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Truist Financial Corporation (TFC) Up 0.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Truist Financial Corporation (TFC - Free Report) . Shares have added about 0.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Truist Financial Q4 Earnings Beat on Fee Income, Lower Expenses
Truist Financial’s fourth-quarter 2021 adjusted earnings of $1.38 per share easily surpassed the Zacks Consensus Estimate of $1.26. The bottom line grew 16.9% from the prior-year quarter.
Results were aided by higher fee income, a decline in operating expenses, modest loan growth and provision benefits. However, lower interest rates and a fall in NII were the undermining factors.
The reported quarter’s results excluded restructuring and BB&T-SunTrust Banks merger-related charges and incremental operating expenses related to the merger. After considering these, net income available to common shareholders (GAAP basis) was $1.52 billion or $1.13 per share, up from $1.23 billion or 90 cents per share in the prior-year quarter.
In 2021, adjusted earnings of $5.53 per share outpaced the consensus estimate of $5.41 and were up 45.5% year over year. Net income available to common shareholders (GAAP basis) was $6 billion or $4.47 per share, up from $4.2 billion or $3.08 per share in 2020.
Revenues & Expenses Down
Quarterly total revenues were $5.57 billion, down 1.5% year over year. The top line missed the Zacks Consensus Estimate of $5.60 billion.
In 2021, total revenues declined 1.8% from the prior year to $22.30 billion. The top line lagged the Zacks Consensus Estimate of $22.34 billion.
Tax-equivalent quarterly NII decreased 3.7% from the year-ago quarter to $3.27 billion. The decline was due to a fall in purchase accounting accretion, lower rates on earning assets, decrease in fees on Payroll Protection Program (PPP) loans and a fall in loans. These were partly offset by growth in the securities portfolio and lower funding costs.
Net interest margin contracted 32 basis points (bps) year over year to 2.76%.
Non-interest income increased 1.7% to $2.32 billion.
Non-interest expenses were $3.70 billion, down 3.5% from the prior-year quarter. Adjusted expenses fell 1.4% to $3.10 billion.
The adjusted efficiency ratio was 56.0%, up from 55.9% in fourth-quarter 2020. A rise in efficiency ratio indicates deterioration in profitability.
As of Dec 31, 2021, total average deposits were $411 billion, up 2% sequentially. Average total loans and leases of $291.1 billion grew slightly.
Credit Quality Improves
As of Dec 31, 2021, total non-performing assets (NPAs) were $1.16 billion, down 16.1% year over year. As a percentage of total assets, NPAs were 0.21%, decreasing 6 bps.
Allowance for loan and lease losses was 1.53% of total loans and leases held for investment, which decreased 42 bps. Net charge-offs were 0.25% of average loans and leases, down 2 bps from the year-ago quarter.
Provision for credit losses was a benefit of $103 million against a provision of $177 in the prior-year quarter. Reserve releases, owing to improving economic outlook, led to provision benefits.
Profitability & Capital Ratios Robust
At the end of the reported quarter, the return on average assets was 1.19%, up from 1.05% in the prior-year quarter. Return on average common equity was 9.8%, up from 7.9% in the fourth quarter of 2020.
As of Dec 31, 2021, Tier 1 risk-based capital ratio was 11.3% compared with 12.1% recorded in the prior-year quarter. Common equity Tier 1 ratio was 9.6% as of Dec 31, 2021, down from 10.0% as of Dec 31, 2020.
Share Repurchase Update
In the quarter under review, Truist Financial repurchased shares worth $500 million.
Merger-Related Progress Details
Merger-related and restructuring costs and incremental operating expenses related to the merger are anticipated to be approximately $800 million in 2022, with the expenses going away in 2023.
By 2022-end, net cost savings worth $1.6 billion are anticipated. By the end of fourth-quarter 2021, 65% of the total cost savings ($1.04 billion) were achieved.
The company is on track to close roughly 800 branches by the end of first-quarter 2022, having already closed 414 branches so far. It is progressing toward reducing its non-branch facilities by 5 million square feet. So far, Truist Financial has reduced 4.6 million square feet of non-branch facilities.
Average full-time employees (FTEs) are down 12% since the merger announcement in February 2019. The company also anticipates technology savings by 2022-end.
Outlook
Because of Truist One (the company’s new flagship, differentiated and disruptive suite of checking solutions that redefine everyday banking and accelerate the journey towards purposeful growth), which will have no overdraft fees, there will be a $300 million or 60% reduction in overdraft-related revenue by 2024.
The company expects to earn an additional $60 million in PPP revenues over the coming two quarters.
In the near term, the company expects to be below its 9.75% CET1 target.
In first-quarter 2022, total revenues are projected to decline 1-2% sequentially. In 2022, total revenues are projected to grow 2-4% year over year, as a result of higher NII, combined with solid growth in fees.
First-quarter adjusted expenses are expected to rise 1-2% from the fourth-quarter 2021 level, partially due to seasonality and personnel expenses, and partially due to higher marketing expenses.
Adjusted non-interest expenses in 2022 are expected to increase 1-2% as a result of inflation, increased investments and expenses from acquisition in 2021, partially offset by the ongoing cost savings, including achieving the final cost save target in the fourth quarter of 2022.
Reported NIM in first-quarter 2022 is expected to be down a couple of bps due to lower purchase accounting accretion, while the core NIM is projected to be flat.
The company expects net charge-offs ratio to be in the range of 30-40 bps in 2022, given the favorable economic conditions and the assumptions for normalization throughout the year, with some quarter-to-quarter variability.
Excluding discrete items, the effective tax rate is expected to be 20-21% in 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Truist Financial Corporation has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Truist Financial Corporation (TFC) Up 0.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Truist Financial Corporation (TFC - Free Report) . Shares have added about 0.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Truist Financial Q4 Earnings Beat on Fee Income, Lower Expenses
Truist Financial’s fourth-quarter 2021 adjusted earnings of $1.38 per share easily surpassed the Zacks Consensus Estimate of $1.26. The bottom line grew 16.9% from the prior-year quarter.
Results were aided by higher fee income, a decline in operating expenses, modest loan growth and provision benefits. However, lower interest rates and a fall in NII were the undermining factors.
The reported quarter’s results excluded restructuring and BB&T-SunTrust Banks merger-related charges and incremental operating expenses related to the merger. After considering these, net income available to common shareholders (GAAP basis) was $1.52 billion or $1.13 per share, up from $1.23 billion or 90 cents per share in the prior-year quarter.
In 2021, adjusted earnings of $5.53 per share outpaced the consensus estimate of $5.41 and were up 45.5% year over year. Net income available to common shareholders (GAAP basis) was $6 billion or $4.47 per share, up from $4.2 billion or $3.08 per share in 2020.
Revenues & Expenses Down
Quarterly total revenues were $5.57 billion, down 1.5% year over year. The top line missed the Zacks Consensus Estimate of $5.60 billion.
In 2021, total revenues declined 1.8% from the prior year to $22.30 billion. The top line lagged the Zacks Consensus Estimate of $22.34 billion.
Tax-equivalent quarterly NII decreased 3.7% from the year-ago quarter to $3.27 billion. The decline was due to a fall in purchase accounting accretion, lower rates on earning assets, decrease in fees on Payroll Protection Program (PPP) loans and a fall in loans. These were partly offset by growth in the securities portfolio and lower funding costs.
Net interest margin contracted 32 basis points (bps) year over year to 2.76%.
Non-interest income increased 1.7% to $2.32 billion.
Non-interest expenses were $3.70 billion, down 3.5% from the prior-year quarter. Adjusted expenses fell 1.4% to $3.10 billion.
The adjusted efficiency ratio was 56.0%, up from 55.9% in fourth-quarter 2020. A rise in efficiency ratio indicates deterioration in profitability.
As of Dec 31, 2021, total average deposits were $411 billion, up 2% sequentially. Average total loans and leases of $291.1 billion grew slightly.
Credit Quality Improves
As of Dec 31, 2021, total non-performing assets (NPAs) were $1.16 billion, down 16.1% year over year. As a percentage of total assets, NPAs were 0.21%, decreasing 6 bps.
Allowance for loan and lease losses was 1.53% of total loans and leases held for investment, which decreased 42 bps. Net charge-offs were 0.25% of average loans and leases, down 2 bps from the year-ago quarter.
Provision for credit losses was a benefit of $103 million against a provision of $177 in the prior-year quarter. Reserve releases, owing to improving economic outlook, led to provision benefits.
Profitability & Capital Ratios Robust
At the end of the reported quarter, the return on average assets was 1.19%, up from 1.05% in the prior-year quarter. Return on average common equity was 9.8%, up from 7.9% in the fourth quarter of 2020.
As of Dec 31, 2021, Tier 1 risk-based capital ratio was 11.3% compared with 12.1% recorded in the prior-year quarter. Common equity Tier 1 ratio was 9.6% as of Dec 31, 2021, down from 10.0% as of Dec 31, 2020.
Share Repurchase Update
In the quarter under review, Truist Financial repurchased shares worth $500 million.
Merger-Related Progress Details
Merger-related and restructuring costs and incremental operating expenses related to the merger are anticipated to be approximately $800 million in 2022, with the expenses going away in 2023.
By 2022-end, net cost savings worth $1.6 billion are anticipated. By the end of fourth-quarter 2021, 65% of the total cost savings ($1.04 billion) were achieved.
The company is on track to close roughly 800 branches by the end of first-quarter 2022, having already closed 414 branches so far. It is progressing toward reducing its non-branch facilities by 5 million square feet. So far, Truist Financial has reduced 4.6 million square feet of non-branch facilities.
Average full-time employees (FTEs) are down 12% since the merger announcement in February 2019. The company also anticipates technology savings by 2022-end.
Outlook
Because of Truist One (the company’s new flagship, differentiated and disruptive suite of checking solutions that redefine everyday banking and accelerate the journey towards purposeful growth), which will have no overdraft fees, there will be a $300 million or 60% reduction in overdraft-related revenue by 2024.
The company expects to earn an additional $60 million in PPP revenues over the coming two quarters.
In the near term, the company expects to be below its 9.75% CET1 target.
In first-quarter 2022, total revenues are projected to decline 1-2% sequentially. In 2022, total revenues are projected to grow 2-4% year over year, as a result of higher NII, combined with solid growth in fees.
First-quarter adjusted expenses are expected to rise 1-2% from the fourth-quarter 2021 level, partially due to seasonality and personnel expenses, and partially due to higher marketing expenses.
Adjusted non-interest expenses in 2022 are expected to increase 1-2% as a result of inflation, increased investments and expenses from acquisition in 2021, partially offset by the ongoing cost savings, including achieving the final cost save target in the fourth quarter of 2022.
Reported NIM in first-quarter 2022 is expected to be down a couple of bps due to lower purchase accounting accretion, while the core NIM is projected to be flat.
The company expects net charge-offs ratio to be in the range of 30-40 bps in 2022, given the favorable economic conditions and the assumptions for normalization throughout the year, with some quarter-to-quarter variability.
Excluding discrete items, the effective tax rate is expected to be 20-21% in 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Truist Financial Corporation has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.