01—Abstract
Summary
Summary of the 8-K filed April 22, 2024. Cited figures are marked; the original filing is the authoritative source.
Truist Financial reported first quarter 2024 net income available to common shareholders of $1.09 billiona, or $0.81 per diluted share, on a GAAP basis.
Adjusted net income available to common shareholders was $1.22 billionb, or $0.90 per share, up 11% from the prior quarter. The GAAP result was depressed by items including a $75 million FDIC special assessment, $51 million of restructuring charges from continuing operations, and $89 million of accelerated equity compensation tied to the pending sale of Truist Insurance Holdings (TIH). Comparisons to the fourth quarter of 2023 are distorted by a $6.1 billion goodwill impairment, which produced a GAAP net loss that quarter, so year-over-year reported figures are not directly comparable.
Underlying performance was mixed. Total revenue fell 1.4% on a linked-quarter basis as net interest income declined 4.2% to $3.43 billionc and net interest margin compressed seven basis points to 2.89%, reflecting higher funding costs and a shift in deposit mix. Noninterest income rose 6.1%, driven by a sharp increase in investment banking and trading income.
Average loans and deposits both declined, and the cost of total deposits rose to 2.03%d. Asset quality was broadly stable, with nonperforming loans at 0.45% of loans, though net charge-offs rose to 0.64% from 0.57%, largely from commercial real estate. The most consequential item for investors is the pending sale of the remaining 80% stake in TIH, expected to close in the second quarter of 2024.
Management said the transaction would lift the CET1 ratio by roughly 230 basis points under current rules and increase tangible book value per share by about 33%. Management also flagged a possible balance sheet repositioning to replace TIH's earnings and a resumption of share buybacks in late 2024, subject to market conditions. The 2024 outlook calls for revenue down roughly 4% to 5% excluding TIH, adjusted expenses flat, and a net charge-off ratio of about 65 basis points.
02—Key points
Key Highlights
- Adjusted EPS of $0.90 rose 11% sequentially, while GAAP diluted EPS was $0.81 after the FDIC special assessment, restructuring charges, and accelerated TIH equity compensation.
- Total revenue (TE) of $4.87 billion fell 1.4% linked-quarter, as net interest income dropped 4.2% and NIM compressed to 2.89%, partially offset by a 6.1% rise in noninterest income.
- Investment banking and trading income nearly doubled to $323 million from $165 million, reflecting higher structured real estate, M&A, and origination fees.
- Average deposits fell 1.6% to $389 billion, with noninterest-bearing deposits down 4.9%, and the total cost of deposits rose 11 basis points to 2.03%.
- Net charge-off ratio rose seven basis points to 0.64%, driven by commercial real estate, while NPLs held stable at 0.45% and the ALLL ratio rose to 1.56%.
- CET1 ratio was flat at 10.1%, and management expects the TIH sale to add roughly 230 basis points of CET1 and lift tangible book value per share by about 33%.
- Management plans to evaluate a balance sheet repositioning and resume share buybacks in late 2024, and expects 2024 revenue to decline about 4% to 5% excluding TIH.
03—Questions
Frequently Asked Questions
Why did GAAP EPS fall so sharply from the prior year and what drove the adjusted figure?
Comparisons to the fourth quarter of 2023 are distorted by a $6.1 billion goodwill impairment that produced a GAAP loss. Against the first quarter of 2023, GAAP diluted EPS fell from $1.05 to $0.81, reflecting lower net interest income, a higher effective tax rate on lower pre-tax income, and first-quarter 2024 one-time items. Adjusted diluted EPS of $0.90 excludes the FDIC special assessment, restructuring charges, and accelerated TIH equity compensation.
What does the pending sale of Truist Insurance Holdings mean for the company's earnings and capital?
TIH represents substantially all of the insurance business, which is now reported as discontinued operations. Its sale, expected to close in the second quarter of 2024, is projected to add about 230 basis points to CET1 under current Basel III rules and lift tangible book value per share by about 33%. The company plans to replace TIH's earnings through a possible balance sheet repositioning. The 2024 outlook excludes the expected gain and the interest income on sale proceeds.
Is credit quality deteriorating?
Credit quality is normalizing but remains manageable. Nonperforming loans were stable at 0.45% of loans held for investment, and loans 90 days or more past due were largely unchanged. However, net charge-offs rose to 0.64%, with the commercial real estate portfolio the main driver. Management guides to a full-year 2024 net charge-off ratio of about 65 basis points, above the 50 basis points recorded in 2023.
When might share buybacks resume and what limits capital return now?
Truist did not repurchase shares in the first quarter and declared a common dividend of $0.52 per share. Management said it is positioned to resume buybacks in late 2024, subject to market conditions and capital planning, after the TIH sale closes and the balance sheet repositioning is evaluated. Preferred dividends are projected at $77 million in the second quarter of 2024 and $106 million in the third.
What should investors watch in the second quarter of 2024?
Key items include completion of the TIH sale, the scope and timing of any balance sheet repositioning, and the trajectory of net interest margin and deposit costs. Management guides second-quarter revenue down about 2% from the first quarter, excluding TIH proceeds, with adjusted expenses up about 4%. Investors should also monitor commercial real estate charge-offs and office exposure, which management highlighted as manageable.
04—Continue