PNC Financial (PNC) Signals Confident Growth After Record Year

PNC Financial Services ((PNC)) has held its Q4 earnings call. Read on for the main highlights of the call.

PNC Financial Services Earns Record Results While Investing for Growth

PNC Financial Services’ latest earnings call struck an upbeat tone, balancing record financial performance and robust capital returns with a candid acknowledgment of near-term cost and credit headwinds. Management highlighted strong 2025 results, improving capital ratios, and an accretive acquisition in FirstBank, while signaling confidence through ambitious 2026 growth and operating leverage targets. Although integration and investment spending, as well as higher projected charge-offs, will pressure near-term results, the overall message was one of solid momentum and disciplined execution.

Record Full-Year Financial Performance

PNC delivered its best full-year performance to date, underscoring the strength of its core franchise. Net income for 2025 reached $7.0 billion, with diluted EPS of $16.59—up a robust 21% from the prior year. Total revenue increased by $1.5 billion, or 7% versus 2024, driven by both lending and fee businesses. Pre-provision net revenue (PPNR) grew an impressive 15%, and the bank achieved 5% positive operating leverage for the year, meaning revenues grew notably faster than expenses. This combination points to a franchise that is not only growing but doing so more efficiently.

Strong Fourth-Quarter Results Underpin Momentum

Fourth-quarter results reinforced the full-year strength, with PNC posting record quarterly revenue of $6.1 billion, up 3% from the prior quarter. Net interest income rose 2% to $3.7 billion, supported by balance sheet growth and a 5 basis-point improvement in net interest margin to 2.84%. Noninterest income also advanced 3% to $2.3 billion. The balanced growth in both interest and fee revenue suggests healthy underlying activity across customer segments, setting a solid base entering 2026 despite pockets of softness, such as mortgages.

Balance Sheet Growth and Capital Strength

PNC’s balance sheet continues to expand while maintaining strong capital levels. Average loans in the fourth quarter reached $328 billion, up 1% sequentially and 3% year over year, demonstrating steady loan demand. Average deposits climbed to $440 billion, up 2% quarter over quarter, enhancing funding stability. Tangible book value per share rose to $112.51, an increase of 4% from the prior quarter and 18% from a year earlier—an important marker of shareholder value creation. Regulatory capital remains solid with an estimated CET1 ratio of 10.6%, or 9.8% including AOCI, providing flexibility for growth, investment, and capital return even after the FirstBank acquisition.

Robust Capital Return to Shareholders

PNC continues to balance growth initiatives with meaningful returns to investors. During the quarter, the bank returned $1.1 billion of capital through $676 million in common dividends and nearly $400 million in share repurchases. Looking ahead, management signaled an intention to maintain a strong capital return profile, guiding to a quarterly share buyback pace of $600–$700 million in 2026. This sustained buyback activity, combined with growing tangible book value, underscores management’s confidence in the earnings trajectory and the bank’s valuation.

FirstBank Deal Designed to Drive Long-Term Accretion

The closing of the FirstBank acquisition represents a major strategic move aimed at expanding PNC’s footprint and earnings power. The purchase, valued at roughly $4.2 billion and funded with about 30% cash and 70% stock (13.9 million shares issued), is expected to reduce the CET1 ratio by around 40 basis points—manageable within PNC’s capital framework. Management projects an attractive internal rate of return of about 25%, with FirstBank expected to contribute roughly $1.00 per share on an annualized basis by the end of 2027 and full operational integration targeted by year-end 2026. While near-term integration costs will weigh on expenses, the transaction is positioned as a clear long-term positive for earnings and scale.

Positive 2026 Outlook and Operating Leverage Focus

PNC laid out ambitious but structured guidance for 2026, signaling confidence in continued growth. The bank expects average loan growth of about 8%, total revenue to rise around 11%, net interest income to jump 14%, and noninterest income to grow 6%. Noninterest expenses are projected to increase 7%, excluding $325 million of integration costs, enabling management to target roughly 400 basis points of positive operating leverage. Notably, nearly all of that leverage is expected to come from the PNC standalone business, indicating that the core franchise is poised to improve efficiency even before the full benefits of FirstBank are realized.

Expense Discipline and Continuous Improvement

Despite record investments, PNC held full-year noninterest expense growth to just 2%, reflecting tight cost control and productivity efforts. The bank’s continuous improvement program (CIP) exceeded its $350 million savings target for 2025, helping to fund growth initiatives without eroding margins. Management has set a fresh CIP target of another $350 million in savings for 2026. These ongoing efficiency measures are central to PNC’s ability to support expanding technology and branch investments while still delivering the positive operating leverage promised in its guidance.

Credit Quality Remains Healthy

Credit metrics remain a source of comfort for investors. The allowance for credit losses stands at $5.2 billion, or 1.58% of total loans, providing a solid buffer against potential deterioration. Nonperforming loans are a modest 0.67% of loans, down from 0.73% a year ago, while total delinquencies are unchanged year over year at 0.44% of loans. Net loan charge-offs were $162 million, or 20 basis points of average loans, down $17 million from the prior quarter. PNC even recorded a slight reserve release, as reflected in a $139 million provision for credit losses, reinforcing management’s view that the portfolio remains resilient despite a more normalized credit environment.

Scaling Technology and Strategic Investments

A key theme of the call was PNC’s commitment to large-scale technology and strategic investments aimed at positioning the bank for the future. The company plans to maintain an elevated tech and strategic spend level, with a baseline around $3.5 billion and expected growth of about 10%. Artificial intelligence accounts for roughly 20% of the incremental increase, signaling a significant push into automation, analytics, and digital customer engagement. Additional investments will go toward branch expansion, payments modernization, cloud-native application migration, and data-center modernization. Management framed these outlays as essential to long-term competitiveness, even as they raise the near-term expense base.

Integration-Related and One-Time Costs from FirstBank

While strategically attractive, the FirstBank acquisition brings meaningful one-time costs as PNC integrates systems and operations. Management expects approximately $325 million in nonrecurring merger and integration expenses, with most of that recognized in 2026. These costs will temporarily elevate the expense line and mask some of the underlying operating leverage. Investors will be watching how efficiently PNC executes on integration milestones, as timely consolidation of platforms and back-office functions is crucial to achieving the targeted returns and synergies from the deal.

Elevated Near-Term Charge-Off Guidance

PNC flagged that credit costs are likely to tick up in the near term. For the first quarter of 2026, management guided net charge-offs to approximately $200 million, above recent quarterly levels. While still manageable in the context of PNC’s earnings power and loan loss reserves, the higher charge-off outlook introduces a modest headwind to early-2026 earnings and highlights a normalizing credit cycle. The bank nonetheless emphasized that overall credit quality remains solid and that it is proactively managing risk across its portfolios.

Mortgage Revenue Softness and Market Volatility

One notable area of weakness was mortgage-related revenue, which fell $13 million, or 8%, sequentially. The decline was primarily driven by lower mortgage servicing rights (MSR) hedging activity following elevated levels in the third quarter. This underscores ongoing volatility in mortgage fees and hedging results, a theme seen across the industry amid shifting rate expectations and housing activity. While mortgage is not the dominant earnings driver for PNC, its variability can add noise to quarterly noninterest income trends.

Modest Uptick in Nonperforming Loans

Although credit metrics remain strong overall, PNC did report a modest increase in nonperforming loans. NPLs rose by $81 million, or 4%, from the prior quarter. Importantly, the nonperforming loan ratio still improved from a year ago, at 0.67% versus 0.73% previously. Management appeared comfortable with this level, suggesting that the uptick reflects normal portfolio churn rather than broad-based stress. Investors are likely to monitor whether this is an isolated move or the early stages of a broader credit normalization.

Yield Compression and Securities Balances

The interest-rate environment continues to influence PNC’s asset yields and securities portfolio. Total loan yield declined 16 basis points quarter over quarter to 5.6%, reflecting rate dynamics and competitive pricing pressures. At the same time, investment securities decreased by $2 billion, or 2%, from the prior quarter, as the bank adjusted its portfolio in response to market conditions and reinvestment opportunities. While these trends contributed to some pressure on earning-asset yields, PNC still managed to expand its net interest margin, highlighting effective balance sheet management.

Higher Structural Expense Base Brings Execution Risk

PNC’s aggressive investment agenda inevitably raises its expense baseline. Record and growing spend on technology, branches, and AI initiatives, combined with integration and inflation, means noninterest expense is set to rise about 7% in 2026 excluding integration costs. Management plans to offset a significant portion of this through its continuous improvement program and scale benefits, but there is clear execution risk. Achieving the targeted 400 basis points of positive operating leverage will depend on realizing efficiency gains on schedule and ensuring that new investments translate into faster revenue growth.

Forward Guidance Points to Strong 2026 Growth

Looking ahead, PNC’s guidance paints a picture of robust, if not flawless, growth in 2026. The bank expects full-year average loans to grow about 8%, with total revenue up roughly 11%, powered by a 14% rise in net interest income and a 6% increase in noninterest income. Noninterest expenses are projected to climb 7% excluding around $325 million of integration costs, driving about 400 basis points of positive operating leverage. The effective tax rate is expected to be about 19.5%. FirstBank is projected to be fully integrated by year-end 2026, reduce CET1 by roughly 40 basis points (with a near-term target of about 10% CET1), and add around $1.00 per share to earnings in 2027, underpinning an estimated 25% IRR. For the first quarter of 2026, PNC guides to approximately 5% average loan growth, a 6% increase in net interest income, a 1–2% decline in fee income, other noninterest income of $150–$200 million, total revenue growth of 2–3%, noninterest expense (excluding integration) up about 4%, and net charge-offs around $200 million. Capital return is expected to remain robust, with planned quarterly share repurchases in the $600–$700 million range.

In sum, PNC Financial Services delivered record earnings and displayed strong capital management, all while laying out an ambitious plan to grow and modernize the franchise. The bank’s strategy hinges on balancing heavy investment and integration costs against disciplined expense control and solid credit quality. If management can execute on its efficiency targets and successfully integrate FirstBank, the combination of accelerating revenue growth, positive operating leverage, and ongoing capital returns positions PNC as an attractive name for investors seeking a bank with both scale and long-term growth prospects.