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Truist (TFC) Q2 Earnings Top on Higher Fee Income, Costs Dip
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Truist Financial’s (TFC - Free Report) second-quarter 2024 adjusted earnings of 91 cents per share handily surpassed the Zacks Consensus Estimate of 84 cents. The figure, however, declined 1.1% year over year.
Shares on Truist lost 1.7% in pre-market trading on a subdued third-quarter 2024 outlook.
Results benefited from higher adjusted non-interest income, lower provisions and a decline in adjusted expenses. However, a decrease in net interest income (NII) due to higher funding costs and lower average loan balance was the undermining factor.
Results in the reported quarter excluded a gain on the sale of Truist Insurance Holdings (“TIH”), securities losses, a charitable contribution to the Truist Foundation and restructuring charges. After considering these, net income available to common shareholders (GAAP basis) was $826 million or 62 cents per share, down from $1.23 billion or 93 cents per share in the prior-year quarter. Our estimate for the metric was $822.1 million.
Adjusted Revenues Down, Adjusted Expenses Fall
Total quarterly revenues were negative $1.63 billion. Adjusted revenues of $5.02 billion declined marginally year over year. The top line beat the Zacks Consensus Estimate of $4.87 billion.
Tax-equivalent NII decreased 2.1% to $3.58 billion. The fall was due to higher funding costs and lower earning assets. These were partially offset by the balance sheet repositioning undertaken in the reported quarter. Our estimate for NII (FTE) was $3.53 billion.
Net interest margin (NIM) grew 13 basis points (bps) to 3.03%.
Non-interest income was negative $5.21 billion. Excluding securities losses, adjusted non-interest income grew 4.2% to $1.44 billion. The increase was driven by higher investment banking and trading income, wealth management income and mortgage banking income. We had expected this metric to be $1.4 billion.
Non-interest expenses were $3.09 billion, up 1.6%. Excluding certain non-recurring items, adjusted non-interest expenses declined 3% to $2.81 billion. The decline was mainly attributable to lower personnel expenses. Our estimate for adjusted non-interest expenses was $2.85 billion.
The adjusted efficiency ratio was 56%, down from 57.5% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2024, total average deposits were $388 billion, down marginally on a sequential basis. Average loans and leases held for investment of $306.2 billion declined almost 1%.
Credit Quality: Mixed Bag
Net charge-offs were 0.58% of average loans and leases, up 4 bps. Also, the allowance for loan and lease losses was 1.57% of total loans and leases held for investment, which increased 14 bps.
Provision for credit losses was $451 million in the second quarter, down 16.2% from the prior-year quarter. Our estimate for provisions was $525.5 million.
As of Jun 30, 2024, total non-performing assets (NPAs) were $1.48 billion, down 6.8% year over year. We had expected NPAs to be $1.39 billion.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.70% compared with 0.95% in the prior-year quarter. Return on average common equity was 6.1% compared with 8.6% in the second quarter of 2023.
As of Jun 30, 2024, the Tier 1 risk-based capital ratio was 13.2% compared with 11.1% in the prior-year quarter. The common equity Tier 1 ratio was 11.6% as of Jun 30, 2024, up from 9.6% as of Jun 30, 2023.
Major Developments
During the second quarter, Truist completed the sale of its remaining 80% stake in its insurance subsidiary — TIH. Following this, the company executed a balance sheet repositioning strategy.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of the TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion.
TFC undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, with a book value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. This resulted in an after-tax loss of $5.1 billion in the to-be-reported quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
Share Repurchase Update
Truist's board of directors authorized a $5 billion share repurchase program through 2026 as part of the company's overall capital distribution strategy. The share repurchase is expected to begin in the third quarter of 2024.
Third-Quarter 2023 View
Management expects adjusted revenues to rise 1-2% on a sequential basis.
Further, adjusted non-interest expenses are projected to increase 3%.
Our Take
A decent loan demand, business restructuring initiatives and TFC’s efforts to bolster fee income are expected to continue supporting its top line. However, elevated expenses and ambiguity over geopolitical and economic risks are major headwinds.
KeyCorp’s (KEY - Free Report) second-quarter 2024 adjusted earnings from continuing operations of 25 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line, however, compared unfavorably with 27 cents earned in the prior-year quarter. The reported quarter included the FDIC special assessment charge of $5 million, but its impact on earnings was negligible.
Results benefited from a rise in non-interest income, high rates, lower provisions and an improving loan balance. However, lower NII and a slight rise in expenses were the undermining factors for KEY.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) second-quarter 2024 earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $3. In the prior-year quarter, the company reported earnings per share of $3.36.
PNC’s results were aided by a rise in fee income and higher loan balance, along with reduced expenses. However, a decline in NII and an increase in provisions for credit losses acted as spoilsport.
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Truist (TFC) Q2 Earnings Top on Higher Fee Income, Costs Dip
Truist Financial’s (TFC - Free Report) second-quarter 2024 adjusted earnings of 91 cents per share handily surpassed the Zacks Consensus Estimate of 84 cents. The figure, however, declined 1.1% year over year.
Shares on Truist lost 1.7% in pre-market trading on a subdued third-quarter 2024 outlook.
Results benefited from higher adjusted non-interest income, lower provisions and a decline in adjusted expenses. However, a decrease in net interest income (NII) due to higher funding costs and lower average loan balance was the undermining factor.
Results in the reported quarter excluded a gain on the sale of Truist Insurance Holdings (“TIH”), securities losses, a charitable contribution to the Truist Foundation and restructuring charges. After considering these, net income available to common shareholders (GAAP basis) was $826 million or 62 cents per share, down from $1.23 billion or 93 cents per share in the prior-year quarter. Our estimate for the metric was $822.1 million.
Adjusted Revenues Down, Adjusted Expenses Fall
Total quarterly revenues were negative $1.63 billion. Adjusted revenues of $5.02 billion declined marginally year over year. The top line beat the Zacks Consensus Estimate of $4.87 billion.
Tax-equivalent NII decreased 2.1% to $3.58 billion. The fall was due to higher funding costs and lower earning assets. These were partially offset by the balance sheet repositioning undertaken in the reported quarter. Our estimate for NII (FTE) was $3.53 billion.
Net interest margin (NIM) grew 13 basis points (bps) to 3.03%.
Non-interest income was negative $5.21 billion. Excluding securities losses, adjusted non-interest income grew 4.2% to $1.44 billion. The increase was driven by higher investment banking and trading income, wealth management income and mortgage banking income. We had expected this metric to be $1.4 billion.
Non-interest expenses were $3.09 billion, up 1.6%. Excluding certain non-recurring items, adjusted non-interest expenses declined 3% to $2.81 billion. The decline was mainly attributable to lower personnel expenses. Our estimate for adjusted non-interest expenses was $2.85 billion.
The adjusted efficiency ratio was 56%, down from 57.5% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2024, total average deposits were $388 billion, down marginally on a sequential basis. Average loans and leases held for investment of $306.2 billion declined almost 1%.
Credit Quality: Mixed Bag
Net charge-offs were 0.58% of average loans and leases, up 4 bps. Also, the allowance for loan and lease losses was 1.57% of total loans and leases held for investment, which increased 14 bps.
Provision for credit losses was $451 million in the second quarter, down 16.2% from the prior-year quarter. Our estimate for provisions was $525.5 million.
As of Jun 30, 2024, total non-performing assets (NPAs) were $1.48 billion, down 6.8% year over year. We had expected NPAs to be $1.39 billion.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.70% compared with 0.95% in the prior-year quarter. Return on average common equity was 6.1% compared with 8.6% in the second quarter of 2023.
As of Jun 30, 2024, the Tier 1 risk-based capital ratio was 13.2% compared with 11.1% in the prior-year quarter. The common equity Tier 1 ratio was 11.6% as of Jun 30, 2024, up from 9.6% as of Jun 30, 2023.
Major Developments
During the second quarter, Truist completed the sale of its remaining 80% stake in its insurance subsidiary — TIH. Following this, the company executed a balance sheet repositioning strategy.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of the TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion.
TFC undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, with a book value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. This resulted in an after-tax loss of $5.1 billion in the to-be-reported quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
Share Repurchase Update
Truist's board of directors authorized a $5 billion share repurchase program through 2026 as part of the company's overall capital distribution strategy. The share repurchase is expected to begin in the third quarter of 2024.
Third-Quarter 2023 View
Management expects adjusted revenues to rise 1-2% on a sequential basis.
Further, adjusted non-interest expenses are projected to increase 3%.
Our Take
A decent loan demand, business restructuring initiatives and TFC’s efforts to bolster fee income are expected to continue supporting its top line. However, elevated expenses and ambiguity over geopolitical and economic risks are major headwinds.
Truist Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
KeyCorp’s (KEY - Free Report) second-quarter 2024 adjusted earnings from continuing operations of 25 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line, however, compared unfavorably with 27 cents earned in the prior-year quarter. The reported quarter included the FDIC special assessment charge of $5 million, but its impact on earnings was negligible.
Results benefited from a rise in non-interest income, high rates, lower provisions and an improving loan balance. However, lower NII and a slight rise in expenses were the undermining factors for KEY.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) second-quarter 2024 earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $3. In the prior-year quarter, the company reported earnings per share of $3.36.
PNC’s results were aided by a rise in fee income and higher loan balance, along with reduced expenses. However, a decline in NII and an increase in provisions for credit losses acted as spoilsport.