BB&T Corp.
BB&T Corp. details
BB&T Corp. engages in the provision of banking and trust services through its subsidiaries. It operates through the following segments: Community Banking-Retail; Community Banking-Commercial; Insurance Holdings; and Financial Services and Commercial Finance; Other, Treasury and Corporate. The Community Banking-Retail segment offers a variety of loan and deposit products, payment services, bankcard products, and other financial services. The Community Banking-Commercial segment includes commercial real estate lending, commercial and industrial lending, corporate banking, asset based-lending, dealer inventory financing, tax exempt financing, cash management and treasury services, and commercial deposit products. The Insurance Holdings segment covers property and casualty, employee benefits, and life insurance to businesses and individuals. The Financial Services and Commercial Finance segment consists of personal trust administration, estate planning, investment counseling, wealth management, asset management, corporate retirement services, capital markets and corporate banking services, corporate trust services and specialty finance products to businesses. The Other, Treasury and Corporate segment comprises of the combination of other segment that represents operating entities. The company was was founded by Alpheus Branch in 1872 and is headquartered in Winston-Salem, NC.
Ticker:BBT
Employees: 35852
Filing
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________
FORM 10-Q
_________________________________________________________________
☒ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2022
Commission File Number: 1-10853
TRUIST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
_________________________________________________________________
North Carolina 56-0939887
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
214 North Tryon Street
Charlotte, North Carolina 28202
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (336) 733-2000
_________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $5 par value TFC New York Stock Exchange
Depositary Shares each representing 1/4,000th interest in a share of Series I Perpetual Preferred Stock TFC.PI New York Stock Exchange
5.853% Fixed-to-Floating Rate Normal Preferred Purchase Securities each representing 1/100th interest in a share of Series J Perpetual Preferred Stock TFC.PJ New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series O Non-Cumulative Perpetual Preferred Stock TFC.PO New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series R Non-Cumulative Perpetual Preferred Stock TFC.PR New 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. Yes ☒ 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). Yes ☒ 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.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
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 ☐ No ☒
At September 30, 2022, 1,326,766,288 shares of the registrant’s common stock, $5 par value, were outstanding.
TABLE OF CONTENTS
TRUIST FINANCIAL CORPORATION
FORM 10-Q
September 30, 2022
Page No.
PART I - Financial Information
Glossary of Defined Terms 1
Forward-Looking Statements 3
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) 4
Consolidated Statements of Income (Unaudited) 5
Consolidated Statements of Comprehensive Income (Unaudited) 6
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) 7
Consolidated Statements of Cash Flows (Unaudited) 8
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation 9
Note 2. Business Combinations 10
Note 3. Securities Financing Activities 10
Note 4. Investment Securities 11
Note 5. Loans and ACL 13
Note 6. Goodwill and Other Intangible Assets 20
Note 7. Loan Servicing 21
Note 8. Other Assets and Liabilities 22
Note 9. Borrowings 23
Note 10. Shareholders’ Equity 23
Note 11. AOCI 24
Note 12. Income Taxes 24
Note 13. Benefit Plans 25
Note 14. Commitments and Contingencies 25
Note 15. Fair Value Disclosures 28
Note 16. Derivative Financial Instruments 32
Note 17. Computation of EPS 36
Note 18. Operating Segments 36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Regulatory Considerations 38
Executive Overview 38
Analysis of Results of Operations 41
Analysis of Financial Condition 50
Risk Management 57
Liquidity 63
Capital 65
Share Repurchase activity 66
Critical Accounting Policies 67
Item 3. Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management in MD&A) 58
Item 4. Controls and Procedures 67
PART II - Other Information
Item 1. Legal Proceedings 67
Item 1A. Risk Factors 67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 67
Item 3. Defaults Upon Senior Securities - (none)
Item 4. Mine Safety Disclosures - (not applicable)
Item 5. Other Information - (none to be reported)
Item 6. Exhibits 68
Glossary of Defined Terms
The following terms may be used throughout this report, including the consolidated financial statements and related notes.
Term Definition
ACL Allowance for credit losses
AFS Available-for-sale
Agency MBS Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL Allowance for loan and lease losses
ARRC Alternative Reference Rates Committee of the FRB and the Federal Reserve Bank of New York
AOCI Accumulated other comprehensive income (loss)
BB&T BB&T Corporation and subsidiaries (changed to “Truist Financial Corporation” effective with the Merger)
Board Truist’s Board of Directors
C&CB Corporate and Commercial Banking, an operating segment
CARES Act The Coronavirus Aid, Relief, and Economic Security Act
CB&W Consumer Banking and Wealth, an operating segment
CCAR Comprehensive Capital Analysis and Review
CDI Core deposit intangible
CECL Current expected credit loss model
CEO Chief Executive Officer
CFO Chief Financial Officer
CET1 Common equity tier 1
CFPB Consumer Financial Protection Bureau
Company Truist Financial Corporation and its subsidiaries (interchangeable with “Truist” below)
COVID-19 Coronavirus disease 2019
CRE Commercial real estate
CRO Chief Risk Officer
CVA Credit valuation adjustment
DIF Deposit Insurance Fund administered by the FDIC
DTA Deferred tax asset
EPS Earnings per common share
ESG Environmental, Social, and Governance
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FRB Board of Governors of the Federal Reserve System
GAAP Accounting principles generally accepted in the United States of America
GDP Gross Domestic Product
GSE U.S. government-sponsored enterprise
HFI Held for investment
HQLA High-quality liquid assets
HTM Held-to-maturity
IH Insurance Holdings, an operating segment
IPV Independent price verification
ISDA International Swaps and Derivatives Association, Inc.
LCR Liquidity Coverage Ratio
LHFS Loans held for sale
LIBOR London Interbank Offered Rate
LOCOM Lower of cost or market
Market Risk Rule Market risk capital requirements issued jointly by the OCC, U.S. Treasury, FRB, and FDIC
MBS Mortgage-backed securities
MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger Merger of BB&T and SunTrust effective December 6, 2019
MRM Model Risk Management
MSR Mortgage servicing right
NA Not applicable
NIM Net interest margin, computed on a TE basis
NM Not meaningful
NPA Nonperforming asset
NPL Nonperforming loan
NSFR Net stable funding ratio
NYSE New York Stock Exchange
OAS Option adjusted spread
OCC Office of the Comptroller of the Currency
OCI Other comprehensive income (loss)
OPEB Other post-employment benefit
OREO Other real estate owned
OT&C Other, Treasury and Corporate
Parent Company Truist Financial Corporation, the parent company of Truist Bank and other subsidiaries
Truist Financial Corporation 1
Term Definition
PCD Purchased credit deteriorated loans
PPP Paycheck Protection Program, established by the CARES Act
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.
Tailoring Rules The final rules changing the applicability thresholds for regulatory capital and liquidity requirements, issued by the OCC, FRB, and FDIC, together with the final rules changing the applicability thresholds for enhanced prudential standards issued by the FRB
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, 2021:
• residual risks and uncertainties relating to the Merger of heritage BB&T and heritage SunTrust, including the ability to realize the anticipated benefits of the Merger;
• expenses relating to the Merger and application and data center decommissioning;
• deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;
• the COVID-19 pandemic disrupted the global economy and adversely impacted Truist’s financial condition and results of operations, including through increased expenses, reduced fee income and net interest margin, decreased demand for certain types of loans, and increases in the allowance for credit losses; a resurgence of the pandemic, whether due to new variants of the coronavirus or other factors, could reintroduce or prolong these negative impacts and also adversely affect Truist’s capital and liquidity position or cost of capital, impair the ability of borrowers to repay outstanding loans, cause an outflow of deposits, and impair goodwill or other assets;
• Truist is subject to credit risk by lending or committing to lend money, and 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;
• changes in the interest rate environment, including the replacement of LIBOR as an interest rate benchmark, which could adversely affect Truist’s revenue and expenses, the value of assets and obligations, and the availability and cost of capital, cash flows, and liquidity;
• inability to access short-term funding or liquidity, loss of client deposits or changes in Truist’s credit ratings, which could increase the cost of funding or limit access to capital markets;
• risk management oversight functions may not identify or address risks adequately, and management may not be able to effectively manage credit risk;
• risks resulting from the extensive use of models in Truist’s business, which may impact decisions made by management and regulators;
• failure 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, 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, which could damage Truist’s reputation;
• increased scrutiny regarding Truist’s consumer sales practices, training practices, incentive compensation design, and governance;
• regulatory matters, litigation or other legal actions, which may result in, among other things, costs, fines, penalties, restrictions on Truist’s business activities, reputational harm, negative publicity, or other adverse consequences;
• evolving legislative, accounting and regulatory standards, including with respect to climate, capital, and liquidity requirements, and results of regulatory examinations may adversely affect Truist’s financial condition and results of operations;
• the monetary and fiscal policies of the federal government and its agencies, including in response to rising inflation, could have a material adverse effect on the economy and Truist’s profitability;
• 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;
• 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 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;
• 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;
• 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 and integration activities could be adversely impacted, which could be exacerbated in the increased work-from-home environment caused by the COVID-19 pandemic as job markets may be less constrained by physical geography;
• 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, cyber-attacks, which have increased in frequency with current 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.
Truist Financial Corporation 3
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands) Sep 30, 2022 Dec 31, 2021
Assets
Cash and due from banks $ 5,031 $ 5,085
Interest-bearing deposits with banks 17,194 15,210
Securities borrowed or purchased under agreements to resell 2,568 4,028
Trading assets at fair value 5,864 4,423
AFS securities at fair value 72,978 153,123
HTM securities ($48,975 and $1,495 at fair value, respectively) 58,754 1,494
LHFS (including $1,868 and $3,544 at fair value, respectively) 2,304 4,812
Loans and leases (including $19 and $23 at fair value, respectively) 314,335 289,513
ALLL ( 4,205 ) ( 4,435 )
Loans and leases, net of ALLL 310,130 285,078
Premises and equipment 3,585 3,700
Goodwill 26,810 26,098
CDI and other intangible assets 3,726 3,408
Loan servicing rights at fair value 3,797 2,633
Other assets (including $2,027 and $3,436 at fair value, respectively) 35,697 32,149
Total assets $ 548,438 $ 541,241
Liabilities
Noninterest-bearing deposits $ 144,826 $ 145,892
Interest-bearing deposits 271,166 270,596
Short-term borrowings (including $1,905 and $1,731 at fair value, respectively) 25,687 5,292
Long-term debt 31,172 35,913
Other liabilities (including $3,407 and $586 at fair value, respectively) 14,776 14,277
Total liabilities 487,627 471,970
Shareholders’ Equity
Preferred stock 6,673 6,673
Common stock, $5 par value 6,634 6,639
Additional paid-in capital 34,487 34,565
Retained earnings 25,344 22,998
AOCI, net of deferred income taxes ( 12,350 ) ( 1,604 )
Noncontrolling interests 23 —
Total shareholders’ equity 60,811 69,271
Total liabilities and shareholders’ equity $ 548,438 $ 541,241
Common shares outstanding 1,326,766 1,327,818
Common shares authorized 2,000,000 2,000,000
Preferred shares outstanding 223 223
Preferred shares authorized 5,000 5,000
The accompanying notes are an integral part of these consolidated financial statements.
4 Truist Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME
TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Interest Income
Interest and fees on loans and leases $ 3,490 $ 2,825 $ 9,032 $ 8,728
Interest on securities 709 548 2,024 1,488
Interest on other earning assets 170 53 343 147
Total interest income 4,369 3,426 11,399 10,363
Interest Expense
Interest on deposits 331 33 462 116
Interest on long-term debt 190 151 459 446
Interest on other borrowings 103 9 143 38
Total interest expense 624 193 1,064 600
Net Interest Income 3,745 3,233 10,335 9,763
Provision for credit losses 234 ( 324 ) 310 ( 710 )
Net Interest Income After Provision for Credit Losses 3,511 3,557 10,025 10,473
Noninterest Income
Insurance income 725 645 2,277 1,961
Investment banking and trading income 222 316 738 1,064
Wealth management income 334 356 1,014 1,042
Service charges on deposits 263 276 769 787
Card and payment related fees 241 225 699 650
Residential mortgage income 72 179 235 396
Lending related fees 80 74 265 268
Operating lease income 66 57 190 191
Commercial mortgage income 50 54 108 134
Income from bank-owned life insurance 49 43 150 139
Securities gains (losses) ( 1 ) — ( 71 ) —
Other income 1 140 118 335
Total noninterest income 2,102 2,365 6,492 6,967
Noninterest Expense
Personnel expense 2,116 2,187 6,269 6,536
Professional fees and outside processing 352 372 1,064 1,063
Software expense 225 251 691 707
Net occupancy expense 176 187 565 578
Amortization of intangibles 140 145 420 431
Equipment expense 122 154 354 389
Marketing and customer development 105 94 282 226
Operating lease depreciation 45 47 140 144
Loan-related expense 46 52 137 161
Regulatory costs 52 43 131 99
Merger-related and restructuring charges 62 172 399 610
Loss (gain) on early extinguishment of debt — — ( 39 ) ( 3 )
Other expense 172 91 454 475
Total noninterest expense 3,613 3,795 10,867 11,416
Earnings
Income before income taxes 2,000 2,127 5,650 6,024
Provision for income taxes 363 423 1,065 1,189
Net income 1,637 1,704 4,585 4,835
Noncontrolling interests 4 — 6 ( 3 )
Net income available to the bank holding company 1,633 1,704 4,579 4,838
Preferred stock dividends and other 97 88 262 329
Net income available to common shareholders $ 1,536 $ 1,616 $ 4,317 $ 4,509
Basic EPS $ 1.16 $ 1.21 $ 3.25 $ 3.37
Diluted EPS 1.15 1.20 3.22 3.34
Basic weighted average shares outstanding 1,326,539 1,334,825 1,328,569 1,339,558
Diluted weighted average shares outstanding 1,336,659 1,346,854 1,339,071 1,351,712
The accompanying notes are an integral part of these consolidated financial statements.
Truist Financial Corporation 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net income $ 1,637 $ 1,704 $ 4,585 $ 4,835
OCI, net of tax:
Net change in net pension and postretirement costs 6 ( 55 ) 19 ( 22 )
Net change in cash flow hedges ( 139 ) 5 ( 85 ) 51
Net change in AFS securities ( 3,051 ) ( 438 ) ( 10,889 ) ( 2,283 )
Net change in HTM securities 80 — 216 —
Other, net ( 6 ) ( 2 ) ( 7 ) —
Total OCI, net of tax ( 3,110 ) ( 490 ) ( 10,746 ) ( 2,254 )
Total comprehensive income $ ( 1,473 ) $ 1,214 $ ( 6,161 ) $ 2,581
Income Tax Effect of Items Included in OCI:
Net change in net pension and postretirement costs $ 1 $ ( 13 ) $ 6 $ ( 3 )
Net change in cash flow hedges ( 42 ) 2 ( 26 ) 16
Net change in AFS securities ( 927 ) ( 133 ) ( 3,307 ) ( 701 )
Net change in HTM securities 25 — 65 —
Total income taxes related to OCI $ ( 943 ) $ ( 144 ) $ ( 3,262 ) $ ( 688 )
The accompanying notes are an integral part of these consolidated financial statements.
6 Truist Financial Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, shares in thousands) Shares of Common Stock Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings AOCI Noncontrolling Interests Total Shareholders’ Equity
Balance, July 1, 2021 1,334,770 $ 6,673 $ 6,674 $ 34,898 $ 21,139 $ ( 1,048 ) $ — $ 68,336
Net income — — — — 1,704 — — 1,704
OCI — — — — — ( 490 ) — ( 490 )
Issued in connection with equity awards, net 122 — — ( 4 ) ( 1 ) — — ( 5 )
Cash dividends declared on common stock — — — — ( 640 ) — — ( 640 )
Cash dividends declared on preferred stock — — — — ( 88 ) — — ( 88 )
Equity-based compensation expense — — — 83 — — — 83
Balance, September 30, 2021 1,334,892 $ 6,673 $ 6,674 $ 34,977 $ 22,114 $ ( 1,538 ) $ — $ 68,900
Balance, July 1, 2022 1,326,393 $ 6,673 $ 6,632 $ 34,410 $ 24,500 $ ( 9,240 ) $ 24 $ 62,999
Net income — — — — 1,633 — 4 1,637
OCI — — — — — ( 3,110 ) — ( 3,110 )
Issued in connection with equity awards, net 373 — 2 ( 5 ) ( 1 ) — — ( 4 )
Cash dividends declared on common stock — — — — ( 691 ) — — ( 691 )
Cash dividends declared on preferred stock — — — — ( 97 ) — — ( 97 )
Equity-based compensation expense — — — 82 — — — 82
Other, net — — — — — — ( 5 ) ( 5 )
Balance, September 30, 2022 1,326,766 $ 6,673 $ 6,634 $ 34,487 $ 25,344 $ ( 12,350 ) $ 23 $ 60,811
Balance, January 1, 2021 1,348,961 $ 8,048 $ 6,745 $ 35,843 $ 19,455 $ 716 $ 105 $ 70,912
Net income — — — — 4,838 — ( 3 ) 4,835
OCI — — — — — ( 2,254 ) — ( 2,254 )
Issued in connection with equity awards, net 5,719 — 28 ( 118 ) ( 3 ) — — ( 93 )
Repurchase of common stock ( 19,788 ) — ( 99 ) ( 1,017 ) — — — ( 1,116 )
Redemption of preferred stock — ( 1,375 ) — — ( 40 ) — — ( 1,415 )
Cash dividends declared on common stock — — — — ( 1,847 ) — — ( 1,847 )
Cash dividends declared on preferred stock — — — — ( 289 ) — — ( 289 )
Equity-based compensation expense — — — 269 — — — 269
Other, net — — — — — — ( 102 ) ( 102 )
Balance, September 30, 2021 1,334,892 $ 6,673 $ 6,674 $ 34,977 $ 22,114 $ ( 1,538 ) $ — $ 68,900
Balance, January 1, 2022 1,327,818 $ 6,673 $ 6,639 $ 34,565 $ 22,998 $ ( 1,604 ) $ — $ 69,271
Net income — — — — 4,579 — 6 4,585
OCI — — — — — ( 10,746 ) — ( 10,746 )
Issued in connection with equity awards, net 4,056 — 21 ( 112 ) ( 4 ) — — ( 95 )
Repurchase of common stock ( 5,108 ) — ( 26 ) ( 224 ) — — — ( 250 )
Cash dividends declared on common stock — — — — ( 1,967 ) — — ( 1,967 )
Cash dividends declared on preferred stock — — — — ( 262 ) — — ( 262 )
Equity-based compensation expense — — — 258 — — — 258
Other, net — — — — — — 17 17
Balance, September 30, 2022 1,326,766 $ 6,673 $ 6,634 $ 34,487 $ 25,344 $ ( 12,350 ) $ 23 $ 60,811
The accompanying notes are an integral part of these consolidated financial statements.
Truist Financial Corporation 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions) Nine Months Ended September 30,
2022 2021
Cash Flows From Operating Activities:
Net income $ 4,585 $ 4,835
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses 310 ( 710 )
Depreciation 581 610
Amortization of intangibles 420 431
Securities (gains) losses 71 —
Net change in operating assets and liabilities:
LHFS 1,676 156
Loan servicing rights ( 850 ) ( 206 )
Pension asset ( 526 ) ( 456 )
Derivative assets and liabilities 3,850 905
Trading assets ( 1,441 ) ( 3,100 )
Other assets and other liabilities ( 247 ) 896
Other, net ( 882 ) ( 276 )
Net cash from operating activities 7,547 3,085
Cash Flows From Investing Activities:
Proceeds from sales of AFS securities 3,311 137
Proceeds from maturities, calls and paydowns of AFS securities 10,619 25,424
Purchases of AFS securities ( 9,025 ) ( 59,578 )
Proceeds from maturities, calls and paydowns of HTM securities 4,006 —
Purchases of HTM securities ( 3,020 ) —
Originations and purchases of loans and leases, net of sales and principal collected ( 24,135 ) 14,503
Net cash received (paid) for FHLB stock ( 609 ) 116
Net cash received (paid) for securities borrowed or purchased under agreements to resell 1,460 ( 174 )
Net cash received (paid) for asset acquisitions, business combinations, and divestitures ( 1,325 ) 390
Other, net ( 491 ) ( 740 )
Net cash from investing activities ( 19,209 ) ( 19,922 )
Cash Flows From Financing Activities:
Net change in deposits ( 490 ) 24,790
Net change in short-term borrowings 20,395 ( 866 )
Proceeds from issuance of long-term debt 3,461 4,626
Repayment of long-term debt ( 6,991 ) ( 5,873 )
Repurchase of common stock ( 250 ) ( 1,116 )
Redemption of preferred stock — ( 1,415 )
Cash dividends paid on common stock ( 1,967 ) ( 1,847 )
Cash dividends paid on preferred stock ( 262 ) ( 289 )
Net cash received (paid) for hedge unwinds ( 198 ) —
Other, net ( 106 ) ( 214 )
Net cash from financing activities 13,592 17,796
Net Change in Cash and Cash Equivalents 1,930 959
Cash and Cash Equivalents, January 1 20,295 18,868
Cash and Cash Equivalents, September 30 $ 22,225 $ 19,827
Supplemental Disclosure of Cash Flow Information:
Net cash paid (received) during the period for:
Interest expense $ 982 $ 655
Income taxes 422 745
Noncash investing activities:
Transfer of AFS securities to HTM 59,436 —
The accompanying notes are an integral part of these consolidated financial statements.
8 Truist Financial Corporation
NOTE 1. Basis 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, 2021 should be referred to in connection with these unaudited interim consolidated financial statements. There were no 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, 2021 that could have a material effect on the Company’s financial statements.
Reclassifications
Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.
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.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
Standard / Adoption Date Description Effects on the Financial Statements
Standards Not Yet Adopted
Troubled Debt Restructurings and Vintage Disclosures 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 is actively engaged with its lines of business to establish reporting mechanisms consistent with the requirements of this standard. While implementation efforts are ongoing, the Company does not expect the implementation of this standard to have a material impact.
January 1, 2023
Fair Value Hedging – Portfolio Layer Method 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, specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. Truist is continuing to evaluate the use of the portfolio layer method in its hedging programs, although future use of the standard is dependent on its asset-liability management strategies in the context of the then current interest rate outlook. Truist does not believe adoption of the standard will have a material impact on its active last-of-layer hedges.
January 1, 2023
Truist Financial Corporation 9
NOTE 2. Business Combinations
On March 1, 2022, Truist expanded its presence in the title insurance market by acquiring Kensington Vanguard National Land Services, one of the nation’s largest independent full-service national title insurance agencies, which resulted in approximately $ 199 million of goodwill and $ 138 million of identifiable intangible assets in the IH segment. Fair value estimates related to the acquired assets and liabilities are subject to adjustment during the one-year measurement period following the closing of the acquisition. The intangible assets are being amortized over a term of 15 years based upon the estimated duration of economic benefits received. Goodwill of $ 131 million and identifiable intangible assets of $ 110 million are deductible for tax purposes.
On September 1, 2022, Truist broadened the selection of products and services offered by its wholesale insurance broker by acquiring BenefitMall, one of the nation’s leading benefit wholesale general insurance agencies, which resulted in approximately $ 510 million of goodwill and $ 336 million of identifiable intangible assets in the IH segment. Fair value estimates related to the acquired assets and liabilities are subject to adjustment during the one-year measurement period following the closing of the acquisition. The intangible assets are being amortized over a term of 15 years based upon the estimated duration of economic benefits received. Identifiable intangible assets of $ 80 million and an immaterial amount of goodwill are deductible for tax purposes.
NOTE 3. Securities 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. The following table presents securities borrowed or purchased under agreements to resell:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Securities purchased under agreements to resell $ 1,665 $ 3,460
Securities borrowed 903 568
Total securities borrowed or purchased under agreements to resell $ 2,568 $ 4,028
Fair value of collateral permitted to be resold or repledged $ 2,533 $ 4,005
Fair value of securities resold or repledged 792 1,141
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. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
September 30, 2022 December 31, 2021
(Dollars in millions) Overnight and Continuous Up to 30 days Total Overnight and Continuous Up to 30 days Total
U.S. Treasury $ 873 $ 10 $ 883 $ 749 $ 409 $ 1,158
State and Municipal 244 — 244 — — —
GSE 46 6 52 53 25 78
Agency MBS - residential 593 70 663 720 141 861
Corporate and other debt securities 142 209 351 213 125 338
Total securities sold under agreements to repurchase $ 1,898 $ 295 $ 2,193 $ 1,735 $ 700 $ 2,435
There were no securities financing transactions subject to legally enforceable master netting arrangements that were eligible for balance sheet netting for the periods presented.
10 Truist Financial Corporation
NOTE 4. Investment Securities
The following tables summarize the Company’s AFS and HTM securities:
September 30, 2022
(Dollars in millions) Amortized Cost Gross Unrealized Fair Value
Gains Losses
AFS securities:
U.S. Treasury $ 10,909 $ — $ 855 $ 10,054
GSE 322 — 35 287
Agency MBS - residential 66,825 1 10,232 56,594
Agency MBS - commercial 2,907 — 421 2,486
States and political subdivisions 426 8 38 396
Non-agency MBS 3,983 — 845 3,138
Other 23 — — 23
Total AFS securities $ 85,395 $ 9 $ 12,426 $ 72,978
HTM securities:
Agency MBS - residential $ 58,754 $ — $ 9,779 $ 48,975
December 31, 2021
(Dollars in millions) Amortized Cost Gross Unrealized Fair Value
Gains Losses
AFS securities:
U.S. Treasury $ 9,892 $ 9 $ 106 $ 9,795
GSE 1,667 33 2 1,698
Agency MBS - residential 135,886 656 2,500 134,042
Agency MBS - commercial 2,928 18 64 2,882
States and political subdivisions 382 39 1 420
Non-agency MBS 4,305 — 47 4,258
Other 28 — — 28
Total AFS securities $ 155,088 $ 755 $ 2,720 $ 153,123
HTM securities:
Agency MBS - residential $ 1,494 $ 1 $ — $ 1,495
In 2022, Truist transferred $ 59.4 billion of AFS securities to HTM as the Company continues to execute upon its asset-liability management strategies. Management determined that it has both the positive intent and ability to hold these securities to maturity. On the date of transfer, the difference between the par value and the fair value of these securities, which was recorded as a loss in AOCI, resulted in a net discount of $ 3.7 billion, inclusive of $ 510 million of basis adjustment gains from terminated fair value hedges attributable to the transferred securities. The discount will be accreted and unrealized loss in AOCI will be amortized, offsetting within interest income over the remaining life of the securities using the interest method. There were no gains or losses recognized as a result of this transfer.
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:
September 30, 2022
(Dollars in millions) Amortized Cost Fair Value
FNMA $ 43,028 $ 36,065
FHLMC 43,545 36,239
Truist Financial Corporation 11
The 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 may have the right to prepay their obligations with or without penalties.
Amortized Cost Fair Value
September 30, 2022
(Dollars in millions) Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total
AFS securities:
U.S. Treasury $ 1,085 $ 8,912 $ 883 $ 29 $ 10,909 $ 1,067 $ 8,196 $ 766 $ 25 $ 10,054
GSE — 4 14 304 322 — 4 13 270 287
Agency MBS - residential — 8 543 66,274 66,825 — 7 507 56,080 56,594
Agency MBS - commercial — 8 72 2,827 2,907 — 8 66 2,412 2,486
States and political subdivisions 3 74 160 189 426 3 71 156 166 396
Non-agency MBS — — — 3,983 3,983 — — — 3,138 3,138
Other 5 1 — 17 23 5 1 — 17 23
Total AFS securities $ 1,093 $ 9,007 $ 1,672 $ 73,623 $ 85,395 $ 1,075 $ 8,287 $ 1,508 $ 62,108 $ 72,978
HTM securities:
Agency MBS - residential $ — $ — $ — $ 58,754 $ 58,754 $ — $ — $ — $ 48,975 $ 48,975
The 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:
Less than 12 months 12 months or more Total
September 30, 2022
(Dollars in millions) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
AFS securities:
U.S. Treasury $ 2,759 $ 185 $ 7,291 $ 670 $ 10,050 $ 855
GSE 214 20 73 15 287 35
Agency MBS - residential 36,328 5,556 20,178 4,676 56,506 10,232
Agency MBS - commercial 884 97 1,600 324 2,484 421
States and political subdivisions 275 35 19 3 294 38
Non-agency MBS 1,680 444 1,457 401 3,137 845
Other 18 — — — 18 —
Total $ 42,158 $ 6,337 $ 30,618 $ 6,089 $ 72,776 $ 12,426
HTM securities:
Agency MBS - residential $ 30,842 $ 5,773 $ 18,133 $ 4,006 $ 48,975 $ 9,779
Less than 12 months 12 months or more Total
December 31, 2021
(Dollars in millions) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
AFS securities:
U.S. Treasury $ 8,412 $ 88 $ 582 $ 18 $ 8,994 $ 106
GSE 104 2 — — 104 2
Agency MBS - residential 101,262 2,377 2,638 123 103,900 2,500
Agency MBS - commercial 1,749 50 413 14 2,162 64
States and political subdivisions — — 22 1 22 1
Non-agency MBS 4,258 47 — — 4,258 47
Other 6 — — — 6 —
Total $ 115,791 $ 2,564 $ 3,655 $ 156 $ 119,446 $ 2,720
At September 30, 2022 and December 31, 2021, no 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.
The following table presents gross securities gains and losses recognized in earnings:
(Dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Gross realized gains $ — $ — $ 13 $ —
Gross realized losses ( 1 ) — ( 84 ) —
Securities gains (losses), net $ ( 1 ) $ — $ ( 71 ) $ —
12 Truist Financial Corporation
NOTE 5. Loans and ACL
The 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.
Accruing
September 30, 2022
(Dollars in millions) Current 30-89 Days Past Due 90 Days Or More Past Due (1) Nonperforming Total
Commercial:
Commercial and industrial $ 152,966 $ 162 $ 44 $ 443 $ 153,615
CRE 22,472 15 1 5 22,493
Commercial construction 5,565 3 — — 5,568
Consumer:
Residential mortgage 53,934 534 834 227 55,529
Residential home equity and direct 25,357 122 12 166 25,657
Indirect auto 27,387 591 1 260 28,239
Indirect other 12,575 97 6 5 12,683
Student 4,624 381 775 — 5,780
Credit card 4,683 52 36 — 4,771
Total $ 309,563 $ 1,957 $ 1,709 $ 1,106 $ 314,335
(1) Includes government guaranteed loans of $ 808 million in the residential mortgage portfolio and $ 770 million in the student portfolio.
Accruing
December 31, 2021
(Dollars in millions) Current 30-89 Days Past Due 90 Days Or More Past Due (1) Nonperforming Total
Commercial:
Commercial and industrial $ 138,225 $ 130 $ 13 $ 394 $ 138,762
CRE 23,902 20 — 29 23,951
Commercial construction 4,962 2 — 7 4,971
Consumer:
Residential mortgage 46,033 514 1,009 296 47,852
Residential home equity and direct 24,809 107 9 141 25,066
Indirect auto 25,615 607 1 218 26,441
Indirect other 10,811 64 3 5 10,883
Student 5,357 555 868 — 6,780
Credit card 4,735 45 27 — 4,807
Total $ 284,449 $ 2,044 $ 1,930 $ 1,090 $ 289,513
(1) Includes government guaranteed loans of $ 978 million in the residential mortgage portfolio and $ 864 million in the student portfolio.
Truist Financial Corporation 13
The following tables present the amortized cost basis of loans by origination year and credit quality indicator:
September 30, 2022
(Dollars in millions) Amortized Cost Basis by Origination Year Revolving Credit Loans Converted to Term Other (1)
2022 2021 2020 2019 2018 Prior Total
Commercial:
Commercial and industrial:
Pass $ 34,437 $ 23,704 $ 11,578 $ 9,002 $ 6,036 $ 10,704 $ 53,833 $ — $ ( 158 ) $ 149,136
Special mention 133 289 217 127 62 45 455 — — 1,328
Substandard 249 325 401 435 224 202 872 — — 2,708
Nonperforming 47 66 5 44 49 34 198 — — 443
Total 34,866 24,384 12,201 9,608 6,371 10,985 55,358 — ( 158 ) 153,615
CRE:
Pass 4,634 3,711 2,386 4,094 2,444 2,598 719 — ( 57 ) 20,529
Special mention 62 50 75 262 232 24 — — — 705
Substandard 110 110 104 452 316 162 — — — 1,254
Nonperforming — 1 — 1 — 3 — — — 5
Total 4,806 3,872 2,565 4,809 2,992 2,787 719 — ( 57 ) 22,493
Commercial construction:
Pass 1,104 1,352 989 360 281 78 1,100 — ( 2 ) 5,262
Special mention 27 1 92 27 53 — 33 — — 233
Substandard 26 2 21 3 21 — — — — 73
Nonperforming — — — — — — — — — —
Total 1,157 1,355 1,102 390 355 78 1,133 — ( 2 ) 5,568
Consumer:
Residential mortgage:
Current 11,946 17,500 6,270 3,140 1,406 13,672 — — — 53,934
30 - 89 days past due 59 38 29 35 36 337 — — — 534
90 days or more past due 4 14 60 67 100 589 — — — 834
Nonperforming 1 4 8 14 17 183 — — — 227
Total 12,010 17,556 6,367 3,256 1,559 14,781 — — — 55,529
Residential home equity and direct:
Current 4,464 3,476 1,682 969 362 342 10,310 3,755 ( 3 ) 25,357
30 - 89 days past due 14 13 7 7 3 2 53 23 — 122
90 days or more past due — — — — — — 10 2 — 12
Nonperforming 2 9 6 7 2 7 50 83 — 166
Total 4,480 3,498 1,695 983 367 351 10,423 3,863 ( 3 ) 25,657
Indirect auto:
Current 9,745 7,738 4,574 2,868 1,459 1,003 — — — 27,387
30 - 89 days past due 88 161 112 105 64 61 — — — 591
90 days or more past due 1 — — — — — — — — 1
Nonperforming 20 68 53 57 35 27 — — — 260
Total 9,854 7,967 4,739 3,030 1,558 1,091 — — — 28,239
Indirect other:
Current 5,067 2,976 1,875 1,102 663 892 — — — 12,575
30 - 89 days past due 29 23 17 14 8 6 — — — 97
90 days or more past due 4 1 1 — — — — — — 6
Nonperforming — — 2 1 — 2 — — — 5
Total 5,100 3,000 1,895 1,117 671 900 — — — 12,683
Student:
Current — — 17 73 59 4,451 — — 24 4,624
30 - 89 days past due — — — 1 1 379 — — 0 381
90 days or more past due — — — 1 1 773 — — 0 775
Total — — 17 75 61 5,603 — — 24 5,780
Credit card:
Current 4,666 17 — 4,683
30 - 89 days past due 50 2 — 52
90 days or more past due 35 1 — 36
Total — — — — — — 4,751 20 — 4,771
Total $ 72,273 $ 61,632 $ 30,581 $ 23,268 $ 13,934 $ 36,576 $ 72,384 $ 3,883 $ ( 196 ) $ 314,335
14 Truist Financial Corporation
December 31, 2021
(Dollars in millions) Amortized Cost Basis by Origination Year Revolving Credit Loans Converted to Term Other (1)
2021 2020 2019 2018 2017 Prior Total
Commercial:
Commercial and industrial:
Pass $ 35,530 $ 17,430 $ 14,105 $ 8,994 $ 5,633 $ 9,424 $ 43,035 $ — $ ( 169 ) $ 133,982
Special mention 195 221 326 317 46 70 691 — — 1,866
Substandard 352 356 395 197 91 335 794 — — 2,520
Nonperforming 50 19 49 42 16 34 184 — — 394
Total 36,127 18,026 14,875 9,550 5,786 9,863 44,704 — ( 169 ) 138,762
CRE:
Pass 4,836 2,946 5,109 3,201 1,774 2,131 762 — ( 61 ) 20,698
Special mention 13 118 483 247 44 83 — — — 988
Substandard 321 264 523 528 321 279 — — — 2,236
Nonperforming 1 1 11 — 9 7 — — — 29
Total 5,171 3,329 6,126 3,976 2,148 2,500 762 — ( 61 ) 23,951
Commercial construction:
Pass 1,113 1,179 1,259 419 44 95 558 — 12 4,679
Special mention — 14 72 50 — — — — — 136
Substandard 7 13 45 67 17 — — — — 149
Nonperforming — — 1 — 5 — — — 1 7
Total 1,120 1,206 1,377 536 66 95 558 — 13 4,971
Consumer:
Residential mortgage:
Current 17,271 6,798 3,642 1,753 2,237 14,240 — — 92 46,033
30 - 89 days past due 58 31 32 40 31 322 — — — 514
90 or more days past due 3 44 91 133 95 643 — — — 1,009
Nonperforming 1 5 18 27 20 226 — — ( 1 ) 296
Total 17,333 6,878 3,783 1,953 2,383 15,431 — — 91 47,852
Residential home equity and direct:
Current 4,962 2,630 1,717 691 189 425 10,757 3,388 50 24,809
30 - 89 days past due 8 8 10 3 1 3 53 21 — 107
90 days or more past due — — — — — — 5 4 — 9
Nonperforming 2 3 4 1 — 7 48 75 1 141
Total 4,972 2,641 1,731 695 190 435 10,863 3,488 51 25,066
Indirect auto:
Current 10,699 6,691 4,293 2,158 1,081 504 — — 189 25,615
30 - 89 days past due 119 138 145 97 56 52 — — — 607
90 days or more past due — — — — — 1 — — — 1
Nonperforming 28 48 61 41 21 19 — — — 218
Total 10,846 6,877 4,499 2,296 1,158 576 — — 189 26,441
Indirect other:
Current 4,333 2,724 1,638 937 455 691 — — 33 10,811
30 - 89 days past due 14 15 15 12 4 4 — — — 64
90 days or more past due 1 1 1 — — — — — — 3
Nonperforming 1 1 1 — — 2 — — — 5
Total 4,349 2,741 1,655 949 459 697 — — 33 10,883
Student:
Current — 21 88 73 61 5,122 — — ( 8 ) 5,357
30 - 89 days past due — — 1 1 1 552 — — — 555
90 days or more past due — — — — 1 867 — — — 868
Total — 21 89 74 63 6,541 — — ( 8 ) 6,780
Credit card:
Current 4,711 24 — 4,735
30 - 89 days past due 43 2 — 45
90 days or more past due 26 1 — 27
Total — — — — — — 4,780 27 — 4,807
Total $ 79,918 $ 41,719 $ 34,135 $ 20,029 $ 12,253 $ 36,138 $ 61,667 $ 3,515 $ 139 $ 289,513
(1) Includes certain deferred fees and costs and other adjustments.
Truist Financial Corporation 15
ACL
The following tables present activity in the ACL:
(Dollars in millions) Balance at Jul 1, 2021 Charge-Offs Recoveries Provision (Benefit) Other (1) Balance at Sep 30, 2021
Commercial:
Commercial and industrial $ 1,804 $ ( 57 ) $ 42 $ ( 217 ) $ — $ 1,572
CRE 440 ( 1 ) 1 ( 70 ) — 370
Commercial construction 69 — 1 ( 11 ) — 59
Consumer:
Residential mortgage 321 ( 7 ) 3 ( 6 ) — 311
Residential home equity and direct 694 ( 51 ) 20 ( 18 ) — 645
Indirect auto 1,116 ( 73 ) 22 6 — 1,071
Indirect other 181 ( 13 ) 5 21 — 194
Student 129 ( 6 ) 1 1 1 126
Credit card 367 ( 31 ) 9 9 — 354
ALLL 5,121 ( 239 ) 104 ( 285 ) 1 4,702
RUFC 315 — — ( 39 ) — 276
ACL $ 5,436 $ ( 239 ) $ 104 $ ( 324 ) $ 1 $ 4,978
(Dollars in millions) Balance at Jul 1, 2022 Charge-Offs Recoveries Provision (Benefit) Other (1) Balance at Sep 30, 2022
Commercial:
Commercial and industrial $ 1,357 $ ( 51 ) $ 43 $ ( 48 ) $ — $ 1,301
CRE 237 — — ( 3 ) — 234
Commercial construction 50 — 2 ( 5 ) — 47
Consumer:
Residential mortgage 327 ( 4 ) 3 50 — 376
Residential home equity and direct 588 ( 86 ) 23 44 — 569
Indirect auto 952 ( 103 ) 21 96 — 966
Indirect other 228 ( 26 ) 6 61 — 269
Student 100 ( 7 ) — — — 93
Credit card 348 ( 42 ) 8 36 — 350
ALLL 4,187 ( 319 ) 106 231 — 4,205
RUFC 247 — — 3 — 250
ACL $ 4,434 $ ( 319 ) $ 106 $ 234 $ — $ 4,455
(Dollars in millions) Balance at Jan 1, 2021 Charge-Offs Recoveries Provision (Benefit) Other (1) Balance at Sep 30, 2021
Commercial:
Commercial and industrial $ 2,204 $ ( 189 ) $ 84 $ ( 527 ) $ — $ 1,572
CRE 573 ( 5 ) 6 ( 204 ) — 370
Commercial construction 81 ( 2 ) 3 ( 23 ) — 59
Consumer:
Residential mortgage 368 ( 22 ) 10 ( 45 ) — 311
Residential home equity and direct 714 ( 163 ) 58 36 — 645
Indirect auto 1,198 ( 247 ) 71 49 — 1,071
Indirect other 208 ( 41 ) 18 9 — 194
Student 130 ( 12 ) 1 3 4 126
Credit card 359 ( 113 ) 28 80 — 354
ALLL 5,835 ( 794 ) 279 ( 622 ) 4 4,702
RUFC 364 — — ( 88 ) — 276
ACL $ 6,199 $ ( 794 ) $ 279 $ ( 710 ) $ 4 $ 4,978
16 Truist Financial Corporation
(Dollars in millions) Balance at Jan 1, 2022 Charge-Offs Recoveries Provision (Benefit) Other (1) Balance at Sep 30, 2022
Commercial:
Commercial and industrial $ 1,426 $ ( 99 ) $ 73 $ ( 99 ) $ — $ 1,301
CRE 350 ( 2 ) 7 ( 121 ) — 234
Commercial construction 52 ( 1 ) 4 ( 8 ) — 47
Consumer:
Residential mortgage 308 ( 8 ) 13 63 — 376
Residential home equity and direct 615 ( 229 ) 63 120 — 569
Indirect auto 1,022 ( 282 ) 70 156 — 966
Indirect other 195 ( 63 ) 18 119 — 269
Student 117 ( 17 ) — ( 7 ) — 93
Credit card 350 ( 123 ) 26 97 — 350
ALLL 4,435 ( 824 ) 274 320 — 4,205
RUFC 260 — — ( 10 ) — 250
ACL $ 4,695 $ ( 824 ) $ 274 $ 310 $ — $ 4,455
(1) Includes the amounts for the ALLL for PCD acquisitions, and other activity.
The commercial ALLL decreased $ 62 million and $ 246 million and the consumer ALLL increased $ 78 million and $ 16 million for the three and nine months ended September 30, 2022, respectively. The decrease in the commercial ALLL primarily reflects continued strong commercial portfolio performance and loan growth concentrated in higher quality loans, partially offset by a moderately slower economic outlook. The increase in the consumer ALLL was primarily driven by loan growth, normalizing loss trends in certain consumer portfolios, and a moderately slower economic outlook. Considerations for the moderately slower economic outlook include the potential impacts related to Hurricane Ian, and risks associated with inflation, rising rates, supply chain disruption, geopolitical events, and recession.
The RUFC increased $ 3 million and decreased $ 10 million for the three and nine months ended September 30, 2022, respectively.
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, US real GDP, corporate credit spreads, rental rates, property values, the primary 30-year mortgage rate, 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 September 30, 2022 ACL, unchanged since December 31, 2021. While the scenario weightings were unchanged, each forecast scenario reflected a moderate 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 September 30, 2022 included GDP growth in the low-single digits and an unemployment rate starting in the low-single digits with a slight increase towards mid-single digits by the end of the reasonable and supportable forecast period.
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 September 30, 2022 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, 2021 for additional information.
Truist Financial Corporation 17
NPAs
The following table provides a summary of nonperforming loans and leases, excluding LHFS:
September 30, 2022 December 31, 2021
Recorded Investment Recorded Investment
(Dollars in millions) Without an ALLL With an ALLL Without an ALLL With an ALLL
Commercial:
Commercial and industrial $ 91 $ 352 $ 125 $ 269
CRE — 5 12 17
Commercial construction — — — 7
Consumer:
Residential mortgage 3 224 4 292
Residential home equity and direct 2 164 3 138
Indirect auto 3 257 1 217
Indirect other — 5 — 5
Total $ 99 $ 1,007 $ 145 $ 945
The following table presents a summary of nonperforming assets and residential mortgage loans in the process of foreclosure:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Nonperforming loans and leases HFI $ 1,106 $ 1,090
Nonperforming LHFS 72 22
Foreclosed real estate 4 8
Other foreclosed property 58 43
Total nonperforming assets $ 1,240 $ 1,163
Residential mortgage loans in the process of foreclosure $ 265 $ 135
TDRs
The following table presents a summary of TDRs:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Performing TDRs:
Commercial:
Commercial and industrial $ 165 $ 147
CRE 5 5
Commercial construction 1 —
Consumer:
Residential mortgage 1,144 692
Residential home equity and direct 78 98
Indirect auto 425 389
Indirect other 7 7
Student 29 25
Credit card 19 27
Total performing TDRs 1,873 1,390
Nonperforming TDRs 187 152
Total TDRs $ 2,060 $ 1,542
ALLL attributable to TDRs $ 120 $ 102
The 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.
18 Truist Financial Corporation
As of / For the Three Months Ended September 30, 2022 As of / For the Nine Months Ended September 30, 2022
(Dollars in millions) Type of Modification Prior Quarter Loan Balance Related ALLL at Period End Type of Modification Prior Quarter Loan Balance Related ALLL at Period End
Rate Structure Rate Structure
Newly designated TDRs:
Commercial $ 66 $ — $ 66 $ 9 $ 66 $ 9 $ 77 $ 9
Consumer 123 117 236 12 368 505 858 41
Credit card 2 — 2 1 6 — 6 3
Re-modification of previously designated TDRs 43 50 73 90
As of / For the Three Months Ended September 30, 2021 As of / For the Nine Months Ended September 30, 2021
Type of Modification Prior Quarter Loan Balance Related ALLL at Period End Type of Modification Prior Quarter Loan Balance Related ALLL at Period End
(Dollars in millions) Rate Structure Rate Structure
Newly designated TDRs:
Commercial $ 8 $ 20 $ 30 $ 4 $ 35 $ 129 $ 183 $ 17
Consumer 74 51 126 7 212 277 496 30
Credit card 3 — 3 1 9 — 10 4
Re-modification of previously designated TDRs 23 9 51 37
Unearned Income, Discounts, and Net Deferred Loan Fees and Costs
The following table presents additional information about loans and leases:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Unearned income, discounts, and net deferred loan fees and costs $ 230 $ 849
Truist Financial Corporation 19
NOTE 6. Goodwill 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, 2021 quantitative impairment test, concluding 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 September 30, 2022, 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, 2021 for additional information.
The changes in the carrying amount of goodwill attributable to operating segments are reflected in the table below. Activity during 2022 reflects the acquisition of BenefitMall and Kensington Vanguard National Land Services. Activity during 2021 primarily reflects the acquisitions of Service Finance, LLC, and Constellation Affiliated Partners. Refer to “Note 2. Business Combinations” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on the acquisitions and “Note 18. Operating Segments” for additional information on segments.
(Dollars in millions) CB&W C&CB IH Total
Goodwill, January 1, 2021 $ 15,841 $ 6,167 $ 2,439 $ 24,447
Mergers and acquisitions 1,168 — 556 1,724
Adjustments and other ( 139 ) ( 18 ) 84 ( 73 )
Goodwill, December 31, 2021 16,870 6,149 3,079 26,098
Mergers and acquisitions — — 697 697
Adjustments and other — — 15 15
Goodwill, September 30, 2022 $ 16,870 $ 6,149 $ 3,791 $ 26,810
The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:
September 30, 2022 December 31, 2021
(Dollars in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
CDI $ 2,472 $ ( 1,328 ) $ 1,144 $ 2,563 $ ( 1,190 ) $ 1,373
Other, primarily client relationship intangibles 3,824 ( 1,242 ) 2,582 3,116 ( 1,081 ) 2,035
Total $ 6,296 $ ( 2,570 ) $ 3,726 $ 5,679 $ ( 2,271 ) $ 3,408
In 2022, Truist redeemed a noncontrolling equity interest in SunTrust Merchant Services, LLC, and paid cash of $ 175 million in exchange for the rights to certain merchant banking relationships, including relationships previously referred by Truist to SunTrust Merchant Services, LLC. Upon completion of this transaction, Truist recognized a gain on the redemption of noncontrolling equity interest of $ 74 million and $ 282 million of other intangibles representing the fair value of acquired contractual relationships as of the transaction date. The intangible assets are being amortized over a term of 12 years based upon the estimated duration of economic benefits received.
20 Truist Financial Corporation
NOTE 7. Loan Servicing
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 Mortgage Activities
The following tables summarize residential mortgage servicing activities:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
UPB of residential mortgage loan servicing portfolio $ 275,526 $ 246,727
UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate 218,740 196,011
Mortgage loans sold with recourse 205 244
Maximum recourse exposure from mortgage loans sold with recourse liability 129 155
Indemnification, recourse and repurchase reserves 57 74
As of / For the Nine Months Ended September 30,
(Dollars in millions) 2022 2021
UPB of residential mortgage loans sold from LHFS $ 22,971 $ 30,148
Pre-tax gains recognized on mortgage loans sold and held for sale 62 347
Servicing fees recognized from mortgage loans serviced for others 462 437
Approximate weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others 0.30 % 0.31 %
Weighted average interest rate on mortgage loans serviced for others 3.45 3.49
The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
(Dollars in millions) 2022 2021
Residential MSRs, carrying value, January 1 $ 2,305 $ 1,778
Acquired 321 355
Additions 372 476
Change in fair value due to changes in valuation inputs or assumptions:
Prepayment speeds 795 12
OAS ( 24 ) 238
Realization of expected net servicing cash flows, passage of time and other ( 306 ) ( 550 )
Residential MSRs, carrying value, September 30 $ 3,463 $ 2,309
The sensitivity of the fair value of the Company’s residential MSRs to changes in key assumptions is presented in the following table:
September 30, 2022 December 31, 2021
Range Weighted Average Range Weighted Average
(Dollars in millions) Min Max Min Max
Prepayment speed 8.4 % 11.0 % 8.9 % 11.4 % 15.3 % 13.8 %
Effect on fair value of a 10% increase $ ( 108 ) $ ( 113 )
Effect on fair value of a 20% increase ( 209 ) ( 216 )
OAS 1.6 % 11.7 % 4.2 % 1.5 % 10.7 % 4.2 %
Effect on fair value of a 10% increase $ ( 57 ) $ ( 37 )
Effect on fair value of a 20% increase ( 112 ) ( 73 )
Composition of loans serviced for others:
Fixed-rate residential mortgage loans 99.5 % 99.3 %
Adjustable-rate residential mortgage loans 0.5 0.7
Total 100.0 % 100.0 %
Weighted average life 6.9 years 5.2 years
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.
Truist Financial Corporation 21
Commercial Mortgage Activities
The following table summarizes commercial mortgage servicing activities:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
UPB of CRE mortgages serviced for others $ 36,263 $ 37,960
CRE mortgages serviced for others covered by recourse provisions 9,832 10,243
Maximum recourse exposure from CRE mortgages sold with recourse liability 2,819 2,958
Recorded reserves related to recourse exposure 15 16
CRE mortgages originated during the year-to-date period 5,778 9,380
Commercial MSRs at fair value 302 280
Other Servicing Activities
The Company had $ 32 million and $ 48 million of other loan servicing rights at fair value as of September 30, 2022 and December 31, 2021, respectively.
NOTE 8. Other 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. The following tables present additional information on leases, excluding leases related to the lease financing businesses:
September 30, 2022 December 31, 2021
(Dollars in millions) Operating Leases Finance Leases Operating Leases Finance Leases
ROU assets $ 1,116 $ 21 $ 1,168 $ 22
Lease liabilities 1,477 24 1,600 26
Weighted average remaining term 6.3 years 5.8 years 6.6 years 6.4 years
Weighted average discount rate 2.4 % 3.4 % 2.3 % 3.5 %
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 2022 2021
Operating lease costs $ 81 $ 71 $ 241 $ 241
Lessor Operating Leases
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. The following table presents a summary of assets under operating leases. This table excludes subleases on assets included in premises and equipment.
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Assets held under operating leases (1) $ 2,215 $ 2,110
Accumulated depreciation ( 552 ) ( 539 )
Net $ 1,663 $ 1,571
(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. These policies provide the Company an efficient form of funding for retirement and other employee benefits costs. The carrying value of bank-owned life insurance was $ 7.6 billion at September 30, 2022 and $ 7.3 billion at December 31, 2021.
22 Truist Financial Corporation
NOTE 9. Borrowings
The following table presents a summary of short-term borrowings:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Federal funds purchased $ 3,725 $ —
Securities sold under agreements to repurchase 2,193 2,435
FHLB advances 16,900 —
Collateral in excess of derivative exposures 358 318
Master notes 606 808
Securities sold short 1,905 1,731
Total short-term borrowings $ 25,687 $ 5,292
The following table presents a summary of long-term debt:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Truist Financial Corporation:
Fixed rate senior notes (1) $ 12,585 $ 13,271
Floating rate senior notes (1) 999 1,348
Fixed rate subordinated notes (2) 1,874 1,254
Capital Notes (2) 624 620
Structured notes (3) 11 11
Truist Bank:
Fixed rate senior notes (1) 6,992 9,545
Floating rate senior notes (1) 1,749 2,399
Fixed rate subordinated notes (2) 4,766 5,043
FHLB advances 2 863
Other long-term debt (4) 1,277 1,263
Nonbank subsidiaries:
Other long-term debt (5) 293 296
Total long-term debt $ 31,172 $ 35,913
(1) Prior period was revised to reclassify certain floating rate senior notes that were reported as fixed rate senior notes at December 31, 2021.
(2) 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.
(3) Consist of notes with various terms that include fixed or floating rate interest or returns that are linked to an equity index.
(4) Includes debt associated with finance leases, tax credit investments, and other.
(5) Includes debt associated with structured real estate leases.
NOTE 10. Shareholders’ Equity
Common Stock
The following table presents total dividends declared per share of common stock:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cash dividends declared per share $ 0.52 $ 0.48 $ 1.48 $ 1.38
Share Repurchase Activity
Truist’s share repurchase activity is dependent on capital deployment through organic growth and acquisitions, giving consideration to economic and regulatory conditions. The Board of Directors has authorized the repurchase of up to $ 4.1 billion of the Company’s common stock from October 1, 2022 through September 30, 2023. For the nine months ended September 30, 2022, the Company repurchased $ 250 million of common stock, which represented 5.1 million shares.
Truist Financial Corporation 23
NOTE 11. AOCI
AOCI 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.
(Dollars in millions) Pension and OPEB Costs Cash Flow Hedges AFS Securities HTM Securities Other, net Total
AOCI balance, July 1, 2021 $ ( 842 ) $ ( 18 ) $ ( 191 ) $ — $ 3 $ ( 1,048 )
OCI before reclassifications, net of tax ( 59 ) — ( 496 ) — ( 2 ) ( 557 )
Amounts reclassified from AOCI:
Before tax 6 7 75 — — 88
Tax effect 2 2 17 — — 21
Amounts reclassified, net of tax 4 5 58 — — 67
Total OCI, net of tax ( 55 ) 5 ( 438 ) — ( 2 ) ( 490 )
AOCI balance, September 30, 2021 $ ( 897 ) $ ( 13 ) $ ( 629 ) $ — $ 1 $ ( 1,538 )
AOCI balance, July 1, 2022 $ ( 73 ) $ 45 $ ( 6,476 ) $ ( 2,736 ) $ — $ ( 9,240 )
OCI before reclassifications, net of tax — ( 140 ) ( 3,047 ) — ( 6 ) ( 3,193 )
Amounts reclassified from AOCI:
Before tax 6 1 ( 6 ) 105 — 106
Tax effect — — ( 2 ) 25 — 23
Amounts reclassified, net of tax 6 1 ( 4 ) 80 — 83
Total OCI, net of tax 6 ( 139 ) ( 3,051 ) 80 ( 6 ) ( 3,110 )
AOCI balance, September 30, 2022 $ ( 67 ) $ ( 94 ) $ ( 9,527 ) $ ( 2,656 ) $ ( 6 ) $ ( 12,350 )
(Dollars in millions) Pension and OPEB Costs Cash Flow Hedges AFS Securities HTM Securities Other, net Total
AOCI balance, January 1, 2021 $ ( 875 ) $ ( 64 ) $ 1,654 $ — $ 1 $ 716
OCI before reclassifications, net of tax ( 40 ) — ( 2,510 ) — — ( 2,550 )
Amounts reclassified from AOCI:
Before tax 24 67 296 — — 387
Tax effect 6 16 69 — — 91
Amounts reclassified, net of tax 18 51 227 — — 296
Total OCI, net of tax ( 22 ) 51 ( 2,283 ) — — ( 2,254 )
AOCI balance, September 30, 2021 $ ( 897 ) $ ( 13 ) $ ( 629 ) $ — $ 1 $ ( 1,538 )
AOCI balance, January 1, 2022 $ ( 86 ) $ ( 9 ) $ ( 1,510 ) $ — $ 1 $ ( 1,604 )
OCI before reclassifications, net of tax 2 ( 94 ) ( 10,956 ) — ( 7 ) ( 11,055 )
AFS Securities transferred to HTM, net of tax — — 2,872 ( 2,872 ) — —
Amounts reclassified from AOCI:
Before tax 22 12 87 281 — 402
Tax effect 5 3 20 65 — 93
Amounts reclassified, net of tax 17 9 67 216 — 309
Total OCI, net of tax 19 ( 85 ) ( 10,889 ) 216 ( 7 ) ( 10,746 )
AOCI balance, September 30, 2022 $ ( 67 ) $ ( 94 ) $ ( 9,527 ) $ ( 2,656 ) $ ( 6 ) $ ( 12,350 )
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
NOTE 12. Income Taxes
For the three months ended September 30, 2022 and 2021, the provision for income taxes was $363 million and $423 million, respectively, representing effective tax rates of 18.2% and 19.9%, respectively. For the nine months ended September 30, 2022 and 2021, the provision for income taxes was $1.1 billion and $1.2 billion, respectively, representing effective tax rates of 18.8% and 19.7%, respectively. The lower effective tax rate for the three and nine months ended September 30, 2022 was primarily driven by an increase in discrete tax benefits recognized in the current year and changes in the full year forecasted effective tax rate. 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.
24 Truist Financial Corporation
NOTE 13. Benefit Plans
The components of net periodic (benefit) cost for defined benefit pension plans are summarized in the following table:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) Income Statement Location 2022 2021 2022 2021
Service cost Personnel expense $ 139 $ 148 $ 418 $ 463
Interest cost Other expense 87 80 263 239
Estimated return on plan assets Other expense ( 269 ) ( 250 ) ( 808 ) ( 748 )
Amortization and other Other expense 10 9 27 26
Net periodic (benefit) cost $ ( 33 ) $ ( 13 ) $ ( 100 ) $ ( 20 )
Truist makes contributions to the qualified pension plans up to the maximum amount deductible for federal income tax purposes. Discretionary contributions totaling $ 351 million were made to the Truist pension plan during the nine months ended September 30, 2022.
NOTE 14. Commitments 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 following table summarizes certain tax credit and certain equity investments:
(Dollars in millions) Balance Sheet Location Sep 30, 2022 Dec 31, 2021
Investments in affordable housing projects:
Carrying amount Other assets $ 4,342 $ 4,107
Amount of future funding commitments included in carrying amount Other liabilities 1,544 1,285
Lending exposure Loans and leases for funded amounts 1,308 763
Renewable energy investments:
Carrying amount Other assets 271 257
Amount of future funding commitments not included in carrying amount NA 398 71
Private equity and certain other equity method investments:
Carrying amount Other assets 1,867 1,822
Amount of future funding commitments not included in carrying amount NA 396 411
The following table presents a summary of tax credits and amortization associated with the Company’s tax credit investment activity:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) Income Statement Location 2022 2021 2022 2021
Tax credits:
Investments in affordable housing projects Provision for income taxes $ 137 $ 121 $ 392 $ 360
Other community development investments Provision for income taxes 26 24 73 70
Renewable energy investments NA (1) 31 36 92 96
Amortization and other changes in carrying amount:
Investments in affordable housing projects Provision for income taxes $ 143 $ 117 $ 391 $ 353
Other community development investments Other noninterest income 21 21 60 59
Renewable energy investments Other noninterest income 4 1 — 3
(1) Tax credits received for these investments are recorded as a reduction to the carrying value of these investments .
Truist Financial Corporation 25
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.
The following is a summary of selected notional amounts of off-balance sheet financial instruments:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Commitments to extend, originate, or purchase credit $ 214,549 $ 198,658
Residential mortgage loans sold with recourse 205 244
CRE mortgages serviced for others covered by recourse provisions 9,832 10,243
Other loans serviced for others covered by recourse provisions 667 588
Letters of credit 6,027 5,568
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. The following table provides a summary of the TRS transactions with VIE purchases. VIE assets include trading loans and bonds:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Total return swaps:
VIE assets $ 1,568 $ 1,519
Trading loans and bonds 1,527 1,491
VIE liabilities 118 50
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, that 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. The following table provides the total carrying amount of pledged assets by asset type:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Pledged securities $ 26,834 $ 29,678
Pledged loans:
FRB 70,471 73,349
FHLB 65,483 64,698
Unused borrowing capacity:
FRB 49,525 52,170
FHLB 28,548 49,244
26 Truist Financial Corporation
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.
The Company estimates reasonably possible losses, in excess of amounts accrued, of up to approximately $ 200 million as of September 30, 2022. 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 Company previously 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 is completed. 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 USAA’s claims, including its claims of willful infringement. Also on October 11, 2022, the Company filed a petition for inter partes review challenging the validity of one of the patents asserted in the lawsuit.
Truist Financial Corporation 27
NOTE 15. Fair 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
The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
September 30, 2022
(Dollars in millions) Total Level 1 Level 2 Level 3 Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury $ 1,243 $ — $ 1,243 $ — $ —
GSE 408 — 408 — —
Agency MBS - residential 1,041 — 1,041 — —
Agency MBS - commercial 60 — 60 — —
States and political subdivisions 393 — 393 — —
Corporate and other debt securities 595 — 595 — —
Loans 1,787 — 1,787 — —
Other 337 278 59 — —
Total trading assets 5,864 278 5,586 — —
AFS securities:
U.S. Treasury 10,054 — 10,054 — —
GSE 287 — 287 — —
Agency MBS - residential 56,594 — 56,594 — —
Agency MBS - commercial 2,486 — 2,486 — —
States and political subdivisions 396 — 396 — —
Non-agency MBS 3,138 — 3,138 — —
Other 23 — 23 — —
Total AFS securities 72,978 — 72,978 — —
LHFS at fair value 1,868 — 1,868 — —
Loans and leases 19 — — 19 —
Loan servicing rights at fair value 3,797 — — 3,797 —
Other assets:
Derivative assets 1,140 397 3,001 6 ( 2,264 )
Equity securities 887 783 104 — —
Total assets $ 86,553 $ 1,458 $ 83,537 $ 3,822 $ ( 2,264 )
Liabilities:
Derivative liabilities $ 3,407 $ 449 $ 5,219 $ 77 $ ( 2,338 )
Securities sold short 1,905 297 1,608 — —
Total liabilities $ 5,312 $ 746 $ 6,827 $ 77 $ ( 2,338 )
28 Truist Financial Corporation
December 31, 2021
(Dollars in millions) Total Level 1 Level 2 Level 3 Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury $ 125 $ — $ 125 $ — $ —
GSE 306 — 306 — —
Agency MBS - residential 1,016 — 1,016 — —
Agency MBS - commercial 13 — 13 — —
States and political subdivisions 91 — 91 — —
Corporate and other debt securities 738 — 738 — —
Loans 1,791 — 1,791 — —
Other 343 285 58 — —
Total trading assets 4,423 285 4,138 — —
AFS securities:
U.S. Treasury 9,795 — 9,795 — —
GSE 1,698 — 1,698 — —
Agency MBS - residential 134,042 — 134,042 — —
Agency MBS - commercial 2,882 — 2,882 — —
States and political subdivisions 420 — 420 — —
Non-agency MBS 4,258 — 4,258 — —
Other 28 — 28 — —
Total AFS securities 153,123 — 153,123 — —
LHFS at fair value 3,544 — 3,544 — —
Loans and leases 23 — — 23 —
Loan servicing rights at fair value 2,633 — — 2,633 —
Other assets:
Derivative assets 2,370 887 3,110 30 ( 1,657 )
Equity securities 1,066 967 99 — —
Total assets $ 167,182 $ 2,139 $ 164,014 $ 2,686 $ ( 1,657 )
Liabilities:
Derivative liabilities $ 586 $ 438 $ 3,056 $ 42 $ ( 2,950 )
Securities sold short 1,731 8 1,723 — —
Total liabilities $ 2,317 $ 446 $ 4,779 $ 42 $ ( 2,950 )
(1) Refer to “Note 16. Derivative Financial Instruments” for additional discussion on netting adjustments.
At September 30, 2022 and December 31, 2021, investments totaling $ 394 million and $ 440 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, 2021.
Truist Financial Corporation 29
Activity for Level 3 assets and liabilities is summarized below:
Three Months Ended September 30, 2022 and 2021
(Dollars in millions) Loans and Leases Loan Servicing Rights Net Derivatives
Balance at July 1, 2021 $ — $ 2,231 $ 38
Total realized and unrealized gains (losses):
Included in earnings — 78 6
Purchases — 303 —
Issuances — 145 77
Sales — ( 1 ) —
Settlements — ( 172 ) ( 111 )
Balance at September 30, 2021 $ — $ 2,584 $ 10
Balance at July 1, 2022 $ 20 $ 3,466 $ ( 36 )
Total realized and unrealized gains (losses):
Included in earnings — 190 ( 61 )
Purchases — 126 —
Issuances — 130 ( 30 )
Sales — ( 6 ) —
Settlements — ( 109 ) 56
Other ( 1 ) — —
Balance at September 30, 2022 $ 19 $ 3,797 $ ( 71 )
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2022 $ — $ 189 $ ( 48 )
Nine Months Ended September 30, 2022 and 2021
(Dollars in millions) Loans and Leases Loan Servicing Rights Net Derivatives
Balance at January 1, 2021 $ — $ 2,023 $ 172
Total realized and unrealized gains (losses):
Included in earnings — 260 ( 77 )
Purchases — 355 —
Issuances — 532 254
Sales — ( 1 ) —
Settlements — ( 585 ) ( 339 )
Balance at September 30, 2021 $ — $ 2,584 $ 10
Balance at January 1, 2022 $ 23 $ 2,633 $ ( 12 )
Total realized and unrealized gains (losses):
Included in earnings — 807 ( 324 )
Purchases — 321 —
Issuances — 411 10
Sales — ( 7 ) —
Settlements — ( 368 ) 255
Other ( 4 ) — —
Balance at September 30, 2022 $ 19 $ 3,797 $ ( 71 )
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2022 $ — $ 807 $ ( 55 )
Primary income statement location of realized gains (losses) included in earnings Other income Residential mortgage income and Commercial mortgage income Residential mortgage income and Commercial mortgage income
Fair Value Option
The following table details the fair value and UPB of certain loans that were elected to be measured at fair value:
September 30, 2022 December 31, 2021
(Dollars in millions) Fair Value UPB Difference Fair Value UPB Difference
Trading loans $ 1,787 $ 1,906 $ ( 119 ) $ 1,791 $ 1,784 $ 7
Loans and leases 19 20 ( 1 ) 23 35 ( 12 )
LHFS at fair value 1,868 1,931 ( 63 ) 3,544 3,450 94
30 Truist Financial Corporation
Nonrecurring Fair Value Measurements
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) Sep 30, 2022 Dec 31, 2021
Carrying value:
LHFS $ 361 $ 101
Loans and leases 429 443
Other 64 100
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.
Nine Months Ended September 30,
(Dollars in millions) 2022 2021
Valuation adjustments:
LHFS $ ( 9 ) $ ( 27 )
Loans and leases ( 280 ) ( 349 )
Other ( 440 ) ( 156 )
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 $ 75 million and $ 1.2 billion of LHFS carried at cost at September 30, 2022 and December 31, 2021, respectively, that did not require a valuation adjustment during the period. The remainder of LHFS is carried at fair value.
Loans and leases consists 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, 2021 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.
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. Financial assets and liabilities not recorded at fair value are summarized below:
September 30, 2022 December 31, 2021
(Dollars in millions) Fair Value Hierarchy Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets:
HTM securities Level 2 $ 58,754 $ 48,975 $ 1,494 $ 1,495
Loans and leases HFI, net of ALLL Level 3 310,111 301,437 285,055 284,914
Financial liabilities:
Time deposits Level 2 14,454 14,521 15,886 16,017
Long-term debt Level 2 31,172 29,568 35,913 36,251
The carrying value of the RUFC, which approximates the fair value of unfunded commitments, was $ 250 million and $ 260 million at September 30, 2022 and December 31, 2021, respectively.
Truist Financial Corporation 31
NOTE 16. Derivative Financial Instruments
Impact of Derivatives on the Consolidated Balance Sheets
The following table presents the gross notional amounts and estimated fair value of derivative instruments employed by the Company:
September 30, 2022 December 31, 2021
Notional Amount Fair Value Notional Amount Fair Value
(Dollars in millions) Assets Liabilities Assets Liabilities
Cash flow hedges:
Interest rate contracts:
Swaps hedging commercial loans $ 7,250 $ — $ — $ — $ — $ —
Fair value hedges:
Interest rate contracts:
Swaps hedging long-term debt 14,893 — ( 80 ) 12,690 — ( 6 )
Swaps hedging AFS securities 7,097 — — 12,711 — ( 2 )
Total 21,990 — ( 80 ) 25,401 — ( 8 )
Not designated as hedges:
Client-related and other risk management:
Interest rate contracts:
Swaps 154,257 540 ( 2,830 ) 150,223 1,716 ( 733 )
Options 28,266 160 ( 166 ) 23,659 43 ( 30 )
Forward commitments 2,435 27 ( 5 ) 2,404 2 ( 5 )
Other 4,925 1 ( 1 ) 2,927 — —
Equity contracts 37,582 653 ( 938 ) 34,232 1,582 ( 2,089 )
Credit contracts:
Trading assets 120 — — — — —
Loans and leases 519 — — 570 — ( 2 )
Risk participation agreements 6,342 — ( 1 ) 8,145 — ( 4 )
Total return swaps 1,525 87 — 1,445 3 ( 19 )
Foreign exchange contracts 18,793 763 ( 725 ) 16,102 160 ( 156 )
Commodity 6,142 834 ( 840 ) 4,641 475 ( 468 )
Total 260,906 3,065 ( 5,506 ) 244,348 3,981 ( 3,506 )
Mortgage banking:
Interest rate contracts:
Swaps 572 — — 441 — —
Interest rate lock commitments 1,869 6 ( 61 ) 4,163 30 ( 7 )
When issued securities, forward rate agreements and forward commitments 3,716 158 — 6,913 7 ( 15 )
Other 106 1 — 424 1 —
Total 6,263 165 ( 61 ) 11,941 38 ( 22 )
MSRs:
Interest rate contracts:
Swaps 22,327 10 — 12,837 — —
Options 13,599 160 ( 47 ) 101 1 —
When issued securities, forward rate agreements and forward commitments 2,470 3 ( 48 ) 3,927 7 —
Other 1,265 1 ( 3 ) 2,017 — —
Total 39,661 174 ( 98 ) 18,882 8 —
Total derivatives not designated as hedges 306,830 3,404 ( 5,665 ) 275,171 4,027 ( 3,528 )
Total derivatives $ 336,070 3,404 ( 5,745 ) $ 300,572 4,027 ( 3,536 )
Gross amounts in the Consolidated Balance Sheets:
Amounts subject to master netting arrangements ( 1,621 ) 1,621 ( 1,312 ) 1,312
Cash collateral (received) posted for amounts subject to master netting arrangements ( 643 ) 717 ( 345 ) 1,638
Net amount $ 1,140 $ ( 3,407 ) $ 2,370 $ ( 586 )
32 Truist Financial Corporation
The 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:
September 30, 2022 Net Amount in Consolidated Balance Sheets Held/Pledged Financial Instruments
(Dollars in millions) Gross Amount Amount Offset Net Amount
Derivative assets:
Derivatives subject to master netting arrangement or similar arrangement $ 2,907 $ ( 1,915 ) $ 992 $ — $ 992
Derivatives not subject to master netting arrangement or similar arrangement 100 — 100 — 100
Exchange traded derivatives 397 ( 349 ) 48 — 48
Total derivative assets $ 3,404 $ ( 2,264 ) $ 1,140 $ — $ 1,140
Derivative liabilities:
Derivatives subject to master netting arrangement or similar arrangement $ ( 4,538 ) $ 1,989 $ ( 2,549 ) $ 28 $ ( 2,521 )
Derivatives not subject to master netting arrangement or similar arrangement ( 758 ) — ( 758 ) — ( 758 )
Exchange traded derivatives ( 449 ) 349 ( 100 ) — ( 100 )
Total derivative liabilities $ ( 5,745 ) $ 2,338 $ ( 3,407 ) $ 28 $ ( 3,379 )
December 31, 2021
(Dollars in millions) Gross Amount Amount Offset Net Amount in Consolidated Balance Sheets Held/Pledged Financial Instruments Net Amount
Derivative assets:
Derivatives subject to master netting arrangement or similar arrangement $ 2,752 $ ( 1,221 ) $ 1,531 $ ( 1 ) $ 1,530
Derivatives not subject to master netting arrangement or similar arrangement 388 — 388 — 388
Exchange traded derivatives 887 ( 436 ) 451 — 451
Total derivative assets $ 4,027 $ ( 1,657 ) $ 2,370 $ ( 1 ) $ 2,369
Derivative liabilities:
Derivatives subject to master netting arrangement or similar arrangement $ ( 2,873 ) $ 2,514 $ ( 359 ) $ 66 $ ( 293 )
Derivatives not subject to master netting arrangement or similar arrangement ( 225 ) — ( 225 ) — ( 225 )
Exchange traded derivatives ( 438 ) 436 ( 2 ) — ( 2 )
Total derivative liabilities $ ( 3,536 ) $ 2,950 $ ( 586 ) $ 66 $ ( 520 )
The following table presents the carrying value of hedged items in fair value hedging relationships:
September 30, 2022 December 31, 2021
Hedge Basis Adjustment Hedge Basis Adjustment
(Dollars in millions) Hedged Asset / Liability Basis Items Currently Designated Discontinued Hedges Hedged Asset / Liability Basis Items Currently Designated Discontinued Hedges
AFS securities (1) $ 39,822 $ ( 662 ) $ ( 4 ) $ 108,758 $ ( 400 ) $ ( 150 )
Loans and leases 361 — 10 382 — 12
Long-term debt 24,456 ( 839 ) 240 27,361 ( 137 ) 629
(1) The amortized cost of AFS securities was $47.2 billion at September 30, 2022 and $110.6 billion at December 31, 2021.
Truist Financial Corporation 33
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.
The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 2022 2021
Pre-tax gain (loss) recognized in OCI:
Commercial loans $ ( 182 ) $ — $ ( 123 ) $ —
Total $ ( 182 ) $ — $ ( 123 ) $ —
Pre-tax gain (loss) reclassified from AOCI into interest expense:
Deposits $ — $ — $ — $ ( 2 )
Short-term borrowings — — — ( 12 )
Long-term debt ( 1 ) ( 7 ) ( 12 ) ( 17 )
Total $ ( 1 ) $ ( 7 ) $ ( 12 ) $ ( 31 )
Pre-tax gain (loss) reclassified from AOCI into other expense: (1)
Deposits $ — $ — $ — $ ( 12 )
Short-term borrowings — — — ( 20 )
Long-term debt — — — ( 4 )
Total $ — $ — $ — $ ( 36 )
(1) Represents the accelerated amortization of amounts reclassified from AOCI, where management determined that the forecasted transaction is probable of not occurring.
The following table summarizes the impact on net interest income related to fair value hedges:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 2022 2021
AFS securities:
Amounts related to interest settlements $ 36 $ ( 15 ) $ 40 $ ( 39 )
Recognized on derivatives 157 81 631 442
Recognized on hedged items ( 142 ) ( 83 ) ( 586 ) ( 448 )
Net income (expense) recognized 51 ( 17 ) 85 ( 45 )
Loans and leases:
Recognized on hedged items ( 1 ) ( 1 ) ( 2 ) ( 2 )
Net income (expense) recognized ( 1 ) ( 1 ) ( 2 ) ( 2 )
Long-term debt:
Amounts related to interest settlements ( 23 ) — ( 4 ) —
Recognized on derivatives ( 445 ) — ( 912 ) —
Recognized on hedged items 482 73 1,050 227
Net income (expense) recognized 14 73 134 227
Net income (expense) recognized, total $ 64 $ 55 $ 217 $ 180
34 Truist Financial Corporation
The following table presents information about the Company’s terminated cash flow and fair value hedges:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Cash flow hedges:
Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI $ ( 118 ) $ —
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2029) 24 ( 9 )
Estimated portion of net after-tax gain (loss) on terminated hedges to be reclassified from AOCI into earnings during the next 12 months ( 11 ) ( 9 )
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 5 years N/A
Fair value hedges:
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2030) (1) $ 703 $ 767
Portion of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months 173 231
(1) Includes deferred gains that are recorded in AOCI as a result of the reclassification to HTM of previously hedged securities of $469 million at September 30, 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:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) Income Statement Location 2022 2021 2022 2021
Client-related and other risk management:
Interest rate contracts Investment banking and trading income and other income $ 59 $ 28 $ 187 $ 142
Foreign exchange contracts Investment banking and trading income and other income 202 73 381 107
Equity contracts Investment banking and trading income and other income ( 57 ) 2 ( 50 ) ( 18 )
Credit contracts Investment banking and trading income and other income ( 7 ) 13 84 ( 48 )
Commodity contracts Investment banking and trading income 9 1 9 6
Mortgage banking:
Interest rate contracts Residential mortgage income 94 ( 18 ) 572 ( 15 )
Interest rate contracts Commercial mortgage income 6 — 5 ( 1 )
MSRs:
Interest rate contracts Residential mortgage income ( 175 ) ( 48 ) ( 789 ) ( 162 )
Interest rate contracts Commercial mortgage income ( 9 ) ( 1 ) ( 23 ) ( 8 )
Total $ 122 $ 50 $ 376 $ 3
Credit Derivative Instruments
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 September 30, 2022, the remaining terms on these risk participations ranged from less than one year to 16 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.
Truist Financial Corporation 35
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.”
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.
The following table presents additional information related to interest rate derivative risk participation agreements and total return swaps:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Risk participation agreements:
Maximum potential amount of exposure $ 260 $ 521
Total return swaps:
Cash collateral held 406 290
The following table summarizes collateral positions with counterparties:
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Dealer and other counterparties:
Cash and other collateral received from counterparties $ 591 $ 346
Derivatives in a net gain position secured by collateral received 680 506
Unsecured positions in a net gain with counterparties after collateral postings 89 143
Cash collateral posted to counterparties 746 1,704
Derivatives in a net loss position secured by collateral 840 2,591
Additional collateral that would have been posted had the Company’s credit ratings dropped below investment grade — 3
Central counterparties clearing:
Cash collateral, including initial margin, posted to central clearing parties 52 31
Derivatives in a net loss position 18 18
Derivatives in a net gain position 124 —
Securities pledged to central counterparties clearing 782 904
NOTE 17. Computation of EPS
Basic and diluted EPS calculations are presented in the following table:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except per share data, shares in thousands) 2022 2021 2022 2021
Net income available to common shareholders $ 1,536 $ 1,616 $ 4,317 $ 4,509
Weighted average number of common shares 1,326,539 1,334,825 1,328,569 1,339,558
Effect of dilutive outstanding equity-based awards 10,120 12,029 10,502 12,154
Weighted average number of diluted common shares 1,336,659 1,346,854 1,339,071 1,351,712
Basic EPS $ 1.16 $ 1.21 $ 3.25 $ 3.37
Diluted EPS $ 1.15 $ 1.20 $ 3.22 $ 3.34
Anti-dilutive awards — 5 85 3
NOTE 18. Operating Segments
Truist operates and measures business activity across three 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, 2021.
36 Truist Financial Corporation
The following table presents results by segment:
Three Months Ended September 30,
(Dollars in millions) CB&W C&CB IH OT&C (1) Total
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Net interest income (expense) $ 1,685 $ 1,665 $ 1,601 $ 1,126 $ 40 $ 27 $ 419 $ 415 $ 3,745 $ 3,233
Net intersegment interest income (expense) 960 485 22 158 ( 7 ) 1 ( 975 ) ( 644 ) — —
Segment net interest income 2,645 2,150 1,623 1,284 33 28 ( 556 ) ( 229 ) 3,745 3,233
Allocated provision for credit losses 283 ( 5 ) ( 50 ) ( 264 ) 1 1 — ( 56 ) 234 ( 324 )
Segment net interest income after provision 2,362 2,155 1,673 1,548 32 27 ( 556 ) ( 173 ) 3,511 3,557
Noninterest income 882 1,028 604 752 734 652 ( 118 ) ( 67 ) 2,102 2,365
Amortization of intangibles 76 78 32 37 31 30 1 — 140 145
Other noninterest expense 1,876 1,907 763 767 609 507 225 469 3,473 3,650
Income (loss) before income taxes 1,292 1,198 1,482 1,496 126 142 ( 900 ) ( 709 ) 2,000 2,127
Provision (benefit) for income taxes 306 265 318 315 31 31 ( 292 ) ( 188 ) 363 423
Segment net income (loss) $ 986 $ 933 $ 1,164 $ 1,181 $ 95 $ 111 $ ( 608 ) $ ( 521 ) $ 1,637 $ 1,704
Nine Months Ended September 30,
(Dollars in millions) CB&W C&CB IH OT&C (1) Total
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Net interest income (expense) $ 4,780 $ 5,103 $ 3,972 $ 3,518 $ 94 $ 76 $ 1,489 $ 1,066 $ 10,335 $ 9,763
Net intersegment interest income (expense) 2,325 1,102 263 346 ( 9 ) 1 ( 2,579 ) ( 1,449 ) — —
Segment net interest income 7,105 6,205 4,235 3,864 85 77 ( 1,090 ) ( 383 ) 10,335 9,763
Allocated provision for credit losses 556 91 ( 228 ) ( 698 ) 2 1 ( 20 ) ( 104 ) 310 ( 710 )
Segment net interest income after provision 6,549 6,114 4,463 4,562 83 76 ( 1,070 ) ( 279 ) 10,025 10,473
Noninterest income 2,723 2,874 1,859 2,251 2,304 1,984 ( 394 ) ( 142 ) 6,492 6,967
Amortization of intangibles 228 235 97 112 94 81 1 3 420 431
Other noninterest expense 5,584 5,628 2,236 2,277 1,729 1,451 898 1,629 10,447 10,985
Income (loss) before income taxes 3,460 3,125 3,989 4,424 564 528 ( 2,363 ) ( 2,053 ) 5,650 6,024
Provision (benefit) for income taxes 825 736 863 954 139 124 ( 762 ) ( 625 ) 1,065 1,189
Segment net income (loss) $ 2,635 $ 2,389 $ 3,126 $ 3,470 $ 425 $ 404 $ ( 1,601 ) $ ( 1,428 ) $ 4,585 $ 4,835
Identifiable assets (period end) $ 170,111 $ 160,803 $ 197,869 $ 177,751 $ 11,533 $ 9,454 $ 168,925 $ 181,876 $ 548,438 $ 529,884
(1) Includes financial data from business units below the quantitative and qualitative thresholds requiring disclosure.
Truist Financial Corporation 37
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, 2021.
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, 2021.
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, 2021 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, 2021 for additional disclosures.
In March 2022, the U.S. enacted federal legislation that is intended to minimize legal and economic uncertainty following U.S. dollar LIBOR’s cessation by replacing LIBOR references in certain contracts under certain circumstances with a SOFR-based rate to be established in a forthcoming FRB rule that incorporates a spread adjustment specified in the statute. While some states have already adopted LIBOR legislation, the federal legislation expressly preempts any provision of any state or local law, statute, rule, regulation, or standard.
In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning on January 1, 2023. This rule is expected to increase regulatory premiums by approximately $100 million annually. The FDIC also concurrently maintained the Designated Reserve Ratio for the DIF at 2%.
Executive Overview
Our third quarter 2022 performance reflects strong progress in many areas of the business, as we delivered strong broad-based loan growth, significant margin expansion and continued exceptional asset quality. Overall financial results were mixed, however, as the challenging market environment impacted our capital markets related revenue.
We continue to remain highly confident in Truist’s trajectory given the diversity of our business mix, our strong markets, conservative risk culture, and the substantial opportunities that lie ahead post integration.
In July 2022, Truist launched Truist One Banking, a first-of-its-kind approach to the checking account experience, designed to address clients’ direct feedback. Additionally during the quarter, we launched Truist Assist, an AI-enhanced virtual assistant within the mobile banking app and online banking platform; combining innovative technology with personalized human touch to enhance the client experience. We also announced the expansion of digital investment offerings with Truist Invest, a robo advisor, and Truist Invest Pro, a hybrid investing solution that combines automated investing with access to a team of financial advisors.
38 Truist Financial Corporation
ESG
Our 2021 Environmental, Social, and Governance and Corporate Social Responsibility Report highlights the significant steps we’ve taken to meet and exceed our goals, including the diversity of our senior leadership and supporting our clients and communities to transition to a lower carbon economy. We will shift our TCFD Report publication to spring 2023, to align with the release of the 2022 Environmental, Social, and Governance and Corporate Social Responsibility Report. Outlined below are significant updates to our ESG efforts during the first nine-months of 2022.
Environmental
• Truist has joined the Partnership for Carbon Accounting Financials, and set 2030 goals to reduce Scope 1 and Scope 2 emissions by 35% each, and to reduce water consumption by 25%, relative to 2019.
• We announced our goal to achieve net zero greenhouse gas emissions by 2050, supporting our clients’ transition to a low-carbon economy.
Social
• Guided by our purpose to inspire and build better lives and communities, we are investing in revenue producing businesses and enterprise technology and have increased our minimum wage to $22 per hour effective October 1, 2022, positioning Truist as a leader in the industry.
• With 16.5% of senior leadership roles being held by ethnically diverse teammates, we have exceeded our original goal and we aspire for continued growth in this area.
• Together with the Truist Foundation and the Truist Charitable Fund, we’ve committed $120 million to help historically underserved small businesses gain access to capital and technical assistance.
• Truist continues to be ahead of schedule with regard to our $60 billion Community Benefits Plan commitment.
• Our company purpose continues to drive our actions to care for our teammates, clients, and the communities we serve, and this was even more apparent in the aftermath of Hurricane Ian, when our teammates acted quickly to support each other and our local communities through humanitarian aid and volunteer efforts.
Governance
• Michael B. Maguire was named CFO effective September 15, 2022. Mr. Maguire succeeds Daryl Bible, whose retirement was announced in May and who will remain at Truist during a transition period. Mr. Maguire will oversee accounting, tax, treasury, financial planning and analysis, investor relations, and other responsibilities. Prior to his current role, Maguire led the company’s consumer finance businesses, including LightStream, Service Finance, Sheffield Financial, Dealer Retail Services, and its student loan unit. Previously, Mr. Maguire served as the head of enterprise partnerships and investments at Truist. Prior to that, Mr. Maguire spent 16 years as an investment banker at Truist Securities.
• Clarke R. Starnes III, CRO of Truist, has been given additional leadership responsibilities, including oversight of the corporate function responsible for procurement, third-party risk management, supplier diversity, and unclaimed property and escheatment businesses, and the finance-risk data analytics office tasked with the implementation of the data management framework for Risk, Finance, and ESG. In addition, the Corporate Security group and the Wholesale and Retail Credit Risk modeling team will join the Risk Management Organization led by Mr. Starnes. Mr. Starnes has been designated the additional officer title of Vice Chair in connection with these new responsibilities.
• Truist was named a Top 100 performer within the new 2022 JUST Capital Workforce Equity and Mobility Ranking.
• Truist made several leadership changes during the first quarter of 2022 that are discussed in the executive overview section of our Quarterly Report on Form 10-Q for the period ended March 31, 2022.
Truist Financial Corporation 39
Financial Results
Net income available to common shareholders for the third quarter of 2022 of $1.5 billion was down 5.0% compared with the third quarter of 2021. On a diluted per common share basis, earnings for the third quarter of 2022 were $1.15, a decrease of $0.05, or 4.2%, compared to the third quarter of 2021. Truist’s results of operations for the third quarter of 2022 produced an annualized return on average assets of 1.19% and an annualized return on average common shareholders’ equity of 10.7% compared to prior year returns of 1.28% and 10.2%, respectively.
Results for the third quarter of 2022 included merger-related and restructuring charges of $62 million ($48 million after-tax) and incremental operating expenses related to the Merger of $90 million ($69 million after-tax). Results for the third quarter of 2021 included $172 million ($132 million after-tax) of merger-related and restructuring charges, $191 million ($147 million after-tax) of incremental operating expenses related to the Merger, and a one-time professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger of $30 million ($23 million after tax).
On a TE basis, revenue was $5.9 billion for the third quarter of 2022, an increase of $259 million, or 4.6%, compared to the same period in 2021. TE net interest income for the third quarter of 2022 was up $522 million, or 16%, compared to the earlier quarter primarily due to strong loan growth, higher market interest rates coupled with well controlled deposit costs and solid deposit growth. These increases were partially offset by lower purchase accounting accretion and lower PPP revenue. Average earning assets increased $20.6 billion, or 4.5%, compared to the earlier quarter primarily due to growth in average total loans of $21.5 billion, or 7.4%. Average deposits increased $17.4 billion, or 4.3%, and average short-term borrowings increased $12.0 billion compared to the earlier quarter, while average long-term debt decreased $5.9 billion, or 16%.
Net interest margin was 3.12%, up 31 basis points compared to the earlier quarter. The yield on the total loan portfolio for the third quarter of 2022 was 4.49%, up 59 basis points compared to the earlier quarter, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion and lower PPP revenue. The yield on the average securities portfolio was 1.95%, up 45 basis points compared to the earlier quarter primarily due to the higher rate environment.
The average cost of total deposits was 0.31%, up 28 basis points compared to the earlier quarter. The average cost of short-term borrowings was 2.34%, up 166 basis points compared to the earlier quarter. The average cost of long-term debt was 2.43%, up 82 basis points compared to the earlier quarter. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.
The provision for credit losses was $234 million, compared to a benefit of $324 million for the earlier quarter. The earlier quarter included a reserve release due to the improving credit environment during that period. Net charge-offs for the third quarter of 2022 totaled $213 million compared to $135 million in the earlier quarter. The net charge-off ratio for the current quarter of 0.27% was up eight basis points compared to the earlier quarter primarily driven by normalizing trends across certain consumer portfolios.
Noninterest income for the third quarter of 2022 decreased $263 million, or 11%, compared to the earlier quarter. Other income decreased $139 million due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, and lower investment income and valuation marks from the Company’s SBIC and other strategic investments. Residential mortgage income decreased $107 million, or 60%, as lower production income (due to lower margins and refinance volumes resulting from the higher rate environment) was partially offset by higher servicing income (due to lower prepayments and servicing portfolio purchases). Investment banking and trading income decreased $94 million, or 30%, due to lower bond and equity originations and merger and acquisition fees, partially offset by higher trading income. These decreases were partially offset by an increase of $80 million, or 12%, in insurance income due to organic growth and acquisitions.
Noninterest expense for the third quarter of 2022 was down $182 million, or 4.8%, compared to the earlier quarter. Merger-related and restructuring charges decreased $110 million and incremental operating expenses related to the Merger decreased $101 million due to diminishing integration-related activities. The earlier quarter included a $30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger.
40 Truist Financial Corporation
Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense increased $64 million, or 2.0%, compared to the earlier quarter. Other expense increased $81 million ($87 million, or 104%, on an adjusted basis) primarily due to increased operational losses and teammate travel expenses. Professional fees and outside processing expenses decreased $20 million, but was up $70 million, or 33%, on an adjusted basis due to increased project spend for enterprise technology investments and increased call center staffing. Equipment expense decreased $32 million ($38 million, or 25%, on an adjusted basis) primarily due to laptop purchases in the prior period. Software expense decreased $26 million ($24 million, or 9.6%, on an adjusted basis) primarily due to lower maintenance expense and decommissioned software. Personnel expense decreased $71 million ($32 million, or 1.5%, on an adjusted basis) due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits and lower incentives, partially offset by higher salaries due to annual merit increases, investments in revenue producing businesses and enterprise technology, as well as additional personnel costs for acquisitions.
The provision for income taxes was $363 million for the third quarter of 2022, compared to $423 million for the earlier quarter. The effective tax rate for the third quarter of 2022 was 18.2%, compared to 19.9% for the earlier quarter. The decrease in the effective tax rate was primarily driven by an increase in discrete tax benefits and changes in the full year forecasted effective tax rate.
Truist’s total assets at September 30, 2022 were $548.4 billion, an increase of $7.2 billion, or 1.3%, compared to December 31, 2021. Total loans and leases at September 30, 2022, were $316.6 billion, an increase of $22.3 billion, or 7.6% compared with December 31, 2021. The increase in loans reflects strong production during the second and third quarters of this year across most industry verticals and product groups in the commercial and industrial portfolio and the majority of the consumer portfolios. Total deposits at September 30, 2022 were $416.0 billion, a decrease of $496 million, or 0.1%, compared to December 31, 2021.
Asset quality remains excellent, reflecting Truist’s prudent risk culture and diverse portfolio. Nonperforming loans and leases held for investment were 0.35% of loans and leases held for investment at September 30, 2022, down one basis point compared to June 30, 2022. The ALLL ratio was 1.34% compared to 1.38% for second quarter 2022. The ALLL coverage ratio was 4.98X annualized net charge-offs, versus 6.54X for second quarter 2022.
Truist maintained strong capital and liquidity levels relative to the company’s risk profile. As of September 30, 2022, the CET1 ratio was 9.1% and the average LCR for the third quarter of 2022 was 111%. The decline in the CET1 ratio compared to June 30, 2022 primarily reflects the BenefitMall acquisition and strong loan growth. Truist increased its quarterly common dividend 8% to $0.52 per share in the third quarter of 2022, resulting in a dividend payout ratio of 45% for the third quarter of 2022. Truist entered into an agreement to purchase BankDirect Capital Finance, the insurance premium finance unit of Texas Capital Bancshares, which is anticipated to close in the fourth quarter of 2022. This will add approximately $3.2 billion in loans and deploys 15 basis points of capital. The acquisition will add scale and product offerings to our existing premium finance business.
Analysis of Results of Operations
Net Interest Income and NIM
Third Quarter 2022 compared to Third Quarter 2021
TE net interest income for the third quarter of 2022 was up $522 million, or 16%, compared to the earlier quarter primarily due to strong loan growth, higher market interest rates coupled with well controlled deposit costs and solid deposit growth. These increases were partially offset by lower purchase accounting accretion and lower PPP revenue. Average earning assets increased $20.6 billion, or 4.5%, compared to the earlier quarter primarily due to growth in average total loans of $21.5 billion, or 7.4%. Average deposits increased $17.4 billion, or 4.3%, and average short-term borrowings increased $12.0 billion compared to the earlier quarter, while average long-term debt decreased $5.9 billion, or 16%.
Net interest margin was 3.12%, up 31 basis points compared to the earlier quarter. The yield on the total loan portfolio for the third quarter of 2022 was 4.49%, up 59 basis points compared to the earlier quarter, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion and lower PPP revenue. The yield on the average securities portfolio was 1.95%, up 45 basis points compared to the earlier quarter primarily due to the higher rate environment.
The average cost of total deposits was 0.31%, up 28 basis points compared to the earlier quarter. The average cost of short-term borrowings was 2.34%, up 166 basis points compared to the earlier quarter. The average cost of long-term debt was 2.43%, up 82 basis points compared to the earlier quarter. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.
Truist Financial Corporation 41
Nine Months of 2022 compared to Nine Months of 2021
TE net interest income for the nine months ended September 30, 2022 was up $580 million, or 5.9%, compared to the prior period primarily due to higher market interest rates coupled with well controlled deposit costs and solid deposit growth, growth in the securities and lending portfolios and lower premium amortization, partially offset by lower purchase accounting accretion and lower PPP revenue. Average earning assets increased $22.4 billion, or 4.9%, compared to the prior period. The increase in average earning assets reflects a $14.1 billion, or 10%, increase in average securities, a $7.2 billion, or 2.5%, increase in average total loans and leases, and a $576 million, or 11%, increase in average interest earning trading assets. Average deposits increased $25.6 billion, or 6.5%, and average short-term borrowings increased $5.3 billion, or 87%, compared to the prior period, while average long-term debt decreased $4.7 billion, or 13%.
Net interest margin was 2.93% for the nine months ended September 30, 2022, up three basis points compared to the prior period. The yield on the total loan portfolio for the nine months ended September 30, 2022 was 4.04%, up four basis points compared to the prior period, reflecting higher market interest rates, partially offset by lower purchase accounting accretion and lower PPP revenue. The yield on the average securities portfolio was 1.82% for the nine months ended September 30, 2022, up 34 basis points compared to the prior period primarily due to the higher rate environment.
The average cost of total deposits was 0.15% for the nine months ended September 30, 2022, up 11 basis points compared to the prior period. The average cost on short-term borrowings was 1.68% for the nine months ended September 30, 2022, up 84 basis points compared to the prior period. The average cost on long-term debt was 1.88% for the nine months ended September 30, 2022, up 29 basis points compared to the prior period. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.
As of September 30, 2022, the remaining unamortized fair value marks on the loan and lease portfolio, deposits, and long-term debt were $826 million, $1 million, and $94 million, respectively. As of December 31, 2021, the remaining unamortized fair value marks on the loan and lease portfolio, deposits and long-term debt were $1.3 billion, $7 million, and $139 million, respectively.
The remaining unamortized fair value mark on loans and leases consists of $510 million for consumer loans and leases, and $316 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 1-1: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis (1)
Three Months Ended September 30, Incr.
(Dollars in millions) Average Balances (5) Annualized Yield/Rate Income/Expense (Decr.) Change due to
2022 2021 2022 2021 2022 2021 Rate Volume
Assets
Total securities, at amortized cost: (2)
U.S. Treasury $ 10,925 $ 9,699 0.93 % 0.72 % $ 26 $ 18 $ 8 $ 6 $ 2
GSE 305 1,830 2.56 2.31 1 10 (9) 1 (10)
Agency MBS 129,703 132,890 2.02 1.53 655 509 146 159 (13)
States and political subdivisions 395 425 3.92 3.52 4 4 — — —
Non-agency MBS 4,016 1,398 2.32 2.20 24 8 16 — 16
Other 52 30 3.94 1.90 — — — — —
Total securities 145,396 146,272 1.95 1.50 710 549 161 166 (5)
Interest earning trading assets 5,446 5,809 4.49 2.81 62 41 21 24 (3)
Other earning assets (3) 19,631 19,331 2.24 0.25 109 13 96 96 —
Loans and leases, net of unearned income: (4)
Commercial and industrial 152,123 134,942 4.08 3.01 1,564 1,023 541 398 143
CRE 22,245 24,849 4.32 2.86 245 181 64 84 (20)
Commercial Construction 5,284 5,969 4.83 2.96 62 42 20 26 (6)
Residential mortgage 53,271 45,369 3.59 3.96 478 450 28 (45) 73
Residential home equity and direct 25,394 25,242 5.64 5.67 361 360 1 (2) 3
Indirect auto 28,057 26,830 5.40 5.99 382 405 (23) (41) 18
Indirect other 12,300 11,112 6.46 6.54 200 183 17 (2) 19
Student 5,958 7,214 5.64 4.02 85 74 11 25 (14)
Credit card 4,755 4,632 9.97 9.01 119 105 14 11 3
Total loans and leases HFI 309,387 286,159 4.49 3.92 3,496 2,823 673 454 219
LHFS 2,489 4,179 4.81 2.69 30 28 2 17 (15)
Total loans and leases 311,876 290,338 4.49 3.90 3,526 2,851 675 471 204
Total earning assets 482,349 461,750 3.63 2.98 4,407 3,454 953 757 196
Nonearning assets 63,257 64,935
Total assets $ 545,606 $ 526,685
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking $ 111,645 $ 107,802 0.56 0.05 158 14 144 143 1
Money market and savings 147,659 136,094 0.43 0.03 159 9 150 149 1
Time deposits 14,751 17,094 0.40 0.23 14 10 4 6 (2)
Total interest-bearing deposits (6) 274,055 260,990 0.48 0.05 331 33 298 298 —
Short-term borrowings 17,392 5,360 2.34 0.68 103 9 94 49 45
Long-term debt 31,381 37,329 2.43 1.61 190 151 39 67 (28)
Total interest-bearing liabilities 322,828 303,679 0.77 0.25 624 193 431 414 17
Noninterest-bearing deposits (6) 146,041 141,738
Other liabilities 13,227 11,915
Shareholders’ equity 63,510 69,353
Total liabilities and shareholders’ equity $ 545,606 $ 526,685
Average interest-rate spread 2.86 % 2.73 %
NIM/net interest income - taxable equivalent 3.12 % 2.81 % $ 3,783 $ 3,261 $ 522 $ 343 $ 179
Taxable-equivalent adjustment $ 38 $ 28
(1) 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.
(2) Total securities include AFS and HTM securities.
(3) Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets.
(4) Fees, which are not material for any of the periods shown, are included for rate calculation purposes. NPLs are included in the average balances.
(5) Represents daily average balances. Excludes basis adjustments for fair value hedges.
(6) Total deposit costs were 0.31% and 0.03% for the three months ended September 30, 2022 and 2021, respectively.
Truist Financial Corporation 43
Table 1-2: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis (1)
Nine Months Ended September 30, Average Balances (5) Annualized Yield/Rate Income/Expense Incr. Change due to
(Dollars in millions) (Decr.)
2022 2021 2022 2021 2022 2021 Rate Volume
Assets
Total securities, at amortized cost: (2)
U.S. Treasury $ 10,457 $ 6,872 0.84 % 0.74 % $ 66 $ 38 $ 28 $ 6 $ 22
GSE 557 1,837 2.19 2.32 8 32 (24) (2) (22)
Agency MBS 133,338 125,157 1.87 1.49 1,870 1,401 469 373 96
States and political subdivisions 380 435 3.82 3.53 11 12 (1) 1 (2)
Non-agency MBS 4,112 477 2.29 2.18 71 8 63 — 63
Other 51 32 3.46 1.90 1 — 1 1 —
Total securities 148,895 134,810 1.82 1.48 2,027 1,491 536 379 157
Interest earning trading assets 5,784 5,208 3.67 2.80 160 110 50 37 13
Other earning assets (3) 19,924 19,453 1.24 0.26 184 38 146 145 1
Loans and leases, net of unearned income: (4)
Commercial and industrial 145,566 138,146 3.42 3.08 3,725 3,188 537 361 176
CRE 22,765 25,563 3.52 2.86 606 553 53 117 (64)
Commercial Construction 5,196 6,293 3.80 2.98 140 135 5 33 (28)
Residential mortgage 50,180 44,931 3.58 4.25 1,346 1,431 (85) (241) 156
Residential home equity and direct 25,136 25,378 5.43 5.74 1,020 1,089 (69) (59) (10)
Indirect auto 26,888 26,547 5.47 6.25 1,101 1,240 (139) (155) 16
Indirect other 11,549 10,920 6.36 6.79 549 555 (6) (37) 31
Student 6,310 7,375 4.54 3.96 214 219 (5) 30 (35)
Credit card 4,721 4,610 9.29 8.99 328 310 18 10 8
Total loans and leases HFI 298,311 289,763 4.04 4.02 9,029 8,720 309 59 250
LHFS 3,167 4,485 3.82 2.61 91 88 3 33 (30)
Total loans and leases 301,478 294,248 4.04 4.00 9,120 8,808 312 92 220
Total earning assets 476,081 453,719 3.22 3.08 11,491 10,447 1,044 653 391
Nonearning assets 64,673 64,444
Total assets $ 540,754 $ 518,163
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking $ 112,058 $ 106,234 0.26 0.06 215 44 171 168 3
Money market and savings 145,953 133,167 0.20 0.03 220 27 193 190 3
Time deposits 14,840 18,609 0.25 0.32 27 45 (18) (10) (8)
Total interest-bearing deposits (6) 272,851 258,010 0.23 0.06 462 116 346 348 (2)
Short-term borrowings 11,356 6,081 1.68 0.84 143 38 105 56 49
Long-term debt 32,646 37,339 1.88 1.59 459 446 13 74 (61)
Total interest-bearing liabilities 316,853 301,430 0.45 0.27 1,064 600 464 478 (14)
Noninterest-bearing deposits (6) 146,862 136,118
Other liabilities 12,448 11,262
Shareholders’ equity 64,591 69,353
Total liabilities and shareholders’ equity $ 540,754 $ 518,163
Average interest-rate spread 2.77 % 2.81 %
NIM/net interest income - taxable equivalent 2.93 % 2.90 % $ 10,427 $ 9,847 $ 580 $ 175 $ 405
Taxable-equivalent adjustment $ 92 $ 84
(1) 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.
(2) Total securities include AFS and HTM securities.
(3) Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets.
(4) Fees, which are not material for any of the periods shown, are included for rate calculation purposes. NPLs are included in the average balances.
(5) Represents daily average balances. Excludes basis adjustments for fair value hedges.
(6) Total deposit costs were 0.15% and 0.04% for the nine months ended September 30, 2022 and 2021, respectively.
44 Truist Financial Corporation
Provision for Credit Losses
Third Quarter 2022 compared to Third Quarter 2021
The provision for credit losses was $234 million, compared to a benefit of $324 million for the earlier quarter. The earlier quarter included a reserve release due to the improving credit environment during that period. Net charge-offs for the third quarter of 2022 totaled $213 million compared to $135 million in the earlier quarter. The net charge-off ratio for the current quarter of 0.27% was up eight basis points compared to the earlier quarter primarily driven by normalizing trends across certain consumer portfolios.
Nine Months of 2022 compared to Nine Months of 2021
The provision for credit losses was $310 million for the nine months ended September 30, 2022, compared to a benefit of $710 million for the prior period. The current period provision expense primarily reflects growth in the loan portfolio and a moderately slower economic outlook, partially offset by a decline in the ALLL ratio, whereas the prior period included a reserve release due to the improving credit environment during that period. Net charge-offs for the nine months ended September 30, 2022 totaled $550 million compared to $515 million in the prior period. The net charge-off ratio for the current period of 0.25% was up one basis points compared to the prior period.
Refer to “Note 5. Loans and ACL” for additional discussion over the ACL.
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.
Table 2: Noninterest Income
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Insurance income $ 725 $ 645 12.4 % $ 2,277 $ 1,961 16.1 %
Investment banking and trading income 222 316 (29.7) 738 1,064 (30.6)
Wealth management income 334 356 (6.2) 1,014 1,042 (2.7)
Service charges on deposits 263 276 (4.7) 769 787 (2.3)
Card and payment related fees 241 225 7.1 699 650 7.5
Residential mortgage income 72 179 (59.8) 235 396 (40.7)
Lending related fees 80 74 8.1 265 268 (1.1)
Operating lease income 66 57 15.8 190 191 (0.5)
Commercial mortgage income 50 54 (7.4) 108 134 (19.4)
Income from bank-owned life insurance 49 43 14.0 150 139 7.9
Securities gains (losses) (1) — NM (71) — NM
Other income 1 140 (99.3) 118 335 (64.8)
Total noninterest income $ 2,102 $ 2,365 (11.1) $ 6,492 $ 6,967 (6.8)
Third Quarter 2022 compared to Third Quarter 2021
Noninterest income for the third quarter of 2022 decreased $263 million, or 11%, compared to the earlier quarter. Other income decreased $139 million due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, and lower investment income and valuation marks from the Company’s SBIC and other strategic investments. Residential mortgage income decreased $107 million, or 60%, as lower production income (due to lower margins and refinance volumes resulting from the higher rate environment) was partially offset by higher servicing income (due to lower prepayments and servicing portfolio purchases). Investment banking and trading income decreased $94 million, or 30%, due to lower bond and equity originations and merger and acquisition fees, partially offset by higher trading income. These decreases were partially offset by an increase of $80 million, or 12%, in insurance income due to organic growth and acquisitions.
Truist Financial Corporation 45
Nine Months of 2022 compared to Nine Months of 2021
Noninterest income for the nine months ended September 30, 2022 decreased $475 million, or 6.8%, compared to the prior period. The current period includes net securities losses of $71 million and the gain on the redemption of noncontrolling equity interest (other income) of $74 million. The earlier period included a gain of $37 million from the divestiture of certain businesses (other income). Excluding the aforementioned items, noninterest income was down $441 million, or 6.4%, compared to the prior period. Investment banking and trading income decreased $326 million, or 31%, due to lower high-yield bond originations, equity originations, merger and acquisition fees and loan syndications. Excluding the aforementioned gains, other income decreased $254 million, or 85%, primarily due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, and lower investment income and valuation marks from the Company’s SBIC and other strategic investments. Residential mortgage banking income decreased $161 million, or 41%, as lower production income (due to lower margins and refinance volumes resulting from the higher rate environment) was partially offset by higher servicing income (due to lower prepayments and servicing portfolio purchases). Insurance income increased $316 million, or 16%, due to acquisitions and continued organic growth. Card and payment related fees increased $49 million, or 7.5%, due to the first quarter 2022 acquisition of certain merchant services relationships and increased activity.
Noninterest Expense
The following table provides a breakdown of Truist’s noninterest expense:
Table 3: Noninterest Expense
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Personnel expense $ 2,116 $ 2,187 (3.2) % $ 6,269 $ 6,536 (4.1) %
Professional fees and outside processing 352 372 (5.4) 1,064 1,063 0.1
Software expense 225 251 (10.4) 691 707 (2.3)
Net occupancy expense 176 187 (5.9) 565 578 (2.2)
Amortization of intangibles 140 145 (3.4) 420 431 (2.6)
Equipment expense 122 154 (20.8) 354 389 (9.0)
Marketing and customer development 105 94 11.7 282 226 24.8
Operating lease depreciation 45 47 (4.3) 140 144 (2.8)
Loan-related expense 46 52 (11.5) 137 161 (14.9)
Regulatory costs 52 43 20.9 131 99 32.3
Merger-related and restructuring charges 62 172 (64.0) 399 610 (34.6)
Loss (gain) on early extinguishment of debt — — — (39) (3) NM
Other expense 172 91 89.0 454 475 (4.4)
Total noninterest expense $ 3,613 $ 3,795 (4.8) $ 10,867 $ 11,416 (4.8)
Third Quarter 2022 compared to Third Quarter 2021
Noninterest expense for the third quarter of 2022 was down $182 million, or 4.8%, compared to the earlier quarter. Merger-related and restructuring charges decreased $110 million and incremental operating expenses related to the Merger decreased $101 million due to diminishing integration-related activities. The earlier quarter included a $30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the merger.
Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense increased $64 million, or 2.0%, compared to the earlier quarter. Other expense increased $81 million ($87 million, or 104%, on an adjusted basis) primarily due to increased operational losses and teammate travel expenses. Professional fees and outside processing expenses decreased $20 million, but was up $70 million, or 33%, on an adjusted basis due to increased project spend for enterprise technology investments and increased call center staffing. Equipment expense decreased $32 million ($38 million, or 25%, on an adjusted basis) primarily due to laptop purchases in the prior period. Software expense decreased $26 million ($24 million, or 9.6%, on an adjusted basis) primarily due to lower maintenance expense and decommissioned software. Personnel expense decreased $71 million ($32 million, or 1.5%, on an adjusted basis) due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits and lower incentives, partially offset by higher salaries due to annual merit increases, investments in revenue producing businesses and enterprise technology, as well as additional personnel costs for acquisitions.
46 Truist Financial Corporation
Nine Months of 2022 compared to Nine Months of 2021
Noninterest expense for the nine months ended September 30, 2022 was down $549 million, or 4.8%, compared to the earlier period. Merger-related and restructuring charges decreased $211 million due to diminishing integration-related activities and lower costs in connection with the voluntary separation and retirement program, partially offset by higher costs for client day one conversions. Incremental operating expenses related to the Merger decreased $147 million, primarily reflected in lower personnel and professional fees and outside processing expenses. The current period includes a $39 million gain on the redemption of FHLB advances. The prior period includes $200 million for charitable contributions to the Truist Foundation and the Truist Charitable Fund (other expense), $36 million of expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges (other expense), a $30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the merger, and a small gain on the extinguishment of debt.
Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense increased $122 million, or 1.3%, compared to the earlier period. Other expense was up $213 million, or 94%, on an adjusted basis primarily due to increased operational losses and teammate travel expenses. Professional fees and outside processing expenses was stable, but was up $112 million, or 17%, on an adjusted basis due to increased project spend for enterprise technology investments and increased call center staffing. Marketing and customer development expense increased $56 million ($66 million or 31% on an adjusted basis) due to increased spend to continue to build and strengthen Truist’s brand. Personnel expense decreased $267 million ($179 million, or 2.8% on an adjusted basis) primarily driven by lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits, lower incentives expenses, and lower defined benefit costs, partially offset by higher salaries due to additional personnel costs for acquisitions, annual merit increases, and investments in revenue producing businesses and enterprise technology. Equipment expense decreased $35 million ($43 million, or 11% on an adjusted basis) primarily due to laptop purchases in the prior period. Net occupancy expense decreased $13 million ($39 million, or 6.8% on an adjusted basis) primarily due to consolidations of branches and other facilities.
Merger-Related and Restructuring Charges
The following table presents a summary of merger-related and restructuring charges and the related accruals. The 2022 and 2021 merger-related and restructuring costs primarily reflect charges as a result of the Merger, including costs for severance and other benefits, costs related to exiting facilities, and other restructuring initiatives.
Table 4: Merger-Related and Restructuring Accrual Activity
Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
(Dollars in millions) Accrual at Jul 1, 2022 Expense Utilized Accrual at Sep 30, 2022 Accrual at Jan 1, 2022 Expense Utilized Accrual at Sep 30, 2022
Severance and personnel-related $ 28 $ 8 $ (20) $ 16 $ 77 $ 74 $ (135) $ 16
Occupancy and equipment — 4 (4) — — 119 (119) —
Professional services 24 19 (30) 13 37 119 (143) 13
Systems conversion and related costs 1 15 (15) 1 — 46 (45) 1
Other 2 16 (11) 7 12 41 (46) 7
Total (1) $ 55 $ 62 $ (80) $ 37 $ 126 $ 399 $ (488) $ 37
(1) Related to the Merger, the Company recognized $39 million and $344 million of expense, respectively, for the three and nine months ended September 30, 2022. At September 30, 2022, the Company had an accrual of $26 million related to the Merger. The remaining expense and accrual relate to other restructuring activities.
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. 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, 2021 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.
Truist Financial Corporation 47
Table 5: Net Income by Reportable Segment
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Consumer Banking and Wealth $ 986 $ 933 5.7 % $ 2,635 $ 2,389 10.3 %
Corporate and Commercial Banking 1,164 1,181 (1.4) 3,126 3,470 (9.9)
Insurance Holdings 95 111 (14.4) 425 404 5.2
Other, Treasury & Corporate (608) (521) (16.7) (1,601) (1,428) (12.1)
Truist Financial Corporation $ 1,637 $ 1,704 (3.9) $ 4,585 $ 4,835 (5.2)
Third Quarter 2022 compared to Third Quarter 2021
Consumer Banking and Wealth
CB&W net income was $986 million for the third quarter of 2022, an increase of $53 million compared to the earlier quarter. Segment net interest income increased $495 million primarily driven by favorable funding credit on deposits attributable to the higher rate environment and higher average loan balances, partially offset by decreased loan spreads and lower purchase accounting accretion. The allocated provision for credit losses increased $288 million reflecting a reserve release in the earlier quarter and higher loan growth and increased charge-offs in the current quarter. Noninterest income decreased $146 million compared to earlier quarter primarily due to a decrease in residential mortgage income as well as a decline in wealth income attributed to market declines. These decreases were partially offset by higher card and payment fees driven by higher consumer spend. Noninterest expense decreased $33 million compared to the earlier quarter primarily due to lower merger-related and restructuring charges, net occupancy, and incentive expense, partially offset by increased operational losses.
CB&W average loans and leases held for investment increased $7.7 billion, or 5.8%, for the third quarter of 2022 compared to the earlier quarter, primarily driven by an increase in residential mortgage balances due to correspondent channel production and lower prepayments. In addition, indirect other increased primarily due to growth from Service Finance, recreational lending, and Sheffield portfolios, partially offset by runoff in other partnership lending programs. Residential home equity and direct increased primarily due to growth from the LightStream portfolio. These increases were partially offset by lower mortgage warehouse lending as well as runoff in student loans.
Average total deposits increased $6.2 billion, or 2.5%, for the third quarter of 2022 compared to the earlier quarter, primarily driven by increases in noninterest bearing deposits, money market and savings, and interest bearing checking, partially offset by a decline in time deposits.
Corporate and Commercial Banking
C&CB net income was $1.2 billion for the third quarter of 2022, a decrease of $17 million compared to the earlier quarter. Segment net interest income increased $339 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 allocated provision for credit losses increased $214 million primarily reflecting an allowance release in the earlier quarter and higher loan growth in the current quarter. Noninterest income decreased $148 million compared to the earlier quarter primarily due to lower investment banking revenue as well as lower income from the Company’s SBIC and other strategic investments, partially offset by higher trading income. Noninterest expense was stable compared to the earlier quarter.
C&CB average loans held for investment increased $17.3 billion, or 12%, for the third quarter of 2022 compared to the earlier quarter, 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 and construction loans.
Average total deposits decreased $5.8 billion, or 3.8%, for the third quarter of 2022 compared to the earlier quarter, primarily due to declines in average interest bearing checking and money market and savings.
Insurance Holdings
IH net income was $95 million for the third quarter of 2022, a decrease of $16 million compared to the earlier quarter. Noninterest income increased $82 million primarily due to continued organic growth and acquisitions. Noninterest expense increased $103 million primarily due to higher performance-based incentives, in addition to the impact of acquisitions.
48 Truist Financial Corporation
Other, Treasury & Corporate
OT&C generated a net loss of $608 million in the third quarter of 2022, compared to a net loss of $521 million in the earlier quarter. Net interest income decreased $327 million primarily due to higher funding credit on deposits to other segments, partially offset by higher earnings in the securities portfolio from the higher rate environment. Noninterest income decreased $51 million primarily due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense. Noninterest expense decreased $243 million compared to the earlier quarter primarily due to lower merger-related and restructuring charges and incremental operating expenses related to the merger as well as lower personnel expense due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits and lower incentives, partially offset by an increase in professional fees and outside processing due to increased project spend for enterprise technology investments.
Nine Months of 2022 compared to Nine Months of 2021
Consumer Banking and Wealth
CB&W net income was $2.6 billion for nine months ended September 30, 2022, an increase of $246 million, or 10%, compared to the same period of the prior year. Segment net interest income increased $900 million primarily due to favorable funding credit on deposits attributable to the higher rate environment and higher average loan and deposit balances, partially offset by decreased loan spreads and lower purchase accounting accretion. The allocated provision for credit losses increased $465 million primarily due to a reserve release in the prior year and loan growth and increased charge offs in the current year. Noninterest income decreased $151 million primarily due to a decrease in residential mortgage income. Noninterest expense decreased $51 million primarily due to lower net occupancy and incentive expenses as well as lower merger-related and restructuring charges, partially offset by increased operational losses.
CB&W average loans and leases held for investment increased $3.2 billion, or 2.4%, for the nine months ended September 30, 2022 compared to the same period of the prior year driven primarily by an increase in residential mortgage loans due to correspondent channel production and lower prepayments. In addition, indirect other consumer increased primarily due to growth from Service Finance, recreational lending, and Sheffield portfolios, partially offset by runoff in other partnership lending programs. These increases were partially offset by lower mortgage warehouse lending as well as runoff in student loans.
CB&W average total deposits increased $14.1 billion, or 5.9%, for the nine months ended September 30, 2022 compared to the same period of the prior year primarily due to increases in average noninterest bearing deposits, money market and savings, and interest bearing checking, partially offset by a decline in time deposits.
CB&W had 2,119 banking offices at September 30, 2022, a decrease of 399 offices compared to September 30, 2021. The decrease in offices was driven primarily by the consolidation of branches as a result of the Merger.
Truist Wealth had assets under management of $173.9 billion as of September 30, 2022, a decrease of $28.8 billion, or 14%, compared to the same period of the prior year primarily due to market declines, partially offset by net organic asset flows.
Corporate and Commercial Banking
C&CB net income was $3.1 billion for nine months ended September 30, 2022, a decrease of $344 million, or 9.9%, compared to the same period of the prior year. Segment net interest income increased $371 million primarily due to higher funding credit on deposits and increases to noninterest bearing deposit balances, partially offset by lower fee income associated with PPP loan forgiveness and lower purchase accounting accretion. The allocated provision for credit losses increased $470 million which reflects lower allowance releases in the current period compared to the prior period, partially offset by lower net charge-offs in the current period. Noninterest income decreased $392 million primarily due lower high-yield bond originations, equity originations, merger and acquisition fees and loan syndications. Noninterest expense decreased $56 million primarily due to lower incentive expense tied to lower revenues as well as lower merger-related and restructuring charges and incremental operating expenses related to the Merger given diminishing integration-related activities in the current period, partially offset by investments in revenue producers.
C&CB average loans and leases held for investment increased $6.8 billion, or 4.4%, for the nine months ended September 30, 2022 compared to the same period of the prior year. Excluding a $6.7 billion decrease in average PPP loans, average loans held for investment were up $13.5 billion, or 9.2%, primarily driven by an increase in the commercial and industrial portfolio loans due to higher revolver utilization, partially offset by a decrease in average commercial real estate and commercial construction loans.
C&CB average total deposits increased $552 million, or 0.4%, for the nine months ended September 30, 2022 compared to the same period of the prior year primarily due to an increase in average noninterest bearing deposits, partially offset by a decrease in interest bearing deposits.
Truist Financial Corporation 49
Insurance Holdings
IH net income was $425 million for nine months ended September 30, 2022, an increase of $21 million, or 5.2%, compared to the same period of the prior year. Noninterest income increased $320 million, or 16%, primarily due to acquisitions and organic growth. Noninterest expense increased $291 million, or 19%, primarily due to commissions on higher production and higher salaries in the current year along with higher amortization of intangibles and operating expenses related to acquisitions.
Other, Treasury, and Corporate
OT&C generated a net loss of $1.6 billion in the nine months ended September 30, 2022, compared to a net loss of $1.4 billion in the same period of the prior year. Segment net interest income decreased $707 million due to higher funding credit on deposits to other segments, partially offset by higher earnings in the securities portfolio from the higher rate environment and growth in the securities portfolio. Noninterest income decreased $252 million primarily due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, and losses on the sale of securities in the current year. Noninterest expense decreased $733 million primarily due to lower personnel expense due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits and lower incentives, charitable contributions to the Truist Foundation and the Truist Charitable Fund in the prior year, and lower merger-related and restructuring charges and incremental operating expenses related to the Merger.
Analysis of Financial Condition
Investment Activities
The securities portfolio totaled $131.7 billion at September 30, 2022, compared to $154.6 billion at December 31, 2021. The decrease includes paydowns and maturities of $14.6 billion, as well as market declines of $14.2 billion, partially offset by purchases. In the first quarter of 2022, Truist transferred $59.4 billion of AFS securities to HTM as the Company continues to execute upon its asset-liability management strategies. As of September 30, 2022, 41% of the investment securities portfolio was held-to-maturity based on amortized cost.
As of September 30, 2022, approximately 5.7% of the securities portfolio was variable rate, excluding the impact of swaps, compared to 4.6% as of December 31, 2021. The effective duration of the securities portfolio was 6.8 years at September 30, 2022, compared to 5.8 years at December 31, 2021, excluding the impact of unsettled security purchases at period end. The increase in duration was driven by higher rates, resulting in slower prepayments and longer average lives for the MBS portfolio.
U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of September 30, 2022 and December 31, 2021. 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.
50 Truist Financial Corporation
Lending Activities
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) Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021
Commercial:
Commercial and industrial $ 152,123 $ 145,558 $ 138,872 $ 134,804 $ 134,942
CRE 22,245 22,508 23,555 24,396 24,849
Commercial construction 5,284 5,256 5,046 5,341 5,969
Consumer:
Residential mortgage 53,271 49,237 47,976 47,185 45,369
Residential home equity and direct 25,394 25,124 24,883 25,146 25,242
Indirect auto 28,057 26,496 26,088 26,841 26,830
Indirect other 12,300 11,471 10,860 10,978 11,112
Student 5,958 6,331 6,648 6,884 7,214
Credit card 4,755 4,728 4,682 4,769 4,632
Total average loans and leases HFI $ 309,387 $ 296,709 $ 288,610 $ 286,344 $ 286,159
Average loans and leases held for investment for the third quarter of 2022 were $309.4 billion, up $12.7 billion, or 4.3%, compared to the second quarter of 2022.
Average commercial loans increased $6.3 billion, or 3.7%, due to broad-based growth of $6.6 billion, or 4.5%, within the commercial and industrial portfolio.
Average consumer loans increased $6.3 billion, or 5.3%, due to a $4.0 billion increase in residential mortgages due to correspondent channel production and lower prepayments. In addition, indirect auto increased $1.6 billion primarily in the prime segment of the portfolio and indirect other increased $829 million primarily due to growth from the Service Finance, recreational lending and Sheffield portfolios, partially offset by runoff in other partnership lending programs. Residential home equity and direct increased $270 million, primarily due to growth from the LightStream portfolio. These increases were partially offset by $373 million of runoff in student loans.
At September 30, 2022 and December 31, 2021, 52% of loans and leases HFI were variable rate.
Truist Financial Corporation 51
Asset Quality
The following tables summarize asset quality information:
Table 7: Asset Quality
(Dollars in millions) Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021
NPAs:
NPLs:
Commercial and industrial $ 443 $ 393 $ 330 $ 394 $ 423
CRE 5 19 27 29 20
Commercial construction — — — 7 7
Residential mortgage 227 269 315 296 306
Residential home equity and direct 166 159 141 141 146
Indirect auto 260 244 227 218 172
Indirect other 5 6 4 5 6
Total NPLs HFI 1,106 1,090 1,044 1,090 1,080
Loans held for sale 72 33 39 22 76
Total nonaccrual loans and leases 1,178 1,123 1,083 1,112 1,156
Foreclosed real estate 4 3 3 8 9
Other foreclosed property 58 47 49 43 39
Total nonperforming assets $ 1,240 $ 1,173 $ 1,135 $ 1,163 $ 1,204
TDRs:
Performing TDRs:
Commercial and industrial $ 165 $ 105 $ 104 $ 147 $ 200
CRE 5 5 5 5 8
Commercial construction 1 1 1 — —
Residential mortgage - government guaranteed 839 761 622 480 507
Residential mortgage - nonguaranteed 305 281 244 212 205
Residential home equity and direct 78 84 91 98 105
Indirect auto 425 401 392 389 390
Indirect other 7 6 6 7 7
Student - nonguaranteed 29 27 25 25 23
Credit card 19 22 25 27 30
Total performing TDRs 1,873 1,693 1,515 1,390 1,475
Nonperforming TDRs 187 204 189 152 159
Total TDRs $ 2,060 $ 1,897 $ 1,704 $ 1,542 $ 1,634
Loans 90 days or more past due and still accruing:
Commercial and industrial $ 44 $ 27 $ 22 $ 13 $ 18
CRE 1 3 — — —
Commercial construction — 3 — — —
Residential mortgage - government guaranteed 808 884 996 978 823
Residential mortgage - nonguaranteed 26 27 31 31 29
Residential home equity and direct 12 10 12 9 7
Indirect auto 1 1 1 1 2
Indirect other 6 3 2 3 2
Student - government guaranteed 770 796 818 864 965
Student - nonguaranteed 5 5 4 4 3
Credit card 36 28 28 27 23
Total loans 90 days or more past due and still accruing $ 1,709 $ 1,787 $ 1,914 $ 1,930 $ 1,872
Loans 30-89 days past due and still accruing:
Commercial and industrial $ 162 $ 223 $ 280 $ 130 $ 135
CRE 15 10 13 20 4
Commercial construction 3 4 1 2 2
Residential mortgage - government guaranteed 234 233 216 256 264
Residential mortgage - nonguaranteed 300 302 326 258 231
Residential home equity and direct 122 156 142 107 81
Indirect auto 591 584 529 607 560
Indirect other 97 78 65 64 53
Student - government guaranteed 375 447 476 549 451
Student - nonguaranteed 6 6 6 6 5
Credit card 52 48 47 45 37
Total loans 30-89 days past due and still accruing $ 1,957 $ 2,091 $ 2,101 $ 2,044 $ 1,823
52 Truist Financial Corporation
Nonperforming assets totaled $1.2 billion at September 30, 2022, up $67 million compared to June 30, 2022 due to an increase in the commercial and industrial portfolio and nonperforming loans held for sale. Nonperforming loans and leases held for investment were 0.35% of loans and leases held for investment at September 30, 2022, down one basis point compared to June 30, 2022.
Performing TDRs were up $180 million compared to the prior quarter primarily due to increases in the government guaranteed residential mortgage and the commercial and industrial portfolios.
Loans 90 days or more past due and still accruing totaled $1.7 billion at September 30, 2022, down $78 million, or five basis points, as a percentage of loans and leases compared with the prior quarter primarily due to a decline in 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 September 30, 2022, flat from June 30, 2022.
Loans 30-89 days past due and still accruing of $2.0 billion at September 30, 2022 were down $134 million, or seven basis points as a percentage of loans and leases, compared to the prior quarter primarily due to declines in the commercial and industrial and student loan portfolios.
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
Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI 0.62 % 0.69 % 0.72 % 0.71 % 0.64 %
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI 0.54 0.59 0.66 0.67 0.66
NPLs as a percentage of loans and leases HFI 0.35 0.36 0.36 0.38 0.38
NPLs as a percentage of total loans and leases (1) 0.37 0.37 0.37 0.38 0.40
NPAs as a percentage of:
Total assets (1) 0.23 0.22 0.21 0.21 0.23
Loans and leases HFI plus foreclosed property 0.37 0.38 0.38 0.39 0.40
ALLL as a percentage of loans and leases HFI 1.34 1.38 1.44 1.53 1.65
Ratio of ALLL to NPLs 3.80x 3.84x 3.99x 4.07x 4.35x
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI, excluding PPP and other government guaranteed (2) 0.04 % 0.04 % 0.04 % 0.03 % 0.03 %
(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)
For the Three Months Ended Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021
Net charge-offs as a percentage of average loans and leases HFI:
Commercial:
Commercial and industrial 0.02 % 0.01 % 0.04 % 0.09 % 0.04 %
CRE (0.01) (0.10) 0.01 0.07 —
Commercial construction (0.10) (0.08) (0.02) (0.10) (0.06)
Consumer:
Residential mortgage 0.01 (0.02) (0.03) (0.02) 0.04
Residential home equity and direct 1.01 1.04 0.61 0.49 0.49
Indirect auto 1.15 0.77 1.23 1.01 0.75
Indirect other 0.66 0.43 0.48 0.39 0.26
Student 0.40 0.30 0.33 0.65 0.31
Credit card 2.80 2.63 2.77 2.31 1.90
Total 0.27 0.22 0.25 0.25 0.19
Ratio of ALLL to net charge-offs 4.98x 6.54x 5.78x 6.14x 8.79x
Ratios are annualized, as applicable.
Truist Financial Corporation 53
The following table presents activity related to NPAs:
Table 10: Rollforward of NPAs
(Dollars in millions) 2022 2021
Balance, January 1 $ 1,163 $ 1,387
New NPAs 1,452 1,580
Advances and principal increases 307 280
Disposals of foreclosed assets (1) (331) (297)
Disposals of NPLs (2) (80) (203)
Charge-offs and losses (332) (279)
Payments (590) (775)
Transfers to performing status (364) (445)
Other, net 15 (44)
Ending balance, September 30 $ 1,240 $ 1,204
(1) Includes charge-offs and losses recorded upon sale of $87 million and $95 million for the nine months ended September 30, 2022 and 2021, respectively.
(2) Includes a net gain upon sale of $1 million and charge-offs and losses recorded upon sale of $1 million for the nine months ended September 30, 2022 and 2021, respectively.
TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term and a concession has been granted to the borrower. As a result, Truist works with borrowers to prevent further difficulties and to improve the likelihood of recovery on a loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR.
The following table provides a summary of performing TDR activity:
Table 11: Rollforward of Performing TDRs
(Dollars in millions) 2022 2021
Balance, January 1 $ 1,390 $ 1,361
Inflows 842 548
Payments and payoffs (1) (196) (283)
Charge-offs (25) (33)
Transfers to nonperforming TDRs (2) (45) (31)
Removal due to the passage of time (72) (10)
Non-concessionary re-modifications (1) (15)
Transferred to LHFS, sold and other (20) (62)
Balance, September 30 $ 1,873 $ 1,475
(1) Includes scheduled principal payments, prepayments, and payoffs of amounts outstanding.
(2) Represent loans that no longer meet the requirements necessary to reflect the loan in accruing status.
The following table provides further details regarding the payment status of TDRs outstanding:
Table 12: Payment Status of TDRs (1)
September 30, 2022
(Dollars in millions) Current Past Due 30-89 Days Past Due 90 Days Or More Total
Performing TDRs:
Commercial:
Commercial and industrial $ 163 98.8 % $ 1 0.6 % $ 1 0.6 % $ 165
CRE 5 100.0 — — — — 5
Commercial construction 1 100.0 — — — — 1
Consumer:
Residential mortgage - government guaranteed 439 52.4 90 10.7 310 36.9 839
Residential mortgage - nonguaranteed 268 87.8 28 9.2 9 3.0 305
Residential home equity and direct 76 97.4 2 2.6 — — 78
Indirect auto 355 83.5 70 16.5 — — 425
Indirect other 6 85.7 1 14.3 — — 7
Student - nonguaranteed 26 89.7 2 6.9 1 3.4 29
Credit card 16 84.2 2 10.5 1 5.3 19
Total performing TDRs 1,355 72.3 196 10.5 322 17.2 1,873
Nonperforming TDRs 78 41.7 29 15.5 80 42.8 187
Total TDRs $ 1,433 69.6 $ 225 10.9 $ 402 19.5 $ 2,060
(1) Past due performing TDRs are included in past due disclosures and nonperforming TDRs are included in NPL disclosures.
54 Truist Financial Corporation
ACL
Activity related to the ACL is presented in the following tables:
Table 13: Activity in ACL
For the Three Months Ended Nine Months Ended September 30,
(Dollars in millions) Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 2022 2021
Balance, beginning of period $ 4,434 $ 4,423 $ 4,695 $ 4,978 $ 5,436 $ 4,695 $ 6,199
Provision for credit losses 234 171 (95) (103) (324) 310 (710)
Charge-offs:
Commercial and industrial (51) (17) (31) (54) (57) (99) (189)
CRE — (1) (1) (5) (1) (2) (5)
Commercial construction — — (1) — — (1) (2)
Residential mortgage (4) (2) (2) (1) (7) (8) (22)
Residential home equity and direct (86) (85) (58) (51) (51) (229) (163)
Indirect auto (103) (77) (102) (89) (73) (282) (247)
Indirect other (26) (18) (19) (16) (13) (63) (41)
Student (7) (4) (6) (12) (6) (17) (12)
Credit card (42) (40) (41) (37) (31) (123) (113)
Total charge-offs (319) (244) (261) (265) (239) (824) (794)
Recoveries:
Commercial and industrial 43 13 17 23 42 73 84
CRE — 6 1 — 1 7 6
Commercial construction 2 1 1 1 1 4 3
Residential mortgage 3 4 6 2 3 13 10
Residential home equity and direct 23 20 20 21 20 63 58
Indirect auto 21 26 23 21 22 70 71
Indirect other 6 6 6 6 5 18 18
Student — — — — 1 — 1
Credit card 8 9 9 9 9 26 28
Total recoveries 106 85 83 83 104 274 279
Net charge-offs (213) (159) (178) (182) (135) (550) (515)
Other — (1) 1 2 1 — 4
Balance, end of period $ 4,455 $ 4,434 $ 4,423 $ 4,695 $ 4,978 $ 4,455 $ 4,978
ACL:
ALLL $ 4,205 $ 4,187 $ 4,170 $ 4,435 $ 4,702 $ 4,205 $ 4,702
RUFC 250 247 253 260 276 250 276
Total ACL $ 4,455 $ 4,434 $ 4,423 $ 4,695 $ 4,978 $ 4,455 $ 4,978
Net charge-offs during the third quarter totaled $213 million, or 0.27% as a percentage of average loans, and were up five basis points compared to the prior quarter, primarily driven by normalizing trends and seasonality across certain consumer loan portfolios.
The allowance for credit losses was $4.5 billion and includes $4.2 billion for the allowance for loan and lease losses and $250 million for the reserve for unfunded commitments. The ALLL ratio was 1.34% compared to 1.38% at June 30, 2022. The decline in the ALLL ratio was due to strong portfolio performance and growth in higher quality loans, partially offset by a moderately slower economic outlook. The ALLL covered nonperforming loans and leases held for investment 3.80X compared to 3.84X at June 30, 2022. At September 30, 2022, the ALLL was 4.98X annualized net charge-offs, compared to 6.54X at June 30, 2022.
Truist Financial Corporation 55
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.
Table 14: Allocation of ALLL by Category
September 30, 2022 December 31, 2021
(Dollars in millions) Amount % ALLL in Each Category % Loans in Each Category Amount % ALLL in Each Category % Loans in Each Category
Commercial and industrial $ 1,301 31.0 % 48.8 % $ 1,426 32.2 % 47.9 %
CRE 234 5.6 7.2 350 7.9 8.3
Commercial construction 47 1.1 1.8 52 1.2 1.7
Residential mortgage 376 8.9 17.7 308 6.9 16.5
Residential home equity and direct 569 13.5 8.2 615 13.9 8.7
Indirect auto 966 23.0 9.0 1,022 23.0 9.1
Indirect other 269 6.4 4.0 195 4.4 3.8
Student 93 2.2 1.8 117 2.6 2.3
Credit card 350 8.3 1.5 350 7.9 1.7
Total ALLL 4,205 100.0 % 100.0 % 4,435 100.0 % 100.0 %
RUFC 250 260
Total ACL $ 4,455 $ 4,695
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 September 30, 2022, 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 15: Other Assets as of Period End
(Dollars in millions) Sep 30, 2022 Dec 31, 2021
Bank-owned life insurance $ 7,595 $ 7,281
Tax credit and other private equity investments 6,572 6,309
Prepaid pension assets 6,464 5,938
DTAs 2,607 —
Derivative assets 1,140 2,370
Accounts receivable 2,492 2,244
Leased assets and related assets 2,244 2,092
Accrued income 1,996 1,791
ROU assets 1,116 1,168
Prepaid expenses 1,120 1,152
Equity securities at fair value 887 1,066
Other 1,464 738
Total other assets $ 35,697 $ 32,149
Funding Activities
Deposits
The following table presents average deposits:
Table 16: Average Deposits
Three Months Ended
(Dollars in millions) Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021
Noninterest-bearing deposits $ 146,041 $ 148,610 $ 145,933 $ 146,492 $ 141,738
Interest checking 111,645 112,375 112,159 110,506 107,802
Money market and savings 147,659 148,632 141,500 137,676 136,094
Time deposits 14,751 14,133 15,646 16,292 17,094
Total average deposits $ 420,096 $ 423,750 $ 415,238 $ 410,966 $ 402,728
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Average deposits for the third quarter of 2022 were $420.1 billion, a decrease of $3.7 billion, or 0.9%, compared to the prior quarter. The decrease in deposits was primarily driven by the impacts of monetary tightening, as well as higher consumer spending and seasonal patterns. Average noninterest bearing deposits decreased 1.7% compared to the prior quarter and represented 34.8% of total deposits for the third quarter of 2022. Average money market and savings and interest checking deposits declined 0.7% and 0.6%, respectively, compared to the prior quarter. Average time deposits increased 4.4% primarily due to an increase in negotiable certificates of deposit.
Borrowings
At September 30, 2022, short-term borrowings totaled $25.7 billion, an increase of $20.4 billion compared to December 31, 2021. The increase in short-term borrowings was primarily to fund $22.3 billion of strong loan growth since year-end. Average short-term borrowings were $11.4 billion, or 2.4% of total funding, for the nine months ended September 30, 2022, as compared to $6.1 billion, or 1.4%, for 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 $31.2 billion at September 30, 2022, a decrease of $4.7 billion compared to December 31, 2021. During the nine months ended September 30, 2022, the Company had maturities and redemptions of $5.9 billion of senior and $300 million of subordinated long-term debt and redeemed $800 million of FHLB advances, which resulted in a gain on early extinguishment of long-term debt of $39 million. The Company issued $2.4 billion fixed-to-floating rate senior notes with an interest rate between 4.12% and 4.26% due July 28, 2026 to June 6, 2028 and $1.0 billion fixed-to-floating rate subordinated notes with an interest rate of 4.92% due July 28, 2033. The average cost of long-term debt was 1.88% for the nine months ended September 30, 2022, up 29 basis points compared to the same period in 2021.
In October 2022, Truist issued $750 million fixed-to-floating rate senior notes with an interest rate of 5.90% due October 28, 2026 and $750 million fixed-to-floating rate senior notes with an interest rate of 6.123% due October 28, 2033.
Shareholders’ Equity
Total shareholders’ equity was $60.8 billion at September 30, 2022, a decrease of $8.5 billion from December 31, 2021. This decline includes a decrease of $10.7 billion in AOCI and $2.2 billion in dividends, partially offset by $4.6 billion in net income. Truist’s book value per common share at September 30, 2022 was $40.79, compared to $47.14 at December 31, 2021.
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 taxonomy 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 conversations and enables Truist to clearly and transparently communicate to stakeholders the level of potential risk the Company faces, both presently and in the future, 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.
Compensation decisions take into account a 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.
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Truist employs a comprehensive change management program to manage the residual risks associated with integrating heritage BB&T and heritage SunTrust. While integration activities are largely complete, the Board and Executive Leadership oversee the change management program, which is designed to ensure appropriate oversight of application and data center decommissioning and residual integration activities, achieved through Truist’s risk management process.
Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2021 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.
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 utilizes a tiered deposit beta assumption framework that accounts for historically observed behaviors of clients and the Company. As interest rates rise, the deposit beta assumptions also rise to reflect increasing competition among banks as well as increased client demand for interest-bearing deposits. Based on the Federal funds target range at September 30, 2022 of 3.00% to 3.25%, Truist applies an average deposit beta of approximately 50% for any additional increases in the Federal funds rate. 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.
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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.
Table 17: Interest Sensitivity Simulation Analysis
Interest Rate Scenario Annualized Hypothetical Percentage Change in Net Interest Income
Gradual Change in Prime Rate (bps) Prime Rate
Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021
Up 100 7.25 % 4.25 % 0.37 % 4.08 %
Up 50 6.75 3.75 0.39 3.15
No Change 6.25 3.25 — —
Down 50 (1) 5.75 2.75 (1.77) (1.71)
Down 100 (1) 5.25 2.25 (2.43) (1.94)
(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 has been very strong during the current economic cycle. Much of this liquidity increase has resulted in growth in noninterest-bearing demand deposits. Consistent with the industry, Truist has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of Truist. A decrease in the amount of these deposits in the future would reduce the asset sensitivity of Truist’s balance sheet because the Company may increase interest-bearing funds to offset the loss of this advantageous funding source. 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 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%.
Table 18: Deposit Mix Sensitivity Analysis
Gradual Change in Rates (bps) Base Scenario at September 30, 2022 (1) Results Assuming a Decrease in Noninterest-Bearing Demand Deposits
$20 Billion $40 Billion
Up 100 0.37 % (0.29) % (0.96) %
Up 50 0.39 (0.10) (0.58)
(1) The base scenario is equal to the annualized hypothetical percentage change in net interest income at September 30, 2022 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 September 30, 2022, Truist had derivative financial instruments outstanding with notional amounts totaling $336.1 billion, with an associated net negative fair value of $2.3 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. Tenors used infrequently by Truist, including one week and two month U.S. dollar LIBOR and all non-U.S. dollar LIBOR, ceased publication at December 31, 2021, based on the October 20, 2021 interagency Joint Statement on Managing the LIBOR transition. 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 September 30, 2022, Truist had outstanding LIBOR-based instruments that mature after June 30, 2023, including loan and lease exposures totaling approximately $148 billion, notional derivative exposure totaling approximately $135 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 largely been reviewed and certain contracts will 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.
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The progress and approach to remediation will vary based on the type of contract and existing language used in the agreement. For commercial lending and general consumer lending, a significant number of remaining LIBOR contracts will require client outreach and remediation. Through mid-2022, the Company’s primary focus was contract remediation for maturities earlier than June 30, 2023 and expanding usage of alternative reference rates. Efforts have shifted to amend and remediate contracts, excluding mortgage and student loans, that mature post June 30, 2023 ($139 billion), which will continue to be the focus during the remainder of 2022. Truist has determined that adjustable rate mortgage products ($3.6 billion) have consistent and adequate fallback language to transition away from LIBOR in line with industry expectations; therefore, these contracts will not require remediation. Remediation of student loans ($5.2 billion) will follow pending 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. Certain derivatives without a clearly defined or practicable replacement benchmark rate will use the recent Federal legislation to replace LIBOR with a SOFR-based rate that will be established by FRB rulemaking and following 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.
Training has been provided for impacted teammates and will continue during 2022. Truist will continue to provide timely notices and information to impacted clients about the transition during 2022 and 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 $80 billion of loans, issued $8.4 billion of long-term debt, and has $91 billion in notional derivative exposure using this alternative reference rate as of September 30, 2022. 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. Other emerging credit sensitive rates will be evaluated as additional alternatives for LIBOR based on market developments. 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, 2021.
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.
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Securitizations
As of September 30, 2022, the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was $23 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 September 30, 2022.
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 and nine months ended September 30, 2022 and 2021. Average one and ten-day VaR measures for the three months ended September 30, 2022 increased from the same period of last year, primarily driven by higher market volatility in 2022. Maximum one and ten-day VaR measures for the nine months ended September 30, 2022 were lower than last year as heightened market volatility experienced during March 2020 was used for measuring VaR until March 2021.
Table 19: VaR-based Measures
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(Dollars in millions) 10-Day Holding Period 1-Day Holding Period 10-Day Holding Period 1-Day Holding Period 10-Day Holding Period 1-Day Holding Period 10-Day Holding Period 1-Day Holding Period
VaR-based Measures:
Maximum $ 27 $ 7 $ 6 $ 3 $ 38 $ 14 $ 68 $ 16
Average 18 5 5 2 17 5 16 5
Minimum 13 4 3 2 6 3 3 1
Period-end 20 6 6 3 20 6 6 3
VaR by Risk Class:
Interest Rate Risk 8 2 8 2
Credit Spread Risk 7 4 7 4
Equity Price Risk 2 2 2 2
Foreign Exchange Risk — — — —
Portfolio Diversification (11) (5) (11) (5)
Period-end 6 3 6 3
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Stressed VaR-based measures
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 September 30, Nine Months Ended September 30,
(Dollars in millions) 2022 2021 2022 2021
Maximum $ 91 $ 82 $ 109 $ 91
Average 65 52 69 55
Minimum 48 31 40 26
Period-end 65 57 65 57
Compared to the prior year, stressed VaR measures increased primarily due to higher market making inventory levels in 2022.
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.
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, VaR measures briefly increased in the first quarter of 2022 due to the increase in market volatility that normalized towards the end of the quarter. There were no Company-wide VaR backtesting exceptions during the twelve months ended September 30, 2022. 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.
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Model Risk Management
MRM 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 MRM 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 to 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.
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 $88.6 billion and Truist’s average LCR was 111% for the three months ended September 30, 2022.
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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 September 30, 2022, 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) Sep 30, 2022 Dec 31, 2021
Unused borrowing capacity:
FRB $ 49,525 $ 52,170
FHLB 28,548 49,244
Available investment securities (after haircuts) 96,894 116,600
Available secured borrowing capacity 174,967 218,014
Eligible cash at the FRB 16,699 14,714
Total $ 191,666 $ 232,728
At September 30, 2022, Truist Bank’s available secured borrowing capacity represented approximately 3.7 times the amount of wholesale funding maturities in one-year or less. FHLB unused borrowing capacity was $28.5 billion at September 30, 2022, down from $49.2 billion at December 31, 2021 primarily due to increases in short-term borrowings.
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, 2021 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 September 30, 2022 and December 31, 2021, the Parent Company had 32 months and 35 months, respectively, of cash on hand to satisfy projected cash outflows, and 22 months and 19 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.
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Recent changes in the Company’s credit ratings and outlooks include:
On August 15, 2022, DBRS Morningstar upgraded the ratings of Truist, including the Long-Term Issuer Rating to “AA (low)” from “A (high).” DBRS Morningstar also upgraded the ratings of Truist Bank, including the Long-Term Issuer Rating to “AA” from “AA (low).” The trend for all ratings was revised to “Stable” from “Positive.” The rating actions reflected the scale, quality, and diversity of Truist’s franchise; the completion of the Merger integration; Truist’s diversified products and geography; and the Company’s sound balance sheet fundamentals and conservative risk profile.
After the end of the third quarter, on October 21, 2022, Fitch Ratings affirmed the ratings of Truist and Truist Bank, including the long-term and short-term issuer default ratings at “A+” and “F1,” respectively, for both entities. Fitch Ratings also maintained a “stable” ratings outlook for all ratings. In affirming the ratings, Fitch cited Truist’s diverse business model, conservative credit culture, and the completion of the Merger integration.
See Item 1A, “Risk Factors” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2021 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.
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.
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 targets, which are above the regulatory “well capitalized” minimums. Management has implemented stress capital ratio minimum targets to evaluate whether capital ratios calculated after the effect of alternative capital actions are likely to remain above minimums specified by the FRB for the annual CCAR process. Breaches of stressed minimum targets 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 of 2.5% applicable to Truist as of September 30, 2022. Truist’s SCB, received in the 2021 CCAR process, is effective from October 1, 2021 to September 30, 2022. Under the 2022 CCAR process, Truist was notified its SCB requirement would remain 2.5% from October 1, 2022 through September 30, 2023.
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Truist’s capital ratios are presented in the following table:
Table 23: Capital Ratios - Truist Financial Corporation
(Dollars in millions, except per share data, shares in thousands) Sep 30, 2022 Dec 31, 2021
Risk-based: (preliminary)
CET1 capital to risk-weighted assets 9.1 % 9.6 %
Tier 1 capital to risk-weighted assets 10.7 11.3
Total capital to risk-weighted assets 12.6 13.2
Leverage ratio 8.5 8.7
Supplementary leverage ratio 7.3 7.4
Non-GAAP capital measure (1):
Tangible common equity per common share $ 18.36 $ 25.47
Calculation of tangible common equity (1):
Total shareholders’ equity $ 60,811 $ 69,271
Less:
Preferred stock 6,673 6,673
Noncontrolling interests 23 —
Goodwill and intangible assets, net of deferred taxes 29,752 28,772
Tangible common equity $ 24,363 $ 33,826
Risk-weighted assets $ 421,873 $ 390,886
Common shares outstanding at end of period 1,326,766 1,327,818
(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 the quality of capital and returns relative to balance sheet risk. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies.
Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. Truist declared common dividends of $0.52 per share during the third quarter of 2022, an increase of 8% compared to the prior quarter. The dividend payout ratio for the third quarter of 2022 was 45%. Truist did not repurchase any shares in the third quarter of 2022.
Truist CET1 ratio was 9.1% as of September 30, 2022. The decline compared to the June 30, 2022 CET1 ratio primarily reflects the BenefitMall acquisition and strong loan growth.
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)
July 1, 2022 to July 31, 2022 — $ — — $ 2,315
August 1, 2022 to August 31, 2022 — — — 2,315
September 1, 2022 to September 30, 2022 — — — 2,315
Total — — —
(1) Includes shares exchanged or surrendered in connection with the exercise of equity-based awards under equity-based compensation plans.
(2) Excludes commissions.
(3) Pursuant to the 2020 Repurchase Plan, announced in December 2020 and amended in June 2021, authorizing up to $4.2 billion of share repurchases through September 30, 2022; the unused capacity of $2.3 billion expired September 30, 2022. 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.
66 Truist Financial Corporation
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, 2021. 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, 2021. 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 2022.
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 September 30, 2022 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, 2021. 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.
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ITEM 6. EXHIBITS
Exhibit No. Description Location
3.1 Amended and Restated Bylaws of Truist Financial Corporation Incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 26, 2022.
10.1 Form of Executive Severance and Noncompetition Agreement. Filed herewith.
11 Statement re computation of earnings per share. Filed herewith as Computation of EPS note to the consolidated financial statements.
31.1 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. Filed herewith.
31.2 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. Filed herewith.
32 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. Filed herewith.
101.INS 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. Filed herewith.
101.SCH XBRL Taxonomy Extension Schema. Filed herewith.
101.CAL XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.
101.LAB XBRL Taxonomy Extension Label Linkbase. Filed herewith.
101.PRE XBRL Taxonomy Extension Presentation Linkbase. Filed herewith.
101.DEF XBRL Taxonomy Definition Linkbase. Filed herewith.
104 Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits101). Filed herewith.
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SIGNATURES
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.
TRUIST FINANCIAL CORPORATION
(Registrant)
Date: October 31, 2022 By: /s/ Michael B. Maguire
Michael B. Maguire
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: October 3 1, 2022 By: /s/ Cynthia B. Powell
Cynthia B. Powell
Executive Vice President and Corporate Controller
(Principal Accounting Officer)
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