Truist sets a buyback plan, waits for loan demand to resume

Truist Financial is sticking to its plan for how to use the billions it got from selling its insurance subsidiary, though its goal of using some of the proceeds to facilitate loan growth isn’t panning out yet.

The Charlotte, North Carolina-based regional bank announced Monday that it plans to buy back about $500 million of common shares during the third quarter. Buybacks of another $500 million are slated for the fourth quarter, and Truist will probably “enter next year [at] sort of the same kind of pace,” CEO Bill Rogers told analysts during the company’s second-quarter earnings conference call.

Those new details, which align with the company’s previously announced plans for the $10.1 billion it snagged from the sale of its majority stake in Truist Insurance Holdings, come about three weeks after Truist said its board of directors authorized a $5 billion multiyear share repurchase program that will run through 2026.

The buyback program was announced two days after the release of the Federal Reserve’s annual stress test results, which determined that Truist had sufficient capital to withstand a worst-case economic scenario.

“I think we’ve put together a compelling return perspective,” Rogers said during Monday’s call. “Remember … we’ve got a really strong dividend. So, in terms of total dollars returned to shareholders over the next six months, I mean, we have a really compelling value proposition.”

Truist has been talking for months about its plans for the proceeds from the May sale of its 80% stake in the insurance unit. In addition to restarting the share repurchase program, Truist set out to reposition its balance sheet by selling lower-yielding investment securities and buying higher-yielding ones, which it accomplished during the second quarter.

The balance sheet repositioning is expected to replace earnings from the highly profitable insurance unit.

The $526.9 billion-asset company has also said that the sale’s proceeds will help facilitate loan growth. But so far, that’s proving to be a tad harder to control.

Average loans and leases in the second quarter were down 0.7% from the previous three months, signaling “overall weaker client demand,” Chief Financial Officer Mike Maguire said on the call. Average commercial loans were down 0.7%, and average consumer loans fell by 0.9%.

Truist expects “client loan demand to remain relatively muted in the third quarter,” Maguire warned.

Analyst Matt O’Connor of Deutsche Bank pointed out that Truist’s loan growth lags industry trends and wondered when the company might show results more in line with other banks. 

“We’re hopeful we’ll see some relief,” Maguire said. “In the third quarter, I think the base case is probably expected to be down, maybe not quite as much. We’d love to see that be different, but that’s sort of what we’re thinking about, and then hopefully kind of stable from there.”

The divestiture of Truist’s insurance brokerage and the repositioning of its balance sheet created a bit of a noisy quarter. Net income declined by 33% year over year, while earnings per share totaled 62 cents, or four cents short of the average estimate from analysts surveyed by FactSet Research Systems.

Excluding an $4.8 billion after-tax gain on the sale of Truist Insurance Holdings, an after-tax loss of $5.1 billion on the sale of certain investment securities and other items, adjusted net income was $1.2 billion, or 91 cents per share, the company said.

A portion of the gain on the insurance sale was used to make a $150 million charitable contribution to the Truist Foundation, the company’s philanthropic arm.

Truist also recorded pre-tax restructuring charges of $96 million, primarily related to the sale of the insurance brokerage, employee severance packages and its decision to vacate certain office buildings.

Net interest income was down $77 million, or 2.1%, year over year, a result of higher funding costs and lower earning assets, Truist said. Meanwhile, fee income, excluding the securities losses, increased 4.2% for the quarter.

Bright spots within fee income included investment banking and trading income, which rose 35.5% year over year; mortgage banking income, which was up 13.1%; and wealth management income, which rose by 9.4%.

Second-quarter expenses were $3.1 billion, up 1.6% from the same period last year as a result of the charitable contribution and a special Federal Deposit Insurance Corp. assessment fee of $13 million, the company said. Excluding those factors, expenses declined about 3% year over year, reflecting a reduction in headcount stemming from a $750 million cost-cutting program announced last fall.

Full-year expenses are still expected to remain flat from 2023, when they totaled $11.4 billion, the company said. However, in the third quarter, costs are projected to rise due to higher professional fees and heftier software and marketing costs.

Rogers and his executive team have been laser-focused on keeping expenses flat this year, after analysts and investors have scrutinized the bank’s spending in recent years.

“I’m really pleased with the progress we’re making [on expenses] and expect to continue to have that kind of discipline going forward,” Rogers said.

Also on Monday, Truist revised its adjusted revenue guidance for the full year, projecting that revenue will now be down 0.5% to 1% year over year. The company had previously expected full-year revenues to decline by 0.5% to 1.5%, Maguire said on the call.

After several quarters of announcements related to what’s next for the bank, the story that Truist tells investors should “begin to settle a bit more,” analyst Scott Siefers of Piper Sandler wrote in a research note.

“All we mean by that is that it can begin to stand on its own merits rather than in anticipation of the next ‘thing,’ and it should be able to do so with less noise in the numbers,” he wrote.