Executive Summary / Key Takeaways

• PNC is executing a focused organic growth strategy, amplified by significant branch investments and the transformative FirstBank acquisition, to expand its national footprint and deepen customer relationships, particularly in high-growth retail markets.
• The company projects robust Net Interest Income (NII) growth, driven by fixed-rate asset repricing, with Net Interest Margin (NIM) expected to exceed 3% in 2026 and NII growth comfortably above $1 billion in 2026, excluding the FirstBank acquisition.
• Strategic investments in cloud-native online banking, AI-driven efficiencies in fraud and data management, and partnerships with fintech innovators like Coinbase (COIN) are enhancing customer experience and driving operational leverage.
• PNC maintains a strong capital position, with a CET1 ratio of 10.70% as of September 30, 2025, and disciplined risk management, providing resilience against economic uncertainties and stress in the commercial real estate (CRE) office portfolio.
• Despite a competitive landscape and evolving regulatory environment, PNC's diversified business model and commitment to technological leadership position it for sustained value creation and market share gains.

PNC Financial Services Group, Inc. (NYSE:PNC) stands as one of the largest diversified financial institutions in the U.S., rooted in a history stretching back to 1865. Headquartered in Pittsburgh, Pennsylvania, PNC's strategic focus is on long-term value creation through organic growth, disciplined risk management, and continuous investment in its core businesses: Retail Banking, Corporate & Institutional Banking, and Asset Management. This integrated approach, spanning a coast-to-coast retail network and strategic international offices, underpins its competitive stance in a rapidly evolving financial landscape. The company's foundational strength is increasingly bolstered by its commitment to technological innovation, which serves as a critical differentiator in enhancing customer experience and driving operational efficiencies.

Technological Differentiation and Innovation

PNC is actively leveraging technology to create efficiencies and deliver superior banking experiences. A significant initiative is the ongoing rollout of a new online banking platform, designed to be cloud-native and micro-service-based. This architectural shift offers tangible benefits, enabling PNC to change and introduce products on the fly, reducing a six-month update process to literally do overnight. The goal is to elevate PNC's online and mobile customer satisfaction scores, which currently stand at par with the industry average, to a leading position.

Beyond core banking, PNC is integrating advanced solutions across its operations. The company announced integration with Oracle (ORCL) Fusion Cloud ERP for embedded banking, allowing corporate and commercial clients seamless access to treasury services directly within their ERP systems. This streamlines financial operations and enhances efficiency. For micro businesses, PNC Mobile Accept® provides a pay-as-you-go payment processing solution, enabling secure card payments via the PNC Mobile app without monthly fees. Furthermore, the new Digital Direct Deposit Manager offers clients an easy way to set up direct deposits for various income sources through the PNC Mobile app.

Artificial intelligence (AI) is already yielding quantifiable benefits, particularly in fraud-related areas, leading to reduced charges. AI also aids in document sort that helps employees get answers faster, in data lake creation, and burst through capacity to clouds that help deliver more accurate models faster. Management views AI as an accelerator for the continuation of automation that has largely been in the back office for the last ten years, contributing to sustained expense management. The strategic intent is not merely cost savings but also to explore how AI might change the overall delivery of financial services, particularly in computer-generated advice, which is a key area of focus for long-term strategic planning. These technological advancements are crucial to PNC's competitive moat, enhancing its market positioning, and supporting its long-term growth strategy by improving efficiency, customer engagement, and product delivery speed.

Strategic Initiatives and Organic Growth

PNC's growth narrative is deeply rooted in its strategic initiatives, particularly its aggressive expansion in high-growth markets. In 2024, PNC committed approximately $1.50 billion over five years to open more than 200 new branches and renovate 1,400 existing locations. This commitment was further amplified in November 2025, with an increased investment of approximately $2 billion to open over 300 new branches by 2030, extending its retail presence to nearly 20 U.S. markets, including Nashville, Chicago, and Sarasota. This branch blitz is designed to achieve saturation in key markets, which management views as essential for long-term success against larger national banks.

A significant accelerant to this organic strategy is the pending acquisition of FirstBank Holding Company for an implied consideration of $4.10 billion, announced on September 8, 2025. This transaction, expected to close in early 2026, will more than triple PNC's branch network in Colorado to 120 branches and substantially increase its presence in Arizona to more than 70 branches. This acquisition is poised to propel PNC to the number one market share position in retail deposits and branches in Denver, providing immediate scale and deepening its footprint in attractive Western markets.

Beyond retail, PNC is expanding its Corporate & Institutional Banking (C&IB) franchise, including entry into the Salt Lake City market. The company's auto loan portfolio has also seen growth, attributed to a disciplined approach that avoided aggressive lending during market bubbles. In the Asset Management Group, PNC Investments was rebranded as PNC Wealth Management in October 2025, signaling a broader focus on advisory services and reflecting the business's expanded capabilities. Furthermore, a strategic partnership with Coinbase, announced in July 2025, aims to advance digital asset solutions and expand banking services for PNC's clients and institutional investors, with PNC also providing select banking services to Coinbase. This multi-pronged approach underscores PNC's commitment to expanding its reach and deepening client relationships across all segments.

Financial Performance and Operational Details

PNC demonstrated robust financial performance through the first nine months of 2025, culminating in a strong third quarter. For the three months ended September 30, 2025, net income reached $1.82 billion, or $4.35 per diluted common share, an 11% increase from the second quarter of 2025. This was driven by record total revenue of $5.92 billion, up 4% linked-quarter, and a lower provision for credit losses. For the first nine months of 2025, net income attributable to common shareholders was $4.68 billion, or $11.72 per diluted common share, a 15% increase compared to the same period in 2024. Total revenue for the nine months ended September 30, 2025, increased $1 billion, or 7%, to $17.03 billion.

Net interest income (NII) in Q3 2025 increased $93 million, or 3%, to $3.65 billion, primarily due to the continued benefit of fixed-rate asset repricing, loan growth, and one additional day in the quarter. The net interest margin (NIM) slightly decreased by 1 basis point to 2.79% in Q3 2025, which management attributed to outsized commercial deposit growth. Despite this, the NII growth trajectory remains strong, with management comfortably expecting NII growth in 2026 to be significantly higher than 2025, excluding the FirstBank acquisition, and NIM to continue to expand and hit the 3% and above sometime during 2026.

Noninterest income in Q3 2025 increased $161 million, or 8%, to $2.27 billion, largely driven by higher capital markets and advisory fees. For the first nine months of 2025, noninterest income increased $337 million, or 6%, to $6.35 billion, reflecting higher capital markets and advisory fees, card and cash management revenue, and asset management and brokerage income. This strong fee growth, coupled with disciplined expense management, contributed to record pre-provision net revenue (PPNR) of $2.5 billion in Q3 2025 and positive operating leverage. Noninterest expense increased $78 million, or 2%, in Q3 2025, reflecting higher personnel costs due to increased business activity and equipment expenses from technology and branch investments. However, PNC maintains a continuous improvement program targeting $350 million in cost savings for 2025, which funds a significant portion of its ongoing business and technology investments.

Average total loans increased $3.20 billion, or 1%, to $325.93 billion in Q3 2025 compared to Q2 2025, primarily driven by growth in commercial and industrial (C&I) loans. Average total deposits increased $9.20 billion, or 3%, to $339.07 billion in Q3 2025, reflecting higher commercial deposits. PNC's Common Equity Tier 1 (CET1) ratio stood at a robust 10.70% at September 30, 2025, and its tangible book value per common share increased 4% linked quarter to $107.84.

Credit Quality and Risk Management

PNC's credit quality remains strong, a testament to its disciplined risk management framework. The allowance for credit losses (ACL) related to loans totaled $5.30 billion at September 30, 2025, compared to $5.20 billion at December 31, 2024, with the increase primarily driven by changes in macroeconomic scenarios. The ACL to total loans ratio was 1.61% at September 30, 2025. Net loan charge-offs were $179 million in Q3 2025, representing an annualized ratio of 0.22% of average loans, a decrease of $19 million compared to Q2 2025.

The commercial real estate (CRE) office portfolio remains an area of elevated focus due to fundamental changes in office demand. At September 30, 2025, outstanding loan balances in the office portfolio totaled $5.40 billion, with criticized loans at 34.90% and nonperforming loans at 11%. Multi-tenant office loans, representing 54.40% of the portfolio, show the greatest stress, with criticized levels at 57.70% and nonperforming loans at 19.60%. PNC has established reserves of 11.80% against office loans, which are believed to reflect expected credit losses. Management anticipates "continued stress in the office sector, and a portion of this stress will bear itself out as we work through maturities that will approximate 38.70% through the twelve months ended September 30, 2026." However, the provision for credit losses in Q3 2025 saw a slight release of loan reserves, primarily due to an improved outlook for the commercial real estate portfolio, reflecting both lower loss rates and continued runoff. Commercial real estate balances are expected to inflect and turn positive in early 2026.

PNC also manages interest rate risk through NII and EVE sensitivities, employing dynamic deposit beta models and interest rate derivatives, including forward-starting swaps, to hedge exposures. The company's cumulative deposit beta was 37% through September 2025. Regulatory developments, such as proposed changes to MRA (Matters Requiring Attention) processes, are viewed positively, with Bill Demchak noting that if implemented as proposed, it could lead to a "massive work set decline inside of our company" by focusing on fixing issues rather than extensive process. While tariffs and economic uncertainty remain risks, PNC views the environment as "too fluid to reasonably change our estimates at this time" but is actively assessing portfolios. Legal proceedings, including the USAA Patent Infringement Litigation, have seen favorable outcomes for PNC, with significant verdicts against the company being reversed.

Competitive Positioning

PNC operates in a highly competitive financial services landscape, vying with larger national banks and a growing array of indirect competitors. Its core strategy of expanding its national footprint and deepening client relationships is a direct response to the violently apparent structural issues in the banking industry, particularly the deposit shifts to the largest banks and the consolidation of retail share in the U.S.

Compared to global powerhouses like JPMorgan Chase (JPM), PNC's retail banking offerings are more regionally focused, emphasizing community banking and personalized services. While JPM boasts extensive international presence and advanced technological capabilities, PNC differentiates itself through its extensive branch network and in-person customer service, fostering stronger loyalty in local markets. However, PNC acknowledges it may lag JPM in innovation speed and market positioning due to JPM's larger scale and investment capacity.

Against Bank of America (BAC), another retail and commercial banking giant, PNC's personalized branch experience contrasts with BAC's broader digital accessibility. PNC's strengths in local market knowledge and customer service provide a unique value proposition for small businesses, but BAC's digital infrastructure investments could lead to higher efficiency and stronger revenue growth. Similarly, when compared to Wells Fargo (WFC), both banks share a focus on retail and commercial lending. PNC's integrated banking channels and diversified asset management approach provide an edge, while WFC is known for its mortgage expertise. PNC's brand of trust and reliability serves as a key differentiator, though WFC's scale might offer better capital efficiency.

Citigroup (C), with its global institutional focus, presents a different competitive dynamic. While PNC's corporate banking and asset management offerings overlap, PNC's domestic orientation contrasts with Citigroup's global reach. PNC's positioning as a U.S.-focused bank with strong retail ties provides advantages in cost efficiency for domestic services, but it faces the risk of losing ground in shared institutional markets if Citigroup's global strategies attract clients.

Indirect competitors, including fintech companies like PayPal (PYPL) or Block (SQ), and online banks such as Ally Financial (ALLY), pose a threat by offering more accessible, user-friendly, and potentially cheaper services. PNC is responding by investing heavily in its own digital platforms and AI-driven efficiencies to enhance its offerings and maintain competitiveness. For instance, its new online banking platform aims to significantly improve digital customer experience. In private credit, while the market has grown, Bill Demchak notes that PNC has "haven't seen a deal we've lost that we wanted," and has formed a partnership with TCW to retain clients who might otherwise seek private credit solutions. In asset-backed lending, PNC competes effectively against traditional players, leveraging its "big operational business" and "hundreds of field auditors across the country."

PNC's strategic response to this competitive environment is multi-faceted:

• Organic Growth: Aggressive branch expansion in high-growth markets and adding bankers to new markets.
• Targeted M&A: Acquisitions like FirstBank to gain immediate scale and market share in key retail segments.
• Technology Investment: Enhancing digital platforms, leveraging AI for efficiency and improved customer experience, and exploring digital asset solutions through partnerships like Coinbase.
• Capital Discipline: Maintaining a strong capital position to support growth and weather economic shifts.

Outlook and Guidance

PNC's management has provided a clear outlook, projecting continued momentum and strategic execution. For the fourth quarter of 2025, compared to the third quarter of 2025, PNC expects average loans to be stable to up 1%, and net interest income to be up approximately 1.50%. Fee income is projected to be down approximately 3% due to elevated third-quarter capital markets and mortgage servicing rights (MSR) levels, with other noninterest income in the range of $150 million to $200 million. Total revenue is expected to be stable to down 1%, while noninterest expense is anticipated to be up 1% to 2%. Net loan charge-offs are guided to be between $200 million and $225 million.

For the full year 2025 compared to 2024, PNC expects average loans to be up approximately 1%, reflecting a conservative stance given broader economic uncertainties. Net interest income is projected to increase approximately 7%, driven by the ongoing benefit of fixed-rate asset repricing. Non-interest income is expected to be up approximately 4% to 5%, a slight downward revision from earlier guidance due to "heightened economic uncertainty." Total revenue is anticipated to be up approximately 6%, with non-interest expenses increasing approximately 1%. The effective tax rate is expected to be around 19%. This guidance implies that PNC will generate "substantial positive operating leverage in 2025."

Looking further ahead into 2026, management is comfortably optimistic. Rob Reilly stated that for PNC on a standalone basis (excluding FirstBank), "consensus for NII is growth of about billion dollars and that's we see that and we agree with that." Bill Demchak reinforced this, stating, "There's absolutely nothing that has changed on our trajectory of forward NII growth. We will be comfortably above $1 billion on top of this year. For twenty twenty six's number." This NII growth is supported by PNC's securities portfolio being "well-positioned for a steepening yield curve that will support substantial NII growth in 2026." Furthermore, the commercial real estate runoff is expected to "inflect at the beginning of next year," turning positive in 2026.

The economic outlook from PNC's baseline forecast anticipates continued expansion but slower real GDP growth, projected to be below 2% in both 2025 and 2026. The unemployment rate is expected to peak above 4.50% in mid-2026. Management's baseline forecast includes two consecutive federal funds rate cuts of 25 basis points each at the next two FOMC meetings, ending in late-January 2026, bringing the federal funds rate to a range of 3.25% to 3.50%.

Conclusion

PNC Financial Services Group is executing a clear and compelling investment thesis centered on strategic organic growth, technological innovation, and disciplined financial management. The company's aggressive expansion in high-growth retail markets, bolstered by significant branch investments and the transformative FirstBank acquisition, positions it for enhanced market share and deepened customer relationships. Concurrently, PNC's robust NII growth trajectory, driven by fixed-rate asset repricing, and its commitment to operational efficiency through technology and AI, underpin a strong financial outlook, with NIM expected to exceed 3% in 2026 and NII growth comfortably above $1 billion in 2026.

While facing ongoing challenges in the commercial real estate office sector and broader economic uncertainties, PNC's strong capital position, prudent risk management, and strategic responses to competitive pressures provide resilience. The company's focus on leveraging its technological edge to improve customer experience and streamline operations, coupled with a selective approach to M&A, reinforces its competitive standing. For discerning investors, PNC offers a compelling narrative of a diversified financial institution poised for sustained value creation through strategic execution and a fortress balance sheet in a dynamic industry.