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Higher Rates, Loan Growth to Aid Truist's (TFC) Q4 Earnings
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Truist Financial (TFC - Free Report) is scheduled to announce fourth-quarter and 2022 results on Jan 19, before market open. The to-be-reported quarter has witnessed an improvement in the overall lending scenario. Per the Fed’s latest data, commercial and industrial loan balances (accounting for roughly 50% of TFC’s total loans and leases held for investment) witnessed a robust uptick.
We project total loans of $315.6 billion for the fourth quarter, indicating a 7.2% rise from the prior-year quarter.
The Zacks Consensus Estimate for the company’s average earning assets for the to-be-reported quarter is pegged at $481.2 billion, indicating a 2.2% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $479.3 billion, suggesting year-over-year growth of 1.8%.
In the to-be-reported quarter, the Federal Reserve continued with its ultra-hawkish monetary policy stance, raising interest rates by another 125 basis points. The policy rate reached 4.25-4.50%, the highest in the past 15 years. Thus, supported by loan growth and higher interest rates, TFC’s net interest income (NII) and net interest margin (NIM) are likely to have been positively impacted.
The consensus estimate for NII is $3.93 billion, which implies a 21.2% rise on a year-over-year basis. We project NII to grow 20.2% to $3.89 billion.
The company expects a mid-double digit increase in its core and reported NIM in the fourth quarter, driven by the benefits of the rate hikes.
Other Key Factors & Estimates for Q4
Non-Interest Income: Unlike the pandemic days, deposit balances are not expected to have grown much in the fourth quarter. This is likely to have had an adverse impact on revenues from service charges on deposits. The Zacks Consensus Estimate of $252 million for the same implies a fall of 7.7% from the prior-year period’s reported number. Our estimate for the metric is $242.1 million, indicating a 11.3% decline.
Given the elimination of overdraft-related fees and the introduction of Truist One Banking, the company expects a mid-single-digit decline in service charges for 2022.
Rising mortgage rates (the rate on the 30-year fixed mortgage remaining above the 6% mark) and inflation weighed on mortgage originations and refinancing activities in the fourth quarter, which is expected to have hurt TFC’s mortgage banking income. The consensus estimate for the same of $89 million suggests a 44% year-over-year plunge. Our estimate for the metric is pegged at $96.8 million, indicating a year-over-year decline of 39.1%.
The consensus estimate for investment banking and brokerage fees and commissions of $223 million indicates a 40.8% decrease from the prior-year quarter. We project the same to tank 44.5% to $209.3 million.
As part of its efforts to bolster its insurance business, TFC, through its subsidiary, Truist Insurance Holdings, acquired BankDirect Capital Finance in November. The all-cash deal was valued at $3.4 billion. This is expected to have provided support to the company’s insurance income. The consensus estimate for insurance commissions of $787 million reflects an 18.2% year-over-year improvement. Our estimate for the metric is pegged at $807.3 million, implying a rise of 21.2%.
The consensus estimate for income from bank-owned life insurance is $52 million, suggesting a 18.2% rise from the previous-year quarter’s reported number. We project the same to grow 34.4% to $59.2 million.
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 $83 million indicates a rise of 2.5% from the prior-year quarter. We anticipate the metric to increase 12.7% to $91.3 million.
The Zacks Consensus Estimate for card and payment-related fees of $248 million suggests 10.7% growth. We expect the same to rise 16.9% to $261.9 million.
The Zacks Consensus Estimate for total non-interest income is pegged at $2.19 billion, which indicates a 5.6% decline from the prior-year quarter’s reported figure. Our estimate for the same is $2.18 billion, reflecting a fall of 5.9%.
Management expects fourth-quarter fee income to rebound sequentially on the seasonal rise in insurance income, robust organic growth and the full impact of the BenefitMall acquisition.
Expenses: Truist has been witnessing a continued rise in overall expenses over the past several quarters because of investments in technology upgrades and merger integration. A similar trend is expected to have continued in the fourth quarter.
Our estimate for total adjusted non-interest expenses is pegged at $3.53 billion, reflecting an increase of 12.7% from the prior-year quarter number.
Management expects adjusted expenses in the to-be-reported quarter to rise 1% sequentially mainly due to inflationary pressure, investments and revenue-producing businesses, and technology and acquisition-related costs.
For 2022, management expects total merger-related and restructuring costs, and incremental operating expenses related to the merger of $900 million. Costs will decrease significantly to nearly $100 million before going away entirely in 2023.
By the year end, net cost savings worth $1.6 billion are anticipated.
Asset Quality: Our estimate for provision for credit losses is pegged at $294.9 million against a provision benefit of $103 million recorded a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $1.48 billion, indicating a rise of 27.3% from the last year’s reported quarter. The consensus estimate for total non-accrual loans and leases of $1.41 billion suggests a 26.3% increase.
Our estimates for NPAs and non-accrual loans and leases are $1.49 billion and $1.45 billion, respectively.
Earnings Whispers
According to our quantitative model, the chances of Truist 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 is +0.23%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for TFC’s fourth-quarter earnings of $1.28 per share has been unchanged over the past seven days. The figure indicates a fall of 7.3% from the year-ago reported number. Our estimate for earnings is $1.27, indicating a 7.6% fall.
The consensus estimate for sales is pegged at $6.13 billion, indicating a year-over-year rise of 10.2%. Our estimate for sales is $6.08 billion, implying an increase of 9.3%.
Other Banks Worth Considering
A couple of 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 this time around, are The Charles Schwab Corporation (SCHW - Free Report) and Hancock Whitney Corporation (HWC - Free Report) .
The Earnings ESP for Schwab is +1.08% and it carries a Zacks Rank #3 at present. SCHW is slated to report fourth-quarter 2022 results on Jan 18.
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Higher Rates, Loan Growth to Aid Truist's (TFC) Q4 Earnings
Truist Financial (TFC - Free Report) is scheduled to announce fourth-quarter and 2022 results on Jan 19, before market open. The to-be-reported quarter has witnessed an improvement in the overall lending scenario. Per the Fed’s latest data, commercial and industrial loan balances (accounting for roughly 50% of TFC’s total loans and leases held for investment) witnessed a robust uptick.
We project total loans of $315.6 billion for the fourth quarter, indicating a 7.2% rise from the prior-year quarter.
The Zacks Consensus Estimate for the company’s average earning assets for the to-be-reported quarter is pegged at $481.2 billion, indicating a 2.2% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $479.3 billion, suggesting year-over-year growth of 1.8%.
In the to-be-reported quarter, the Federal Reserve continued with its ultra-hawkish monetary policy stance, raising interest rates by another 125 basis points. The policy rate reached 4.25-4.50%, the highest in the past 15 years. Thus, supported by loan growth and higher interest rates, TFC’s net interest income (NII) and net interest margin (NIM) are likely to have been positively impacted.
The consensus estimate for NII is $3.93 billion, which implies a 21.2% rise on a year-over-year basis. We project NII to grow 20.2% to $3.89 billion.
The company expects a mid-double digit increase in its core and reported NIM in the fourth quarter, driven by the benefits of the rate hikes.
Other Key Factors & Estimates for Q4
Non-Interest Income: Unlike the pandemic days, deposit balances are not expected to have grown much in the fourth quarter. This is likely to have had an adverse impact on revenues from service charges on deposits. The Zacks Consensus Estimate of $252 million for the same implies a fall of 7.7% from the prior-year period’s reported number. Our estimate for the metric is $242.1 million, indicating a 11.3% decline.
Given the elimination of overdraft-related fees and the introduction of Truist One Banking, the company expects a mid-single-digit decline in service charges for 2022.
Rising mortgage rates (the rate on the 30-year fixed mortgage remaining above the 6% mark) and inflation weighed on mortgage originations and refinancing activities in the fourth quarter, which is expected to have hurt TFC’s mortgage banking income. The consensus estimate for the same of $89 million suggests a 44% year-over-year plunge. Our estimate for the metric is pegged at $96.8 million, indicating a year-over-year decline of 39.1%.
The consensus estimate for investment banking and brokerage fees and commissions of $223 million indicates a 40.8% decrease from the prior-year quarter. We project the same to tank 44.5% to $209.3 million.
As part of its efforts to bolster its insurance business, TFC, through its subsidiary, Truist Insurance Holdings, acquired BankDirect Capital Finance in November. The all-cash deal was valued at $3.4 billion. This is expected to have provided support to the company’s insurance income. The consensus estimate for insurance commissions of $787 million reflects an 18.2% year-over-year improvement. Our estimate for the metric is pegged at $807.3 million, implying a rise of 21.2%.
The consensus estimate for income from bank-owned life insurance is $52 million, suggesting a 18.2% rise from the previous-year quarter’s reported number. We project the same to grow 34.4% to $59.2 million.
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 $83 million indicates a rise of 2.5% from the prior-year quarter. We anticipate the metric to increase 12.7% to $91.3 million.
The Zacks Consensus Estimate for card and payment-related fees of $248 million suggests 10.7% growth. We expect the same to rise 16.9% to $261.9 million.
The Zacks Consensus Estimate for total non-interest income is pegged at $2.19 billion, which indicates a 5.6% decline from the prior-year quarter’s reported figure. Our estimate for the same is $2.18 billion, reflecting a fall of 5.9%.
Management expects fourth-quarter fee income to rebound sequentially on the seasonal rise in insurance income, robust organic growth and the full impact of the BenefitMall acquisition.
Expenses: Truist has been witnessing a continued rise in overall expenses over the past several quarters because of investments in technology upgrades and merger integration. A similar trend is expected to have continued in the fourth quarter.
Our estimate for total adjusted non-interest expenses is pegged at $3.53 billion, reflecting an increase of 12.7% from the prior-year quarter number.
Management expects adjusted expenses in the to-be-reported quarter to rise 1% sequentially mainly due to inflationary pressure, investments and revenue-producing businesses, and technology and acquisition-related costs.
For 2022, management expects total merger-related and restructuring costs, and incremental operating expenses related to the merger of $900 million. Costs will decrease significantly to nearly $100 million before going away entirely in 2023.
By the year end, net cost savings worth $1.6 billion are anticipated.
Asset Quality: Our estimate for provision for credit losses is pegged at $294.9 million against a provision benefit of $103 million recorded a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $1.48 billion, indicating a rise of 27.3% from the last year’s reported quarter. The consensus estimate for total non-accrual loans and leases of $1.41 billion suggests a 26.3% increase.
Our estimates for NPAs and non-accrual loans and leases are $1.49 billion and $1.45 billion, respectively.
Earnings Whispers
According to our quantitative model, the chances of Truist 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 is +0.23%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for TFC’s fourth-quarter earnings of $1.28 per share has been unchanged over the past seven days. The figure indicates a fall of 7.3% from the year-ago reported number. Our estimate for earnings is $1.27, indicating a 7.6% fall.
The consensus estimate for sales is pegged at $6.13 billion, indicating a year-over-year rise of 10.2%. Our estimate for sales is $6.08 billion, implying an increase of 9.3%.
Other Banks Worth Considering
A couple of 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 this time around, are The Charles Schwab Corporation (SCHW - Free Report) and Hancock Whitney Corporation (HWC - Free Report) .
The Earnings ESP for Schwab is +1.08% and it carries a Zacks Rank #3 at present. SCHW is slated to report fourth-quarter 2022 results on Jan 18.
Hancock Whitney is scheduled to release fourth-quarter 2022 earnings on Jan 17. HWC, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +0.10%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.