01—Abstract
Summary
Summary of the 8-K filed July 22, 2024. Cited figures are marked; the original filing is the authoritative source.
Truist Financial reported second quarter 2024 results that look very different on a GAAP basis than on an underlying basis.
GAAP net income available to common shareholders was $826 milliona, or $0.62 per diluted share, but this figure includes a $6.9 billion pre-tax gain ($4.8 billion after-tax, or $3.60 per share) from the sale of its remaining 80% stake in Truist Insurance Holdings (TIH), which is reported in discontinued operations. Offsetting this were $6.7 billion of pre-tax securities losses ($5.1 billion after-tax, or $3.80 per share) from a balance sheet repositioning, a $150 million charitable contribution to the Truist Foundation, and restructuring charges. Excluding selected items, adjusted net income available to common shareholders was $1.235 billion, or $0.91 per share, roughly flat year over year on a per-share basis (versus $0.92 in 2Q23) and up from $0.90 in 1Q24.
The core operating picture was mixed but stable. Adjusted revenue rose 3.0% sequentially, driven by a 4.5% increase in taxable-equivalent net interest income to $3.58 billionb and a 14 basis point expansion in net interest margin to 3.03%, which management attributes to reinvesting TIH sale proceeds and the repositioning. Adjusted noninterest expense rose 2.6% sequentially, while average loans held for investment fell 0.7% and average deposits fell 0.3%.
Asset quality was stable: the net charge-off ratio improved six basis points to 0.58%, nonperforming assets were flat at $1.5 billionc, and the ALLL ratio ticked up to 1.57%. The most significant balance sheet development is capital. The CET1 ratio rose 150 basis points to a preliminary 11.6%, and tangible book value per share increased to $28.91 from $21.64 in the prior quarter.
Truist authorized up to $5 billiond in share repurchases through 2026, with buybacks expected to begin in the third quarter of 2024, though none were made in the second quarter. Management also guided to 3Q24 adjusted revenue up 1-2% and adjusted expenses up 3% sequentially, and a full-year 2024 net charge-off ratio of roughly 65 basis points. The preliminary stress capital buffer is expected to improve to 2.8% from 2.9%, effective October 1, 2024.
02—Key points
Key Highlights
- GAAP EPS of $0.62 is distorted by a $3.60 per share gain on the TIH sale and a $3.80 per share loss on securities sold in the balance sheet repositioning; adjusted diluted EPS was $0.91.
- CET1 ratio rose 150 bps to a preliminary 11.6% (from 10.1%), with the TIH sale and repositioning generating about 230 bps of CET1 under current rules.
- Up to $5 billion share repurchase authorization through 2026, with buybacks expected to start in 3Q24; no shares were repurchased in 2Q24.
- Adjusted revenue up 3.0% sequentially, driven by net interest income up 4.5% and NIM up 14 bps to 3.03%, reflecting reinvestment of TIH proceeds at a blended 5.22% rate.
- Asset quality stable: NCO ratio improved 6 bps to 0.58%, nonperforming assets flat at $1.5 billion, and ALLL ratio up 1 bp to 1.57%.
- Average loans down 0.7% and average deposits down 0.3% sequentially, with weakness in C&I, residential mortgage, and indirect auto, and declines in noninterest-bearing and time deposits.
- Guidance: 3Q24 adjusted revenue up 1-2% and adjusted expenses up 3% versus 2Q24; full-year 2024 adjusted revenue down 0.5-1% and adjusted expenses flat versus 2023.
03—Questions
Frequently Asked Questions
Why is GAAP EPS of $0.62 so different from adjusted EPS of $0.91?
GAAP results include a $6.9 billion pre-tax gain on the sale of TIH (reported in discontinued operations, adding $3.60 per share) and a $6.7 billion pre-tax loss on securities sold to reposition the balance sheet (subtracting $3.80 per share). Other one-time items included a $150 million charitable contribution and restructuring charges. Adjusted EPS strips out these selected items to show ongoing operating performance.
How much did the TIH sale strengthen Truist's capital position?
Management said the sale of TIH and the balance sheet repositioning together generated about 230 basis points of CET1 under current rules (about 254 bps under proposed Basel 3 rules). The CET1 ratio rose to a preliminary 11.6% at June 30, 2024, up from 10.1% at March 31, and tangible book value per share increased 34% to $28.91.
When and how much will Truist buy back shares?
The board authorized up to $5 billion of share repurchases through the end of 2026, with buybacks expected to commence in the third quarter of 2024. Truist did not repurchase any shares in the second quarter. The filing does not specify a pace, so the actual amount and timing remain to be seen.
Will the balance sheet repositioning replace the earnings lost from TIH?
Management said the repositioning is expected to replace TIH's earnings contribution. The company sold $27.7 billion of securities with a weighted average book yield of 2.80% and reinvested $39.4 billion at a blended rate of 5.22%, and net interest income and margin both improved in the quarter. Management also stated that excluding the TIH proceeds and repositioning, net interest income was stable, so the earnings benefit depends on the reinvestment yields holding up.
Is credit quality deteriorating?
Based on the filing, credit quality remained stable. Nonperforming assets were flat at $1.48 billion, loans 90+ days past due fell two basis points, and the net charge-off ratio improved to 0.58% from 0.64%. The ALLL ratio rose slightly to 1.57%, and the provision for credit losses fell to $451 million from $500 million. Commercial real estate, particularly office, remains the area to watch, with NPLs in CRE rising.
04—Continue