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Soft Loan Demand, Fee Income to Hurt Truist's (TFC) Q1 Earnings

Truist Financial TFC is slated to announce first-quarter 2023 results on Apr 20, before market open. The to-be-reported quarter witnessed decent lending activities before the bank runs and the recessionary fears gripped the markets in March. Per the Fed’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) decelerated in January and February.

We project total loans of $318.1 billion, indicating a 2.9% fall from the prior quarter.

The Zacks Consensus Estimate for average interest earning assets is pegged at $491.7 billion, down marginally from the prior quarter’s reported figure. Our estimate for the metric is $483.4 billion, suggesting a fall of 1.9% from the last quarter.

During the first quarter, the Federal Reserve continued its hawkish monetary policy stance, raising interest rates by another 50 basis points. The policy rate reached 4.75-5%, the highest since 2008. Thus, aided by higher interest rates, TFC’s net interest income (NII) and net interest margin (NIM) are likely to have been positively impacted. However, the inversion of the yield curve and the bank runs are likely to have impeded growth.

The consensus estimate for NII (FTE) is $3.92 billion, which implies a 1.5% fall on a sequential basis. We project NII (FTE) to decline 5.2% to $3.89 billion.

Management expects NII to be relatively stable on a sequential basis, driven by upsides from interest rate hikes, which will be partially offset by slowing loan demand.

Other Key Factors & Estimates for Q1

Non-Interest Income: Unlike the pandemic days, deposit balances are not expected to have witnessed much growth in the first quarter. The bank runs and higher deposit rates elsewhere are likely to have further aggravated the situation. This is expected to have had an adverse impact on revenues from service charges on deposits. The Zacks Consensus Estimate of $239.5 million for the same implies a fall of 6.8% from the prior quarter. Our estimate for the metric is $229.7 million, indicating a 10.6% decline.

Rising mortgage rates (the rate on the 30-year fixed mortgage remaining above the 6% mark) and high inflation weighed on mortgage originations and refinancing activities in the first quarter, which is expected to have hurt TFC’s mortgage banking income. Our estimate for residential mortgage income is pegged at $96.8 million, indicating a decline of 3.4% from the prior quarter.

The consensus estimate for investment banking and brokerage fees and commissions of $239.1 million indicates a 6.9% decrease from the prior quarter. We project the same to decline 7.4% to $238.1 million.

Weak loan demand is expected to have hurt the company’s lending-related fees. The Zacks Consensus Estimate for the same of $94.7 million indicates a decline of 13.9%. We anticipate the metric to decrease 9.8% to $99.2 million.

The Zacks Consensus Estimate for card and payment-related fees of $236.7 million suggests a 3.4% fall. We expect the same to decline 1.3% to $241.9 million.

As part of its efforts to create more value for its insurance business, TFC divested 20% stake in its subsidiary, Truist Insurance Holdings, for $1.95 billion in cash during the quarter. The company doesn’t expect the deal to have any adverse impact on its insurance income. The consensus estimate for insurance commissions of $799.5 million reflects a 4.4% sequential improvement. Our estimate for the metric is pegged at $779.4 million, implying a rise of 1.7%.

The Zacks Consensus Estimate for total non-interest income is pegged at $2.17 billion, which indicates a 2.7% decline. Our estimate for the same is $2.23 billion, implying a marginal rise.

Expenses: Truist has witnessed a continued rise in overall expenses over the past several quarters because of investments in technology upgrades and merger integration. A similar trend is expected to have continued in the first quarter.

Our estimate for total adjusted non-interest expenses is pegged at $3.59 billion, suggesting an increase of 5.9% from the prior-quarter number.

Management expects adjusted expenses to rise 1-2% sequentially, mainly due to higher pension expenses and FDIC premiums, as well as seasonally higher personnel costs. These are likely to be partially offset by the impact of cost-saving efforts.

Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, TFC is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $416.9 million.

The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $1.4 billion, indicating a rise of 12.4% from the last quarter’s reported quarter. The consensus estimate for total non-accrual loans and leases of $1.35 billion suggests a 13.9% increase.

Our estimates for NPAs and non-accrual loans and leases are $1.36 billion and $1.18 billion, respectively.

Earnings Whispers

According to our quantitative model, the chances of Truist beating the Zacks Consensus Estimate this time are low. This is because it doesn’t have 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 -1.37%.

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

Truist Financial Corporation Price and EPS Surprise

Truist Financial Corporation Price and EPS Surprise
Truist Financial Corporation Price and EPS Surprise

Truist Financial Corporation price-eps-surprise | Truist Financial Corporation Quote

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The Zacks Consensus Estimate for TFC’s first-quarter earnings of $1.14 has been revised almost 1% lower over the past seven days. The figure indicates a fall of 7.3% from the year-ago reported number. Our estimate for earnings per share is $1.05.

The consensus estimate for sales is pegged at $6.1 billion, indicating a year-over-year rise of 14.5%. Our estimate for sales is $6 billion. Management projects revenues (FTE) to decline in the range of 2-3% on a sequential basis due to two lesser days in the quarter impacting NII and seasonality in investment banking, cards and payments and service charges.

Major Banks Worth Considering

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

The Earnings ESP for Wells Fargo WFC is +3.48% and it carries a Zacks Rank #3, at present. The company is slated to report first-quarter 2023 results on Apr 14.

Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has remained unchanged.

Citigroup C is also scheduled to release first-quarter 2023 earnings on Apr 14. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.58%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

C’s quarterly earnings estimates have moved 1.2% lower over the past week.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Wells Fargo & Company (WFC) : Free Stock Analysis Report

Citigroup Inc. (C) : Free Stock Analysis Report

Truist Financial Corporation (TFC) : Free Stock Analysis Report

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