High Rates, Restructuring Aid Truist (TFC) Amid Cost Woes

Core Viewpoint - Truist Financial (TFC) is expected to experience continued top-line growth driven by strong loan demand, high interest rates, strategic restructuring initiatives, and efforts to enhance fee income [1] Financial Performance - Over the past year, TFC shares have increased by 23.5%, while the industry has grown by 32.6% [2] - TFC's net interest income saw a five-year compound annual growth rate (CAGR) of 16.9% until 2023, despite a decline in 2021 and the first quarter of 2024 [3] - The net interest margin (NIM) improved from 2.86% in 2021 to 3.01% in 2022, with a slight decline to 3.00% in Q1 2024; projected NIMs are 2.94%, 3.03%, and 3.10% for 2024, 2025, and 2026 respectively [4] Revenue Sources - Non-interest revenue sources experienced a five-year CAGR of 12.5% from 2018 to 2023, driven by a merger deal and growth in wealth management and insurance [5] - Although total non-interest income is expected to decline in 2024 due to securities losses, significant growth is anticipated in 2025 [5] Strategic Initiatives - Truist is pursuing strategic business restructuring, including the sale of an 80% stake in Truist Insurance Holdings for $1.95 billion and the acquisition of Service Finance Company to enhance its lending business [6] Expense Management - TFC's expenses have grown at a CAGR of 25.4% from 2018 to 2023, primarily due to rising personnel costs and digitization efforts [7] - Despite a year-over-year decline in Q1 2024 expenses and a strategic program expected to yield $750 million in gross savings, overall costs are projected to remain high due to technology investments [7] Asset Quality - Truist's asset quality has been declining, with provisions for credit losses showing a CAGR of 30.1% over the past five years; an increase in provisions is expected in the near term, with a projected rise of 4.3% this year [8]