Truist Financial (TFC) Q2 Earnings & Revenues Beat Estimates

Truist Financial’s TFC second-quarter 2021 adjusted earnings of $1.55 per share easily surpassed the Zacks Consensus Estimate of $1.17. The bottom line jumped 89% from the prior-year quarter.

The stock rallied nearly 1% during the pre-market trading, reflecting investors’ optimism over the results. The full-day trading session will display a clearer picture.

Results were aided by record performance from its insurance business, card and related payments fees and wealth management operation. This supported fee income, which along with provision benefits and rise in deposit balances, acted as a tailwind.

However, lower interest rates and fall in loan balance hurt net interest income (NII). Higher operating expenses posed an undermining factor as well.

Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger and charitable contributions. After considering these, net income available to common shareholders (GAAP basis) was $1.56 billion or $1.16 per share, up from $902 million or 67 cents per share in the prior-year quarter.

Revenues Down, Expenses Rise

Total revenues were $5.65 billion, declining 3.8% year over year. The top line beat the Zacks Consensus Estimate of $5.48 billion.

Tax-equivalent NII decreased 5.9% from the year-ago quarter to $3.27 billion. The decline was mainly due to fall in purchase accounting accretion and lower rates on earning assets, partially offset by lower funding costs and higher fees on Payroll Protection Program loans.

Net interest margin contracted 25 basis points (bps) to 2.88%.

Non-interest income declined nearly 1% to $2.41 billion. Excluding securities gains, fee income grew 13% year over year.

Non-interest expenses were $4.01 billion, up 3.4% from the prior-year quarter. Adjusted expenses rose 1.8%.

Adjusted efficiency ratio was 56.1%, up from 55.8% in second-quarter of 2020. A rise in efficiency ratio indicates deterioration in profitability.

As of Jun 30, 2021, total average deposits were $396.3 billion, up 3.4% from the prior quarter. Average total loans and leases of $288.6 billion declined 2.1%.

Credit Quality Improves

As of Jun 30, 2021, total non-performing assets (NPAs) were $1.2 billion, down 4.8% year over year. As a percentage of total assets, NPAs were 0.23%, decreasing 2 bps.

Allowance for loan and lease losses was 1.79% of total loans and leases held for investment, which decreased 2 bps. Provision for credit losses was a benefit of $434 million against a provision of $844 in the prior-year quarter. Lower loan balance and reserve releases owing to improving economic outlook led to provision benefits.

Also, net charge-offs were 0.20% of average loans and leases, down 19 bps from the year-ago quarter. This was largely driven by lower losses in the indirect auto and commercial portfolios, along with higher recoveries.

Robust Profitability & Capital Ratios

At the end of the reported quarter, return on average assets was 1.28%, up from 0.75% in the prior-year quarter. Return on average common equity was 10.1%, up from 5.9% in the second quarter of 2020.

As of Jun 30, 2021, Tier 1 risk-based capital ratio was 11.9% compared with 11.6% recorded in the prior-year quarter. Common equity Tier 1 ratio was 10.2% as of Jun 30, 2021, up from 9.7% as of Jun 30, 2020.

Capital Deployment Updates

In the quarter under review, Truist Financial repurchased shares worth $610 million.

In June-end, following the clearance of this year’s stress test, Truist Financial announced plans to hike dividend by 7% to 48 cents per share, effective third quarter. Further, the company expects to be able to deploy roughly $4-$5 billion of capital (either in the form of share buybacks or acquisitions) through third-quarter 2022.

Our Take

Truist Financial’s efforts to capitalize on investment banking and insurance businesses bode well. However, pressure on margins due to the low interest rate environment and soft loan demand are near-term hurdles.

Truist Financial Corporation Price, Consensus and EPS Surprise

Truist Financial Corporation Price, Consensus and EPS Surprise
Truist Financial Corporation Price, Consensus and EPS Surprise

Truist Financial Corporation price-consensus-eps-surprise-chart | Truist Financial Corporation Quote

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

Bank of America’s BAC second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter.

PNC Financial PNC pulled off a second-quarter 2021 positive earnings surprise of 42.4% on substantial reserve release. Adjusted earnings per share of $4.50 surpassed the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and modest rise in loan demand drove JPMorgan’s JPM second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

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