Truist Financial Corporation — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are primarily with FY 2020. Truist is a U.S. financial services company formed by the 2019 BB&T–SunTrust merger, with consumer and commercial banking, wealth management, and insurance businesses. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Financial performance and condition
| Metric | FY 2021 / year-end | FY 2020 / prior year-end |
|---|---|---|
| Total revenue (GAAP) | $22.296 billion | $22.705 billion |
| Net interest income (GAAP) | $13.006 billion | $13.826 billion |
| Net income available to common shareholders | $6.033 billion | $4.184 billion |
| Diluted EPS | $4.47 | $3.08 |
| Net interest margin, taxable-equivalent | 2.86% | 3.22% |
| Return on average assets | 1.23% | 0.90% |
| Return on average common equity | 9.7% | 6.8% |
| Provision for credit losses | $813 million benefit | $2.335 billion expense |
| Net charge-offs | $697 million | $1.119 billion |
| Total assets | $541.2 billion | $509.2 billion |
| Deposits | $416.5 billion | $381.1 billion |
| Long-term debt | $35.9 billion | $39.6 billion |
| Total shareholders’ equity | $69.3 billion | $70.9 billion |
| Cash from operating activities | $7.892 billion | $7.437 billion |
| Cash and cash equivalents, year-end | $20.295 billion | $18.868 billion |
- Taxable-equivalent revenue was $22.404 billion, down $426 million (1.9%). Net interest income declined $837 million, reflecting lower purchase-accounting accretion, lower asset yields, and reduced average loans; noninterest income rose $411 million.
- Noninterest income growth was led by insurance, investment banking and trading, wealth management, and card and payment fees. Residential mortgage income declined substantially, to $555 million from $1.000 billion.
- Noninterest expense increased 1.5% to $15.116 billion. Merger-related and restructuring charges were $822 million; management reported $771 million of incremental merger-related operating expense.
- Loans and leases held for investment were $289.5 billion, down $10.2 billion year over year, including an $8.7 billion decline in PPP loans. The allowance for credit losses ended at $4.695 billion, down from $6.199 billion.
- Nonperforming assets were $1.163 billion, down $224 million. The allowance for loan and lease losses was 1.53% of HFI loans; nonperforming loans were 0.38% of loans and leases.
- Average LCR was 114% for the fourth quarter, with average eligible HQLA of $86.7 billion. Truist reported compliance with the NSFR at year-end. Consolidated CET1 was 9.6%, versus 10.0% in 2020; Truist Bank’s CET1 was 10.5%.
- Common dividends declared were $1.86 per share; the payout ratio was 41%. Truist repurchased $1.6 billion of common stock and redeemed $1.4 billion of preferred stock. Book value per common share was $47.14.
Material changes and notable items
- Earnings available to common shareholders increased 44%, while diluted EPS rose from $3.08 to $4.47. Lower credit-loss provisioning was a major contributor: the provision shifted from a $2.335 billion expense to an $813 million benefit as the economic outlook improved.
- Net interest margin fell 36 basis points. Average earning assets rose 5.6%, mainly from a $56.3 billion increase in average securities, while average loans declined $21.1 billion and average deposits increased $35.1 billion.
- Year-end AOCI moved from positive $716 million to negative $1.604 billion, driven primarily by unrealized losses on available-for-sale debt securities. These losses were described as primarily related to market interest-rate changes, not credit deterioration.
- Acquisitions included Service Finance for $2.0 billion in cash and Constellation Affiliated Partners. Acquisitions increased goodwill and intangible assets; no goodwill impairment was identified in the 2021 annual test.
- FY 2021 included $200 million of charitable contributions, $36 million of accelerated loss recognition on certain terminated cash-flow hedges, a $30 million professional fee, and a small gain on debt extinguishment. FY 2020 included $402 million of securities gains, a $235 million debt-extinguishment loss, and $50 million of charitable contributions.
Outlook, management commentary, risks and contingencies
- Management reaffirmed a target of $1.6 billion in merger net cost savings on a run-rate basis by Q4 2022 and said the Q4 2021 net cost-saves target had been achieved. The filing provides no specific earnings or revenue guidance.
- Management described Truist as well positioned for purposeful growth and said priorities were shifting from systems integration toward operating execution and profitable growth. The heritage SunTrust core-bank conversion was completed in February 2022; conversion activities remained subject to validation.
- Management noted that the Federal Reserve was expected to begin raising rates in 2022. Interest-rate outcomes could affect net interest income, securities values, mortgage activity, deposit costs, and credit performance. The company’s modeled 12-month net interest income sensitivity was +5.18% under a gradual 100-basis-point increase at year-end 2021; results depend on assumptions, including deposit behavior.
- Key risks include merger integration and customer or deposit attrition; COVID-19 and inflation-related effects; credit deterioration and portfolio concentrations; deposit outflows, funding access, and ratings changes; regulation and capital constraints; LIBOR transition; cybersecurity and third-party operational risks; competition; and physical and transition climate risks.
- Truist disclosed approximately $200 million of reasonably possible legal losses above amounts accrued at year-end, while noting that certain matters could not be estimated. A legacy SunTrust overdraft-fee class action remained in litigation; the company said it believed the claims were without merit.
- Truist disclosed $198.7 billion of commitments to extend, originate, or purchase credit and $5.6 billion of letters of credit. These are contractual/off-balance-sheet exposures, not equivalent to funded loans.
- LIBOR exposures maturing after June 30, 2023 included approximately $151 billion of loans and leases, $131 billion of derivative notional, $1.1 billion of long-term debt, and $1.5 billion of preferred stock. The company had begun remediation and was using SOFR-based products.
Most important facts for investors to verify
- Whether earnings growth is sustainable after the substantial benefit from credit-reserve releases, and how credit quality performs as pandemic support fades.
- Progress toward the $1.6 billion run-rate cost-savings target, including remaining integration costs, conversion issues, and any resulting client or deposit attrition.
- How rising interest rates and deposit repricing affect net interest margin, securities values, and mortgage and fee income.
- The composition and adequacy of the $4.695 billion allowance, including sensitivity to adverse economic scenarios; management estimated its pessimistic-scenario model would increase allowance results by approximately $2.1 billion.
- Capital and liquidity capacity after acquisitions, repurchases, dividends, and the decline in CET1; also verify regulatory constraints on future capital distributions.
- Developments in litigation and regulatory matters, including the overdraft class action, and any changes to the estimated reasonably possible legal exposure.
- Reconcile reported GAAP and taxable-equivalent revenue measures and distinguish consolidated net income from net income available to common shareholders.