Fee Income to Aid Truist's (TFC) Q2 Earnings, Lower NII to Hurt

Core Viewpoint - The financial outlook for Truist Financial Corporation (TFC) indicates a challenging environment with expected declines in net interest income and average loan balances, while certain segments like investment banking are projected to show growth. Group 1: Loan Demand and Interest Income - Demand for commercial and industrial loans was modest, accounting for roughly 50% of TFC's total loans and leases held for investment, while consumer loan demand was subdued, representing almost 40% of total loans [1] - The consensus estimate for net interest income (NII) is pegged at $3.5 billion, indicating a 4.7% year-over-year decline [3] - Management expects average loan balances to decline modestly, projecting average loans of $308.9 billion, which reflects a 5.9% fall from the prior-year quarter [18] Group 2: Non-Interest Income and Fees - The consensus estimate for total non-interest income is pegged at $1.43 billion, indicating a 3.7% growth from the prior-year quarter [6] - A rebound in the capital markets business is expected to support TFC's fee income, with an estimated investment banking and trading income of $296.5 million, suggesting a 40.5% jump [4] - The Zacks Consensus Estimate for card and payment-related fees is $216.9 million, indicating an 8.1% decline [5] Group 3: Expenses and Asset Quality - Management expects adjusted expenses to rise by 4% sequentially due to higher professional fees and marketing costs [8] - The consensus estimate for non-performing assets is pegged at $1.75 billion, indicating a rise of 26.1% [9] - The estimate for provision for credit losses is pegged at $525.5 million, reflecting concerns over potential bad loans [26] Group 4: Major Developments - Truist completed the sale of its remaining 80% stake in its insurance subsidiary, resulting in after-tax cash proceeds of approximately $10.1 billion and an after-tax gain of $4.7 billion [27] - Following the divestiture, TFC executed a balance sheet repositioning strategy, selling $27.7 billion worth of lower-yielding investment securities [11] - The balance sheet repositioning generated $29.3 billion available for reinvestment, despite resulting in an after-tax loss of $5.1 billion in the upcoming quarter [28] Group 5: Earnings Estimates - The Zacks Consensus Estimate for TFC's second-quarter earnings is 78 cents per share, indicating a decline of 17.9% from the year-ago reported number [30] - The consensus estimate for sales is pegged at $4.86 billion, suggesting a year-over-year fall of 17.8% [14] - Management expects total revenues (FTE) to increase by 1% sequentially, influenced by interest income from the sale proceeds and balance sheet repositioning [36]