Weak Loan Demand to Hurt Truist Financial (TFC) Q2 Earnings
Truist Financial TFC is scheduled to announce second-quarter 2021 results on Jul 15, before market open. Per the Fed’s latest data, commercial and industrial loan balances (accounting for nearly 50% of the company’s total loans and leases held for investment) witnessed a decline in the quarter as overall lending activities remained muted.
The Zacks Consensus Estimate for average earning assets for the to-be-reported quarter is pegged at $447.5 billion, indicating a marginal rise from the prior quarter’s reported figure.
Soft loan demand and flattening of the yield curve are expected to have hurt Truist Financial’s net interest margin (NIM) and net interest income (NII) growth. Management expects reported NIM to be down high-single-digit, due to a mid-single-digit decline in core NIM and 3-4 basis points (bps) of purchase accounting accretion run off on a sequential basis.
Per management, NII is likely to be relatively flat due to balance sheet growth. The consensus estimate for NII for the to-be-reported quarter of $3.27 billion indicates a slight decline sequentially.
Other Key Factors at Play
Non-interest Income: Deposit balance improved during the second quarter, supported by an incremental stimulus program. This is likely to have resulted in higher revenues from service charges on deposits. The Zacks Consensus Estimate for the same of $270 million suggests a rise of 4.7% from the prior quarter.
Improvement in consumer confidence during the quarter is likely to have aided Truist Financial’s card business. The Zacks Consensus Estimate for card and payment related fees of $208 million implies a 4% increase.
The consensus estimate for insurance commission is pegged at $650 million, indicating a rise of 6.8% sequentially. The improvement seems to be driven by the company’s efforts to strengthen insurance business.
However, the consensus estimate of investment banking and brokerage fees and commissions of $308 million indicates a 9.4% fall from the prior quarter. The consensus mark for income from bank-owned life insurance is $46.5 million, suggesting 7% decline from the previous quarter’s reported number.
Mortgage production is likely to have remained relatively solid but not as robust as last year. A moderation in refinancing activity is expected to have offset the support from mortgage revenues. Thus, the consensus estimate for mortgage banking income of $95 million suggests 5% decline sequentially.
The consensus estimate for total non-interest income of $2.2 billion implies a slight rise on a sequential basis.
Expenses: Though the company has been witnessing a continued rise in overall expenses over the past several quarters because of investments in technology upgrades and merger integration, management anticipates core non-interest expenses (excluding merger costs and amortization) for the quarter to be relatively flat on a sequential basis.
Asset Quality: Continuing with the trend of the past few quarters, and driven by improving macroeconomic backdrop and stable credit market conditions, Truist Financial is likely to have recorded a decline in provision for credit losses in the second quarter.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.25 billion, indicating a fall of 3.6% from the last quarter. The consensus estimate for total non-accrual loans and leases of $1.19 billion suggests a 4% decrease.
Management expects net charge-offs to be between 40 bps and 60 bps.
Earnings & Sales Expectations
The Zacks Consensus Estimate for earnings of $1.17 per share has moved nearly 1% higher over the past seven days. The figure indicates a rise of 42.7% from the year-ago reported number.
The consensus estimate for sales is pegged at $5.48 billion, indicating a fall of 6.6%.
Truist Financial Corporation Price and EPS Surprise
Truist Financial Corporation price-eps-surprise | Truist Financial Corporation Quote
Management expects taxable-equivalent revenues (excluding one-time security gains) to be relatively flat.
Earnings Whispers
According to our quantitative model, chances of Truist Financial beating the Zacks Consensus Estimate this time are low. This is because it doesn’t have 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 -1.29%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Major Banks Worth Considering
Here are few 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 around:
The Earnings ESP for Bank of America BAC is +0.65% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Jul 14.
PNC Financial PNC is slated to report quarterly results on Jul 14. The company has an Earnings ESP of +6.14% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
U.S. Bancorp USB is scheduled to announce quarterly results on Jul 15. The company has an Earnings ESP of +0.49% and currently carries a Zacks Rank of 3.
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