The PNC Financial Services Group, Inc (PNC) Earnings & Analysis

Latest quarter

PNC’s third-quarter revenue missed the consensus by 0.23%, although both the reported and estimated figures rounded to $6.6 billion. Adjusted earnings of $5.09 per share beat the $4.97 consensus estimate. PNC reported diluted earnings of $4.97 per share, up from $4.35 a year earlier.

PNC reported revenue growth of 10.7% from a year earlier, while its filing shows total revenue fell 5% from the second quarter. Net interest income rose 2% sequentially to $4.2 billion, as commercial loan growth and higher asset yields outweighed increased funding costs. That increase was below the 3% to 3.5% sequential growth CFO Robert Reilly had expected on the July call.

The filing shows noninterest income fell 15% from the second quarter to $2.4 billion, reflecting lower net Visa activity and capital-markets advisory revenue. PNC’s net interest margin fell to 2.94%, as lower-yielding loan growth and higher funding costs affected the margin. Its provision for credit losses was $189 million, while net loan charge-offs were $257 million, including $35 million related to the transfer of the education loan portfolio.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On PNC’s July second-quarter call, CFO Robert Reilly said commercial lending accounted for virtually all of the quarter’s loan growth, with new production and higher use of credit lines across loan categories. Looking to the second half, he said, “we still see loan growth but not at the same rates.” He attributed the expected moderation partly to borrowing demand that may have been pulled forward.

Asked about net interest margin, Reilly said lower rates paid on interest-bearing deposits and higher noninterest-bearing deposits had helped the second-quarter margin. He said newer commercial loans tended to carry lower spreads and constrained the margin, although they also generated fees. Reilly said he did not see much spread compression from competition. He added that PNC still had fixed-rate assets to reprice, with the yield curve affecting that process.

Reilly also said commercial balances related to treasury management and escrow activity had contributed to deposits coming in above expectations. PNC expected its deposit rate paid to drift back toward first-quarter levels as some existing deposits repriced, he said.

On investment, Reilly said PNC’s continuous improvement program was intended to fund a portion of ongoing business and technology spending. He said PNC was on track to reduce costs by $350 million in 2026 through that program, independently of its FirstBank acquisition. Reilly also said the acquisition’s anticipated financial returns and earnings accretion had been achieved and exceeded expectations.

In October commentary, Reilly said PNC had a path for continued fixed-rate asset repricing over the next several years.

Guidance

In its October results release, PNC said it expects fourth-quarter share repurchase activity to approximate third-quarter levels. On the July call, Reilly had expected third-quarter repurchases to approximate the second-quarter level.