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Fee Income to Aid Truist's (TFC) Q2 Earnings, Lower NII to Hurt
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Truist Financial (TFC - Free Report) is scheduled to announce second-quarter 2024 results on Jul 22 before the opening bell. The overall lending scenario was decent in the quarter as borrowers accepted that high rates are here to stay for a longer time.
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 modest in the first quarter. Meanwhile, consumer loan (almost 40% of total loans and leases held for investment) demand was subdued.
Management expects average loan balances to decline modestly from the prior quarter. We project average loans of $308.9 billion, indicating a 5.9% fall from the prior-year quarter.
The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $478.3 billion, which suggests a 5.3% fall from the prior-year quarter’s reported figure.
While interest rates remained high in the second quarter, higher funding costs and an inverted yield curve are expected to put pressure on TFC’s net interest margin (NIM) and net interest income (NII) growth.
The consensus estimate for NII (fully tax equivalent or FTE) is pegged at $3.5 billion, which implies a 4.7% year-over-year decline. Our estimate for the metric is pegged at $3.53 billion.
The company expects NII to be down 2% to 3% sequentially due to continued pressure on the rate paid and a smaller balance sheet. The balance sheet repositioning is expected to add $160 million to NII in the to-be-reported quarter.
Other Key Factors & Estimates for Q2
Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $221.1 million indicates a decline of 7.9% from the prior-year quarter. Our estimate for the metric stands at $211.4 million.
A rebound in the capital markets business in the to-be-reported quarter is expected to support TFC’s corresponding fee income. Thus, the consensus estimate for the company’s investment banking and trading income of $296.5 million indicates a 40.5% jump. We project the metric to be $319.6 million.
A somewhat decent lending scenario is likely to have supported TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $100.2 million indicates growth of 16.5%. We anticipate the metric to be $109.1 million.
The Zacks Consensus Estimate for card and payment-related fees of $216.9 million suggests a fall of 8.1%. Our estimate for the metric is $158 million.
The wealth management business is expected to gain from higher equity market performance during the quarter. Hence, the company’s income from the same is likely to have risen. The consensus estimate for the wealth management income of $357.1 million suggests an increase of 8.2%. Our estimate for the metric is $343.1 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $1.43 billion, which indicates 3.7% growth from the prior-year quarter. We project the metric to be $1.4 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 second quarter.
However, following the divestiture of its insurance business during the quarter, overall non-interest income is likely to have fallen because of the absence of expenses related to the insurance business.
Our estimate for total adjusted non-interest expenses is pegged at $2.85 billion, suggesting a decrease of 1.4% from the prior-year quarter.
Management expects adjusted expenses to be up 4% on a sequential basis due to higher professional fees, some timing of projects delayed from the first quarter, higher marketing costs and annual merit increases.
Asset Quality: Truist is expected to set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given the expectations of an economic slowdown and rising delinquencies. Our estimate for provision for credit losses is pegged at $525.5 million.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.75 billion, indicating a rise of 26.1%. The consensus estimate for total non-accrual loans and leases of $1.56 billion suggests a 30.2% increase.
Major Developments
During the second quarter, Truist completed the sale of its remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”). Following this, the company executed a balance sheet repositioning strategy.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of the TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion.
TFC undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, with a book value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. This resulted in an after-tax loss of $5.1 billion in the to-be-reported quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
What the Zacks Model Reveals
According to our quantitative model, the chances of Truist beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients, a positive Earnings ESP and Zacks Rank # 3 (Hold) or higher.
Earnings ESP: The Earnings ESP for Truist is -2.72%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Truist Financial Corporation Price and EPS Surprise
The Zacks Consensus Estimate for TFC’s second-quarter earnings of 78 cents per share has been unchanged over the past seven days. The figure indicates a decline of 17.9% from the year-ago reported number.
The consensus estimate for sales is pegged at $4.86 billion, which calls for a year-over-year fall of 17.8%.
Management expects total revenues (FTE) to be up 1% sequentially. This includes the impacts of interest income earned on the proceeds from the sale of TIH and a balance sheet repositioning.
Major Bank Stocks 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:
The Earnings ESP for M&T Bank (MTB - Free Report) is +0.22%, and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 18.
Over the past seven days, the Zacks Consensus Estimate for MTB’s quarterly earnings has remained unchanged at $3.50.
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Fee Income to Aid Truist's (TFC) Q2 Earnings, Lower NII to Hurt
Truist Financial (TFC - Free Report) is scheduled to announce second-quarter 2024 results on Jul 22 before the opening bell. The overall lending scenario was decent in the quarter as borrowers accepted that high rates are here to stay for a longer time.
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 modest in the first quarter. Meanwhile, consumer loan (almost 40% of total loans and leases held for investment) demand was subdued.
Management expects average loan balances to decline modestly from the prior quarter. We project average loans of $308.9 billion, indicating a 5.9% fall from the prior-year quarter.
The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $478.3 billion, which suggests a 5.3% fall from the prior-year quarter’s reported figure.
While interest rates remained high in the second quarter, higher funding costs and an inverted yield curve are expected to put pressure on TFC’s net interest margin (NIM) and net interest income (NII) growth.
The consensus estimate for NII (fully tax equivalent or FTE) is pegged at $3.5 billion, which implies a 4.7% year-over-year decline. Our estimate for the metric is pegged at $3.53 billion.
The company expects NII to be down 2% to 3% sequentially due to continued pressure on the rate paid and a smaller balance sheet. The balance sheet repositioning is expected to add $160 million to NII in the to-be-reported quarter.
Other Key Factors & Estimates for Q2
Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $221.1 million indicates a decline of 7.9% from the prior-year quarter. Our estimate for the metric stands at $211.4 million.
A rebound in the capital markets business in the to-be-reported quarter is expected to support TFC’s corresponding fee income. Thus, the consensus estimate for the company’s investment banking and trading income of $296.5 million indicates a 40.5% jump. We project the metric to be $319.6 million.
A somewhat decent lending scenario is likely to have supported TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $100.2 million indicates growth of 16.5%. We anticipate the metric to be $109.1 million.
The Zacks Consensus Estimate for card and payment-related fees of $216.9 million suggests a fall of 8.1%. Our estimate for the metric is $158 million.
The wealth management business is expected to gain from higher equity market performance during the quarter. Hence, the company’s income from the same is likely to have risen. The consensus estimate for the wealth management income of $357.1 million suggests an increase of 8.2%. Our estimate for the metric is $343.1 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $1.43 billion, which indicates 3.7% growth from the prior-year quarter. We project the metric to be $1.4 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 second quarter.
However, following the divestiture of its insurance business during the quarter, overall non-interest income is likely to have fallen because of the absence of expenses related to the insurance business.
Our estimate for total adjusted non-interest expenses is pegged at $2.85 billion, suggesting a decrease of 1.4% from the prior-year quarter.
Management expects adjusted expenses to be up 4% on a sequential basis due to higher professional fees, some timing of projects delayed from the first quarter, higher marketing costs and annual merit increases.
Asset Quality: Truist is expected to set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given the expectations of an economic slowdown and rising delinquencies. Our estimate for provision for credit losses is pegged at $525.5 million.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.75 billion, indicating a rise of 26.1%. The consensus estimate for total non-accrual loans and leases of $1.56 billion suggests a 30.2% increase.
Major Developments
During the second quarter, Truist completed the sale of its remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”). Following this, the company executed a balance sheet repositioning strategy.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of the TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion.
TFC undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, with a book value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. This resulted in an after-tax loss of $5.1 billion in the to-be-reported quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
What the Zacks Model Reveals
According to our quantitative model, the chances of Truist beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients, a positive Earnings ESP and Zacks Rank # 3 (Hold) or higher.
Earnings ESP: The Earnings ESP for Truist is -2.72%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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
The Zacks Consensus Estimate for TFC’s second-quarter earnings of 78 cents per share has been unchanged over the past seven days. The figure indicates a decline of 17.9% from the year-ago reported number.
The consensus estimate for sales is pegged at $4.86 billion, which calls for a year-over-year fall of 17.8%.
Management expects total revenues (FTE) to be up 1% sequentially. This includes the impacts of interest income earned on the proceeds from the sale of TIH and a balance sheet repositioning.
Major Bank Stocks 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:
The Earnings ESP for M&T Bank (MTB - Free Report) is +0.22%, and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 18.
Over the past seven days, the Zacks Consensus Estimate for MTB’s quarterly earnings has remained unchanged at $3.50.
Fifth Third Bancorp (FITB - Free Report) is scheduled to release second-quarter 2024 earnings on Jul 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.48%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FITB’s quarterly earnings estimates have remained unchanged at 84 cents over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.