Yahoo Finance Truist Financial (TFC) Hurt by Rising Provisions & High Expenses
Truist Financial's TFC profits are likely to be hurt in the near term because of a persistent rise in operating expenses. Increasing provision for credit losses is another major concern and makes us apprehensive. However, higher interest rates are expected to keep supporting net interest income (NII) to some extent.
TFC's total non-interest expenses have remained elevated over the past several years, with the metric witnessing a compound annual growth rate (CAGR) of 22.5% for the last four years (ended 2022). The rise was mainly due to an increase in personnel expenses, the company’s efforts to bolster digitization and the merger deal. We project total non-interest expenses (adjusted) to witness a CAGR of 3.8% by 2025.
Poor asset quality is another headwind for Truist Financial. The company’s provision for credit losses has been volatile (increasing in 2020, falling in 2021 and then rising again in 2022). An uptrend is expected in the near term as the Federal Reserve's aggressive monetary policy is raising recession risk. We project provision for credit losses to increase 182.1% in 2023.
Analysts also seem pessimistic regarding TFC’s earnings growth prospects. The Zacks Consensus Estimate for 2023 earnings has been revised marginally lower while that for 2024 earnings has been lowered by 1.5% over the past seven days. As a result, TFC currently carries a Zacks Rank #4 (Sell).
Nonetheless, higher interest rates are likely to continue to result in NII and net interest margin (NIM) growth going forward. Though Truist Financial's NII declined in 2021, the same witnessed a four-year CAGR of 25.1% (ended 2022) on the back of decent loan demand, the merger deal and rising rates. Likewise, NIM expanded last year. We expect NII to grow 7.2% and NIM by 3.07% in 2023.
Over the past six months, shares of the company have lost 32.8% compared with the industry's decline of 13%.
Image Source: Zacks Investment Research
Stocks Worth Considering
A couple of better-ranked finance stocks are JPMorgan Chase & Co. JPM and The Bancorp TBBK.
JPMorgan currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for JPM has been revised 11.8% upward for 2023 over the past 30 days. JPM’s share price has increased 5.4% over the past six months.
Earnings estimates for The Bancorp have been revised upward by 5.6% for the current year over the past 30 days. In six months, TBBK’s shares have rallied 5.6%. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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Truist Financial Corporation (TFC) : Free Stock Analysis Report
