Rise in NII to Support Truist's Q1 Earnings, Lower Fee Income to Hurt

Truist Financial TFC is scheduled to announce first-quarter 2025 results on April 17 before the opening bell. The overall lending scenario was decent as the Federal Reserve kept interest rates unchanged, and market turmoil because of tariff concerns resulted in reduced loan demand than previously expected.

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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) was subdued during the first two months of the quarter. On the other hand, consumer loan (almost 40% of total loans and leases held for investment) demand improved.
  
We project TFC’s average loan balance to be $309.3 billion, indicating a marginal fall from the prior-year quarter.

The Zacks Consensus Estimate for TFC’s average earning assets is pegged at $473.1 billion, which suggests a marginal decline from the prior-year quarter. We project the metric to be $466.8 billion.

Though the Fed kept the rates unchanged, funding/deposit costs are likely to have stabilized, thus supporting net interest income (NII). Also, the yield curve steepened during the first quarter. This is expected to have supported TFC’s net interest margin (NIM) and NII growth to some extent.

The consensus estimate for NII (fully tax equivalent or FTE) is pegged at $3.56 billion, which implies a 4% rise on a year-over-year basis. Our estimate for the metric is pegged at $3.57 billion.

Management anticipates NII to be down 2% sequentially, primarily due to two fewer days in the quarter and seasonally lower average deposit balances, partially offset by slightly higher average loan balances. Excluding the day count impact, NII is expected to remain relatively stable.

Other Factors & Estimates for TFC’s Q1 Performance

Non-Interest Income: The Zacks Consensus Estimate for service charges on deposits of $225.2 million suggests no change from the prior-year quarter. Our estimate for the metric is pegged at $222.4 million.

The Zacks Consensus Estimate for card and payment-related fees of $223.3 million is relatively flat year over year. Our estimate for the metric is $225.4 million.

Further, during the quarter, mortgage rates remained range-bound and hovered near the 7% mark. This is likely to have led to some improvement in mortgage originations and refinancing. Thus, Truist’s residential mortgage income is expected to have risen. The consensus estimate for the metric of $107.3 million indicates a 19.2% jump. Our estimate for residential mortgage income is the same as the consensus estimate.

Higher client activity and volatility in the capital markets in the to-be-reported quarter are expected to have supported TFC’s corresponding fee income, while headwinds related to tariffs are likely to have weighed on it. Thus, the consensus estimate for the company’s investment banking and trading income of $267.9 million indicates a 17.1% fall. We project the metric to be $311.7 million.

The subdued lending scenario is likely to have weighed on TFC’s lending-related fees. The Zacks Consensus Estimate for the same of $90.8 million indicates a decline of 5.4%. We anticipate the metric to be $91 million.

The wealth management business is expected to have been adversely impacted because of muted equity market performance during the quarter under review. Hence, the company’s income from the same is likely to have decreased. The consensus estimate for wealth management income of $338.3 million suggests a decline of 5%. Our estimate for the metric is $356 million.

Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $1.4 billion, which indicates a 2.9% drop from the prior-year quarter. We project the metric to be $1.43 billion.

Management expects non-interest income to be down 2.5% from the prior quarter.

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 first quarter.

Our estimate for total adjusted non-interest expenses is pegged at $2.86 billion, suggesting an increase of 4.4% from the prior-year quarter.

Management expects adjusted expenses (including core deposit intangible and amortization expense) to decline 3% sequentially due to lower other expenses and professional fees, partially offset by seasonally higher personnel expenses.

Asset Quality: Truist is expected to set aside a decent amount of money for potential bad loans (mainly commercial loan defaults), given the expectations of a higher for longer interest rate backdrop and rising delinquencies on the back of stubborn inflation numbers.
 
Our estimate for provision for credit losses is pegged at $470.1 million, signifying a 6% year-over-year decline.

The Zacks Consensus Estimate for total non-accrual loans and leases of $1.47 billion suggests a 4% increase. We project total non-accrual loans and leases to be $1.36 billion.

What the Zacks Model Unveils for TFC

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 +0.15%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Truist’s Q1 Earnings and Sales Expectations

The Zacks Consensus Estimate for TFC’s earnings of 86 cents per share has been revised 1.1% lower over the past seven days. The figure indicates a fall of 4.4% from the year-ago reported number.

The consensus estimate for sales is pegged at $4.92 billion, which implies a rise of 2.2%.

Management expects total revenues to be down 2% sequentially in the first quarter.

TFC’s Peers Worth Considering

Here are a couple of TFC’s peer 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:

The Earnings ESP for U.S. Bancorp USB is +0.94% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 16.

Over the past seven days, the Zacks Consensus Estimate for U.S. Bancorp’s quarterly earnings has been revised 2.1% upward to 99 cents.

First Horizon FHN is also scheduled to announce quarterly numbers on April 16. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +3.80%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quarterly earnings estimates for First Horizon have remained unchanged at 40 cents over the past week.

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This article originally published on Zacks Investment Research (zacks.com).

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