Truist Financial Corporation (TFC) Up 7.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Truist Financial Corporation (TFC). Shares have added about 7.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Truist Financial Q3 Earnings Miss Estimates, Revenues Rise Y/Y

Truist Financial’s third-quarter 2022 adjusted earnings of $1.24 per share missed the Zacks Consensus Estimate of $1.26. The bottom line declined 12.7% from the prior-year quarter. Our estimate for earnings was $1.30.

Results have been primarily hurt by a decline in non-interest income and higher provisions. Nevertheless, average loan growth and higher rates drove the increase in NII, which was a major positive.

The reported quarter’s results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. After considering these, net income available to common shareholders was $1.54 billion or $1.15 per share, down from $1.62 billion or $1.20 per share in the prior-year quarter.

Revenues Increase, Expenses Decline

Total revenues were $5.85 billion, up 4.4% year over year. However, the top line lagged the Zacks Consensus Estimate of $5.92 billion. Our estimate for revenues was $5.94 billion.

Tax-equivalent NII increased 16% year over year to $3.78 billion. The rise was driven by strong loan growth and higher market interest rates, coupled with well-controlled deposit costs and solid deposit growth, partially offset by lower purchase accounting accretion and lower PPP revenues. Our estimate for NII was $3.74 billion.

Net interest margin expanded 31 basis points (bp) year over year to 3.12%. Our estimate for the same was 3.16%.

Non-interest income decreased 11.1% to $2.10 billion. This was primarily due to a decline in investment banking and trading income, residential mortgage income, and other income. Our estimate for non-interest income was $2.26 billion.

Non-interest expenses were $3.61 billion, down 4.8% from the prior-year quarter. Our estimate for the same was $3.72 billion.

The adjusted efficiency ratio was 56.4%, down from 57.9% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Sep 30, 2022, total average deposits were $420.1 billion, down 1% sequentially. Average total loans and leases of $309.4 billion grew 4.3% sequentially.

Credit Quality: Mixed Bag

As of Sep 30, 2022, total non-performing assets (NPAs) were $1.24 billion, up 3% year over year. As a percentage of total assets, NPAs were 0.23%, unchanged year over year.

The allowance for loan and lease losses was 1.34% of total loans and leases held for investment, which decreased 31 bps.

Provision for credit losses was $234 million against a benefit of $324 in the prior-year quarter. Net charge-offs were 0.27% of average loans and leases, up 8 bps from the year-ago quarter.

Profitability & Capital Ratios Robust

At the end of the reported quarter, return on average assets was 1.19%, down from 1.28% in the prior-year quarter. Return on average common equity was 10.7%, up from 10.2% in the third quarter of 2021.

As of Sep 30, 2022, Tier 1 risk-based capital ratio was 10.7% compared with 11.9% recorded in the prior-year quarter. The common equity Tier 1 ratio was 9.1% as of Sep 30, 2022, down from 10.1% as of Sep 30, 2021.

Share Repurchases

In the reported quarter, Truist Financial did not repurchase any shares.

Fourth-Quarter 2022 Outlook

The company expects a mid-double digit increase in its core and reported NIM driven by the benefits of recent rate hikes.

Fee income is expected to rebound sequentially on the seasonal rise in insurance income, robust organic growth and the full impact of the BenefitMall acquisition.

Adjusted expenses are expected to rise nearly 1% sequentially, mainly due to inflationary pressure, investments and revenue-producing businesses, and technology and acquisitions-related costs. These will be partially offset by the impact of cost savings.

The company expects adjusted PPNR to grow roughly 10% from the third-quarter level based on the realization of investment banking pipelines.

2022 Outlook

Total merger-related and restructuring costs and incremental operating expenses related to the merger were anticipated to be approximately $900 million in 2022. The company expects these costs to decrease significantly to nearly $100 million before going away entirely in 2023.

By 2022-end, net cost savings worth $1.6 billion are anticipated.

The company expects positive operating leverage.

Given the elimination of overdraft-related fees and the introduction of Truist One Banking, the company expects a mid-single-digit decline in service charges for 2022. We expect the metric to decline 6.4% this year. Also, because of Truist One, there will be a $300 million or 60% reduction in overdraft-related revenues by 2024.

The company expects the net charge-off ratio to be 25-35 bps.

Effective tax is expected to be 20%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Truist Financial Corporation has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Truist Financial Corporation is part of the Zacks Banks - Major Regional industry. Over the past month, JPMorgan Chase & Co. (JPM), a stock from the same industry, has gained 14.3%. The company reported its results for the quarter ended September 2022 more than a month ago.

JPMorgan Chase & Co. reported revenues of $32.72 billion in the last reported quarter, representing a year-over-year change of +10.4%. EPS of $3.12 for the same period compares with $3.74 a year ago.

For the current quarter, JPMorgan Chase & Co. is expected to post earnings of $3.18 per share, indicating a change of -4.5% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for JPMorgan Chase & Co. Also, the stock has a VGM Score of F.

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