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Truist Financial’s (TFC - Free Report) revenues are benefiting from higher interest rates and decent loan demand, as well as efforts to bolster fee income. Additionally, its strategic business restructuring initiatives augur well. However, rising operating expenses and deteriorating asset quality are key near-term concerns.
Truist Financial has been recording a rise in net interest income (NII). The metric has witnessed a three-year compound annual growth rate (CAGR) of 25.1% (ended 2022) on the back of decent loan demand, merger deals and rising rates. Supported by decent demand for loans and higher interest rates, the company’s NII is expected to continue to be positively impacted. We expect NII to grow 4.8% in 2023, 2% in 2024 and 6.3% in 2025.
Truist Financial remains focused on the growth of non-interest revenue sources. The metric witnessed a three-year (2019-2022) CAGR of 18.4%, mainly on the back of the merger deal and strength in wealth management and insurance businesses. Moreover, management is open to strategic business restructuring initiatives to further improve fee income growth. In sync with this, the company divested a 20% stake in its subsidiary, Truist Insurance Holdings in 2023.
Also, to further bolster its insurance business, the bank has acquired BankDirect Capital Finance, BenefitMall, Kensington Vanguard National Land Services and Constellation Affiliated Partners in the past few years. We expect non-interest revenues to rise marginally this year.
Truist Financial expects continued improvement in net interest margin (NIM). Though the metric contracted in the past few years, the trend reversed in 2022, with NIM expanding to 3.01% from 2.86% in 2021. The uptrend persisted in the first quarter of 2023. With the Federal Reserve expected to keep interest rates high in the near term to control inflation, the company’s NIM is expected to improve further, though rising funding costs will weigh on it. We project NIM to be 3.02%, 2.96% and 3.03% in 2023, 2024 and 2025, respectively.
However, TFC has been witnessing a persistent rise in total operating expenses. The metric witnessed a CAGR of 22.5% over the last three years (2019-2022). Overall costs are anticipated to remain elevated, primarily owing to investments in technology upgrades and inflationary pressure. Our estimates for total non-interest expenses (adjusted) suggest a CAGR of 3% by 2025.
Truist Financial’s asset quality has been deteriorating over the past few years. Provision for credit losses witnessed a CAGR of 103.1% over the three years ended 2020. In 2022 and the first quarter of 2023, the company witnessed a rise in provisions on a deteriorating macroeconomic outlook. A similar uptrend is expected to continue in the near term as the Fed’s ultra-aggressive monetary policies are raising recession risk. For 2023, we project provision for credit losses to jump to 181.4%.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have lost 4.1% against the industry’s rise of 7.6%.
The Zacks Consensus Estimate for Credicorp’s current-year earnings has been revised marginally upward over the last 30 days. In the past three months, BAP shares have rallied 14.2%.
Earnings estimates for BOC Hong Kong for 2023 have been revised 2.8% over the last 60 days. In the past six months, BHKLY shares have lost 17.5%.
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Truist's (TFC) Rates & Loan Demand Aid, Asset Quality Ails
Truist Financial’s (TFC - Free Report) revenues are benefiting from higher interest rates and decent loan demand, as well as efforts to bolster fee income. Additionally, its strategic business restructuring initiatives augur well. However, rising operating expenses and deteriorating asset quality are key near-term concerns.
Truist Financial has been recording a rise in net interest income (NII). The metric has witnessed a three-year compound annual growth rate (CAGR) of 25.1% (ended 2022) on the back of decent loan demand, merger deals and rising rates. Supported by decent demand for loans and higher interest rates, the company’s NII is expected to continue to be positively impacted. We expect NII to grow 4.8% in 2023, 2% in 2024 and 6.3% in 2025.
Truist Financial remains focused on the growth of non-interest revenue sources. The metric witnessed a three-year (2019-2022) CAGR of 18.4%, mainly on the back of the merger deal and strength in wealth management and insurance businesses. Moreover, management is open to strategic business restructuring initiatives to further improve fee income growth. In sync with this, the company divested a 20% stake in its subsidiary, Truist Insurance Holdings in 2023.
Also, to further bolster its insurance business, the bank has acquired BankDirect Capital Finance, BenefitMall, Kensington Vanguard National Land Services and Constellation Affiliated Partners in the past few years. We expect non-interest revenues to rise marginally this year.
Truist Financial expects continued improvement in net interest margin (NIM). Though the metric contracted in the past few years, the trend reversed in 2022, with NIM expanding to 3.01% from 2.86% in 2021. The uptrend persisted in the first quarter of 2023. With the Federal Reserve expected to keep interest rates high in the near term to control inflation, the company’s NIM is expected to improve further, though rising funding costs will weigh on it. We project NIM to be 3.02%, 2.96% and 3.03% in 2023, 2024 and 2025, respectively.
However, TFC has been witnessing a persistent rise in total operating expenses. The metric witnessed a CAGR of 22.5% over the last three years (2019-2022). Overall costs are anticipated to remain elevated, primarily owing to investments in technology upgrades and inflationary pressure. Our estimates for total non-interest expenses (adjusted) suggest a CAGR of 3% by 2025.
Truist Financial’s asset quality has been deteriorating over the past few years. Provision for credit losses witnessed a CAGR of 103.1% over the three years ended 2020. In 2022 and the first quarter of 2023, the company witnessed a rise in provisions on a deteriorating macroeconomic outlook. A similar uptrend is expected to continue in the near term as the Fed’s ultra-aggressive monetary policies are raising recession risk. For 2023, we project provision for credit losses to jump to 181.4%.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have lost 4.1% against the industry’s rise of 7.6%.
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Stocks Worth Considering
A couple of better-ranked bank stocks worth considering are Credicorp (BAP - Free Report) and BOC Hong Kong (BHKLY - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Credicorp’s current-year earnings has been revised marginally upward over the last 30 days. In the past three months, BAP shares have rallied 14.2%.
Earnings estimates for BOC Hong Kong for 2023 have been revised 2.8% over the last 60 days. In the past six months, BHKLY shares have lost 17.5%.