PNC Financial's Q4 2024 Earnings Outlook: NII Growth vs. Rising Costs

The PNC Financial Services Group, Inc. (PNC) is set to announce its fourth-quarter 2024 earnings on January 16, prior to the market opening. Analysts anticipate that the bank will report improved revenues and earnings compared to the previous year.

In the last quarter, PNC's earnings exceeded the Zacks Consensus Estimate, thanks to increased fee income and a higher loan balance. However, the results were also negatively affected by a decline in Net Interest Income (NII), increased provisions for credit losses, and rising expenses.

PNC has shown a strong performance history, surpassing earnings estimates in each of the last four quarters with an average surprise of 7.63%.

Several factors are expected to impact PNC Financial's performance in the fourth quarter.

Net Interest Income (NII)

NII is projected to see a boost this quarter due to the Federal Reserve's recent decision to lower interest rates by 50 basis points to a range of 4.25-4.5%. This move, combined with a similar reduction in September, is likely to support PNC's NII as the cost of funding and deposits eases.

Management expects NII to increase approximately 1% from the $3.4 billion level reported in Q3 2024. The Zacks Consensus Estimate for NII is $3.45 billion, reflecting a 1.2% rise, while our estimate is slightly lower at $3.43 billion.

Loans

With clearer guidance on future Federal Reserve rate cuts and stabilization in the macroeconomic landscape, lending conditions are expected to improve. The Fed's recent data indicates steady demand for commercial, real estate, and consumer loans during the early part of the quarter, indicating enhanced lending activity for PNC.

PNC anticipates average loans will remain stable in Q4 2024, consistent with the previous quarter's figure of $319.6 billion. Our projection for average loans stands at $320.1 billion.

Non-Interest Revenues

Morgage rates have climbing to around 6.8% in Q4 2024, slightly above the 6.2% rate at the end of Q3. Despite the Fed's rate cuts, mortgage rates have not significantly decreased, which may limit growth in refinancing and origination volumes, consequently affecting mortgage revenue.

The Zacks Consensus Estimate for residential and commercial mortgage revenues is set at $141.2 million, signaling a 22% decline sequentially.

In global mergers and acquisitions (M&As), there was a notable recovery in Q4 2024, following a sluggish 2023 and 2022. Supportive economic growth, interest rate cuts, and expectations of less regulatory oversight have encouraged deal-making. However, geopolitical tensions and competitive challenges might restrain PNC's ability to leverage these opportunities, impacting its capital markets and advisory revenues.

The estimate for capital markets and advisory revenues stands at $295.8 million, reflecting a 20.2% sequential decline. Additionally, the proposal for card and cash management revenues is set at $689.3 million, indicating a 1.2% drop.

Management foresees overall fee income declining 5-7% in Q4 compared to the $1.95 billion reported in Q3 2024. The Zacks Consensus Estimate for non-interest income is set at $2 billion, suggesting a 1% sequential decline, while our estimate is $1.99 billion.

Expenses

PNC's expenses are expected to continue rising in Q4 due to ongoing investments in franchise expansion, technology upgrades, and digitalization, which may dampen profit growth.

Management forecasts adjusted non-interest expenses to increase by 2-3% compared to the $3.3 billion reported in Q3 2024. Our estimate stands at $3.4 billion.

Asset Quality

Given the prolonged higher interest rate scenario, PNC is likely to have set aside significant reserves for potential loan delinquencies, particularly among commercial loans.

Management anticipates net charge-offs to reach approximately $300 million compared to $286 million in the prior quarter. Our estimate for this metric is $299.7 million.

The Zacks Consensus Estimate for non-performing assets in Q4 2024 is pegged at $2.69 billion, a 2.9% increase from the previous quarter. Our estimate for this is $2.3 billion.

Forecast

Our analysis suggests that PNC Financial may experience an earnings beat this quarter, driven by a strong Earnings ESP and a Zacks Rank of 3. The Earnings ESP for PNC is currently +1.68%.

The consensus estimate for fourth-quarter earnings has seen a slight uptick over the past week, currently set at $3.30 per share, indicating a year-over-year growth of 4.43%. The quarterly revenue consensus is $5.47 billion, suggesting a 2.1% improvement from year-ago figures.

Earnings, NII, Expenses