Truist Earnings: New Medium-Term Return Target, Continued Elevated Repurchases Expected

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

Truist Financial TFC reported net income to common shareholders of around $1.3 billion, or $0.99 per diluted share, on $5.1 billion of taxable-equivalent revenue. The company showed strong results for the third quarter. This is encouraging, as it was the first full quarter following the sale of Truist Insurance Holdings. We don’t anticipate a material change to our fair value estimate of $46 per share, and still view the stock as fairly valued.

Management announced a new target for return on tangible common equity in the mid-teens for the medium term (around a three-year timeframe). We think this is more realistic than the low-20s target set after the 2019 merger. To achieve this goal, we would expect to see better results from investments in Truist’s core banking franchise throughout 2025. We believe sustained positive operating leverage will be key to meeting this return target and maintaining a strong efficiency ratio.

Truist maintained its 11.6% common equity Tier 1 ratio in the quarter, as strong earnings offset $1.2 billion in common dividends and $500 million in share buybacks. We’re likely to see another $500 million in share buybacks next quarter, and we expect elevated share buybacks for the next few. Truist’s top two priorities for excess capital are deepening client relationships in existing product lines through investments and returning capital to shareholders.

Net interest margin expanded 10 basis points from Truist’s balance sheet repositioning in the prior quarter. Average loans are down 1% sequentially because of lower utilization of commercial and industrial credit lines. Other banks reported a similar trend, and we think this will persist for several more quarters while businesses are more hesitant to borrow. Although we have seen a 1% decline in average deposits, the mix shift into interest-bearing deposits has stabilized.