Higher NII to Aid Truist's Q3 Earnings, Lower Fee Income to Hurt
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Truist Financial TFC is scheduled to announce third-quarter 2024 results on Oct. 17 before the opening bell. The overall lending scenario was decent in the quarter, given borrowers' expectations of rate cuts.
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Per the Federal Reserve’s latest data, demand for commercial and industrial (C&I) loans (accounting for roughly 50% of TFC’s total loans and leases held for investment) rose during the third quarter. Meanwhile, consumer loan (almost 40% of total loans and leases held for investment) demand remained steady.
We project average loans of $307.2 billion, indicating a 3.9% fall from the prior-year quarter.
The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $472.2 billion, which suggests a 3.4% fall. We project the metric to be $469.6 billion.
While the Fed implemented a 50-basis point rate cut on Sept. 19 for the first time since March 2020, higher funding costs and an inverted yield curve for the majority of the third quarter are expected to have exerted pressure on TFC’s net interest margin (NIM) and net interest income (NII) growth.
The consensus estimate for NII (fully tax equivalent or FTE) is pegged at $3.67 billion, which implies a 1.3% year-over-year rise. Our estimate for the metric is pegged at $3.65 billion.
The company expects NII to be up 2% to 3% sequentially, primarily due to the full-quarter impact of the balance sheet repositioning.
Other Key Factors & Estimates for TFC’s Q3 Performance
Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $231.3 million indicates a jump of 52.2% from the prior-year quarter. Our estimate for the metric stands at $228.2 million.
Higher client activity and volatility in the capital markets business in the to-be-reported quarter are expected to have supported TFC’s corresponding fee income. Thus, the consensus estimate for the company’s investment banking and trading income of $282.5 million indicates a 52.7% jump. We project the metric to be $289.3 million.
A modestly improved lending scenario is likely to have supported TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $89.8 million indicates a decline of 12%. We anticipate the metric to be $87.6 million.
The Zacks Consensus Estimate for card and payment-related fees of $230.4 million suggests a fall of 3.2%. Our estimate for the metric is $232.1 million.
The wealth management business is expected to gain from higher equity market performance during the quarter under review. Hence, the company’s income from the same is likely to have risen. The consensus estimate for wealth management income of $358.7 million suggests an increase of 4.6%. Our estimate for the metric is $360.8 million.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $1.43 billion, which indicates a 7.4% increase from the prior-year quarter. We project the metric to be $1.42 billion.
Management anticipates non-interest income to remain relatively stable sequentially.
Expenses: Truist has been witnessing a continued rise in overall non-interest expenses over the past several quarters because of investments in technology, inflationary pressure, and strategic expansion efforts. A similar trend is expected to have continued in the third quarter.
However, following the divestiture of its insurance business during the previous quarter, overall non-interest expenses are likely to have fallen because of the absence of expenses related to the insurance business.
Our estimate for total adjusted non-interest expenses is pegged at $2.88 billion, suggesting a decrease of 1.2% from the prior-year quarter.
Management expects adjusted expenses to be up 3% on a sequential basis due to higher professional fees, and software and marketing costs.
Asset Quality: Truist is expected to set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given the expectations of an economic slowdown and rising delinquencies. Our estimate for provision for credit losses is pegged at $518.6 million, signifying a 4.3% year-over-year increase.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $1.53 billion, indicating a rise of 3.3%. The consensus estimate for total non-accrual loans and leases of $1.47 billion suggests a 3.8% increase. We project NPAs and total non-accrual loans and leases to be $1.51 billion and $1.38 billion, respectively.
