Loans, fee income to help PNC Financial (PNC) Q2 results

PNC Financial Services Group, Inc. PNC is expected to release its second quarter 2022 results before the July 15 opening bell. While the company’s earnings should have seen a year-over-year decline, its revenue has likely increased.

In the most recently reported quarter, the company’s earnings beat Zacks’ consensus estimate for growth in fee income and net interest income (NII). However, higher expenses and lower deposits weighed on results.

Notably, PNC Financial has an impressive history of earnings surprises. It has exceeded estimates over the past four quarters, delivering an earnings surprise of 16.4% on average.

The PNC Financial Services Group, Inc Award and EPS Surprise

The PNC Financial Services Group, Inc price-eps-surprise | Quote from PNC Financial Services Group, Inc.

The company’s activities in the reportable quarter were not enough to win analysts’ confidence. As a result, Zacks consensus estimate for second quarter results of $3.13 has fallen slightly over the past month, reflecting analysts’ bearish sentiments. Additionally, the figure indicates a 30.4% drop from the number reported a year ago. Still, the consensus revenue estimate is pegged at $5.12 billion, suggesting 9.7% year-over-year growth. Management expects revenue to be up 9-11% sequentially.

Now let’s take a look at the factors that may have impacted the company’s performance in the second quarter:

TIN: The ongoing economic expansion should have supported the credit environment during the quarter. In this context, the demand for loans should have improved. According to the latest news from the Fed Data, commercial real estate loans, consumer loans, credit card loans and commercial and industrial loans boosted overall loan demand in April and May. As a result, the company’s loan balances likely improved in the second quarter. The company expects average loans to grow 2-3% sequentially.

The Zacks consensus estimate for average interest-earning assets of $508.7 billion for the quarter indicates a sequential increase of 2.4%. This should have contributed to the growth of the NII during the quarter.

The positive impact of rate hikes [25 basis points (bps) in March, 50 bps in May and 75 bps in June] is likely to have been reflected in the company’s NII and margins in the second quarter.

Management expects NII to increase 10-12% sequentially. Additionally, the consensus estimate for the NII is pegged at $3.06 billion, suggesting a 9.3% decline from the first quarter.

Non-interest income: While 2022 started on a positive note, geopolitical tensions linked to the Russian-Ukrainian war weighed on equity market performance. Thus, asset management revenues should have been negatively impacted. The consensus estimate of $330 million for asset management revenue points to a 12.5% ​​sequential decline.

Brokerage commissions, which make up a portion of the company’s consumer services revenue, may also have been negatively impacted by the decline in stock markets. This may have been partially offset by an improved consumer spending scenario due to higher employee compensation, which is expected to have had a favorable impact on card fees in the quarter.

Due to weak markets and global economic uncertainty, trading activity and IPOs declined in the second quarter of 2022. Given these capital market disruptions, the company’s market-related revenue capital is likely to have been negatively affected.

Deposits slowed in the quarter, likely due to lower government handouts and consumer savings. This, combined with low service fees, could have resulted in lower revenue from service fees on deposits.

Mortgage rates rose sequentially in the quarter ahead. In addition, mortgage origination activity is believed to have declined significantly, with rising rates dismaying refinancing activity. As such, these factors are expected to have hurt PNC Financial’s residential mortgage revenue in the quarter ahead. Zacks’ consensus estimate for the same $119 million shows a 25.2% decline from the figure reported in the previous quarter.

Overall, the Zacks consensus estimate for non-interest revenue is pegged at $2 billion, suggesting a 6.4% sequential increase. Management expects commission revenue to grow 6-8% sequentially.

Expenses: The company’s costs are likely to have increased due to integration expenses related to the acquisition of BBVA USA. Overall, technology investments and general inflationary pressures may have inflated costs, while wage inflation should have pushed up personnel costs. Therefore, such an increase in the cost base of these expenses is likely to have hindered earnings growth. Management expects non-interest expense to increase sequentially by 3-5%.

What Zacks’ model reveals

Our proven model does not predict an earnings beat for PNC Financial this time around. That’s because it doesn’t have the right combination of two key ingredients – a positive ESP Earnings and Zacks Rank #3 (Hold) or better – to increase the chances of a win beat.

You can discover the best stocks to buy or sell before they’re flagged with our Income ESP filter.

ESP Earnings: The revenue ESP for PNC Financial is -2.00%.

Zacks Rank: The company currently carries a Zacks rank of 3. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Actions worth a look

JPMorgan Chase & Co. JPM and Financial truist TFC are a few stocks you might want to consider as they have the right mix of elements to post a pace of earnings in their next releases, according to our model.

JPMorgan’s earnings ESP is +3.88% and the company is currently showing Zacks rank 2 (buy). JPM is expected to report its second quarter 2022 results on July 14.

The Zacks consensus estimate for JPM’s second-quarter earnings has moved slightly north over the past week.

Truist Financial is expected to release its second quarter results on July 19. TFC currently has a Zacks No. 3 ranking and an ESP profit of +1.80%.

The Zacks consensus estimate for TFC’s second-quarter earnings has moved south over the past month.

Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Garland K. Long