Truist (TFC) Q1 earnings beaten on provision delivery, higher loans

Financial truistTFC’s first-quarter 2022 adjusted earnings of $1.23 per share significantly beat Zacks’ consensus estimate of $1.12. Net income increased by 4.2% over the prior year quarter.

Results were helped by modest average loan growth and provision benefits. However, falling revenues, rising expenses and relatively low rates were the main headwinds.

Reported results for the quarter exclude restructuring and charges related to the BB&T-SunTrust Banks merger, additional merger-related operating expenses, a gain on the buyout of a non-controlling interest relating to the acquisition of certain merchant service relationships and losses on sales of securities. After taking these items into account, net income available to common shareholders (GAAP basis) was $1.33 billion or 99 cents per share, compared to $1.33 billion or 98 cents per share in the quarter. ‘last year.

Revenues down, expenses up

Total revenue was $5.33 billion, down 2.9% year-over-year. The top line missed the Zacks consensus estimate of $5.52 billion.

The tax equivalent NII decreased 3.1% from the prior year quarter to $3.21 billion. The decline was due to lower purchase accounting accretion, lower fees on Payroll Protection Program (PPP) loans and lower lending. These were partly offset by growth in the securities portfolio and lower funding costs.

Net interest margin contracted 25 basis points (bps) year-over-year to 2.76%.

Non-interest revenue fell 2.1% to $2.14 billion. Excluding certain non-recurring items, non-interest income decreased by 1.1%.

Non-interest expense was $3.67 billion, up 1.8% from the prior year quarter. Adjusted expenses remained relatively stable at $3.12 billion.

The adjusted efficiency ratio was 58.3%, compared to 56.9% in the first quarter of 2021. A rise in the efficiency ratio indicates a deterioration in profitability.

As of March 31, 2022, total average deposits were $415.2 billion, up 1% sequentially. Average total loans and leases of $292.5 billion increased slightly.

Credit quality is improving

As of March 31, 2022, total non-performing assets (NPA) were $1.14 billion, down 12.6% year-over-year. As a percentage of total assets, NPAs were 0.21%, down 4 basis points.

Provision for losses on loans and leases was 1.44% of total loans and leases held for investment, which decreased by 50 basis points. Net write-offs were 0.25% of average loans and leases, down 8 basis points from the prior year quarter.

Provision for credit losses was a profit of $95 million compared to a provision of $48 in the year-ago quarter. The releases of reserves, due to the improvement in the economic outlook, led to increases in the provision.

Robust profitability and capital ratios

At the end of the quarter under review, the return on average assets was 1.07%, compared to 1.17% in the prior year quarter. The average common equity return was 9%, up from 8.7% in the first quarter of 2021.

As of March 31, 2022, the Tier 1 risk-based capital ratio was 11%, compared to 12% in the prior year quarter. The Common Equity Tier 1 ratio was 9.4% as of March 31, 2022, compared to 10.1% as of March 31, 2021.

Our opinion

Truist Financial’s efforts to capitalize on the investment banking and insurance businesses bode well and will contribute to fee income growth going forward. An increase in loan demand, higher rate expectations and robust economic growth will support financials. However, increased 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

Falling Markets Revenue, Reserving and Lower IB Fees Affected JP MorganJPM’s first-quarter 2022 earnings of $2.63 per share, which missed Zacks’ consensus estimate of $2.73. Results for the reported quarter included net build up of credit reserves and losses in credit and other adjustments.

During the first quarter, JPM announced a net build of credit reserves of $902 million, given “higher probabilities of downside risks”.

Wells FargoWFC’s first-quarter 2022 earnings per share of 88 cents beat Zacks’ consensus estimate of 81 cents. However, net income was down 14% year-on-year. The reported quarter results included the impact of a $1.1 billion lower provision for credit losses.

Results benefited from a higher NII, provisions, marginally lower costs and strong average loan growth. Additionally, WFC’s credit quality remained strong during the quarter. However, disappointing non-interest income and weak mortgage activity were the main headwinds.

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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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