Morningstar

Truist Earnings: Strong Fee Income Performance, No Exposure to Tricolor Collapse

The stock has low exposure to the First Brands bankruptcy.

The Truist Financial logo is seen displayed on a smartphone screen.
Thomas Fuller/SOPA Images via Getty
Securities in This Article
Truist Financial Corp
(TFC)

Key Morningstar Metrics for Truist Financial

What We Thought of Truist Financial’s Earnings

Truist Financial TFC reported OK results in the third quarter, with fee income growing 5% annually. Reported earnings per share came in at $1.04, up 5% from the prior-year quarter. The results translate into a return on a tangible common equity ratio of 13.6%.

Why it matters: The year-over-year increase in fee income was mostly driven by strong performance in wealth management and mortgage banking revenue. In addition, investment banking and trading income also grew by $118 million sequentially to $323 million.

  • We are glad to see the recovery in investment banking and trading income fees. Truist is more exposed to middle-market advisory and has less trading exposure when compared with bulge-bracket investment banks.
  • More recovery in middle-market M&A activity will boost Truist’s investment banking fees.

The bottom line: As we incorporate Truist’s latest results and guidance, we expect to maintain our $46.10 fair value estimate for the no-moat-rated bank. We assess the shares as slightly undervalued.

  • We think Truist’s underwriting is solid, and we think it can handle its credit losses well.
  • Truist has no exposure to Tricolor’s collapse, and its total exposure to First Brands was less than $200 million (less than 0.1% of its loan book). It was already included in the provisioning expenses in the quarter.

Key stats: We are also not worried about Truist’s exposure to non-depository financial institutions. The bank’s NDFI was around 11% of its loans in the third quarter.

  • Around half of its NDFI is asset securitization and REITs lending. The remaining half comes from smaller asset classes such as capital calls, leasing, and business development companies.
  • We assess Truist’s NDFI exposure as not having elevated credit risks and with a strong capital position. The bank had a solid CET1 ratio of 11% at the end of the third quarter, 400 basis points higher than its 7% regulatory minimum. This should give the bank plenty of excess capital to weather credit losses.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

Sponsor Center