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Truist Financial (TFC) Q3 Earnings Beat Despite Higher Costs

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Truist Financial’s (TFC - Free Report) third-quarter 2021 adjusted earnings of $1.42 per share easily surpassed the Zacks Consensus Estimate of $1.20. The bottom line jumped 46.4% from the prior-year quarter.

Results were aided by strong performance from its insurance business, wealth management business, investment banking business, and card and payment related fees. This supported fee income growth, which along with provision benefits acted as a tailwind.

However, lower interest rates and a fall in loan balances hurt net interest income (NII). Higher operating expenses posed another undermining factor.

Results for the reported quarter excluded restructuring and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, and one-time professional fee expenses. After considering these, net income available to common shareholders (GAAP basis) was $1.62 billion or $1.20 per share, up from $1.07 billion or 79 cents per share in the prior-year quarter.

Revenues Improve Marginally, Expenses Rise

Total revenues were $5.60 billion, up marginally year over year. The top line beat the Zacks Consensus Estimate of $5.52 billion.

Tax-equivalent NII decreased 3.8% from the year-ago quarter to $3.26 billion. The decline was due to a fall in purchase accounting accretion, lower rates on earning assets and a decrease in loans, partially offset by growth in the securities portfolio, lower funding costs, higher fees on Payroll Protection Program loans and fewer interest deferrals on COVID-19 loan accommodations.

Net interest margin contracted 29 basis points (bps) year over year to 2.81%.

Non-interest income increased 7% to $2.37 billion. Excluding securities gains, fee income grew 12% year over year.

Non-interest expenses were $3.80 billion, up 1.1% from the prior-year quarter. Adjusted expenses rose 3.5%.

The adjusted efficiency ratio was 57.9%, up from 57.3% in third-quarter 2020. A rise in efficiency ratio indicates deterioration in profitability.

As of Sep 30, 2021, total average deposits were $402.7 billion, up 1.6% from the prior quarter. Average total loans and leases of $290.3 billion declined nearly 1% sequentially.

Credit Quality Improves

As of Sep 30, 2021, total non-performing assets (NPAs) were $1.2 billion, down 8.4% year over year. As a percentage of total assets, NPAs were 0.23%, decreasing 3 bps year over year.

Allowance for loan and lease losses was 1.65% of total loans and leases held for investment, which decreased 26 bps. Provision for credit losses was a benefit of $324 million against a provision of $421 in the prior-year quarter. Reserve releases, owing to improving economic outlook, led to provision benefits.

Net charge-offs were 0.19% of average loans and leases, down 23 bps from the year-ago quarter.

Profitability & Capital Ratios Robust

At the end of the reported quarter, return on average assets was 1.28%, up from 0.91% in the prior-year quarter. Return on average common equity was 10.2%, up from 6.9% in the third quarter of 2020.

As of Sep 30, 2021, Tier 1 risk-based capital ratio was 11.9% compared with 12.2% recorded in the prior-year quarter. Common equity Tier 1 ratio was 10.1% as of Sep 30, 2021, up from 10.0% as of Sep 30, 2020.

Capital Deployment Update

In the quarter under review, Truist Financial did not repurchase any shares.

The company continues to expect to be able to deploy $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 the investment banking and insurance businesses bode well. It completed the acquisition of the insurance distribution platform, Constellation Affiliated Partners. Moreover, with an aim to augment its point-of-sale (POS) lending business, it has agreed to acquire Service Finance Company for $2 billion. These efforts will further aid fee income growth. However, the low interest-rate environment is expected to continue to hurt margin growth. Mounting expenses (as witnessed in the third quarter as well) remains another major concern.

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 - Free Report) third-quarter 2021 earnings of 85 cents per share beat the Zacks Consensus Estimate of 71 cents. The bottom line compared favorably with 51 cents earned in the prior-year quarter. Results in the quarter included a reserve release of $1.1 billion.

Robust advisory business, reserve release and a modest rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.74 per share. The bottom line outpaced the Zacks Consensus Estimate of $3.00.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 4.4% in third-quarter 2021 on solid top-line strength. Earnings per share of $1.91 surpassed the Zacks Consensus Estimate of $1.83. The bottom line improved 18.6% from the year-ago quarter’s figure.

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