Truist (TFC) Q4 Earnings Miss as Expenses Rise Significantly
Truist Financial’s TFC fourth-quarter 2023 adjusted earnings of 81 cents per share missed the Zacks Consensus Estimate of 88 cents. The figure excludes a non-cash goodwill impairment charge, FDIC special assessment charges and a discrete tax benefit. However, it includes the restructuring charges related to the company’s cost-saving program.
Results have been primarily hurt by a decline in revenues and significantly higher expenses. Both net interest income (NII) and non-interest income witnessed a fall. An increase in provisions was another undermining factor.
Net loss available to common shareholders (GAAP basis) was $5.17 billion against net income of $1.61 billion in the prior-year quarter.
Adjusted earnings for 2023 were $3.59 per share, which lagged the Zacks Consensus Estimate of $3.77 per share. Net loss available to common shareholders (GAAP basis) was $1.45 billion against net income of $5.93 billion in the previous year.
Revenues Decline, Expenses Rise Significantly
Total quarterly revenues were $5.70 billion, down 8.2% year over year. The top line beat the Zacks Consensus Estimate of $5.64 billion.
For 2023, revenues were $23.39 billion, up 1.5% year over year. The top line beat the Zacks Consensus Estimate of $23.33 billion.
Quarterly tax-equivalent NII decreased 10.7% year over year to $3.60 billion. The fall was due to higher funding costs and lower earning assets. Our estimate for NII (FTE) was $3.48 billion.
The net interest margin (NIM) declined 27 basis points (bps) to 2.98%.
Non-interest income declined 3.2% year over year to $2.16 billion. The decrease was due to a fall in investment banking and trading income, service charges on deposits, card and payment-related fees, mortgage banking income, operating lease income, and other income. Our estimate for non-interest income was pegged at $2.20 billion.
Non-interest expenses were $10.28 billion, up significantly from the prior-year quarter. In the reported quarter, the company recorded goodwill impairment charges of $6.08 billion, which along with higher regulatory costs, mainly led to the significant rise in total expenses. Our estimate for expenses was $3.60 billion.
The adjusted efficiency ratio was 58.8%, up from 54.2% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Dec 31, 2023, total average deposits were $395.33 billion, down 1.4% on a sequential basis.
Average loans and leases of $313.83 billion declined 1.9% sequentially.
Credit Quality Worsens
As of Dec 31, 2023, total non-performing assets (NPAs) were $1.49 billion, up 19% year over year.
Provision for credit losses was $572 million in the fourth quarter, up 22.5% from the prior-year quarter. Our estimate for provisions was $581.5 million.
Net charge-offs were 0.57% of average loans and leases, up 23 bps from the year-ago quarter. Also, the allowance for loan and lease losses was 1.54% of total loans and leases held for investment, which increased 20 bps.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was (3.74)% compared with 1.21% in the prior-year quarter. Return on average common equity was (36.6)% compared with 11.7% in the fourth quarter of 2022.
As of Dec 31, 2023, the Tier 1 risk-based capital ratio was 11.6% compared with 10.5% in the prior-year quarter. The common equity Tier 1 ratio was 10.1% as of Dec 31, 2023, up from 9% as of Dec 31, 2022.
Share Repurchases
In the reported quarter, Truist Financial did not repurchase any shares.
Our Take
A decent loan demand 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 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
Higher interest rates, the First Republic Bank deal, modest improvement in investment banking business and solid loan balance drove JPMorgan’s JPM fourth-quarter 2023 adjusted earnings to $3.97 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.73.
JPM’s results excluded net investment securities losses and the FDIC special assessment charges. After including these, earnings were $3.04 per share.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments, except for Corporate & Investment Bank and Others, recorded a rise in net income on a year-over-year basis.
Bank of America’s BAC fourth-quarter 2023 adjusted earnings of 70 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line compared unfavorably with the 85 cents earned in the prior-year quarter.
After considering FDIC special assessment charges of $2.1 billion and Bloomberg Short-Term Bank Yield Index cessation charges of $1.6 billion, earnings per share were 35 cents.
Despite modest loan growth and higher interest rates, BofA recorded a lower-than-expected net interest income, given the rise in funding costs. Also, during the quarter, BofA witnessed a slight decline in deposit balances as customers continued to rotate toward high-yielding investment options.
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