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Truist Financial Corporation (TFC) Down 11.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Truist Financial Corporation (TFC - Free Report) . Shares have lost about 11.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Truist Financial Q1 Earnings Beat on Provision Benefit, Higher Loans

Truist Financial’s first-quarter 2022 adjusted earnings of $1.23 per share handily surpassed the Zacks Consensus Estimate of $1.12. The bottom line grew 4.2% from the prior-year quarter.

Results were aided by modest average loan growth and provision benefits. However, lower revenues, a rise in expenses and relatively lower rates were the major headwinds.

The reported quarter’s results excluded restructuring and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, a gain on the redemption of non-controlling equity interest pertaining to the acquisition of certain merchant services relationships and losses on the sales of securities. After considering these, net income available to common shareholders (GAAP basis) was $1.33 billion or 99 cents per share compared with $1.33 billion or 98 cents per share in the prior-year quarter.

Revenues Down, Expenses Up

Total revenues were $5.33 billion, down 2.9% year over year. The top line missed the Zacks Consensus Estimate of $5.52 billion.

Tax-equivalent NII decreased 3.1% from the year-ago quarter to $3.21 billion. The decline was due to a fall in purchase accounting accretion, a decrease in fees on Payroll Protection Program (PPP) loans and a fall in loans. These were partly offset by growth in the securities portfolio and lower funding costs.

NIM contracted 25 basis points (bps) year over year to 2.76%.

Non-interest income decreased 2.1% to $2.14 billion. Excluding certain non-recurring items, non-interest income was down 1.1%.

Non-interest expenses were $3.67 billion, up 1.8% from the prior-year quarter. Adjusted expenses were relatively stable at $3.12 billion.

The adjusted efficiency ratio was 58.3%, up from 56.9% in first-quarter 2021. A rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2022, total average deposits were $415.2 billion, up 1% sequentially. Average total loans and leases of $292.5 billion grew slightly.

Credit Quality Improves

As of Mar 31, 2022, total non-performing assets (NPAs) were $1.14 billion, down 12.6% year over year. As a percentage of total assets, NPAs were 0.21%, decreasing 4 bps.

Allowance for loan and lease losses was 1.44% of total loans and leases held for investment, which decreased 50 bps. Net charge-offs were 0.25% of average loans and leases, down 8 bps from the year-ago quarter.

Provision for credit losses was a benefit of $95 million against a provision of $48 in the prior-year quarter. Reserve releases, owing to improving economic outlook, led to provision benefits.

Profitability & Capital Ratios Robust

At the end of the reported quarter, the return on average assets was 1.07%, down from 1.17% in the prior-year quarter. Return on average common equity was 9%, up from 8.7% in the first quarter of 2021.

As of Mar 31, 2022, Tier 1 risk-based capital ratio was 11% compared with 12% recorded in the prior-year quarter. Common equity Tier 1 ratio was 9.4% as of Mar 31, 2022, down from 10.1% as of Mar 31, 2021.

Merger-Related Progress Details

Total merger-related and restructuring costs and incremental operating expenses related to the merger were anticipated to be approximately $800 million in 2022. Now, for the remainder of the year, merger-related costs are expected to be less than $400 million and none in 2023.

By 2022-end, net cost savings worth $1.6 billion are anticipated.

The company closed 822 branches by the end of first-quarter 2022. Also, it reduced its non-branch facilities by 5 million square feet.

Average full-time employees (FTEs) are down 14% since the merger announcement in February 2019. The company also anticipates technology savings by 2022-end.

Outlook

Because of Truist One (the company’s new flagship, differentiated and disruptive suite of checking solutions that redefine everyday banking and accelerate the journey towards purposeful growth), which will have no overdraft fees, there will be a $300-million or 60% reduction in overdraft-related revenues by 2024.

Given the elimination of overdraft-related fees and the introduction of Truist One, the company expects a mid-single-digit decline in service charges for 2022.

Point-to-point loan growth, excluding PPP, is expected in the mid-single digits for 2022.

The company expects a 100-bps increase in rates to lead to an increase in NII by 4.3%.

In 2022, adjusted revenues are expected to grow 3-4% from 2021. The mix of revenue growth is tilted more toward NII, given the outlook for higher short-term interest rates, partially offset by weaker fees, primarily in residential mortgage and investment banking. Excluding a significant decline in PPP and purchase accounting, this represents 6-7% core revenue growth.

Adjusted non-interest expenses in 2022 are expected to increase at the high end of 1-2% due to the impact of the Kensington Vanguard acquisition.

The company expects positive operating leverage for 2022.

In second-quarter 2022, the company expects adjusted PPNR to grow in the high-single-digit, with a possible upside from the first-quarter level.

In the second quarter, core NIM is projected to increase 7-10 bps due to the benefits from the March rate hike and from a projected 50-bps hike in May. The GAAP NIM is expected to increase 3-4 bps as purchase accounting accretion is slowing, given a lower prepayment environment as a result of higher rates.

The company expects net charge-offs ratio to be 30-40 bps for 2022, given the assumptions for normalization throughout the year, with some quarter-to-quarter variability.

In the near term, the company expects to be below its 9.75% CET1 target.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Truist Financial Corporation has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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