Truist Financial Corporation — FY 2020 Form 10-K
Business context and reporting period. Truist is a Charlotte-based banking and financial services company operating primarily through Truist Bank, with Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings segments. This filing covers the year ended December 31, 2020. It was the first full year following the BB&T–SunTrust merger, completed December 6, 2019; 2019 results include the combined company only after closing, limiting year-over-year comparability.
Financial performance and condition
| Metric | 2020 | Prior comparable period / context |
|---|---|---|
| Reported revenue | $22.7 billion | $12.6 billion in 2019; growth largely reflects the merger |
| Net income | $4.5 billion | $3.2 billion in 2019 |
| Net income available to common shareholders | $4.2 billion | $3.0 billion in 2019; up 38.2% |
| Diluted EPS | $3.08 | $3.71 in 2019 |
| Net interest margin | 3.22% | 3.42% in 2019; down 20 basis points |
| Return on average assets / common equity | 0.90% / 6.82% | 1.31% / 9.87% in 2019 |
| Provision for credit losses | $2.3 billion | $615 million in 2019 |
| Operating cash flow | $7.4 billion | $1.5 billion in 2019 |
- Revenue and expenses: Taxable-equivalent net interest income was $14.0 billion, up $6.5 billion, primarily reflecting the merger and higher average balances, partly offset by lower asset yields. Noninterest income was $8.9 billion, including $402 million in net securities gains. Noninterest expense was $14.9 billion, including $860 million of merger-related and restructuring charges, $235 million of debt-extinguishment losses, and elevated pandemic-related costs. Management also reported $534 million of incremental merger operating expenses.
- Fourth quarter: Net income available to common shareholders was $1.23 billion and diluted EPS was $0.90. Taxable-equivalent revenue was $5.7 billion; NIM was 3.08%. Provision for credit losses was $177 million.
- Loans and credit: Period-end loans and leases were $305.8 billion, modestly below 2019. Net charge-offs were $1.1 billion, or 0.36% of average loans. Nonperforming assets rose to $1.4 billion from $684 million; the increase included loans identified as nonperforming after CECL changed the treatment of acquired credit-impaired loans and loans exiting accommodation programs.
- Allowance: The allowance for credit losses was $6.2 billion at year-end, including $5.8 billion for loans and leases and $364 million for unfunded commitments. CECL adoption increased the allowance by approximately $3.1 billion and reduced retained earnings by $2.1 billion after tax and other impacts. Management also increased reserves amid pandemic-related economic uncertainty.
- Balance sheet and funding: Total assets were $509.2 billion, up $36.2 billion; deposits were $381.1 billion, up $46.4 billion. Long-term debt was $39.6 billion, down from $41.3 billion, and short-term borrowings were $6.1 billion, down from $18.2 billion. Total shareholders’ equity was $70.9 billion.
- Capital and liquidity: The CET1 ratio was 10.0%, versus 9.5% in 2019; average fourth-quarter LCR was 113%. The liquid asset buffer was 20.2% of assets. Truist reported $198.7 billion of available secured borrowing capacity at Truist Bank and $13.4 billion of excess eligible cash at the Federal Reserve.
- Cash flows: Investing cash flow was negative $43.7 billion, largely reflecting purchases of AFS securities; financing cash flow was positive $36.0 billion, including deposit growth and debt activity. Cash and cash equivalents decreased $197 million to $18.9 billion. These cash flow movements reflect banking balance-sheet activity.
Material changes versus prior period
- Reported revenue, assets, loans, deposits, and expenses rose substantially, primarily because 2019 included only a short post-merger period; these increases should not be read as organic growth.
- Common net income increased, but diluted EPS declined to $3.08 from $3.71. NIM and returns on assets and common equity also declined.
- Credit-loss provision rose sharply amid CECL adoption and the pandemic. Year-end ACL was $6.2 billion versus $1.9 billion a year earlier.
- Deposits increased and short-term borrowings fell as the company shifted toward deposit funding. The securities portfolio grew to $120.8 billion from $74.7 billion, primarily through agency MBS.
- Shareholders’ equity increased $4.4 billion. Truist issued $3.5 billion of preferred stock and redeemed $500 million of Series K preferred stock during 2020.
Outlook, commentary, risks, and unusual items
- Management reaffirmed a target of $1.6 billion in merger cost savings on a run-rate basis by the fourth quarter of 2022. Integration and conversion work remained ongoing. The filing does not provide a specific earnings forecast.
- The board authorized up to $2.0 billion of common-stock repurchases beginning in Q1 2021, subject to regulatory guidance and capital, economic, and business considerations. Truist declared a Q1 2021 common dividend of $0.45 per share. Pandemic-era Federal Reserve limits affected distributions; the filing said the framework for later 2021 had not yet been determined.
- COVID-19 impacts included lower interest rates and NIM, reduced fee income in some areas, higher expenses, borrower accommodation activity, and uncertainty about future credit losses. PPP loans had a carrying value of $11.0 billion at year-end; Truist disclosed lawsuits related to its PPP participation.
- Management identified $27.1 billion of loans in selected industries considered especially vulnerable to current conditions, equal to 9.0% of loans held for investment. These included hotels, senior care, oil and gas, acute care, restaurants, and sensitive retail.
- Goodwill totaled $24.4 billion. The Corporate and Commercial Banking reporting unit’s fair value exceeded carrying value by less than 10%; a 100-basis-point increase in its discount rate would have resulted in impairment under the disclosed sensitivity analysis. No impairment was recorded at year-end.
- The company disclosed ongoing litigation and regulatory matters; reasonably possible losses above accrued amounts were estimated at zero to approximately $200 million, excluding matters for which an estimate could not be made. A legacy SunTrust overdraft-fee class action remained in discovery. The filing also describes a 2019 Federal Reserve consent order relating to legacy business-customer deposit add-on product practices.
- Other key uncertainties include merger execution and client retention, recession and borrower performance, interest-rate and LIBOR transition risks, deposit outflows and funding costs, regulatory capital and distribution restrictions, cybersecurity and operational disruption, and potential goodwill impairment.
Important facts for investors to verify
- Track progress toward the $1.6 billion synergy target, integration costs, system conversions, and any client or deposit attrition.
- Assess credit trends beyond reported reserves, especially accommodation exits, nonperforming loans, vulnerable industries, PPP exposure, and CECL forecast assumptions.
- Monitor NIM, deposit mix and pricing, securities yields, and sensitivity to changes in interest rates and deposit balances.
- Confirm capital, liquidity, dividend, and repurchase capacity against regulatory requirements and evolving Federal Reserve restrictions.
- Review goodwill headroom for Corporate and Commercial Banking and developments in legal, regulatory, and PPP-related matters.