PNC's Profit Beats Forecasts--but a Hidden Margin Squeeze Sends Shares Tumbling

PNC Financial Services Group PNC could be in a tougher spot than investors hoped. The bank's net interest margin slipped to 2.79% in the third quarter, missing the 2.86% analysts had penciled in and drifting further from management's 3% year-end goal. Truist analyst John McDonald called the move a step in the wrong direction, as the Pittsburgh-based lender continues to rely more heavily on costlier commercial deposits. Those depositsup almost 10% year over year to $144 billionare helping PNC grow its corporate footprint but at the expense of margin pressure that has weighed on the stock, which dropped 4.1% in early New York trading.

Underneath that, though, the numbers weren't bad. PNC posted earnings per share of $4.35, ahead of the $4.04 consensus, on revenue of $5.92 billion versus expectations of $5.8 billion. Credit performance held steady, with provisions for loan losses coming in lighter than forecast at $167 million and net charge-offs easing to $179 million, helped by improving trends in commercial real estate. CEO Bill Demchak struck an upbeat tone, saying credit quality remained strong and capital levels continued to build. Those trends suggest the bank's core operations are still resilient even as higher funding costs trim the spread between what it earns and what it pays out.

Longer term, investors are eyeing PNC's $4.1 billion agreement to acquire FirstBank Holding Co., its biggest purchase in at least four years. The deal, which Demchak said effectively bought Colorado, could accelerate PNC's push across the Mountain West, particularly in Colorado and Arizona. Analysts like Piper Sandler's Scott Siefers say that while PNC's appetite for deals may unsettle some investors, its record of execution and steady earnings momentum could make it a durable standalone storyone capable of delivering growth even without more acquisitions.