Low Interest Rates to Mar Truist Financial (TFC) Q2 Earnings
Truist Financial Corporation TFC is slated to announce second-quarter 2020 results on Jul 16, before the market opens. Per the Fed’s latest data, commercial and industrial loans (C&I) (accounting for almost 50% of the company’s total loans and leases held for investment) recorded robust growth in the quarter as overall lending activities remained muted.
Truist Financial anticipates average earning assets to grow more than 5% on a sequential basis in the to-be-reported quarter. The rise is likely to be driven by “the increase in loans from C&I line draws and the PPP program.” The Zacks Consensus Estimate for the same is $432.9 billion, indicating a 4.7% increase from the prior quarter.
Nonetheless, near-zero interest rates and flattening of the yield curve are likely to have hurt Truist Financial’s net interest margin (NIM) in the second quarter. Management anticipates NIM to fall “meaningfully, driven by lower rates” on a sequential basis.
Thus, the company’s net interest income is likely to have been hurt despite a surge in C&I loan volumes. The consensus estimate for the same for the to-be-reported quarter of $3.43 billion indicates a 6.1% decline sequentially.
Let’s check out a few other key factors that are likely to have influenced Truist Financial’s quarterly numbers:
Asset Quality to Worsen: As the macro-economic backdrop continued to worsen and the true picture of economic slowdown is emerging, Truist Financial is likely to have built more loan loss provisions during the second quarter than the first quarter. Thus, provisions are likely to have risen substantially.
The Zacks Consensus Estimate for non-performing assets is $1.27 billion, indicating a rise of 8% from the last quarter. Likewise, the consensus estimate for total non-accrual loans and leases of $1.15 billion suggests an increase of 6.9% from the year-ago reported figure.
Further, management expects asset quality metrics to reflect heightened coronavirus-related “stress across loan portfolios.”
Non-interest Income to Offer Some Support: Management expects non-interest income in the second quarter to be supported by strong residential mortgage originations (owing to historically low mortgage rates) and seasonally higher insurance income. These are likely to have been offset by lower fee income, rise in forbearance and declining asset valuations owing to coronavirus impacts.
The consensus estimate for insurance commission is pegged at $569 million, indicating a rise of 3.6% sequentially. Further, the consensus mark for income from bank-owned life insurance is $45 million, suggesting a rise of 2.3% on a sequential basis.
Conversely, the Zacks Consensus Estimate for service charges on deposits of $277 million implies fall of 9.2% from the prior quarter. Likewise, the consensus estimate for operating lease income of $74 million indicates a decline of 3.9% from the prior-year reported figure.
Thus, the consensus estimate for total non-interest income of $2.08 billion points to a 5.9% rise on a sequential basis.
Expenses to be Manageable: Management anticipates non-interest expenses for the second quarter to account for coronavirus-related impacts like “onsite special pay to teammates working in the office and additional measures to protect teammates.”
Nonetheless, overall operating expenses are likely to have been stable in the to-be-reported quarter.
Q2 Earnings & Sales Expectations
The Zacks Consensus Estimate for the company’s second-quarter earnings of 63 cents per share has moved 1.6% lower over the past seven days. Also, the figure indicates a plunge of 43.8% from the year-ago reported number.
The consensus estimate for sales is pegged at $5.49 billion, indicating a 80.6% jump from the prior-year reported figure.
Notably, management projects total taxable-equivalent revenues in the second quarter to be “down a few percent” from the prior quarter.
Earnings Whispers
According to our quantitative model, chances of Truist Financial beating the Zacks Consensus Estimate are high this time around. 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 Financial is +8.32%.
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
Other Banks That Warrant a Look
Here are a few 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 in their upcoming releases.
PNC Financial PNC is slated to release quarterly results on Jul 15. The company has an Earnings ESP of +37.7% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for BNY Mellon BK is +0.46% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Jul 15.
The Earnings ESP for Associated Banc-Corp ASB is +7.31% and the stock presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Jul 23.
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