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Muted Loan Growth to Mar Truist Financial (TFC) Q3 Earnings

Muted Loan Growth to Mar Truist Financial (TFC) Q3 Earnings

Truist Financial Corporation TFC is slated to announce third-quarter 2020 results on Oct 15, before market open. Per the Fed’s latest data, commercial and industrial loan (C&I) balances (accounting for almost 50% of the company’s total loans and leases held for investment) declined in the third quarter as overall lending activities remained muted due to continued fears related to the coronavirus outbreak.

Moreover, the Zacks Consensus Estimate for average earning assets for the to-be-reported quarter is pegged at $435.2 billion, indicating a 2.6% decline from the prior quarter’s reported figure.

Thus, because of muted growth in loans along with near-zero interest rates, Truist Financial’s net interest margin (NIM) and net interest income (NII) are expected to have been hurt in the third quarter. Management anticipates NIM to be flat sequentially.

The consensus estimate for NII for the to-be-reported quarter of $3.31 billion indicates a 4.1% decline sequentially.

Other Key Estimates for Q3

Non-interest Income: The consensus estimate for insurance commission is pegged at $513 million, indicating a fall of 11.7% sequentially. The consensus mark for income from bank-owned life insurance is $45 million, suggesting no change from the previous quarter’s reported number.

The Zacks Consensus Estimate for service charges on deposits of $225 million suggests a rise of 11.4% from the prior quarter. However, the consensus estimate for operating lease income of $78 million indicates a decline of 6% from the previous quarter’s reported figure.

The consensus estimate for total non-interest income of $2.03 billion points to a 16.3% decline on a sequential basis.

Expenses: While 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 to-be-reported quarter to be down

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Here’s Why You Should Hold On to Truist Financial Stock Now

Here’s Why You Should Hold On to Truist Financial Stock Now

Truist Financial Corporation TFC, formed following the BB&T-SunTrust merger in December 2019, will benefit from decent revenue growth and adequate available liquidity. However, mounting expenses and a low rate environment are major near-term concerns.

Truist Financial has been witnessing a steady rise in net interest income (NII) despite lower rates. The company’s NII increased in 2019 and first-half 2020, mainly on the elevated loan demand. Though there has been a fall in demand for consumer loans amid the pandemic-related economic slowdown, commercial lending activities continue to improve. Despite the uncertainty related to COVID-19, demand for loans is expected to be decent in the days to come. Thus, this is likely to support NII in the upcoming quarters.

Moreover, the company is focused on growth of non-interest revenue sources. Fee income grew in 2019 and the first six months of 2020. With near-zero interest rates and lower mortgage rates, a rise in origination volume and higher refinancing activities are being witnessed. Further, strength in investment banking and insurance income will support non-interest income growth in the upcoming period.

Truist Financial also has a decent capital-deployment plan. The company cleared the 2020 stress test and announced that it will maintain dividend at the prior level. Besides, the bank has suspended share repurchases until a sustained economic recovery is seen. Given a solid liquidity position and debt/equity ratio lower than the industry, it will be able to sustain dividend payments.

Also, shares of this Zacks Rank #3 (Hold) company have gained 19.4% over the past six months as against the 3.2% decline recorded by the industry. Furthermore, analysts seem to be bullish on the stock. The Zacks Consensus Estimate for earnings has been revised 4.2% and marginally upward for 2020 and 2021, respectively in the past seven days.

Nevertheless, the prevailing low rate

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