NII, Loans to Aid Truist (TFC) Q3 Earnings Amid Soft Fee Income – October 13, 2022
Financial truist (TFC – Free Report) is expected to announce third quarter 2022 results on October 18, before the market opens. According to the latest data from the Fed, commercial and industrial loan balances (representing about 50% of the company’s total loans and leases held for investment purposes) have seen a strong increase, with an improvement in the overall scenario. loan.
The Zacks consensus estimate for average earning assets for the reportable quarter is set at $479.8 billion, indicating a 3.9% increase from the reported figure for the prior year quarter. Our estimate for the metric is $489.2 billion, marking growth of 5.9%.
With the Federal Reserve raising interest rates by 150 basis points (bps) during the third quarter, the company’s net interest margin (NIM) and net interest income (NII) should have been positively impacted. In addition, the rise in demand for loans should have offered support. Our estimate of total lending is $335.7 billion, indicating a jump of 15.5%.
Management expects a sequential increase of around 20 basis points in its base NIM due to the benefits of recent rate hikes. He also expects a modest 20 basis point increase in GAAP NIM due to core NIM expansion, offset by a continued decline in purchase accounting growth.
The NII’s consensus estimate of $3.71 billion implies a 14.8% increase on an annual basis. We expect NII to grow 13.9% to $3.68 billion.
Other factors to watch out for
Non-interest income: Unlike pandemic days, the deposit balance should not have increased much in the third quarter. This likely had a negative impact on revenue from service fees on deposits. Zacks consensus estimate of $245 million for the same implies a decline of 11.2% from the prior year period. Our estimate for the metric is $245.2 million.
Rising mortgage rates (which crossed the 6% mark in September) and inflation weighed on mortgage origination and refinancing activity in the quarter, which hurt TFC’s mortgage banking income. Thus, the consensus estimate for the same amount of $89 million suggests a drop of 50.3%. Our estimate of the metric is pegged at $123.3 million, reflecting a decline of 31.1%.
In addition, the consensus estimate for investment banking and brokerage fees and commissions of $250 million indicates a 16.9% decrease from the prior year quarter, given market volatility. stock markets and the slowdown in mergers and acquisitions. We expect the same for a 26.6% tank at $231.8 million.
Focusing more on its insurance business, Truist Financial acquired Kensington Vanguard National Land Services and insurance distribution platform Constellation Affiliated Partners. In addition, during the third quarter, it announced its intention to buy BenefitMall and BankDirect Capital Finance. The consensus insurance commission estimate of $766 million reflects an 18.8% year-over-year improvement. Our estimate for the measure is set at $770.1 million, reflecting an increase of 19.4%.
The consensus estimate for bank-owned life insurance revenue is $52 million, suggesting a 21% increase from the reported figure for the year-ago quarter. We expect the same growth to increase by 35.3% to $58.2 million.
In addition, an increase in loan demand should have offered support for business loan costs. Zacks’ consensus estimate for the same $95 million shows a jump of 28.4%. We expect the metric to increase by 29.8% to $96 million.
While rising inflation has hurt consumer confidence, decent economic growth and pent-up demand should have pushed consumers to use cards. So, it probably had a positive impact on TFC’s card business. Zacks’ consensus estimate for card and payment fees of $253 million suggests growth of 12.4%. We expect the same amount to increase by 15.3% to $259.3 million.
The Zacks consensus estimate for total non-interest revenue of $2.21 billion implies a decrease of 6.4% on an annual basis. Our estimate for the same is $2.26 billion, which reflects a decline of 4.6%.
Expenses: Truist Financial has witnessed a continued increase in overall spending in recent quarters due to investments in technology upgrades and merger integration. A similar trend is also expected to continue in the third quarter.
Our estimate of total adjusted non-interest expense is set at $3.72 billion, reflecting an 8.1% increase over the prior year quarter figure.
Asset quality: Given the increase in loan balances and expectations of a deteriorating macroeconomic outlook, Truist Financial may have built up reserves in the third quarter. Our estimate of the provision for credit losses is set at $142.5 million versus a provision of $324 million a year ago.
The Zacks consensus estimate for non-performing assets (NPA) is pegged at $1.29 billion, indicating a 7.1% increase from the year-ago quarter. The consensus estimate for total unaccrued loans and leases of $1.22 billion suggests a 5.8% increase.
Our estimates for APMs and unaccrued loans and leases are $1.3 billion and $1.22 billion, respectively.
According to our quantitative model, the odds of Truist Financial beating the Zacks consensus estimate this time around are low. This is because he doesn’t have the right combination of the two key ingredients – a positive earnings ESP and a Zacks rank #3 (Hold) or higher.
You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.
ESP Earnings: The revenue ESP for Truist Financial is -1.81%.
Zack’s Ranking: The company currently carries a No. 3 Zacks rank.
Zacks’ consensus estimate for third-quarter earnings of $1.27 per share is down nearly 1% in the past seven days. The figure indicates a 10.6% drop from the number reported a year ago. Our revenue estimate is $1.30, indicating an 8.6% decline.
The consensus sales estimate is set at $5.93 billion, indicating an increase of 5.9%. Management expects adjusted net income before provision to increase sequentially to high numbers. Our sales estimate is $5.94 billion, an increase of 6%.
Banks to consider
Here are a few bank stocks you might want to consider, as our model shows they have the right mix of elements to outperform this time around:
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