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Shareholders' Equity
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23: R8 Basis of Presentation HTML 52K
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57: R42 Operating Segments (Tables) HTML 142K
58: R43 Business Combinations - Narrative (Details) HTML 37K
59: R44 Securities Purchased under Agreements to Resale & HTML 46K
Securities Borrowed (Details)
60: R45 Securities Financing Activities (Details) HTML 63K
61: R46 Investment Securities - Narrative (Details) HTML 35K
62: R47 Investment Securities - Amortized Cost, Gross HTML 78K
Unrealized Gains and Losses, and Fair Value
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63: R48 Investment Securities - Amortized Cost, Fair Value HTML 40K
of MBS Issued by FNMA and FHLMC Exceeding 10% of
Shareholders' Equity (Details)
64: R49 Investment Securities - Amortized Cost and HTML 137K
Estimated Fair Value by Contractual Maturity
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65: R50 Investment Securities - Gross Unrealized Losses HTML 99K
and Fair Values of Investments in Continuous
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66: R51 Investments Securities - Gain (Loss) on Securities HTML 42K
(Details)
67: R52 Loans and ACL - Narrative (Details) HTML 42K
68: R53 Loans and ACL - Aging Analysis of Loans and Leases HTML 125K
(Details)
69: R54 Loans and ACL - Credit Quality Indicator (Details) HTML 440K
70: R55 Loans and ACL - Allowance for Credit Losses HTML 99K
(Details)
71: R56 Loans and ACL - Nonperforming Loans (Details) HTML 58K
72: R57 Loans and ACL - Summary of Nonperforming Assets HTML 44K
and Residential Mortgage Loans in the Process of
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73: R58 Loans and ACL - Summary of Loan Modifications HTML 153K
(Details)
74: R59 Loans and ACL - Summary of Modifications' HTML 81K
Financial Effect (Details)
75: R60 Loans and ACL - Delinquency Status of Loans that HTML 97K
Were Modified During the Period (Details)
76: R61 Loans and ACL - Loans Modified During Period That HTML 93K
Were in Payment Default (Details)
77: R62 Loans and ACL - Summary of TDRs (Details) HTML 73K
78: R63 Loans and ACL - Types of Modifications and HTML 109K
Allowance at Period End (Details)
79: R64 Loans and ACL - Selected Information About Loans HTML 35K
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of Goodwill by Operating Segment (Details)
81: R66 Goodwill and Other Intangible Assets - HTML 45K
Identifiable Intangible Assets (Details)
82: R67 Loan Servicing - Residential Mortgage Banking HTML 60K
Activities (Details)
83: R68 Loan Servicing - Analysis of Activity in HTML 46K
Residential MSRs (Details)
84: R69 Loan Servicing - Residential MSR Sensitivity HTML 63K
(Details)
85: R70 Loan Servicing - Commercial Mortgage Banking HTML 49K
Activities (Details)
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87: R72 Other Assets and Liabilites - Schedule of Right of HTML 63K
Use Assets and Future Maturities of Lease
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Held Under Operating Leases and Related Activities
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89: R74 Borrowings - Short-term Borrowings (Details) HTML 47K
90: R75 Borrowings - Schedule of Long Term Debt, Interest HTML 60K
Rates and Maturity Dates (Details)
91: R76 Shareholders' Equity - Summary of Cash Dividends HTML 34K
Declared per Share (Details)
92: R77 Aoci (Details) HTML 88K
93: R78 Income Taxes - Narrative (Details) HTML 38K
94: R79 Benefit Plans - Narrative (Details) HTML 34K
95: R80 Benefit Plans - Summary of the Components of Net HTML 47K
Periodic Benefit Cost (Details)
96: R81 Commitments and Contingencies - Narrative - HTML 36K
(Details)
97: R82 Commitments and Contingencies - Summary (Details) HTML 49K
98: R83 Commitments and Contingencies - Tax Credits and HTML 43K
Amortization (Details)
99: R84 Commitments and Contingencies - Off-Balance Sheet HTML 45K
Financial Instruments (Details)
100: R85 Commitments and Contingencies - Schedule of VIE HTML 41K
assets (Details)
101: R86 Commitments and Contingencies - Pledged Assets HTML 47K
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102: R87 Fair Value Disclosures - Narrative (Details) HTML 41K
103: R88 Fair Value Disclosures - Assets and Liabilities HTML 168K
Measured on a Recurring Basis (Details)
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Assets and Liabilities (Details)
105: R90 Fair Value Disclosures - Fair Value Option HTML 50K
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Nonrecurring Basis (Details)
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Liabilities Not Recorded at Fair Value (Details)
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109: R94 Derivative Financial Instruments - Classifications HTML 152K
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Hedges Basis Adjusments (Details)
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Flow and Fair Value Hedges (Details)
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116: R101 Derivative Financial Instruments - Risk HTML 40K
Participation Agreements and Total Return Swaps
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117: R102 Derivative Financial Instruments - Dealer HTML 57K
Counterparties and Central Clearing Parties
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119: R104 Operating Segments - Narrative (Details) HTML 34K
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Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon Stock,
$5 par value
iTFC
iNew York Stock Exchange
iDepositary
Shares each representing 1/4,000th interest in a share of Series I Perpetual Preferred Stock
iTFC.PI
iNew York Stock Exchange
i5.853%
Fixed-to-Floating Rate Normal Preferred Purchase Securities each representing 1/100th interest in a share of Series J Perpetual Preferred Stock
iTFC.PJ
iNew York Stock Exchange
iDepositary
Shares each representing 1/1,000th interest in a share of Series O Non-Cumulative Perpetual Preferred Stock
iTFC.PO
iNew York Stock Exchange
iDepositary
Shares each representing 1/1,000th interest in a share of Series R Non-Cumulative Perpetual Preferred Stock
iTFC.PR
iNew York Stock Exchange
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐No ☒
Truist Financial Corporation, the parent company of Truist Bank and other subsidiaries
PCD
Purchased
credit deteriorated loans
PPP
Paycheck Protection Program, established by the CARES Act
Truist Financial Corporation 1
Term
Definition
ROU
assets
Right-of-use assets
RUFC
Reserve for unfunded lending commitments
S&P
Standard & Poor’s
SBIC
Small Business Investment Company
SCB
Stress
Capital Buffer
SEC
Securities and Exchange Commission
SOFR
Secured Overnight Financing Rate
SunTrust
SunTrust Banks, Inc.
TBVPS
Tangible book value per common share
TCFD
Task Force on Climate-Related Financial Disclosures
TDR
Troubled
debt restructuring
TE
Taxable-equivalent
TRS
Total Return Swap
Truist
Truist Financial Corporation and its subsidiaries (interchangeable with the “Company” above)
Truist Bank
Truist Bank, formerly Branch Banking and Trust Company
U.S.
United
States of America
U.S. Treasury
United States Department of the Treasury
UPB
Unpaid principal balance
USAA
United Services Automobile Association
VaR
Value-at-risk
VIE
Variable interest entity
2 Truist
Financial Corporation
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of Truist. Words such as “anticipates,”“believes,”“estimates,”“expects,”“forecasts,”“intends,”“plans,”“projects,”“may,”“will,”“should,”“would,”“could,” and other similar expressions are intended to identify these forward-looking statements.
Forward-looking
statements are not based on historical facts but instead represent management’s expectations and assumptions regarding Truist’s business, the economy, and other future conditions. Such statements involve inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As such, Truist’s actual results may differ materially from those contemplated by forward-looking statements. While there can be no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those contemplated by forward-looking statements include the following, without limitation, as well as the risks and uncertainties more fully discussed in Part I, Item 1A-Risk Factors in Truist’s Form 10-K for the year ended December 31, 2022:
•changes
in the interest rate environment, including the replacement of LIBOR as an interest rate benchmark, could adversely affect Truist’s revenue and expenses, the value of assets and obligations, including our portfolio of investment securities, and the availability and cost of capital, cash flows, and liquidity;
•Truist is subject to credit risk by lending or committing to lend money, may have more credit risk and higher credit losses to the extent that loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral, and may suffer losses if the value of collateral declines in stressed market conditions;
•inability to access short-term funding or liquidity, loss of client deposits or changes in Truist’s credit ratings could increase the cost of funding, limit access to capital markets, or negatively
affect Truist’s overall liquidity or capitalization;
•Truist may be impacted by actual or perceived soundness of other financial institutions, including as a result of the financial or operational failure of a major financial institution, or concerns about the creditworthiness of such a financial institution or its ability to fulfill its obligations, which can cause substantial and cascading disruption within the financial markets and increased expenses, including FDIC insurance premiums, and could affect our ability to attract and retain depositors and to borrow or raise capital;
•general economic or business conditions, either globally, nationally or regionally, may be less favorable than expected, including as a result of supply chain disruptions, inflationary pressures and labor shortages, and instability in global geopolitical matters,
including due to an outbreak or escalation of hostilities, or volatility in financial markets could result in, among other things, slower deposit or asset growth, a deterioration in credit quality, or a reduced demand for credit, insurance, or other services;
•the monetary and fiscal policies of the federal government and its agencies, including in response to higher inflation, could have a material adverse effect on the economy and Truist’s profitability;
•unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;
•a loss of value of our investment portfolio could negatively impact market perceptions of us and could lead to deposit withdrawals;
•the effects of
COVID-19 adversely impacted the Company’s operations and financial performance and similar adverse impacts resulting from pandemics could occur in future periods;
•risk management oversight functions may not identify or address risks adequately, and management may not be able to effectively manage credit risk;
•there are risks resulting from the extensive use of models in Truist’s business, which may impact decisions made by management and regulators;
•deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;
•Truist could fail to execute on strategic or
operational plans, including the ability to successfully complete or integrate mergers and acquisitions;
•increased competition, including from (i) new or existing competitors that could have greater financial resources or be subject to different regulatory standards or compliance costs, and (ii) products and services offered by non-bank financial technology companies, may reduce Truist’s client base, cause Truist to lower prices for its products and services in order to maintain market share or otherwise adversely impact Truist’s businesses or results of operations;
•failure to maintain or enhance Truist’s competitive position with respect to new products, services, and technology, whether it fails to anticipate client expectations or because its technological developments fail to perform as desired or do not achieve market acceptance
or regulatory approval or for other reasons, may cause Truist to lose market share or incur additional expense;
•negative public opinion could damage Truist’s reputation and adversely impact business and revenues, including the effects of social media on market perceptions of Truist and banks generally;
•regulatory matters, litigation or other legal actions may result in, among other things, costs, fines, penalties, restrictions on Truist’s business activities, reputational harm, negative publicity, or other adverse consequences;
•Truist faces substantial legal and operational risks in safeguarding personal information;
•evolving legislative, accounting and regulatory standards, including with respect
to climate, capital, and liquidity requirements, which may become more stringent in light of recent market events, and results of regulatory examinations may adversely affect Truist’s financial condition and results of operations;
•increased scrutiny regarding Truist’s consumer sales practices, training practices, incentive compensation design, and governance could damage its reputation and adversely impact business and revenues;
•accounting policies and processes require management to make estimates about matters that are uncertain, including the potential write down to goodwill if there is an elongated period of decline in market value for Truist’s stock and adverse economic conditions are sustained over a period of time;
•Truist faces risks related to originating
and selling mortgages, including repurchase and indemnity demands from purchasers related to representations and warranties on loans sold, which could result in an increase in the amount of losses for loan repurchases;
•there are risks relating to Truist’s role as a loan servicer, including an increase in the scope or costs of the services Truist is required to perform without any corresponding increase in servicing fees or a breach of Truist’s obligations as servicer;
•Truist’s success depends on hiring and retaining key teammates, and if these individuals leave or change roles without effective replacements, Truist’s operations could be adversely impacted, which could be exacerbated in the increased work-from-home environment as job markets may be less constrained by physical geography;
•Truist’s
operations rely on its ability, and the ability of key external parties, to maintain appropriate-staffed workforces, and on the competence, trustworthiness, health and safety of teammates;
•Truist faces the risk of fraud or misconduct by internal or external parties, which Truist may not be able to prevent, detect, or mitigate;
•security risks, including denial of service attacks, hacking, social engineering attacks targeting Truist’s teammates and clients, malware intrusion, data corruption attempts, system breaches, cyberattacks, which have increased in frequency with geopolitical tensions, identity theft, ransomware attacks, and physical security risks, such as natural disasters, environmental conditions, and intentional acts of destruction, could result in the disclosure of confidential information, adversely affect Truist’s business
or reputation or create significant legal or financial exposure; and
•widespread outages of operational, communication, or other systems, whether internal or provided by third parties, natural or other disasters (including acts of terrorism and pandemics), and the effects of climate change, including physical risks, such as more frequent and intense weather events, and risks related to the transition to a lower carbon economy, such as regulatory or technological changes or shifts in market dynamics or consumer preferences, could have an adverse effect on Truist’s financial condition and results of operations, lead to material disruption of Truist’s operations or the ability or willingness of clients to access Truist’s products and services.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only
as of the date they are made. Except to the extent required by applicable law or regulation, Truist undertakes no obligation to revise or update any forward-looking statements.
Adjustments
to reconcile net income to net cash from operating activities:
Provision for credit losses
i502
(i95)
Depreciation
i180
i195
Amortization
of intangibles
i136
i137
Securities
(gains) losses
i—
i69
Net
change in operating assets and liabilities:
LHFS
(i846)
i180
Loan
servicing rights
i27
(i380)
Pension
asset
(i1,346)
(i410)
Derivative
assets and liabilities
(i12)
i986
Trading
assets
i304
(i1,497)
Other
assets and other liabilities
(i490)
(i558)
Other,
net
i148
(i231)
Net
cash from operating activities
i118
(i188)
Cash
Flows From Investing Activities:
Proceeds from sales of AFS securities
i4
i3,127
Proceeds
from maturities, calls and paydowns of AFS securities
i1,279
i5,259
Purchases
of AFS securities
(i140)
(i7,219)
Proceeds
from maturities, calls and paydowns of HTM securities
i858
i857
Purchases
of HTM securities
i—
(i3,020)
Originations
and purchases of loans and leases, net of sales and principal collected
(i1,835)
(i134)
Net
cash received (paid) for FHLB stock
(i1,147)
(i1)
Net
cash received (paid) for securities borrowed or purchased under agreements to resell
(i456)
i1,706
Net
cash received (paid) for asset acquisitions, business combinations, and divestitures
i—
(i488)
Other,
net
(i613)
(i121)
Net
cash from investing activities
(i2,050)
(i34)
Cash
Flows From Financing Activities:
Net change in deposits
(i8,498)
i11,842
Net
change in short-term borrowings
i224
(i145)
Proceeds
from issuance of long-term debt
i35,029
i66
Repayment
of long-term debt
(i8,444)
(i1,699)
Cash
dividends paid on common stock
(i691)
(i637)
Cash
dividends paid on preferred stock
(i103)
(i88)
Net
cash received (paid) for hedge unwinds
(i378)
(i198)
Other,
net
(i32)
(i92)
Net
cash from financing activities
i17,107
i9,049
Net
Change in Cash and Cash Equivalents
i15,175
i8,827
Cash
and Cash Equivalents, January 1
i21,421
i20,295
Cash
and Cash Equivalents, March 31
$
i36,596
$
i29,122
Supplemental
Disclosure of Cash Flow Information:
Net cash paid (received) during the period for:
Interest expense
$
i1,667
$
i156
Income
taxes
i23
i40
Noncash
investing activities:
Transfer
of AFS securities to HTM
i—
i59,436
The
accompanying notes are an integral part of these consolidated financial statements.
8 Truist Financial Corporation
NOTE 1. iBasis of Presentation
General
See
the Glossary of Defined Terms at the beginning of this Report for terms used herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q, and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2022 should be referred
to in connection with these unaudited interim consolidated financial statements. The Company updated its accounting policies in connection with recently adopted accounting standards. There were no other significant changes to the Company’s accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 that could have a material effect on the Company’s financial statements.
i
Reclassifications
In
the first quarter of 2023, the Company reclassified certain portfolios within the consumer portfolio segment to delineate home equity from other consumer portfolios. Additionally, during the first quarter of 2023, Truist reorganized Prime Rate Premium Finance Corporation, which includes AFCO Credit Corporation and CAFO Holding Company, into the C&CB segment from the IH segment. Prior periods were revised to conform to the current presentation. Certain other amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.
i
Use
of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL; determination of fair value for securities, MSRs, LHFS, trading loans, and derivative assets and liabilities; goodwill and other intangible assets; income taxes; and pension and postretirement benefit obligations.
i
Loan
Modifications
In certain circumstances, the Company enters into agreements to modify the terms of loans to borrowers that are experiencing financial difficulty. The scope of these loan modifications varies from portfolio to portfolio but generally falls into one of the following categories:
•Renewals: represent the renewal of a loan where the Company has concluded that the borrower is experiencing financial difficulty. Commercial renewals result in an extension of the maturity date of the loan (or in some cases a contraction of the loan term), and other significant terms of the loan (e.g., interest rate, collateral, guarantor support, etc.) are re-evaluated
in connection with the renewal event.
•Term extensions: represent an adjustment to the maturity date of the loan that typically results in a reduction to the borrower’s scheduled payment over the remainder of the loan.
•Capitalizations: represents the capitalization of forborne loan payments and/or other amounts advanced on behalf of the borrower into the principal balance of a residential mortgage loan.
•Payment delays: provide the borrower with a temporary postponement of loan payments that is considered other-than-insignificant, which has been defined as a payment delay that exceeds 90 days, or three payment cycles, over a rolling 12-month period. These postponed loan payments may result in an extension of the ultimate maturity date of the loan or may be capitalized
into the principal balance of the loan in certain circumstances.
•Combinations: in certain circumstances more than one type of a modification is provided to a borrower (e.g., interest rate reduction and term extension).
•Other: represents other types of loan modifications that are not considered significant for disclosure purposes.
The Company has identified borrowers that are included in the Loan Modifications disclosures in “Note 5. Loans and ACL” as follows:
•Commercial: the Company evaluates all modifications
of loans to commercial borrowers that are rated substandard or worse and includes the modifications in its disclosure to the extent that the modification is considered other-than-insignificant.
•Consumer and credit card: loan modifications to consumer and credit borrowers are generally limited to borrowers that are experiencing financial difficulty. As a result, the Company evaluates all modifications of consumer and credit card loans and includes them in the disclosure to the extent that they are considered other-than insignificant.
Truist Financial Corporation 9
Refer to the Annual Report on Form
10-K for the year ended December 31, 2022 for accounting policies related to prior period, including the Company’s TDR policies.
i
ALLL
The ALLL represents management’s best estimate of expected future credit losses related to its loan and lease portfolio at the balance sheet date. The
Company’s ALLL estimation process gives consideration to relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. The quantitative models used to forecast expected credit losses use portfolio balances, macroeconomic forecast data, portfolio composition and loan attributes as the primary inputs. Loss estimates are informed by historical loss experience that includes losses incurred on loans that were previously modified by the Company. As a result, the Company has concluded that aside from the limited circumstances where principal forgiveness is granted to a borrower, the financial effect of loan modifications is already inherently included in the ALLL.
i
Income
Taxes
The Company’s provision for income taxes is based on income and expense reported for financial statement purposes after adjustments for permanent differences such as interest income from lending to tax-exempt entities, tax credits, and amortization expense related to qualified tax credit investments. In computing the provision for income taxes, the Company evaluates the technical merits of its income tax positions based on current legislative, judicial, and regulatory guidance. The proportional amortization method of accounting is used on affordable housing and other qualified tax credit investments, such that the initial cost of the investment giving rise to tax credits is amortized in proportion to the allocation of tax credits in each
period as a component of the provision for income taxes. Truist includes the initial investment cash flows and subsequent credits within operating activities in the Consolidated Statement of Cash Flows.
i
Changes in Accounting Principles and Effects of New Accounting Pronouncements
i
Standard
/ Adoption Date
Description
Effects on the Financial Statements
Standards Adopted During the Current Year
Troubled Debt Restructurings and Vintage Disclosures January 1, 2023
Eliminates TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases.
Truist adopted this standard on a modified-retrospective basis. Upon adoption, the
Company eliminated the separate ACL estimation process for loans classified as TDRs. The adoption of this standard did not have a material impact on the financial statements. The Company’s revised disclosures in accordance with the new standard are included in “Note 5. Loans and ACL.”
Introduces the portfolio layer method, which expands the current single-layer method to allow multiple hedged layers of a single closed portfolio. Additionally, expands the scope of the portfolio layer method to include non-prepayable assets, specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on the accounting for and
disclosure of hedge basis adjustments under the portfolio layer method and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.
The adoption of this standard did not have a material impact on the Company’s active last-of-layer hedges.
Allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, reporting entities were only permitted to apply the proportional amortization method
only to qualifying tax equity investments in low-income housing tax credit structures.
Truist early adopted this standard on a modified-retrospective basis. The adoption of this standard did not have a material impact on the financial statements. Refer to “Note 14. Commitments and Contingencies” for additional information regarding tax credit investments.
/
10 Truist Financial
Corporation
NOTE 2. iBusiness Combinations, Divestitures, and Noncontrolling Interests
Noncontrolling Interest
On April 3, 2023, the
Company completed its sale of a 20% stake of the common equity in Truist Insurance Holdings, LLC to an investor group led by Stone Point Capital, LLC for $i1.95 billion, with the proceeds, net of tax, recognized as an increase to shareholders’ equity. In connection with the transaction, the noncontrolling interest holder received profit interests representing 3.75% coverage on Truist Insurance Holdings’ fully diluted equity value at transaction close, and certain consent and exit rights commensurate with a noncontrolling investor. The transaction
allows Truist to maintain strategic flexibility and future upside in Truist Insurance Holdings, which will continue to benefit from Truist’s operations, access to capital, and client relationships, while creating additional opportunities for growth of Truist Insurance Holdings through the support of a strong blue-chip investor in Stone Point Capital.
NOTE 3. iSecurities
Financing Activities
Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which the securities will be subsequently sold, plus accrued interest. Securities borrowed are primarily collateralized by corporate securities. The Company borrows securities and purchases securities under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral
values daily and calls for additional collateral to be provided as warranted under the respective agreements. iThe following table presents securities borrowed or purchased under agreements to resell:
(Dollars in millions)
Mar
31, 2023
Dec 31, 2022
Securities purchased under agreements to resell
$
i2,685
$
i2,415
Securities
borrowed
i952
i766
Total securities
borrowed or purchased under agreements to resell
$
i3,637
$
i3,181
Fair
value of collateral permitted to be resold or repledged
$
i3,520
$
i3,058
Fair
value of securities resold or repledged
i657
i864
For
securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of the collateral pledged. This risk is managed by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions. Refer to “Note 14. Commitments and Contingencies” for additional information related to pledged securities. iThe following table presents the
Company’s related activity, by collateral type and remaining contractual maturity:
Total
securities sold under agreements to repurchase
$
i1,802
$
i320
$
i2,122
$
i2,052
$
i76
$
i2,128
There
were no securities financing transactions subject to legally enforceable master netting arrangements that were eligible for balance sheet netting for the periods presented.
Truist Financial Corporation 11
NOTE 4. iInvestment
Securities
iThe following tables summarize the Company’s AFS and HTM securities:
The
amortized cost and estimated fair value of certain MBS securities issued by FNMA and FHLMC that exceeded 10% of shareholders’ equity are shown in the table below:
iThe
amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may be shorter than the contractual maturities because borrowers have the right to prepay their obligations with or without penalties.
iThe following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
At
March 31, 2023 and December 31, 2022, iino/
ACL was established for AFS or HTM securities. Substantially all of the unrealized losses on the securities portfolio, including non-agency MBS, were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. HTM debt securities consist of residential agency MBS. Accordingly, the Company does not expect to incur any credit losses on investment securities.
iThe following table
presents gross securities gains and losses recognized in earnings:
In the first quarter of 2023, the Company adopted the Troubled Debt Restructurings and Vintage Disclosures accounting standard. Certain newly required disclosures
in this footnote are presented as of and for the period ended March 31, 2023 only as the adoption of this guidance did not impact the prior periods. As such, disclosures were provided related to TDRs as of December 31, 2022 and for the three months ended March 31, 2022 under prior accounting standards. Refer to “Note 1. Basis of Presentation” for additional information.
iThe following tables present loans
and leases HFI by aging category. Government guaranteed loans are not placed on nonperforming status regardless of delinquency because collection of principal and interest is reasonably assured.
(1)Includes
certain deferred fees and costs and other adjustments.
16 Truist Financial Corporation
ACL
i
The following tables present activity in the ACL:
(Dollars
in millions)
Balance at Jan 1, 2022
Charge-Offs
Recoveries
Provision (Benefit)
Other(1)
Balance at Mar 31, 2022
Commercial:
Commercial
and industrial
$
i1,426
$
(i31)
$
i17
$
(i93)
$
i—
$
i1,319
CRE
i350
(i1)
i1
(i67)
i—
i283
Commercial
construction
i52
(i1)
i1
i1
i—
i53
Consumer:
Residential
mortgage
i308
(i2)
i6
(i2)
i—
i310
Home
equity
i96
(i1)
i5
(i12)
i—
i88
Indirect
auto
i1,022
(i102)
i23
i14
i—
i957
Other
consumer
i714
(i76)
i21
i38
i—
i697
Student
i117
(i6)
i—
i3
i1
i115
Credit
card
i350
(i41)
i9
i30
i—
i348
ALLL
i4,435
(i261)
i83
(i88)
i1
i4,170
RUFC
i260
i—
i—
(i7)
i—
i253
ACL
$
i4,695
$
(i261)
$
i83
$
(i95)
$
i1
$
i4,423
(Dollars
in millions)
Balance at Jan 1, 2023
Charge-Offs
Recoveries
Provision (Benefit)
Other(1)
Balance at Mar 31, 2023
Commercial:
Commercial
and industrial
$
i1,409
$
(i75)
$
i13
$
i151
$
(i1)
$
i1,497
CRE
i224
(i6)
i1
i32
i—
i251
Commercial
construction
i46
i—
i1
i40
i—
i87
Consumer:
Residential
mortgage
i399
(i1)
i2
i13
(i81)
i332
Home
equity
i90
(i2)
i6
(i7)
i—
i87
Indirect
auto
i981
(i127)
i26
i100
i13
i993
Other
consumer
i770
(i105)
i17
i98
(i1)
i779
Student
i98
(i5)
i—
i5
i—
i98
Credit
card
i360
(i51)
i9
i40
(i3)
i355
ALLL
i4,377
(i372)
i75
i472
(i73)
i4,479
RUFC
ii272/
ii—/
ii—/
ii10/
ii—/
i282
ACL
$
i4,649
$
(i372)
$
i75
$
i482
$
(i73)
$
i4,761
(1)Includes
the amounts for the ALLL for PCD acquisitions, the impact of adopting the Troubled Debt Restructurings and Vintage Disclosures accounting standard, and other activity.
/
The commercial ALLL increased $i156 million and the consumer ALLL decreased $i49 million
for the three months ended March 31, 2023. The increase in the commercial ALLL primarily reflects loan growth and increased economic uncertainty. The decrease in the consumer ALLL was primarily driven by the impact of the Troubled Debt Restructurings and Vintage Disclosures accounting standard, under which reasonable expectations of TDRs are no longer considered, partially offset by increased economic uncertainty. Considerations for the increased economic uncertainty include the potential impacts related to the risks associated with inflation, rising rates, geopolitical events, and recession.
The quantitative models have been designed to estimate losses using macro-economic forecasts over a reasonable and supportable forecast period of two years, followed by a reversion to long-term historical loss conditions over a one-year period. Forecasts of macroeconomic
variables used in loss forecasting include, but are not limited to, unemployment trends, U.S. real GDP, corporate credit spreads, rental rates, property values, home price indices, and used car prices.
The primary economic forecast incorporates a third-party baseline forecast that is adjusted to reflect Truist’s interest rate outlook. Management also considers optimistic and pessimistic third-party macro-economic forecasts in order to capture uncertainty in the economic environment. These forecasts, along with the primary economic forecast, are weighted 40% baseline, 30% optimistic, and 30% pessimistic in the March 31, 2023 ACL, unchanged since December 31, 2022. While the scenario weightings were unchanged, each forecast scenario reflected deterioration in certain economic variables over the reasonable and
supportable forecast period when compared to the prior period. The primary economic forecast shaping the ACL estimate at March 31, 2023 included GDP growth in the low-single digits and an unemployment rate near mid-single digits.
Truist Financial Corporation 17
Quantitative models have certain limitations with respect to estimating expected losses, particularly in times of rapidly changing macro-economic conditions and forecasts. As a result, management believes that the qualitative component of the ACL, which incorporates management’s expert judgment related to expected future credit losses, will continue to be an important component of the ACL for the foreseeable future. The March 31,
2023 ACL estimate includes adjustments to consider the impact of current and expected events or risks not captured by the loss forecasting models, the outcomes of which are uncertain and may not be completely considered by quantitative models. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.
i
NPAs
The
following table provides a summary of nonperforming loans and leases, excluding LHFS:
iThe
following table presents a summary of nonperforming assets and residential mortgage loans in the process of foreclosure:
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Nonperforming loans and leases HFI
$
i1,192
$
i1,188
Foreclosed
real estate
i3
i4
Other
foreclosed property
i66
i58
Total
nonperforming assets
$
i1,261
$
i1,250
Residential
mortgage loans in the process of foreclosure
$
i226
$
i248
/
Loan
Modifications
iThe following table summarizes the period-end amortized cost basis of loans to borrowers experiencing financial difficulty that were modified during the period, disaggregated by class of financing receivable and type of modification granted. This table includes modification activity that occurred on or after January 1, 2023. The volume of payment delay modifications is expected to increase throughout 2023 as the cumulative period over which such modifications
are evaluated gradually extends to a full 12-month rolling period:
Combination - Interest Rate Reduction and Term Extension
Combination - Capitalization and Term Extension
Combination - Capitalization, Interest Rate and Term Extension
Other
Total
Modified Loans
Percentage of Total Class of Financing Receivable
Commercial:
Commercial
and industrial
$
i390
$
i51
$
i—
$
i—
$
i—
$
i—
$
i—
$
i—
$
i441
i0.26
%
CRE
i103
i—
i—
i71
i—
i—
i—
i—
i174
i0.77
Commercial
construction
i1
i—
i—
i—
i—
i—
i—
i—
i1
i0.02
Consumer:
Residential
mortgage
i—
i29
i32
i25
i1
i92
i20
i4
i203
i0.36
Home
equity
i—
i—
i—
i—
i2
i—
i—
i1
i3
i0.03
Indirect
auto
i—
i5
i—
i5
i5
i—
i—
i6
i21
i0.08
Other
consumer
i—
i5
i—
i—
i1
i—
i—
i1
i7
i0.03
Credit
card
i—
i—
i—
i—
i—
i—
i—
i5
i5
i0.10
Total
$
i494
$
i90
$
i32
$
i101
$
i9
$
i92
$
i20
$
i17
$
i855
i0.26
/
18 Truist
Financial Corporation
The table above excludes trial modifications totaling $i64 million as of March 31, 2023. Such modifications will be included in the modification activity disclosure if the borrower successfully completes the trial period and the loan modification is finalized.
As of March 31,
2023, Truist had $i353 million in unfunded lending commitments related to the modified obligations summarized in the table above.
iThe
following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:
Extended weighted average term by 4 months and increased the weighted average interest rate by 0.4%.
CRE
Extended weighted average term by 9 months and increased the weighted average interest rate by 0.1%.
Commercial
construction
Extended weighted average term by 5 months.
Term Extensions
Commercial
and industrial
Extended weighted average term by 3 months.
Residential mortgage
Extended weighted average term by 158 months.
Indirect
auto
Extended weighted average term by 25 months.
Other Consumer
Extended weighted average term by 25 months.
Capitalizations
Residential
mortgage
Capitalized $19 thousand on a weighted average basis into the outstanding balance of the loan.
Payment Delays
CRE
Provided
233 days of payment deferral on a weighted average basis.
Residential mortgage
Provided 195 days of payment deferral on a weighted average basis.
Indirect
auto
Provided 129 days of payment deferral on a weighted average basis.
Combination - Interest Rate Adjustment and Term Extension
Residential
mortgage
Extended weighted average term by 97 months and decreased the weighted average interest rate by 0.8%.
Home equity
Extended weighted average term by 318 months and decreased the weighted average interest rate by 2.3%.
Indirect
auto
Extended weighted average term by 11 months and decreased the weighted average interest rate by 7%.
Other consumer
Extended weighted average term by 101 months and decreased the weighted average interest rate by 3%.
Combination
- Capitalization and Term Extension
Residential mortgage
Extended weighted average term by 111 months and capitalized $31 thousand on a weighted average basis into the outstanding loan balance.
Combination
- Capitalization, Interest Rate and Term Extension
Residential mortgage
Extended weighted average term by 82 months, decreased weighted average interest rate by 0.3% and capitalized $23 thousand on a weighted average basis into the outstanding loan balance.
Upon
Truist’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Truist Financial Corporation 19
Truist closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. iThe
following table summarizes the delinquency status of loans that were modified during the quarter:
Combination - Capitalization, Interest Rate and Term Extension
Other
Total
Commercial:
Commercial
and industrial
$
i34
$
i—
$
i—
$
i—
$
i—
$
i—
$
i—
i34
Consumer:
Residential
mortgage
i—
i2
i1
i5
i6
i2
i1
i17
Indirect
auto
i—
i—
i—
i—
i—
i—
i1
i1
Credit
card
i—
i—
i—
i—
i—
i—
i1
i1
Total
$
i34
$
i2
$
i1
$
i5
$
i6
$
i2
$
i3
$
i53
/
i
TDRs
The
following table presents a summary of TDRs:
(Dollars in millions)
Dec 31, 2022
Performing TDRs:
Commercial:
Commercial and industrial
$
i136
CRE
i5
Commercial
construction
i1
Consumer:
Residential mortgage
i1,252
Home
equity
i51
Indirect auto
i462
Other
consumer
i31
Student
i30
Credit
card
i18
Total performing TDRs
i1,986
Nonperforming
TDRs
i214
Total TDRs
$
i2,200
ALLL
attributable to TDRs
$
i152
/
iThe
primary type of modification for newly designated TDRs is summarized in the tables below. New TDR balances represent the recorded investment at the end of the quarter in which the modification was made. The prior quarter balance represents recorded investment at the beginning of the quarter in which the modification was made. Rate modifications consist of TDRs made with below market interest rates, including those that also have modifications of loan structures.
Unearned
Income, Discounts, and Net Deferred Loan Fees and Costs
iThe following table presents additional information about loans and leases:
(Dollars in millions)
Mar
31, 2023
Dec 31, 2022
Unearned income, discounts, and net deferred loan fees and costs
$
i299
$
i269
/
NOTE
6. iGoodwill and Other Intangible Assets
The Company performed a qualitative assessment of current events and circumstances, including macroeconomic and market factors, industry and banking sector events, Truist specific performance indicators, and a comparison of management’s forecast and
assumptions to those used in its October 1, 2022 qualitative impairment test. Truist concluded that it was not more-likely-than-not that the fair value of one or more of its reporting units is below its respective carrying amount as of March 31, 2023, and therefore no triggering event occurred that required a quantitative goodwill impairment test. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.
i
The
changes in the carrying amount of goodwill attributable to operating segments are reflected in the table below. Activity during 2023 relates to the reorganization of Prime Rate Premium Finance Corporation. Activity during 2022 reflects the acquisition of BankDirect Capital Finance, BenefitMall, and Kensington Vanguard National Land Services. Refer to “Note 2. Business Combinations” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on the acquisitions and “Note 18. Operating Segments” for additional information on segments.
The Company acquires servicing rights, and retains servicing rights related to certain of its sales or securitizations of
residential mortgages, commercial mortgages, and other consumer loans. Servicing rights are capitalized by the Company as Loan servicing rights on the Consolidated Balance Sheets. Income earned by the Company on its loan servicing rights is derived primarily from contractually specified servicing fees, late fees, net of curtailment costs, and other ancillary fees.
Residential MortgageActivities
i
The
following tables summarize residential mortgage servicing activities:
(Dollars in millions)
Mar 31, 2023
Dec 31,
2022
UPB of residential mortgage loan servicing portfolio
$
i272,323
$
i274,028
UPB
of residential mortgage loans serviced for others, primarily agency conforming fixed rate
i214,830
i217,046
Mortgage
loans sold with recourse
i200
i200
Maximum
recourse exposure from mortgage loans sold with recourse liability
i128
i127
Indemnification,
recourse and repurchase reserves
i55
i56
As
of / For the Three Months Ended March 31, (Dollars in millions)
2023
2022
UPB of residential mortgage loans sold from LHFS
$
i2,507
$
i8,818
Pre-tax
gains recognized on mortgage loans sold and held for sale
i16
i39
Servicing
fees recognized from mortgage loans serviced for others
i163
i145
Approximate
weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others
i0.27
%
i0.31
%
Weighted
average interest rate on mortgage loans serviced for others
i3.52
i3.41
/
i
The
following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
Three Months Ended March 31,
(Dollars
in millions)
2023
2022
Residential MSRs, carrying value, January 1
$
i3,428
$
i2,305
Additions
i44
i147
Sales
(i428)
i—
Change
in fair value due to changes in valuation inputs or assumptions(1)
(i1)
i350
Realization
of expected net servicing cash flows, passage of time, and other
(i57)
(i110)
Residential
MSRs, carrying value, March 31
$
i2,986
$
i2,692
(1)The
first quarter of 2023 includes realized gains on the portfolio sale of excess servicing.
/
iThe sensitivity of the fair value of the Company’s
residential MSRs to changes in key assumptions is presented in the following table:
The sensitivity calculations above are hypothetical and should not be considered predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in one assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change. See “Note 15. Fair Value Disclosures”
for additional information on the valuation techniques used.
22 Truist Financial Corporation
Commercial Mortgage Activities
iThe following table summarizes commercial mortgage servicing activities:
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
UPB of CRE mortgages serviced for others
$
i36,245
$
i36,622
CRE
mortgages serviced for others covered by recourse provisions
i9,829
i9,955
Maximum
recourse exposure from CRE mortgages sold with recourse liability
i2,820
i2,861
Recorded
reserves related to recourse exposure
i16
i17
CRE
mortgages originated during the year-to-date period
i1,041
i7,779
Commercial
MSRs at fair value
i291
i301
/
NOTE
8. iOther Assets and Liabilities
Lessee Operating and Finance Leases
The Company leases certain assets, consisting primarily of real estate, and assesses at contract inception whether a contract is, or
contains, a lease. iThe following tables present additional information on leases, excluding leases related to the lease financing businesses:
The Company’s two primary lessor businesses are equipment financing and structured real estate with income recorded in Operating lease income on the Consolidated Statements of Income. iThe following table presents a summary of assets under operating leases. This table excludes subleases on assets included in premises and equipment.
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Assets held under operating leases(1)
$
i2,090
$
i2,090
Accumulated
depreciation
(i554)
(i550)
Net
$
i1,536
$
i1,540
(1)
Includes certain land parcels subject to operating leases that have indefinite lives.
Bank-Owned Life Insurance
Bank-owned life insurance consists of life insurance policies held on certain teammates for which the Company is the beneficiary. The carrying value of bank-owned life insurance was $i7.7 billion at March 31, 2023 and $i7.6 billion
at December 31, 2022.
Truist Financial Corporation 23
NOTE 9. iBorrowings
iThe
following table presents a summary of short-term borrowings:
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
FHLB
advances
$
i18,900
$
i18,900
Securities
sold under agreements to repurchase
i2,122
i2,128
Securities
sold short
i1,789
i1,551
Collateral
in excess of derivative exposures
i455
i403
Master
notes
i310
i370
Other
short-term borrowings
i102
i70
Total
short-term borrowings
$
i23,678
$
i23,422
/
i
The
following table presents a summary of long-term debt:
(Dollars in millions)
Mar
31, 2023
Dec 31, 2022
Truist Financial Corporation:
Fixed
rate senior notes
$
i16,059
$
i14,107
Floating
rate senior notes
i999
i999
Fixed
rate subordinated notes(1)
i1,895
i1,882
Capital
notes(1)
i626
i625
Structured
notes(2)
i12
i12
Truist
Bank:
Fixed rate senior notes
i5,246
i6,982
Floating
rate senior notes
i1,249
i1,749
Fixed
rate subordinated notes(1)
i4,795
i4,767
Fixed
rate FHLB advances
i2
i2
Floating
rate FHLB advances
i37,800
i10,800
Other
long-term debt(3)
i1,212
i1,278
Total
long-term debt
$
i69,895
$
i43,203
(1)Subordinated
and capital notes with a remaining maturity of one year or greater qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
(2)Consist of notes with various terms that include fixed or floating rate interest or returns that are linked to an equity index.
(3)Includes debt associated with finance leases, tax credit investments, and other.
/
24 Truist Financial Corporation
NOTE
10. iShareholders’ Equity
Common Stock
iThe following table presents total dividends declared per share of common
stock:
iAOCI includes the after-tax change in unrecognized net costs related to defined benefit pension and OPEB plans
as well as unrealized gains and losses on cash flow hedges, AFS securities, and HTM securities transferred from AFS securities.
Primary
income statement location of amounts reclassified from AOCI
Other expense
Net interest income and Other expense
Securities gains (losses) and Net interest income
Net interest income
Net interest income
/
Truist
Financial Corporation 25
NOTE 12. iIncome Taxes
For
the three months ended March 31, 2023 and 2022, the provision for income taxes was $i394 million and $i330 million,
respectively, representing effective tax rates of i20.6% and i18.9%, respectively. The higher effective tax rate for the three months ended March
31, 2023 was primarily due to higher income before taxes, discrete tax expense recognized in the current quarter compared to discrete tax benefits recognized in the three months ended March 31, 2022, and the adoption of the Investments in Tax Credit Structures accounting standard related to the proportional amortization of tax credit investments in the current quarter. Refer to “Note 1. Basis of Presentation” for additional information on the adoption of this guidance. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete items that occurred during the period.
NOTE
13. iBenefit Plans
iThe
components of net periodic (benefit) cost for defined benefit pension plans are summarized in the following table:
Three Months Ended March 31,
(Dollars in millions)
Income Statement Location
2023
2022
Service
cost
Personnel expense
$
i93
$
i139
Interest
cost
Other expense
i111
i88
Estimated
return on plan assets
Other expense
(i228)
(i269)
Amortization
and other
Other expense
i20
i8
Net
periodic (benefit) cost
$
(i4)
$
(i34)
/
Truist
makes contributions to the qualified pension plans up to the maximum amount deductible for federal income tax purposes. Discretionary contributions totaling $i1.3 billion were made to the Truist pension plan during the three months ended March 31, 2023.
26 Truist Financial Corporation
NOTE
14. iCommitments and Contingencies
Truist utilizes a variety of financial instruments to mitigate exposure to risks and meet the financing needs and provide investment opportunities for clients. These financial instruments include commitments to extend credit, letters of credit and financial guarantees, derivatives, and other investments. Truist also has commitments to fund certain affordable housing investments and contingent liabilities related to certain sold loans.
Tax
Credit and Certain Equity Investments
The Company invests as a limited partner in certain projects through the New Market Tax Credit program, which is a Federal financial program aimed to stimulate business and real estate investment in underserved communities via a Federal tax credit. Following the first quarter of 2023 adoption of the Investments in Tax Credit Structures accounting standard, these tax credits, referred to as “Other qualified tax credits” below, qualify for the proportional amortization method. Refer to “Note 1. Basis of Presentation” for additional information.
iThe
following table summarizes certain tax credit and certain equity investments:
(Dollars in millions)
Balance Sheet Location
Mar 31, 2023
Dec 31, 2022
Investments in affordable housing projects and other qualified tax credits:
Carrying
amount
Other assets
$
i5,765
$
i5,869
Amount
of future funding commitments included in carrying amount
Other liabilities
i1,726
i1,762
Lending
exposure
Loans and leases for funded amounts
i1,625
i1,547
Renewable
energy investments:
Carrying amount
Other assets
i272
i264
Amount
of future funding commitments not included in carrying amount
NA
i444
i361
SBIC
and certain other equity method investments:
Carrying amount
Other assets
i597
i596
Amount
of future funding commitments not included in carrying amount
NA
i597
i532
/
i
The
following table presents a summary of tax credits and amortization associated with the Company’s tax credit investment activity. Activity related to the Company’s renewable energy investments was immaterial.
Three
Months Ended March 31,
(Dollars in millions)
Income Statement Location
2023
2022
Tax credits:
Investments
in affordable housing projects, other qualified tax credits, and other community development investments
Provision for income taxes
$
i157
$
i150
Amortization
and other changes in carrying amount:
Investments in affordable housing projects and other qualified tax credits(1)
Provision for income taxes
$
i148
$
i124
Other
community development investments(1)
Other noninterest income
i2
i19
(1)In
the first quarter of 2023, the Company adopted the Investments in Tax Credit Structures accounting standard. As a result, amortization related to these tax credits started being recognized in the Provision for income taxes as of the adoption of this standard. This activity was previously recognized in Other income. Refer to “Note 1. Basis of Presentation” for additional information.
/
Letters of Credit and Financial Guarantees
In the normal course of business, Truist utilizes certain financial instruments to meet the financing needs of clients and to mitigate exposure to risks. Such
financial instruments include commitments to extend credit and certain contractual agreements, including standby letters of credit and financial guarantee arrangements.
iThe following is a summary of selected notional amounts of off-balance sheet financial instruments:
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Commitments to extend, originate, or purchase credit and other commitments
$
i215,998
$
i216,838
Residential
mortgage loans sold with recourse
i200
i200
CRE
mortgages serviced for others covered by recourse provisions
i9,829
i9,955
Other
loans serviced for others covered by recourse provisions
i759
i723
Letters
of credit
i6,158
i6,030
/
Truist
Financial Corporation 27
Total Return Swaps
The Company facilitates matched book TRS transactions on behalf of clients, whereby a VIE purchases reference assets identified by a client and the Company enters into a TRS with the VIE, with a mirror-image TRS facing the client. The Company provides senior financing to the VIE in the form of demand notes to fund the purchase of the reference assets. Reference assets are typically fixed
income instruments primarily composed of syndicated bank loans. The TRS contracts pass through interest and other cash flows on the reference assets to the third-party clients, along with exposing those clients to decreases in value on the assets and providing them with the rights to appreciation on the assets. The terms of the TRS contracts require the third parties to post initial margin collateral, as well as ongoing margin as the fair values of the underlying reference assets change. iThe
following table provides a summary of the TRS transactions with VIE purchases. VIE assets include trading loans and bonds:
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Total return swaps:
VIE assets
$
i1,880
$
i1,830
Trading
loans and bonds
i1,801
i1,790
VIE
liabilities
i118
i163
The
Company concluded that the associated VIEs should be consolidated because the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses and the right to receive benefits, which could potentially be significant. The activities of the VIEs are restricted to buying and selling the reference assets and the risks/benefits of any such assets owned by the VIEs are passed to the third-party clients via the TRS contracts. For additional information on TRS contracts and the related VIEs, see “Note 16. Derivative Financial Instruments.”
Pledged
Assets
Certain assets were pledged to secure municipal deposits, securities sold under agreements to repurchase, certain derivative agreements, and borrowings or borrowing capacity, as well as to fund certain obligations related to nonqualified defined benefit and defined contribution retirement plans and for other purposes as required or permitted by law. Assets pledged to the FHLB and FRB are subject to applicable asset discounts when determining borrowing capacity. The Company has capacity for secured financing from both the FRB and FHLB and letters of credit from the FHLB. The Company’s letters of credit from the FHLB can be used to secure various client deposits, including public fund relationships. Excluding assets related to nonqualified
benefit plans, the majority of the agreements governing the pledged assets do not permit the other party to sell or repledge the collateral. iThe following table provides the total carrying amount of pledged assets by asset type:
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Pledged securities
$
i71,890
$
i38,012
Pledged
loans:
FRB
i75,018
i71,234
FHLB
i70,766
i68,988
Unused
borrowing capacity:
FRB
i53,291
i49,250
FHLB
i24,678
i20,770
Litigation
and Regulatory Matters
Truist and/or its subsidiaries are routinely named as defendants in or parties to numerous actual or threatened legal proceedings, including civil litigation and regulatory investigations or enforcement matters, arising from the ordinary conduct of its regular business activities. The matters range from individual actions involving a single plaintiff to class action lawsuits with many class members and can involve claims for substantial or indeterminate alleged damages or for injunctive or other relief. Investigations may involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations, and could result in fines, penalties, restitution, and/or alterations in Truist’s business practices. These legal proceedings are at varying stages of adjudication, arbitration,
or investigation and may consist of a variety of claims, including common law tort and contract claims, as well as statutory antitrust, securities, and consumer protection claims. The ultimate resolution of any proceeding and the timing of such resolution is uncertain and inherently difficult to predict. It is possible that the ultimate resolution of these matters, including those described below, if unfavorable, may be material to the consolidated financial position, consolidated results of operations, or consolidated cash flows of Truist, or cause significant reputational consequences.
Truist establishes accruals for legal matters when potential losses associated with the actions become probable and the amount of loss can be reasonably estimated. There is no assurance that the ultimate resolution of these matters will
not significantly exceed the amounts that Truist has accrued. Accruals for legal matters are based on management’s best judgment after consultation with counsel and others.
28 Truist Financial Corporation
The Company estimates reasonably possible losses, in excess of amounts accrued, of up to approximately $i200 million
as of March 31, 2023. This estimate does not represent Truist’s maximum loss exposure, and actual losses may vary significantly. In addition, the matters underlying this estimate will change from time to time. Estimated losses are based upon currently available information and involve considerable judgment, given that claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete, and material facts may be disputed or unsubstantiated, among other factors.
For certain matters, Truist may be unable to estimate the loss or range of loss, even if it believes that a loss is probable or reasonably possible, until developments in the case provide additional information sufficient to support such an estimate. Such matters are not accrued for and are not reflected
in the estimate of reasonably possible losses.
The following is a description of certain legal proceedings in which Truist is involved:
Bickerstaff v. SunTrust Bank
This class action case was filed in the Fulton County State Court on July 12, 2010, and an amended complaint was filed on August 9, 2010. Plaintiff asserts that all overdraft fees charged to his account which related to debit card and ATM transactions are actually interest charges and therefore subject to the usury laws of Georgia. Plaintiff has brought claims for violations of civil and criminal usury laws, conversion, and money had and received, and seeks damages on a class-wide basis, including refunds of challenged overdraft
fees and pre-judgment interest. On October 6, 2017, the trial court granted plaintiff’s motion for class certification and defined the class as “Every Georgia citizen who had or has one or more accounts with SunTrust Bank and who, from July 12, 2006, to October 6, 2017 (i) had at least one overdraft of $500.00 or less resulting from an ATM or debit card transaction (the “Transaction”); (ii) paid any Overdraft Fees as a result of the Transaction; and (iii) did not receive a refund of those Fees,” and the granting of a certified class was affirmed on appeal. The Companypreviously filed a motion to amend the class definition in which it sought to narrow the scope of the class and renewed
motions to compel arbitration against certain class members, which the court found were premature. On September 22, 2022, the trial court entered a scheduling order holding that the court will consider such motions after discovery, which is ongoing, is completed. Trial is presently set to commence on April 29, 2024. The Company continues to believe that the underlying claims are without merit.
United Services Automobile Association v. Truist Bank
USAA filed a lawsuit on July 29, 2022 against the Company in the United States District Court
for the Eastern District of Texas alleging that the Company’s mobile remote deposit capture systems infringe certain patents held by USAA. The complaint seeks damages, including for alleged willful infringement and a corresponding request that the amount of actual damages be trebled, as well as injunctive and other equitable relief. The Company filed its answer and affirmative defenses on October 11, 2022, denying that it infringes any of the patents at issue in the lawsuit and asserting that USAA’s patents are invalid or unenforceable. On December 30, 2022, the Company filed a motion for leave to amend its answer to assert
counterclaims seeking damages as well as injunctive relief against USAA for infringing certain patents owned by the Company and practiced by USAA’s mobile remote deposit capture systems, which motion was granted on April 8, 2023. On March 20, 2023, USAA filed a motion for leave to file an amended complaint which would add a claim that the Company’s mobile remote deposit capture systems infringe an additional USAA patent. On April 14, 2023, USAA filed a motion seeking to sever Truist’s counterclaims from the case. USAA’s motions above are both pending. Discovery in the district court proceedings is ongoing, and trial is presently set to commence on March
18, 2024.
At the Patent Trial and Appeal Board, the Company filed separate petitions for inter partes review on October 11, November 7, and November 15, 2022 challenging the validity of each of the three patents asserted by USAA in the lawsuit. In addition, on April 13, 2023, the Company filed a petition for inter partes review challenging the validity of the fourth patent USAA is seeking to add to the lawsuit. If institution of any of the petitions for inter partes review is granted, the Patent Trial and Appeal Board will review the validity of the claims in the applicable patent(s).
Truist
Financial Corporation 29
NOTE 15. iFair Value Disclosures
Recurring Fair Value Measurements
Accounting standards define fair value as the price that would be received on the measurement date to sell an asset or the price paid to
transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three-level measurement hierarchy:
•Level 1: Quoted prices for identical instruments in active markets
•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets
•Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable
iThe
following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
(1)Refer
to “Note 16. Derivative Financial Instruments” for additional discussion on netting adjustments.
At March 31, 2023 and December 31, 2022, investments totaling $i367 million and $i385 million,
respectively, have been excluded from the table above as they are valued based on net asset value as a practical expedient. These investments primarily consist of certain SBIC funds.
For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see “Note 18. Fair Value Disclosures” of the Annual Report on Form 10-K for the year ended December 31, 2022.
iActivity
for Level 3 assets and liabilities is summarized below:
The following table provides information about certain assets measured at fair value on a nonrecurring basis still held as of period end. The carrying values represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates throughout the period. These assets are considered to be Level 3 assets.
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Carrying value:
LHFS
$
i127
$
i271
Loans
and leases
i434
i500
Other
i98
i120
The
following table provides information about valuation adjustments for certain assets measured at fair value on a nonrecurring basis. The valuation adjustments represent the amounts recorded during the period regardless of whether the asset is still held at period end.
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Valuation
adjustments:
LHFS
$
i—
$
(i3)
Loans
and leases
(i166)
(i97)
Other(1)
(i44)
(i29)
/
(1)Prior
period amounts were revised.
LHFS with valuation adjustments in the table above consisted primarily of residential mortgages and commercial loans that were valued using market prices and measured at LOCOM. The table above excludes $i122 million and $i108
million of LHFS carried at cost at March 31, 2023 and December 31, 2022, respectively, that did not require a valuation adjustment during the period. The remainder of LHFS is carried at fair value.
Loans and leases consist of larger commercial loans and leases that are collateral-dependent and other secured loans and leases that have been charged-off to the fair value of the collateral. Valuation adjustments for loans and leases are primarily recorded in the Provision for credit losses in the Consolidated Statement of Income. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional discussion of individually evaluated loans and leases.
Other
includes foreclosed real estate, other foreclosed property, ROU assets, premises and equipment, and OREO, and consists primarily of residential homes, commercial properties, vacant lots, and automobiles. ROU assets are measured based on the fair value of the assets, which considers the potential for sublease income. The remaining assets are measured at LOCOM, less costs to sell.
32 Truist Financial Corporation
Financial Instruments Not Recorded at Fair Value
For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instruments. Values obtained relate to trading without regard to any premium or discount that may result from
concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.
An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets. In addition, changes in assumptions could significantly affect these fair value estimates. iFinancial
assets and liabilities not recorded at fair value are summarized below:
The
carrying value of the RUFC, which approximates the fair value of unfunded commitments, was $i282 million and $i272 million
at March 31, 2023 and December 31, 2022, respectively.
Truist Financial Corporation 33
NOTE 16. iiDerivative
Financial Instruments/
Impact of Derivatives on the Consolidated Balance Sheets
iThe following table presents the gross notional amounts and estimated fair value of derivative instruments employed by the
Company:
When
issued securities, forward rate agreements and forward commitments
i2,184
i14
(i3)
i2,459
i11
(i15)
Other
i2,268
i1
(i1)
i1,532
i—
(i3)
Total
i33,870
i68
(i89)
i32,487
i133
(i66)
Total
derivatives not designated as hedges
i320,488
i2,454
(i4,343)
i292,872
i2,453
(i4,681)
Total
derivatives
$
i363,003
i2,454
(i4,396)
$
i333,012
i2,453
(i4,749)
Gross
amounts in the Consolidated Balance Sheets:
Amounts subject to master netting arrangements
(i1,251)
i1,251
(i1,223)
i1,223
Cash
collateral (received) posted for amounts subject to master netting arrangements
(i511)
i556
(i546)
i555
Net
amount
$
i692
$
(i2,589)
$
i684
$
(i2,971)
/
34 Truist
Financial Corporation
iThe following table presents the offsetting of derivative instruments including financial instrument collateral related to legally enforceable master netting agreements and amounts held or pledged as collateral. U.S. GAAP does not permit netting of non-cash collateral balances in the Consolidated Balance Sheets:
Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income
Derivatives Designated as Hedging Instruments under GAAP
No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.
i
The
following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts:
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Pre-tax
gain (loss) recognized in OCI:
Commercial loans
$
i163
$
i—
Pre-tax
gain (loss) reclassified from AOCI into interest expense:
Long-term
debt
$
i—
$
(i6)
The
following table summarizes the impact on net interest income related to fair value hedges:
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Investment
securities:
Amounts related to interest settlements
$
i76
$
(i5)
Recognized
on derivatives
(i95)
i414
Recognized
on hedged items
i106
(i402)
Net
income (expense) recognized(1)
i87
i7
Loans
and leases:
Recognized
on hedged items
(i1)
(i1)
Net
income (expense) recognized
(i1)
(i1)
Long-term
debt:
Amounts related to interest settlements
(i46)
i16
Recognized
on derivatives
i156
(i429)
Recognized
on hedged items
(i142)
i486
Net
income (expense) recognized
(i32)
i73
Net
income (expense) recognized, total
$
i54
$
i79
(1)Includes
$10 million and $8 million of income recognized for the three months ended March 31, 2023 and 2022, respectively, from securities with terminated hedges that were reclassified to HTM. The income recognized was offset by the amortization of the fair value mark.
/
36 Truist Financial Corporation
The following table presents information about the Company’s cash flow and fair value hedges:
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Cash flow hedges:
Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
$
i6
$
(i118)
Net
unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2029)
i41
i40
Estimated
portion of net after-tax gain (loss) on active and terminated hedges to be reclassified from AOCI into earnings during the next 12 months
(i54)
(i31)
Maximum
time period over which Truist is hedging a portion of the variability in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing instruments
i6 years
i6
years
Fair value hedges:
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2033)(1)
$
i308
$
i669
Portion
of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months
i52
i163
(1)Includes
deferred gains that are recorded in AOCI as a result of the reclassification to HTM of previously hedged securities of $i447 million at March 31, 2023 and $i457 million
at December 31, 2022.
Derivatives Not Designated as Hedging Instruments under GAAP
The Company also enters into derivatives that are not designated as accounting hedges under GAAP to economically hedge certain risks as well as in a trading capacity with its clients.
The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
As part of the Company’s corporate and investment banking business, the Company enters into contracts that are, in form or substance, written guarantees; specifically, risk participations, TRS, and credit default swaps. The Company accounts for these contracts as derivatives.
Truist has entered into risk participation agreements to share the credit exposure with other financial institutions on client-related
interest rate derivative contracts. Under these agreements, the Company has guaranteed payment to a dealer counterparty in the event the counterparty experiences a loss on the derivative due to a failure to pay by the counterparty’s client. The Company manages its payment risk on its risk participations by monitoring the creditworthiness of the underlying client through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. At March 31, 2023, the remaining terms on these risk participations ranged from less than
one year to 15 years. The potential future exposure represents the Company’s maximum estimated exposure to written risk participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on scenario simulations and assuming 100% default by all obligors on the maximum value.
The Company has also entered into TRS contracts on loans and bonds. To mitigate its credit risk, the Company typically receives initial margin from the counterparty upon entering into the TRS and variation margin if the fair value of the underlying reference assets deteriorates.
For additional information on the Company’s TRS contracts, see “Note 14. Commitments and Contingencies.”
Truist Financial Corporation 37
The Company enters into credit default swaps to hedge credit risk associated with certain loans and leases. The Company accounts for these contracts as derivatives, and accordingly, recognizes
these contracts at fair value.
iThe following table presents additional information related to interest rate derivative risk participation agreements and total return swaps:
(Dollars
in millions)
Mar 31, 2023
Dec 31, 2022
Risk participation agreements:
Maximum potential amount of exposure
$
i618
$
i575
Total
return swaps:
Cash collateral held
i473
i453
/
iThe
following table summarizes collateral positions with counterparties:
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Dealer and other counterparties:
Cash and other collateral received from counterparties
$
i511
$
i542
Derivatives
in a net gain position secured by collateral received
i586
i618
Unsecured
positions in a net gain with counterparties after collateral postings
i75
i76
Cash
collateral posted to counterparties
i636
i590
Derivatives
in a net loss position secured by collateral
i809
i692
Central
counterparties clearing:
Cash collateral, including initial margin, received from central clearing parties
i—
i4
Cash
collateral, including initial margin, posted to central clearing parties
i85
i45
Derivatives
in a net loss position
i19
i13
Derivatives
in a net gain position
i1
i12
Securities
pledged to central counterparties clearing
i933
i639
/
NOTE
17. iComputation of EPS
iBasic and diluted EPS calculations are presented in the following table:
Three
Months Ended March 31,
(Dollars in millions, except per share data, shares in thousands)
2023
2022
Net income available to common shareholders
$
i1,410
$
i1,327
Weighted
average number of common shares
i1,328,602
i1,329,037
Effect
of dilutive outstanding equity-based awards
i10,878
i12,526
Weighted
average number of diluted common shares
i1,339,480
i1,341,563
Basic
EPS
$
i1.06
$
i1.00
Diluted
EPS
$
i1.05
$
i0.99
Anti-dilutive
awards
i621
i—
/
NOTE
18. iOperating Segments
Truist operates and measures business activity across ithree segments: CB&W,
C&CB, and IH, with functional activities included in OT&C. The Company’s business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. For additional information, see “Note 21. Operating Segments” of the Annual Report on Form 10-K for the year ended December 31, 2022.
During the first quarter of 2023, Truist reorganized Prime Rate Premium Finance Corporation, which includes AFCO Credit Corporation and CAFO Holding Company, into the C&CB segment from the IH segment. Prior period results have been revised to conform to the current presentation.
38 Truist
Financial Corporation
i
The following table presents results by segment:
Three
Months Ended March 31, (Dollars in millions)
CB&W
C&CB
IH
OT&C(1)
Total
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Net
interest income (expense)
$
i1,601
$
i1,528
$
i2,308
$
i1,118
$
i1
$
i1
$
(i42)
$
i536
$
i3,868
$
i3,183
Net
intersegment interest income (expense)
i1,139
i656
(i556)
i171
i13
i2
(i596)
(i829)
i—
i—
Segment
net interest income
i2,740
i2,184
i1,752
i1,289
i14
i3
(i638)
(i293)
i3,868
i3,183
Allocated
provision for credit losses
i274
i74
i232
(i150)
i—
i—
(i4)
(i19)
i502
(i95)
Segment
net interest income after provision
i2,466
i2,110
i1,520
i1,439
i14
i3
(i634)
(i274)
i3,366
i3,278
Noninterest
income
i873
i910
i630
i656
i817
i733
(i86)
(i157)
i2,234
i2,142
Amortization
of intangibles
i69
i73
i31
i33
i36
i30
i—
i1
i136
i137
Other
noninterest expense
i1,900
i1,812
i812
i755
i648
i516
i195
i454
i3,555
i3,537
Income
(loss) before income taxes
i1,370
i1,135
i1,307
i1,307
i147
i190
(i915)
(i886)
i1,909
i1,746
Provision
(benefit) for income taxes
i326
i274
i273
i284
i36
i47
(i241)
(i275)
i394
i330
Segment
net income (loss)
$
i1,044
$
i861
$
i1,034
$
i1,023
$
i111
$
i143
$
(i674)
$
(i611)
$
i1,515
$
i1,416
Identifiable
assets (period end)
$
i168,701
$
i159,939
$
i213,143
$
i188,806
$
i7,263
$
i6,494
$
i185,247
$
i188,740
$
i574,354
$
i543,979
(1)Includes
financial data from business units below the quantitative and qualitative thresholds requiring disclosure.
/
Truist Financial Corporation 39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and supplemental financial information. It should
be read in conjunction with the Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements in this Form 10-Q, other information contained in this document, as well as with Truist’s Annual Report on Form 10-K for the year ended December 31, 2022.
A description of certain factors that may affect our future results and risk factors is set forth in Part I, Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.
Regulatory Considerations
The regulatory framework applicable to banking organizations is intended primarily for the protection of depositors
and the stability of the financial system, rather than for the protection of shareholders and creditors. Truist is subject to banking laws and regulations, and various other laws and regulations, which affect the operations and management of Truist and its ability to make distributions to shareholders. Truist and its subsidiaries are also subject to supervision and examination by multiple regulators. The descriptions below summarize updates since the filing of the Annual Report on Form 10-K for the year ended December 31, 2022 to state and federal laws to which Truist is subject. These descriptions do not summarize all possible or proposed changes in current laws or regulations and are not intended to be a substitute for the related statues or regulatory provisions. Refer to Truist’s Annual Report on Form 10-K for the year ended
December 31, 2022 for additional disclosures.
In March 2023, the FRB created the Bank Term Funding Program to support American businesses and households by making additional funding available to eligible depository institutions. This program offers loans up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the FRB in open market operations, such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par.
In the aftermath of the recent bank failures, we expect that the banking agencies will propose certain actions, including reforms that may impose different capital and liquidity requirements, including increased requirements
to issue long term debt. In addition, there may be special assessments to repay losses to the FDIC’s Deposit Insurance Fund. It is not yet possible to quantify the impact of these potential actions.
Executive Overview
In a challenging and unique quarter for the banking industry, Truist demonstrated strength and leadership that reflects our diverse business model, granular and relationship-oriented deposit base, and strong capital and liquidity position. Truist has significant access to liquidity and a very robust liquidity management process that includes internal and external stress testing, as well as real-time monitoring of our liquidity position. We also closed on the sale of a 20% minority stake in Truist Insurance Holdings,
LLC on April 3, 2023, which provides strategic and financial flexibility for both Truist and Truist Insurance Holdings.
We continued to experience the benefits of our shift from integrating to operating, including improving organic production and integrated relationship management momentum, although these benefits were offset by higher-than-expected funding costs. Asset quality metrics remain strong, and we prudently increased our ALLL ratio by three basis points to reflect increased economic uncertainty.
Our focus on clients was unwavering during the first quarter of 2023. Our teammates continue to care for our clients and stakeholders and live our purpose to inspire and build better lives and communities. Truist continues to be a source of strength and stability for our clients and communities.
Truist
made a $1 billion uninsured time deposit in First Republic Bank during the first quarter joining the nation’s largest financial intuitions to show support for the U.S. banking system and the economy. On Monday, May 1, 2023, JPMorgan Chase Bank, National Association assumed all of the deposits and purchased the substantial majority of assets of First Republic Bank from the FDIC. JPMorgan Chase Bank, National Association has indicated that the deposit Truist made at First Republic Bank will be repaid post-closing of the transaction.
Detailed below are actions that we have taken to fulfill our purpose to inspire and build better lives and communities, followed by a discussion of our financial results for the first quarter of 2023.
•Made meaningful improvement in our
client experience, with Voice of the Client metrics rising since the second quarter of 2022, and continued positive momentum with branch satisfaction scores in the first quarter of 2023
•Opened T3 Accelerator Lab in the Innovation & Technology Center where we’re redefining the client and teammate experience, putting feedback and ideas to the test in real-world scenarios before rolling out to clients
40 Truist Financial Corporation
•Continued growth for Truist Momentum, Truist’s financial wellness program
•Published 2022 Corporate Responsibility Report, TCFD Report, and ESG Disclosure Summary, highlighting our progress across
multiple dimensions including community, financial inclusion, DEI, and climate and energy
◦We made important progress on our sustainability commitments through 2022, including our goal of achieving a 35% reduction in both Scope 1 and Scope 2 emissions by 2030 from our baseline year of 2019. We reduced Scope 1 emissions by 17% and Scope 2 emissions by 26%.
•Successfully migrated certain consumer and small business credit cards to a new processing platform
•Announced a new goal to increase female and ethnically diverse representation in leadership roles by 15% and 20%, respectively, by 2025
•Committed $282 million from Truist Community Capital to support affordable housing and job creation in underserved
communities and $22 million through Truist Foundation for a multiyear program to strengthen small businesses and create career pathways for ethnically diverse individuals and entrepreneurs
•We are also in the process of realigning our LightStream platforms with our broader consumer business, with the goal of bringing the innovation, digital capabilities, efficiencies, and certain cloud-based infrastructure of LightStream to the broader Truist client base
Financial Results
Net income available to common shareholders for the first quarter of 2023 of $1.4 billion was up 6.3% compared with the first quarter of 2022. On a diluted per common share basis, earnings for
the first quarter of 2023 were $1.05, an increase of $0.06, or 6.1%, compared to the first quarter of 2022. Truist’s results of operations for the first quarter of 2023 produced an annualized return on average assets of 1.10% and an annualized return on average common shareholders’ equity of 10.3% compared to prior year returns of 1.07% and 9.0%, respectively.
•Results for the first quarter of 2023 included merger-related and restructuring charges of $63 million ($48 million after-tax, or $0.04 per share).
•Results for the first quarter of 2022 included $216 million ($166 million after-tax, or $0.12 per share) of merger-related and restructuring charges, $202 million ($155 million after-tax, or $0.12 per share) of incremental operating expenses related to the Merger, a gain on the redemption of noncontrolling
equity interest of $74 million ($57 million after-tax, or $0.04 per share) related to the acquisition of certain merchant services relationships, and net losses on the sales of securities of $69 million ($53 million after-tax, or $0.04 per share).
Taxable-equivalent net interest income for the first quarter of 2023 was up $710 million, or 22%, compared to the first quarter of 2022 primarily due to higher short-term interest rates and strong loan growth, alongside well controlled deposit costs. These increases were partially offset by lower purchase accounting accretion and PPP revenue. Net interest margin was 3.17%, up 41 basis points.
•The yield on the total loan portfolio was 5.81%, up 212 basis points, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion
and PPP revenue. The yield on the average securities portfolio was 2.14%, up 46 basis points primarily due to the higher rate environment. The average cost of total deposits was 1.12%, up 109 basis points.
•The average cost of short-term borrowings was 4.69%, up 409 basis points. The average cost of long-term debt was 4.05%, up 255 basis points. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.
Noninterest income was up $92 million, or 4.3%, compared to the first quarter of 2022 due to 12% growth in insurance income, higher mortgage banking income, higher fees from lending-related activities and card and payment related activities. These items were partially offset by lower other income. The first quarter of 2022 included $69 million of securities losses and a $74 million gain
on the redemption of noncontrolling equity interest (included in other income).
Noninterest expense was up $17 million, or 0.5%, compared to the first quarter of 2022 due to higher personnel expense, other expense, and regulatory costs. These increases were partially offset by lower merger-related and restructuring charges and professional fees and outside processing expenses. Merger-related and restructuring charges and incremental operating expenses related to the merger decreased $153 million and $202 million, respectively, due to the completion of integration-related activities. Adjusted noninterest expenses, which exclude merger-related costs and the amortization of intangibles increased $373 million, or 12%.
The provision for income taxes was $394 million for the first quarter of 2023, compared to $330 million for the earlier quarter. The
effective tax rate for the first quarter of 2023 was 20.6%, compared to 18.9% for the earlier quarter.
Asset quality remains excellent, reflecting Truist’s prudent risk culture and diverse portfolio. Nonperforming loans and leases held for investment were 0.36% of loans and leases held for investment at March 31, 2023, flat compared to December 31, 2022.
Truist Financial Corporation 41
•The allowance for credit losses was $4.8 billion and includes $4.5 billion for the allowance for loan and lease losses and $282 million for the reserve for unfunded commitments.
The ALLL ratio was 1.37%, up three basis points compared with December 31, 2022 primarily due to increased economic uncertainty.
•The provision for credit losses was $502 million compared to a benefit of $95 million for the first quarter of 2022. The increase in the current quarter provision expense primarily reflects increased economic uncertainty in the current period, whereas the earlier quarter included a reserve release due to the improving credit environment during that period.
•The net charge-off ratio was 37 basis points, up 12 basis points compared to the first quarter of 2022 driven by higher charge-offs in the indirect auto and other consumer portfolios due to normalizing trends, as well as an increase in the commercial and industrial portfolio.
Capital
and liquidity remained strong compared to the regulatory requirements for well capitalized banks.
•Truist CET1 ratio was 9.1% as of March 31, 2023. The increase since December 31, 2022 represents organic capital generation, partially offset by the CECL phase-in.
•Truist closed the sale of the minority stake in TIH on April 3, 2023, which adds 30 basis points to the risk-based regulatory capital ratios.
•Truist declared common dividends of $0.52 per share during the first quarter of 2023. The dividend payout ratio for the first quarter of 2023 was 49%. Truist did not repurchase any shares in
the first quarter of 2023.
•Truist’s average consolidated LCR was 113% for the three months ended March 31, 2023, compared to the regulatory minimum of 100%.
•Truist has significant and strong access to liquidity with $166 billion of available liquidity as of March 31, 2023.
•Truist increased its cash position in response to market events.
Taxable-equivalent net interest income for the first quarter of 2023 was up $710 million, or 22%, compared to the first quarter of 2022 primarily due to higher short-term interest rates and strong loan growth, alongside well controlled deposit costs. These increases were partially offset by lower purchase accounting accretion and PPP revenue. Net interest margin was 3.17%, up 41 basis points.
•Average earning assets increased $29.2 billion, or 6.2%, primarily due
to growth in average total loans of $35.1 billion, or 12%, and growth in other earning assets of $6.7 billion, or 35%, primarily due to an increase in balances held at the Federal Reserve to support liquidity build, partially offset by a decrease in average securities of $12.1 billion, or 7.9%.
•The yield on the total loan portfolio was 5.81%, up 212 basis points, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion and PPP revenue. The yield on the average securities portfolio was 2.14%, up 46 basis points primarily due to the higher rate environment.
•Average deposits decreased $6.8 billion, or 1.6%, average short-term borrowings increased $17.1 billion, and average long-term debt increased $15.7 billion, or 44.5%.
•The
average cost of total deposits was 1.12%, up 109 basis points. The average cost of short-term borrowings was 4.69%, up 409 basis points. The average cost of long-term debt was 4.05%, up 255 basis points. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.
As of March 31, 2023, the remaining unamortized fair value marks on the loan and lease portfolio and long-term debt were $673 million and $69 million, respectively. As of December 31, 2022, the remaining unamortized fair value marks on the loan and lease portfolio and long-term debt were $741 million and $81 million, respectively.
The
remaining unamortized purchase accounting fair value mark on loans and leases consists of $447 million for consumer loans and leases, and $226 million for commercial loans and leases. These amounts will be recognized over the remaining contractual lives of the underlying instruments or as paydowns occur.
The major components of net interest income and the related annualized yields as well as the variances between the periods caused by changes in interest rates versus changes in volumes are summarized below.
42 Truist Financial Corporation
Table
1: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis
Three Months Ended March 31, (Dollars in millions)
Average Balances(1)
Annualized Yield/Rate(2)
Income/Expense
Incr. (Decr.)
Change due to
2023
2022
2023
2022
2023
2022
Rate
Volume
Assets
AFS
and HTM securities at amortized cost:
U.S. Treasury
$
11,117
$
9,890
1.07
%
0.72
%
$
30
$
18
$
12
$
10
$
2
GSE
335
1,120
2.86
2.13
2
6
(4)
2
(6)
Agency
MBS
124,746
137,052
2.23
1.72
694
590
104
160
(56)
States
and political subdivisions
425
374
4.07
3.72
4
3
1
—
1
Non-agency
MBS
3,907
4,224
2.34
2.25
23
24
(1)
1
(2)
Other
21
27
5.30
2.04
—
—
—
—
—
Total
securities
140,551
152,687
2.14
1.68
753
641
112
173
(61)
Interest
earning trading assets
5,462
5,837
6.09
3.04
83
43
40
43
(3)
Other
earning assets(3)
25,589
18,932
4.67
0.63
295
30
265
251
14
Loans
and leases, net of unearned income:
Commercial
and industrial
165,095
138,872
5.98
2.88
2,436
987
1,449
1,233
216
CRE
22,689
23,555
6.32
2.84
355
168
187
193
(6)
Commercial
Construction
5,863
5,046
7.14
3.05
101
35
66
59
7
Residential
mortgage
56,422
47,976
3.73
3.57
526
428
98
20
78
Home
equity
10,735
10,822
6.80
4.33
180
116
64
65
(1)
Indirect
auto
27,743
26,088
5.82
5.56
398
357
41
17
24
Other
consumer
27,559
24,921
6.76
6.24
459
383
76
33
43
Student
5,129
6,648
7.04
3.86
89
63
26
43
(17)
Credit
card
4,785
4,682
11.43
8.97
136
104
32
30
2
Total
loans and leases HFI
326,020
288,610
5.81
3.70
4,680
2,641
2,039
1,693
346
LHFS
1,527
3,874
6.71
2.87
25
28
(3)
21
(24)
Total
loans and leases
327,547
292,484
5.81
3.69
4,705
2,669
2,036
1,714
322
Total
earning assets
499,149
469,940
4.72
2.90
5,836
3,383
2,453
2,181
272
Nonearning
assets
60,478
66,041
Total assets
$
559,627
$
535,981
Liabilities
and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking
$
108,886
$
112,159
1.60
0.05
430
14
416
416
—
Money
market and savings
139,802
141,500
1.38
0.03
476
11
465
465
—
Time
deposits
28,671
15,646
3.10
0.18
219
7
212
202
10
Total
interest-bearing deposits
277,359
269,305
1.64
0.05
1,125
32
1,093
1,083
10
Short-term
borrowings
24,056
6,944
4.69
0.60
278
10
268
197
71
Long-term
debt
51,057
35,337
4.05
1.50
514
132
382
303
79
Total
interest-bearing liabilities
352,472
311,586
2.20
0.22
1,917
174
1,743
1,583
160
Noninterest-bearing
deposits
131,099
145,933
Other liabilities
13,979
11,664
Shareholders’
equity
62,077
66,798
Total liabilities and shareholders’ equity
$
559,627
$
535,981
Average
interest-rate spread
2.52
%
2.68
%
NIM/net interest income - taxable equivalent
3.17
%
2.76
%
$
3,919
$
3,209
$
710
$
598
$
112
Taxable-equivalent
adjustment
$
51
$
26
Memo: Total deposits
$
408,458
$
415,238
1.12
%
0.03
%
$
1,125
$
32
$
1,093
(1)Represents
daily average balances. Excludes basis adjustments for fair value hedges.
(2)Yields are stated on a TE basis utilizing federal tax rate. The change in interest not solely due to changes in rate or volume has been allocated based on the pro-rata absolute dollar amount of each. Interest income includes certain fees, deferred costs, and dividends.
(3)Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets.
Truist Financial Corporation 43
Provision for Credit Losses
The
provision for credit losses was $502 million compared to a benefit of $95 million for the first quarter of 2022. The net charge-off ratio was 37 basis points, up 12 basis points compared to the first quarter of 2022.
•The increase in the current quarter provision expense primarily reflects increased economic uncertainty in the current period, whereas the earlier quarter included a reserve release due to the improving credit environment during that period.
•The net charge-off ratio was up compared to the first quarter of 2022 driven by higher charge-offs in the indirect auto and other consumer portfolios due to normalizing trends, as well as an increase in the commercial and industrial portfolio.
Noninterest
Income
Noninterest income is a significant contributor to Truist’s financial results. Management focuses on diversifying its sources of revenue to reduce Truist’s reliance on traditional spread-based interest income, as certain fee-based activities are a relatively stable revenue source during periods of changing interest rates. The following table provides a breakdown of Truist’s noninterest income:
Table
2: Noninterest Income
Three Months Ended March 31,
(Dollars in millions)
2023
2022
% Change
Insurance income
$
813
$
727
11.8
%
Wealth
management income
339
343
(1.2)
Investment banking and trading income
261
261
—
Service
charges on deposits
249
252
(1.2)
Card and payment related fees
230
212
8.5
Mortgage
banking income
142
121
17.4
Lending related fees
106
85
24.7
Operating
lease income
67
58
15.5
Securities gains (losses)
—
(69)
NM
Other
income
27
152
(82.2)
Total noninterest income
$
2,234
$
2,142
4.3
Noninterest
income was up $92 million, or 4.3%, compared to the first quarter of 2022 due to 12% growth in insurance income, higher mortgage banking income, higher fees from lending-related activities and card and payment related activities. These items were partially offset by lower other income. The first quarter of 2022 included $69 million of securities losses and a $74 million gain on the redemption of noncontrolling equity interest (included in other income).
•Insurance income increased primarily due to acquisitions and 4.7% organic growth.
•Mortgage banking income increased due to a gain on the sale of a servicing portfolio, partially offset by mortgage servicing rights valuation adjustments in the current quarter.
•Lending related fees increased
primarily due to higher unused commitment fees.
•Card and payment related fees increased due to higher volumes and the acquisition of a merchant portfolio.
•Other income decreased due to the aforementioned gain in the year ago quarter, lower investment income from the Company’s SBIC and other investments, partially offset by higher income from investments held for certain post-retirement benefits (which is primarily offset by higher personnel expense).
44 Truist Financial Corporation
Noninterest
Expense
The following table provides a breakdown of Truist’s noninterest expense:
Table 3: Noninterest Expense
Three
Months Ended March 31,
(Dollars in millions)
2023
2022
% Change
Personnel expense
$
2,181
$
2,051
6.3
%
Professional
fees and outside processing
314
363
(13.5)
Software expense
214
232
(7.8)
Net
occupancy expense
183
208
(12.0)
Amortization of intangibles
136
137
(0.7)
Equipment
expense
110
118
(6.8)
Marketing and customer development
78
84
(7.1)
Operating
lease depreciation
46
48
(4.2)
Regulatory costs
75
35
114.3
Merger-related
and restructuring charges
63
216
(70.8)
Other expense
291
182
59.9
Total
noninterest expense
$
3,691
$
3,674
0.5
Noninterest
expense was up $17 million, or 0.5%, compared to the first quarter of 2022 due to higher personnel expense, other expense, and regulatory costs. These increases were partially offset by lower merger-related and restructuring charges and professional fees and outside processing expenses. Merger-related and restructuring charges and incremental operating expenses related to the merger decreased $153 million and $202 million, respectively, due to the completion of integration-related activities. Adjusted noninterest expenses, which exclude merger-related costs and the amortization of intangibles increased $373 million, or 12%.
•Personnel expense increased due to investments in teammates by increasing Truist’s minimum wage, the impact from acquisitions, investments in revenue producing businesses and enterprise technology, and higher other post-retirement benefit expense (which
is almost entirely offset by higher other income), partially offset by lower pension expenses.
•Other expense increased primarily due to higher pension expense (driven primarily by lower plan assets) and higher operating losses.
•Regulatory costs increased primarily due to an increase in the FDIC’s deposit insurance assessment rate.
•Professional fees and outside processing expenses decreased due to lower project spend for merger-related activities, partially offset by enterprise technology investments.
Merger-Related and Restructuring Charges
The
following table presents a summary of merger-related and restructuring charges and the related accruals. The 2023 merger-related and restructuring costs primarily reflect charges as a result of the restructuring activities, including costs for severance and other benefits, costs related to exiting facilities, and other restructuring initiatives.
Table
4: Merger-Related and Restructuring Accrual Activity
(Dollars in millions)
Accrual at Jan 1, 2023
Expense
Utilized
Accrual at Mar 31, 2023
Severance
and personnel-related
$
9
$
39
$
(31)
$
17
Occupancy
and equipment
—
19
(19)
—
Professional
services
12
1
(12)
1
Other
5
4
(5)
4
Total
$
26
$
63
$
(67)
$
22
Provision
for Income Taxes
The provision for income taxes was $394 million for the first quarter of 2023, compared to $330 million for the earlier quarter. The effective tax rate for the first quarter of 2023 was 20.6%, compared to 18.9% for the earlier quarter.
•The effective tax rate increased compared to the first quarter of 2022 primarily driven by higher income before taxes, discrete tax expense recognized in the current quarter compared to discrete tax benefits recognized in the prior quarter, and the adoption of the Investments in Tax Credit Structures accounting standard related to the proportional amortization of tax credit investments in the current quarter. This guidance resulted in an increase in other income and an increase in tax expense of $17 million for the first quarter of 2023 with no impact to net income.
The guidance was adopted prospectively and had no impact on prior periods results. Refer to “Note 1. Basis of Presentation” for additional information on the adoption of this guidance.
Truist Financial Corporation 45
Segment Results
Truist operates and measures business activity across three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings, with functional activities included in Other, Treasury, and Corporate. The Company’s business segment
structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. During the first quarter of 2023, Truist reorganized Prime Rate Premium Finance Corporation, which includes AFCO Credit Corporation and CAFO Holding Company, into the C&CB segment from the IH segment. Prior period results have been revised to conform to the current presentation.
See “Note 18. Operating Segments” herein and “Note 21. Operating Segments” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional disclosures related to Truist’s reportable business segments, including additional details related to results of operations. Fluctuations in noninterest income and noninterest expense are more fully discussed in the Noninterest Income and
Noninterest Expense sections above.
Table
5: Net Income by Reportable Segment
Three Months Ended March 31,
(Dollars in millions)
2023
2022
% Change
Consumer
Banking and Wealth
$
1,044
$
861
21.3
%
Corporate
and Commercial Banking
1,034
1,023
1.1
Insurance
Holdings
111
143
(22.4)
Other,
Treasury & Corporate
(674)
(611)
(10.3)
Truist
Financial Corporation
$
1,515
$
1,416
7.0
Consumer
Banking and Wealth
CB&W net income was $1.0 billion for the first quarter of 2023, an increase of $183 million compared to the first quarter of 2022.
•Segment net interest income increased $556 million primarily driven by favorable funding credit on deposits attributable to the higher rate environment and higher average loan balances, partially offset by higher funding costs, lower average deposits, and lower purchase accounting accretion.
•The provision for credit losses increased $200 million reflecting increased economic uncertainty in the current quarter as well as higher charge offs in the indirect auto and other consumer portfolios and a reserve release in the earlier quarter.
•Noninterest
income decreased $37 million compared to earlier quarter primarily due to a gain on the redemption of noncontrolling equity interest in the earlier quarter, partially offset by higher mortgage banking income in the current quarter.
•Noninterest expense increased $84 million compared to the earlier quarter primarily driven primarily by higher corporate technology, risk, and operations support expenses along with increased salaries expense, partially offset by lower marketing and customer development and incentives expense.
CB&W average loans and leases held for investment increased $11.2 billion, or 8.5%, for the first quarter of 2023 compared to the first quarter of 2022, primarily driven by an increase in residential mortgage balances due to slower run-off and increased correspondent production, along with increased Service Finance and
Dealer Finance loans, partially offset by lower Student and Partnership loans.
Average total deposits decreased $14.4 billion, or 5.7%, for the first quarter of 2023 compared to the first quarter of 2022, primarily driven by decreases in interest bearing checking, money market and savings, and noninterest bearing deposits.
Corporate and Commercial Banking
C&CB net income was $1.0 billion for the first quarter of 2023, an increase of $11 million compared to the first quarter of 2022.
•Segment net interest income increased $463 million primarily due to higher funding credit on deposits and higher average loan balances, partially offset by lower purchase accounting accretion and lower PPP
revenue.
•The provision for credit losses increased $382 million which reflects an increase in reserves driven by increased economic uncertainty and loan growth in the current quarter as well as an allowance release in the earlier quarter.
•Noninterest income decreased $26 million compared to the earlier quarter primarily due to lower investment income from the Company’s SBIC and other investments, lower structured real estate fees, and commercial mortgage income, partially offset by increases in lending related fees, core trading revenues, and merger and acquisition fees.
•Noninterest expense increased $55 million compared to the earlier quarter primarily due to higher personnel expenses,
and merger-related and restructuring charges.
46 Truist Financial Corporation
C&CB average loans held for investment increased $26.7 billion, or 17%, for the first quarter of 2023 compared to the first quarter of 2022, primarily due to increases in commercial and industrial loans, partially offset by decreases in average PPP loans (commercial and industrial) and average commercial real estate.
Average total deposits decreased $11.4 billion, or 7.5%, for the first quarter of 2023 compared to the first quarter of 2022, primarily due to declines in average noninterest bearing deposits, partially offset by increases in money market and savings.
Insurance
Holdings
IH net income was $111 million for the first quarter of 2023, a decrease of $32 million compared to the first quarter of 2022.
•Segment net interest income increased $11 million driven primarily by favorable funding credits.
•Noninterest income increased $84 million primarily due to continued organic growth and acquisitions.
•Noninterest expense increased $138 million primarily due to the impact of acquisitions, investments in new hires and teammates, performance-driven incentive expense, and higher operational loss reserves.
Other, Treasury & Corporate
OT&C
generated a net loss of $674 million in the first quarter of 2023, compared to a net loss of $611 million in the first quarter of 2022.
•Net interest income decreased $345 million primarily due to higher funding credit on deposits to other segments, partially offset by higher funding charges to other segments from the higher rate environment.
•The provision for credit losses increased $15 million due to increased economic uncertainty in the current quarter.
•Noninterest income increased $71 million primarily due to losses on the sale of securities in the earlier quarter.
•Noninterest expense decreased $260 million compared to the earlier quarter primarily due to a decrease
in incremental operating expenses related to the merger, partially offset by an increase in professional fees and outside processing, salaries, and regulatory costs.
Truist Financial Corporation 47
Analysis of Financial Condition
Investment Activities
The securities portfolio
totaled $128.8 billion at March 31, 2023, compared to $129.5 billion at December 31, 2022. U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of March 31, 2023 and December 31, 2022. While the overwhelming majority of the portfolio remains in agency MBS securities, the Company also holds AAA rated non-agency MBS as the risk adjusted returns for these securities are more attractive than agency MBS.
•The decrease includes paydowns and maturities of $2.1 billion, partially offset by unrealized gains of $1.1 billion during the quarter.
•As
of March 31, 2023, 41% of the investment securities portfolio was classified as held-to-maturity based on amortized cost.
•As of March 31, 2023 and December 31, 2022, approximately 5.6% of the securities portfolio was variable rate, excluding the impact of swaps.
The
following table presents the composition of average loans and leases:
Table 6: Average Loans and Leases
For the Three Months Ended
(Dollars in millions)
Mar
31, 2023
Dec 31, 2022
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
Commercial:
Commercial and industrial
$
165,095
$
159,308
$
152,123
$
145,558
$
138,872
CRE
22,689
22,497
22,245
22,508
23,555
Commercial
construction
5,863
5,711
5,284
5,256
5,046
Consumer:
Residential
mortgage
56,422
56,292
53,271
49,237
47,976
Home equity
10,735
10,887
10,767
10,677
10,822
Indirect
auto
27,743
28,117
28,057
26,496
26,088
Other consumer
27,559
27,479
26,927
25,918
24,921
Student
5,129
5,533
5,958
6,331
6,648
Credit
card
4,785
4,842
4,755
4,728
4,682
Total average loans and leases HFI
$
326,020
$
320,666
$
309,387
$
296,709
$
288,610
Average
loans increased $5.4 billion, or 1.7%, compared to the prior quarter primarily due to momentum from the prior quarter within the commercial portfolio and the impact of the BankDirect acquisition. Loan growth moderated during the quarter as production in lower return portfolios was reduced with end of period loans up 0.5% compared to December 31, 2022.
•Average commercial loans increased 3.3% due to broad-based growth within the commercial and industrial portfolio and the BankDirect acquisition. The BankDirect acquisition contributed approximately $900 million of average loan growth compared to the fourth quarter of 2022.
•Average consumer loans decreased 0.6% due to runoff in student loans and partnership lending, as well as lower indirect auto production.
The following tables summarize asset quality information:
Table
7: Asset Quality
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
NPAs:
NPLs:
Commercial
and industrial
$
394
$
398
$
443
$
393
$
330
CRE
117
82
5
19
27
Commercial
construction
1
—
—
—
—
Residential
mortgage
233
240
227
269
315
Home equity
132
135
132
133
122
Indirect
auto
270
289
260
244
227
Other consumer
45
44
39
32
23
Total
NPLs HFI
1,192
1,188
1,106
1,090
1,044
Loans held for sale
—
—
72
33
39
Total
nonaccrual loans and leases
1,192
1,188
1,178
1,123
1,083
Foreclosed real estate
3
4
4
3
3
Other
foreclosed property
66
58
58
47
49
Total nonperforming assets
$
1,261
$
1,250
$
1,240
$
1,173
$
1,135
Loans
90 days or more past due and still accruing:
Commercial and industrial
$
35
$
49
$
44
$
27
$
22
CRE
—
1
1
3
—
Commercial
construction
—
—
—
3
—
Residential
mortgage - government guaranteed
649
759
808
884
996
Residential mortgage - nonguaranteed
25
27
26
27
31
Home
equity
10
12
9
8
9
Indirect auto
—
1
1
1
1
Other
consumer
10
13
9
5
5
Student - government guaranteed
590
702
770
796
818
Student
- nonguaranteed
4
4
5
5
4
Credit card
38
37
36
28
28
Total
loans 90 days or more past due and still accruing
$
1,361
$
1,605
$
1,709
$
1,787
$
1,914
Loans 30-89 days past due and still accruing:
Commercial
and industrial
$
125
$
256
$
162
$
223
$
280
CRE
34
25
15
10
13
Commercial
construction
3
5
3
4
1
Residential
mortgage - government guaranteed
232
268
234
233
216
Residential mortgage - nonguaranteed
259
346
300
302
326
Home
equity
65
68
67
68
80
Indirect auto
511
646
591
584
529
Other
consumer
164
187
152
166
127
Student - government guaranteed
350
396
375
447
476
Student
- nonguaranteed
6
6
6
6
6
Credit card
56
64
52
48
47
Total
loans 30-89 days past due and still accruing
$
1,805
$
2,267
$
1,957
$
2,091
$
2,101
Nonperforming
assets totaled $1.3 billion at March 31, 2023, relatively stable compared to December 31, 2022. Nonperforming loans and leases held for investment were 0.36% of loans and leases held for investment at March 31, 2023, unchanged compared to December 31, 2022.
Loans 90 days or more past due and still accruing totaled $1.4 billion at March 31, 2023, down $244 million, or seven basis points as a percentage of loans and leases, compared with the prior quarter primarily due to declines in government guaranteed student loans and government guaranteed residential mortgages. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing
as a percentage of loans and leases was 0.04% at March 31, 2023, flat from December 31, 2022.
Loans 30-89 days past due and still accruing of $1.8 billion at March 31, 2023 were down $462 million, or 15 basis points as a percentage of loans and leases, compared to the prior quarter primarily due to a seasonal decrease in the consumer portfolios coupled with a decline in the commercial and industrial portfolio.
Truist Financial Corporation 49
Problem
loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 7. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to “Note 5. Loans and ACL” for the amortized cost basis of loans by origination year and credit quality indicator as well as additional disclosures related to NPLs.
Table
8: Asset Quality Ratios
Mar 31, 2023
Dec 31, 2022
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
Loans
30-89 days past due and still accruing as a percentage of loans and leases HFI
0.55
%
0.70
%
0.62
%
0.69
%
0.72
%
Loans
90 days or more past due and still accruing as a percentage of loans and leases HFI
0.42
0.49
0.54
0.59
0.66
NPLs as a percentage of loans and leases
HFI
0.36
0.36
0.35
0.36
0.36
NPLs as a percentage of total loans and leases(1)
0.36
0.36
0.37
0.37
0.37
NPAs
as a percentage of:
Total assets(1)
0.22
0.23
0.23
0.22
0.21
Loans
and leases HFI plus foreclosed property
0.38
0.38
0.37
0.38
0.38
ALLL
as a percentage of loans and leases HFI
1.37
1.34
1.34
1.38
1.44
Ratio
of ALLL to NPLs
3.8x
3.7x
3.8x
3.8x
4.0x
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI, excluding government guaranteed(2)
0.04
%
0.04
%
0.04
%
0.04
%
0.04
%
(1)Includes
LHFS.
(2)This asset quality ratio has been adjusted to remove the impact of government guaranteed loans. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio because collection of principal and interest is reasonably assured, or the ratio might not be comparable to other periods presented or to other portfolios that do not have government guarantees.
Table
9: Asset Quality Ratios (Continued)
Quarter Ended
Mar 31, 2023
Dec 31, 2022
Sep 30, 2022
Jun
30, 2022
Mar 31, 2022
Net charge-offs as a percentage of average loans and leases HFI:
Commercial:
Commercial
and industrial
0.15
%
0.08
%
0.02
%
0.01
%
0.04
%
CRE
0.09
0.19
(0.01)
(0.10)
0.01
Commercial
construction
(0.04)
(0.06)
(0.10)
(0.08)
(0.02)
Consumer:
Residential
mortgage
—
(0.02)
0.01
(0.02)
(0.03)
Home equity
(0.15)
(0.01)
(0.13)
(0.17)
(0.12)
Indirect
auto
1.47
1.52
1.15
0.77
1.23
Other consumer
1.29
1.11
1.31
1.27
0.87
Student
0.42
0.34
0.40
0.30
0.33
Credit
card
3.54
3.68
2.80
2.63
2.77
Total
0.37
0.34
0.27
0.22
0.25
Ratio
of ALLL to net charge-offs
3.7x
4.1x
5.0x
6.5x
5.8x
Ratios are annualized, as applicable.
The following table presents activity related to NPAs:
Table
10: Rollforward of NPAs
(Dollars in millions)
2023
2022
Balance, January 1
$
1,250
$
1,163
New NPAs
621
395
Advances
and principal increases
214
108
Disposals of foreclosed assets(1)
(147)
(112)
Disposals of NPLs(2)
(3)
(37)
Charge-offs
and losses
(204)
(115)
Payments
(306)
(180)
Transfers to performing status
(160)
(101)
Other,
net
(4)
14
Ending balance, March 31
$
1,261
$
1,135
(1)Includes charge-offs and losses recorded upon sale of $42 million and $29 million for the three months ended March 31, 2023 and 2022, respectively.
(2)Includes
gains, net of charge-offs recorded upon sale of $5 million and charge-offs and losses recorded upon sale of $3 million for the three months ended March 31, 2023 and 2022, respectively.
50 Truist Financial Corporation
CRE and Commercial Construction
Truist has noted that the CRE and commercial construction portfolios have the potential for heightened risk in the current environment. Truist maintains a high-quality portfolio through disciplined risk management and prudent client selection. In addition, the Company’s exposure
to large CRE tends to have more institutional sponsorship and the Company has reduced exposure to smaller CRE. Truist’s CRE and commercial construction portfolios was $28.6 billion as of March 31, 2023.
Our office portfolio, which makes up approximately 18% of total CRE and commercial construction loans, is weighted towards Class A properties as of March 31, 2023. Nonperforming loans and criticized loans in this portfolio have trended higher in recent months.
See
additional information on the CRE and commercial construction portfolios in “Note 5. Loans and ACL,” including loans by origination year and credit quality indicator.
Truist Financial Corporation 51
ACL
Activity related to the ACL is presented in the following tables:
Table
12: Activity in ACL
For the Three Months Ended
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
Balance,
beginning of period(1)
$
4,649
$
4,455
$
4,434
$
4,423
$
4,695
Provision
for credit losses
482
467
234
171
(95)
Charge-offs:
Commercial
and industrial
(75)
(44)
(51)
(17)
(31)
CRE
(6)
(11)
—
(1)
(1)
Commercial
construction
—
—
—
—
(1)
Residential
mortgage
(1)
(1)
(4)
(2)
(2)
Home equity
(2)
(6)
(3)
(3)
(1)
Indirect
auto
(127)
(129)
(103)
(77)
(102)
Other consumer
(105)
(96)
(109)
(100)
(76)
Student
(5)
(5)
(7)
(4)
(6)
Credit
card
(51)
(53)
(42)
(40)
(41)
Total
charge-offs
(372)
(345)
(319)
(244)
(261)
Recoveries:
Commercial
and industrial
13
14
43
13
17
CRE
1
1
—
6
1
Commercial
construction
1
1
2
1
1
Residential
mortgage
2
3
3
4
6
Home equity
6
6
8
6
5
Indirect
auto
26
21
21
26
23
Other consumer
17
17
21
20
21
Student
—
1
—
—
—
Credit
card
9
8
8
9
9
Total recoveries
75
72
106
85
83
Net
charge-offs
(297)
(273)
(213)
(159)
(178)
Other(2)
(73)
—
—
(1)
1
Balance,
end of period
$
4,761
$
4,649
$
4,455
$
4,434
$
4,423
ACL:(1)
ALLL
$
4,479
$
4,377
$
4,205
$
4,187
$
4,170
RUFC
282
272
250
247
253
Total
ACL
$
4,761
$
4,649
$
4,455
$
4,434
$
4,423
(1)Excludes
provision for credit losses and allowances related to other financial assets at amortized cost.
(2)The first quarter of 2023 includes the impact from the adoption of the Troubled Debt Restructurings and Vintage Disclosures accounting standard.
The allowance for credit losses was $4.8 billion and includes $4.5 billion for the allowance for loan and lease losses and $282 million for the reserve for unfunded commitments. The ALLL ratio was 1.37%, up three basis points compared with December 31, 2022 primarily due to increased economic uncertainty. The ALLL covered nonperforming loans and leases held for investment 3.8X compared to 3.7X at December 31,
2022. At March 31, 2023, the ALLL was 3.7X annualized net charge-offs, compared to 4.1X at December 31, 2022.
52 Truist Financial Corporation
The following table presents an allocation of the ALLL. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.
Truist monitors the performance of its home equity loans and lines secured by second liens similarly to other consumer loans and utilizes assumptions specific to these loans in determining the necessary ALLL. Truist also receives notification when the first lien holder, whether Truist or another financial institution, has initiated foreclosure proceedings
against the borrower. When notified that the first lien is in the process of foreclosure, Truist obtains valuations to determine if any additional charge-offs or reserves are warranted. These valuations are updated at least annually thereafter.
Truist has limited ability to monitor the delinquency status of the first lien, unless the first lien is held or serviced by Truist. Truist estimates credit losses on second lien loans where the first lien is delinquent based on historical experience; the increased risk of loss on these credits is reflected in the ALLL. As of March 31, 2023, Truist held or serviced the first lien on 32% of its second lien positions.
Other Assets
The
components of other assets are presented in the following table:
Table 14: Other Assets as of Period End
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Bank-owned life insurance
$
7,651
$
7,618
Tax
credit and other private equity investments
6,730
6,825
Prepaid pension assets
5,885
4,539
DTAs
2,393
3,027
Accounts receivable
2,763
2,682
Accrued
income
2,429
2,265
Leased assets and related assets
2,059
2,082
FHLB stock
2,426
1,279
ROU assets
1,151
1,193
Prepaid
expenses
1,177
1,162
Equity securities at fair value
857
898
Derivative assets
692
684
Other
792
874
Total
other assets
$
37,005
$
35,128
Truist Financial Corporation 53
Funding
Activities
Deposits
The following table presents average deposits:
Table
15: Average Deposits
Three Months Ended
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
Noninterest-bearing deposits
$
131,099
$
141,032
$
146,041
$
148,610
$
145,933
Interest
checking
108,886
110,001
111,645
112,375
112,159
Money market and savings
139,802
144,730
147,659
148,632
141,500
Time
deposits
28,671
17,513
14,751
14,133
15,646
Total average deposits
$
408,458
$
413,276
$
420,096
$
423,750
$
415,238
Average
deposits for the first quarter of 2023 were $408.5 billion, a decrease of $4.8 billion, or 1.2%, compared to the prior quarter. The decrease in deposits was primarily driven by the impacts of monetary tightening and higher-rate alternatives.
Average noninterest-bearing deposits decreased 7.0% compared to the prior quarter and represented 32.1% of total deposits for the first quarter of 2023 compared to 34.1% for the fourth quarter of 2022 and 35.1% compared to the year ago quarter. Noninterest-bearing deposits declined primarily due to clients seeking high-rate alternatives. Average money market and savings and interest checking declined 3.4% and 1.0%, respectively, compared to the prior quarter. Average time deposits increased 64% due to an increase in wholesale funding and retail-client time deposits.
Truist has a very granular and relationship-based
deposit franchise. Approximately 63% of deposits are insured or collateralized. Truist deposit accounts are typically based on long-term relationships and include multiple products and services. Truist has strong market share in many of the fastest-growing markets in the United States. Truist currently ranks 1st, 2nd, or 3rd in deposit share in 17 of our top 20 markets, including Atlanta, Charlotte, DC, Miami, Tampa, Orlando, and Raleigh-Durham, among others. Truist’s commercial deposits are diversified across 21 industry groups, with no one sector representing more than 10% of Corporate and Commercial Banking deposits.
The estimated amount of deposits that are uninsured was $175.9 billion and $189.6 billion as of March 31, 2023 and December 31, 2022, respectively, calculated using the same methodology as the
Call Report for Truist Bank. The decrease in uninsured deposits was largely due to commercial clients that chose to diversify into money market mutual funds or across multiple banks. These outflows were primarily higher-cost, non-operational deposits.
Borrowings
At March 31, 2023, short-term borrowings totaled $23.7 billion, an increase of $256 million compared to December 31, 2022. Average short-term borrowings were $24.1 billion, or 5.0% of total funding, for the three months ended March
31, 2023, as compared to $6.9 billion, or 1.5%, for the same period in the prior year.
Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued by Truist and Truist Bank. Long-term debt totaled $69.9 billion at March 31, 2023, an increase of $26.7 billion compared to December 31, 2022. This funding increase was largely to increase our cash position in response to market events. During the three months ended March 31, 2023, the Company had:
•Maturities and redemptions of $3.5 billion of senior notes.
•Issued
$1.5 billion fixed-to-floating rate senior notes with an interest rate of 4.87% due January 26, 2029 and $1.5 billion fixed-to-floating rate senior notes with an interest rate of 5.12% due January 26, 2034.
•Issued $27.0 billion notional, net, of prepayable FHLB floating rate advances with interest rates of 5.05% to 5.07% due April 10, 2024 to March 13, 2025.
The average cost of long-term debt was 4.05% for the three months ended March 31, 2023, up 255 basis points compared to the same period in 2022.
54 Truist
Financial Corporation
Shareholders’ Equity
Truist’s book value per common share and TBVPS are presented in the following table:
Table 16: Book Value per Common Share
(Dollars in millions, except per share data, shares in thousands)
Mar
31, 2023
Dec 31, 2022
Common equity per common share
$
41.82
$
40.58
Non-GAAP capital measure:(1)
Tangible common equity per common share
$
19.45
$
18.04
Calculation
of tangible common equity:(1)
Total shareholders’ equity
$
62,394
$
60,537
Less:
Preferred stock
6,673
6,673
Noncontrolling
interests
22
23
Goodwill and intangible assets, net of deferred taxes
29,788
29,908
Tangible common equity
$
25,911
$
23,933
Common
shares outstanding at end of period
1,331,918
1,326,829
(1)Tangible
common equity and related measures are non-GAAP measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. Truist’s management uses these measures to assess profitability, returns relative to balance sheet risk, and shareholder value.
Total shareholders’ equity was $62.4 billion at March 31, 2023, an increase of $1.9 billion from December 31, 2022. This increase includes $1.5 billion in net income and a $1.0 billion increase in AOCI, partially offset by $794 million in common and preferred dividends. Truist’s book value per common share at March 31, 2023 was $41.82, compared to $40.58
at December 31, 2022. Truist TBVPS of $19.45 at March 31, 2023, increased 7.8% compared to December 31, 2022 due to increases in AOCI, primarily related to AFS securities, and retained earnings.
Risk Management
Truist maintains a comprehensive risk management framework supported by people, processes, and systems to identify, measure, monitor, manage, and report significant risks arising from its exposures and business activities. Effective risk management involves optimizing risk and return while operating in a safe and sound manner, and promoting compliance with applicable laws
and regulations. The Company’s risk management framework promotes the execution of business strategies and objectives in alignment with its risk appetite.
Truist has developed and employs a risk framework that further guides business functions in identifying, measuring, responding to, monitoring, and reporting on possible exposures to the organization. The risk taxonomy drives internal risk measurement and monitoring and enables Truist to clearly and transparently communicate to stakeholders the level of potential risk the Company faces and the Company’s position on managing risk to acceptable levels.
Truist
is committed to fostering a culture that supports identification and escalation of risks across the organization. All teammates are responsible for upholding the Company’s purpose, mission, and values, and are encouraged to speak up if there is any activity or behavior that is inconsistent with the Company’s culture. The Truist code of ethics guides the Company’s decision making and informs teammates on how to act in the absence of specific guidance.
Truist seeks an appropriate return for the risk taken in its business operations. Risk-taking activities are evaluated and prioritized to identify those that present attractive risk-adjusted returns, while preserving
asset value and capital.
Truist’s compensation plans are designed to consider teammate’s adherence to and successful implementation of Truist’s risk values and associated policies and procedures. The Company’s compensation structure supports its core values and sound risk management practices in an effort to promote judicious risk-taking behavior.
Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional disclosures under the section titled “Risk Management.”
Market
Risk
Market risk is the risk to current or anticipated earnings, capital, or economic value arising from changes in the market value of portfolios, securities, or other financial instruments. Market risk results from changes in the level, volatility, or correlations among financial market risk factors or prices, including interest rates, credit spreads, foreign exchange rates, equity, and commodity prices.
Truist Financial Corporation 55
Effective management of market risk is essential to achieving Truist’s strategic financial objectives. Truist’s most significant market risk exposure is to interest rate risk in its balance sheet; however, market risk also results from underlying product liquidity
risk, price risk, and volatility risk in Truist’s business units. Interest rate risk results from differences between the timing of rate changes and the timing of cash flows associated with assets and liabilities (re-pricing risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options inherently embedded in bank products (options risk).
The primary objectives of effective market risk management are to minimize adverse effects from changes in market risk factors on net interest income, net income, and capital, and to offset the risk of price changes for certain assets and liabilities recorded at fair value. At Truist, market risk management also includes the enterprise-wide IPV function.
Interest
Rate Market Risk
As a financial institution, Truist is exposed to interest rate risk from assets, liabilities, and off-balance sheet positions. To keep net interest margin as stable as possible, Truist actively manages its interest rate risk exposure through the strategic repricing of its assets and liabilities, taking into account the volumes, maturities, and mix. Truist primarily uses three methods to measure and monitor its interest rate risk: (i) simulations of possible changes to net interest income over the next two years based on gradual changes in interest rates; (ii) analysis of interest rate shock scenarios; and (iii) analysis of economic value of equity based on changes in interest rates.
The Company’s simulation model takes into account assumptions related
to prepayment trends, using a combination of market data and internal historical experiences for deposits and loans, as well as scheduled maturities and payments, and the expected outlook for the economy and interest rates. These assumptions are reviewed and adjusted monthly to reflect changes in current interest rates compared to the rates applicable to Truist’s assets and liabilities. The model also considers Truist’s current and prospective liquidity position, current balance sheet volumes, projected growth and/or contractions, accessibility of funds for short-term needs and capital maintenance.
Deposit betas (the sensitivity of deposit rate changes relative to market rate changes) are an important assumption in the interest rate risk modeling process. Truist applies deposit beta assumptions to non-maturity interest-bearing deposit accounts when determining its interest rate sensitivity. Non-maturity,
interest-bearing deposit accounts include interest checking accounts, savings accounts, and money market accounts that do not have a contractual maturity. Truist applies an average deposit beta of approximately 50% to its non-maturity interest-bearing accounts when determining its interest rate sensitivity. Truist also regularly conducts sensitivity analyses on other key variables, including noninterest-bearing deposits, to determine the impact these variables could have on the Company’s interest rate risk position. The predictive value of the simulation model depends upon the accuracy of the assumptions, but management believes that it provides helpful information for the management of interest rate risk.
The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected
for the next 12 months assuming a gradual change in interest rates as described below.
Annualized Hypothetical Percentage Change in Net Interest Income
Gradual Change in Prime Rate (bps)
Prime Rate
Mar 31, 2023
Mar 31, 2022
Mar 31, 2023
Mar 31, 2022
Up
100
9.00
%
4.50
%
(0.29)
%
4.27
%
Up 50
8.50
4.00
(0.11)
3.29
No
Change
8.00
3.50
—
—
Down 50(1)
7.50
3.00
(0.58)
(3.46)
Down
100(1)
7.00
2.50
(0.70)
(3.64)
(1)The Down 50 and 100 rate scenarios incorporate a floor of one basis point.
Rate sensitivity decreased compared to prior periods, primarily driven by higher starting rates, higher deposit betas as rates increase and move into the highest
beta tiers, and the addition of forward starting swaps.
Management considers how the interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry was very strong post-COVID-19, which resulted in growth in noninterest-bearing demand deposits. However, with the significant increase in rates in 2022 and the first quarter of 2023, noninterest-bearing deposits have begun to shift to interest-bearing accounts. Additional movement above what is currently projected would reduce the asset sensitivity of Truist’s balance sheet because the Company may increase interest-bearing funds to offset the loss of these advantageous noninterest-bearing deposits. Alternatively,
the Company may reduce the size of its investment portfolio to offset the loss of noninterest-bearing demand deposits to limit the impact on the balance sheet’s asset sensitivity. The behavior of these noninterest-bearing deposits is one of the most important assumptions used in determining the interest rate risk position of Truist.
56 Truist Financial Corporation
The following table shows the results of Truist’s interest-rate sensitivity position assuming the loss of additional demand deposits and an associated increase in managed rate deposits versus current projections under various interest rate scenarios. For purposes of this analysis, Truist modeled the incremental beta of managed
rate deposits for the replacement of the demand deposits at 100%.
Results
Assuming a Decrease in Noninterest-Bearing Demand Deposits
$20 Billion
$40 Billion
Up 100
(0.29)
%
(1.01)
%
(1.72)
%
Up 50
(0.11)
(0.63)
(1.15)
(1)The
base scenario is equal to the annualized hypothetical percentage change in net interest income at March 31, 2023 as presented in the preceding table.
Truist uses financial instruments including derivatives to manage interest rate risk related to securities, commercial loans, MSRs, and mortgage banking operations, long-term debt, and other funding sources. Truist has utilized derivatives to facilitate transactions on behalf of its clients and as part of associated hedging activities. As of March 31, 2023, Truist had derivative financial instruments outstanding with notional amounts totaling $363.0 billion. See “Note 16. Derivative Financial Instruments” for additional disclosures.
LIBOR Transition
For
most tenors of U.S. dollar LIBOR, the administrator of LIBOR extended publication until June 30, 2023. To prepare for the transition to an alternative reference rate, management formed a cross-functional project team to address the LIBOR transition. The project team performed an assessment to identify the potential risks related to the transition from LIBOR to a new index or multiple indices and provides updates to Executive Leadership and the Board. As of March 31, 2023, Truist had outstanding LIBOR-based instruments that mature after June 30, 2023, including loan and lease exposures totaling approximately $98 billion, notional derivative exposure totaling approximately $131 billion, long-term debt of $1.1 billion, and preferred stock of $1.5 billion. These amounts are inclusive of remediated contracts,
which contain adequate fallback language for the transition.
Contract fallback language for existing loans and leases has been reviewed and certain contracts require amendments to support the transition away from LIBOR. Impacted lines of business have started remediating these contracts to include standardized fallback language or amending contracts to new reference rates at maturities or based on client request. Current fallback language used to remediate contracts
that mature after June 30, 2023 is generally consistent with ARRC recommendations and includes use of “hardwired fallback” language, which will transition loans to a SOFR based rate after June 30, 2023.
The progress and approach to remediation varies based on the type of contract and existing language used in the agreement. For commercial lending, a significant number of remaining LIBOR contracts required client outreach and remediation. Through mid-2022, the Company’s primary focus was supporting new loan production using SOFR and other alternative
reference rates as well as transitioning any renewing LIBOR based contracts to alternative reference rates. Efforts have shifted to amend and remediate contracts, excluding mortgage and student loans, that mature post June 30, 2023 ($90 billion), which will continue to be the focus during 2023. Of the contracts remaining on LIBOR that have not yet been remediated or modified to a new reference rate, Truist’s intends to add updated fallback language or move these contracts to new reference rates prior to cessation. A significant portion of these contracts
contain existing fallback language that will transition the contract to a Prime based rate if not remediated, while a smaller population contains no historical fallback language. Should the institution be unable to remediate all contracts, those based on Prime will be prioritized to provide a more consistent client experience with the “hardwired fallback” transition to SOFR. If there are remaining contracts without fallback language, Truist may leverage the LIBOR Act and corresponding safe harbor provision to transition these loans to SOFR.
Truist’s adjustable-rate mortgage products ($3.4 billion) have consistent and adequate fallback
language to transition away from LIBOR in line with industry expectations; therefore, these contracts do not require remediation. Remediation of student loans ($4.4 billion) will follow recent guidance from the Department of Education on the replacement rate for payment allowances on certain student loans and recent guidance from the CFPB to allow transition to “comparable rates,” in the private student loan portfolio, where LIBOR is used directly. Based on the recent guidance, these portfolios will transition to rates based on SOFR.
Upon the discontinuation of LIBOR, derivatives that reference LIBOR will transition to a SOFR-based replacement rate as set forth in the ISDA protocol addressing LIBOR fallbacks through bilateral amendments, or as established under the LIBOR Act and rules promulgated thereunder by
the FRB. Certain derivatives without a clearly defined or practicable replacement benchmark rate will use the LIBOR Act to replace LIBOR with a SOFR-based rate established by FRB rulemaking and follow the ISDA protocol for transition. This legislation will also provide additional administrative benefit for a small portion of the commercial and consumer lending portfolios where contracts do not contain fallback language and have not yet been remediated, providing a remediation path to a SOFR based rate.
Truist Financial Corporation 57
In addition, the transition from LIBOR to an alternative reference rate, such as SOFR, for the
Company’s preferred stock and the Company’s and Truist Bank’s floating rate notes is dependent on a number of factors, including the fallback language for the applicable series of preferred stock or notes, the application of the LIBOR Act and the rules promulgated thereunder by the FRB, determinations to be made by third-party calculation or paying agents rather than the Company or Truist Bank as to the replacement rates, and the impact of any publication of a synthetic U.S. dollar LIBOR as currently proposed by the Financial Conduct Authority. With the most recent information available on these factors, Truist expects preferred stock issuances to utilize LIBOR to transition to SOFR. See “Note 12. Shareholders’ Equity” for information about preferred stock using LIBOR.
Training
has been provided for impacted teammates and will continue during 2023. Truist will continue to provide timely notices and information to impacted clients about the transition during the first half of 2023. Truist continues to manage the impact of these contracts and other financial instruments, systems implications, hedging strategies, and related operational and market risks on established project plans for business and operational readiness to support the transition.
As of December 31, 2021, Truist ceased entering into new contracts with a LIBOR reference rate for all product offerings, except on a limited basis, as permissible. The
Company is actively using SOFR as a reference rate and has originated approximately $124 billion of loans, issued $12.4 billion of senior and subordinated notes, including fixed rate notes that convert to SOFR in the future, and has $108 billion in notional derivative exposure using this alternative reference rate as of March 31, 2023. Alternatives, such as SOFR, may react differently from LIBOR in times of economic stress. Truist expects SOFR to be the primary pricing benchmark used across the industry and will continue to offer additional SOFR based products. Market risks associated with the transition to alternative reference rates are dependent on market conditions as loans are transitioned to alternative reference rates during 2022 and early 2023. Additional alternative reference rates, such as Bloomberg Short Term Bank Yield, will be supported based on market demand. For a further discussion of the various risks
associated with the potential cessation of LIBOR and the transition to alternative reference rates, refer to the section titled “Item1A. Risk Factors” in the Form 10-K for the year ended December 31, 2022.
Market Risk from Trading Activities
As a financial intermediary, Truist provides its clients access to derivatives, foreign exchange and securities markets, which generate market risks. Trading market risk is managed using a comprehensive risk management approach, which includes measuring risk using VaR, stress testing, and sensitivity analysis. Risk metrics are monitored against a suite of limits on a daily basis at both the trading desk level and at the aggregate portfolio level, which is intended to ensure that exposures are in line with Truist’s risk appetite.
Truist
is also subject to risk-based capital guidelines for market risk under the Market Risk Rule.
Covered Trading Positions
Covered positions subject to the Market Risk Rule include trading assets and liabilities, specifically those held for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits. Truist’s trading portfolio of covered positions results primarily from market making and underwriting services for the Company’s clients, as well as associated risk mitigating hedging activity. The trading portfolio, measured in terms of VaR, consists primarily of four sub-portfolios of covered positions: (i) credit trading, (ii) fixed income securities, (iii) interest rate derivatives,
and (iv) equity derivatives. As a market maker across different asset classes, Truist’s trading portfolio also contains other sub-portfolios, including foreign exchange, loan trading, and commodity derivatives; however, these portfolios do not generate material trading risk exposures.
Valuation policies and methodologies exist for all trading positions. Additionally, these positions are subject to independent price verification. See “Note 16. Derivative Financial Instruments,”“Note 15. Fair Value Disclosures,” and “Critical Accounting Policies” herein for discussion of valuation policies and methodologies.
Securitizations
As of March 31, 2023, the aggregate market value of on-balance sheet securitization positions
subject to the Market Risk Rule was $18 million, all of which were non-agency asset backed securities positions. Consistent with the Market Risk Rule requirements, the Company performs pre-purchase due diligence on each securitization position to identify the characteristics including, but not limited to, deal structure and the asset quality of the underlying assets, that materially affect valuation and performance. Securitization positions are subject to Truist’s comprehensive risk management framework, which includes daily monitoring against a suite of limits. There were no off-balance sheet securitization positions during the reporting period.
Correlation Trading Positions
The trading portfolio of covered positions did not contain any correlation trading positions
as of March 31, 2023.
58 Truist Financial Corporation
VaR-Based Measures
VaR measures the potential loss of a given position or portfolio of positions at a specified confidence level and time horizon. Truist utilizes a historical VaR methodology to measure and aggregate risks across its covered trading positions. For risk management purposes, the VaR calculation is based on a historical simulation approach and measures the potential trading losses using a one-day holding period at a one-tail, 99% confidence level. For Market Risk Rule purposes, the Company calculates VaR
using a 10-day holding period and a 99% confidence level. Due to inherent limitations of the VaR methodology, such as the assumption that past market behavior is indicative of future market performance, VaR is only one of several tools used to measure and manage market risk. Other tools used to actively manage market risk include stress testing, scenario analysis, and stop loss limits.
The trading portfolio’s VaR profile is influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. A portfolio of trading positions is typically less risky than the sum of the risk from each of the individual sub-portfolios, because, under normal market conditions, risk within each category partially offsets the exposure to other risk categories. The following table summarizes certain VaR-based measures for the three months ended
March 31, 2023 and 2022. Average one and ten-day VaR measures for the year ended March 31, 2023 decreased from the same period of last year, primarily driven by lower market making inventory.
Stressed VaR, another component of market risk capital, is calculated using the same internal models as used for the VaR-based measure. Stressed VaR is calculated over a ten-day holding period at a one-tail, 99% confidence level and employs a historical simulation approach based on a continuous twelve-month historical window selected to reflect a period of significant financial stress for the Company’s trading portfolio. The following table summarizes Stressed VaR-based measures:
Table
20: Stressed VaR-based Measures - 10 Day Holding Period
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Maximum
$
77
$
109
Average
44
76
Minimum
25
59
Period-end
31
72
Compared
to the prior year, Stressed VaR measures decreased primarily due to lower market making inventory levels in 2023.
Specific Risk Measures
Specific risk is a measure of idiosyncratic risk that could result from risk factors other than broad market movements (e.g., default or event risks). The Market Risk Rule provides fixed risk weights under a standardized measurement method while also allowing a model-based approach, subject to regulatory approval. Truist utilizes the standardized measurement method to calculate the specific risk component of market risk regulatory capital. As such, incremental risk capital requirements do not apply.
Truist Financial Corporation 59
VaR
Model Backtesting
In accordance with the Market Risk Rule, the Company evaluates the accuracy of its VaR model through daily backtesting by comparing aggregate daily trading gains and losses (excluding fees, commissions, reserves, net interest income, and intraday trading) from covered positions with the corresponding daily VaR-based measures generated by the model. As illustrated in the following graph, there were no Company-wide VaR backtesting exceptions during the twelve months ended March 31, 2023. The total number of Company-wide VaR backtesting exceptions over the preceding twelve months is used to determine the multiplication factor for the VaR-based capital requirement under the Market Risk Rule. The capital multiplication factor increases from a minimum of three to
a maximum of four, depending on the number of exceptions. All Company-wide VaR backtesting exceptions are thoroughly reviewed in the context of VaR model use and performance. There was no change in the capital multiplication factor over the preceding twelve months.
Model Risk Oversight
MRO is responsible for the independent model validation of all decision tools and models including trading market risk models. The validation activities are conducted in accordance with MRO policy, which incorporates regulatory guidance related to the evaluation of model conceptual soundness, ongoing monitoring, and outcomes analysis. As part of ongoing monitoring efforts, the performance of all trading risk models are reviewed regularly to preemptively
address emerging developments in financial markets, assess evolving modeling approaches, and identify potential model enhancement.
Stress Testing
The Company uses a comprehensive range of stress testing techniques to help monitor risks across trading desks and to augment standard daily VaR and other risk limits reporting. The stress testing framework is designed to quantify the impact of extreme, but plausible, stress scenarios that could lead to large, unexpected losses. Stress tests include simulations for historical repeats and hypothetical risk factor shocks. All trading positions within each applicable market risk category (interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk) are included in the
Company’s comprehensive stress testing framework. Management reviews stress testing scenarios on an ongoing basis and makes updates, as necessary, which is intended to ensure that both current and emerging risks are captured appropriately. Management also utilizes stress analyses to support the Company’s capital adequacy assessment standards. See the “Capital” section of MD&A for additional discussion of capital adequacy.
Liquidity
Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level
of liquid assets, such as cash, cash equivalents, and AFS securities, other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity, growing core deposits, loan repayment, and the ability to securitize or package loans for sale.
60 Truist Financial Corporation
Truist monitors the ability to meet client demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates Truist’s funding mix based on client core funding, client rate-sensitive funding, and national markets funding. In addition, management evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against
30 days of stressed cash outflows for Truist and Truist Bank. To ensure a strong liquidity position and compliance with regulatory requirements, management maintains a liquid asset buffer of cash on hand and highly liquid unencumbered securities.
Internal Liquidity Stress Testing
Liquidity stress testing is designed to ensure that Truist and Truist Bank have sufficient liquidity for a variety of institution-specific and market-wide adverse scenarios. Each liquidity stress test scenario applies defined assumptions to execute sources and uses of liquidity over varying planning horizons. The types of expected liquidity uses during a stressed event may include deposit attrition, contractual maturities, reductions in unsecured and secured funding, and increased draws on unfunded commitments. To mitigate liquidity outflows, Truist has identified sources
of liquidity; however, access to these sources of liquidity could be affected within a stressed environment.
Truist maintains a liquidity buffer of cash on hand and highly liquid unencumbered securities that is sufficient to meet the projected net stressed cash-flow needs and maintain compliance with regulatory requirements. The liquidity buffer consists of unencumbered highly liquid assets and Truist’s liquidity buffer is substantially the same in composition to what qualifies as HQLA under the LCR Rule.
Contingency Funding Plan
Truist has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and commitments, particularly in the event of a liquidity contraction. This plan is designed to examine and quantify the organization’s
liquidity under the various internal liquidity stress scenarios and is periodically tested to assess the plan’s reliability. Additionally, the plan provides a framework for management and other teammates to follow in the event of a liquidity contraction or in anticipation of such an event. The plan addresses authority for activation and decision making, liquidity options, and the responsibilities of key departments in the event of a liquidity contraction.
LCR and HQLA
The LCR rule requires that Truist and Truist Bank maintain an amount of eligible HQLA that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of stress. Eligible HQLA, for purposes of calculating the LCR, is the amount of unencumbered HQLA that satisfy operational requirements of the LCR rule. Truist and Truist Bank are subject to
the Category III reduced LCR requirements. Truist held average weighted eligible HQLA of $87.4 billion and Truist’s average LCR was 113% for the three months ended March 31, 2023.
Effective July 2021, Truist became subject to final rules implementing the NSFR, which are designed to ensure that banking organizations maintain a stable, long-term funding profile in relation to their asset composition and off-balance sheet activities. At March 31, 2023, the Company was compliant with this requirement.
Sources of Funds
Management believes current sources of liquidity are sufficient to meet Truist’s on- and off-balance
sheet obligations. Truist funds its balance sheet through diverse sources of funding including client deposits, secured and unsecured capital markets funding, and shareholders’ equity. Truist Bank’s primary source of funding is client deposits. Continued access to client deposits is highly dependent on public confidence in the stability of Truist Bank and its ability to return funds to clients when requested.
Truist Bank maintains a number of diverse funding sources to meet its liquidity requirements. These sources include unsecured borrowings from the capital markets through the issuance of senior or subordinated bank notes, institutional CDs, overnight and term Federal funds markets, and retail brokered CDs. Truist Bank also maintains access to secured borrowing sources including FHLB advances, repurchase agreements, and the FRB discount window. Available investment securities could be pledged to create
additional secured borrowing capacity. The following table presents a summary of Truist Bank’s available secured borrowing capacity and eligible cash at the FRB:
Table 21: Selected Liquidity Sources
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Unused borrowing capacity:
FRB
$
53,291
$
49,250
FHLB
24,678
20,770
Available
investment securities (after haircuts)
56,626
85,401
Available secured borrowing capacity
134,595
155,421
Eligible cash at the FRB
31,544
15,556
Total
$
166,139
$
170,977
Truist
Financial Corporation 61
At March 31, 2023, Truist Bank’s available secured borrowing capacity represented approximately 3.6 times the amount of wholesale funding maturities in one-year or less. Truist additionally has the ability to increase sources of funding by pledging available investment securities without a haircut on fair value under the FRB Bank Term Funding Program.
Parent Company
The Parent Company serves as the primary source of capital for the operating subsidiaries. The Parent Company’s assets consist primarily of cash on deposit with Truist Bank, equity
investments in subsidiaries, advances to subsidiaries, and notes receivable from subsidiaries. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiaries, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are investments in subsidiaries,
advances to subsidiaries, dividend payments to common and preferred shareholders, repurchases of common stock, and payments on long-term debt. See “Note 22. Parent Company Financial Information” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding dividends from subsidiaries and debt transactions.
Access to funding at the Parent Company is more sensitive to market disruptions. Therefore, Truist prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities,
without the benefit of any new cash inflows. Truist maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, Truist considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, serving as a source of strength to Truist Bank, and being able to withstand sustained market disruptions that could limit access to the capital markets. At March 31, 2023 and December 31, 2022, the Parent Company had 45 months and 37 months, respectively, of cash on hand to satisfy projected cash outflows, and 26 months and 22 months, respectively, when including the payment of common stock dividends.
Credit Ratings
Credit ratings are forward-looking opinions of rating agencies as to the
Company’s ability to meet its financial commitments and repay its securities and obligations in accordance with their terms of issuance. Credit ratings influence both borrowing costs and access to the capital markets. The Company’s credit ratings are continuously monitored by the rating agencies and are subject to change at any time. As Truist seeks to maintain high-quality credit ratings, management meets with the major rating agencies on a regular basis to provide financial and business updates and to discuss current outlooks and trends. See Item 1A, “Risk Factors” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding factors that influence credit ratings and potential risks that could materialize in the event of downgrade in the
Company’s credit ratings: Recent changes in the Company’s credit ratings and outlooks include:
On March 31,2023, S&P Global Ratings affirmed the ratings of Truist and Truist Bank and revised the outlook on those ratings to “stable” from “positive,” citing heightened market volatility in the wake of recent bank failures and, with inflation still elevated, higher uncertainty, and greater downside risk in the economic outlook. The change in outlook was part of a broader action by S&P Global Ratings whereby the “positive” outlook on three other large U.S. banks was revised to “stable.”
Capital
The
maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. Truist’s principal goals related to the maintenance of capital are to provide adequate capital to support Truist’s risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for Truist and its subsidiaries, remain a source of strength for its subsidiaries, and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital, and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
62 Truist
Financial Corporation
Truist regularly performs stress testing on its capital levels and is required to periodically submit the Company’s capital plans and stress testing results to the banking regulators. Management regularly monitors the capital position of Truist on both a consolidated and bank-level basis. In this regard, management’s objective is to maintain capital at levels that are in excess of internal capital limits, which are above the regulatory “well capitalized” minimums. Management has implemented internal stress capital ratio minimums to evaluate whether capital ratios calculated after the effect of alternative capital actions are likely to remain above internal minimums. Breaches of internal stressed minimums prompt a review of the planned capital actions
included in Truist’s capital plan.
Table 22: Capital Requirements
Minimum Capital
Well Capitalized
Minimum
Capital Plus Stress Capital Buffer(1)
Truist
Truist Bank
CET1
4.5
%
NA
6.5
%
7.0
%
Tier
1 capital
6.0
6.0
%
8.0
8.5
Total capital
8.0
10.0
10.0
10.5
Leverage
ratio
4.0
NA
5.0
NA
Supplementary leverage ratio
3.0
NA
NA
NA
(1)Reflects
a SCB requirement of 2.5% applicable to Truist as of March 31, 2023. Truist’s SCB requirement, received in the 2022 CCAR process, is effective from October 1, 2022 to September 30, 2023. Truist will receive a new preliminary SCB requirement, to become effective October 1, 2023, following the release of CCAR 2023 results in late June 2023.
Truist’s capital ratios are presented in the following table:
Table
23: Capital Ratios - Truist Financial Corporation
(Dollars in millions)
Mar 31, 2023
Dec 31, 2022
Risk-based:
(preliminary)
CET1
9.1
%
9.0
%
Tier 1
capital
10.6
10.5
Total capital
12.6
12.4
Leverage ratio
8.5
8.5
Supplementary leverage ratio
7.3
7.3
Risk-weighted
assets
$
436,549
$
434,413
Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. Truist declared common dividends of $0.52 per share during the first quarter of 2023. The dividend payout ratio for the first quarter of 2023 was 49%. Truist did not repurchase any shares in the first quarter of 2023 outside of standard activity related to equity compensation plans.
Truist CET1 ratio was 9.1% as of
March 31, 2023. The increase since December 31, 2022 represents organic capital generation, partially offset by the CECL phase-in. Truist closed the sale of the minority stake in Truist Insurance Holdings on April 3, 2023, which adds 30 basis points and 24 basis points to the risk-based regulatory capital ratios and leverage ratios, respectively.
Share Repurchase Activity
Table
24: Share Repurchase Activity
(Dollars in millions, except per share data, shares in thousands)
Total Number of Shares Purchased(1)
Average Price Paid Per Share(2)
Total Number of Shares Purchased as part of Publicly Announced Plans(3)
Approximate Dollar Value of Shares that may yet be Purchased Under the Plans(3)
(1)Includes
shares exchanged or surrendered in connection with the exercise of equity-based awards under equity-based compensation plans.
(2)Excludes commissions.
(3)In July 2022, the Board of Directors approved, effective October 1, 2022, new repurchase authority to effectuate repurchases up to an aggregate of $4.1 billion in shares of the Company’s common stock through September 30, 2023.
Truist Financial Corporation 63
Critical
Accounting Policies
The accounting and reporting policies of Truist are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Truist’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations, and related disclosures. Material estimates that are particularly susceptible to significant change include the determination of the ACL; determination of fair value for securities, MSRs, LHFS, trading loans, and derivative assets and liabilities; goodwill and other intangible
assets; income taxes; and pension and postretirement benefit obligations. Understanding Truist’s accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. The critical accounting policies are discussed in MD&A in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in “Note 1. Basis of Presentation” in Form 10-K for the year ended December 31, 2022. Disclosures regarding the effects of new accounting pronouncements are included in “Note 1. Basis of Presentation” in this report. There have been no changes to the significant accounting policies during 2023.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company’s CEO and CFO, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as
of the end of the period covered by the report.
Changes in Internal Control over Financial Reporting
Management of Truist is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the Litigation and Regulatory Matters section in “Note 14. Commitments and Contingencies,” which is incorporated
by reference into this item.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022. Additional risks and uncertainties not currently known to Truist or that management has deemed to be immaterial also may materially adversely affect Truist’s business, financial condition, or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Refer
to the Share Repurchase Activity section in the MD&A, which is incorporated by reference into this item.
64 Truist Financial Corporation
ITEM 6. EXHIBITS
Exhibit
No.
Description
Location
10.1*
Form
of Restricted Stock Unit Agreement (Senior Executive – 60/5 Retirement) for the Truist Financial Corporation 2022 Incentive Plan.
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.