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Loans, Lower Costs to Aid Truist Financial (TFC) Q4 Earnings

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Truist Financial (TFC - Free Report) is slated to announce fourth-quarter and full-year 2021 results on Jan 18, before market open. Per the Fed’s latest data, commercial and industrial loan balances (accounting for roughly 50% of the company’s total loans and leases held for investment) have witnessed a slight uptick, with improvement in overall lending activities.

The Zacks Consensus Estimate for average earning assets for the to-be-reported quarter is pegged at $466.1 billion, indicating an almost 1% rise from the prior quarter’s reported figure.
 
While the persistently low-interest-rate environment remained a headwind, a decent rise in loan demand is expected to have supported Truist Financial’s net interest margin (NIM) and net interest income (NII) in the quarter. Management expects reported NIM to decline 5-7 basis points (bps) on a sequential basis because of diminishing purchase accounting accretion, increased liquidity and less PPP revenues.

Further, per management, reported NII is likely to fall 1% from the prior quarter due to lower purchase accounting accretion, while core NII is expected to be stable. The consensus estimate for NII for the quarter of $3.22 billion implies a marginal decline on a sequential basis.

Other Factors at Play

Non-interest Income: Similar to the last several quarters, deposit balance continued to improve during the fourth quarter. This is likely to have resulted in a rise in revenues from service charges on deposits. The Zacks Consensus Estimate of $275 million for the same implies a relatively stable performance on a sequential basis.

Improving consumer confidence and solid economic outlook are likely to have supported Truist Financial’s card business. The Zacks Consensus Estimate for card and payment-related fees of $225 million suggests a stable performance sequentially.

The consensus mark for income from bank-owned life insurance is $43.5 million, suggesting a 1.2% rise from the previous quarter’s reported number. Also, with an increased focus on its insurance business, Truist Financial had acquired the insurance distribution platform Constellation Affiliated Partners in July 2021. The consensus estimate for insurance commissions of $672 million reflects 4.2% sequential growth.

A rise in loan demand is expected to have offered support to the company’s lending-related fees. The Zacks Consensus Estimate for the same of $77 million implies a rise of 4.1%. Further, the consensus estimate of investment banking and brokerage fees and commissions of $320 million indicates a 6.3% increase from the prior quarter on the back of solid equity market performance and a rapid pace of M&As.

On the other hand, mortgage production is likely to have been relatively solid but not as robust as last year. Also, moderation in refinancing activity due to the rise in rates is expected to have weighed on Truist Financial’s mortgage banking income. Thus, the consensus estimate for the same of $137 million suggests a 23.5% plunge sequentially.

The Zacks Consensus Estimate for total non-interest income of $2.36 billion implies a slight fall on a sequential basis.

Management expects fee income (excluding the non-qualified plan) to be stable sequentially. Strength in insurance, investment banking, wealth and commercial real estate loans will likely be offset by lower mortgage revenues.

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 adjusted non-interest expenses (excluding merger costs and amortization) for the quarter to decrease 3-4% sequentially.

Asset Quality: Continuing with the trend of the last several quarters and driven by an improving macroeconomic backdrop and stable credit market conditions, Truist Financial is likely to have released reserves that it had taken to cover losses from the effects of the coronavirus pandemic.

The Zacks Consensus Estimate for non-performing assets is pegged at $1.14 billion, indicating a fall of 5.6% from the last quarter. The consensus estimate for total non-accrual loans and leases of $1.09 billion suggests a 5.6% decrease.

Management expects net charge-offs in the range of 20-30 basis points.

Earnings Whispers

According to our quantitative model, the 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 -1.30%.

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

The Zacks Consensus Estimate for fourth-quarter earnings of $1.26 per share has moved almost 1% lower over the past seven days. The figure indicates a rise of 6.8% from the year-ago reported number.

The consensus estimate for sales is pegged at $5.6 billion, indicating a fall of nearly 1%.

Banks Worth Considering

Here are few 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 First Republic Bank (FRC - Free Report) is +2.11% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full-year 2021 results on Jan 14.

Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved 2.1% upward.

The PNC Financial Services Group, Inc. (PNC - Free Report) is scheduled to release fourth-quarter and full-year 2021 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNC’s quarterly earnings estimates have moved marginally lower over the past month.

Commerce Bancshares (CBSH - Free Report) is slated to announce fourth-quarter and full-year 2021 results on Jan 19. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.24%.

CBSH’s earnings estimates for the to-be-reported quarter have moved 3.3% north over the 30 days.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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