1 Bank to Own in this Low-Rate, Low-Loan-Growth Environment
Truist Financial (NYSE: TFC), the $522-billion-asset byproduct of the merger between BB&T and SunTrust, is still deep in the midst of integrating the two banks into one. The deal, which first got announced in 2019, is the largest bank deal in a decade. Truist generated strong overall earnings in the second quarter that showed some positives and some negatives, as loan growth continued to prove elusive and fee income came in strong. While there is still a lot of work to do before the Truist merger is complete and the bank can really go on the offensive, I like this bank stock in this current low-interest-rate and low-loan-growth environment. Here's why.
Truist generated $1.16 in diluted earnings per share (EPS) in the second quarter, resulting in a 1.28% return on average assets (ROAA, a measurement of how well management uses assets to generate earnings), and a nearly 19% return on average tangible common equity (ROATCE, the technical rate of return the company made on its physical capital). Both are strong results.
However, the numbers were significantly inflated by a $576 million release of reserve capital previously set aside for loan losses that did not materialize. The $576 million release is equivalent to roughly $0.43 EPS, which is quite significant. But on the other hand, Truist also dealt with one-time, non-recurring costs in the quarter, such as those related to the merger. In the second quarter, Truist lost about $0.39 of EPS due to merger-related and restructuring charges, incremental operating expenses related to the merger, and a $200 million contribution to the bank's charity fund. Strip out those costs and the bank generates $1.55 EPS with a 1.69% ROAA and a nearly 25% ROATCE. However, costs are likely to be elevated until full cost savings from the merger are realized, which will likely not occur until the end of 2022.
Source Fool.com