Business context and reporting period
Truist Financial Corporation’s unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021. Truist is a diversified banking and financial services company with Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings segments. The filing was signed November 1, 2021.
Financial performance and position
Amounts are in millions of dollars unless otherwise noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net income available to common shareholders | $1,616 | $1,068 | $4,509 | $2,956 |
| Diluted EPS | $1.20 | $0.79 | $3.34 | $2.18 |
| Net interest income | $3,233 | $3,362 | $9,763 | $10,460 |
| Provision for credit losses | Benefit of $324 | Expense of $421 | Benefit of $710 | Expense of $2,158 |
| Noninterest income | $2,365 | $2,210 | $6,967 | $6,594 |
| Noninterest expense | $3,795 | $3,755 | $11,416 | $11,064 |
| Net interest margin, taxable-equivalent | 2.81% | 3.10% | 2.90% | 3.26% |
Q3 return on average assets was 1.28% and return on average common equity was 10.2% (0.91% and 6.9% in Q3 2020). The Q3 effective tax rate was 19.9%, versus 18.3%.
For the first nine months, operating cash flow was $3.1 billion, investing cash outflow was $19.9 billion, and financing cash inflow was $17.8 billion. Cash and cash equivalents ended the period at $19.8 billion, up from $18.9 billion at year-end 2020.
At September 30, total assets were $529.9 billion, deposits $405.9 billion, loans and leases $285.5 billion, and AFS securities $151.0 billion. Long-term debt was $37.8 billion and short-term borrowings $5.2 billion. Shareholders’ equity was $68.9 billion. CET1 was 10.1%; average LCR was 114%, above the 100% regulatory minimum. The liquid asset buffer was 24.5% of assets.
Material changes versus comparable periods
- Common earnings rose 51% year over year in Q3 and 53% for the nine-month period. Lower credit-loss provisions, including reserve releases, were a major contributor; these benefits should not be treated as recurring operating revenue.
- Q3 net interest income fell 3.8% year over year and NIM declined 29 basis points. Management cited lower rates, lower purchase-accounting accretion, and loan contraction, partly offset by lower funding costs and securities growth.
- Q3 noninterest income increased 7%; excluding the prior-year $104 million securities gain, it increased 12%. Insurance, investment banking and trading, and wealth management were key contributors. Residential mortgage income weakened.
- Loans fell $15.1 billion from year-end while AFS securities rose $30.3 billion; deposits grew $24.8 billion. Strong deposit growth, attributed partly to fiscal and monetary stimulus, funded securities growth.
- Year-to-date AOCI moved from positive $716 million to negative $1.5 billion, primarily reflecting unrealized losses on AFS securities. Total equity declined $2.0 billion from year-end.
- Nonperforming assets were $1.2 billion, or 0.23% of assets, compared with $1.4 billion and 0.27% at year-end. The allowance for loan and lease losses was $4.7 billion; total ACL, including unfunded commitments, was $5.0 billion.
Outlook, management commentary, risks and unusual items
Management reaffirmed its target of $1.6 billion in merger-related run-rate cost savings by Q4 2022. The successful migration of approximately 7 million clients to Truist’s technology ecosystem was described as a major integration milestone. The filing does not provide earnings or revenue guidance.
Truist targeted a near-term CET1 ratio of approximately 9.75%. Planned capital deployment of $4–5 billion between Q3 2021 and Q3 2022 was reduced to approximately $1–2 billion after acquisitions; management expected about $500 million of share repurchases in Q4 2021. The common dividend was increased 7% to $0.48 per share.
Q3 results included $172 million of merger-related and restructuring charges, $191 million of incremental merger operating expense, and a one-time $30 million professional fee. Truist acquired Constellation Affiliated Partners in July and announced a $2.0 billion cash acquisition of Service Finance, expected to close in Q4 2021.
Key risks include pandemic-related borrower and market effects, credit deterioration, interest-rate and deposit-mix sensitivity, merger integration and expense execution, LIBOR transition, regulatory and litigation exposure, cybersecurity and operational disruption, and possible goodwill impairment if conditions worsen. The filing estimates reasonably possible legal losses above accruals of up to approximately $200 million, while noting some matters cannot be estimated. Interest-rate simulations showed projected next-12-month NII sensitivity of +4.08% for a gradual 100-basis-point increase and -1.22% for a 25-basis-point decline; outcomes depend on assumptions, including deposit behavior.
Important facts for investors to verify
- Whether reserve releases and low realized credit losses persist as pandemic relief and stimulus fade.
- How loan balances, deposit composition, securities yields, and NIM evolve as rates and liquidity conditions change.
- Progress toward the $1.6 billion cost-savings target, integration milestones, and remaining merger-related costs.
- Capital deployment, planned buybacks, dividend capacity, and the financial effect and closing status of announced acquisitions.
- Potential credit or legal losses beyond recorded allowances and accruals, and developments in material litigation.
- Whether migration, cybersecurity, LIBOR transition, and regulatory requirements create unexpected costs or operational risks.