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Truist (TFC) Q1 Earnings Top on Higher Fee Income, Costs Dip

Truist Financial’s TFC first-quarter 2024 adjusted earnings of 90 cents per share handily surpassed the Zacks Consensus Estimate of 78 cents. The figure in the reported quarter excludes the FDIC special assessment charges and accelerated Truist Insurance Holdings (“TIH”) equity compensation expense. The figure also grew 12.5% year over year.

Results benefited from higher non-interest income and a decline in expenses. Also, provisions fell slightly in the quarter. However, a decrease in net interest income (NII) due to higher funding costs and lower average loan balance was the undermining factor.

Net income available to common shareholders (GAAP basis) was $1.09 billion or 81 cents per share, up from $1.07 billion or 80 cents per share in the prior-year quarter. Our estimate for the metric was $1.01 billion.

Revenues & Expenses Decline

Total quarterly revenues were $4.87 billion, down 8.8% year over year. The top line also lagged the Zacks Consensus Estimate of $5.66 billion.

Tax-equivalent NII decreased 12.6% to $3.43 billion. The fall was due to a rise in funding costs and lower earning assets. Our estimate for NII (FTE) was $3.55 billion.

Net interest margin (NIM) declined 28 basis points (bps) to 2.89%. We had projected NIM to be 2.98%.

Non-interest income grew 1.8% to $1.45 billion. The increase was driven by higher investment banking and trading income, and other income.

Non-interest expenses were $2.95 billion, down 2.1%. The decline was attributable to lower personnel expenses and other expenses. After excluding restructuring charges, FDIC special assessment and amortization of intangibles, adjusted expenses were $2.74 billion.

The adjusted efficiency ratio was 56.2%, up from 53.6% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.

As of Mar 31, 2024, total average deposits were $389.1 billion, down 1.6% on a sequential basis. Average loans and leases of $308.5 billion declined 1.3% sequentially.

Credit Quality Worsens

As of Mar 31, 2024, total non-performing assets (NPAs) were $1.48 billion, up 17% year over year. We had expected NPAs to be $1.56 billion.

Net charge-offs were 0.64% of average loans and leases, up 27 bps. Also, the allowance for loan and lease losses was 1.56% of total loans and leases held for investment, which increased 19 bps.

Provision for credit losses was $500 million in the first quarter, down marginally from the prior-year quarter. Our estimate for provisions was $508.3 million.

Profitability Ratios Weaken, Capital Ratios Improve

At the end of the reported quarter, the return on average assets was 0.91% compared with 1.10% in the prior-year quarter. Return on average common equity was 8.4% compared with 10.3% in the first quarter of 2023.

As of Mar 31, 2024, the Tier 1 risk-based capital ratio was 11.7% compared with 10.6% in the prior-year quarter. The common equity Tier 1 ratio was 10.1% as of Mar 31, 2024, up from 9.1% as of Mar 31, 2023.

Major Developments

As part of a broader strategic overhaul, Truist has been realigning and simplifying operations. In sync with this, the company announced two major divestitures of non-core businesses.

In February, Truist entered an agreement to sell the remaining 80% stake in its insurance subsidiary — TIH — to Stone Point Capital and Clayton Dubilier & Rice for $15.5 billion in cash. Mubadala Investment Company and co-investors are also participating in the investment.

The closing of the transaction (subject to certain regulatory reviews and approvals, and the satisfaction of other customary closing conditions) is expected in the second quarter of 2024. The transaction is projected to be dilutive to Truist’s 2024 earnings per share by 20 cents, assuming that the proceeds from the sale were reinvested in cash, yielding 4.5%.

Further, in the same month, Truist announced the divestiture of its asset-management subsidiary, Sterling Capital Management LLC, to Guardian Capital Group Limited in a $70 million deal. It is also expected to close in the second quarter of 2024, subject to customary consents and approvals.

Our Take

A decent loan demand and TFC’s efforts to bolster fee income are expected to continue supporting its 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 and EPS Surprise
Truist Financial Corporation Price, Consensus and EPS Surprise

Truist Financial Corporation price-consensus-eps-surprise-chart | Truist Financial Corporation Quote

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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

KeyCorp’s KEY first-quarter 2024 adjusted earnings from continuing operations of 22 cents per share missed the Zacks Consensus Estimate by a penny. The bottom line compared unfavorably with 30 cents earned in the prior-year quarter.

Results were adversely impacted by lower NII and an increase in expenses. Further, higher deposit costs and lower average loan balance weighed on NIM despite a higher interest rate environment. However, lower provisions and a rise in non-interest income acted as tailwinds for KEY.

M&T Bank’s MTB first-quarter 2024 net operating earnings per share of $3.09 missed the Zacks Consensus Estimate of $3.13. Also, the bottom line compared unfavorably with the $4.09 earned in the year-ago quarter.

Results were adversely impacted by the rise in provision for credit losses, a decline in NII and higher expenses. On the other hand, a rise in loans and leases, and higher rates offered some support to MTB’s quarterly performance.

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