MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements in this Form 10-Q, other information contained in this document, as well as with Truist's Annual Report on Form 10-K for the year ended
December 31, 2021.
The regulatory framework applicable to banking organizations is intended primarily for the protection of depositors and the stability of the financial system, rather than for the protection of shareholders and creditors. Truist is subject to banking laws and regulations, and various other laws and regulations, which affect the operations and management of Truist and its ability to make distributions to shareholders. Truist and its subsidiaries are also subject to supervision and examination by multiple regulators. The descriptions below summarize updates since the filing of the Annual Report on Form 10-K for the year ended
December 31, 2021to state and federal laws to which Truist is subject. These descriptions do not summarize all possible or proposed changes in current laws or regulations and are not intended to be a substitute for the related statues or regulatory provisions. Refer to Truist's Annual Report on Form 10-K for the year ended December 31, 2021for additional disclosures. In March 2022, the U.S.enacted federal legislation that is intended to minimize legal and economic uncertainty following U.S.dollar LIBOR's cessation by replacing LIBOR references in certain contracts under certain circumstances with a SOFR-based rate to be established in a forthcoming FRB rule that incorporates a spread adjustment specified in the statute. While some states have already adopted LIBOR legislation, the federal legislation expressly preempts any provision of any state or local law, statute, rule, regulation, or standard.
The first quarter of 2022 marked a pivotal turning point for Truist as we completed our final core bank conversion and are positioned to focus on executional excellence. Our financial results for the first quarter of 2022 were solid, though underlying results were mixed in light of market volatility and geopolitical uncertainty. The continued favorable credit environment also led to a strong credit performance and a benefit from the provision for credit losses. Revenues were lower as a result of a challenging environment for investment banking and mortgage, but we remain confident in our outlook given expectations for higher interest rates, our diverse business model, and continued expense discipline. At the same time, we acknowledge the increasing uncertainty presented by a range of geopolitical and economic risks. See below for further updates on our final integration and ESG efforts and a more detailed discussion of our first quarter financial performance.
Truist completed our largest conversion event during the first quarter of 2022, transitioning nearly seven million clients to the Truist ecosystem and rebranding more than 6,000 signs at branches, ATMs, and other locations. We now operate officially as one brand and one bank to our clients. This accomplishment was possible because of the expertise, purposeful commitment, and hard work of thousands of teammates. We remain guided by our purpose as we continue supporting our clients through the transition and look forward to shifting our focus to executional excellence and purposeful growth throughout this year.
•Truist has joined the
Partnership for Carbon Accounting Financials, and set 2030 goals to reduce Scope 1 and Scope 2 emissions by 35% each, and to reduce water consumption by 25%, relative to 2019. •We announced our goal to achieve net zero greenhouse gas emissions by 2050, supporting our clients' transition to a low-carbon economy. Truist Financial Corporation37 --------------------------------------------------------------------------------
•Truist continued to be ahead of schedule with regard to our
$60 billionCommunity Benefits Plan commitment. •In January 2022, Truist announced Truist One Banking, a first-of-its-kind approach to the checking account experience, designed to address clients' direct feedback. Truist One Banking will be available to clients beginning in the summer of 2022. The Truist One checking account features will include: no overdraft fees; a $100negative balance buffer for qualifying clients; an easily accessible, deposit-based line of credit of up to $750; and premium rewards that instantly recognize relationships and honor loyalty. In addition, Truist will offer an alternative checking account product created for clients who are new to credit and want simplicity and control without overdraft fees. It will help clients avoid high fees from check-cashing and payday lenders, bring many more households into mainstream banking, and create a pathway to upgrade to a Truist One checking account. •In March 2022, Truist issued its first Social Bond Impact Report, which details the investments made from the bond proceeds and underscores the Company's commitment to advancing its ESG goals. •In March 2022, Truist partnered with Connect Humanity to provide internet connectivity to historically marginalized communities.
•Truist made several leadership changes during 2022 as we continued to execute on the strategy first agreed upon in the Merger. Effective
March 12, 2022, William H. Rogers, Jr. was appointed chairman of the board and Thomas E. Skainswas appointed lead independent director. Rogers succeeds Kelly S. King, who stepped down from the role of chairman as previously announced. Skains succeeds David M. Ratcliffe. Both King and Ratcliffe remain on the board. •In March 2022, Truist appointed Dontá L. Wilsonto lead Retail and Small Business Banking. In his new role, Wilson will oversee Truist's branches across the Southeast, Mid-Atlantic, and Texas; ATMs; mortgage; card-based services; retail payments; deposit and loan products; small business delivery; retail loan approval channels; and brand, sports, performance, and digital marketing. Wilson assumes these responsibilities from Brant J. Standridge, who left Truist to pursue a new opportunity. •In January 2022, Truist appointed Denise M. DeMaioas Chief Audit Officer, effective February 28, 2022. Denise joined the Executive Leadership team, leading Truist's internal audit function, and providing counsel to senior management on emerging risk trends from the vantage points of governance, processes, technologies and reporting.
Net income available to common shareholders for the first quarter of 2022 of
$1.3 billionwas relatively stable compared with the first quarter of 2021. On a diluted per common share basis, earnings for the first quarter of 2022 were $0.99, an increase of $0.01compared to the first quarter of 2021. Truist's results of operations for the first quarter of 2022 produced an annualized return on average assets of 1.07% and an annualized return on average common shareholders' equity of 9.0% compared to prior year returns of 1.17% and 8.7%, respectively. Results for the first quarter of 2022 included merger-related and restructuring charges of $216 million( $166 millionafter-tax), incremental operating expenses related to the Merger of $202 million( $155 millionafter-tax), a gain on the redemption of noncontrolling equity interest of $74 million( $57 millionafter-tax) related to the acquisition of certain merchant services relationships, and net losses on the sales of securities of $69 million( $53 millionafter-tax). Results for the first quarter of 2021 included $141 million( $108 millionafter-tax) of merger-related and restructuring charges, $175 million( $134 millionafter-tax) of incremental operating expenses related to the Merger, and an acceleration of loss recognition related to certain terminated cash flow hedges of $36 million( $28 millionafter-tax). On a TE basis, revenue was $5.4 billionfor the first quarter of 2022, a decrease of $159 million, or 2.9%, compared to the same period in 2021. TE net interest income for the first quarter of 2022 was down $104 million, or 3.1%, compared to the earlier quarter due to lower purchase accounting accretion, lower PPP fees, and a decrease in loan balances. These decreases were partially offset by growth in the securities portfolio and lower funding costs. Average earning assets increased $26.0 billion, or 5.9%, compared to the earlier quarter. The increase in average earning assets reflects a $30.4 billion, or 25%, increase in average securities, a $1.5 billion, or 8.7%, increase in average other earning assets, and a $1.1 billion, or 23%, increase in average interest earning trading assets, while average total loans and leases decreased $7.1 billion, or 2.4%. The growth in average earning assets is a result of the deployment of strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased $32.1 billion, or 8.4%, compared to the earlier quarter, while average long-term debt decreased $2.5 billion, or 6.6%. Net interest margin was 2.76%, down 25 basis points compared to the earlier quarter. The yield on the total loan portfolio for the first quarter of 2022 was 3.69%, down 40 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion, lower PPP fees, and the ongoing impact of the lower rate environment. The yield on the average securities portfolio was 1.68%, up 23 basis points compared to the earlier quarter primarily due to higher yields on new purchases and lower premium amortization. 38 Truist Financial Corporation-------------------------------------------------------------------------------- The provision for credit losses was a benefit of $95 million, compared to a cost of $48 millionfor the earlier quarter. The current quarter includes a reserve release due to the continued favorable credit environment. Net charge-offs for the first quarter of 2022 totaled $178 millioncompared to $238 millionin the earlier quarter. The net charge-off ratio for the current quarter of 0.25% was down eight basis points compared to the earlier quarter. Noninterest income for the first quarter of 2022 decreased $55 million, or 2.5%, compared to the earlier quarter. The first quarter of 2022 includes net securities losses of $69 millionand the gain on the redemption of noncontrolling equity interest (other income) of $74 million. The earlier quarter included a gain of $37 millionfrom the divestiture of certain businesses (other income). Excluding the aforementioned items, noninterest income was down $23 million, or 1.1%. Insurance income increased $101 million, or 16%, due to continued organic growth and acquisitions. Investment banking and trading income decreased $85 million, or 25%, due to lower high yield bond and equity originations fees, lower core trading income, and lower CVA gains, partially offset by higher structured real estate fees. Residential mortgage income decreased $11 million, or 11%, as lower production income (due to margins and refinance volumes) was largely offset by higher servicing income (due to lower prepayments). Excluding the gain on the redemption of noncontrolling equity interest, the gain in the earlier quarter from the divestiture of certain businesses and a $67 milliondecrease for assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, other income increased $56 million, due to higher investment income from the Company's SBIC and other investments. Noninterest expense for the first quarter of 2022 was up $64 million, or 1.8%, compared to the earlier quarter. Merger-related and restructuring charges increased $75 milliondue to costs for client day one conversions. Incremental operating expenses related to the Merger increased $27 million, primarily reflected in net occupancy expense in connection with updating the branch network to incorporate the Truist brand. The prior quarter also includes $36 millionof expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges and a small gain on the extinguishment of debt. Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense was relatively stable compared to the earlier quarter. Personnel expense decreased $91 million, or 4.2%, due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits, lower incentives (due to declines in noninterest income), and lower salaries driven by fewer FTEs. Additionally, other expense increased $29 milliondue to increased operational losses, software expense increased $22 million, and marketing and customer development expense increased $18 milliondue to increased branding efforts. The provision for income taxes was $330 millionfor the first quarter of 2022, compared to $351 millionfor the earlier quarter. The effective tax rate for the first quarter of 2022 was 18.9%, compared to 19.2% for the earlier quarter, primarily due to discrete tax expenses resulting from the divestiture of certain businesses in the prior year. Truist's total assets at March 31, 2022were $544.0 billion, an increase of $2.7 billion, or 0.5%, compared to December 31, 2021. Total deposits at March 31, 2022were $428.3 billion, an increase of $11.8 billion, or 2.8%, compared to December 31, 2021. In April 2022, Truist redeemed $800 millionnotional of FHLB advances, which resulted in a gain on early extinguishment of long-term debt of $39 million.
Asset quality remains excellent, reflecting Truist’s cautious risk culture, diversified portfolio and continued favorable credit environment.
Truist maintained strong capital and liquidity. As of
March 31, 2022, the CET1 ratio was 9.4% and the average LCR was 111%. The 20 basis point decline compared to the fourth quarter 2021 CET1 ratio reflects capital deployed through the acquisition of Kensington Vanguard National Land Services, the acquisition of certain merchant services relationships, an increase in risk-weighted assets, and the impact from the phase-in of the CECL transition relief. Additionally, the Company had $1.7 billionof senior long-term debt maturities and redemptions. Truist declared common dividends of $0.48per share in the first quarter of 2022, resulting in dividend and total payout ratios of 48%. Truist Financial Corporation39 --------------------------------------------------------------------------------
Analysis of operating results
Net interest income and NIM
First quarter 2022 compared to first quarter 2021
Net interest income for the first quarter of 2022 was down
$104 million, or 3.1%, compared to the earlier quarter due to lower purchase accounting accretion, lower PPP fees, and a decrease in loan balances. These decreases were partially offset by growth in the securities portfolio and lower funding costs. Average earning assets increased $26.0 billion, or 5.9%, compared to the earlier quarter. The increase in average earning assets reflects a $30.4 billion, or 25%, increase in average securities, a $1.5 billion, or 8.7%, increase in average other earning assets, and a $1.1 billion, or 23%, increase in average interest earning trading assets, while average total loans and leases decreased $7.1 billion, or 2.4%. The growth in average earning assets is a result of the deployment of strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased $32.1 billion, or 8.4%, compared to the earlier quarter, while average long-term debt decreased $2.5 billion, or 6.6%. Net interest margin was 2.76%, down 25 basis points compared to the earlier quarter. The yield on the total loan portfolio for the first quarter of 2022 was 3.69%, down 40 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion, lower PPP fees, and the ongoing impact of the lower rate environment. The yield on the average securities portfolio was 1.68%, up 23 basis points compared to the earlier quarter primarily due to higher yields on new purchases and lower premium amortization. The average cost of total deposits was 0.03%, down two basis points compared to the earlier quarter. The average cost of short-term borrowings was 0.60%, down 22 basis points compared to the earlier quarter. The average cost of long-term debt was 1.50%, down seven basis points compared to the earlier quarter. The lower rates on interest-bearing liabilities reflect the impact of repricing of liabilities at lower rates. As of March 31, 2022, the remaining unamortized fair value marks on the loan and lease portfolio, deposits, and long-term debt were $1.1 billion, $5 million, and $122 million, respectively. As of December 31, 2021, the remaining unamortized fair value marks on the loan and lease portfolio, deposits and long-term debt were $1.3 billion, $7 million, and $139 million, respectively. The remaining unamortized fair value mark on loans and leases consist of $624 millionfor consumer loans and leases, and $495 millionfor commercial loans and leases. These amounts will be recognized over the remaining contractual lives of the underlying instruments or as paydowns occur. The major components of net interest income and the related annualized yields as well as the variances between the periods caused by changes in interest rates versus changes in volumes are summarized below. 40 Truist Financial Corporation--------------------------------------------------------------------------------
Table 1: Net interest income in taxable equivalent and rate/volume analysis (1)
Three Months Ended
March 31, Average Balances (5) Annualized Yield/Rate Income/Expense Incr. Change due to (Dollars in millions) 2022 2021 2022 2021 2022 2021 (Decr.) Rate Volume Assets Total securities, at amortized cost: (2) U.S. Treasury $ 9,890 $ 1,7590.72 % 0.89 % $ 18 $ 4 $ 14 $ (1) $ 15GSE 1,120 1,839 2.13 2.33 6 11 (5) (1) (4) Agency MBS 137,052 118,171 1.72 1.44 590 426 164 90 74 States and political subdivisions 374 444 3.72 3.52 3 4 (1) - (1) Non-agency MBS 4,224 - 2.25 - 24 - 24 - 24 Other 27 33 2.04 1.92 - - - - - Total securities 152,687 122,246 1.68 1.45 641 445 196 88 108 Interest earning trading assets 5,837 4,742 3.04 2.79 43 32 11 3 8 Other earning assets (3) 18,932 17,417 0.63 0.37 30 16 14 13 1
Loans and leases, net of deferred income: (4)
Commercial and industrial 138,872 141,026 2.88 3.14 987 1,093 (106) (90) (16) CRE 23,555 26,211 2.84 2.90 168 189 (21) (4) (17)
Commercial Construction5,046 6,557 3.05 3.04 35 48 (13) - (13) Residential mortgage 47,976 45,823 3.57 4.42 428 507 (79) (102) 23 Residential home equity and direct 24,883 25,658 5.38 5.81 330 368 (38) (27) (11) Indirect auto 26,088 26,363 5.56 6.56 357 426 (69) (65) (4) Indirect other 10,860 10,848 6.32 6.98 169 187 (18) (18) - Student 6,648 7,519 3.86 3.96 63 73 (10) (2) (8) Credit card 4,682 4,645 8.97 9.24 104 106 (2) (3) 1 Total loans and leases HFI 288,610 294,650 3.70 4.11 2,641 2,997 (356) (311) (45) LHFS 3,874 4,891 2.87 2.59 28 32 (4) 3 (7) Total loans and leases 292,484 299,541 3.69 4.09 2,669 3,029 (360) (308) (52) Total earning assets 469,940 443,946 2.90 3.20 3,383 3,522 (139) (204) 65 Nonearning assets 66,041 64,887 Total assets $ 535,981 $ 508,833Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-checking $ 112,159 $ 104,7440.05 0.06 14 15 (1) (2) 1 Money market and savings 141,500 129,303 0.03 0.03 11 10 1 - 1 Time deposits 15,646 20,559 0.18 0.44 7 22 (15) (11) (4) Total interest-bearing deposits (6) 269,305 254,606 0.05 0.07 32 47 (15) (13) (2) Short-term borrowings 6,944 6,731 0.60 0.82 10 14 (4) (4) - Long-term debt 35,337 37,820 1.50 1.57 132 148 (16) (6) (10) Total interest-bearing liabilities 311,586 299,157 0.22 0.28 174 209 (35) (23) (12) Noninterest-bearing deposits (6) 145,933 128,579 Other liabilities 11,664 11,050 Shareholders' equity 66,798 70,047
Total liabilities and equity
Average interest rate spread
2.68 % 2.92 % NIM/net interest income - taxable equivalent 2.76 % 3.01 %
Taxable Equivalent Adjustment
(1) Yields are stated on a TE basis utilizing federal tax rate. The change in interest not solely due to changes in rate or volume has been allocated based on the pro-rata absolute dollar amount of each. Interest income includes certain fees, deferred costs, and dividends. (2) Total securities include AFS and HTM securities. (3) Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets. (4) Fees, which are not material for any of the periods shown, are included for rate calculation purposes. NPLs are included in the average balances. (5) Represents daily average balances. Excludes basis adjustments for fair value hedges. (6) Total deposit costs were 0.03% and 0.05% for the three months ended
March 31, 2022and 2021, respectively. Truist Financial Corporation41 --------------------------------------------------------------------------------
Provision for credit losses
First quarter 2022 compared to first quarter 2021
The provision for credit losses was a benefit of
$95 million, compared to a cost of $48 millionfor the earlier quarter. The current quarter includes a reserve release due to the continued favorable credit environment. Net charge-offs for the first quarter of 2022 totaled $178 millioncompared to $238 millionin the earlier quarter. The net charge-off ratio for the current quarter of 0.25% was down eight basis points compared to the earlier quarter.
Noninterest income is a significant contributor to Truist's financial results. Management focuses on diversifying its sources of revenue to reduce Truist's reliance on traditional spread-based interest income, as certain fee-based activities are a relatively stable revenue source during periods of changing interest rates. Table 2: Noninterest Income
Three months completed
(Dollars in millions) 2022 2021 % Change Insurance income
$ 727 $ 62616.1 % Investment banking and trading income 261 346 (24.6) Wealth management income 343 341 0.6 Service charges on deposits 252 258 (2.3) Card and payment related fees 212 200
Residential mortgage income 89 100 (11.0) Lending related fees 85 100 (15.0) Operating lease income 58 68 (14.7) Commercial mortgage income 32 33
Income from bank-owned life insurance 51 50 2.0 Securities gains (losses) (69) - NM Other income 101 75 34.7 Total noninterest income
$ 2,142 $ 2,197(2.5)
First quarter 2022 compared to first quarter 2021
Noninterest income for the first quarter of 2022 decreased
$55 million, or 2.5%, compared to the earlier quarter. The first quarter of 2022 includes net securities losses of $69 millionand the gain on the redemption of noncontrolling equity interest (other income) of $74 million. The earlier quarter included a gain of $37 millionfrom the divestiture of certain businesses (other income). Excluding the aforementioned items, noninterest income was down $23 million, or 1.1%. Insurance income increased $101 million, or 16%, due to continued organic growth and acquisitions. Investment banking and trading income decreased $85 million, or 25%, due to lower high yield bond and equity originations fees, lower core trading income, and lower CVA gains, partially offset by higher structured real estate fees. Residential mortgage income decreased $11 million, or 11%, as lower production income (due to lower margins and refinance volumes) was largely offset by higher servicing income (due to lower prepayments). Excluding the gain on the redemption of noncontrolling equity interest, the gain in the earlier quarter from the divestiture of certain businesses and a $67 milliondecrease for assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, other income increased $56 million, due to higher investment income from the Company's SBIC and other investments. 42 Truist Financial Corporation--------------------------------------------------------------------------------
The following table provides a breakdown of Truist’s non-interest expenses: Table 3: Non-interest expenses
Three months completed
(Dollars in millions) 2022 2021 % Change Personnel expense
$ 2,051 $ 2,142(4.2) % Professional fees and outside processing 363 350 3.7 Software expense 232 210 10.5 Net occupancy expense 208 209 (0.5) Amortization of intangibles 137 144 (4.9) Equipment expense 118 113 4.4 Marketing and customer development 84 66 27.3 Operating lease depreciation 48 50 (4.0) Loan-related expense 44 54 (18.5) Regulatory costs 35 25 40.0 Merger-related and restructuring charges 216 141
Loss (gain) on early extinguishment of debt - (3) (100.0) Other expense 138 109 26.6 Total noninterest expense
$ 3,674 $ 3,6101.8
First quarter 2022 compared to first quarter 2021
Noninterest expense for the first quarter of 2022 was up
$64 million, or 1.8%, compared to the earlier quarter. Merger-related and restructuring charges increased $75 milliondue to costs for client day one conversions. Incremental operating expenses related to the merger increased $27 million, primarily reflected in net occupancy expense in connection with updating the branch network to incorporate the Truist brand. The prior quarter also includes $36 millionof expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges and a small gain on the extinguishment of debt. Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense was relatively stable compared to the earlier quarter. Personnel expense decreased $91 million, or 4.2%, due to lower other employee benefits as a result of the decrease in noninterest income for post-retirement benefits, lower incentives (due to declines in noninterest income), and lower salaries driven by fewer FTEs. Additionally, other expense increased $29 milliondue to increased operational losses, software expense increased $22 million, and marketing and customer development expense increased $18 milliondue to increased branding efforts.
Merger and restructuring charges
The following table presents a summary of the charges related to the merger and restructuring and the related accrued liabilities. 2022 and 2021 merger and restructuring costs primarily reflect charges resulting from the merger, including severance and other benefit costs, facility exit costs and other restructuring initiatives . Table 4: Merger and restructuring adjustment activity
Three Months Ended March 31, 2022 Accrual at Jan Accrual at Mar (Dollars in millions) 1, 2022 Expense Utilized 31, 2022 Severance and personnel-related
$ 77 $ 37 $ (72)$ 42 Occupancy and equipment - 98 (98) - Professional services 37 64 (64) 37 Systems conversion and related costs - 20 (17) 3 Other 12 (3) (2) 7 Total (1) $ 126 $ 216 $ (253)$ 89 (1)Related to the Merger, the Company recognized $208 millionfor the three months ended March 31, 2022. At March 31, 2022, the Company had an accrual of $81 millionrelated to the Merger. The remaining expense and accrual relate to other restructuring activities. Truist Financial Corporation 43 --------------------------------------------------------------------------------
Truist operates and measures business activity across three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, and
Insurance Holdings, with functional activities included in Other, Treasury, and Corporate. The Company's business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. See "Note 18. Operating Segments" herein and "Note 21. Operating Segments" in Truist's Annual Report on Form 10-K for the year ended December 31, 2021for additional disclosures related to Truist's reportable business segments, including additional details related to results of operations. Fluctuations in noninterest income and noninterest expense are more fully discussed in the Noninterest Income and Noninterest Expense sections above. Table 5: Net Income by Reportable Segment Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Consumer Banking and Wealth $ 864 $ 68126.9 % Corporate and Commercial Banking 985 966 2.0 Insurance Holdings 152 133 14.3 Other, Treasury & Corporate (585) (307)
Truist Financial Corporation
$ 1,416 $ 1,473(3.9)
First quarter 2022 compared to first quarter 2021
Consumer banking and wealth management
CB&W net income was
$864 millionfor the first quarter of 2022, an increase of $183 millioncompared to the earlier quarter. Segment net interest income increased $194 millionprimarily driven by higher interest rates, favorable funding credit on deposits, and increased deposit balances, partially offset by lower purchase accounting accretion. The allocated provision for credit losses decreased $26 millionreflecting the impact of a larger allowance release than the earlier quarter as well as lower charge offs. Noninterest income increased $30 millioncompared to the earlier quarter primarily due to the gain on the redemption of noncontrolling equity interest in the current quarter as well as an increase in card and payment fees driven by increased sales volume, partially offset by a gain from the divestiture of certain businesses in the earlier quarter and lower residential mortgage income. Noninterest expense was flat compared to the earlier quarter. CB&W average loans and leases held for investment decreased $1.8 billion, or 1.4%, for the first quarter of 2022 compared to the earlier quarter, primarily driven by lower mortgage warehouse balances, home equity and other direct consumer lending as well as lower student lending along with lower partnership balances net of Service Finance balances resulting from acquisition, partially offset by increased residential mortgage balances and recreational lending. Average mortgage warehouse loans, home equity and other direct consumer loans, student lending balances, and partnership balances net of Service Finance balances resulting from acquisition declined $2.7 billion, or 51%, $947 million, or 5.2%, $871 million, or 12%, and $211 million, or 6.0%, respectively, while residential mortgage and recreational lending balances increased $2.1 billion, or 4.7%, and $193 million, or 6.6%, respectively. Average total deposits increased $22.6 billion, or 9.8%, for the first quarter of 2022 compared to the earlier quarter, primarily driven by the impact of fiscal and monetary stimulus. Average money market and savings accounts, interest checking accounts, and noninterest-bearing deposits increased $10.1 billion, or 10%, $8.5 billion, or 17%, and $8.3 billion, or 13%, respectively, partially offset by a decline in time deposits of $4.3 billion, or 23%.
Corporate and Business Banking
C&CB net income was
$985 millionfor the first quarter of 2022, an increase of $19 millioncompared to the earlier quarter. Segment net interest income decreased $31 millionprimarily due to lower fee income associated with PPP loan forgiveness and lower purchase accounting accretion, partially offset by higher funding credit on deposits and increases to noninterest-bearing deposit balances. The allocated provision for credit losses decreased $115 millionprimarily reflecting a reserve release due to continued favorable credit environment and lower charge offs in the current quarter. Noninterest income decreased $73 millioncompared to the earlier quarter due to lower high yield bond and equity originations fees, lower credit trading income, and lower CVA mark to market gains, partially offset by higher structured real estate fees as well as higher investment income from the Company's SBIC and other investments. Noninterest expense decreased $18 milliondriven by lower professional fees and intangible amortization expense in the current quarter. C&CB average loans held for investment decreased $3.7 billion, or 2.4%, for the first quarter of 2022 compared to the earlier quarter, primarily due to PPP loan forgiveness. Excluding PPP loans, Corporate and Commercial Banking average loans held for investment increased $4.6 billion, or 3.1%. 44 Truist Financial Corporation-------------------------------------------------------------------------------- Average total deposits increased $7.8 billion, or 5.4%, for the first quarter of 2022 compared to the earlier quarter, primarily due to the impact of fiscal and monetary stimulus. Average noninterest-bearing deposits increased $9.0 billion, or 14%, while interest bearing deposits decreased $1.2 billion, or 1.5%.
IH net income was
$152 millionfor the first quarter of 2022, an increase of $19 millioncompared to the earlier quarter. Noninterest income increased $104 millionprimarily due to continued organic growth and acquisitions. Noninterest expense increased $80 millionprimarily due to higher performance-based incentives and salaries.
OT&C generated a net loss of
$585 millionin the first quarter of 2022, compared to a net loss of $307 millionin the earlier quarter. Net interest income decreased $265 millionprimarily due to higher funding credit on deposits to other segments, partially offset by higher earnings in the securities portfolio from higher yields on new purchases and lower premium amortization. The allocated provision for credit losses was flat compared to the earlier quarter. Noninterest income decreased $116 millionprimarily due to securities losses in the current quarter and valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense. Noninterest expense was flat compared to the earlier quarter.
Analysis of the financial situation
The securities portfolio totaled
$146.4 billionat March 31, 2022, compared to $154.6 billionat December 31, 2021. The decrease was due primarily to declines in residential agency MBS and GSE securities as a result of prepayment activity. In the first quarter of 2022, Truist transferred $59.4 billionof AFS securities to HTM as the Company continues to execute upon its asset-liability management strategies. As of March 31, 2022, approximately 5.6% of the securities portfolio was variable rate, excluding the impact of swaps, compared to 4.6% as of December 31, 2021. The effective duration of the securities portfolio was 6.9 years at March 31, 2022, compared to 5.8 years at December 31, 2021, excluding the impact of unsettled security purchases at period end. U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of March 31, 2022and December 31, 2021. While the overwhelming majority of the portfolio remains in agency MBS securities, the Company also holds AAA rated non-agency MBS as the risk adjusted returns for these securities are more attractive than agency MBS.
The following table presents the composition of average loans and leases: Table 6: Average Loans and Leases For the Three Months Ended (Dollars in millions) Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31,
Commercial and industrial
23,555 24,396 24,849 25,645 26,211 Commercial construction 5,046 5,341 5,969 6,359 6,557 Consumer: Residential mortgage 47,976 47,185 45,369 43,605 45,823 Residential home equity and direct 24,883 25,146 25,242 25,238 25,658 Indirect auto 26,088 26,841 26,830 26,444 26,363 Indirect other 10,860 10,978 11,112 10,797 10,848 Student 6,648 6,884 7,214 7,396 7,519 Credit card 4,682 4,769 4,632 4,552 4,645 Total average loans and leases HFI
$ 288,610 $ 286,344 $ 286,159 $ 288,575 $ 294,650Average loans and leases held for investment for the first quarter of 2022 were $288.6 billion, up $2.3 billion, or 0.8%, compared to the fourth quarter of 2021. Excluding a $1.1 billiondecrease in average PPP loans, average loans held for investment were up $3.3 billion, or 1.2%. Truist Financial Corporation 45 -------------------------------------------------------------------------------- Average commercial loans increased $2.9 billion, or 1.8%, as a result of $6.5 billion, or 5.1%, growth within the commercial and industrial portfolio, excluding PPP and mortgage warehouse lending. This growth was partially offset by a $1.4 billiondecrease in mortgage warehouse lending (commercial and industrial), a $1.1 billiondecrease in average PPP loans (commercial and industrial), an $841 milliondecrease in average CRE loans, and a $295 milliondecrease in average commercial construction loans. Average consumer loans decreased $579 million, or 0.5% due to a $753 milliondecrease in indirect auto due to market dynamics and the competitive environment, a $263 milliondecrease in residential home equity and direct, and a $236 milliondecrease in student loans. The decreases were partially offset by a $791 millionincrease in residential mortgages due to the continued strategy to put certain correspondent channel production onto the balance sheet and lower prepayments. At March 31, 2022and December 31, 2021, 52% of loans and leases HFI were variable rate. 46 Truist Financial Corporation--------------------------------------------------------------------------------
The following tables summarize the asset quality information: Table 7: Asset Quality
(Dollars in millions) Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 NPAs: NPLs: Commercial and industrial $ 330 $ 394 $ 423 $ 402 $ 474 CRE 27 29 20 25 58 Commercial construction - 7 7 12 13 Residential mortgage 315 296 306 302 290 Residential home equity and direct 141 141 146 165 172 Indirect auto 227 218 172 148 158 Indirect other 4 5 6 6 6 Total NPLs HFI 1,044 1,090 1,080 1,060 1,171 Loans held for sale 39 22 76 78 72 Total nonaccrual loans and leases 1,083 1,112 1,156 1,138 1,243 Foreclosed real estate 3 8 9 13 18 Other foreclosed property 49 43 39 41 38 Total nonperforming assets
$ 1,135 $ 1,163 $ 1,204 $ 1,192 $ 1,299TDRs: Performing TDRs: Commercial and industrial $ 104 $ 147 $ 200 $ 202 $ 201 CRE 5 5 8 24 47 Commercial construction 1 - - - - Residential mortgage - government guaranteed 622 480 507 520 535 Residential mortgage - nonguaranteed 244 212 205 207 198 Residential home equity and direct 91 98 105 107 109 Indirect auto 392 389 390 389 399 Indirect other 6 7 7 7 7 Student - nonguaranteed 25 25 23 13 8 Credit card 25 27 30 32 35 Total performing TDRs 1,515 1,390 1,475 1,501 1,539 Nonperforming TDRs 189 152 159 190 207 Total TDRs $ 1,704 $ 1,542 $ 1,634 $ 1,691 $ 1,746Loans 90 days or more past due and still accruing: Commercial and industrial $ 22 $
$13 $18 $14 14
Residential mortgage - government guaranteed 996 978 823 929 935 Residential mortgage - nonguaranteed 31 31 29 47 40 Residential home equity and direct 12 9 7 7 11 Indirect auto 1 1 2 2 2 Indirect other 2 3 2 1 1 Student - government guaranteed 818 864 965 1,043 1,033 Student - nonguaranteed 4 4 3 3 4 Credit card 28 27 23 22 32 Total loans 90 days or more past due and
$ 1,914 $ 1,930 $ 1,872 $ 2,068 $ 2,072still accruing Loans 30-89 days past due and still accruing: Commercial and industrial $ 280 $ 130 $ 135 $ 146 $ 152 CRE 13 20 4 7 9 Commercial construction 1 2 2 1 4 Residential mortgage - government guaranteed 216 256 264 307 330 Residential mortgage - nonguaranteed 326 258 231 236 247 Residential home equity and direct 142 107 81 73 82 Indirect auto 529 607 560 428 328 Indirect other 65 64 53 47 45 Student - government guaranteed 476 549 451 543 551 Student - nonguaranteed 6 6 5 5 5 Credit card 47 45 37 31 35 Total loans 30-89 days past due and still $ 2,101 $ 2,044 $ 1,823 $ 1,824 $ 1,788accruing Truist Financial Corporation 47
-------------------------------------------------------------------------------- Nonperforming assets totaled
$1.1 billionat March 31, 2022, down $28 millioncompared to December 31, 2021due to declines in the commercial and industrial portfolio. Nonperforming loans and leases held for investment were 0.36% of loans and leases held for investment at March 31, 2022, down two basis points compared to December 31, 2021.
Performing RDTs increased
Loans 90 days or more past due and still accruing totaled
$1.9 billionat March 31, 2022, down $16 millioncompared to the prior quarter. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.66% at March 31, 2022, down one basis point from the prior quarter. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.04% at March 31, 2022, up one basis point from December 31, 2021. Loans 30-89 days past due and still accruing of $2.1 billionat March 31, 2022were up one basis point compared to the prior quarter due to an increase in the commercial and industrial portfolio, partially offset by seasonal declines in the indirect auto portfolio and a decline in the student portfolio. Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 7. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to "Note 5. Loans and ACL" for additional disclosures related to these potential problem loans. Table 8: Asset Quality Ratios Mar 31, 2022 Dec 31, 2021 Loans 30-89 days past due and still accruing as a percentage of loans and 0.72 % 0.71 % leases HFI Loans 90 days or more past due and still accruing as a percentage of 0.66 0.67 loans and leases HFI NPLs as a percentage of loans and leases HFI 0.36 0.38 NPLs as a percentage of total loans and leases (1) 0.37 0.38 NPAs as a percentage of: Total assets (1) 0.21 0.21 Loans and leases HFI plus foreclosed property 0.38 0.39 ALLL as a percentage of loans and leases HFI 1.44 1.53 Ratio of ALLL to NPLs 3.99x 4.07x
Loans past due 90 days or more and still accrued as a percentage of
0.04 % 0.03 %
HFI loans and leases, excluding PPPs and other public guarantees (2)
(1)Includes LHFS. (2)This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage, student, and PPP loans. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio because collection of principal and interest is reasonably assured or the ratio might not be comparable to other periods presented or to other portfolios that do not have government guarantees.
Table 9: Asset quality ratios (continued)
For the Three Months Ended Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Net charge-offs as a percentage of average loans and leases HFI: Commercial: Commercial and industrial 0.04 % 0.09 % 0.04 % 0.09 % 0.17 % CRE 0.01 0.07 - (0.05) 0.04 Commercial construction (0.02) (0.10) (0.06) (0.06) 0.08 Consumer: Residential mortgage (0.03) (0.02) 0.04 (0.01) 0.08 Residential home equity and direct 0.61 0.49 0.49 0.59 0.58 Indirect auto 1.23 1.01 0.75 0.63 1.28 Indirect other 0.48 0.39 0.26 0.17 0.39 Student 0.33 0.65 0.31 0.16 0.16 Credit card 2.77 2.31 1.90 2.75 2.74 Total 0.25 0.25 0.19 0.20 0.33 Ratio of ALLL to net charge-offs 5.78x 6.14x 8.79x 8.98x 5.87x Ratios are annualized, as applicable. 48
Truist Financial Corporation--------------------------------------------------------------------------------
The following table presents activity related to CPAs: Table 10: Recovery of CPAs (in millions of dollars)
2022 2021 Balance, January 1
$ 1,163 $ 1,387New NPAs 395 563 Advances and principal increases 108 102
Disposals of seized assets (1) (112) (112) Disposals of NPL (2)
(37) (41) Charge-offs and losses (115) (112) Payments (180) (300) Transfers to performing status (101) (183) Other, net 14 (5) Ending balance, March 31
$ 1,135 $ 1,299
(1)Includes allowances and losses recognized on disposal
TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term and a concession has been granted to the borrower. As a result, Truist works with borrowers to prevent further difficulties and to improve the likelihood of recovery on a loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR. For loan modification programs in response to the COVID-19 pandemic, Truist applied the relief from TDR accounting described in the CARES Act. Payment relief assistance provided by Truist includes forbearance, deferrals, extension, and re-aging programs, along with certain other modification strategies. Refer to "Note 1. Basis of Presentation" in Truist's Annual Report on Form 10-K for the year ended
December 31, 2021for the policies related to TDRs and COVID-19 loan modifications. The following table provides a summary of performing TDR activity: Table 11: Rollforward of Performing TDRs (Dollars in millions) 2022 2021 Balance, January 1 $ 1,390 $ 1,361Inflows 306 294 Payments and payoffs (1) (60) (57) Charge-offs (9) (13)
Transfers to non-performing RDTs (2) (19) (13) Withdrawal due to the passage of time
(71) (7) Non-concessionary re-modifications (1) (12)
Transferred to LHFS, sold and other (21) (14) Balance,
$ 1,515 $ 1,539(1)Includes scheduled principal payments, prepayments, and payoffs of amounts outstanding. (2)Represent loans that no longer meet the requirements necessary to reflect the loan in accruing status. Truist Financial Corporation49
-------------------------------------------------------------------------------- The following table provides further details regarding the payment status of TDRs outstanding at
March 31, 2022: Table 12: Payment Status of TDRs (1) March 31, 2022(Dollars in millions) Current Past Due 30-89 Days Past Due 90 Days Or More Total Performing TDRs: Commercial: Commercial and industrial $ 10298.1 % $ 21.9 % $ - - % $ 104CRE 5 100.0 - - - - 5 Commercial construction 1 100.0 - - - - 1 Consumer: Residential mortgage - government 290 46.6 58 9.3 274 44.1 622 guaranteed Residential mortgage - 210 86.1 25 10.2 9 3.7 244 nonguaranteed Residential home equity and direct 85 93.4 6 6.6 - - 91 Indirect auto 336 85.7 56 14.3 - - 392 Indirect other 5 83.3 1 16.7 - - 6 Student - nonguaranteed 22 88.0 2 8.0 1 4.0 25 Credit card 22 88.0 2 8.0 1 4.0 25 Total performing TDRs 1,078 71.2 152 10.0 285 18.8 1,515 Nonperforming TDRs 57 30.2 24 12.7 108 57.1 189 Total TDRs $ 1,13566.6 $ 17610.3 $ 39323.1 $ 1,704
(1) Overdue performing TDRs are included in overdue information and non-performing TDRs are included in bad debt information. 50
Activity related to the ACL is presented in the following tables: Table 13: Activity in ACL For the Three Months Ended (Dollars in millions) Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Balance, beginning of period
$ 4,695 $ 4,978 $ 5,436 $ 6,011 $ 6,199Provision for credit losses (95) (103) (324) (434) 48 Charge-offs: Commercial and industrial (31) (54) (57) (53) (79) CRE (1) (5) (1) - (4) Commercial construction (1) - - - (2) Residential mortgage (2) (1) (7) (4) (11) Residential home equity and direct (58) (51) (51) (57) (55) Indirect auto (102) (89) (73) (69) (105) Indirect other (19) (16) (13) (11) (17) Student (6) (12) (6) (3) (3) Credit card (41) (37) (31) (42) (40) Total charge-offs (261) (265) (239) (239) (316) Recoveries: Commercial and industrial 17 23 42 23 19 CRE 1 - 1 4 1 Commercial construction 1 1 1 1 1 Residential mortgage 6 2 3 5 2 Residential home equity and direct 20 21 20 20 18 Indirect auto 23 21 22 27 22 Indirect other 6 6 5 7 6 Student - - 1 - - Credit card 9 9 9 10 9 Total recoveries 83 83 104 97 78 Net charge-offs (178) (182) (135) (142) (238) Other 1 2 1 1 2 Balance, end of period $ 4,423 $ 4,695 $ 4,978 $ 5,436 $ 6,011ACL: ALLL $ 4,170 $ 4,435 $ 4,702 $ 5,121 $ 5,662RUFC 253 260 276 315 349 Total ACL $ 4,423 $ 4,695 $ 4,978 $ 5,436 $ 6,011
Net charges during the first quarter totaled
The allowance for credit losses was
$4.4 billionand includes $4.2 billionfor the allowance for loan and lease losses and $253 millionfor the reserve for unfunded commitments. The ALLL ratio was 1.44% compared to 1.53% at December 31, 2021. The decrease reflects a continued favorable credit environment tempered by uncertainty associated with inflation, supply chain disruption, rising rates, and geopolitical events. The ALLL covered nonperforming loans and leases held for investment 3.99X compared to 4.07X at December 31, 2021. At March 31, 2022, the ALLL was 5.78X annualized net charge-offs, compared to 6.14X at December 31, 2021. Truist Financial Corporation51
-------------------------------------------------------------------------------- The following table presents an allocation of the ALLL. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases. Table 14: Allocation of ALLL by Category March 31, 2022 December 31, 2021 % ALLL in Each % Loans in Each % ALLL in Each % Loans in Each (Dollars in millions) Amount Category Category Amount Category Category Commercial and industrial
$ 1,31931.6 % 48.6 % $ 1,42632.2 % 47.9 % CRE 283 6.8 7.9 350 7.9 8.3 Commercial construction 53 1.3 1.8 52 1.2 1.7 Residential mortgage 310 7.4 16.6 308 6.9 16.5 Residential home equity and 574 13.8 8.6 615 13.9 8.7 direct Indirect auto 957 22.9 8.9 1,022 23.0 9.1 Indirect other 211 5.1 3.8 195 4.4 3.8 Student 115 2.8 2.2 117 2.6 2.3 Credit card 348 8.3 1.6 350 7.9 1.7 Total ALLL 4,170 100.0 % 100.0 % 4,435 100.0 % 100.0 % RUFC 253 260 Total ACL $ 4,423 $ 4,695Truist monitors the performance of its home equity loans and lines secured by second liens similarly to other consumer loans and utilizes assumptions specific to these loans in determining the necessary ALLL. Truist also receives notification when the first lien holder, whether Truist or another financial institution, has initiated foreclosure proceedings against the borrower. When notified that the first lien is in the process of foreclosure, Truist obtains valuations to determine if any additional charge-offs or reserves are warranted. These valuations are updated at least annually thereafter. Truist has limited ability to monitor the delinquency status of the first lien, unless the first lien is held or serviced by Truist. Truist estimates second lien loans where the first lien is delinquent based on historical experience; the increased risk of loss on these credits is reflected in the ALLL. As of March 31, 2022, Truist held or serviced the first lien on 32% of its second lien positions. Other Assets The components of other assets are presented in the following table: Table 15: Other Assets as of Period End (Dollars in millions) Mar 31, 2022 Dec 31, 2021 Bank-owned life insurance $ 7,545 $ 7,281Tax credit and other private equity investments 6,352 6,309 Prepaid pension assets 6,348 5,938 Derivative assets 2,113 2,370 Accounts receivable 2,323 2,244 Leased assets and related assets 2,162 2,092 Accrued income 1,875 1,791 ROU assets 1,126 1,168 Prepaid expenses 1,174 1,152 Equity securities at fair value 1,024 1,066 Other 1,428 738 Total other assets $ 33,470 $ 32,149Funding Activities Deposits The following table presents average deposits: Table 16: Average Deposits Three Months Ended (Dollars in millions) Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Noninterest-bearing deposits $ 145,933 $ 146,492 $ 141,738 $ 137,892 $ 128,579Interest checking 112,159 110,506 107,802 106,121 104,744 Money market and savings 141,500 137,676 136,094 134,029 129,303 Time deposits 15,646 16,292 17,094 18,213 20,559 Total average deposits $ 415,238 $ 410,966 $ 402,728 $ 396,255 $ 383,18552 Truist Financial Corporation-------------------------------------------------------------------------------- Average deposits for the first quarter of 2022 were $415.2 billion, an increase of $4.3 billion, or 1.0%, compared to the prior quarter. Average noninterest bearing deposits declined 0.4% compared to the prior quarter and represented 35.1% of total deposits for the first quarter of 2022, compared to 35.6% for the prior quarter. Average interest checking and money market and savings grew 1.5% and 2.8%, respectively, compared to the prior quarter. Average time deposits decreased 4.0% primarily due to the maturity of higher-cost accounts.
March 31, 2022, short-term borrowings totaled $5.1 billion, a decrease of $145 millioncompared to December 31, 2021. Average short-term borrowings were $6.9 billionor 1.5% of total funding for the first quarter of 2022, as compared to $6.7 billionor 1.6% for the prior year. Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued by Truistand Truist Bank. Long-term debt totaled $33.8 billionat March 31, 2022, a decrease of $2.1 billioncompared to December 31, 2021. During 2022, the Company had $1.4 billionof senior and $300 millionof subordinated long-term debt redemptions. FHLB advances represented 2.5% of total outstanding long-term debt at March 31, 2022, compared to 2.4% at December 31, 2021. The average cost of long-term debt was 1.50% for the three months ended March 31, 2022, down seven basis points compared to the same period in 2021. In April 2022, Truist redeemed $800 millionof FHLB advances, which resulted in a gain on early extinguishment of long-term debt of $39 million. Additionally, Truist redeemed $1.4 billionof fixed rate senior notes and $650 millionof floating rate senior notes that were due in May 2022.
Total shareholders' equity was
$65.0 billionat March 31, 2022, a decrease of $4.2 billionfrom December 31, 2021. This decrease includes a decrease of $4.9 billionin AOCI, $725 millionin dividends, partially offset by $1.4 billionin net income. Truist's book value per common share at March 31, 2022was $43.82, compared to $47.14at December 31, 2021.
Truist maintains a comprehensive risk management framework supported by people, processes, and systems to identify, measure, monitor, manage, and report significant risks arising from its exposures and business activities. Effective risk management involves optimizing risk and return while operating in a safe and sound manner, and promoting compliance with applicable laws and regulations. The Company's risk management framework promotes the execution of business strategies and objectives in alignment with its risk appetite. Truist has developed and employs a risk taxonomy that further guides business functions in identifying, measuring, responding to, monitoring, and reporting on possible exposures to the organization. The risk taxonomy drives internal risk conversations and enables Truist to clearly and transparently communicate to stakeholders the level of potential risk the Company faces, both presently and in the future, and the Company's position on managing risk to acceptable levels.
Truist is committed to fostering a culture that supports risk identification and escalation across the organization. All teammates are responsible for upholding the company’s purpose, mission, and values and are encouraged to speak up if any activity or behavior is inconsistent with the company’s culture. The Truist Code of Ethics guides company decision-making and instructs teammates on how to act in the absence of specific guidelines.
Truist seeks an appropriate return for the risk taken in its business operations. Risky activities are assessed and prioritized to identify those that offer attractive risk-adjusted returns, while preserving asset value and capital.
Compensation decisions take into account a teammate's adherence to and successful implementation of Truist's risk values and associated policies and procedures. The Company's compensation structure supports its core values and sound risk management practices in an effort to promote judicious risk-taking behavior. Truist employs a comprehensive change management program to manage the residual risks associated with integrating heritage BB&T and heritage SunTrust. While integration activities are largely complete, the Board and Executive Leadership oversee the change management program, which is designed to ensure appropriate oversight of application and data center decommissioning and residual integration activities, achieved through Truist's risk management process.
Refer to Truist’s annual report on Form 10-K for the fiscal year ended
Truist Financial Corporation53 --------------------------------------------------------------------------------
Market risk is the risk to current or anticipated earnings, capital, or economic value arising from changes in the market value of portfolios, securities, or other financial instruments. Market risk results from changes in the level, volatility, or correlations among financial market risk factors or prices, including interest rates, credit spreads, foreign exchange rates, equity, and commodity prices. Effective management of market risk is essential to achieving Truist's strategic financial objectives. Truist's most significant market risk exposure is to interest rate risk in its balance sheet; however, market risk also results from underlying product liquidity risk, price risk, and volatility risk in Truist's business units. Interest rate risk results from differences between the timing of rate changes and the timing of cash flows associated with assets and liabilities (re-pricing risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options inherently embedded in bank products (options risk). The primary objectives of effective market risk management are to minimize adverse effects from changes in market risk factors on net interest income, net income, and capital, and to offset the risk of price changes for certain assets and liabilities recorded at fair value. At Truist, market risk management also includes the enterprise-wide IPV function.
Interest rate market risk
As a financial institution, Truist is exposed to interest rate risk from assets, liabilities, and off-balance sheet positions. To keep net interest margin as stable as possible, Truist actively manages its interest rate risk exposure through the strategic repricing of its assets and liabilities, taking into account the volumes, maturities, and mix. Truist primarily uses three methods to measure and monitor its interest rate risk: (i) simulations of possible changes to net interest income over the next two years based on gradual changes in interest rates; (ii) analysis of interest rate shock scenarios; and (iii) analysis of economic value of equity based on changes in interest rates. The Company's simulation model takes into account assumptions related to prepayment trends, using a combination of market data and internal historical experiences for deposits and loans, as well as scheduled maturities and payments, and the expected outlook for the economy and interest rates. These assumptions are reviewed and adjusted monthly to reflect changes in current interest rates compared to the rates applicable to Truist's assets and liabilities. The model also considers Truist's current and prospective liquidity position, current balance sheet volumes, projected growth and/or contractions, accessibility of funds for short-term needs and capital maintenance. Deposit betas (the sensitivity of deposit rate changes relative to market rate changes) are an important assumption in the interest rate risk modeling process. Truist applies deposit beta assumptions to non-maturity interest-bearing deposit accounts that are not contractually tied to an index when determining its interest rate sensitivity. Non-maturity, interest-bearing deposit accounts include interest checking accounts, savings accounts, and money market accounts that do not have a contractual maturity. Truist utilizes a tiered deposit beta assumption framework that accounts for historically observed behaviors of clients and the Company. The deposit beta assumptions are reduced when interest rates are exceptionally low and competition for interest-bearing deposits is commensurately low. As interest rates rise, the deposit beta assumptions also rise to reflect increasing competition among banks as well as increased client demand for interest-bearing deposits. Truist applies an average deposit beta of approximately 25% for the first 100 basis point increase in the Federal funds rate, approximately 35% for the second 100 basis point increase, and approximately 50% for any additional increases. Truist also regularly conducts sensitivity analyses on other key variables, including noninterest-bearing deposits, to determine the impact these variables could have on the Company's interest rate risk position. The predictive value of the simulation model depends upon the accuracy of the assumptions, but management believes that it provides helpful information for the management of interest rate risk.
The following table shows the effect that the indicated changes in interest rates would have on projected net interest income for the next 12 months assuming a gradual change in interest rates, as described below. Table 17: Interest rate sensitivity simulation analysis
Interest Rate Scenario Annualized Hypothetical Percentage Change in Net Gradual Change in Prime Rate Interest Income Prime Rate (bps) Mar 31, 2022 Mar 31, 2021 Mar 31, 2022 Mar 31, 2021 Up 100 4.50 % 4.25 % 4.27 % 3.74 % Up 50 4.00 3.75 3.29 2.92 No Change 3.50 3.25 - - Down 25 (1) 3.25 3.00 (2.48) (1.32) Down 50 (1) 3.00 2.75 (3.46) (1.75)
(1) The Down 25 and 50 rates are floors at one basis point and may not reflect the Down 25 and 50 basis points for all interest rate indices.
Rate sensitivity increased compared to prior periods, primarily driven by a change to the Company's deposit beta assumptions, partially offset by an increase in the investment securities portfolio. 54
Truist Financial Corporation-------------------------------------------------------------------------------- Management considers how the interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry has been very strong during the current economic cycle. Much of this liquidity increase has resulted in growth in noninterest-bearing demand deposits. Consistent with the industry, Truist has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of Truist. A decrease in the amount of these deposits in the future would reduce the asset sensitivity of Truist's balance sheet because the Company may increase interest-bearing funds to offset the loss of this advantageous funding source. Alternatively, the Company may reduce the size of its investment portfolio to offset the loss of noninterest-bearing demand deposits to limit the impact on the balance sheet's asset sensitivity.
The following table presents the results of Truist’s interest rate sensitivity position assuming the loss of additional demand deposits and an associated increase in managed rate deposits relative to current projections under various interest rate scenarios. For the purposes of this analysis, Truist modeled the incremental beta of managed rate deposits for the replacement of demand deposits at 100%. Table 18: Sensitivity analysis of the mixture of deposits
Results Assuming a Decrease in Noninterest-Bearing Demand Gradual Change in Base Scenario at Deposits Rates (bps) March 31, 2022 (1)
$20 Billion $40 BillionUp 100 4.27 % 3.45 % 2.63 % Up 50 3.29 2.69 2.10
(1) The base scenario is equal to the hypothetical annualized percentage change in net interest income at
Truist uses financial instruments including derivatives to manage interest rate risk related to securities, commercial loans, MSRs, and mortgage banking operations, long-term debt, and other funding sources. Truist hedges a portion of its AFS securities to reduce mark-to-market volatility within AOCI and also to increase its overall asset sensitivity position. Truist has utilized derivatives to facilitate transactions on behalf of its clients and as part of associated hedging activities. As of
March 31, 2022, Truist had derivative financial instruments outstanding with notional amounts totaling $320.5 billion, with an associated net fair value of $631 million. See "Note 16. Derivative Financial Instruments" for additional disclosures.
For most tenors of
U.S.dollar LIBOR, the administrator of LIBOR extended publication until June 30, 2023. Tenors used infrequently by Truist, including one week and two month U.S.dollar LIBOR and all non- U.S.dollar LIBOR, ceased publication at December 31, 2021, based on the October 20, 2021interagency Joint Statement on Managing the LIBOR transition. To prepare for the transition to an alternative reference rate, management formed a cross-functional project team to address the LIBOR transition. The project team performed an assessment to identify the potential risks related to the transition from LIBOR to a new index or multiple indices and provides updates to Executive Leadership and the Board. As of March 31, 2022, Truist had outstanding LIBOR-based instruments that mature after June 30, 2023, including: loan and lease exposures totaling approximately $159 billion, notional derivative exposure totaling approximately $135 billion, long-term debt of $1.1 billion, and preferred stock of $1.5 billion. These amounts are inclusive of remediated contracts, which contain adequate fallback language for the transition. Contract fallback language for existing loans and leases has largely been reviewed and certain contracts will require amendments to support the transition away from LIBOR. For impacted lines of business, the Company has started remediating these contracts to include standardized fallback language. Current fallback language used for new, renewed, and modified contracts is generally consistent with ARRC recommendations and includes use of "hardwired fallback" language, where appropriate. The progress and approach to remediation will vary based on the type of contract and existing language used in the agreement. For commercial lending and general consumer lending, a significant number of remaining LIBOR contracts will require client outreach and remediation. Efforts to amend and remediate contracts, excluding mortgage and student loans, that mature post June 30, 2023( $148 billion) will be accelerated in 2022. Truist has determined that adjustable rate mortgage products ( $4.0 billion) have consistent and adequate fallback language to transition away from LIBOR in line with industry expectations; therefore, these contracts will not require remediation. Remediation of student loans ( $5.8 billion) will depend on guidance from the Department of Educationand recent guidance from the CFPBto allow transition to "comparable rates," including SOFR or Prime. Certain derivatives without a clearly defined or practicable replacement benchmark rate will use the recent Federal legislation to replace LIBOR with a SOFR-based rate that will be established by FRB rulemaking. This legislation will also provide additional administrative benefit for a small portion of the commercial and consumer lending portfolios where contracts do not contain fallback language. Truist Financial Corporation55
-------------------------------------------------------------------------------- Training has been provided for impacted teammates and will continue during 2022. Truist will continue to provide timely notices and information to impacted clients about the transition during 2022 and the first half of 2023. Truist continues to manage the impact of these contracts and other financial instruments, systems implications, hedging strategies, and related operational and market risks on established project plans for business and operational readiness to support the transition. As of
December 31, 2021, Truist ceased entering into new contracts with a LIBOR reference rate for all product offerings, except on a limited basis, as permissible. Market risks associated with this change are dependent on the alternative reference rates available and market conditions as of the transition. The Company is actively using SOFR as a reference rate and has originated approximately $30 billionof loans, issued $5 billionof long-term debt, and has $50 billionin notional derivative exposure using this alternative reference rate as of March 31, 2022. Truist expects SOFR to become a more commonly-used pricing benchmark across the industry and will continue to offer additional SOFR based products during 2022. Additional alternative reference rates, such as Bloomberg Short Term Bank Yield will be supported based on market demand. Other emerging credit sensitive rates will be evaluated as additional alternatives for LIBOR based on market developments. For a further discussion of the various risks associated with the potential cessation of LIBOR and the transition to alternative reference rates, refer to the section titled "Item1A. Risk Factors" in the Form 10-K for the year ended December 31, 2021.
Market risk related to trading activities
As a financial intermediary, Truist provides its clients access to derivatives, foreign exchange and securities markets, which generate market risks. Trading market risk is managed using a comprehensive risk management approach, which includes measuring risk using VaR, stress testing, and sensitivity analysis. Risk metrics are monitored against a suite of limits on a daily basis at both the trading desk level and at the aggregate portfolio level, which is intended to ensure that exposures are in line with Truist's risk appetite.
Truist is also subject to risk-based capital guidelines for market risk under the market risk rule.
Covered Trading Positions Covered positions subject to the Market Risk Rule include trading assets and liabilities, specifically those held for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits. Truist's trading portfolio of covered positions results primarily from market making and underwriting services for the Company's clients, as well as associated risk mitigating hedging activity. The trading portfolio, measured in terms of VaR, consists primarily of four sub-portfolios of covered positions: (i) credit trading, (ii) fixed income securities, (iii) interest rate derivatives, and (iv) equity derivatives. As a market maker across different asset classes, Truist's trading portfolio also contains other sub-portfolios, including foreign exchange, loan trading, and commodity derivatives; however, these portfolios do not generate material trading risk exposures. Valuation policies and methodologies exist for all trading positions. Additionally, these positions are subject to independent price verification. See "Note 16. Derivative Financial Instruments," "Note 15. Fair Value Disclosures," and "Critical Accounting Policies" herein for discussion of valuation policies and methodologies. Securitizations As of
March 31, 2022, the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was $33 million, all of which were non-agency asset backed securities positions. Consistent with the Market Risk Rule requirements, the Company performs pre-purchase due diligence on each securitization position to identify the characteristics including, but not limited to, deal structure and the asset quality of the underlying assets, that materially affect valuation and performance. Securitization positions are subject to Truist's comprehensive risk management framework, which includes daily monitoring against a suite of limits. There were no off-balance sheet securitization positions during the reporting period.
Correlation trading positions
The trading portfolio of hedged positions did not contain any correlation trading positions at
Truist Financial Corporation--------------------------------------------------------------------------------
VaR measures the potential loss of a given position or portfolio of positions at a specified confidence level and time horizon. Truist utilizes a historical VaR methodology to measure and aggregate risks across its covered trading positions. For risk management purposes, the VaR calculation is based on a historical simulation approach and measures the potential trading losses using a one-day holding period at a one-tail, 99% confidence level. For Market Risk Rule purposes, the Company calculates VaR using a 10-day holding period and a 99% confidence level. Due to inherent limitations of the VaR methodology, such as the assumption that past market behavior is indicative of future market performance, VaR is only one of several tools used to measure and manage market risk. Other tools used to actively manage market risk include stress testing, scenario analysis, and stop loss limits. The trading portfolio's VaR profile is influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. A portfolio of trading positions is typically less risky than the sum of the risk from each of the individual sub-portfolios, because, under normal market conditions, risk within each category partially offsets the exposure to other risk categories. The following table summarizes certain VaR-based measures for the three months ended
March 31, 2022and 2021. Average one and ten day VaR measures declined from last year as heightened market volatility experienced during March 2020aged out of the 12-month VaR look-back window. Table 19: VaR-based Measures Three Months Ended March 31, 20222021 10- Day Holding10- Day Holding(Dollars in millions)
Period 1-Day Holding Period Period
1-Day Holding Period VaR-based Measures: Maximum $ 38 $ 14 $ 68 $ 16 Average 18 6 39 10 Minimum 9 3 3 3 Period-end 15 4 5 3 VaR by Risk Class: Interest Rate Risk 4 2 Credit Spread Risk 4 4 Equity Price Risk 4 1 Foreign Exchange Risk - - Portfolio Diversification (8) (5) Period-end 4 3 Stressed VaR-based measures Stressed VaR, another component of market risk capital, is calculated using the same internal models as used for the VaR-based measure. Stressed VaR is calculated over a ten-day holding period at a one-tail, 99% confidence level and employs a historical simulation approach based on a continuous twelve-month historical window selected to reflect a period of significant financial stress for the Company's trading portfolio. The following table summarizes Stressed VaR-based measures: Table 20: Stressed VaR-based Measures - 10 Day Holding Period Three Months Ended March 31, (Dollars in millions) 2022 2021 Maximum
$ 109 $ 72Average 76 54 Minimum 59 26 Period-end 72 64
Compared to the previous year, stressed VaR measures have increased in 2022, mainly due to the normalization of market making inventory levels this year.
Specific risk measures
Specific risk is a measure of idiosyncratic risk that could result from risk factors other than broad market movements (e.g. default or event risks). The Market Risk Rule provides fixed risk weights under a standardized measurement method while also allowing a model-based approach, subject to regulatory approval. Truist utilizes the standardized measurement method to calculate the specific risk component of market risk regulatory capital. As such, incremental risk capital requirements do not apply.
Truist Financial Corporation57 --------------------------------------------------------------------------------
Backtesting of the VaR model
In accordance with the Market Risk Rule, the Company evaluates the accuracy of its VaR model through daily backtesting by comparing aggregate daily trading gains and losses (excluding fees, commissions, reserves, net interest income, and intraday trading) from covered positions with the corresponding daily VaR-based measures generated by the model. As illustrated in the following graph, VaR measures briefly increased in the first quarter of 2022 due to the increase in market volatility that normalized towards the end of the quarter. There were no Company-wide VaR backtesting exceptions during the twelve months ended
March 31, 2022. The total number of Company-wide VaR backtesting exceptions over the preceding twelve months is used to determine the multiplication factor for the VaR-based capital requirement under the Market Risk Rule. The capital multiplication factor increases from a minimum of three to a maximum of four, depending on the number of exceptions. All Company-wide VaR backtesting exceptions are thoroughly reviewed in the context of VaR model use and performance. There was no change in the capital multiplication factor over the preceding twelve months. [[Image Removed: tfc-20220331_g1.jpg]]
Model risk management
MRM is responsible for the independent model validation of all decision tools and models including trading market risk models. The validation activities are conducted in accordance with MRM policy, which incorporates regulatory guidance related to the evaluation of model conceptual soundness, ongoing monitoring, and outcomes analysis. As part of ongoing monitoring efforts, the performance of all trading risk models are reviewed regularly to preemptively address emerging developments in financial markets, assess evolving modeling approaches, and to identify potential model enhancement.
The Company uses a comprehensive range of stress testing techniques to help monitor risks across trading desks and to augment standard daily VaR and other risk limits reporting. The stress testing framework is designed to quantify the impact of extreme, but plausible, stress scenarios that could lead to large unexpected losses. Stress tests include simulations for historical repeats and hypothetical risk factor shocks. All trading positions within each applicable market risk category (interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk) are included in the Company's comprehensive stress testing framework. Management reviews stress testing scenarios on an ongoing basis and makes updates, as necessary, which is intended to ensure that both current and emerging risks are captured appropriately. Management also utilizes stress analyses to support the Company's capital adequacy assessment standards. See the "Capital" section of MD&A for additional discussion of capital adequacy.
Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as cash, cash equivalents, and AFS securities, other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity, growing core deposits, loan repayment, and the ability to securitize or package loans for sale. 58
Truist Financial Corporation-------------------------------------------------------------------------------- Truist monitors the ability to meet client demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates Truist's funding mix based on client core funding, client rate-sensitive funding, and national markets funding. In addition, management evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against 30 days of stressed cash outflows for Truistand Truist Bank. To ensure a strong liquidity position and compliance with regulatory requirements, management maintains a liquid asset buffer of cash on hand and highly liquid unencumbered securities.
Internal liquidity stress tests
Liquidity stress testing is designed to ensure that
Truistand Truist Bankhave sufficient liquidity for a variety of institution-specific and market-wide adverse scenarios. Each liquidity stress test scenario applies defined assumptions to execute sources and uses of liquidity over varying planning horizons. The types of expected liquidity uses during a stressed event may include deposit attrition, contractual maturities, reductions in unsecured and secured funding, and increased draws on unfunded commitments. To mitigate liquidity outflows, Truist has identified sources of liquidity; however, access to these sources of liquidity could be affected within a stressed environment. Truist maintains a liquidity buffer of cash on hand and highly liquid unencumbered securities that is sufficient to meet the projected net stressed cash-flow needs and maintain compliance with regulatory requirements. The liquidity buffer consists of unencumbered highly liquid assets and Truist's liquidity buffer is substantially the same in composition to what qualifies as HQLA under the LCR Rule. Contingency Funding Plan Truist has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and commitments, particularly in the event of a liquidity contraction. This plan is designed to examine and quantify the organization's liquidity under the various internal liquidity stress scenarios and is periodically tested to assess the plan's reliability. Additionally, the plan provides a framework for management and other critical teammates to follow in the event of a liquidity contraction or in anticipation of such an event. The plan addresses authority for activation and decision making, liquidity options, and the responsibilities of key departments in the event of a liquidity contraction.
LCR and HQLA
The LCR rule requires that
Truistand Truist Bankmaintain an amount of eligible HQLA that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of stress. Eligible HQLA, for purposes of calculating the LCR, is the amount of unencumbered HQLA that satisfy operational requirements of the LCR rule. Truistand Truist Bankare subject to the Category III reduced LCR requirements. Truist held average weighted eligible HQLA of $83.9 billionand Truist's average LCR was 111% for the three months ended March 31, 2022. Effective July 2021, Truist became subject to final rules implementing the NSFR, which are designed to ensure that banking organizations maintain a stable, long-term funding profile in relation to their asset composition and off-balance sheet activities. At March 31, 2022, the Company was compliant with this requirement.
Sources of funds
Management believes current sources of liquidity are sufficient to meet Truist's on- and off-balance sheet obligations. Truist funds its balance sheet through diverse sources of funding including client deposits, secured and unsecured capital markets funding, and shareholders' equity.
Truist Bank'sprimary source of funding is client deposits. Continued access to client deposits is highly dependent on public confidence in the stability of Truist Bankand its ability to return funds to clients when requested. Truist Bankmaintains a number of diverse funding sources to meet its liquidity requirements. These sources include unsecured borrowings from the capital markets through the issuance of senior or subordinated bank notes, institutional CDs, overnight and term Federal funds markets, and retail brokered CDs. Truist Bankalso maintains access to secured borrowing sources including FHLB advances, repurchase agreements, and the FRB discount window. The following table presents a summary of Truist Bank'savailable secured borrowing capacity and eligible cash at the FRB: Truist Financial Corporation 59 -------------------------------------------------------------------------------- Table 21: Liquidity Sources (Dollars in millions) Mar 31, 2022 Dec 31, 2021 Unused borrowing capacity: FRB $ 51,876 $ 52,170FHLB 45,961 49,244 Available investment securities (after haircuts) 110,327 116,600 Available secured borrowing capacity 208,164 218,014 Eligible cash at the FRB 23,060 14,714 Total $ 231,224 $ 232,728
The Parent Companyserves as the primary source of capital for the operating subsidiaries. The Parent Company'sassets consist primarily of cash on deposit with Truist Bank, equity investments in subsidiaries, advances to subsidiaries, and notes receivable from subsidiaries. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiaries, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are investments in subsidiaries, advances to subsidiaries, dividend payments to common and preferred shareholders, repurchases of common stock, and payments on long-term debt. See "Note 22. Parent Company Financial Information" in Truist's Annual Report on Form 10-K for the year ended December 31, 2021for additional information regarding dividends from subsidiaries and debt transactions. Access to funding at the Parent Company is more sensitive to market disruptions. Therefore, Truist prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities, without the benefit of any new cash inflows. Truist maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, Truist considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, serving as a source of strength to Truist Bank, and being able to withstand sustained market disruptions that could limit access to the capital markets. At March 31, 2022and December 31, 2021, the Parent Company had 30 months and 35 months, respectively, of cash on hand to satisfy projected cash outflows, and 19 months and 19 months, respectively, when including the payment of common stock dividends.
Credit ratings are forward-looking opinions of rating agencies as to the Company's ability to meet its financial commitments and repay its securities and obligations in accordance with their terms of issuance. Credit ratings influence both borrowing costs and access to the capital markets. The Company's credit ratings are continuously monitored by the rating agencies and are subject to change at any time. As Truist seeks to maintain high-quality credit ratings, management meets with the major rating agencies on a regular basis to provide financial and business updates and to discuss current outlooks and trends. See Item 1A, "Risk Factors" in Truist's Annual Report on Form 10-K for the year ended
December 31, 2021for additional information regarding factors that influence credit ratings and potential risks that could materialize in the event of downgrade in the Company's credit ratings.
Credit ratings and outlook
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. Truist's principal goals related to the maintenance of capital are to provide adequate capital to support Truist's risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for Truist and its subsidiaries, remain a source of strength for its subsidiaries, and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital, and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets. 60
Truist Financial Corporation-------------------------------------------------------------------------------- Truist regularly performs stress testing on its capital levels and is required to periodically submit the Company's capital plans and stress testing results to the banking regulators. Management regularly monitors the capital position of Truist on both a consolidated and bank-level basis. In this regard, management's overriding policy is to maintain capital at levels that are in excess of internal capital targets, which are above the regulatory "well capitalized" minimums. Management evaluates whether capital ratios calculated after the effect of alternative capital actions are likely to remain above minimums specified by the FRB for the annual CCAR process. Breaches of minimum targets prompt a review of the planned capital actions included in Truist's capital plan. Table 22: Capital Requirements Minimum Capital Well Capitalized Plus Stress Capital Buffer Minimum Capital Truist Truist Bank (1) CET1 4.5 % NA 6.5 % 7.0 % Tier 1 capital 6.0 6.0 % 8.0 8.5 Total capital 8.0 10.0 10.0 10.5 Leverage ratio 4.0 NA 5.0 NA Supplementary leverage ratio 3.0 NA NA NA (1)Reflects a SCB of 2.5% applicable to Truist as of March 31, 2022. Truist's SCB, received in the 2021 CCAR process, is effective from October 1, 2021to September 30, 2022.
Truist’s capital ratios are presented in the following table: Table 23: Capital ratios –
(Dollars in millions, except per share data, shares in thousands)
Mar 31, 2022 Dec 31, 2021Risk-based:
CET1 capital to risk-weighted assets 9.4 % 9.6 % Tier 1 capital to risk-weighted assets 11.0 11.3 Total capital to risk-weighted assets 13.0 13.2 Leverage ratio 8.6 8.7 Supplementary leverage ratio 7.3 7.4 Non-GAAP capital measure (1): Tangible common equity per common share
$ 21.87 $ 25.47Calculation of tangible common equity (1): Total shareholders' equity $ 65,044 $ 69,271Less: Preferred stock 6,673 6,673 Noncontrolling interests 23 - Goodwill and intangible assets, net of deferred taxes 29,229 28,772 Tangible common equity $ 29,119 $ 33,826Risk-weighted assets $ 397,611 $ 390,886Common shares outstanding at end of period 1,331,414 1,327,818 (1)Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. Truist's management uses these measures to assess the quality of capital and returns relative to balance sheet risk. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies. Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. For the three months ended March 31, 2022, Truist paid $637 millionin common stock dividends or $0.48per share. The dividend and total payout ratios for the three months ended March 31, 2022were 48%. Truist CET1 ratio was 9.4% as of March 31, 2022. The 20 basis point decline compared to the fourth quarter 2021 CET1 ratio reflects capital deployed through the acquisition of Kensington Vanguard National Land Services, the acquisition of certain merchant services relationships, an increase in risk-weighted assets, and the impact from the phase in of the CECL transition relief. Truist Financial Corporation 61 -------------------------------------------------------------------------------- Share Repurchase Activity Table 24: Share Repurchase Activity Maximum Remaining Dollar Value of Shares Average Total Shares Repurchased Available for Price Paid Pursuant to Repurchase Pursuant to (Dollars in millions, except per share Total Shares Per
Share Publicly-Announced Plan Publicly-Announced data, parts in thousands)
Repurchased (1) (2) (3) Plan January 2022 - $ - - $ 2,565 February 2022 - - - 2,565 March 2022 47 58.02 - 2,565 Total 47 58.02 - (1)Includes shares exchanged or surrendered in connection with the exercise of equity-based awards under equity-based compensation plans. (2)Excludes commissions. (3)Pursuant to the 2020 Repurchase Plan, announced in
December 2020, authorizing up to $2.0 billionof share repurchases beginning in the first quarter of 2021. In June 2021, the Board of Directors increased, effective July 1, 2021, the previous repurchase authority to effectuate repurchases up to an additional $2.2 billionin shares of the Company's common stock through September 30, 2022(up to $4.2 billionin aggregate amount). With the additional authorization, the Company has $2.6 billionremaining for share repurchases.
Critical accounting policies
The accounting and reporting policies of Truist are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Truist's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations, and related disclosures. Material estimates that are particularly susceptible to significant change include the determination of the ACL; determination of fair value for securities, MSRs, LHFS, trading loans, and derivative assets and liabilities; goodwill and other intangible assets; income taxes; and pension and postretirement benefit obligations. Understanding Truist's accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. The critical accounting policies are discussed in MD&A in Truist's Annual Report on Form 10-K for the year ended
December 31, 2021. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in "Note 1. Basis of Presentation" in Form 10-K for the year ended December 31, 2021. Disclosures regarding the effects of new accounting pronouncements are included in the "Note 1. Basis of Presentation" in this report. There have been no changes to the significant accounting policies during 2022.
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