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Truist Financial (TFC) Q4 Earnings Beat, Revenues Rise Y/Y

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Truist Financial Corporation TFC fourth-quarter 2019 adjusted earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.02. The bottom line also jumped 6.7% from the year-ago figure.

Results take into consideration BB&T Corp’s financials prior to the completion of “merger of equals” with SunTrust Banks, and combined results of BB&T and SunTrust from the merger closure date of Dec 6, 2019.

Results excluded merger-related and restructuring charges, incremental operating expenses related to the merger, securities losses and gain on the sale of residential mortgage loans. After considering these, net income available to common shareholders was $702 million or 75 cents per share compared with $754 million or $1.05 per share in the prior-year quarter.

Rise in revenues, driven by benefits from the merger was a tailwind. Further, management’s several strategic balance sheet restructuring actions supported the financials.  However, rise in expenses and higher provisions were the undermining factors.

In 2019, adjusted earnings were $4.37 per share, which beat the consensus estimate of $4.11 and grew 7.9% year over year. After considering non-recurring items, net income available to common shareholders was $3.03 billion or $3.71 per share, down from $3.06 billion or $3.91 per share in 2018.

Revenues & Expenses Increase

Total revenues for the quarter were $3.63 billion, up 23.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $3.65 billion.

In 2019, total revenues increased 8.7% to $12.57 billion. However, it missed the Zacks Consensus Estimate of $12.61 billion.

Tax-equivalent net interest income increased 30.2% from the prior-year quarter to $2.25 billion. Net interest margin declined 8 basis points (bps) to 3.41% owing to lower rates.

Non-interest income increased 13.2% year over year to $1.40 billion. This upside stemmed largely from an increase in lending related fees, investment banking and trading income, and commercial real estate related income.

Non-interest expenses were $2.58 billion, up 44.3% from the year-ago quarter.

Adjusted efficiency ratio was 57.5%, up from 56.5% in the year-ago quarter. A rise in efficiency ratio indicates lower profitability.

As of Dec 31, 2019, total deposits were nearly $334.7 billion and included $170.7 billion related to the merger. Further, total loans and leases held for investment of $299.8 billion and the merger contributed $154.0 billion of the same.

Credit Quality: A Mixed Bag

Provision for credit losses rose 17.1% to $171 million. Further, net charge-offs were 0.40% of average loans and leases, up 2 bps.

 Also, as of Dec 31, 2019, total non-performing assets (NPAs) were $684 million, up 16.9% year over year. Nonetheless, as a percentage of total assets, NPAs came in at 0.14%, down 12 bps.

Also, allowance for loan and lease losses was 0.52% of total loans and leases held for investment, down 53 bps year over year.

Profitability & Capital Ratios Deteriorate

At the end of the reported quarter, return on average assets was 0.95%, down from 1.45% in the prior-year quarter. Return on average common equity was 7.33%, down from 11.14%.

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 10.8%, down from 11.8% recorded in the year-ago quarter. Estimated common equity Tier 1 ratio under Basel III was 9.4% as of Dec 31, 2019, down from 10.2%.

Our Take

Truist Financial remains well positioned for revenue growth through decent loan demand and acquisition of SunTrust. Nevertheless, mounting operating costs and lower interest rates are the major near-term headwinds.

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

Comerica CMA delivered positive earnings surprise of 6.3% in fourth-quarter 2019. Earnings per share of $1.85 surpassed the Zacks Consensus Estimate of $1.74. Earnings, however, came in lower than the prior-year quarter figure of $1.95.

Riding on high revenues, PNC Financial (PNC - Free Report) delivered a positive earnings surprise of 1.7% in fourth-quarter 2019. Earnings per share of $2.97 surpassed the Zacks Consensus Estimate of $2.92. Further, the bottom line reflects an 8% jump from the prior-year quarter’s reported figure.

KeyCorp’s KEY fourth-quarter 2019 adjusted earnings of 48 cents per share were in line the Zacks Consensus Estimate. Also, the figure was on par with the prior-year quarter level.

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