Lower NII & Fee Income to Hurt Truist's (TFC) Q4 Earnings
Truist Financial TFC is scheduled to announce its fourth-quarter and full year 2023 results on Jan 18, before the opening bell. The overall lending scenario was weak in the quarter under review on the back of an uncertain macroeconomic backdrop. Though the demand for commercial and industrial loans (accounting for roughly 50% of TFC’s total loans and leases held for investment) was modest in October, the same declined in November, per the Federal Reserve’s latest data.
We project total loans of $329 billion for the fourth quarter, indicating a marginal rise from the prior-year quarter.
The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $487 billion, suggesting a 1.2% fall from the prior-year quarter’s reported figure.
While interest rates remained high in the fourth quarter, higher funding costs are expected to have put pressure on net interest margin (NIM) and net interest income (NII) growth. Moreover, the Fed paused its rate hike cycle in December, with indications of rate cuts in 2024. Thus, despite higher rates, TFC’s NIM and NII are expected to have been negatively impacted by muted loan growth, and rising deposit and funding costs.
The consensus estimate for NII (FTE) is pegged at $3.52 billion, which implies a 12.8% year-over-year decline. Our estimate for the metric is pinned at $3.48 billion.
Other Key Factors & Estimates for Q4
Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $226 million indicates a decline of 12.1% from the prior-year quarter. Our estimate for the metric stands at $221.7 million.
While mortgage rates declined in December (the average rate on the 30-year fixed mortgage touched 6.76% in December), mortgage originations did not improve much in the quarter. However, supported by lower rates, there was a rise in refinancing activities, which is expected to have somewhat supported TFC’s mortgage banking business. We expect residential mortgage income to decline 6% year over year to $79.9 million and commercial mortgage income to fall 48.3% to $16.6 million.
The consensus estimate for investment banking and trading income of $195 million indicates a 24.1% decline from the prior-year quarter’s actual. We project the metric to be $226.3 million, suggesting a year-over-year decline of 12%.
A weak lending scenario is expected to have hurt TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $101 million indicates a fall of 8.2% from the prior-year quarter. We anticipate the metric to be $100.3 million.
The Zacks Consensus Estimate for card and payment-related fees of $242 million suggests a year over year fall of 1.2%. Our estimate for the metric is $235.5 million, indicating a year-over-year decline of 3.9%.
The benefits of business streamlining undertaken last year are expected to have supported Truist’s insurance income. The consensus estimate for insurance income of $826 million suggests a 7.8% year-over-year rise. Our estimate for the metric is pegged at $841.2 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.17 billion, which indicates a 2.6% fall from the prior-year quarter. 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 fourth quarter.
Notably, in September 2023, TFC announced its strategic expense-saving program that will result in approximately $750 million of gross savings over the next 12-18 months. Though the impacts of this program will be seen next year, the company is expected to have incurred some restructuring-related charges in the fourth quarter.
Our estimate for total non-interest expenses is pegged at $3.60 billion, suggesting a decrease of 3.4% from the prior-year quarter’s reported figure.
Management expects adjusted expenses (excluding expenses associated with TIH independence readiness) to decrease 3.5% in the fourth quarter on a sequential basis.
For 2023, management expects adjusted expenses to rise 7% from that reported in 2022.
Asset Quality: Truist is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given an uncertain macroeconomic outlook. Our estimate for provision for credit losses is pegged at $581.5 million, indicating a rise of 24.5% from the prior-year quarter’s actual.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.64 billion, indicating a rise of 30.8% from the prior-year reported quarter. The consensus estimate for total non-accrual loans and leases of $1.57 billion suggests a 32.3% increase.
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 #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 -0.27%.
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
Q4 Earnings & Sales Growth Expectations
The Zacks Consensus Estimate for TFC’s fourth-quarter earnings of 88 cents per share has been unchanged over the past seven days. The figure indicates a decline of 32.3% from the year-ago reported number. Our estimate for earnings stands at 87 cents per share.
The consensus estimate for sales is pegged at $5.63 billion, indicating a year-over-year fall of 9.4%. Our estimate for sales is $5.62 billion.
Management expects tax-equivalent revenues to be flat or decline 1% sequentially in the fourth quarter.
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 U.S. Bancorp USB is +0.24% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and full-year 2023 results on Jan 17.
Over the past seven days, the Zacks Consensus Estimate for USB’s quarterly earnings has remained unchanged at 99 cents.
M&T Bank MTB is scheduled to release fourth-quarter and full-year 2023 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.01%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MTB’s quarterly earnings estimates have moved almost 1% lower over the past week to $3.70.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Truist Financial Corporation (TFC) : Free Stock Analysis Report
