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Soft Loan Demand to Hurt Truist Financial (TFC) Q4 Earnings

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Truist Financial (TFC - Free Report) is scheduled to announce fourth-quarter and 2020 results on Jan 21, before market open. Per the Fed’s latest data, commercial and industrial loan (C&I) balances (accounting for almost 50% of the company’s total loans and leases held for investment) witnessed a decline in the fourth quarter as overall lending activities remained weak due to continued fears related to the coronavirus outbreak and less appetite for new business loans.

Moreover, the Zacks Consensus Estimate for average earning assets for the to-be-reported quarter is pegged at $435 billion, indicating a marginal decline from the prior quarter’s reported figure.

Thus, given the weak lending scenario and near-zero interest rates, growth in Truist Financial’s net interest margin (NIM) and net interest income (NII) is expected to have been hampered in the fourth quarter. Management expects reported NIM to be down 3-5 basis points (bps) and core NIM to be flat sequentially.

The consensus estimate for NII for the to-be-reported quarter of $3.34 billion indicates a 0.5% decline sequentially.

Other Major Estimates for Q4

Non-interest Income: The consensus estimate for insurance commission is pegged at $541 million, indicating a rise of 4.4% sequentially. The improvement seems to be driven by the company’s efforts to strengthen insurance business. In fact, the bank had plans to close five insurance acquisitions in the fourth quarter.

Further, the slight improvement in consumer confidence during the quarter is likely to have offered some support to Truist Financial’s card business. The Zacks Consensus Estimate for card and payment related fees of $208 million reflects a 4% rise from the prior quarter.

Also, the Zacks Consensus Estimate for service charges on deposits of $270 million suggests a rise of 9.3% from the prior quarter.

However, the consensus mark for income from bank-owned life insurance is $45.5 million, suggesting 1.2% fall from the previous quarter’s reported number. Also, the consensus estimate of investment banking and brokerage fees and commissions of $243 million indicates a slight fall from the prior quarter.

The consensus estimate for total non-interest income of $2.09 billion implies a 5.6% decline on a sequential basis.

Expenses: While 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 to-be-reported quarter to be down 2-4%.

Further, as the company planned to close several branches in December, this is likely to have offered some support in managing overall expenses during the quarter.

Asset Quality: The Zacks Consensus Estimate for non-performing assets is pegged at $1.41 billion, indicating a rise of 8% from the last quarter. Likewise, the consensus estimate for total non-accrual loans and leases of $1.35 billion suggests an increase of 7.8% from the previous quarter’s reported figure.

Management expects net charge-offs to be between 40 bps and 60 bps.

Q4 Earnings & Sales Expectations

The Zacks Consensus Estimate for earnings of 98 cents per share has moved 2.1% higher over the past 30 days. However, the figure indicates a plunge of 12.5% from the year-ago reported number.

Nevertheless, the consensus estimate for sales is pegged at $5.42 billion, indicating a jump of 49.6%.

Notably, management projects taxable-equivalent revenues (excluding one-time security gains) to be down 1-3%, sequentially.

Earnings Whispers

According to our quantitative model, chances of Truist Financial 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 #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 +3.18%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are a few other banks 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.

Bank of America (BAC - Free Report) is scheduled to release earnings on Jan 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.79%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

U.S. Bancorp (USB - Free Report) is scheduled to release quarterly results on Jan 20. The company has an Earnings ESP of +0.44% and it currently carries a Zacks Rank of 3.

The Earnings ESP for KeyCorp (KEY - Free Report) is +3.19% and it carries a Zacks Rank of 3, at present. The company is slated to report quarterly numbers on Jan 21.

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