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Truist (TFC) Q2 Earnings Miss Estimates as Provisions Surge
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Truist Financial’s (TFC - Free Report) second-quarter 2023 adjusted earnings of 95 cents per share lagged the Zacks Consensus Estimate of 98 cents. This excluded merger-related and restructuring charges of 3 cents per share.
Shares of TFC have tanked 2.9% in the pre-market trading on lower-than-expected quarterly results. The fall in average deposit balance and worsening credit quality also weighed on investor sentiments.
Results were adversely impacted by higher provisions and an increase in expenses. Further, the company witnessed a decline in deposits during the quarter. Higher funding costs hurt margins. On the other hand, an increase in net income interest (NII) and non-interest income offered support.
Net income available to common shareholders was $1.23 billion, down from $1.45 billion in the prior-year quarter. Our estimate for the same was $1.3 billion.
Revenues Improve, Expenses Rise
Total quarterly revenues were $5.92 billion, up 4.5% year over year. The top line missed the Zacks Consensus Estimate of $5.94 billion.
Tax-equivalent NII increased 7.1% to $3.68 billion. The rise was driven by strong loan growth and higher market interest rates, partially offset by lower purchase accounting accretion. Our estimate for NII (FTE) was $3.79 billion.
Net interest margin (NIM) expanded 2 basis points (bps) to 2.91%. We had expected NIM to be 3.03% but substantially higher funding costs led the company to post lower numbers.
Non-interest income grew 2% to $2.29 billion. This was mainly driven by a rise in insurance income and other income, partially offset by a fall in investment banking and trading income. Our estimate for non-interest income was $2.2 billion.
Non-interest expenses were $3.75 billion, up 4.7%. This was due to an increase in personnel expenses, other expenses and regulatory costs. Our estimate for the same was $3.7 billion.
The adjusted efficiency ratio was 59.6%, up from 57% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Jun 30, 2023, total average deposits were $399.8 billion, down 2.1% sequentially. The fall was largely due to the impact of client tax payments and rotation of deposits toward high interest paying alternatives.
Average total loans and leases of $326.4 billion remained relatively stable. This was mainly attributable to a rise in mortgage warehouse lending and core commercial and industrial portfolio, which was offset by the sale of the student loan portfolio and loan growth moderation across the industry.
Credit Quality Worsens
As of Jun 30, 2023, total non-performing assets (NPAs) were $1.58 billion, up 35% year over year.
Provision for credit losses was $538 million, surging substantially from $171 million in the prior-year quarter. Our estimate for provisions was $545 million.
Net charge-offs were 0.54% of average loans and leases, up 32 bps from the year-ago quarter. Also, the allowance for loan and lease losses was 1.43% of total loans and leases held for investment, which increased 5 bps.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.95%, down from 1.14% in the prior-year quarter. Return on average common equity was 8.6%, down from 10.3% in the second quarter of 2022.
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 11.1% compared with 10.8% recorded in the prior-year quarter. The common equity Tier 1 ratio was 9.6% as of Jun 30, 2023, up from 9.2% as of Jun 30, 2022.
Share Repurchases
In the reported quarter, Truist Financial did not repurchase any shares.
Our Take
Truist Financial’s efforts to capitalize on the insurance business bode well. Apart from strategic buyouts, the divestiture of 20% stake in Truist Insurance Holdings in April unlocked the value of the unit as well as investors.
Further, a decent loan demand, higher rates and efforts to bolster fee income are expected to continue supporting the company’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) second-quarter 2023 earnings per share of $3.36 surpassed the Zacks Consensus Estimate of $3.31. However, the bottom line reflects a marginal decline year-over-year.
PNC’s results were aided by an increase in NII, supported by higher rates. However, rising expenses and higher provisions were headwinds.
M&T Bank Corporation’s (MTB - Free Report) second-quarter 2023 net operating earnings per share of $5.12 handily surpassed the Zacks Consensus Estimate of $4.11. The bottom line compared favorably with $3.10 earned in the year-ago quarter.
MTB’s results have benefited from decent loan demand and higher rates, which supported NII growth. An increase in non-interest income and lower provisions acted as tailwinds. However, a rise in adjusted expenses was the undermining factor.
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Truist (TFC) Q2 Earnings Miss Estimates as Provisions Surge
Truist Financial’s (TFC - Free Report) second-quarter 2023 adjusted earnings of 95 cents per share lagged the Zacks Consensus Estimate of 98 cents. This excluded merger-related and restructuring charges of 3 cents per share.
Shares of TFC have tanked 2.9% in the pre-market trading on lower-than-expected quarterly results. The fall in average deposit balance and worsening credit quality also weighed on investor sentiments.
Results were adversely impacted by higher provisions and an increase in expenses. Further, the company witnessed a decline in deposits during the quarter. Higher funding costs hurt margins. On the other hand, an increase in net income interest (NII) and non-interest income offered support.
Net income available to common shareholders was $1.23 billion, down from $1.45 billion in the prior-year quarter. Our estimate for the same was $1.3 billion.
Revenues Improve, Expenses Rise
Total quarterly revenues were $5.92 billion, up 4.5% year over year. The top line missed the Zacks Consensus Estimate of $5.94 billion.
Tax-equivalent NII increased 7.1% to $3.68 billion. The rise was driven by strong loan growth and higher market interest rates, partially offset by lower purchase accounting accretion. Our estimate for NII (FTE) was $3.79 billion.
Net interest margin (NIM) expanded 2 basis points (bps) to 2.91%. We had expected NIM to be 3.03% but substantially higher funding costs led the company to post lower numbers.
Non-interest income grew 2% to $2.29 billion. This was mainly driven by a rise in insurance income and other income, partially offset by a fall in investment banking and trading income. Our estimate for non-interest income was $2.2 billion.
Non-interest expenses were $3.75 billion, up 4.7%. This was due to an increase in personnel expenses, other expenses and regulatory costs. Our estimate for the same was $3.7 billion.
The adjusted efficiency ratio was 59.6%, up from 57% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Jun 30, 2023, total average deposits were $399.8 billion, down 2.1% sequentially. The fall was largely due to the impact of client tax payments and rotation of deposits toward high interest paying alternatives.
Average total loans and leases of $326.4 billion remained relatively stable. This was mainly attributable to a rise in mortgage warehouse lending and core commercial and industrial portfolio, which was offset by the sale of the student loan portfolio and loan growth moderation across the industry.
Credit Quality Worsens
As of Jun 30, 2023, total non-performing assets (NPAs) were $1.58 billion, up 35% year over year.
Provision for credit losses was $538 million, surging substantially from $171 million in the prior-year quarter. Our estimate for provisions was $545 million.
Net charge-offs were 0.54% of average loans and leases, up 32 bps from the year-ago quarter. Also, the allowance for loan and lease losses was 1.43% of total loans and leases held for investment, which increased 5 bps.
Profitability Ratios Weaken, Capital Ratios Improve
At the end of the reported quarter, the return on average assets was 0.95%, down from 1.14% in the prior-year quarter. Return on average common equity was 8.6%, down from 10.3% in the second quarter of 2022.
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 11.1% compared with 10.8% recorded in the prior-year quarter. The common equity Tier 1 ratio was 9.6% as of Jun 30, 2023, up from 9.2% as of Jun 30, 2022.
Share Repurchases
In the reported quarter, Truist Financial did not repurchase any shares.
Our Take
Truist Financial’s efforts to capitalize on the insurance business bode well. Apart from strategic buyouts, the divestiture of 20% stake in Truist Insurance Holdings in April unlocked the value of the unit as well as investors.
Further, a decent loan demand, higher rates and efforts to bolster fee income are expected to continue supporting the company’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) second-quarter 2023 earnings per share of $3.36 surpassed the Zacks Consensus Estimate of $3.31. However, the bottom line reflects a marginal decline year-over-year.
PNC’s results were aided by an increase in NII, supported by higher rates. However, rising expenses and higher provisions were headwinds.
M&T Bank Corporation’s (MTB - Free Report) second-quarter 2023 net operating earnings per share of $5.12 handily surpassed the Zacks Consensus Estimate of $4.11. The bottom line compared favorably with $3.10 earned in the year-ago quarter.
MTB’s results have benefited from decent loan demand and higher rates, which supported NII growth. An increase in non-interest income and lower provisions acted as tailwinds. However, a rise in adjusted expenses was the undermining factor.