Recent investments in insurance and other fee businesses at Truist Financial paid off during the second quarter, helping to generate an uptick in earnings despite negative loan growth and low interest rates.
Strong fee income and a release of $ 576 million in reserves for potential bad loans offset a slight reduction in net interest income and higher expenses, Truist executives said Thursday.
Insurance income – which rose 18.8 percent year over year to $ 690 million, with commissions hitting a record high – was a highlight, according to Chief Financial Officer Daryl Bible. But, he warned analysts, a similar performance in the third quarter might be hard to achieve.
“Just remember we are going from our seasonally strongest quarter of the year to our seasonally weakest quarter from second to third,” Bible told analysts during the company’s quarterly earnings call. “So we expect commissions to be down about 8% going from second to third.”
Still, the outlook for growth in the insurance business appears positive, he said. He pointed to recent acquisitions, including the July 1 agreement to buy the insurance distribution platform Constellation Affiliated Partners, as well as the improving economic picture, strong retention rates and pricing.
“Given the various uncertainties that exist in the marketplace, this is clearly a good time to be in a business that helps clients manage risk,” Bible said.
The $ 518.8 billion-asset Truist was formed in December 2019 through the merger of BB&T, where insurance had been a major business, and SunTrust Banks.
Insurance is one of several fee businesses where Truist has been spending dollars. In December, the company said that it was on track to close five insurance acquisitions by the end of the fourth quarter, adding a combined $ 100 million in annual revenue to its wholesale division.
The purchase of Constellation Affiliated Partners will add about $ 160 million of annual revenue, the company said.
During the second quarter, Truist also reported record revenues in wealth management, card and payment-related fees and commercial real estate-related income, while investment banking generated strong income.
Like numerous other banks, Truist is leaning into businesses that generate fee income as a way to navigate revenue headwinds in an environment where interest rates are very low and industrywide loan growth has yet to recover after a pandemic-induced plunge.
Truist’s net income in the second quarter totaled $ 1.6 billion, up 72.8% from the same period a year earlier. Net interest income fell by $ 40 million, or 1.2%, year over year, ending the quarter at $ 3.3 million, as total average loans and leases fell by 10.3%
Truist continues to move forward on cost-cutting as part of the integration of BB&T and SunTrust. During the second quarter, the company converted its wealth trust platform and launched a voluntary separation and retirement program for employees that will reduce headcount by roughly 2,000. The first phase of that program will start on Sept. 30, and it will continue for a few quarters, President and Chief Operating Officer William Rogers said.
The Charlotte, North Carolina-based company is planning to close 800 bank branches by the end of 2022, at which time it expects to have achieved its targeted $ 1.6 billion reduction in annual expenses.
For the quarter, Truist’s expenses totaled $ 4 billion, up 3.4% from the same period in 2020. The increase was driven by a $ 200 million charitable contribution and $ 297 million in merger-related charges.
Truist also continues to offload office space. So far it has vacated 3.8 million square feet in nonbranch buildings, with a goal of reducing its footprint by 4.8 million square feet, Bible said.
Thursday marked the final earnings call for Truist Chairman and CEO Kelly King, who will pass the chief executive role to Rogers at the end of September.
King joined BB&T in 1972 and became its CEO in 2009. He will keep his role as chairman of the board of directors until March 12, 2022, and will remain on the board until Dec. 31, 2023.
“Banking is an honorable profession which serves to help build better lives and communities every single day,” King said during the call. “I am humbled and proud to have been a part of it … and as I’ve said many times, I truly believe our best days are ahead.”