TipRanks Smart Value #57: Future Upside
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Dear Investors,
Dear Investors,
Welcome to the 57th edition of the TipRanks Smart Value Newsletter.
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This Week’s Top Value Pick: PNC Financial Services (PNC)
PNC Financial Services Group (PNC) is a U.S.-based diversified financial services company providing retail and business banking, asset management, and corporate and institutional banking solutions. Its operations span consumer deposits and lending, commercial and real estate finance, treasury management, and investment management through PNC Asset Management. PNC is one of the largest regional banks in the United States, with a strong presence across the Midwest, Northeast, Southeast, and Mid-Atlantic regions.
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Banking Blueprint
PNC Financial Services Group traces its origins to 1845, when the Pittsburgh Trust and Savings Company were founded to support the rapidly industrializing economy of western Pennsylvania. Over the following century, the bank expanded alongside the region’s steel, manufacturing, and energy industries, building a durable commercial banking franchise focused on middle-market and corporate clients. The modern PNC organization emerged in 1983 from the merger of Pittsburgh National Corporation and Provident National Corporation of Philadelphia, creating one of Pennsylvania’s largest banks and establishing a platform for broader regional growth.
Throughout the 1990s and early 2000s, PNC pursued a disciplined consolidation strategy, using targeted acquisitions to expand across the Midwest and Mid-Atlantic while maintaining a conservative risk profile. A pivotal moment came during the 2008 financial crisis with the acquisition of National City Corporation. The transaction practically doubled PNC’s size, significantly expanded its deposit base, and strengthened its presence in the Midwest. The integration was executed with relatively limited credit deterioration as well, enabling PNC to emerge from the downturn with enhanced earnings power.
In the years that followed, PNC shifted its emphasis toward efficiency, technology investment, and deeper client relationships. The bank broadened its corporate and institutional banking capabilities, strengthened asset management and capital markets through its Harris Williams advisory platform, and built a national digital retail franchise without adopting a coast-to-coast branch strategy. These initiatives supported steady margin improvement, rising fee income, and higher returns on tangible equity.
Over the past decade, acquisitions have remained central to PNC’s long-term growth strategy, particularly in expanding fee-based and advisory businesses. In 2017, PNC acquired Fortis Advisors to enhance shareholder-focused merger advisory services and The Trout Group to add investor relations advisory expertise. In 2019, it purchased Sixpoint Partners, a private equity advisory firm that was fully integrated into Harris Williams in 2023, further extending its advisory reach. The most transformative transaction was the acquisition of BBVA USA Bancshares in June 2021, which positioned PNC as the fifth-largest U.S. bank by assets at the time. The deal expanded PNC’s footprint across high-growth Sun Belt markets, including Texas, Colorado, Arizona, and parts of the Southeast, while adding substantial low-cost deposits and operating leverage that materially lifted earnings. In 2023, PNC further strengthened its private equity and alternative investment financing platform by acquiring a nearly $17 billion capital commitments portfolio from Signature Bridge Bank, deepening relationships with financial sponsor clients.
That expansion continued in January 2026, when PNC completed the $4.2 billion acquisition of FirstBank Holding Company. The transaction added approximately $26 billion in assets and reinforced PNC’s presence in Colorado and Arizona. The deal involved the issuance of about 13.9 million shares and reduced the CET11 capital ratio by roughly 40 basis points, in line with expectations. Following the acquisition, PNC expects its CET1 ratio to settle in the 10.2%–10.3% range, maintaining a solid capital buffer. Integration is progressing as planned, with systems conversion scheduled for June 2026. Management expects the transaction to generate an internal rate of return of approximately 25% and to add about $1 per share to earnings in 2027, driven by operating efficiencies and revenue synergies from cross-selling PNC’s broader product suite, including capital markets and wealth management services.
Today, PNC operates as a national bank with strong regional franchises, supported by a diversified loan portfolio, expanding fee-based businesses, and a robust capital position. Its long-standing focus on disciplined acquisitions, organic growth, and technology-driven efficiency has enabled consistent earnings growth and rising shareholder returns across economic cycles.
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1-The CET1 ratio measures a bank’s core equity capital strength relative to its risk-weighted assets. It is a key regulatory metric introduced under Basel III to ensure banks can absorb losses during stress.
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Earnings Engine
PNC Financial Services Group operates a diversified banking model that generates earnings through a balanced mix of net interest income – the spread between interest earned on loans and securities and interest paid on deposits – and recurring fee-based revenues, supported by disciplined expense management. At its core, the bank gathers deposits at scale and deploys those funds into loans and securities, while also earning fees from advisory, asset management, and transaction-based services. This diversified structure supports more consistent performance across economic cycles.
The foundation of PNC’s earnings is its large, stable deposit base, which provides a relatively low-cost source of funding. These deposits support a loan portfolio weighted toward commercial and industrial lending, commercial real estate, and relationship-driven middle-market banking, with more modest exposure to consumer segments. This mix allows the bank to benefit from business investment and economic growth while maintaining conservative credit standards, supported by active balance-sheet management and disciplined loan pricing across interest-rate environments.
Beyond lending, fee-based businesses represent a meaningful and growing contributor to revenue. Asset management and wealth services generate recurring fees tied to client relationships and asset balances, while capital markets and advisory income – led by Harris Williams – benefit from mergers and acquisitions, private capital activity, and corporate finance demand. Treasury management, card, and cash management services provide transaction-based revenue that scales with client activity, deepens relationships, and offers capital-light income streams.
PNC’s operating model is reinforced by a focus on efficiency and long-term scalability. The bank continues to invest in technology, data, and automation to enhance productivity, strengthen risk management, and improve digital client engagement. Technology spending is expected to increase by roughly 10% in 2026, with approximately 20% of incremental investment directed toward artificial intelligence initiatives aimed at improving productivity, risk management, and client service. These investments are supported by continuous improvement initiatives, including automation, vendor rationalization, and tighter cost controls, allowing the bank to drive operating leverage while maintaining expense discipline. Importantly, PNC has pursued national expansion selectively, focusing on markets where it can achieve scale and attractive returns.
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Growth Trajectory
Management maintains a disciplined and flexible capital strategy, supported by strong earnings generation. The common equity Tier 1 (CET1) ratio is expected to trend towards the 10% level over time, though management views this as an outcome rather than a fixed target. Capital levels are managed within a prudent range, adjusting to changes in interest rates, loan growth, and credit conditions. Additionally, accumulated other comprehensive income (AOCI), which reflects unrealized gains and losses on securities, can introduce variability due to movements in bond prices and the yield curve. This approach allows the bank to maintain capital strength while adapting to changing market conditions.
Net interest income remains the primary earnings driver, with deposit costs expected to decline over time as higher-rate promotional deposits roll off and balances stabilize. In a higher-for-longer rate environment, loan yields are likely to remain elevated while deposit costs adjust more gradually, supporting margin stability and reducing sensitivity to the timing of rate cuts.
PNC entered 2025 with solid lending momentum, with total loans growing approximately 5% for the year, driven by broad-based strength in commercial and industrial (C&I) lending, partially offset by a deliberate reduction in commercial real estate exposure. By the fourth quarter, total loan growth accelerated to 9%, even as C&I balances moderated sequentially due to portfolio rebalancing. Moving into 2026, the real estate reduction phase is largely complete, and balances are stabilizing, with early signs of renewed growth supported by a significant increase in activity. The pipeline has expanded approximately 300% year over year across multifamily, retail, industrial, and selectively office segments focused on higher-quality assets. As a result, real estate is expected to shift from a headwind to a more balanced contributor alongside commercial lending.
Deposits were another key source of strength, growing approximately 8% faster than loans and allowing the bank to fund expansion internally without relying on higher-cost wholesale funding. This growth was achieved without aggressively increasing deposit rates, reflecting strong pricing discipline. While client liquidity levels have begun to normalize, balances remain elevated, suggesting a cautious stance among businesses. Looking ahead, deposit growth is expected to moderate while continuing to support funding stability and margin resilience.
On the credit side, PNC continues to follow a through-the-cycle underwriting approach, structuring loans to perform across different economic environments rather than reacting to short-term uncertainty. Within its exposure to software and recurring-revenue companies, risk is mitigated through conservative structures, including senior positioning, low leverage, strong covenants, and private equity sponsorship. These portfolios are actively monitored through regular reviews and evolving risk assessments. More broadly, potential risk areas such as energy, transportation, and consumer sectors are being closely tracked but have not shown signs of stress, while commercial real estate exposure, particularly in office properties, has been proactively reduced, with overall portfolio performance stabilizing.
Geographic expansion remains a key long-term growth driver. Following the BBVA acquisition and expansion into markets such as Denver, PNC is gaining traction in underpenetrated regions, adding approximately 700 new clients in 2025 and increasing lead relationships and syndicated activity by 150%. Despite this progress, market share in several high-growth regions remains relatively low, providing a meaningful runway for future expansion. Importantly, this growth is being achieved without compromising underwriting standards.
Looking ahead, expansion markets are expected to contribute approximately 40% of overall growth over the next five years. Combined with strong fee-based businesses, disciplined capital management, and a conservative credit approach, PNC is positioned for steady, relationship-driven growth while maintaining earnings stability and financial strength.
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Steady Ascent
Over the past three years, PNC Financial Services has delivered steady top-line growth alongside stronger earnings expansion. Revenues increased at a CAGR of 2.6%, while EPS grew at a faster 6.2% pace, reflecting operating leverage and disciplined cost management. Higher net interest income, driven by lower funding costs, asset repricing, and deposit growth, was the primary earnings engine, complemented by rising noninterest income from capital markets, advisory, and asset management. Stable credit quality and controlled expenses further supported this performance.
That trajectory culminated in record results in the fourth quarter of 2025. Total revenue reached $6.1 billion, up 3% from the prior quarter and ahead of consensus expectations. For FY25, revenue increased to around $23 billion, representing a 7% year-over-year gain, supported by balanced contributions from both interest and fee-based businesses. Net income for the fourth quarter totaled $2 billion, translating to earnings of $4.88 per share and exceeding Street expectations. For FY25, net income increased to $7 billion, or $16.59 per share, representing a 21% year-over-year rise.
Net interest income totaled $3.7 billion in the fourth quarter, rising 2% sequentially, driven largely by loan and deposit repricing. Net interest margin expanded to 2.84%, up 5 basis points from the third quarter. Noninterest income increased to $2.3 billion, up 3% quarter over quarter, and reached $8.7 billion for the full year, an 8% increase from 2024. Within fee income, capital markets and advisory revenues posted the strongest sequential growth, rising 13%, in the quarter, while asset management, brokerage, and lending and deposit services recorded modest gains. These increases were partly offset by an 8% sequential decline in mortgage banking revenue and a slight decrease in card and cash management fees.
Noninterest expense increased 4% sequentially to $3.6 billion in the fourth quarter and was up 2% for the full year. For the full year, expenses increased 2% year over year. Despite higher costs, pre-provision net revenue2 reached a record $2.5 billion in the quarter and increased 15% year over year, highlighting strong operating leverage. Credit costs remained well controlled, with a provision for credit losses of $139 million.
PNC ended the fourth quarter with loans of $328 billion, up 3% from a year earlier. Loan growth was led by commercial activity, with commercial balances rising $10 billion, or 5%, more than offsetting a $1 billion, or 1% decline, in consumer loans. On a spot basis, loans increased $5 billion, or 2%, sequentially, while investment securities declined 2% to approximately $142 billion.
Credit quality remained stable. Nonperforming loans accounted for 0.67% of total loans, improving from 0.73% a year earlier, even as balances increased modestly by $81 million, or 4%, sequentially. Delinquencies were 0.44%, unchanged year-over-year and only slightly higher sequentially, indicating limited borrower stress. The allowance for credit losses totaled $5.2 billion, equal to 1.58% of loans, and included a small reserve release in the fourth quarter.
Deposits increased to $440 billion, up 2% sequentially, supported in part by seasonal growth in commercial balances. Noninterest-bearing deposits rose to $95 billion, accounting for 22% of total deposits, while the average rate paid on interest-bearing deposits declined 18 basis points sequentially to 2.14%. Borrowings fell by $6 billion to $60 billion, reflecting improved funding conditions. AOCI improved to a negative $3.4 billion, a 16%, sequential improvement. Tangible book value rose to $112.51 per share, up 18% year-over-year. The CET1 ratio stood at 10.6%, or 9.8% including AOCI. Return on tangible common equity stood at approximately 18% at the end of the fourth quarter and averaged 16.4% for FY25.
Looking ahead, PNC’s 2026 outlook assumes U.S. real GDP growth of about 2%, unemployment around 4.5%, and two 25-basis-point rate cuts in July and September. Guidance reflects the combined performance of PNC and FirstBank. For 2026, average loans are expected to grow about 8%, while total revenue is projected to rise around 11%, led by 14% net interest income growth and 6% non-interest income growth, including about $100 million from FirstBank. Noninterest expense is expected to increase about 7%, excluding $325 million in integration costs, producing positive operating leverage of roughly 400 basis points.
In the first quarter of 2026, average loans are expected to rise about 5%, net interest income about 6%, and total revenue between 2% and 3%. Net interest margin is expected to approach approximately 3% in the second half of 2026. PNC is expected to announce its Q1 results on April 15 and analysts expect the bank to announce EPS of $3.92 on revenues of $6.24 billion.
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2- Pre-provision net revenue (PPNR) measures a bank’s core profitability from its primary operations before accounting for credit loss provisions. It is calculated as net interest income plus noninterest income, minus noninterest expense.
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Value Momentum
Over the past year, PNC’s stock has gained around 39%, rebounding sharply from a 2025 low of about $145 to near-record highs around $242 in early 2026, recently trading near $212 after a modest pullback driven by broader market factors. The rally was supported by strong 2025 earnings growth, expanding net interest margins, the accretive FirstBank acquisition, and increased capital returns through buybacks and dividends. Despite some volatility tied to macro conditions and rate expectations, the outlook remains constructive, with expectations of continued loan growth, margin expansion, and integration-driven earnings upside, alongside risks from economic uncertainty and competitive pressures.
These factors are reflected in the valuation, which remains moderate despite the strong rally over the past year. Compared with peers such as U.S. Bancorp, Truist Financial, and Fifth Third Bancorp, PNC trades broadly in line with peers, suggesting the market is already pricing in its current earnings profile. On a forward P/E basis, the stock also trades in the mid-range relative to peers, indicating a balanced valuation that reflects steady, but not outsized, earnings growth expectations. However, on a forward PEG basis, PNC appears relatively more attractive, with a ratio below or in line with most peers. This suggests that when adjusting for expected earnings growth, the stock offers reasonable value, implying that its growth outlook is not fully stretched in the current valuation.
From a profitability standpoint, PNC sits around the middle of the peer group on both ROA and ROE. Its ROA trends are competitive relative to most peers, highlighting efficient asset utilization for a regional bank, indicating that the bank is doing a good job generating earnings from its balance sheet, a clear strength, especially versus both U.S. Bancorp and Truist, while its ROE remains in the mid-tier with improving momentum, supporting the outlook for continued earnings growth.
Analysts remain bullish about PNC stock as the bank’s capital return strategy, anchored by consistent share buybacks, reflects strong excess capital generation and supports EPS growth while maintaining flexibility for investment. At the same time, improved leverage and capital ratios enhance financial resilience and provide capacity for continued lending, growth, and shareholder returns. The FirstBank acquisition further strengthens the outlook, expanding PNC’s presence in higher-growth markets and is expected to be earnings-accretive, supporting long-term revenue growth and franchise scale.
Street consensus implies roughly 19% upside from current share levels, with more bullish forecasts pointing to potential gains of up to 28%. This optimism is reinforced by discounted cash flow analysis, which indicates that PNC shares may be trading at an estimated 37% discount to intrinsic value, suggesting meaningful valuation support for investors.
PNC has maintained a consistent dividend record since 1987 and has increased its payout steadily over the past 15 years, underscoring a long-standing commitment to shareholder returns. Over the last decade, the dividend has grown at a CAGR of 12.6%. Supported by adjusted earnings, the company distributes roughly 40% of profits to shareholders, resulting in a dividend yield of about 3.11%, which is more than double the financial sector average of approximately 1.3%.
Capital returns remain a central element of PNC’s financial strategy alongside ongoing investments for growth. In the fourth quarter of 2025, the company returned $1.1 billion to shareholders, comprising $676 million in dividends and $400 million in share repurchases. Looking ahead to 2026, management expects to maintain an active buyback program, targeting $600 million to $700 million in share repurchases per quarter, while preserving the flexibility to allocate capital toward attractive growth opportunities as they emerge.
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Investing Takeaway
PNC’s valuation profile points to a stock that is neither deeply discounted nor fully stretched, creating a compelling setup for value-oriented investors seeking a balance between quality and price. While the market already reflects its stable earnings base and disciplined execution, the shares still offer relative value when adjusted for growth, suggesting that future earnings potential is not fully priced in. The bank’s consistent profitability, conservative underwriting, and diversified revenue streams provide a solid foundation that supports downside resilience. At the same time, ongoing integration benefits, margin expansion, and steady loan growth create a pathway for incremental upside. For long-term investors, this combination of reasonable valuation, durable earnings power, and improving growth visibility positions PNC as a steady compounder with attractive risk-reward characteristics.
