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Truist (TFC) Q2 Earnings Beat Estimates as Loans & Rates Rise

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Truist Financial’s (TFC - Free Report) second-quarter 2022 adjusted earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.17. However, the bottom line declined 22.6% from the prior-year quarter.

Results were aided by average loan growth and higher rates, which drove net income interest (NII). However, lower non-interest income and a rise in provisions 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 and gain on early extinguishment of debt. After considering these, net income available to common shareholders was $1.45 billion or $1.09 per share, down from $1.56 billion or $1.16 per share in the prior-year quarter.

NII Rises, Expenses Down

Total revenues were $5.66 billion, relatively stable year over year. The top line beat the Zacks Consensus Estimate of $5.64 billion.

Tax-equivalent NII increased 4.9% to $3.44 billion. The rise was driven by higher interest rates, growth in the securities portfolio and lower premium amortization. These were partly offset by a fall in purchase accounting accretion and a decrease in fees on Payroll Protection Program (PPP) loans.

Net interest margin inched up 1 basis point (bp) year over year to 2.89%.

Non-interest income decreased 6.5% to $2.25 billion. This was mainly due to lower investment banking and trading income and residential mortgage income, partially offset by an increase in insurance income.

Non-interest expenses were $3.58 billion, down 10.7% from the prior-year quarter. Adjusted expenses increased 1.8% to $3.24 billion.

The adjusted efficiency ratio was 57%, up from 56.1% in second-quarter 2021. A rise in efficiency ratio indicates deterioration in profitability.

As of Jun 30, 2022, total average deposits were $423.8 billion, up 2% sequentially. Average total loans and leases of $296.7 billion grew 2.8%.

Credit Quality: Mixed Bag

As of Jun 30, 2022, total non-performing assets (NPAs) were $1.17 billion, down 1.6% year over year. As a percentage of total assets, NPAs were 0.22%, decreasing 1 bp.

Allowance for loan and lease losses was 1.38% of total loans and leases held for investment, which decreased 41 bps.

Provision for credit losses was $171 million against a benefit of $434 in the prior-year quarter. Net charge-offs were 0.22% of average loans and leases, up 2 bps from the year-ago quarter.

Profitability & Capital Ratios Robust

At the end of the reported quarter, return on average assets was 1.14%, down from 1.28% in the prior-year quarter. Return on average common equity was 10.3%, up from 10.1% in the second quarter of 2021.

As of Jun 30, 2022, Tier 1 risk-based capital ratio was 10.8% compared with 12% recorded in the prior-year quarter. Common equity Tier 1 ratio was 9.2% as of Jun 30, 2022, down from 10.2% as of Jun 30, 2021.

Share Repurchases

During the quarter, Truist Financial repurchased shares worth $250 million.

Our Take

Truist Financial’s efforts to capitalize on the insurance businesses bode well and will support fee income growth. A rise in loan demand, higher rates and decent economic growth will support financials. However, elevated expenses and ambiguity over geopolitical and economic risks remain major concerns.

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 reserve build and a decline in investment banking (IB) fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.

Higher interest rates and a solid rise in loan balances aided JPM’s net interest income. Operating expenses recorded a year-over-year rise.

Bank of America’s (BAC - Free Report) second-quarter 2022 earnings of 73 cents per share lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.

As expected, BAC’s IB business did not perform well. Also, the asset management business did not offer much support. However, driven by robust loan growth and rising interest rates, the company recorded an improvement in NII. Further, BAC’s trading numbers were good.

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