Yahoo Finance Lower NII & Fee Income to Hurt Truist's (TFC) Q1 Earnings
Truist Financial TFC is scheduled to announce first-quarter 2024 results on Apr 22, before the opening bell. The overall lending scenario was decent in the quarter on the back of some certainty in the macroeconomic backdrop.
Per the Federal Reserve’s latest data, demand for commercial and industrial (C&I) loans (accounting for roughly 50% of TFC’s total loans and leases held for investment) was weak in the first quarter, while consumer loan (almost 40% of total loans and leases held for investment) demand was decent.
We project total loans of $312.5 billion for the first quarter, indicating a 5.3% fall from the prior-year quarter.
The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $476.7 billion, suggesting a 4.5% fall from the prior-year quarter’s reported figure.
While interest rates remained high in the first quarter, higher funding costs are expected to have put pressure on TFC’s net interest margin (NIM) and net interest income (NII) growth.
The consensus estimate for NII (FTE) is pegged at $3.48 billion, which implies an 11.3% year-over-year decline. Our estimate for the metric is pinned at $3.55 billion.
Other Key Factors & Estimates for Q1
Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $217.5 million indicates a decline of 12.7% from the prior-year quarter. Our estimate for the metric stands at $210.9 million.
Though capital markets business rebounded in the to-be-reported quarter, weakness still prevailed. Thus, the consensus estimate for TFC’s investment banking and trading income of $209.6 million indicates a 19.7% decline. We project the metric to be $189.1 million, suggesting a year-over-year fall of 27.6%.
A somewhat decent lending scenario is expected to have supported TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $117.2 million indicates growth of 10.6%. We anticipate the metric to be $109.4 million.
The Zacks Consensus Estimate for card and payment-related fees of $223.7 million suggests a fall of 2.7%. Our estimate for the metric is $228.3 million.
The benefits of business streamlining undertaken are expected to have supported Truist’s insurance income. The consensus estimate for insurance income of $859.6 million suggests a 5.7% rise. Our estimate for the metric is pegged at $816.4 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.13 billion, which indicates a 1% fall from the prior-year quarter. We project the metric to be $2.14 billion.
Expenses: Truist has been witnessing a continued rise in overall expenses over the past several quarters because of investments in technology upgrades, inflationary pressure and strategic expansion efforts. A similar trend is expected to have continued in the first quarter.
Our estimate for total adjusted non-interest expenses is pegged at $3.54 billion, suggesting an increase of 1.5% from the prior-year quarter.
Management expects adjusted expenses (excluding expenses associated with TIH independence readiness) to be up 4% on a sequential basis.
Asset Quality: Truist is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given the expectations of an economic slowdown. Our estimate for provision for credit losses is pegged at $508.3 million, indicating a rise of 1.3% on a year-over-year basis.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $1.61 billion, indicating a rise of 27.9%. The consensus estimate for total non-accrual loans and leases of $1.56 billion suggests a 31.2% increase. Our estimates for NPAs and total non-accrual loans and leases are $1.56 billion and $1.43 billion, respectively.
Major Developments
As part of a broader strategic overhaul, Truist has been realigning and simplifying operations. In sync with this, the company announced two major divestitures of non-core businesses.
In February, Truist entered an agreement to sell the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings — to Stone Point Capital and Clayton Dubilier & Rice for $15.5 billion in cash. Mubadala Investment Company and co-investors are also participating in the investment.
The closing of the transaction (subject to certain regulatory reviews and approvals, and the satisfaction of other customary closing conditions) is expected in the second quarter of 2024. The transaction is projected to be dilutive to Truist’s 2024 earnings per share by 20 cents, assuming that the proceeds from the sale were reinvested in cash, yielding 4.5%.
Further, in the same month, Truist announced the divestiture of its asset-management subsidiary, Sterling Capital Management LLC, to Guardian Capital Group Limited in a $70 million deal. It is also expected to close in the second quarter of 2024, subject to customary consents and approvals.
What the Zacks Model Reveals
According to our quantitative model, the chances of Truist beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients, a positive Earnings ESP and Zacks Rank # 3 (Hold) or higher.
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 Truist is +0.83%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Truist Financial Corporation Price, Consensus and EPS Surprise
Truist Financial Corporation price-consensus-eps-surprise-chart | Truist Financial Corporation Quote
Q1 Earnings & Sales Growth Expectations
The Zacks Consensus Estimate for TFC’s first-quarter earnings of 78 cents per share has been unchanged over the past seven days. The figure indicates a decline of 28.4% from the year-ago reported number.
The consensus estimate for sales is pegged at $5.66 billion, indicating a year-over-year fall of 7.2%.
Management expects tax-equivalent revenues to be flat or decline 1% sequentially in the first quarter.
Other Bank Stocks Worth Considering
Here are a couple of 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:
The Earnings ESP for Trustmark Corporation TRMK is +1.26% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2024 results on Apr 23.
Over the past seven days, the Zacks Consensus Estimate for TRMK’s quarterly earnings has remained unchanged at 60 cents.
Third Coast Bancshares TCBX is scheduled to release first-quarter 2024 earnings on Apr 24. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +5.78%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TCBX’s quarterly earnings estimates have remained unchanged at 48 cents over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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