To The Moon

$Truist Financial Corp(TFC)$ is scheduled to report its fourth-quarter and full-year 2024 results on 17 Jan before the market open.

With the implementation of rate cuts in 2024, we should be seeing the overall lending scenario improved in the quarter ending 31 Dec 2024. As seen from 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 fourth quarter. On the consumer side, loan which account for almost 40% of total loans and leases held for investment) demand improved.  

TFC is expected to post quarterly earnings of $0.88 per share in its upcoming report, which represents a year-over-year change of +7.4%. Revenues are expected to be $5.01 billion, down 12.1% from the year-ago quarter.

Lower Yields Might Affect NIM and NII Growth

TFC’s average loan balance to be $300.1 billion, indicating a 4.4% fall from the prior-year quarter. Consensus Estimate for TFC’s average earning assets is pegged at $468.3 billion, which suggests a 2.7% decline from the prior-year quarter.

While the Fed reduced the interest rates by 100 basis points since September 2024, higher funding costs are likely to weigh on net interest income (NII) due to slower deposit repricing alongside lower yields.

As we have seen the yield curve steepened and then normalized during the fourth quarter. That should help to support TFC’s net interest margin (NIM) and NII growth to some extent.

The balance sheet repositioning actions undertaken during the second quarter of 2024 are likely to have aided NII and NIM too. TFC expects NII to be down 1.5% sequentially, primarily due to a lower commercial loan balance and temporary lag in deposit beta. Further, the company anticipates NIM to be down to 3.05-3.06% by the fourth quarter of 2024.

Factors that affect TFC's net interest income 

• Funding costs: Higher funding costs can weigh on NII due to lower yields and slower deposit repricing

• Loan balance: A lower commercial loan balance can cause NII to decrease

• Deposit beta: A temporary lag in deposit beta can cause NII to decrease

TFC Previous Earnings Show Neutral Sentiment Despite Solid Earnings

The previous earnings reported on 17 Oct 2024 which has seen 3.09% change for TFC share price reflects a strong quarter with solid earnings, revenue growth, and significant improvements in investment banking income, alongside disciplined expense management and strong digital engagement.

However, there are challenges with loan and deposit growth, as well as the impact of natural disasters. The guidance for Q4 indicates expected revenue and earnings decline.

TFC Guidance Suggest Decrease In Revenue If Only Two Rate Cuts

During the Truist Financial Corporation's Q3 2024 earnings call, the executives provided several key metrics and forward-looking guidance. The company reported a GAAP net income of $1.3 billion, translating to $0.99 per share, with an adjusted EPS of $0.97. Adjusted revenue saw a sequential growth of 2.4%, driven by a robust performance in investment banking and trading income.

The efficiency ratio improved as adjusted expenses increased by less than 1% quarter-over-quarter and declined on a year-over-year basis. The company returned $1.2 billion to shareholders, including $500 million in stock repurchases.

For Q4 2024, Truist anticipates a 1.5% decrease in revenue, factoring in two expected federal rate cuts. Despite this, the company aims for expenses to rise by 4% due to strategic investments. They revised their full-year 2024 guidance, expecting revenues to decline slightly but projecting a decrease in adjusted expenses compared to 2023, with net charge-offs now anticipated to be closer to 60 basis points. The company also plans another $500 million in share repurchases in Q4 2024.

For the third quarter, TFC GAAP net income available to common shareholders was $1.3 billion or $0.99 per share. Adjusted EPS was $0.97 per share. Adjusted revenue grew 2.4% on a linked-quarter basis. Investment banking and trading revenue increased 79% year-over-year and 43% year-to-date. This represents the strongest capital markets quarter since 2021.

TFC Expense Discipline And Dividends

TFC adjusted expenses increased by less than 1% linked quarter and declined for the third consecutive quarter on a year-over-year basis. Efficiency ratio improved. TFC also returned $1.2 billion to shareholders through dividends and repurchase of $500 million worth of common stock. Another $500 million repurchase is anticipated in Q4.

There are also nearly 200,000 new digital loan and deposit accounts opened in the third quarter, including over 75,000 new-to-bank clients, a 35% increase year-over-year. Digital transactions increased 15% compared to Q3 2023.

Technical Analysis - Multi-timeframe (MTF)

We are seeing TFC benefitting from the strong earnings results, and TFC gained 3.37%, this has helped TFC to trade above the short-term MA, and MACD remain in an upside movement.

I am expecting MTF to move into stronger upward trend, as there will be more bank earnings today (16 Jan) which might favour TFC, especially $Bank of America(BAC)$ on how the loans volume would be like, this should have an impact on how TFC NII would look like for the final quarter of 2024.

Summary

I think we are seeing strong earnings results from major banks, and with the latest consumer price index (CPI) report helped to underpin a rally, indication of a cooldown in cool inflation in December does trigger optimism that Fed might give more rate cuts in 2025.

This might be what TFC need as they highlight that forecast of decrease in revenue, when only two expected federal rate cuts was factored in.

I will be watching TFC to see if I can take a position to add to my financial stocks, which I already hold BAC and $SoFi Technologies Inc.(SOFI)$ .

Appreciate if you could share your thoughts in the comment section whether you think TFC would adjust its forecast for 2025 as more rate cuts might be expected.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.