Key Factors to Affect PNC Financial (PNC) in Q4 Earnings
The PNC Financial Services Group, Inc. PNC is scheduled to report its fourth-quarter 2023 earnings before the opening bell on Jan 16. The company’s revenues and earnings are expected to have witnessed year-over-year declines.
In the last reported quarter, its earnings outpaced the Zacks Consensus Estimate on a fall in non-interest expenses and lower provisions. However, a decrease in net interest income (NII) and non-interest income acted as a headwind.
Notably, PNC Financial has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters and missed once, delivering an earnings surprise of 3.41%, on average.
The PNC Financial Services Group, Inc Price and EPS Surprise
The PNC Financial Services Group, Inc price-eps-surprise | The PNC Financial Services Group, Inc Quote
Key Developments During the Quarter
In October, PNC Financial, through an agreement with the Federal Deposit Insurance Corporation, purchased a portfolio of capital commitment facilities from Signature Bridge Bank, N.A.
PNC Financial purchased a portfolio of $16.6 billion in total commitments. The acquired portfolio primarily consists of credit lines to private equity firms. These credit lines help firms manage liquidity and get financing for investments. Of this, more than half or $9 billion of the acquired portfolio was in funded loans.
The transaction is expected to be immediately accretive to the bank’s earnings by 10 cents per share in fourth-quarter 2023.
Now, let us discuss factors that are likely to have impacted PNC Financial’s fourth-quarter performance.
Loans and NII: Banks’ lending activities have been subdued in the fourth quarter due to low corporate confidence, an uncertain macroeconomic outlook and high interest rates. While demand for commercial real estate loans improved slightly in November from the third-quarter 2023 end, per the Fed’s latest data, consumer lending showed no signs of advancement. Moreover, the demand for commercial and industrial loans weakened in the first two months of the quarter under review from third-quarter 2023.
Also, while the Federal Reserve paused interest rate hikes in fourth-quarter 2023, interest rates were at a 22-year high of 5.25-5.5%.
An overall slowdown in loan demand and high interest rates are expected to have affected PNC’s lending activities in the quarter under review.
As for deposits, banks are likely to have enjoyed a stronger seasonal uptick in deposits. This, along with slower outflow of money to high-yielding alternatives and limited deposit pricing pressure, is expected to have reduced funding pressure for banks. This is expected to have aided fourth-quarter 2023 NII.
The company expects average loans to rise 3% sequentially. Management anticipates NII to decline 1-2% sequentially. The Zacks Consensus Estimate for NII (on a fully taxable-equivalent or FTE basis) of $3.41 billion indicates a sequential decline of 3.6%. We predict NII on a FTE basis of $3.39 billion.
Non-Interest Revenues: The high inflation was curbed in the fourth quarter. This is likely to have decreased consumer card transactions and spending volumes, thereby hindering PNC’s card fees in the quarter under review. The Zacks Consensus Estimate for card and cash management revenues of $687 million suggests a sequential fall.
The consensus estimate of $347 million for asset management and brokerage revenues implies a marginal sequential fall.
In the fourth quarter, mortgage rates declined, with the rate on a 30-year fixed mortgage falling to 6.61% in December from 7.31% in September end. Nonetheless, due to home price appreciation, origination volumes (both purchase and refinancing) remained lower than that in the prior quarter.
Thus, these factors are expected to have hurt PNC Financial’s residential and commercial mortgage revenues. The Zacks Consensus Estimate for the same of $146 million suggests a decline of 27% sequentially.
Merger and acquisition activities continued to be depressed in the fourth quarter, with total deal value declining from the prior year. Nonetheless, green shoots were observed in the capital markets and issuance activities. The major factor driving a better picture was the stabilizing interest rate environment. Thus, the company’s capital markets and advisory revenues are likely to have improved. The Zacks Consensus Estimate for the same of $243 million indicates 44% growth sequentially.
Overall, management envisions fee income to rise 1% sequentially. The Zacks Consensus Estimate for non-interest income is pegged at $1.90 billion, suggesting a 5% increase sequentially. Our estimate for the metric is pegged at $1.87 billion.
Expenses: Technology investments and general inflationary pressures are likely to have inflated costs, while wage inflation is anticipated to have escalated personnel expenses. Such a rise in expenses is expected to have limited bottom-line growth in the fourth quarter. Nonetheless, its focus on cost-containment measures and staff reductions is likely to have reduced expenses to some extent, offering support.
Management predicts adjusted non-interest expenses to sequentially rise 3-4%. Our estimate for the metric is pegged at $3.36 billion, indicating a sequential rise 3.8%.
Asset Quality: PNC Financial is expected to have set aside substantial money for potential bad loans, given the uncertain macroeconomic outlook, slower GDP growth and the likelihood of deteriorating employment conditions. With credit cost normalizing, modest reserve built during the quarter is expected to have weighed on PNC’s bottom-line growth. Our estimate for provision for credit losses is pegged at $278.9 million for the fourth quarter.
Management expects net charge-offs between $200 million and $250 million for the December-end quarter.
What the Zacks Model Reveals
Our proven model does not predict an earnings beat for PNC Financial this time around. This is because it does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for PNC Financial is -11.18%.
Zacks Rank: PNC currently carries a Zacks Rank of 3.
PNC’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of $2.83 has moved marginally downward in the past month, reflecting the bearish sentiments of analysts. Further, the figure indicates an 18.9% dip from the year-ago reported number.
Also, the consensus estimate for revenues is pegged at $5.28 billion, suggesting a year-over-year fall of 8.5%.
The Zacks Consensus Estimate for 2023 earnings is pegged at $13.78, suggesting a decrease of 1.3% from the prior year’s reported figure. The consensus estimate for revenues of $21.4 billion indicates a rise of 1.4% on a year-over-year basis.
Stocks That Warrant a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
The Earnings ESP for Northern Trust Corporation NTRS is +5.11% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and 2023 results on Jan 18.
Over the past 60 days, Zacks Consensus Estimate for NTRS’s quarterly earnings has moved 3.9% south.
First Horizon Corporation FHN is scheduled to release fourth-quarter and 2023 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +9.68%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FHN’s quarterly earnings estimates have been unchanged over the past 60 days.
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The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
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