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Truist's (TFC) Q3 Earnings Beat Estimates, NII & Loans Down
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Truist Financial’s (TFC - Free Report) third-quarter 2023 adjusted earnings of 84 cents per share beat the Zacks Consensus Estimate of 82 cents. This excluded merger-related and restructuring charges of 4 cents per share.
Results benefited from a slight rise in non-interest income, a rise in average deposit balance and higher rates. However, a fall in net interest income (NII), lower average loan balance and rising funding costs were the spoilsports. Also, the company recorded a substantial increase in provisions and higher expenses during the quarter.
Net income available to common shareholders was $1.07 billion, down 30.5% from the prior-year quarter. Our estimate for the metric was the same as the reported number.
Revenues Down, Expenses Rise
Total quarterly revenues were $5.672 billion, down 3% year over year. The top line marginally missed the Zacks Consensus Estimate of $5.68 billion.
Tax-equivalent NII decreased 4.3% to $3.62 billion. The fall was due to lower purchase accounting accretion and higher funding costs, partially offset by higher interest rates. Our estimate for NII (FTE) was $3.52 billion.
Net interest margin (NIM) declined 17 basis points (bps) to 2.95%.
Non-interest income grew marginally to $2.11 billion. This was mainly driven by a rise in insurance income, wealth management income, lending-related fees and other income. Our estimate for non-interest income was $2.2 billion.
Non-interest expenses were $3.75 billion, up 3.7%. This was due to an increase in personnel expenses, other expenses and regulatory costs. Our estimate for the same was $3.65 billion.
The adjusted efficiency ratio was 61.8%, up from 56.4% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Sep 30, 2023, total average deposits were $401 billion, up marginally on a sequential basis.
Average total loans and leases of $318.1 billion declined 2.5%. This was mainly due to the sale of the student loan portfolio and balance sheet optimization.
Credit Quality Worsens
As of Sep 30, 2023, total non-performing assets (NPAs) were $1.58 billion, up 27.7% year over year.
Provision for credit losses was $497 million, surging substantially from $234 million in the prior-year quarter. Our estimate for provisions was $522.8 million.
Net charge-offs were 0.51% of average loans and leases, up 24 bps from the year-ago quarter. Also, the allowance for loan and lease losses was 1.49% of total loans and leases held for investment, which increased 15 bps.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.86%, down from 1.19% in the prior-year quarter. Return on average common equity was 7.5%, down from 10.7% in the third quarter of 2022.
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 11.4% compared with 10.7% recorded in the prior-year quarter. The common equity Tier 1 ratio was 9.9% as of Sep 30, 2023, up from 9.1% as of Sep 30, 2022.
Share Repurchases
In the reported quarter, Truist Financial did not repurchase any shares.
Cost Saving Program
In September 2023, TFC announced its strategic expense-saving program that will result in approximately $750 million of gross savings over the next 12 to 18 months.
As part of this program, Truist is planning "sizable reductions" in the workforce through consolidation of redundant/similar functions, geographical simplification of operations and business restructuring. These efforts commenced in the third quarter of 2023 and will continue till the first quarter of 2024. These are expected to lead to roughly $300 million in cost savings.
Truist CEO Bill Rogers said, “Other cost savings initiatives include aggressively managing third-party spend, further reducing our corporate real estate footprint and rationalizing tech spend.” These will, in aggregate, result in almost $450 million in expense savings.
Driven partially by these initiatives, the company expects adjusted non-interest expenses in 2024 to be relatively stable or rise nearly 1%.
Our Take
A decent loan demand, higher rates and efforts to bolster fee income are expected to continue supporting Truist Financial’s top line. However, elevated expenses and ambiguity over geopolitical and economic risks are major headwinds.
Truist Financial Corporation Price, Consensus and EPS Surprise
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2023 earnings per share of $3.60 surpassed the Zacks Consensus Estimate of $3.18. However, the bottom line reflects a 4.8% decline year over year.
PNC’s results were aided by a fall in non-interest expenses and lower provisions. However, a decrease in NII and non-interest income were headwinds.
U.S. Bancorp’s (USB - Free Report) third-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges) of $1.05 outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 11% from the prior-year quarter.
Results benefited from increased NII, supported by higher interest rates. A rise in non-interest income was another positive. However, higher expenses and provisions were the major headwinds for USB.
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Truist's (TFC) Q3 Earnings Beat Estimates, NII & Loans Down
Truist Financial’s (TFC - Free Report) third-quarter 2023 adjusted earnings of 84 cents per share beat the Zacks Consensus Estimate of 82 cents. This excluded merger-related and restructuring charges of 4 cents per share.
Results benefited from a slight rise in non-interest income, a rise in average deposit balance and higher rates. However, a fall in net interest income (NII), lower average loan balance and rising funding costs were the spoilsports. Also, the company recorded a substantial increase in provisions and higher expenses during the quarter.
Net income available to common shareholders was $1.07 billion, down 30.5% from the prior-year quarter. Our estimate for the metric was the same as the reported number.
Revenues Down, Expenses Rise
Total quarterly revenues were $5.672 billion, down 3% year over year. The top line marginally missed the Zacks Consensus Estimate of $5.68 billion.
Tax-equivalent NII decreased 4.3% to $3.62 billion. The fall was due to lower purchase accounting accretion and higher funding costs, partially offset by higher interest rates. Our estimate for NII (FTE) was $3.52 billion.
Net interest margin (NIM) declined 17 basis points (bps) to 2.95%.
Non-interest income grew marginally to $2.11 billion. This was mainly driven by a rise in insurance income, wealth management income, lending-related fees and other income. Our estimate for non-interest income was $2.2 billion.
Non-interest expenses were $3.75 billion, up 3.7%. This was due to an increase in personnel expenses, other expenses and regulatory costs. Our estimate for the same was $3.65 billion.
The adjusted efficiency ratio was 61.8%, up from 56.4% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Sep 30, 2023, total average deposits were $401 billion, up marginally on a sequential basis.
Average total loans and leases of $318.1 billion declined 2.5%. This was mainly due to the sale of the student loan portfolio and balance sheet optimization.
Credit Quality Worsens
As of Sep 30, 2023, total non-performing assets (NPAs) were $1.58 billion, up 27.7% year over year.
Provision for credit losses was $497 million, surging substantially from $234 million in the prior-year quarter. Our estimate for provisions was $522.8 million.
Net charge-offs were 0.51% of average loans and leases, up 24 bps from the year-ago quarter. Also, the allowance for loan and lease losses was 1.49% of total loans and leases held for investment, which increased 15 bps.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.86%, down from 1.19% in the prior-year quarter. Return on average common equity was 7.5%, down from 10.7% in the third quarter of 2022.
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 11.4% compared with 10.7% recorded in the prior-year quarter. The common equity Tier 1 ratio was 9.9% as of Sep 30, 2023, up from 9.1% as of Sep 30, 2022.
Share Repurchases
In the reported quarter, Truist Financial did not repurchase any shares.
Cost Saving Program
In September 2023, TFC announced its strategic expense-saving program that will result in approximately $750 million of gross savings over the next 12 to 18 months.
As part of this program, Truist is planning "sizable reductions" in the workforce through consolidation of redundant/similar functions, geographical simplification of operations and business restructuring. These efforts commenced in the third quarter of 2023 and will continue till the first quarter of 2024. These are expected to lead to roughly $300 million in cost savings.
Truist CEO Bill Rogers said, “Other cost savings initiatives include aggressively managing third-party spend, further reducing our corporate real estate footprint and rationalizing tech spend.” These will, in aggregate, result in almost $450 million in expense savings.
Driven partially by these initiatives, the company expects adjusted non-interest expenses in 2024 to be relatively stable or rise nearly 1%.
Our Take
A decent loan demand, higher rates and efforts to bolster fee income are expected to continue supporting Truist Financial’s 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
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2023 earnings per share of $3.60 surpassed the Zacks Consensus Estimate of $3.18. However, the bottom line reflects a 4.8% decline year over year.
PNC’s results were aided by a fall in non-interest expenses and lower provisions. However, a decrease in NII and non-interest income were headwinds.
U.S. Bancorp’s (USB - Free Report) third-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges) of $1.05 outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 11% from the prior-year quarter.
Results benefited from increased NII, supported by higher interest rates. A rise in non-interest income was another positive. However, higher expenses and provisions were the major headwinds for USB.