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Truist Financial (TFC) Q3 Earnings Beat, Provisions Decline

·4 min read

Truist Financial’s TFC third-quarter 2020 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains and charges related to a charitable contribution. Compared to the previous quarter, adjusted earnings improved 18.3%.

Results benefited from a decline in expenses along with lower provision for credit losses, partly offset by a fall in revenues. Moreover, the balance sheet position remained strong in the reported quarter.

After considering non-recurring items, net income available to common shareholders (GAAP basis) was $1.07 billion or 79 cents per share compared with $902 million or 67 cents per share in the prior quarter.

Revenues & Expenses Decline

Total revenues (on a tax-equivalent basis) were $5.60 billion, down 5.1% sequentially. However, the figure beat the Zacks Consensus Estimate of $5.39 billion.

Tax-equivalent net interest income declined 2.5% from the prior quarter to $3.39 billion.

Net interest margin decreased 3 basis points (bps) sequentially to 3.10%. The decline was due to lower purchase-accounting accretion, lower yields on loans due to LIBOR changes and lower yield on securities due to the impact of new investments at lower rates.

Non-interest income declined 8.8% sequentially to $2.21 billion. Notably, in the reported quarter, the company recorded $104 million worth of securities gains compared with $300 million recorded in the prior quarter.

Non-interest expenses were $3.76 billion, down 3.2% from the prior quarter.

Adjusted efficiency ratio was 57.3%, up from 55.8% in the second quarter. A rise in efficiency ratio indicates a fall in profitability.

As of Sep 30, 2020, total average deposits were $372.21 billion, up marginally from the previous quarter end. Average total loans and leases of $310.44 billion declined 3.5% from the prior quarter end.

Credit Quality: Mixed Bag

As of Sep 30, 2020, total non-performing assets (NPAs) were $1.31 billion, up 5% sequentially. As a percentage of total assets, NPAs were 0.26%, increasing 1 bp from the prior quarter.

Also, allowance for loan and lease losses was 1.91% of total loans and leases held for investment, which increased 10 bps. Net charge-offs were 0.42% of average loans and leases, up 3 bps, sequentially.

However, provision for credit losses declined 50.1% on a sequential basis to $421 million. Notably, in the reported quarter, provisions included a modest build to the allowance for loan and lease losses primarily due to the uncertainty related to the coronavirus outbreak.

Profitability & Capital Ratios Improve

At the end of the reported quarter, return on average assets was 0.91%, up from 0.75% in the prior quarter. Return on average common equity was 6.87%, up from 5.90% in the second quarter of 2020.

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 12.2%, up from 11.6% recorded in the prior quarter. Common equity Tier 1 ratio was 10% as of Sep 30, 2020, up from 9.7% in the second quarter of 2020.

Our Take

Truist Financial remains well-positioned for revenue improvement through continued decent growth in loan demand. Nevertheless, pressure on margins due to the low interest rate environment remains a major near-term concern and might hamper financials.

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

Aided by robust mortgage banking revenues, Wells Fargo WFC reported third-quarter 2020 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results, however, compared unfavorably with the prior-year quarter figure of 92 cents.

Citigroup C delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results were, however, down significantly from the prior-year quarter.

Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s JPM third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.

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