Truist Reports Second Quarter 2020 Results

Rhea-AI Summary

Truist Financial Corporation (NYSE: TFC) reported a net income of $902 million for Q2 2020, marking a 7.1% increase from last year. However, diluted earnings per share dropped 38.5% to $0.67. Adjusted net income was $1.1 billion or $0.82 per share, impacted by merger-related costs and credit losses of $844 million amid economic uncertainties. Key metrics include a return on average assets (ROA) of 0.75% and a return on common equity (ROCE) of 5.90%. The company remains committed to community support, dedicating $50 million to relief initiatives and addressing social equity issues.

Positive

• Net income increased 7.1% year-over-year to $902 million.
• Adjusted net income was $1.1 billion, driven by growth in earning assets.
• Strong performance in investment banking and record insurance brokerage income.
• Truist is the third-largest Paycheck Protection Program lender, aiding clients with $12 billion in PPP loans.

Negative

• Diluted earnings per share decreased 38.5% year-over-year to $0.67.
• Noninterest expense rose to $3.9 billion, including $209 million in merger-related charges.
• Provision for credit losses was $844 million, reflecting increased economic stress.

CHARLOTTE, N.C., July 16, 2020 /PRNewswire/ -- Truist Financial Corporation (NYSE: TFC) today reported earnings for the second quarter of 2020.

Net income available to common shareholders was $902 million, up 7.1 percent, compared with the second quarter last year. Earnings per diluted common share were $0.67 for the second quarter of 2020, a decrease of 38.5 percent compared with the same period last year. Results for the second quarter produced an annualized return on average assets (ROA) of 0.75 percent, an annualized return on average common shareholders' equity (ROCE) of 5.90 percent, and an annualized return on tangible common shareholders' equity (ROTCE) of 11.83 percent.

Adjusted net income available to common shareholders was $1.1 billion, or $0.82 per diluted share, excluding merger-related and restructuring charges of $209 million ($160 million after-tax), incremental operating expenses related to the merger of $129 million ($99 million after-tax), securities gains of $300 million ($230 million after-tax), and losses from the early extinguishment of long-term debt of $235 million ($180 million after-tax). Adjusted diluted earnings per common share decreased $0.01 compared to the first quarter of 2020. Adjusted results produced an annualized ROA of 0.91 percent, an annualized ROCE of 7.26 percent and an annualized ROTCE of 14.17 percent.

"I am pleased with our overall performance and Truist's actions to support all our stakeholders in this challenging and ever-changing operating environment," said Chairman and Chief Executive Officer Kelly S. King. "This quarter we continued to focus on supporting our clients, teammates and communities affected by the pandemic, doubling our Truist Cares relief efforts to $50 million to reach underserved communities in our footprint. We are also focused on addressing the critical issue of racial and social inequity in America, and are having authentic dialogue on how we at Truist can create meaningful, long-lasting and measurable changes for the Black community. There is much more work to be done, but we are committed to building a stronger, more equitable company and society.

"Our core financial performance during the quarter was strong, particularly in light of the challenging interest rate and credit environment," said King. "Adjusted net income was $1.1 billion, driven by growth in earning assets, a strong performance from our investment banking group, a record quarter from our insurance brokerage group, and great results from our residential mortgage banking team. We also demonstrated solid expense discipline on a core basis and experienced substantial growth in deposits.

"While asset quality ratios remained relatively stable, we provided $844 million for credit losses given economic uncertainty and the stressed environment. This affords strong coverage for expected credit losses in the future. We are also pleased by the performance of our loan portfolios under stress in the Federal Reserve's CCAR process. Following the results of this process, we will recommend a $0.45 third quarter dividend to our board of directors.

"I remain proud of our teammates, who continue to work hard to meet the immediate and long-term needs of our clients, demonstrating our purpose to inspire and build better lives and communities every single day."

Second Quarter 2020 Performance Highlights

• Earnings per diluted common share were $0.67
• Adjusted diluted earnings per share were $0.82
• ROA was 0.75 percent; adjusted ROA was 0.91 percent
• ROCE was 5.90 percent; adjusted ROCE was 7.26 percent
• ROTCE was 11.83 percent; adjusted ROTCE was 14.17 percent

• Balance sheet actions
• Sold non-agency mortgage backed securities generating a gain of $300 million
• Redeemed $20.0 billion of FHLB advances resulting in loss on early extinguishment of long-term debt of $235 million
• Actions improve net interest income, net interest margin and leverage ratios

• CARES Act Impacts
• Third largest PPP lender based on gross fundings
• Provided accommodations to clients on $21.2 billion of commercial loans, $13.8 billion of consumer loans, and $211 million of credit card loans as of June 30, 2020, representing 11.2 percent of loans and leases held for investment

• Taxable-equivalent revenue was $5.9 billion for the second quarter of 2020; includes $300 million of securities gains
• Fee income ratio was 41.3 percent, compared to 34.9 percent for first quarter 2020; excluding securities gains, fee income ratio was 38.1 percent for the current quarter
• Net interest margin was 3.13 percent, down 45 basis points from the first quarter 2020
• Insurance income was a record $581 million
• Core net interest margin was 2.67 percent, down 39 basis points from the first quarter 2020

• Noninterest expense was $3.9 billion for the second quarter of 2020
• Noninterest expense includes $209 million of merger-related and restructuring charges, $129 million of incremental operating expenses related to the merger, and $235 million of losses from the early extinguishment of long-term debt
• GAAP efficiency ratio was 66.1 percent, compared to 61.1 percent for first quarter 2020
• Adjusted efficiency ratio was 55.8 percent, compared to 54.6 percent for first quarter 2020

• Asset quality ratios remain relatively stable; ratios tempered by CARES Act relief
• Nonperforming assets were 0.25 percent of total assets, up 2 basis points from the prior quarter
• Loans 90 days or more past due and still accruing were 0.34 percent of loans held for investment, down from 0.55 percent for the prior quarter
• Excluding government guaranteed loans, loans 90 days or more past due and still accruing were 0.03 percent of loans held for investment
• Net charge-offs were 0.39 percent of average loans and leases, up three basis points compared to the prior quarter
• The allowance for loan and lease losses was 1.81 percent of loans and leases held for investment compared to 1.63 percent for the first quarter 2020
• Provision for credit losses was $844 million for the second quarter of 2020, which includes a $522 million build to the allowance for credit losses
• The allowance for loan and lease loss coverage ratio was 5.24 times nonperforming loans and leases held for investment, versus 5.04 times in the prior quarter
• Commercial credit quality indicators reflect proactive grading changes for the current environment

• Capital and liquidity levels remained strong
• Capital ratios improved; issued $2.6 billion of preferred stock to strengthen capital
• Common equity tier 1 to risk-weighted assets was 9.7 percent
• Tier 1 risk-based capital was 11.5 percent
• Total risk-based capital was 13.9 percent
• LCR ratio was 116 percent for second quarter 2020

EARNINGS HIGHLIGHTS				Change 2Q20 vs.
(dollars in millions, except per share data)	2Q20	1Q20	2Q19	1Q20	2Q19
Net income available to common shareholders	$	902		$	986		$	842		$	(84)		$	60
Diluted earnings per common share	0.67		0.73		1.09		(0.06)		(0.42)
Net interest income - taxable equivalent	$	3,479		$	3,687		$	1,714		$	(208)		$	1,765
Noninterest income	2,423		1,961		1,352		462		1,071
Total taxable-equivalent revenue	$	5,902		$	5,648		$	3,066		$	254		$	2,836
Less taxable-equivalent adjustment	31		37		24
Total revenue	$	5,871		$	5,611		$	3,042
Return on average assets	0.75	%	0.90	%	1.55	%	(0.15)	%	(0.80)	%
Return on average risk-weighted assets (current quarter is preliminary)	1.00		1.12		1.92		(0.12)		(0.92)
Return on average common shareholders' equity	5.90		6.58		11.98		(0.68)		(6.08)
Return on average tangible common shareholders' equity (1)	11.83		13.23		19.45		(1.40)		(7.62)
Net interest margin - taxable equivalent	3.13		3.58		3.42		(0.45)		(0.29)

(1)	Excludes certain items as detailed in the non-GAAP reconciliations in the Quarterly Performance Summary.

Second Quarter 2020 compared to First Quarter 2020

Total taxable-equivalent revenue was $5.9 billion for the second quarter of 2020, an increase of $254 million compared to the prior quarter. This includes an increase of $462 million in noninterest income, partially offset by a decrease of $208 million in net interest income.

The net interest margin was 3.13 percent for the second quarter, down 45 basis points compared to the prior quarter. The decline in the net interest margin and net interest income reflects the decline in the Fed Funds and LIBOR rates, higher low-yielding balances at the Federal Reserve and a deferral related to accrued interest for loans that have been granted an accommodation in connection with COVID-19. Average earning assets increased $33.3 billion, which primarily reflects a $18.7 billion increase in average total loans and leases and a $17.8 billion increase in average other earning assets. The increase in average other earning assets primarily reflects higher interest-bearing balances at the Federal Reserve. Average interest-bearing liabilities increased $14.5 billion, driven by an increase of $15.4 billion in average interest-bearing deposits, an increase of $9.0 billion in average long-term debt, which was partially offset by a decrease of $9.9 billion in average short-term borrowings.

The yield on the total loan portfolio for the second quarter was 4.19 percent, down 79 basis points compared to the prior quarter, primarily due to lower Fed Funds and LIBOR rates, lower accretion of the fair value mark on the merged loans and the deferral of interest for loans granted an accommodation in connection with COVID-19. The yield on the average securities portfolio for the second quarter was 2.37 percent, down 25 basis points compared to the prior quarter primarily due to higher premium amortization.

The average cost of total deposits was 0.22 percent, down 29 basis points compared to the prior quarter. The average cost of interest-bearing deposits was 0.32 percent, down 38 basis points compared to the prior quarter. The average rate on long-term debt was 1.52 percent, down 82 basis points compared to the prior quarter. The average rate on short-term borrowings was 1.24 percent, down 52 basis points compared to the prior quarter. The decrease in rates on deposits and other funding was largely attributable to deposit rate cuts consistent with a lower rate environment.

The provision for credit losses was $844 million, and net charge-offs were $316 million for the second quarter, compared to $893 million and $272 million, respectively, for the prior quarter. The provision for credit losses in the second quarter includes a $522 million build to the allowance for credit losses, which reflects increased economic stress associated with the pandemic and specific consideration of its impact on certain industries.

Noninterest income was $2.4 billion, an increase of $462 million compared to the prior quarter. The current quarter includes $300 million of securities gains from the sale of non-agency mortgage-backed securities compared to a small loss in the prior quarter. Excluding securities gains and losses, noninterest income increased $160 million compared to the prior quarter. Insurance income was up $32 million primarily due to seasonality. Residential mortgage income increased $96 million due to strong production income as a result of higher volumes and improved margins, partially offset by lower servicing revenues due to higher prepayments. Investment banking and trading income increased $156 million due to an increase of $71 million in core trading revenues across most products and $90 million as a result of credit valuation adjustments recorded in the prior period. Other income increased $27 million compared to the prior period, primarily as a result of a $34 million increase in income from assets held for certain post-retirement benefits, which is primarily offset by higher personnel expense. These increases were partially offset by lower revenues from service charges on deposits of $103 million due to reduced overdraft incident rates and refunds and waivers related to COVID-19. Wealth management income decreased $43 million primarily due to market devaluation impacting wealth fees.

Noninterest expense was $3.9 billion for the second quarter, up $447 million compared to the prior quarter. The current quarter includes $235 million of losses on the early extinguishment of long-term debt, which were part of balance sheet actions to improve net interest income, net interest margin and leverage ratios. Merger-related and restructuring charges increased $102 million primarily due to higher professional services expenses related to merger integration and personnel-related expenses incurred in the current quarter. Incremental operating expenses related to the merger increased $55 million primarily due to higher professional services expenses for process and system design in connection with merger integration. On an adjusted basis, noninterest expense was up $55 million, primarily due to higher operating costs incurred in connection with COVID-19, performance-based incentives, partially offset by lower marketing and customer development expense.

The provision for income taxes was $191 million for the second quarter, compared to $224 million for the prior quarter. The effective tax rate for the second quarter was 16.6 percent compared to 17.4 percent for the prior quarter.

Second Quarter 2020 compared to Second Quarter 2019

Total taxable-equivalent revenues were $5.9 billion for the second quarter of 2020, an increase of $2.8 billion compared to the earlier quarter, which reflects an increase of $1.8 billion in taxable-equivalent net interest income and an increase of $1.1 billion in noninterest income.

Net interest margin was 3.13 percent, down 29 basis points compared to the earlier quarter. Average earning assets increased $246.0 billion. The increase in average earning assets reflects a $174.9 billion increase in average total loans and leases and a $29.0 billion increase in average securities. Average other earning assets increased $39.8 billion primarily due to higher interest-bearing balances at the Federal Reserve. Average interest-bearing liabilities increased $182.7 billion compared to the earlier quarter. Average interest-bearing deposits increased $149.7 billion, average long-term debt increased $32.3 billion and average short-term borrowings increased $631 million. The significant increases in earnings assets and liabilities are primarily due to the merger, as well as impacts from the COVID-19 pandemic and the resulting government stimulus programs.

The yield on the total loan portfolio for the second quarter of 2020 was 4.19 percent, down 86 basis points compared to the earlier quarter, reflecting the impact of rate decreases and the deferral of interest for loans granted an accommodation in connection with COVID-19, partially offset by purchase accounting accretion from merged loans. The yield on the average securities portfolio was 2.37 percent, down 25 basis points compared to the earlier period primarily due to higher premium amortization

The average cost of total deposits was 0.22 percent, down 46 basis points compared to the earlier quarter. The average cost of interest-bearing deposits was 0.32 percent, down 70 basis points compared to the earlier quarter. The average rate on short-term borrowings was 1.24 percent, down 116 basis points compared to the earlier quarter. The average rate on long-term debt was 1.52 percent, down 181 basis points compared to the earlier quarter. The lower rates on interest-bearing liabilities reflect the lower rate environment. The lower rates on long-term debt also reflect the amortization of the fair value mark on the assumed debt and the issuance of new long-term debt.

The provision for credit losses was $844 million, compared to $172 million for the earlier quarter. The increase in the provision for credit losses reflects a build to the allowance for credit losses due to increased economic stress associated with the pandemic and specific consideration of its impact on certain industries, the impact of the merger, and the effect of applying the CECL methodology in the current quarter compared to the incurred methodology in the earlier quarter. Net charge-offs for the second quarter of 2020 totaled $316 million compared to $142 million in the earlier quarter. Higher net charge-offs also contributed to the increase in the provision for credit losses and primarily reflect increases as a result of the merger. The net charge-off rate for the current quarter of 0.39 percent was up one basis point compared to the second quarter of 2019.

Noninterest income for the second quarter of 2020 increased $1.1 billion compared to the earlier quarter. The current quarter includes $300 million of securities gains from the sale of non-agency mortgage-backed securities. Excluding the securities gains, noninterest income increased $771 million, with nearly all categories of noninterest income being impacted by the merger. In addition to the impacts from the merger, residential mortgage banking income was up due to strong production and refinance activity driven by the declining rate environment, while service charges on deposits were lower due to reduced overdraft incident rates and refunds and waivers to accommodate clients impacted by the COVID-19 pandemic.

Noninterest expense for the second quarter of 2020 was up $2.1 billion compared to the earlier quarter. Merger-related and restructuring charges and other incremental operating expenses related to the merger increased $186 million and $120 million, respectively. In addition, the current quarter was impacted by $235 million of losses on the early extinguishment of long-term debt. On an adjusted basis, noninterest expense was up $1.6 billion, primarily reflecting the impact of the merger. In addition to the impacts of the merger, operating costs were elevated due to COVID-19, which resulted in an additional $115 million of expenses compared to the second quarter of 2019. This was primarily related to additional on-site pay for teammates, net occupancy costs for enhanced cleaning and teammate support expenses. Amortization of intangibles increased $146 million due to the intangibles recognized in the merger.

The provision for income taxes was $191 million for the second quarter of 2020, compared to $234 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2020 of 16.6 percent, compared to 20.9 percent for the earlier quarter. The lower effective tax rate is primarily due to higher favorable permanent tax items and income tax credits in the current year.

LOANS AND LEASES
(dollars in millions)
Average balances	2Q20	1Q20	Change	% Change
				(annualized)
Commercial:
Commercial and industrial	$	152,991		$	131,743		$	21,248		64.9	%
CRE	27,804		27,046		758		11.3
Commercial construction	6,748		6,409		339		21.3
Lease financing	5,922		6,070		(148)		(9.8)
Total commercial	193,465		171,268		22,197		52.1
Consumer:
Residential mortgage	52,380		52,993		(613)		(4.7)
Residential home equity and direct	27,199		27,564		(365)		(5.3)
Indirect auto	24,721		24,975		(254)		(4.1)
Indirect other	11,282		10,950		332		12.2
Student	7,633		7,787		(154)		(8.0)
Total consumer	123,215		124,269		(1,054)		(3.4)
Credit card	4,949		5,534		(585)		(42.5)
Total loans and leases held for investment	$	321,629		$	301,071		$	20,558		27.5

Average loans and leases held for investment for the second quarter of 2020 were $321.6 billion, up $20.6 billion compared to the first quarter of 2020, primarily due to growth in the commercial portfolio.

The growth in the commercial portfolio was primarily in commercial and industrial loans and reflects an increase in revolver usage late in the prior quarter coupled with PPP loan originations in the current quarter. Truist is the third largest lender of PPP loans based on gross fundings and the carrying value of PPP loans was $12.0 billion as of June 30, 2020. Within the commercial and industrial portfolio, Truist also experienced growth in loans from mortgage warehouse lending due to the decline in rates and increased refinance activity, which was partially offset by a decline in dealer floor plan lending.

Average consumer loans decreased $1.1 billion, primarily due to a decrease in residential mortgages due to refinance activity, underwriting changes and overall decreased demand for consumer lending products. This was partially offset by an increase in indirect other loans due to demand for loans to finance recreational and power sports equipment.

Average credit card loans decreased due to lower business and consumer spending as a result of COVID-19.

DEPOSITS
(dollars in millions)
Average balances	2Q20

FAQ

What were Truist Financial Corporation's earnings for the second quarter of 2020?

Truist Financial Corporation reported net income of $902 million for Q2 2020.

How did Truist's earnings per diluted share change in Q2 2020?

Earnings per diluted share decreased by 38.5% to $0.67 compared to Q2 2019.

What impact did the pandemic have on Truist's provision for credit losses?

Truist provided $844 million for credit losses due to economic uncertainty related to the pandemic.

What is the adjusted net income for Truist Financial in Q2 2020?

The adjusted net income for Truist Financial in Q2 2020 was $1.1 billion.

What were Truist's core financial performance metrics for Q2 2020?

ROA was 0.75%, ROCE was 5.90%, and ROTCE was 11.83%.