, deposit and fee opportunities, but it also means PNC’s growth outlook depends partly on continued client acquisition and conversion in these markets.

Asset Management Group discretionary assets under management increased to $250B from $247B in the prior quarter, helped by positive net flows. Nondiscretionary assets under administration declined to $249B from $256B because of net outflows. Total client assets under administration were $499B, up from $440B a year earlier.

What is PNC Financial Services’ guidance for Q4 2026 and full-year 2026?

For full-year 2026 versus 2025, excluding FirstBank integration charges and significant items, management expects:

• ·Average loan growth of approximately 13.5%.
• ·Net interest income growth of 15.5%.
• ·Noninterest income growth of approximately 10.5%.
• ·Total revenue growth of approximately 13.7%.
• ·Noninterest expense growth of approximately 9.5%.
• ·An effective tax rate of approximately 19.5%.

For the fourth quarter of 2026 versus the third quarter, management expects:

• ·Average loans to increase approximately 2.5%.
• ·Net interest income to increase approximately 4%.
• ·Fee income to increase approximately 3.5%.
• ·Other noninterest income of approximately $250M.
• ·Adjusted noninterest expense to increase approximately 5%.
• ·Net charge-offs of $250M.

Management said it expects fourth-quarter NIM to reach 3% or higher, although it does not formally provide NIM guidance. The expected improvement is tied primarily to fixed-rate securities repricing, with approximately $5B of fixed-rate securities scheduled to run off in the fourth quarter at a weighted-average yield of 2.65%.

Management also indicated that it expects 2027 NII to exceed the annualized run rate implied by its 2026 outlook. It cited the continued repricing of fixed-rate assets as a source of visibility, while stopping short of formal 2027 guidance.

Balance Sheet, Cash Flow and Capital

Average deposits increased $4.2B sequentially to $461.2B, driven by seasonally higher commercial interest-bearing deposits. Quarter-end deposits were reported at $466.4B, up $16.6B from June 30, supported by commercial client relationships and seasonal activity.

Management’s prepared remarks described period-end deposits as down $17B from the prior quarter, which conflicts with the reported balance-sheet figures showing a $16.6B increase. The reported balance sheet shows interest-bearing deposits rose 5% sequentially at quarter end, while noninterest-bearing deposits were essentially flat.

Funding costs continued to rise modestly. The rate paid on interest-bearing deposits increased 7 basis points to 1.98%, including brokered CDs. Management said deposit costs are likely to follow historical behavior in a rising-rate environment, with cumulative deposit beta expected to settle in the mid-50% range.

Credit metrics were mixed but remain manageable. Net charge-offs increased to $257M, or 0.28% of average loans on an annualized basis, including $35M associated with the student-loan portfolio transfer. Excluding that transfer, management said charge-offs were consistent with the prior quarter.

Total delinquencies declined 9% sequentially to $1.3B, led by consumer credit. However, nonperforming loans rose 8% to $2.2B, primarily due to commercial loans. Management attributed part of the increase to previously reserved commercial real estate office credits moving into nonperforming status, along with one large commercial borrower in the service-provider industry.

PNC ended the quarter with a 9.8% estimated CET1 ratio, down from 9.9% in the prior quarter as faster-than-expected loan growth increased risk-weighted assets. The company returned $1.4B to common shareholders during the quarter, including $0.8B of dividends and $0.6B of share repurchases, and expects fourth-quarter repurchases to approximate the third-quarter level.

The main balance-sheet pressure came from AOCI. AOCI worsened to negative $6.5B from negative $4.1B, reflecting higher interest rates’ impact on securities and swaps. Tangible book value per share declined 3% sequentially to $107.64, entirely due to the larger AOCI loss, according to management.

What Investors Should Watch

1. Commercial Loan Growth and Mix

Commercial lending remains the primary engine of NII growth. Investors should watch whether PNC can sustain loan production and utilization without moving further down the credit spectrum or accepting progressively lower spreads.

2. NIM Recovery Versus Funding Costs

Management expects NIM to reach 3% or higher in the fourth quarter, supported by securities repricing. The key test will be whether higher asset yields can outpace rising deposit costs and a greater mix of interest-bearing deposits.

3. Fee Income Reacceleration

Capital-markets and advisory revenue declined from an unusually strong second quarter, but management expects the category to increase about 15% sequentially in the fourth quarter. Delivering that rebound would support the argument that relationship-based lending is generating fee income beyond the loan spread.

4. Commercial Credit Migration

Delinquencies improved, but nonperforming commercial loans increased. Investors should monitor whether the CRE office credits and isolated large commercial problem remain contained or signal broader commercial-credit pressure.

5. Capital and AOCI Pressure

PNC continues to return meaningful capital, but CET1 declined modestly and AOCI losses widened sharply. The pace of loan growth, interest-rate movements and risk-weighted asset inflation will determine how much flexibility remains for buybacks beyond the near term.

AlgovestIQ Takeaway

PNC produced a solid quarter, with adjusted EPS growth supported by commercial loan expansion, improving operating efficiency and stable credit provisioning. The company’s expansion-market strategy appears to be translating into tangible client, loan and deposit growth, while FirstBank is contributing to the year-over-year revenue base.

The earnings quality was better than the 5% sequential revenue decline suggests. NII increased, adjusted expenses fell, and the decline in noninterest income was concentrated in lower capital-markets activity and the absence of second-quarter Visa-related gains. Still, the quarter also showed that PNC’s growth is arriving in lower-spread lending, which makes NIM less representative of broader relationship profitability but creates a continuing need to demonstrate fee-income pull-through.

Credit remains a watch item rather than an immediate balance-sheet problem. Consumer delinquencies improved, and the student-loan transfer accounted for a meaningful portion of the increase in charge-offs. But commercial nonperforming loans rose, including office-related credits and one large corporate exposure.

The central investment question is whether PNC can convert its client-acquisition momentum into sustained revenue growth and operating leverage while preserving credit discipline and capital flexibility. Evidence of a fourth-quarter NIM recovery, continued commercial growth, a capital-markets rebound and contained commercial-credit migration would support that case. A sharper rise in funding costs, deterioration in commercial credit, or continued AOCI pressure would weaken it.