Business context and reporting period
Truist Financial Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. The bank reported broad-based loan growth and stronger quarterly net interest margin amid rising rates, alongside lower common earnings year over year. Unless stated otherwise, dollar amounts are in U.S. dollars.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / change |
|---|---|---|
| Revenue | Taxable-equivalent revenue: $5.7 billion | Relatively flat year over year |
| Net interest income | $3.407 billion GAAP; $3.435 billion taxable-equivalent | GAAP up from $3.245 billion in Q2 2021 |
| Net income available to common shareholders | $1.454 billion | Down 6.7% from $1.559 billion |
| Diluted EPS | $1.09 | Down from $1.16 |
| Net interest margin | 2.89% taxable-equivalent | Up 1 basis point sequentially; 2.88% in Q2 2021 |
| Credit costs | $171 million provision; $159 million net charge-offs; 0.22% net charge-off ratio | Q2 2021 provision benefit was $434 million; charge-offs were $142 million |
| Loans and deposits | Loans and leases: $303.7 billion on balance sheet; deposits: $424.8 billion | Loans up 4.4% and deposits up 2.0% from Dec. 31, 2021 |
| Capital and liquidity | CET1 ratio 9.2%; average Q2 LCR 110%; average eligible HQLA $85.0 billion | CET1 down 20 basis points from Q1, primarily reflecting loan growth and repurchases |
| Debt and equity | Short-term borrowings $13.7 billion; long-term debt $30.3 billion; shareholders’ equity $63.0 billion | Short-term borrowings rose $8.4 billion and long-term debt fell $5.6 billion from year-end |
For the six months, operating cash flow was $3.8 billion, investing cash flow was negative $10.8 billion, and financing cash flow was positive $9.8 billion. Cash and cash equivalents ended June at $23.1 billion. These cash-flow totals include substantial securities and loan activity.
Material changes and notable items
- Quarterly net interest income benefited from higher rates, deposit costs that remained low, securities growth and lower premium amortization; lower purchase-accounting accretion and PPP revenue partly offset the gains. Average deposits rose 6.9% year over year, while average earning assets increased 4.5%.
- Noninterest income fell 6.5% year over year, notably from weaker investment banking and trading and mortgage income. Insurance income grew 19.6%, partly offsetting declines.
- Noninterest expense declined 10.7%, including lower merger/restructuring costs and the prior-year comparison with $200 million of charitable contributions. The current quarter included a $39 million gain on redemption of FHLB advances. Excluding specified items and intangible amortization, adjusted expense increased 1.8% year over year.
- Shareholders’ equity fell $6.3 billion from year-end, including a $7.6 billion decline in AOCI, principally reflecting market-value losses on securities as interest rates rose. Truist transferred $59.4 billion of AFS securities to HTM in Q1; management stated it intended and was able to hold them to maturity. The transfer did not generate a recognized gain or loss.
- Loans grew $13.0 billion from year-end. The allowance for loan and lease losses was $4.2 billion, or 1.38% of HFI loans, compared with 1.53% at year-end. Management cited generally favorable credit performance but noted inflation, supply-chain disruption, rising rates and geopolitical uncertainty.
Outlook, risks and contingencies
Management described improved post-integration momentum, ongoing strategic investment in talent and technology, and confidence in the company’s ability to operate across credit environments. The filing provides no specific earnings or revenue guidance. After the quarter, the Board approved an 8% increase in the quarterly common dividend to $0.52, beginning in Q3 2022. The preliminary stress capital buffer was 2.5%; the final requirement was still pending at filing.
Key exposures include interest-rate and deposit sensitivity, credit deterioration, funding access, merger integration, cybersecurity and operational risks, and the LIBOR transition. Truist estimated reasonably possible legal losses in excess of accruals of up to approximately $200 million, while cautioning that this is not a maximum exposure. A USAA patent-infringement complaint concerning mobile remote deposit capture was filed July 29, 2022, after quarter-end. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How rising deposit costs and changing deposit mix affect net interest margin and earnings in subsequent quarters.
- Whether loan growth is sustained and whether credit quality, charge-offs and allowance coverage change as economic conditions evolve.
- The size and persistence of securities-related AOCI losses, including the accounting and earnings effects of the AFS-to-HTM transfer.
- Final stress capital buffer requirements, capital ratios, liquidity measures and the planned pace of dividends and repurchases.
- Developments in the USAA litigation and other legal matters, including any changes to estimated exposure or accruals.