Morningstar

PNC Earnings: Sequential Contraction in Net Interest Margin Not the Whole Story

We do not think AI tools are a significant near-term threat to PNC’s deposit base, as banking relationships are built on trust.

PNC bank logo sign.
Beata Zawrzel/NurPhoto via Getty
Securities in This Article
PNC Financial Services Group Inc
(PNC)

Key Morningstar Metrics for PNC Financial Services

  • Fair Value Estimate
    : $253.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of PNC Financial Services’ Earnings

PNC Financial Services PNC reported OK third-quarter results, with adjusted earnings per share growing 17% year over year, excluding noncore items. The bank raised its 2026 fee income growth guidance by 1.5 percentage points and its expense guidance by 1.0 point.

Why it matters: The headline net interest margin contracted 2 basis points from the second quarter to 2.94%, worse than some peers that have reported this cycle. But we will not read too much into the sequential contraction, given that PNC’s loan mix shifted toward higher-quality borrowers, which compressed credit spreads.

  • In addition, some of the lower-credit-spread commercial loans came from multiproduct client relationships, which include capital-light fee income and are accretive to returns.
  • The bank’s interest-bearing deposit costs increased 7 basis points sequentially, or 5 basis points excluding brokered CDs, in line with most peers and our previous expectation. Management still expects the fourth-quarter net interest margin to be above 3%, given fixed-rate asset repricing, loan growth, and deposit repricing.

The bottom line: As we incorporate the latest results and updated guidance, we do not anticipate making a material change to our $253 fair value estimate for narrow-moat-rated PNC Financial. We assess the shares as undervalued.

  • We previously incorporated a higher deposit beta forecast in the current interest rate hiking cycle, which implies deposit funding costs rising more than management guidance for a beta similar to the historical level.

Big picture: We do not think personal artificial intelligence tools are a significant near-term threat to the bank’s deposit base, as banking relationships are built on trust. In addition, PNC is working on improving its digital tools so customers can optimize their deposit rates within the bank.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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