The combined revenue from a merged BB&T and SunTrust, particularly on the fee income side, enabled Truist Financial Corp. to again show a sizable profit increase despite the COVID-19 pandemic.
Truist reported Thursday a 45.3% increase in net income to $1.1 billion, while adjusted net income was $1.3 billion.
Year-over-year comparisons reflect the third-quarter 2020 performance of a combined Truist and the third-quarter 2019 report of only BB&T.
Diluted earnings were 79 cents, down from 95 cents a year ago. Adjusted earnings were 97 cents.
The average earnings forecast was 88 cents by eight analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.
When comparing the second and third quarters as a combined Truist, net income was up by 18.4% and diluted earnings by 12 cents.
Truist completed its move to Charlotte on Dec. 6 when it debuted as nation’s sixth-largest bank following BB&T Corp.’s $33.5 billion purchase of SunTrust Banks Inc. Truist’s community/retail banking hub is in Winston-Salem.
Truist's adjusted net income reflected several positive and negative after-tax charges, foremost $186 million in merger-related and restructuring charges, $115 million in "incremental operating expenses related to the merger," an $80 million securities gain and a $38 million charitable contribution.
"We are pleased to report strong performance for the quarter, particularly given the challenging environment," Kelly King, Truist's chairman and chief executive, said in a statement.
"Our earnings reflect a modest build in our allowance for loan and lease losses, benefiting from our relatively stable asset quality. We also benefited from our diverse noninterest-income generating businesses and disciplined core expense control."
More job cuts
The continuing integration of Truist from its predecessor banks produced an additional net 769 full-time equivalent job position cuts during the third quarter, the bank said Thursday.
King told analysts in July that Truist plans to complete core branch conversions in the first half of 2022, rather than by August 2021. The Carolinas would be included in the core branch category.
The third-quarter workforce reduction followed the elimination of 735 job positions in the second quarter and between 800 to 1,000 job positons in the first quarter.
As of Sept. 30, the companywide workforce was at about 55,000.
BB&T had 2,134 employees in Forsyth County, according to a 2018 workforce report to Forsyth County Board of Commissioners. It also has about 1,700 employees at its Triad Corporate Center complex in Greensboro.
Truist, like peers Wells Fargo & Co. and Bank of America Corp. reported Wednesday, announced a significant lowering of its loan-loss provision at $421 million for the third quarter, compared with $844 million in the second quarter and $893 million in the first quarter.
The provision offers a glimpse at how a bank expects its loan portfolio and revenue stream to perform as customers struggle to make monthly payments. It has a bottom-line effect on a bank’s profitability.
Truist said the lower provision "reflects a modest build to the allowance ... primarily due to continued monitoring of clients' financial position and associated re-grading actions, as well as uncertainty related to performance after the expiration of relief packages and COVID-19."
Janney Montgomery Scott analyst Chris Marinac said in July that “we expect reserve building continues in the second and third quarters, with modest relief by year-end and early 2021.”
Truist chose to focus its fee and loan income segments on a second and third quarter comparison since those figures represent the combined bank's revenue totals.
For fee revenue, it was down 8.8% to $2.21 billion.
Insurance, as had been the case with BB&T for several years, was the top revenue producer at $518 million, down 10.8% that Truist said reflected "firmer pricing and strong new business generation."
The other nine key fee-income segments were up and down during the quarter, such as residential mortgage income dropping 35.2% to $221 million, wealth management increasing 12.1% to $324 million, service charges on deposits up 22.3% to $247 million, and card- and payment-related fees up 16.9% to $200 million.
"We experienced growth in service charges on deposit accounts and card and payment related fees due to some waiver abatement and increased activity from clients," King said.
"In addition, we are selectively investing in our insurance, investment banking, residential mortgage and wealth teams to drive more client business."
Loan revenue for Truist was at $3.39 billion when including the loan-loss provision, down 2.5% from the second quarter.
Nonperforming assets were at $1.34 billion on Sept. 30, compared with $1.25 billion on June 30. The increase reflected commercial and industrial loan activities, such as some states lifting the pandemic moratorium on automobile repossessions.
Net charge-offs were $326 million in the third quarter, compared with $316 million in the second quarter.
Truist had $499 billion in total assets on Sept. 30, down from $514.72 billion on June 30.
CFRA Research analyst Pauline Bell responded to the third-quarter report by raising her share-price target by $3 to $45 and her fiscal 2020 earnings estimate from $3.50 to $3.59.
Bell said she was encouraged by "a modest reserve (provision) build to further slow in the fourth quarter, and better-than-expected fees benefitting from higher wealth management and stronger deposit charges and card fees.
"More branch closures, in addition to 104 planned for December/January, could provide further upside to cost savings target."
King said Truist is in a holding pattern with its quarterly dividend payment of 45 cents a share and no current plans for a share-repurchase program.
It has been paying that amount since October 2019 as legacy BB&T.
"It's really a function of when we're able to do buybacks and dividend increases," King said, taking into consideration risk projections.
"When we look forward and we feel like the economy is stabilized and growing, and the pandemic is under control, and we can feel comfortable in terms of projections with relatively stable revenue stream, we can turn back on buybacks and consider a dividend increase.
"Today, it is a tad premature because we don't know what we don't know," King said. "There's a decent chance we'll have a decision to make in the first half of next year.
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