Truist Financial’s (TFC - Free Report) third-quarter 2020 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains and charges related to a charitable contribution. Compared to the previous quarter, adjusted earnings improved 18.3%.
Results benefited from a decline in expenses along with lower provision for credit losses, partly offset by a fall in revenues. Moreover, the balance sheet position remained strong in the reported quarter.
After considering non-recurring items, net income available to common shareholders (GAAP basis) was $1.07 billion or 79 cents per share compared with $902 million or 67 cents per share in the prior quarter.
Revenues & Expenses Decline
Total revenues (on a tax-equivalent basis) were $5.60 billion, down 5.1% sequentially. However, the figure beat the Zacks Consensus Estimate of $5.39 billion.
Tax-equivalent net interest income declined 2.5% from the prior quarter to $3.39 billion.
Net interest margin decreased 3 basis points (bps) sequentially to 3.10%. The decline was due to lower purchase-accounting accretion, lower yields on loans due to LIBOR changes and lower yield on securities due to the impact of new investments at lower rates.
Non-interest income declined 8.8% sequentially to $2.21 billion. Notably, in the reported quarter, the company recorded $104 million worth of securities gains compared with $300 million recorded in the prior quarter.
Non-interest expenses were $3.76 billion, down 3.2% from the prior quarter.
Adjusted efficiency ratio was 57.3%, up from 55.8% in the second quarter. A rise in efficiency ratio indicates a fall in profitability.
As of Sep 30, 2020, total average deposits were $372.21 billion, up marginally from the previous quarter end. Average total loans and leases of $310.44 billion declined 3.5% from the prior quarter end.
Credit Quality: Mixed Bag
As of Sep 30, 2020, total non-performing assets (NPAs) were $1.31 billion, up 5% sequentially. As a percentage of total assets, NPAs were 0.26%, increasing 1 bp from the prior quarter.
Also, allowance for loan and lease losses was 1.91% of total loans and leases held for investment, which increased 10 bps. Net charge-offs were 0.42% of average loans and leases, up 3 bps, sequentially.
However, provision for credit losses declined 50.1% on a sequential basis to $421 million. Notably, in the reported quarter, provisions included a modest build to the allowance for loan and lease losses primarily due to the uncertainty related to the coronavirus outbreak.
Profitability & Capital Ratios Improve
At the end of the reported quarter, return on average assets was 0.91%, up from 0.75% in the prior quarter. Return on average common equity was 6.87%, up from 5.90% in the second quarter of 2020.
As of Sep 30, 2020, Tier 1 risk-based capital ratio was 12.2%, up from 11.6% recorded in the prior quarter. Common equity Tier 1 ratio was 10% as of Sep 30, 2020, up from 9.7% in the second quarter of 2020.
Our Take
Truist Financial remains well-positioned for revenue improvement through continued decent growth in loan demand. Nevertheless, pressure on margins due to the low interest rate environment remains a major near-term concern and might hamper financials.
Truist Financial Corporation Price, Consensus and EPS Surprise
Truist Financial Corporation price-consensus-eps-surprise-chart | Truist Financial Corporation Quote
Truist Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
Aided by robust mortgage banking revenues, Wells Fargo (WFC - Free Report) reported third-quarter 2020 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results, however, compared unfavorably with the prior-year quarter figure of 92 cents.
Citigroup (C - Free Report) delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results were, however, down significantly from the prior-year quarter.
Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.
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