If banks are a bellwether for the tenor and tone of quarterly earnings, other stocks may not have heard the dings just yet. That’s because the big banks that have reported earnings for the quarter that ended March 31 have all done fairly well, beating estimates while the overall market has struggled — at least last week.
However, it’s a new week now and another big bank, Truist Financial (NYSE:TFC), the seventh-largest bank in the U.S., posted solid earnings results that topped expectations for earnings while revenue fell short.
Truist stock jumped about 4% on Monday on a post-earnings bounce. Here’s a look at its first-quarter results.
Mixed bag for Truist
The stock was up 4% on Monday, so the good outweighed the bad in the view of investors at large. However, the report wasn’t all sunshine and rainbows.
Revenue fell about 8% year over year to $4.9 billion on lower net interest income, which tumbled about 13% to $3.4 billion. That drop was due in part to higher deposit expenses caused by higher interest rates as the bank was forced to pay out higher interest rates in an environment in which consumers are demanding them.
Another big factor was lower loan balances, as the average loans held for investment decreased about 6% year over year to $308.5 billion. Overall, Truist’s net interest margin fell 28 basis points year over year to 2.89%.
The bank was buoyed by higher non-interest income, which rose to $1.45 billion from $1.42 billion in the year-ago quarter. This was due to a 24% year-over-year increase in investment banking and trading revenue, which clocked in at $323 million. Wealth management income was also up, rising 5% to $356 million.
On the bottom line, Truist Financial posted net income of $1.1 billion or 81 cents per share, which was down from $1.05 per share in the first quarter of 2023 but better than estimates. Adjusted net income of $1.2 billion or 90 cents per share far exceeded estimates of 78 cents per share. Earnings were boosted by lower non-interest expenses. Overall, the efficiency ratio ticked up from 57% a year ago to 61.3% in Q1 of 2024.
“We are pleased with the progress and momentum of our business in the first quarter. Our expense discipline was evident and reflects important decisions we made last year. Investments we have made in our investment banking business resulted in strong performance in improving markets,” Truist Chairman and CEO Bill Rogers said.
While provisions for credit losses were flat year over year, the bank saw a 65% increase in net charge-offs to $490 million due to increased charge-offs in commercial real estate, credit cards and indirect auto portfolios.
Truist lowers revenue guidance
The outlook for Truist Financial is a bit concerning as it anticipates a 2% revenue decline in the second quarter and a 4% to 5% revenue drop for all of fiscal 2024. The full-year guidance is up from the previous estimate of a 1% to 3% revenue decline.
This may be due to an expectation of continued muted loan growth and perhaps a belief that the Federal Reserve may not be as aggressive in lowering rates as previously thought — although that remains to be seen. The path of interest rates will be a major factor for not only Truist but for all banks.
These estimates do not include the expected proceeds from the sale of Truist Insurance Holdings (TIH) to Stone Point Capital and Clayton Dubilier & Rice for $15.5 billion. The sale is expected to close in the second quarter.
Rogers said the transaction will strengthen the bank’s capital position, provide more support to banking clients, reposition the balance sheet to replace TIH’s earnings, and return capital to shareholders.
“Our strengthening capital position allows us to better weather any economic environment, and importantly, will enable us to be in a more offensive position with our core banking franchise. I am optimistic about our future as we operate Truist from this increased position of financial strength in some of the best markets in the country,” Rogers said.
Truist Financial is cheap with a forward P/E of 10, and it has a median price target of $42 per share, which would be 10% higher than the current price. However, based on its outlook, I don’t know if there is enough earnings certainty to make it a buy, given that there are better bank stocks out there to consider.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
