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Truist Financial (TFC) Q2 Earnings Beat, Revenues & Costs Rise

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Truist Financial’s (TFC - Free Report) second-quarter 2020 adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 64 cents. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains and losses from the early extinguishment of long-term debt.

Results benefited from an improvement in revenues along with a decline in provision for credit losses. However, higher expenses were an undermining factor. The balance sheet position remained strong in the reported quarter.

After considering non-recurring items, net income available to common shareholders (GAAP basis) was $902 million or 67 cents per share compared with $986 million or 73 cents per share in the prior quarter.

Revenues Improve, Expenses Rise

Total revenues (on a tax-equivalent basis) were $5.90 billion, up 4.5% sequentially. Also, the figure beat the Zacks Consensus Estimate of $5.53 billion.

Tax-equivalent net interest income declined 5.6% from the prior quarter to $3.48 billion. Net interest margin decreased 45 basis points (bps) to 3.13%. The declines were due to lower Fed Funds and LIBOR rates, higher low-yielding balances at the Federal Reserve and a deferral related to accrued interest for loans that are granted an accommodation in connection with COVID-19.

Non-interest income jumped 23.6% sequentially to $2.42 billion. Notably, in the reported quarter, the company recorded $300 million worth of securities gains from the sale of non-agency mortgage-backed securities against a loss recorded in the prior quarter.

Non-interest expenses were $3.88 billion, up 13% from the prior quarter. The rise reflects an increase in almost all cost components, except for costs related to marketing and customer development, and loan-related costs. Moreover, in the reported quarter, the company recorded a loss on early extinguishment of debt worth $235 million.

Adjusted efficiency ratio was 55.8%, up from 54.6% in the first quarter. A rise in efficiency ratio indicates fall in profitability.

As of Jun 30, 2020, total deposits were $376.2 billion, up 7.4% sequentially. Total loans and leases of $321.1 billion declined marginally from the prior quarter-end.

Credit Quality Worsens

As of Jun 30, 2020, total non-performing assets (NPAs) were $1.25 billion, up 6.4% sequentially. As a percentage of total assets, NPAs were 0.25%, increasing 2 bps from the prior quarter.

Also, allowance for loan and lease losses was 1.81% of total loans and leases held for investment, which increased 18 bps. Net charge-offs were 0.39% of average loans and leases, up 3 bps sequentially.

Provision for credit losses declined 5.5% on a sequential basis to $844 million. Notably, provisions included a $522 million build to the allowance for credit losses, reflecting increased economic stress associated with the coronavirus pandemic and its impact.

Profitability Ratios Deteriorate, Capital Ratios Improve

At the end of the reported quarter, return on average assets was 0.75%, down from 0.90% in the prior quarter. Return on average common equity was 5.90%, down from 6.58% in the first quarter of 2020.

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 11.5%, up from 10.5% recorded in the prior quarter. Common equity Tier 1 ratio under Basel III was 9.7% as of Jun 30, 2020, up from 9.3% in the first quarter of 2020.

Our Take

Truist Financial remains well-positioned for revenue improvement through continued loan growth. Nevertheless, lower interest rates and economic slowdown are major near-term concerns.

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

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 16.7% in second-quarter 2020, aided by solid top-line strength. Earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20. Additionally, the bottom line climbed 12.9% from the year-ago quarter.

Citigroup (C - Free Report) delivered an earnings surprise of 6.4% in second-quarter 2020 on robust revenue strength. Earnings per share of 50 cents for the quarter handily outpaced the Zacks Consensus Estimate of 47 cents. Results were, however, down significantly from the prior-year quarter.

A significant improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) second-quarter earnings of $1.38 per share. The bottom line surpassed the Zacks Consensus Estimate of $1.34. The results included provision builds due to deterioration in the macro-economic backdrop, bridge book markups and gains related to funding spread tightening on derivatives. Excluding these, earnings per share amounted to $3.27.

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