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Lower NII & Fee Income to Hurt Truist's (TFC) Q3 Earnings
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Truist Financial (TFC - Free Report) is scheduled to announce its third-quarter 2023 results on Oct 19, before the opening bell. The lending scenario was subdued for the quarter under review on higher interest rates and an uncertain macroeconomic backdrop. Though the demand for commercial and industrial loan balances (accounting for roughly 50% of TFC’s total loans and leases held for investment) remained weak in July and August, it improved modestly in September, per the Federal Reserve’s latest data.
We project total loans of $325.4 billion, indicating a marginal rise from the prior quarter.
The Zacks Consensus Estimate for average earning assets is pegged at $497.6 billion, suggesting a 1.7% fall from the prior quarter’s reported figure. Our estimate for the metric stands at $501.3 billion, marking a nearly 1% decline.
Further, the Fed increased rates by 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. This is likely to have had a favorable impact on TFC’s net interest margin and net interest income (NII). Yet, the inverted yield curve and rising funding costs are expected to have weighed on both.
The consensus estimate for NII (FTE) is $3.54 billion, which implies a 3.8% sequential decline. Our estimate for the metric is $3.52 billion.
Other Key Factors to Watch
Non-Interest Income: Deposit balances are not expected to have grown much in the third quarter as customers continued to look for better returns elsewhere. However, with the bank offering competitive deposit rates, this is likely to have offered some support to service charges on deposits. The Zacks Consensus Estimate of $243 million for the same indicates a rise of 1.3% from the prior quarter. Our estimate for the metric stands at $251.4 million.
Higher mortgage rates (the rate on a 30-year fixed mortgage reached 7.31% in September) and inflation weighed on mortgage originations and refinancing activities in the third quarter, which is expected to have hurt TFC’s mortgage banking income. Nonetheless, an improvement in the mortgage servicing rights valuation is likely to have offered some support. We expect residential mortgage income to rise 11.4% sequentially to $89.1 million, and commercial mortgage income to rise significantly to $30.5 million.
The consensus estimate for investment banking and brokerage fees and commissions of $222 million indicates a 5.2% increase sequentially. We project the metric to be $231.1 million.
A modest loan demand is expected to have offered some support to TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $89 million indicates growth of 3.5% from the prior quarter. We anticipate the metric to be $94.9 million.
The Zacks Consensus Estimate for card and payment-related fees of $237 million suggests a marginal rise. Our estimate for the metric is the same as the consensus number.
The benefits of business streamlining undertaken last year are expected to have supported Truist’s insurance income but seasonality is anticipated to have had an adverse impact. The consensus estimate for insurance income of $817 million suggests a 12.6% decrease. Our estimate for the metric is pegged at $826.1 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.19 billion, which indicates a 4.4% fall, sequentially. We project the metric to be $2.20 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 third quarter.
In September 2023, TFC announced its strategic expense-saving program that will result in approximately $750 million of gross savings over the next 12 to 18 months. Though the impact of this program will be seen next year, the company will likely have incurred some restructuring-related charges in the third quarter.
Our estimate for total adjusted non-interest expenses is pegged at $3.52 billion, suggesting a decrease of 1.1% from the prior quarter.
Management expects adjusted expenses to be flat or down 1% sequentially.
Asset Quality: Truist is expected to have set aside money for potential bad loans, given the global slowdown risk due to geopolitical and macroeconomic concerns and tighter financial conditions. Yet, with growing expectations that the United States will be able to avoid a severe economic slowdown in the near term, reserve build is not likely to be very high in the third quarter. Our estimate for provision for credit losses is pegged at $522.8 million, indicating a decrease of 2.8% from the prior quarter.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.75 billion, indicating a rise of 10.3% from the last reported quarter. The consensus estimate for total non-accrual loans and leases of $1.68 billion suggests a 9.9% increase.
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 #1 (Strong Buy), 2 (Buy) or 3 (Hold).
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 +0.65%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Truist Financial Corporation Price and EPS Surprise
The Zacks Consensus Estimate for TFC’s third-quarter earnings of 82 cents per share has been unchanged over the past seven days. The figure indicates a decrease of 33.9% from the year-ago reported number. Our estimate for earnings stands at 80 cents per share.
The consensus estimate for sales is pegged at $5.68 billion, indicating a year-over-year fall of 2.8%. Our estimate for sales is the same as the consensus number.
Management expects tax-equivalent revenues to decline 4% sequentially for the third quarter of 2023.
Other Banks Worth a Look
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:
CBSH’s quarterly earnings estimates have moved marginally upward over the past week.
The Earnings ESP for Bank OZK (OZK - Free Report) is +1.62% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2023 results on Oct 19.
Over the past 30 days, the Zacks Consensus Estimate for OZK’s quarterly earnings has moved 1.4% downwards.
Image: Bigstock
Lower NII & Fee Income to Hurt Truist's (TFC) Q3 Earnings
Truist Financial (TFC - Free Report) is scheduled to announce its third-quarter 2023 results on Oct 19, before the opening bell. The lending scenario was subdued for the quarter under review on higher interest rates and an uncertain macroeconomic backdrop. Though the demand for commercial and industrial loan balances (accounting for roughly 50% of TFC’s total loans and leases held for investment) remained weak in July and August, it improved modestly in September, per the Federal Reserve’s latest data.
We project total loans of $325.4 billion, indicating a marginal rise from the prior quarter.
The Zacks Consensus Estimate for average earning assets is pegged at $497.6 billion, suggesting a 1.7% fall from the prior quarter’s reported figure. Our estimate for the metric stands at $501.3 billion, marking a nearly 1% decline.
Further, the Fed increased rates by 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. This is likely to have had a favorable impact on TFC’s net interest margin and net interest income (NII). Yet, the inverted yield curve and rising funding costs are expected to have weighed on both.
The consensus estimate for NII (FTE) is $3.54 billion, which implies a 3.8% sequential decline. Our estimate for the metric is $3.52 billion.
Other Key Factors to Watch
Non-Interest Income: Deposit balances are not expected to have grown much in the third quarter as customers continued to look for better returns elsewhere. However, with the bank offering competitive deposit rates, this is likely to have offered some support to service charges on deposits. The Zacks Consensus Estimate of $243 million for the same indicates a rise of 1.3% from the prior quarter. Our estimate for the metric stands at $251.4 million.
Higher mortgage rates (the rate on a 30-year fixed mortgage reached 7.31% in September) and inflation weighed on mortgage originations and refinancing activities in the third quarter, which is expected to have hurt TFC’s mortgage banking income. Nonetheless, an improvement in the mortgage servicing rights valuation is likely to have offered some support. We expect residential mortgage income to rise 11.4% sequentially to $89.1 million, and commercial mortgage income to rise significantly to $30.5 million.
The consensus estimate for investment banking and brokerage fees and commissions of $222 million indicates a 5.2% increase sequentially. We project the metric to be $231.1 million.
A modest loan demand is expected to have offered some support to TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $89 million indicates growth of 3.5% from the prior quarter. We anticipate the metric to be $94.9 million.
The Zacks Consensus Estimate for card and payment-related fees of $237 million suggests a marginal rise. Our estimate for the metric is the same as the consensus number.
The benefits of business streamlining undertaken last year are expected to have supported Truist’s insurance income but seasonality is anticipated to have had an adverse impact. The consensus estimate for insurance income of $817 million suggests a 12.6% decrease. Our estimate for the metric is pegged at $826.1 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.19 billion, which indicates a 4.4% fall, sequentially. We project the metric to be $2.20 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 third quarter.
In September 2023, TFC announced its strategic expense-saving program that will result in approximately $750 million of gross savings over the next 12 to 18 months. Though the impact of this program will be seen next year, the company will likely have incurred some restructuring-related charges in the third quarter.
Our estimate for total adjusted non-interest expenses is pegged at $3.52 billion, suggesting a decrease of 1.1% from the prior quarter.
Management expects adjusted expenses to be flat or down 1% sequentially.
Asset Quality: Truist is expected to have set aside money for potential bad loans, given the global slowdown risk due to geopolitical and macroeconomic concerns and tighter financial conditions. Yet, with growing expectations that the United States will be able to avoid a severe economic slowdown in the near term, reserve build is not likely to be very high in the third quarter. Our estimate for provision for credit losses is pegged at $522.8 million, indicating a decrease of 2.8% from the prior quarter.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.75 billion, indicating a rise of 10.3% from the last reported quarter. The consensus estimate for total non-accrual loans and leases of $1.68 billion suggests a 9.9% increase.
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 #1 (Strong Buy), 2 (Buy) or 3 (Hold).
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 +0.65%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Truist Financial Corporation Price and EPS Surprise
Truist Financial Corporation price-eps-surprise | Truist Financial Corporation Quote
Q3 Earnings & Sales Growth Expectations
The Zacks Consensus Estimate for TFC’s third-quarter earnings of 82 cents per share has been unchanged over the past seven days. The figure indicates a decrease of 33.9% from the year-ago reported number. Our estimate for earnings stands at 80 cents per share.
The consensus estimate for sales is pegged at $5.68 billion, indicating a year-over-year fall of 2.8%. Our estimate for sales is the same as the consensus number.
Management expects tax-equivalent revenues to decline 4% sequentially for the third quarter of 2023.
Other Banks Worth a Look
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:
Commerce Bancshares (CBSH - Free Report) is scheduled to release third-quarter 2023 earnings on Oct 18. The company has an Earnings ESP of +1.98% and carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CBSH’s quarterly earnings estimates have moved marginally upward over the past week.
The Earnings ESP for Bank OZK (OZK - Free Report) is +1.62% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2023 results on Oct 19.
Over the past 30 days, the Zacks Consensus Estimate for OZK’s quarterly earnings has moved 1.4% downwards.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.