Truist Financial Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results; balance-sheet comparisons are to December 31, 2021 unless noted. Amounts are in U.S. dollars.
Business context and performance
Truist is a diversified banking and financial services company operating Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings segments. Management cited strong broad-based loan growth, margin expansion, and generally strong asset quality, while market conditions weighed on capital-markets revenue. The company continued merger integration and launched new digital banking and investment offerings.
Key financial metrics
| Metric | Q3 2022 | Comparison |
|---|---|---|
| Net interest income | $3.745 billion | Up 16% year over year on a taxable-equivalent basis |
| Net interest margin | 3.12% | Up 31 basis points year over year |
| Noninterest income | $2.102 billion | Down 11% year over year |
| Net income | $1.637 billion | Down 3.9% year over year |
| Net income available to common shareholders | $1.536 billion | Down 5.0% year over year |
| Diluted EPS | $1.15 | Down from $1.20 |
| Provision for credit losses | $234 million | Compared with a $324 million benefit in Q3 2021 |
| Return on average assets / common equity | 1.19% / 10.7% | Versus 1.28% / 10.2% in Q3 2021 |
Q3 revenue on a taxable-equivalent basis was $5.9 billion, up 4.6% year over year. Higher rates and loan growth lifted net interest income, partly offset by lower purchase-accounting accretion and PPP revenue. Fee-income declines included investment banking and trading (down 30%) and residential mortgage income (down 60%); insurance income rose 12%.
For the first nine months, net interest income was $10.335 billion, up 5.9% on a taxable-equivalent basis; net income was $4.585 billion versus $4.835 billion; and diluted EPS was $3.22 versus $3.34. Net cash from operating activities was $7.547 billion, investing activities used $19.209 billion, and financing activities provided $13.592 billion. Cash and cash equivalents ended the period at $22.225 billion.
Financial condition, liquidity, and capital
- Total assets were $548.4 billion, up 1.3% since year-end. Loans and leases were $314.3 billion on the balance sheet, up 8.6%; management reported total loans and leases, including loans held for sale, of $316.6 billion, up 7.6% since year-end.
- Deposits totaled $416.0 billion, down $496 million since year-end. Q3 average deposits were $420.1 billion, down 0.9% from Q2; management attributed the decline to monetary tightening, consumer spending, and seasonal patterns.
- Short-term borrowings increased to $25.7 billion from $5.3 billion at year-end, primarily to fund loan growth. Long-term debt declined to $31.2 billion from $35.9 billion.
- Average Q3 eligible high-quality liquid assets were $88.6 billion and the average liquidity coverage ratio was 111%. Available secured borrowing capacity plus eligible FRB cash totaled $191.7 billion at quarter-end.
- CET1 was 9.1%, down from 9.6% at year-end; total risk-based capital was 12.6%. Management attributed the CET1 decline from Q2 principally to the BenefitMall acquisition and loan growth. Shareholders’ equity was $60.8 billion, down $8.5 billion since year-end, including a $10.7 billion decline in accumulated other comprehensive income, largely reflecting securities-market losses.
- The quarterly common dividend increased 8% to $0.52 per share; the Q3 payout ratio was 45%. No shares were repurchased during Q3. The board authorized up to $4.1 billion of repurchases through September 30, 2023.
Material changes and notable items
- Truist transferred $59.4 billion of available-for-sale securities to held-to-maturity in 2022. The portfolio had $12.4 billion of gross unrealized losses on AFS securities at September 30; management said losses were substantially due to interest-rate changes rather than credit deterioration. No ACL was recorded for the securities.
- Q3 net charge-offs were $213 million, or 0.27% of average loans, versus $135 million a year earlier. The ALLL ratio was 1.34% of HFI loans, down from 1.65% at September 30, 2021; management cited strong performance and higher-quality loan growth, partially offset by a moderately slower economic outlook.
- Merger-related and restructuring charges were $62 million in Q3, down from $172 million a year earlier. The company also reported $90 million of incremental merger-related operating expenses in Q3, versus $191 million in the prior-year quarter.
- Acquisitions included Kensington Vanguard National Land Services and BenefitMall, adding goodwill and intangible assets to Insurance Holdings. Truist also agreed to acquire BankDirect Capital Finance; the transaction was expected to close in Q4 2022 and add approximately $3.2 billion in loans.
Outlook, risks, and contingencies
The filing provides no specific forward earnings or revenue guidance. Management expressed confidence in the company’s trajectory but noted ongoing exposure to inflation, rising rates, recession risk, supply-chain disruption, geopolitical events, and potential credit normalization. Interest-rate sensitivity modeling showed projected next-12-month net interest income up 0.37% under a gradual 100-basis-point increase and down 2.43% under a gradual 100-basis-point decrease; deposit behavior and betas are important assumptions.
LIBOR-based exposures maturing after June 30, 2023 included approximately $148 billion of loans and leases and $135 billion of derivative notional exposure; contract remediation and transition to SOFR remained in progress. The FDIC’s adopted 2-basis-point increase in assessment rates was expected to add approximately $100 million in annual regulatory premiums beginning in 2023.
Truist estimated reasonably possible legal losses in excess of accruals of up to approximately $200 million, excluding matters for which losses could not be estimated. Litigation includes a class action concerning overdraft fees and a USAA patent suit concerning mobile remote deposit capture; outcomes and timing are uncertain. The filing reported no material changes to the risk factors in the 2021 Form 10-K.
Important facts for investors to verify
- Whether loan growth and higher rates continue to offset rising deposit and wholesale funding costs, and how deposit betas and balances develop.
- Whether consumer credit losses continue to normalize; monitor charge-offs, delinquencies, the ALLL, and the economic assumptions embedded in reserves.
- The effect of securities unrealized losses, the AFS-to-HTM transfer, and any future rate changes on reported equity, capital, and liquidity.
- Execution and integration of acquisitions, including BankDirect, and the resulting loan growth, expenses, and capital usage.
- Developments in legal matters, LIBOR remediation, regulatory costs, and the company’s ability to maintain capital and liquidity above applicable requirements.