PNC Financial Services Group 2026 Q3 Earnings Call

Bryan, please go ahead. Well, good morning and welcome to today's conference call for The PNC Financial Services Group.

I am Bryan Gill, Director of Investor Relations for PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob 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 October 15, 2026, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Thank you, Bryan, and good morning, everyone. PNC delivered another strong quarter reflecting the consistent execution of our strategy and the strength of our franchise. As you saw, we generated $2.1 billion of net income, or $5.09 per diluted share as adjusted, while delivering a return on tangible common equity of more than 18%. Rob's going to take you through the financial results in more detail in a second. But I wanted to start off by highlighting the substantial client momentum we've been experiencing all year, which has continued through the third quarter. All of our businesses are experiencing robust growth, in part driven by the high growth rates of our expansion markets and most recently, the successful conversion of FirstBank. In Corporate & Institutional Banking, our national platform continues to generate impressive growth.

Expansion markets have added approximately 500 new client relationships year to date, contributing materially to a 5% average C&IB loan growth during the quarter and 17% growth year over year. Beyond loans, capital markets fees are up 40% year to date, and treasury management revenue is up 8%. In retail banking, we continue to grow clients organically, adding 215,000 net new checking accounts so far in 2026, with total accounts up 2% year over year, including 6% growth in our Southwest markets. And we continue to deepen relationships with credit card balances up 12% and brokerage assets up 9% year over year. At the same time, we continue to invest in capabilities to enhance our franchise with the introduction of both a new mobile app and TotalRewards program, as well as our continued branch expansion.

Asset management fees are up approximately 10% year-to-date, and assets under administration total a half a trillion dollars. Favorable equity markets have obviously helped here, but once again, our expansion markets have accelerated our growth. In these markets, AUM is growing five times faster than our legacy markets, albeit off a smaller base. When we step back and look at the year as a whole, we have grown considerably faster than we anticipated coming into 2026. We are bringing new clients into the franchise, expanding relationships across businesses and markets, and converting that activity into durable growth in loans, deposits, and fee income. As we enter the final quarter of the year, we remain focused on disciplined growth, prudent risk management, and continued investment in the capabilities that strengthen our competitive position. As always, I would like to thank our employees for their hard work and commitment.

With that, I'll turn the call over to Rob to take you through the details of the quarter.

Rob? Thanks, Bill, and good morning, everyone.

Our balance sheet is on slide 5 and is presented on an average basis. For the linked quarter, loans of $372 billion grew by $9 billion or 2%. Security balances increased 3% to $151 billion. Average deposits increased $4 billion, or 1%, to $461 billion, and the borrowings increased $7 billion to $86 billion. However, on a spot basis, deposits increased $17 billion and borrowed funds declined $6 billion, reflecting continued optimization of our funding mix. Our tangible book value was $108 per common share, down 3% linked quarter, entirely driven by the decline in AOCI, and was stable compared with the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 9.8%. We continue to be well-positioned with capital flexibility.

During the quarter, we returned $1.4 billion of capital to shareholders, which included approximately $800 million of common dividends and $560 million of share repurchases. Going forward, we expect fourth quarter repurchases to approximate the same level. Our return on tangible common equity was more than 18% in the third quarter. Slide 6 shows our loans in more detail. During the third quarter, average loans increased $9 billion or 2% to $372 billion. C&I balances increased $9 billion or 4%, reflecting broad-based growth across our businesses and higher utilization. Commercial real estate balances increased $2 billion or 4%, driven by strong new production. Consumer loans declined $1 billion or 1%, as growth in credit card was more than offset by lower residential mortgages, as well as the transfer of our student loan portfolio to held for sale.

You may recall we stopped originating student loans last year, and the transfer represents the final step in exiting this non-strategic business. We expect the sale to have a de minimis financial impact. In regard to loans overall, spot loans grew $11 billion in the quarter, contributing to the strong loan growth we've had throughout the year, all of which substantially exceeded what we expected at the beginning of the year. Through the first nine months of 2026, we've added $47 billion, or 14%. While approximately $15 billion came through the FirstBank acquisition, more than $30 billion of the growth has been generated organically, reflecting strong client activity and execution across our franchise. Slide seven details our investment securities and swap portfolios. We continue to maintain a high-quality, short-duration position. During the third quarter, average investment securities increased $4 billion, or 3%.

Our securities yield was 3.59%, an increase of 14 basis points. As of September 30th, our duration was 4.1 years. Looking ahead, we expect approximately $5 billion of fixed rate securities to run off during the fourth quarter at a weighted average yield of 2.65%. Our receive fixed swap portfolio totaled $83 billion at quarter end, with an average received fixed rate of 3.92%, which increased 17 basis points from last quarter. Importantly, we have a clear path for continued fixed rate asset repricing over the next several years. Overall, we remain well-positioned for a rising rate environment, which will support net interest income, capital generation, and balance sheet flexibility. Slide eight covers our deposit balances in more detail. Average deposits increased $4 billion to $461 billion during the third quarter, driven by growth in interest-bearing balances. Non-interest-bearing deposits were $101 billion and represented 22% of total deposits.

Notably, period end deposits increased $17 billion, or 4%, compared to June 30th. The strong growth was driven by commercial interest-bearing deposits, which increased $11 billion, or 7%. In addition, brokered CDs grew $7 billion. The commercial deposit growth was due in part to seasonality, but also reflective of both new and expanded client relationships. In regard to deposit costs, our total rate paid on interest-bearing deposits increased seven basis points to 1.98%, including brokered CDs. Excluding brokered CDs, the rate paid increased five basis points to 1.96%. The increase was primarily driven by mix as growth was concentrated in interest-bearing balances. Turning to slide nine, we highlight our income statement trends. Comparing the third quarter to the second quarter of 2026, total revenue was $6.6 billion, a decrease of $313 million, or 5%, while non-interest expense decreased $347 million, or 8%, to $3.8 billion.

Excluding integration costs and significant items from both quarters, revenue declined $61 million, or 1%, as higher net interest income was more than offset by lower non-interest income. On the same basis, non-interest expense decreased $113 million, or 3%, reflecting disciplined expense management. We generated positive operating leverage and grew PPNR. Provision was $189 million, stable with the previous quarter. Our effective tax rate was 20%. Third quarter net income was $2.1 billion, or $5.09 per common share as adjusted to exclude the impact of $48 million of after-tax integration costs and significant items. Importantly, we continue to demonstrate strong momentum across the franchise. Through the first nine months of the year, PPNR increased $1.2 billion, or 17%, compared to the same period last year, driving 19% growth in diluted EPS. Turning to slide 10, we detail our revenue trends.