Lower Interest Income to Mar PNC Financial (PNC) Q3 Earnings

PNC Financial PNC is scheduled to report third-quarter 2020 earnings, before the opening bell, on Oct 14. The company’s revenues and earnings are likely to have witnessed a year-over-year decline.

In the last reported quarter, the company reported loss on higher provisions due to the coronavirus pandemic’s crippling impact on the economy. Lower revenues on decline in fee income and decrease in loans were undermining factors.

The company’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of $1.99 has moved up 11.8% in the past seven days. Nevertheless, the figure indicates a 32.3% decline from the year-ago reported figure. The consensus estimate for sales is pegged at $3.96 billion, suggesting a decline of 11.8% year over year.

The PNC Financial Services Group, Inc Price and EPS Surprise

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

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

Lower Net Interest Income (NII): The Fed continued to keep interest rates at near zero in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and NII.

Also, per the Fed’s latest data, the loan balance is likely to have been affected by a fall in commercial & industrial and consumer loans on a sequential basis.

The Zacks Consensus Estimate for average interest earning assets of $397.3 billion for the quarter indicates 1.2% sequential fall. The consensus estimate for net interest income is $2.47 billion, suggesting 2.1% fall sequentially.

Notably, management expects average loans to decline in the low-single-digit range on a sequential basis in the third quarter and NII to be down 1%.

Muted Non-Interest Revenues: The quarter witnessed a rebound in the equity markets, resulting in most asset-management businesses recording net inflows during the to-be-reported quarter. Thus, asset management fee is likely to have been positively impacted. However, the sale of the company’s investment in BlackRock might have been an offsetting factor. The consensus estimate of $207 million for asset management revenues indicates 4% growth sequentially.

Also, historically low mortgage rates during the third quarter drove refinancing activities, along with growth in new originations. Thus, these factors are expected to have supported PNC Financial’s mortgage banking fees in the to-be-reported quarter.

Decent consumer spending scenario might have favorably impacted card fees during the quarter. The Zacks Consensus Estimate for consumer services revenues of $347 million indicates a rise of 5.2% from the prior-quarter reported number.

Strong equity markets resulted in a rise in follow-up equity issuances, while IPO activities rebounded in the third quarter. Thus, equity underwriting fees are expected to have provided some support.

Though deal making rebounded in third-quarter 2020 as economic and business activities gradually resumed, PNC Financial might not have been able to grab a considerable part of deals. Thus, consensus estimate for the company’s corporate services fees indicates a fall of 7.4% on a sequential basis.

The Zacks Consensus Estimate for non-interest income is $1.47 billion, suggesting a 4.9% decline sequentially. Notably, management expects a decline in fee income of 3-5%.

Moderate Decline in Expenses: The bank’s continued efforts toward cost savings might have been partially offset by its digital expansion efforts. Notably, management expects non-interest expenses to remain flat on a sequential basis.

Asset Quality: Management anticipates no substantial reserve builds during the remainder of 2020. Also, the company continues to see an increase in the nonperforming loans, which represents around 4% of current outstanding in the portfolio.

Now, let’s have a look at what our quantitative model predicts:

Our proven model shows that PNC Financial does not have 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 +3.35%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

Here are a few stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Navient Corporation NAVI is set to release quarterly results on Oct 20. The company currently has an Earnings ESP of +9.46% and a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Bank of America Corporation BAC is +3.93% and it carries a Zacks Rank of 3 currently. The company is slated to report quarterly numbers on Oct 14.

Waddell Reed Financial, Inc. WDR is scheduled to report quarterly earnings on Oct 27. The company, which carries a Zacks Rank of 2 at present, has an Earnings ESP of +11.82%.

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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.

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