Truist Earnings: Repurchases Resume After Insurance Business Sale and Stronger Capital Ratios

Key Morningstar Metrics for Truist Financial

• Fair Value Estimate: $46.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Truist Financial’s Earnings

After closing on the sale of its remaining stake in Truist Insurance Holdings and booking an after-tax gain of $4.8 billion, Truist Financial TFC repositioned its balance sheet, increasing its net interest income, and it announced a repurchase authorization of up to $5 billion through 2026. The company reported net income to common shareholders of $826 million, or $0.62 per diluted share. Adjusting for unusual items in the quarter, such as losses related to repositioning its balance sheet by selling low-yielding securities at a loss and reinvesting proceeds into higher-yielding securities, the company had adjusted earnings per share from continuing operations of $0.91. We don’t anticipate making a material change to our fair value estimate of $46 per share, and we assess the stock as fairly valued.

The net result of the gain from the TIH sale and losses from repositioning the firm’s balance sheet along with earnings in the quarter was an increase in Truist’s common equity Tier 1 ratio to 11.6% from 10.5% in the first quarter of 2024. This compares with a minimum CET1 ratio of 7.3% after the US Federal Reserve’s 2024 stress test. Given this capital cushion, the company plans to repurchase $500 million of shares per quarter through the end of 2024 and up to $5 billion through the end of 2026. These repurchases will improve the company’s return on equity, and we believe they will be mildly value accretive.

The company’s balance sheet repositioning helped increase net interest income on a tax-equivalent basis to $3.58 billion from $3.43 billion the previous quarter. Average loans decreased 0.7% and average deposits decreased 0.3% from the first quarter. Most banks have been reporting—and will likely continue to report for the next couple of quarters—small declines to small gains in deposits and loans. While the economy is still growing and unemployment remains relatively low, the economy is cooling, which can restrain growth.