Modest Loan Growth to Aid Truist Financial (TFC) Q3 Earnings

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This story originally appeared on Zacks

Truist Financial TFC is scheduled to announce third-quarter 2021 results on Oct 15, before market open. Per the Fed’s latest data, commercial and industrial loan balances (accounting for nearly 50% of the company’s total loans and leases held for investment) continued to witness a decline while overall lending activities improved marginally.
The Zacks Consensus Estimate for average earning assets for the to-be-reported quarter is pegged at $458.3 billion, indicating a marginal rise from the prior quarter’s reported figure.
While the persistently low interest rate environment remained a headwind, the steepening of the yield curve during the quarter and modest loan demand are expected to have offered some support to Truist Financial’s net interest margin (NIM) and net interest income (NII). Management expects reported NIM to decline because of diminishing purchase accounting accretion, while core NIM is expected to be relatively stable.
Per management, NII is likely to be relatively flat due to balance sheet growth. The consensus estimate for NII for the to-be-reported quarter of $3.24 billion. This implies a relatively stable performance on a sequential basis.

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Other Major Factors at Play

Non-interest Income: Similar to the prior few quarters, deposit balance continued to improve during the third quarter. This is likely to have resulted in higher revenues from service charges on deposits. The Zacks Consensus Estimate of $260 million for the same suggests a rise of 2.8% from the prior quarter.
Improvement in consumer confidence during the quarter and solid economic outlook are likely to have aided Truist Financial’s card business. The Zacks Consensus Estimate for card and payment-related fees of $234 million implies a 4% increase.
The consensus mark for income from bank-owned life insurance is $47 million, suggesting a 2.2% rise from the previous quarter’s reported number. Further, a modest rise in loan demand is expected to have offered support to the company’s lending fees. The Zacks Consensus Estimate for the same of $95 million shows a rise of 1.1%
However, the consensus estimate of investment banking and brokerage fees and commissions of $307 million indicates a 3.2% fall from the prior quarter.
Mortgage production is likely to have remained relatively solid but not as robust as last year. Also, moderation in refinancing activity is expected to have offset the support from mortgage revenues. Thus, the consensus estimate for mortgage banking income of $113 million suggests a 3.4% decline sequentially.
The consensus estimate for insurance commission is pegged at $647 million, indicating a fall of 6.2% sequentially.
The consensus estimate for total non-interest income of $2.3 billion implies a 5% fall on a sequential basis.
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 core non-interest expenses (excluding merger costs and amortization) for the quarter to be relatively flat on a sequential basis.
Asset Quality: Continuing with the trend of the past few 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 that it had taken in the first half of last year to cover losses from the effects of the coronavirus pandemic.
The Zacks Consensus Estimate for non-performing assets is pegged at $1.11 billion, indicating a fall of 7.2% from the last quarter. The consensus estimate for total non-accrual loans and leases of $1.05 billion suggests a 7.5% decrease.
Management expects net charge-offs in the range of 25-35 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 -0.95%.
Zacks Rank: The company currently carries a Zacks Rank #3.
 

The Zacks Consensus Estimate for earnings of $1.20 per share has moved almost 1% higher over the past seven days. The figure indicates a rise of 23.7% from the year-ago reported number.
The consensus estimate for sales is pegged at $5.52 billion, indicating a fall of nearly 1%.

Banks Worth Considering

Here are a 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 PNC Financial PNC is +2.17% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Oct 15.
Zions Bancorporation ZION is slated to report quarterly results on Oct 18. The company has an Earnings ESP of +2.49% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fifth Third Bancorp FITB is slated to report quarterly earnings on Oct 19. The company, which carries a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +0.46%.

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Fifth Third Bancorp (FITB): Free Stock Analysis Report
 
The PNC Financial Services Group, Inc (PNC): Free Stock Analysis Report
 
Zions Bancorporation, N.A. (ZION): Free Stock Analysis Report
 
Truist Financial Corporation (TFC): Free Stock Analysis Report
 
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