PNC lent faster than planned last quarter, but net interest income grew less than forecast

Loans are running far ahead of January's plan

PNC now expects its average loans to grow about 13.5% this year. In January, with the loans from its purchase of FirstBank already counted, the figure was about 8%, and the bank has raised it at every quarterly report since: to about 11% in April, 12.5% in July and now 13.5%. Of the $47 billion of loans added in the first nine months, about $15 billion came with FirstBank and more than $30 billion was won organically, said Robert Reilly, the chief financial officer. William Demchak, the chief executive, said PNC had "grown considerably faster than we anticipated coming into 2026".

Most of the growth has been in what Reilly calls "high credit quality, lower spread loans", mostly to companies. Asked what losses PNC assumes on them, Reilly answered: "Very low." The catch is the spread, the gap between what a loan yields and what the bank pays to fund it. Summed across the balance sheet, that gap is net interest income, $4.2 billion of the quarter's $6.6 billion of revenue.

Late arrivals and thinner spreads cost a little interest income

In the third quarter average loans rose 2.5%, above the 1% to 2% PNC had guided in July, while net interest income rose 2.4%, short of the 3% to 3.5% it had guided. The gap was small, at most about 1% of the quarter's net interest income, but it broke a run: in each of the three quarters before, net interest income had met or beaten the guide given three months earlier. The net interest margin, net interest income measured against the assets that earn it, slipped to 2.94% from 2.96%.

Demchak gave three reasons. Half the quarter's loan growth came in its last two weeks, too late to earn much interest within it. Average loan spreads fell about 3 basis points, partly because higher-yielding loans were paid off and partly because new loans were of higher quality. And escrow balances PNC had expected, which pay no interest, did not arrive. Reilly said the rate paid on core deposits rose as forecast; the biggest difference from plan for the margin was how fast the low-spread loans came in. Demchak's summary: "you stick a calendar end date on this stuff and you miss something and you get it back".

PNC says the thin-spread loans pay through fees

Management argues that interest income understates what these loans earn. In July, offered the choice between a lower margin with higher earnings per share and the reverse, PNC said it would take the earnings every time. This time Reilly tied the corporate loans to capital-markets fees, up about 40% so far this year, and said: "So if you just look at NII and NIM in isolation, you're not seeing the whole transaction."

Fees have also done most of the work in the raised guidance for the year. Of the extra revenue PNC now expects compared with its January plan, nearly two-thirds comes from fees and other noninterest income rather than from interest. Not all of it comes from lending, though: Demchak said favourable equity markets had helped asset-management fees.

The margin should reach 3% this quarter, PNC says

For the fourth quarter PNC guides to average loans up about 2.5% and net interest income up about 4%. The late arrivals should help: Demchak said their benefit rolls into the forecast, and loans at the end of September already stood at $378.8 billion, above the quarter's $372.2 billion average. The results presentation says PNC expects a net interest margin of 3.0% or above, the timing Reilly gave in July when he said it would go above 3% by the end of the year.

Demchak keeps his distance from the number: "I'm not going to talk about NIM because it's an outcome." In Reilly's account, rising loan yields and rising deposit costs roughly cancel out, and the lift comes from older fixed-rate securities being replaced at higher yields; about $5 billion yielding 2.65% runs off this quarter, against a portfolio yield of 3.59%.

The same repricing underpins the first word on 2027. Reilly called it "a bit premature for guidance, certainly precision guidance", but said he thought PNC would agree with analysts' estimates that net interest income would grow by $1 billion to $1.1 billion. On the company's figures that is roughly 6% to 6.6%, slower than this year's growth, which includes FirstBank. The rates behind it have turned: January's plan assumed Federal Reserve cuts in July and September, while PNC now assumes increases in December and March. Reilly: "When we get out into January, of course, we'll have more precision around it."