Truist (TFC) Second quarter earnings beat estimates as loans and rates rise

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Financial truistTFC’s second-quarter 2022 adjusted earnings of $1.20 per share beat Zacks’ consensus estimate of $1.17. However, net income was down 22.6% from the prior year quarter.

Results were helped by average loan growth and higher rates, which boosted interest on net income (NII). However, lower non-interest income and higher provisions were the main headwinds.

Results for the reported quarter exclude restructuring and charges related to the BB&T-SunTrust Banks merger, additional merger-related operating expenses and the gain on early extinguishment of debt. After taking these items into account, net income available to common shareholders was $1.45 billion or $1.09 per share, compared to $1.56 billion or $1.16 per share in the quarter. ‘last year.

NII goes up, expenses go down

Total revenue was $5.66 billion, relatively flat year over year. The top line beat Zacks’ consensus estimate of $5.64 billion.

The tax equivalent NII increased by 4.9% to $3.44 billion. This increase is attributable to higher interest rates, growth in the securities portfolio and lower amortization of premiums. These were partially offset by lower purchase accounting accretion and lower fees on Payroll Protection Program (PPP) loans.

Net interest margin edged up 1 basis point (bps) year-over-year to 2.89%.

Non-interest revenue fell 6.5% to $2.25 billion. This was primarily due to lower investment banking and trading revenue and residential mortgage lending revenue, partially offset by higher insurance revenue.

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

The adjusted efficiency ratio was 57%, compared to 56.1% in the second quarter of 2021. A rise in the efficiency ratio indicates a deterioration in profitability.

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

Credit Quality: Mixed Bag

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

The allowance for losses on loans and leases represented 1.38% of total loans and leases held for investment, which decreased by 41 basis points.

Provision for credit losses was $171 million compared to a profit of $434 in the year-ago quarter. Net write-offs represented 0.22% of average loans and leases, up 2 basis points from the prior year quarter.

Robust profitability and capital ratios

At the end of the quarter under review, the return on average assets was 1.14%, compared to 1.28% in the prior year quarter. The average common equity return was 10.3%, up from 10.1% in the second quarter of 2021.

As of June 30, 2022, the Tier 1 risk-based capital ratio was 10.8%, compared to 12% recorded in the prior year quarter. The Common Equity Tier 1 ratio was 9.2% as of June 30, 2022, compared to 10.2% as of June 30, 2021.

Share buybacks

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

Our opinion

Truist Financial’s efforts to capitalize on the insurance business bode well and will support fee income growth. An increase in demand for loans, higher rates and decent economic growth will support financials. However, high spending and ambiguity over geopolitical and economic risks remain major concerns.

Truist Financial Corporation Price, Consensus, and EPS Surprise

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

Truist Financial currently carries a Zacks rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other major banks

Higher reserve build and lower impacted investment banking (IB) fees JP MorganJPM’s second-quarter 2022 earnings of $2.76 per share, which missed Zacks’ consensus estimate of $2.85. Results for the reported quarter included a net build of credit reserves of $428 million.

Higher interest rates and a solid increase in loan balances supported JPM’s net interest income. Operating expenses increased year over year.

Bank of AmericaBAC’s second-quarter 2022 earnings of 73 cents per share were below Zacks’ consensus estimate of 77 cents. Net income 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 saw an improvement in the NII. Also, BAC’s business numbers were good.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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