Just last summer, Truist Financial was leaning into fee income to counter margin pressure.
But what was a
Fee income, along with revenue, declined from the year-earlier period, driven down by market volatility that produced weaker-than-expected investment banking fees and residential mortgage income, Truist executives said Tuesday during the company’s quarterly earnings call.
While fee income fell 2.5% year over year — and may have fallen further were it not for a 16% uptick in insurance-related income — revenue dropped 2.9%, the company reported.
Still, despite headwinds such as ongoing geopolitical uncertainty and mounting inflationary pressures, Truist is optimistic about the rest of the year. It revised upward its revenue estimates and now projects revenue growth of 3%-4% for the year, higher than the 2%-4% increase that was forecast in January.
The expected uptick in revenue “is now tilted more toward net interest income given the outlook for higher short-term interest rates,” Chief Financial Officer Daryl Bible told analysts Tuesday, referring to the Federal Reserve’s plan to aggressively hike interest rates to guard against a recession.
Truist is also anticipating a seasonal fee-income boost from its insurance unit and is hopeful for a rebound in investment banking in the current quarter.
Excluding a “significant decline” in Paycheck Protection Program loans and purchase accounting, the company could realize 6%-7% core revenue growth this year, Bible added.
Truist isn’t alone in counting on stronger net interest income later this year to prop up revenue. Executives at Citizens Financial Group in Providence, Rhode Island, and Fifth Third Bancorp in Cincinnati told analysts Tuesday that they expect noninterest income to cooland net interest income to rise along with interest rates.
Citizens is now forecasting an increase of 10%-12% in full-year net interest income, up from the 3%-5% increase it predicted in January, and expects fee income to increase in the 3%-7% range, which works out to be about $100 million less than what the company expected earlier this year.
Meanwhile, Fifth Third now projects that its net interest income will climb 13%-14% for the year, up from the 4%-5% it projected just three months ago, while fee income could be flat to down 1%.
But it’s hard to say how such forecasts will play out in an economy with so many unknowns.
“With the revenue benefits of higher rates are obvious, we are mindful that there are likely to be elevated risks in the overall U.S. economy if the Fed aggressively tightens monetary policy to curb inflation, combined with the existing supply-chain constraints and labor shortages,” Fifth Third CEO Greg Carmichael told analysts Tuesday during the company’s quarterly earnings call.
Truist CEO Bill Rogers expressed similar sentiments, saying that while the company believes “the economy is on sound footing in the near term,” the economic and geopolitical challenges “create a wide range of economic outlooks” for the remainder of this year and into next year.
Truist reported net income of $1.3 billion for the quarter, about 0.5% lower than the same quarter in 2021. Net interest income totaled $3.2 billion, down 3.1% year over year, while the net interest margin of 2.76% was down 25 basis points compared with 3.01% at the end of March 2021.
Truist’s earnings call on Tuesday was the first since it completed the
It also closed more than 400 branches during the quarter, topping its goal to close 800 total branches as part of the $28.2 billion merger that was
During the first three months of 2022, Truist racked up $166 million in merger-related and restructuring charges and $155 million of after-tax incremental operating expenses related to the merger, it said. Noninterest expenses totaled $3.7 billion for the quarter, up 1.8% year over year.
Executives said that the company remains on track to achieve its merger-related net cost-savings goal of $1.6 billion by the end of the year, with more cost savings to be realized in areas such as data-center consolidations and staff reductions related to a voluntary separation and retirement program for employees that was introduced last fall.
No merger-related charges are expected to be recorded next year.
Jon Prior and John Reosti contributed to this article.
