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What's in the Cards for PNC Financial's (PNC) Q2 Earnings?

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PNC Financial (PNC - Free Report) is scheduled to report second-quarter 2021 results on Jul 14, before market open. Its revenues and earnings are likely to have improved year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on the recapture of provisions and fee income growth on higher asset management revenues. However, higher expenses and a decline in revenues on lower interest income were the offsetting factors.

Over the trailing four quarters, the company’s earnings have surpassed the consensus estimate on three occasions and missed in the other, the negative surprise being 45.4%, on average.

Now let’s discuss the factors that are likely to have impacted the company’s second-quarter performance:

Net Interest Income (NII) Growth: Per the Fed’s latest data, the loan balance is likely to have been affected by a fall in commercial & industrial, and real estate loans. The Fed continued to keep interest rates at near-zero in order to shield the U.S. economy from the coronavirus outbreak-led mayhem. This is expected to have substantially hurt interest income.

Nonetheless, lower borrowing and deposit costs are likely to have supported NII growth. Management expects average loans to remain stable and NII to increase 2% sequentially. The consensus estimate for NII is pegged at $2.5 billion, suggesting a 6.1% sequential rise.

Higher Non-Interest Revenues: With major indexes — the S&P 500, Dow Jones and Nasdaq — witnessing gains in the second quarter, the equity markets held their footing. This is expected to have resulted in asset-management businesses recording net inflows in the to-be-reported quarter.

Thus, asset management fee is anticipated to have been positively impacted. The Zacks consensus estimate for asset management fees is pinned at $233 million, indicating a 3.1% sequential increase.

Decent consumer spending scenarios on the easing of lockdown measures and government aid are anticipated to have favorably impacted card fees. The consensus estimate for consumer services is pegged at $401 billion, which suggests growth of 4.4% on a sequential basis.

Strong deal-making momentum continued in the second quarter, backed by the global roll-out of COVID-19 vaccines, brighter macroeconomic outlook, proposed tax rate hikes by President Joe Biden, cash reserves and lower interest rates. Thus, the consensus estimate for the company’s corporate services’ fees of $578 million indicates a rise of 4% from the prior quarter’s reported figure.

However, continued low mortgage rates are expected to have reduced incentive for refinancing activities, while flaring housing pricing is anticipated to have affected purchase originations growth in the second quarter. Thus, the factors are expected to have limited PNC Financial’s mortgage banking fees growth in the to-be-reported quarter.

Management expects fee income growth of 3-5% sequentially and other non-interest income of $300-$350 million.

Expenses to Remain Contained: The company’s continued efforts toward cost savings are likely to have been partially offset by its digital expansion efforts. Management expects non-interest expenses to have been stable sequentially.

Improvement in Asset Quality: With continued improvement in the macroeconomic condition in the second quarter, increased vaccination rates and support from stimulus packages, we expect the company to post significant provision recapture.

Management anticipates no substantial reserve builds in the second quarter. Also, the company expects net loan charge-offs of $150-$200 million.

Earnings & Revenue Expectations

PNC Financial’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. Its Zacks Consensus Estimate for earnings of $3.11 has moved up 1.6% in the past 30 days. Also, the figure indicates significant growth from the year-ago reported number. The consensus estimate for revenues is pegged at $4.3 billion, suggesting year-over-year growth of 5.9%.

Key Developments During the Quarter

In early June, PNC Financial completed the previously announced merger with BBVA, S.A.’s subsidiary BBVA USA Bancshares, Inc., including its U.S. banking unit BBVA USA.

The deal with BBVA USA underlines PNC Financial’s efforts to expand its presence in the international markets. The acquisition positions PNC Financial as the fifth-largest commercial bank in the United States (in terms of assets and presence), with assets worth more than $560 billion, and a national franchise accommodating a full spectrum of products and services to retail customers and business clients in 29 of the top 30 largest markets in the country.

What the Zacks Model Predicts

Our proven model shows that PNC Financial has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — 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 +6.14%.  

Zacks Rank: The company currently carries a Zacks Rank of 3.

Other Stocks That Warrant a Look

Here are some other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for US Bankcorp (USB - Free Report) is +0.49% and it carries a Zacks Rank of 3 at present. The company is scheduled to report quarterly numbers on Jul 15.

The Bank Of New York Mellon (BK - Free Report) is slated to report quarterly results on Jul 15. The company currently has an Earnings ESP of +1.84 and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. (BKU - Free Report) is scheduled to release earnings numbers on Jul 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +3.04%.