Truist Financial Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet figures are as of March 31, 2023 unless otherwise noted. Comparisons are generally with Q1 2022 for earnings and December 31, 2022 for balance-sheet measures. Amounts are in U.S. dollars.
Business context and performance
Truist is a diversified banking and financial-services company with consumer and wealth, corporate and commercial banking, and insurance businesses. Management described Q1 as a challenging period for the banking industry, citing higher funding costs and economic uncertainty, while emphasizing its relationship-based deposit franchise, liquidity access, and capital position.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparable period |
|---|---|---|
| Net income available to common shareholders | $1.410 billion | $1.327 billion in Q1 2022 |
| Diluted EPS | $1.05 | $0.99 in Q1 2022 |
| Net interest income | $3.868 billion GAAP; $3.919 billion taxable-equivalent | $3.183 billion GAAP; $3.209 billion taxable-equivalent in Q1 2022 |
| Net interest margin | 3.17% taxable-equivalent | 2.76% in Q1 2022 |
| Provision for credit losses | $502 million expense | $95 million benefit in Q1 2022 |
| Noninterest income / expense | $2.234 billion / $3.691 billion | $2.142 billion / $3.674 billion in Q1 2022 |
| Cash flows | $118 million operating; $(2.050) billion investing; $17.107 billion financing | $(188) million operating; $(34) million investing; $9.049 billion financing in Q1 2022 |
| Total assets / shareholders’ equity | $574.4 billion / $62.4 billion | $555.3 billion / $60.5 billion at December 31, 2022 |
| Loans and leases, net of allowance | $323.2 billion | $321.6 billion at December 31, 2022 |
| Deposits | $405.0 billion period-end; average deposits $408.5 billion | $413.5 billion period-end at December 31, 2022; average $413.3 billion in Q4 2022 |
| Long-term debt | $69.9 billion | $43.2 billion at December 31, 2022 |
| Capital and liquidity | CET1 9.1%; average LCR 113%; available liquidity $166.1 billion | CET1 9.0% at December 31, 2022; LCR regulatory minimum 100% |
| Asset quality | ALLL ratio 1.37%; nonperforming loans 0.36% of HFI loans; net charge-off ratio 0.37% | ALLL ratio 1.34% and nonperforming-loan ratio 0.36% at December 31, 2022; net charge-off ratio 0.25% in Q1 2022 |
Material changes and management commentary
- Common-shareholder income rose 6.3% year over year; diluted EPS increased 6.1%. Returns on average assets and average common equity were 1.10% and 10.3%, respectively, versus 1.07% and 9.0% a year earlier.
- Taxable-equivalent net interest income increased 22% year over year, driven by higher rates and loan growth, partly offset by higher funding costs, lower purchase-accounting accretion, and lower PPP revenue. Average deposit cost rose to 1.12% from 0.03% a year earlier; average loan yield was 5.81%.
- Average deposits decreased $4.8 billion sequentially. Estimated uninsured deposits were $175.9 billion, down from $189.6 billion at year-end; management said approximately 63% of deposits were insured or collateralized.
- Long-term debt increased $26.7 billion from year-end, primarily to build cash in response to market events. Truist issued $27.0 billion of net-notional FHLB floating-rate advances and ended the quarter with $36.6 billion in cash and cash equivalents.
- Provision expense increased from a prior-year benefit, reflecting greater economic uncertainty and loan growth. Net charge-offs rose, particularly in indirect auto, other consumer, and commercial and industrial lending. The $4.8 billion total credit-loss allowance included $4.5 billion for loan and lease losses and $282 million for unfunded commitments.
- Truist’s securities portfolio totaled $128.8 billion. AFS securities had $11.2 billion of gross unrealized losses and HTM securities had $8.8 billion; management attributed substantially all portfolio losses to market interest-rate changes, not issuer or underlying-loan credit quality. AOCI remained negative at $12.6 billion, improving by $1.0 billion during the quarter.
- On April 3, 2023, after quarter-end, Truist completed the sale of a 20% stake in Truist Insurance Holdings for $1.95 billion. Management said the transaction adds 30 basis points to risk-based capital ratios.
Outlook, risks, and unusual items
- The filing provides no specific earnings or financial guidance. Management identified higher-than-expected funding costs and economic uncertainty, including inflation, rising rates, and recession risk. It noted that loan growth moderated during the quarter.
- Management highlighted heightened CRE and commercial-construction risk. Those portfolios totaled $28.6 billion; office exposure was $5.2 billion, with $109 million of office nonperforming loans. Management reported that office nonperforming and criticized loans had trended higher.
- Interest-rate, deposit, and liquidity risks remain significant. Interest-rate sensitivity analysis projected that a gradual 100-basis-point increase would reduce next-12-month net interest income by 0.29% under the base case; an additional $40 billion decline in noninterest-bearing demand deposits increased the modeled reduction to 1.72%.
- Truist reported $98 billion of LIBOR-based loan and lease exposures, $131 billion of notional derivative exposures, and $1.1 billion of long-term debt maturing after June 30, 2023; remediation and transition work remained underway.
- Legal matters included an estimated reasonably possible loss of up to approximately $200 million above accrued amounts; this is not a maximum exposure, and actual losses could differ. The filing discusses ongoing overdraft-fee and patent litigation.
- Q1 results included $63 million of merger-related and restructuring charges. Q1 2022 included $216 million of such charges, $202 million of incremental merger operating expenses, a $74 million gain on redemption of a noncontrolling interest, and $69 million of securities losses. The current-quarter provision for income taxes was $394 million, with a 20.6% effective tax rate.
- Truist declared a $0.52-per-share common dividend and reported no open-market share repurchases during the quarter. S&P affirmed ratings but revised its outlook from positive to stable on March 31, 2023.
Important facts for investors to verify
- Deposit trends, uninsured-deposit levels, funding costs, and the composition and durability of liquidity, including reliance on FHLB advances.
- Whether loan-loss provisions, charge-offs, and delinquencies continue to rise; monitor CRE, especially office, and consumer lending performance against the allowance.
- How the securities portfolio’s unrealized losses and AOCI evolve as interest rates change, and the implications for liquidity and capital.
- The completed insurance-stake sale’s final proceeds, use of funds, and realized effect on capital ratios and earnings.
- Progress on LIBOR contract remediation and the resolution and potential financial impact of disclosed legal matters.