TRUIST FINANCIAL CORPORATION 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 endedDecember 31, 2020 .
Regulatory Considerations
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 endedDecember 31, 2020 to 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 endedDecember 31, 2020 for additional disclosures.
Supplementary Leverage Ratio
The temporary exclusion ofU.S. Treasury securities and deposits at the FRB from the calculation of the supplementary leverage ratio expired as scheduled onMarch 31, 2021 . This temporary relief previously benefited the Company's supplementary leverage ratio by approximately 20 basis points. The FRB also announced plans to invite public comment on several potential supplementary leverage ratio modifications to ensure that the supplementary leverage ratio remains effective in an environment of higher reserves, though such proposal had not been published as of the date of this report.
Stress Capital Buffer
The FRB assigned Truist an SCB of 2.5%, which is effective from
The FRB has lifted the restrictions on capital distributions for large banking organizations, including Truist, that had been in place due to the uncertainty caused by the COVID-19 pandemic. Going forward, Truist is subject to the normal restrictions on capital distributions under the SCB framework and applicable law.
Security-Based Swap Dealer Registration
In
Resolution Plans
TheFDIC issued a policy statement inJune 2021 announcing that it will resume requiring bank level resolution plans for large banks, includingTruist Bank , and bank-level resolution plans will have more streamlined content requirements.Truist Bank will be required to submit a bank-level resolution plan every three years. During the third quarter,Truist Bank was informed by theFDIC that its next resolution plan will be due on or beforeDecember 1, 2022 . TheFDIC also clarified the content requirements of the next resolution planTruist Bank is required to submit.
Truist submitted its inaugural resolution plan to the FRB and
Lifting of Consent Order
InJune 2021 , theFDIC terminated the consent order betweenSunTrust Bank and the FRB relating to certain identified legacy compliance issues.Truist Bank , as successor toSunTrust Bank , committed to comply with the obligations in the order in connection with theFDIC's and FRB's approval of the Merger.Truist Financial Corporation 39 --------------------------------------------------------------------------------
Executive Overview
Truist had solid financial performance in the third quarter of 2021 that was driven by strong fee income from a diverse business mix - including wealth, insurance brokerage, investment banking, and positive trends in a number of other businesses given improving economic conditions. Improving economic conditions also led to strong credit performance and a benefit from the provision for credit losses. The Company achieved a significant milestone in early October with the successful migration of approximately 7 million clients (primarily heritage BB&T) to the new Truist technology ecosystem. In addition, Truist completed the retail mortgage origination conversion and accelerated the roll-out of the new Truist digital app during the third quarter of 2021. Truist continues to reaffirm its commitment to achieving$1.6 billion in net cost saves on a run rate basis by the fourth quarter of 2022. Truist also continues to closely monitor the COVID-19 pandemic and its effects on stakeholders and the financial markets and is actively supporting teammates, clients, and communities.
Integration Efforts
Major milestones during 2021 include:
•Completed the Wealth brokerage and trust transitions. •Completed the mortgage systems transition, enabling clients to get the best of both heritage SunTrust and heritage BB&T to meet their homeownership needs. •Continued to activate the Integrated Relationship Management approach. Truist's Integrated Relationship Management approach is designed to deepen client relationships and bring the full breadth and depth of Truist's products and services to meet clients' financial needs. •Introduced the new Truist digital app; migrated approximately 7 million clients to the new Truist digital banking experience, with nearly half of clients beginning to use the app •Converted heritage BB&T retail and commercial clients to the new Truist technology ecosystem, the most significant milestone to date.
Supporting Clients
Truist continues to work closely with clients as they navigate through the continuing challenges from the COVID-19 pandemic. Truist supported clients by being the sixth largest amongst commercial banks in the second round of PPP funding, assisting clients with the forgiveness process, and continuing to support clients as they transition from payment relief programs. Truist originated approximately$17 billion of PPP loans. As ofSeptember 30, 2021 , Truist had$3.5 billion of PPP loans outstanding.
Supporting Teammates
Truist offered a voluntary separation and retirement program to eligible teammates inJune 2021 . Nearly 2,000 teammates elected to participate in the voluntary program designed to provide tenured teammates flexibility on how they want to manage their career. Approximately 50% of those that elected to participate had separation dates ofSeptember 30, 2021 . While Truist is hiring in some areas and rightsizing in others through natural attrition, planned staffing reductions, and the voluntary separation and retirement program, Truist is actively supporting all teammates affected by reductions with opportunities and tools for internal placement, severance payments, and outplacement assistance and coaching. The Company recognized$189 million of merger-related and restructuring charges in 2021 related to the voluntary separation and retirement program. Truist has made progress towards the commitment to increase racially and ethnically diverse teammates among senior leadership roles to more than 15% by 2023 with current progress at 14.2% as ofSeptember 30, 2021 . For early career program hiring in 2021, 54% of seats at Truist were filled by candidates from various diverse backgrounds. Truist teammates have received$24 million through Truist Momentum, a workplace financial wellness program that educates, equips, and inspires teammates to manage their money based on what matters most to them.
Supporting Communities
Truist continued to fulfill its purpose in meaningful ways in the community in the third quarter through a number of unique and creative initiatives. Truist expanded its partnership with EVERFI bringing literacy tools to elementary schools across the nation. Truist showed leadership as the first top-10 bank to join BlackRock's philanthropic Emergency Savings Initiative.Truist Community Capital provided over$300 million in equity in the third quarter to support communities through investments in affordable housing, access to healthy foods and education, and investments in job creation and small businesses. Truist continued to make solid progress towards the Company's$60 billion Community Benefits Plan, endingAugust 2021 at 112% of the annual target. In July, Truist also released its second annual Corporate Social Responsibility and Environmental, Social and Governance report to outline its advancements and commitments with regard to diversity, equity, and inclusion; environmental sustainability and climate change; governance; community involvement; and financial inclusion. 40Truist Financial Corporation --------------------------------------------------------------------------------
Executive Leadership changes
During the third quarter Truist announced its new executive leadership structure effectiveSeptember 1, 2021 . As previously announced as part of the Merger,William H. Rogers , Jr. succeededKelly S. King as CEO onSeptember 12, 2021 andKelly S. King transitioned to the role of executive chairman throughMarch 12, 2022 . The other members of the executive leadership team and their roles are:Daryl N. Bible - Chief Financial OfficerScott Case - Chief Information OfficerHugh S. (Beau) Cummins , III - Vice ChairEllen M. Fitzsimmons - Chief Legal Officer and Head of Public AffairsJohn Howard - Chief Insurance OfficerMichael B. Maguire - Chief National Consumer Finance Services and Payments OfficerKimberly Moore-Wright - Chief Teammate Officer and Head of Enterprise DiversityBrant J. Standridge - Chief Retail Community Banking Officer Clarke R. Starnes III - Chief Risk OfficerJoseph M. Thompson - Chief Wealth OfficerDavid H. Weaver - Chief Commercial Community Banking Officer DontáL. Wilson -Chief Digital and Client Experience Officer
Financial Results
Net income available to common shareholders for the third quarter of 2021 totaled$1.6 billion , up 51%, compared with the third quarter of last year. On a diluted per common share basis, earnings for the third quarter of 2021 were$1.20 , an increase of$0.41 compared to the third quarter of 2020. Truist's results of operations for the third quarter of 2021 produced an annualized return on average assets of 1.28% and an annualized return on average common shareholders' equity of 10.2% compared to prior year returns of 0.91% and 6.9%, respectively. Results for the third quarter of 2021 included merger-related and restructuring charges of$172 million ($132 million after-tax), incremental operating expenses related to the Merger of$191 million ($147 million after-tax), and a one-time professional fee expense of$30 million ($23 million after-tax). Results for the third quarter of 2020 included$236 million ($181 million after-tax) of merger-related and restructuring charges,$152 million ($115 million after-tax) of incremental operating expenses related to the Merger, securities gains of$104 million ($80 million after-tax), and a charitable contribution of$50 million ($38 million after-tax). Truist's revenue for the third quarter of 2021 was$5.6 billion . On a TE basis, revenue was also$5.6 billion for the third quarter of 2021, an increase of$25 million , or 0.4%, compared to the same period in 2020. Excluding securities gains of$104 million from the third quarter of 2020, adjusted taxable equivalent revenues increased$129 million , or 2.3%, compared to the earlier quarter. TE net interest income for the third quarter of 2021 was down$130 million , or 3.8%, compared to the earlier quarter due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on PPP loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$26.4 billion , or 6.1%, compared to the earlier quarter. The increase in average earning assets reflects a$66.4 billion , or 83%, increase in average securities, while average total loans and leases decreased$25.4 billion , or 8.0%, and average other earning assets decreased$16.5 billion , or 46%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased$30.5 billion , or 8.2%, compared to the earlier quarter, while average long-term debt and short-term borrowings decreased$3.6 billion , or 8.8%, and$849 million , or 14%, respectively. Net interest margin was 2.81%, down 29 basis points compared to the same period in 2020. The yield on the total loan portfolio for the third quarter of 2021 was 3.90%, down 14 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion and a lower rate environment. The yield on the average securities portfolio was 1.50%, down 47 basis points compared to the earlier quarter primarily due to lower yields on new purchases. The provision for credit losses was a benefit of$324 million , compared to a cost of$421 million for the same period in 2020. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Net charge-offs for the third quarter of 2021 totaled$135 million compared to$326 million in the earlier quarter. The third quarter of 2020 included$97 million of charge-offs related to the implementation of CECL, which required a gross up of loan carrying values in connection with the establishment of an allowance on PCD loans. The net charge-off ratio for the current quarter of 0.19% was down 23 basis points compared to the third quarter 2020, due primarily to the additional losses on PCD loans taken in the earlier quarter and lower actual net losses in the commercial portfolio.Truist Financial Corporation 41 -------------------------------------------------------------------------------- Noninterest income for the third quarter of 2021 increased$155 million , or 7.0%, compared to the same period in 2020. Noninterest income for the third quarter of 2020 included$104 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased$259 million , or 12%, compared to the earlier quarter. Insurance income increased$127 million due to acquisitions, as well as organic growth. Investment banking and trading income increased$57 million due to strong merger and acquisition activity and loan syndications. Wealth management income increased$32 million due to higher valuations of assets under management. Residential mortgage banking income decreased$42 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to increases in the valuation of mortgage servicing rights and lower prepayment rates. Additionally, there were increases in service charges on deposit accounts, other income, and card and payment related fees due to improved economic activity. Noninterest expense for the third quarter of 2021 was up$40 million , or 1.1%, compared to the same period in 2020. Merger-related and restructuring charges decreased$64 million primarily due to facilities impairments in the earlier quarter, while incremental operating expenses related to the Merger increased$39 million , primarily reflected in professional fees and outside processing. The current quarter also includes a$30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger. The earlier quarter included$50 million for charitable contributions to theTruist Charitable Fund (other expense). Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up$110 million , or 3.5%, compared to the earlier quarter. Additionally, increases in personnel expense of$129 million were partially offset by a decline in net occupancy expense of$46 million and other expense of$72 million . The provision for income taxes was$423 million for the third quarter of 2021, compared to$255 million for the same period in 2020. This produced an effective tax rate for the third quarter of 2021 of 19.9%, compared to 18.3% for the earlier quarter. The higher effective tax rate is primarily due to higher pre-tax income in the current quarter without a corresponding increase in beneficial tax items. Truist's total assets atSeptember 30, 2021 were$529.9 billion , an increase of$20.7 billion , or 4.1%, compared toDecember 31, 2020 . The increase in total assets was primarily a result of strong deposit growth, the deployment of which led to an increase in AFS securities of$30.3 billion , which was partially offset by a$15.1 billion decline in total loans and leases.
Total deposits at
Asset quality remains excellent, reflecting Truist's prudent risk culture, diverse portfolio, improving economic conditions, and the ongoing effects of government stimulus. As ofSeptember 30, 2021 , nonperforming assets were 0.23% of total assets, down four basis points fromDecember 31, 2020 . The allowance for loan and lease loss coverage ratio was 4.35x nonperforming loans and leases held for investment, compared to 4.39x atDecember 31, 2020 . Truist maintained strong capital and liquidity. As ofSeptember 30, 2021 , the CET1 ratio was 10.1% and the average LCR was 114%. For the nine months endedSeptember 30, 2021 , Truist completed$1.1 billion of share repurchases and redeemed$1.4 billion of preferred stock. Additionally, the Company had$5.8 billion of senior long term debt maturities and redemptions, partially offset by$4.5 billion of issuances. Truist increased the common dividend 7% during the third quarter to$0.48 per share, resulting in dividend and total payout ratios for the third quarter of 2021 of 40%. InOctober 2021 , Truist declared common dividends of$0.48 per share for the fourth quarter of 2021. Truist continues to target a CET1 ratio of approximately 9.75% over the near-term. As previously communicated, the Company expects to be able to, with appropriate approvals from its Board of Directors, deploy approximately$4 billion to$5 billion of capital (either in the form of share repurchases or acquisitions) between 3Q21 and 3Q22. During the third quarter of 2021, Truist completed the acquisition ofConstellation Affiliated Partners and announced the acquisition ofService Finance, LLC , reducing the amount of capital deployment available for acquisitions or share repurchases to approximately$1 billion to$2 billion through 3Q22. Truist resumed repurchasing shares and expects to consume approximately$500 million of this capacity via share repurchases in the fourth quarter of 2021 reflecting the Company's strong capital position, and the reduced integration risk with successful migration of heritage BB&T retail and commercial clients to the Truist ecosystem. 42Truist Financial Corporation --------------------------------------------------------------------------------
Analysis of Results of Operations
Net Interest Income and NIM
Third Quarter 2021 compared to Third Quarter 2020
Net interest income for the third quarter of 2021 was down$130 million , or 3.8%, compared to the earlier quarter due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on Payroll Protection Program loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$26.4 billion , or 6.1%, compared to the earlier quarter. The increase in average earning assets reflects a$66.4 billion , or 83%, increase in average securities, while average total loans and leases decreased$25.4 billion , or 8.0%, and average other earning assets decreased$16.5 billion , or 46%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased$30.5 billion , or 8.2%, compared to the earlier quarter, while average long-term debt and short-term borrowings decreased$3.6 billion , or 8.8%, and$849 million , or 14%, respectively. Net interest margin was 2.81%, down 29 basis points compared to the earlier quarter. The yield on the total loan portfolio for the third quarter of 2021 was 3.90%, down 14 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion and a lower rate environment. The yield on the average securities portfolio was 1.50%, down 47 basis points compared to the earlier quarter primarily due to lower yields on new purchases. The average cost of total deposits was 0.03%, down seven basis points compared to the earlier quarter. The average rate on short-term borrowings was 0.68%, down 17 basis points compared to the earlier quarter. The average rate on long-term debt was 1.61%, up 13 basis points compared to the earlier quarter. The lower rates on deposits and short-term borrowings reflect the lower rate environment. The higher rates on long-term debt was due to the runoff of lower rate FHLB advances.
Nine Months of 2021 compared to Nine Months of 2020
Net interest income for the nine months endedSeptember 30, 2021 was down$710 million , or 6.7%, compared to the prior period due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on Payroll Protection Program loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$21.8 billion , or 5.0%, compared to the prior period. The increase in average earning assets reflects a$57.9 billion , or 75%, increase in average securities, while average total loans and leases decreased$22.4 billion , or 7.1%, and average other earning assets decreased$14.3 billion , or 42%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased$34.9 billion , or 9.7%, compared to the prior period, while average long-term debt and short-term borrowings decreased$10.3 billion , or 22%, and$5.3 billion , or 46%, respectively. Net interest margin was 2.90% for the nine months endedSeptember 30, 2021 , down 36 basis points compared to the prior period. The yield on the total loan portfolio for the nine months endedSeptember 30, 2021 was 4.00%, down 39 basis points compared to the prior period, reflecting the impact of lower purchase accounting accretion and the lower rate environment. The yield on the average securities portfolio was 1.48% for the nine months endedSeptember 30, 2021 , down 83 basis points compared to the prior period primarily due to lower yields on new purchases and premium amortization. The average cost of total deposits was 0.04% for the nine months endedSeptember 30, 2021 , down 23 basis points compared to the prior period. The average rate on short-term borrowings was 0.84% for the nine months endedSeptember 30, 2021 , down 62 basis points compared to the prior period. The average rate on long-term debt was 1.59% for the nine months endedSeptember 30, 2021 , down 19 basis points compared to the prior period. The lower rates on interest-bearing liabilities reflect the lower rate environment. As ofSeptember 30, 2021 , the remaining unamortized fair value marks on the loan and lease portfolio, deposits, and long-term debt were$1.5 billion ,$9 million , and$157 million , respectively. As ofDecember 31, 2020 , the remaining unamortized fair value marks on the loan and lease portfolio, deposits and long-term debt were$2.4 billion ,$19 million , and$216 million , respectively. The remaining unamortized fair value mark on loans and leases consists of$807 million for consumer loans and leases, and$733 million for 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.Truist Financial Corporation 43 --------------------------------------------------------------------------------
Table 1-1: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis (1)
Three Months EndedSeptember 30 , Average Balances (5) Annualized Yield/Rate Income/Expense Incr. Change due to (Dollars in millions) 2021 2020 2021 2020 2021 2020 (Decr.) Rate Volume Assets Total securities, at amortized cost: (2)U.S. Treasury $ 9,699 $ 2,218 0.72 % 1.78 %$ 18 $ 10 $ 8 $ (9) $ 17 GSE 1,830 1,842 2.31 2.33 10 10 - - - Agency MBS 132,890 75,232 1.53 1.95 509 366 143 (93) 236 States and political subdivisions 425 499 3.52 5.03 4 7 (3) (2) (1) Non-agency MBS 1,398 - 2.20 - 8 - 8 - 8 Other 30 37 1.90 1.99 - 1 (1) - (1) Total securities 146,272 79,828 1.50 1.97 549 394 155 (104) 259 Interest earning trading assets 5,809 4,056 2.81 3.23 41 32 9 (5) 14 Other earning assets (3) 19,331 35,819 0.25 0.26 13 24 (11) (1) (10)
Loans and leases, net of unearned income: (4)
Commercial and industrial 130,025 143,452 3.00 3.02 981 1,087 (106) (7) (99) CRE 24,849 27,761 2.86 2.88 181 203 (22) (1) (21)Commercial Construction 5,969 6,861 2.96 3.26 42 55 (13) (5) (8) Lease financing 4,917 5,626 3.39 3.71 42 52 (10) (4) (6) Residential mortgage 45,369 51,500 3.96 4.47 450 576 (126) (62) (64) Residential home equity and direct 25,242 26,726 5.67 5.86 360 394 (34) (13) (21) Indirect auto 26,830 24,732 5.99 6.51 405 405 - (33) 33 Indirect other 11,112 11,530 6.54 7.05 183 204 (21) (14) (7) Student 7,214 7,446 4.02 4.30 74 80 (6) (4) (2) Credit card 4,632 4,810 9.01 9.03 105 109 (4) - (4) Total loans and leases HFI 286,159 310,444 3.92 4.06 2,823 3,165 (342) (143) (199) LHFS 4,179 5,247 2.69 2.78 28 37 (9) (1) (8) Total loans and leases 290,338 315,691 3.90 4.04 2,851 3,202 (351) (144) (207) Total earning assets 461,750 435,394 2.98 3.34 3,454 3,652 (198) (254) 56 Nonearning assets 64,935 65,432 Total assets$ 526,685 $ 500,826 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-checking$ 107,802 $ 96,707 0.05 0.06 14 15 (1) (3) 2 Money market and savings 136,094 123,598 0.03 0.06 9 19 (10) (12) 2 Time deposits 17,094 27,940 0.23 0.89 10 62 (52) (34) (18) Total interest-bearing deposits (6) 260,990 248,245 0.05 0.15 33 96 (63) (49) (14) Short-term borrowings 5,360 6,209 0.68 0.85 9 13 (4) (2) (2) Long-term debt 37,329 40,919 1.61 1.48 151 152 (1) 13 (14) Total interest-bearing liabilities 303,679 295,373 0.25 0.35 193 261 (68) (38) (30) Noninterest-bearing deposits (6) 141,738 123,966 Other liabilities 11,915 11,853 Shareholders' equity 69,353 69,634
Total liabilities and shareholders' equity
2.73 % 2.99 %
NIM/net interest income - taxable equivalent 2.81 % 3.10 % $ 3,261 $
3,391
$ 28 $
29
(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 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) Excludes basis adjustments for fair value hedges. (6) Total deposit costs were 0.03% and 0.10% for the three months endedSeptember 30, 2021 and 2020, respectively. 44Truist Financial Corporation --------------------------------------------------------------------------------
Table 1-2: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis (1)
Nine Months EndedSeptember 30 , Average Balances (5) Annualized Yield/Rate Income/Expense Incr. Change due to (Dollars in millions) 2021 2020 2021 2020 (Decr.) 2021 2020 Rate Volume Assets Total securities, at amortized cost: (2)U.S. Treasury $ 6,872 $ 2,243 0.74 % 1.86 %$ 38 $ 31$ 7 $ (28) $ 35 GSE 1,837 1,847 2.32 2.33 32 32 - - - Agency MBS 125,157 72,152 1.49 2.29 1,401 1,240 161 (533) 694 States and political subdivisions 435 512 3.53 4.04 12 16 (4) (2) (2) Non-agency MBS 477 115 2.18 16.78 8 15 (7) (21) 14 Other 32 37 1.90 2.44 - 1 (1) (1) - Total securities 134,810 76,906 1.48 2.31 1,491 1,335 156 (585) 741 Interest earning trading assets 5,208 4,695 2.80 3.85 110 135 (25) (39) 14 Other earning assets (3) 19,453 33,708 0.26 0.57 38 144 (106) (60) (46)
Loans and leases, net of unearned income: (4)
Commercial and industrial 133,218 142,731 3.06 3.47 3,045 3,710 (665) (425) (240) CRE 25,563 27,538 2.86 3.46 553 717 (164) (116) (48)Commercial Construction 6,293 6,673 2.98 3.92 135 192 (57) (46) (11) Lease financing 4,928 5,872 3.86 4.24 143 187 (44) (16) (28) Residential mortgage 44,931 52,288 4.25 4.53 1,431 1,778 (347) (106) (241) Residential home equity and direct 25,378 27,161 5.74 6.08 1,089 1,237 (148) (68) (80) Indirect auto 26,547 24,809 6.25 6.68 1,240 1,240 - (83) 83 Indirect other 10,920 11,255 6.79 7.19 555 606 (51) (33) (18) Student 7,375 7,622 3.96 4.75 219 271 (52) (43) (9) Credit card 4,610 5,097 8.99 9.34 310 356 (46) (13) (33) Total loans and leases HFI 289,763 311,046 4.02 4.42 8,720 10,294 (1,574) (949) (625) LHFS 4,485 5,575 2.61 3.00 88 126 (38) (15) (23) Total loans and leases 294,248 316,621 4.00 4.39 8,808 10,420 (1,612) (964) (648) Total earning assets 453,719 431,930 3.08 3.72 10,447 12,034 (1,587) (1,648) 61 Nonearning assets 64,444 65,780 Total assets$ 518,163 $ 497,710 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-checking$ 106,234 $ 93,205 0.06 0.28 44 199 (155) (178) 23 Money market and savings 133,167 123,536 0.03 0.27 27 254 (227) (245) 18 Time deposits 18,609 32,157 0.32 1.10 45 265 (220) (138) (82) Total interest-bearing deposits (6) 258,010 248,898 0.06 0.39 116 718 (602) (561) (41) Short-term borrowings 6,081 11,350 0.84 1.46 38 124 (86) (41) (45) Long-term debt 37,339 47,643 1.59 1.78 446 635 (189) (63) (126) Total interest-bearing liabilities 301,430 307,891 0.27 0.64 600 1,477 (877) (665) (212) Noninterest-bearing deposits (6) 136,118 110,375 Other liabilities 11,262 12,133 Shareholders' equity 69,353 67,311 Total liabilities and shareholders' equity$ 518,163 $ 497,710 Average interest-rate spread 2.81 % 3.08 % NIM/net interest income - taxable equivalent 2.90 % 3.26 %$ 9,847 $ 10,557 $ (710) $ (983) $ 273 Taxable-equivalent adjustment$ 84 $ 97 (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 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)Excludes basis adjustments for fair value hedges. (6)Total deposit costs were 0.04% and 0.27% for the nine months endedSeptember 30, 2021 and 2020, respectively. Truist Financial Corporation 45 --------------------------------------------------------------------------------
Provision for Credit Losses
Third Quarter 2021 compared to Third Quarter 2020
The provision for credit losses was a benefit of$324 million , compared to a cost of$421 million for the earlier quarter. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Net charge-offs for the third quarter of 2021 totaled$135 million compared to$326 million in the earlier quarter. The third quarter of 2020 included$97 million of charge-offs related to the implementation of CECL, which required a gross up of loan carrying values in connection with the establishment of an allowance on PCD loans. The net charge-off ratio for the current quarter of 0.19% was down 23 basis points compared to the third quarter 2020, due primarily to the additional losses on PCD loans taken in the earlier quarter and lower actual net losses in the commercial portfolio.
Nine Months of 2021 compared to Nine Months of 2020
The provision for credit losses was a benefit of$710 million for the nine months endedSeptember 30, 2021 , compared to a cost of$2.2 billion for the prior period. The prior period included significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current period includes reserve releases due to the improving economic outlook. Net charge-offs for the nine months endedSeptember 30, 2021 totaled$515 million compared to$914 million in the earlier period. The 2020 period included the previously mentioned$97 million of charge-offs related to the implementation of CECL. The net charge-off ratio for the current year of 0.24% was down 15 basis points compared to the prior period, primarily driven by lower losses across all portfolios, partially driven by additional losses on PCD loans taken in 2020, combined with higher recoveries.
Noninterest Income
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 Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2021 2020 % Change 2021 2020 % Change
Insurance income $ 645 $ 518 24.5 % $ 1,961 $ 1,648 19.0 %
Wealth management income 356 324 9.9 1,042 945 10.3
Service charges on deposits 276 247 11.7 787 754 4.4
Residential mortgage income 179 221 (19.0) 396 807 (50.9)
Investment banking and trading 301 244 23.4 958 636 50.6
income
Card and payment related fees 225 200 12.5 650 558 16.5 Lending related fees 74 77 (3.9) 268 210 27.6 Operating lease income 57 72 (20.8) 191 232 (17.7) Commercial real estate related 78 55 41.8 259 148 75.0 income Income from bank-owned life 43 46 (6.5) 139 135 3.0 insurance Securities gains (losses) - 104 NM - 402 NM Other income 131 102 28.4 316 119 165.5 Total noninterest income$ 2,365 $ 2,210 7.0$ 6,967 $ 6,594 5.7
Third Quarter 2021 compared to Third Quarter 2020
Noninterest income for the third quarter of 2021 increased$155 million , or 7.0%, compared to the earlier quarter. Noninterest income for the third quarter of 2020 included$104 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased$259 million , or 12%, compared to the earlier quarter. Insurance income increased$127 million due to acquisitions, as well as organic growth. Investment banking and trading income increased$57 million due to strong merger and acquisition activity and loan syndications. Wealth management income increased$32 million due to higher valuations of assets under management. Service charges on deposit accounts and card and payment related fees increased$29 million and$25 million , respectively, due to increased economic activity. Residential mortgage banking income decreased$42 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to increases in the valuation of mortgage servicing rights and lower prepayment rates. Other income increased$29 million primarily due to investment income (primarily valuation gains) from the Company's SBIC investments. 46Truist Financial Corporation --------------------------------------------------------------------------------
Nine Months of 2021 compared to Nine Months of 2020
Noninterest income for the nine months endedSeptember 30, 2021 increased$373 million , or 5.7%, compared to the prior period. Other income for the nine months endedSeptember 30, 2021 includes a$37 million gain from the divestiture of certain businesses, whereas noninterest income for the nine months endedSeptember 30, 2020 included$402 million of securities gains on available-for-sale securities. Excluding securities gains and the divestiture gain, noninterest income increased$738 million , or 12%, compared to the prior period. Investment banking and trading income increased$322 million due to strong investment banking income from loan syndications and merger and acquisition fees, as well as the impact from CVA recoveries in the current period compared to losses in the earlier period. Insurance income increased$313 million due to acquisitions, as well as organic growth. Other income increased$197 million primarily due to higher valuations of$96 million for assets held for certain post-retirement benefits, which is largely offset by higher benefits expense included in personnel expense. In addition, other income increased$94 million related to increased investment income (primarily valuations gains) from the Company'sSBIC and Truist Ventures investments. Commercial real-estate related income increased$111 million primarily due to client-related structured real estate transactions. Wealth management increased$97 million due to higher valuations of assets under management. Card and payment related fees and service charges on deposits increased$92 million and$33 million , respectively, due to increased economic activity. Lending related fees increased$58 million due to gains from the sale of finance leases and noninterest loan fees due to higher unused line fees. Residential mortgage banking income decreased$411 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to an increase in the valuation of mortgage servicing rights. Operating lease income decreased$41 million due to declines in the lease portfolio.
Noninterest Expense
The following table provides a breakdown of Truist's noninterest expense: Table 3: Noninterest Expense
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2021 2020 % Change 2021 2020 % Change
Personnel expense $ 2,187 $ 2,058 6.3 % $ 6,536 $ 6,038 8.2 %
Professional fees and outside
processing 372 323 15.2 1,063 859 23.7
Net occupancy expense 187 233 (19.7) 578 697 (17.1)
Software expense 251 221 13.6 707 647 9.3
Amortization of intangibles 145 170 (14.7) 431 513 (16.0)
Equipment expense 154 127 21.3 389 363 7.2
Marketing and customer development 94 75 25.3 226 215 5.1
Operating lease depreciation 47 56 (16.1) 144 204 (29.4)
Loan-related expense 52 59 (11.9) 161 177 (9.0)
Regulatory costs 43 34 26.5 99 93 6.5
Merger-related and restructuring
charges 172 236 (27.1) 610 552 10.5
Loss (gain) on early extinguishment
of debt - - - (3) 235 (101.3)
Other expense 91 163 (44.2) 475 471 0.8
Total noninterest expense $ 3,795 $ 3,755 1.1 $ 11,416 $ 11,064 3.2Third Quarter 2021 compared to Third Quarter 2020
Noninterest expense for the third quarter of 2021 was up$40 million , or 1.1%, compared to the earlier quarter. Merger-related and restructuring charges decreased$64 million primarily due to facilities impairments in the earlier quarter, while incremental operating expenses related to the Merger increased$39 million , primarily reflected in professional fees and outside processing. The current quarter also includes a$30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger. The earlier quarter included$50 million for charitable contributions to theTruist Charitable Fund (other expense). Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up$110 million , or 3.5%, compared to the earlier quarter. Personnel expense increased$129 million primarily due to higher incentive expenses due to variable compensation from higher revenues and improved overall performance relative to targets, higher medical insurance claims, and personnel cost related to acquired companies, partially offset by lower equity based compensation. Additionally, net occupancy expense decreased$46 million primarily due to branch and property consolidations. Other expense also includes a decrease of$42 million for non-service-related pension cost components.Truist Financial Corporation 47 --------------------------------------------------------------------------------
Nine Months of 2021 compared to Nine Months of 2020
Noninterest expense for the nine months endedSeptember 30, 2021 was up$352 million , or 3.2%, compared to the earlier period. Merger-related and restructuring charges increased$58 million and other incremental operating expenses related to the Merger increased$201 million . The current period also includes$200 million for charitable contributions to theTruist Foundation and theTruist Charitable Fund ,$36 million of expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges, the previously mentioned$30 million professional fee expense and a small gain on the early extinguishment of debt, whereas the earlier period included a$235 million loss on the early extinguishment of debt and a$50 million charitable contribution. Excluding the aforementioned items and changes in amortization of intangibles, noninterest expense increased$197 million , or 2.1%, compared to the earlier period. Personnel expense increased$498 million primarily driven by higher incentive expenses due to variable compensation from higher revenues and improved overall performance relative to targets, higher other employee benefits due to the previously mentioned increase in noninterest income, higher medical insurance claims, and personnel cost related to acquired companies. These increases in personnel expense were partially offset by lower salaries due to fewer FTEs. Software expense increased$60 million due to higher spending on certain projects. Other expense includes decreases of$125 million for non-service-related pension cost components. There was also a decrease of$119 million from net occupancy expense primarily due to branch and property consolidations and a decrease in operating lease depreciation of$60 million due to valuation adjustments taken in the prior year.
Merger-Related and Restructuring Charges
The following table presents a summary of merger-related and restructuring charges and the related accruals: Table 4: Merger-Related and Restructuring Accrual Activity
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Accrual at Accrual at Sep Accrual at Jan Accrual at Sep
(Dollars in millions) Jul 1, 2021 Expense Utilized 30, 2021 1, 2021 Expense Utilized 30, 2021
Severance and $ 152 $ 77 $ (154) $ 75 $ 36 $ 269 $ (230) $ 75
personnel-related (1)
Occupancy and equipment 5 3 (8) - - 110 (110) -
Professional services 28 79 (69) 38 16 197 (175) 38
Systems conversion and - 9 (9) - - 22 (22) -
related costs
Other 10 4 (4) 10 11 12 (13) 10
Total (2) $ 195 $ 172 $ (244) $ 123 $ 63 $ 610 $ (550) $ 123
(1)Includes $189 million of restructuring charges for the nine months ended
September 30, 2021 related to the Company's voluntary separation and retirement
program.
(2)Related to the Merger, the Company recognized $170 million of expenses for
the three months ended September 30, 2021 and $578 million for the nine months
ended September 30, 2021 . At September 30, 2021 , the Company had an accrual of
$117 million related to the Merger. The remaining expense and accrual relate to
other restructuring activities.
Segment Results
Truist operates and measures business activity across three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, andInsurance Holdings , with functional activities included in Other,Treasury and Corporate. The Company's business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. See "Note 18. Operating Segments" herein and "Note 21. Operating Segments" in Truist's Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional disclosures related to Truist's reportable business segments, including additional details related to results of operations. Fluctuations in noninterest income and noninterest expense are more fully discussed in the Noninterest Income and Noninterest Expense sections above. Table 5: Net Income by Reportable Segment Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2021 2020 % Change 2021 2020 %
Change
Consumer Banking and Wealth$ 872 $ 818 6.6 %$ 2,510 $ 2,204 13.9 % Corporate and Commercial Banking 1,075 586 83.4 3,245 1,408 130.5 Insurance Holdings 105 77 36.4 392 308 27.3 Other, Treasury & Corporate (348) (340) 2.4 (1,312) (758)
73.1
Truist Financial Corporation$ 1,704 $ 1,141 49.3$ 4,835 $ 3,162 52.9 48Truist Financial Corporation --------------------------------------------------------------------------------
Third Quarter 2021 compared to Third Quarter 2020
Consumer Banking and Wealth
CB&W net income was$872 million for the third quarter of 2021, an increase of$54 million compared to the earlier quarter. Segment net interest income decreased$155 million primarily due to a decline in the funding credit provided on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$186 million which reflects the impact of an allowance release during the current quarter and an allowance build during the earlier quarter. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Noninterest income increased$35 million due to increases in wealth management income due to favorable market conditions in the current quarter, card and related fee income, and service charges on deposits, partially offset by lower residential mortgage income driven by lower gain on sale margins and volumes. Noninterest expense was stable compared to earlier quarter. CB&W average loans held for investment decreased$6.8 billion , or 4.9%, for the third quarter of 2021 compared to the earlier quarter, primarily driven by lower residential mortgage and home equity lending, partially offset by increased indirect auto lending. Average total deposits increased$23 billion , or 10.4%, for the third quarter of 2021 compared to the earlier quarter primarily due to the impact of fiscal and monetary stimulus.
Corporate and Commercial Banking
C&CB net income was$1.1 billion for the third quarter of 2021, an increase of$489 million compared to the earlier quarter. Segment net interest income decreased$110 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans, partially offset by higher spreads on loans. The allocated provision for credit losses decreased$575 million primarily reflecting an allowance release in the current quarter, whereas the earlier quarter included an allowance build. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Noninterest income increased$145 million driven by investment banking income, commercial real estate income, and higher investment income (primarily valuation gains) from SBIC investments. Noninterest expense decreased$25 million primarily due to lower operating losses, operating lease depreciation, and lower allocated corporate expenses in the current quarter, partially offset by higher restructuring charges in the current quarter. C&CB average loans held for investment decreased$17.6 billion , or 10.5%, for the third quarter of 2021 compared to the earlier quarter, primarily due to PPP loan forgiveness and lower line utilization in commercial loans, commercial real estate, and dealer floor plan. Average total deposits increased$8.8 billion , or 6.2%, for the third quarter of 2021 compared to the earlier quarter, primarily due to the impact of fiscal and monetary stimulus.
IH net income was$105 million for the third quarter of 2021, an increase of$28 million compared to the earlier quarter. Noninterest income increased$128 million primarily due to acquisitions and higher property and casualty insurance production from strong organic growth. Noninterest expense increased$91 million primarily due to higher performance-based incentives and amortization of intangibles related to acquisitions.
Other,
OT&C generated a net loss of$348 million in the third quarter of 2021, compared to a net loss of$340 million in the earlier quarter. Segment net interest income increased$135 million primarily due to lower net funding credits on liabilities to other segments and higher earnings in the securities portfolio from purchases to utilize excess liquidity. The allocated provision for credit losses increased$15 million which primarily reflects a smaller release in the reserve for unfunded commitments in the current quarter compared to the earlier quarter. Noninterest income decreased$153 million primarily due to a gain on sale of securities in the earlier quarter. Noninterest expense decreased$22 million primarily due to lower merger related charges in the current quarter and charitable contributions to theTruist Foundation and theTruist Charitable Fund in the earlier quarter, partially offset by higher incentive expense driven by executive incentive compensation and higher accruals reflecting the job regrading project in the fourth quarter 2020.Truist Financial Corporation 49 --------------------------------------------------------------------------------
Nine Months of 2021 compared to Nine Months of 2020
Consumer Banking and Wealth
CB&W net income was$2.5 billion for the nine months endedSeptember 30, 2021 , an increase of$306 million compared to the same period of the prior year. Segment net interest income decreased$325 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$796 million primarily due to an allowance release that was primarily driven by an improving economic outlook and lower net charge offs in the auto, home equity, card, and mortgage portfolios as well as lower loan balances. Noninterest income decreased$197 million , due to lower residential mortgage income driven by lower gain on sale margins and volumes, partially offset by increased revenues in wealth management and card and payment related activities resulting from improving economic conditions as well as gains from the divestiture of certain businesses. Noninterest expense decreased$120 million primarily due to lower salary expense, pension costs, amortization of intangibles, and occupancy expenses, partially offset by increased incentives tied to performance and related benefits expense in the current year. CB&W average loans and leases decreased$7.6 billion , or 5.4%, atSeptember 30, 2021 , compared to the same period of the prior year, primarily due to lower residential mortgage loans and home equity lending, partially offset by increased mortgage warehouse and indirect auto lending. Average total deposits were up$25.7 billion , or 12%, atSeptember 30, 2021 , compared to the same period of the prior year, primarily due to the impact of fiscal and monetary stimulus.
Corporate and Commercial Banking
C&CB net income was$3.2 billion for the nine months endedSeptember 30, 2021 , an increase of$1.8 billion compared to the same period of the prior year. Segment net interest income decreased$283 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$1.9 billion which reflects an allowance release driven by an improving economic outlook, lower net charge offs primarily in the commercial and industrial portfolio as well as lower loan balances. Noninterest income increased$570 million due to strong investment banking and trading income, commercial real-estate related income, increased lending related fees, income from strategic investments, and increased service charges on deposits. Noninterest expense decreased$174 million primarily due to lower operating lease depreciation, lower allocated corporate expenses, a reduction in LIHTC liability mark accretion, and reduced salary and equity based compensation expense, partially offset by higher incentives tied to performance and increased professional fees and outside processing expense. C&CB average loans and leases decreased$14 billion , or 8.3%, atSeptember 30, 2021 , compared to the same period of the prior year, primarily due to lower line utilization in commercial loans, commercial real estate, and dealer floor plan. Average total deposits were up$12.5 billion , or 9.3%, atSeptember 30, 2021 , compared to the same period of the prior year, primarily due to the impact of fiscal and monetary stimulus.
IH net income was$392 million for the nine months endedSeptember 30, 2021 , an increase of$84 million compared to the same period of the prior year. Noninterest income increased$304 million primarily due to higher property and casualty insurance production as well as acquisitions. Noninterest expense increased$198 million primarily due to commissions on higher production in the current year. Other,Treasury and Corporate OT&C generated a net loss of$1.3 billion in the nine months endedSeptember 30, 2021 , compared to a net loss of$758 million in the same period of the prior year. Segment net interest income decreased$84 million primarily due to lower net funding credits to other segments due to lower market rates partially offset by lower interest expense on borrowings. The allocated provision for credit losses decreased$124 million which primarily reflects changes in the reserve for unfunded commitments as well as an allowance release in the current year resulting from the improving economic outlook. Noninterest income decreased$304 million primarily due to a gain on the sale of non-agency MBS in the same period of the prior year, partially offset by income from assets held for certain post-employment benefits. Noninterest expense increased$448 million primarily due to charitable contributions to theTruist Foundation and theTruist Charitable Fund , as well as higher incremental operating expenses related to the Merger and higher restructuring charges in the current year, partially offset by the loss on early extinguishment of long-term debt in the same period of the prior year. 50Truist Financial Corporation --------------------------------------------------------------------------------
Analysis of Financial Condition
Investment Activities
The securities portfolio totaled
As ofSeptember 30, 2021 , approximately 2.9% of the securities portfolio was variable rate, excluding the impact of swaps, compared to 1.9% as ofDecember 31, 2020 . The effective duration of the securities portfolio was 5.6 years atSeptember 30, 2021 , compared to 4.0 years atDecember 31, 2020 .
Lending Activities
The following table presents the composition of average loans and leases: Table 6: Average Loans and Leases For the Three Months Ended (Dollars in millions) Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30,
2020
Commercial:
Commercial and industrial$ 130,025 $
133,646
24,849 25,645 26,211 27,030 27,761
Commercial construction 5,969 6,359 6,557 6,616 6,861
Lease financing 4,917 4,893 4,975 5,401 5,626
Consumer:
Residential mortgage 45,369 43,605 45,823 48,847 51,500
Residential home equity and direct 25,242 25,238 25,658 26,327 26,726
Indirect auto 26,830 26,444 26,363 25,788 24,732
Indirect other 11,112 10,797 10,848 11,291 11,530
Student 7,214 7,396 7,519 7,519 7,446
Credit card 4,632 4,552 4,645 4,818 4,810
Total average loans and leases HFI $ 286,159 $ 288,575 $ 294,650 $ 302,860 $ 310,444
Average loans and leases held for investment for the third quarter of 2021 were
$286.2 billion , down $2.4 billion , or 0.8%, compared to the second quarter of
2021.
Average commercial loans decreased $4.8 billion , or 2.8%, as $1.5 billion of
average growth within the core commercial and industrial portfolio was more than
offset by a $4.0 billion decrease in average Paycheck Protection Program loans
(commercial and industrial), a $1.1 billion decrease in average dealer floor
plan loans (commercial and industrial), a $796 million decrease in average CRE
loans, and a $390 million decrease in average commercial construction loans.
Approximately $600 million of senior care facility loans were transferred
primarily from CRE to commercial and industrial at the beginning of August,
which impacted the variances noted above.
Average consumer loans increased $2.3 billion , or 2.0%, primarily due to a $1.8
billion increase in residential mortgages due to increased capacity, lower
prepayments, and the decision to balance sheet certain production from the
correspondent channel, a $386 million increase in indirect auto loans primarily
due to solid growth in the prime automobile segment, and a $315 million increase
in other indirect loans primarily due to growth in recreational and power sports
lending. Residential home equity and direct loans were up slightly due to solid
growth from LightStream more than offsetting the decline in home equity lines of
credit.
Truist Financial Corporation 51
--------------------------------------------------------------------------------COVID-19 Lending Activities
The CARES Act created the PPP, which has temporarily expanded theSmall Business Administration's business loan guarantee program. The carrying value of PPP loans was$3.5 billion as ofSeptember 30, 2021 . The CARES Act additionally includes provisions that were designed to encourage financial institutions to support borrowers impacted by COVID-19. These modifications are generally not considered a TDR. Refer to "Note 1. Basis of Presentation" in Truist's Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional disclosures related to modifications and TDRs. Payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The following table provides a summary of accommodations as ofSeptember 30, 2021 : Table 7: Client Accommodations (1) Active Accommodations Exited AccommodationsSeptember 30, 2021 (Dollars in Outstanding Outstanding % Paid-off or millions) Total Count Balance Balance Current (2) Types of Accommodations Clients may elect to defer loan or lease payments for up to 90 days Commercial 324 $ 4$ 17,297 98 % without late fees being incurred but with finance charges continuing to accrue. Clients may elect to defer loan payments for time periods that generally range from 30 to 90 days without late fees being incurred but Consumer 13,715 553 8,292 87 with finance charges generally continuing to accrue. The Company's residential mortgage forbearance program generally provides up to 180 days of relief. Additional relief may be provided in certain circumstances. Clients may elect to defer payments for up to 90 days without late fees being incurred but with finance charges Credit card 454 2 156 88 accruing. In addition, Truist provided credit card clients with 5% cash back on qualifying card purchases for certain important basic needs. Total 14,493 $ 559$ 25,745
(1)Excludes approximately 9,000 client accommodations related to government
guaranteed loans totaling approximately
The following table provides a summary of the Company's exposure related to loans that have exited accommodations: Table 8: Accommodations ExposureSeptember 30, 2021 (Dollars in millions) Exposure Current$ 24,513 Past due and still accruing 492 Nonperforming 740 Total$ 25,745 The following table provides a summary of exposure to industries that management believes were more vulnerable during the COVID-19 pandemic. These selected industry exposures represent 8.8% of loans held for investment atSeptember 30, 2021 . Truist is actively managing these portfolios and will continue to make underwriting or risk acceptance adjustments as appropriate. Table 9: Selected Credit Exposures September 30, 2021 (Dollars in billions) Outstanding Balance Percentage of Loans HFI Senior Care $ 6.7 2.4 % Hotels, Resorts & Cruise Lines 5.7 2.0 Acute Care Facilities 4.9 1.7 Oil & Gas Portfolio 3.8 1.3 Restaurants 2.4 0.8 Sensitive Retail 1.7 0.6 Total $ 25.2 8.8 % 52Truist Financial Corporation --------------------------------------------------------------------------------
Asset Quality
The following tables summarize asset quality information: Table 10: Asset Quality (Dollars in millions) Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 NPAs: NPLs: Commercial and industrial $ 411 $ 397 $ 451 $ 532 $ 507 CRE 20 25 58 75 52 Commercial construction 7 12 13 14 7 Lease financing 12 5 23 28 32 Residential mortgage 306 302 290 316 205 Residential home equity and direct 146 165 172 205 180 Indirect auto 172 148 158 155 137 Indirect other 6 6 6 5 4 Total NPLs HFI 1,080 1,060 1,171 1,330 1,124 Loans held for sale 76 78 72 5 130 Total nonaccrual loans and leases 1,156 1,138 1,243 1,335 1,254 Foreclosed real estate 9 13 18 20 30 Other foreclosed property 39 41 38 32 30 Total nonperforming assets$ 1,204 $ 1,192 $ 1,299 $ 1,387 $ 1,314 TDRs: Performing TDRs: Commercial and industrial $ 144 $ 144 $ 142 $ 78 $ 84 CRE 8 24 47 47 36 Commercial construction - - - - 1 Lease financing 56 58 59 60 1 Residential mortgage 712 727 733 648 640 Residential home equity and direct 105 107 109 88 71 Indirect auto 390 389 399 392 336 Indirect other 7 7 7 6 5 Student 23 13 8 5 5 Credit card 30 32 35 37 38 Total performing TDRs 1,475 1,501 1,539 1,361 1,217 Nonperforming TDRs 159 190 207 164 140 Total TDRs$ 1,634 $ 1,691 $ 1,746 $ 1,525 $ 1,357 Loans 90 days or more past due and still accruing: (1) Commercial and industrial $ 2 $ 14 $ 14 $ 13 $ 6 CRE - - - - 8 Lease financing 16 - - - - Residential mortgage 852 976 975 841 573 Residential home equity and direct 7 7 11 10 5 Indirect auto 2 2 2 2 8 Indirect other 2 1 1 2 3 Student 968 1,046 1,037 1,111 570 Credit card 23 22 32 29 24 Total loans 90 days or more past due and$ 1,872 $ 2,068 $ 2,072 $ 2,008 $ 1,197 still accruing Loans 30-89 days past due and still accruing: (1) Commercial and industrial $ 131 $
128 $ 117 $ 83 $ 155 CRE
4 7 9 14 7
Commercial construction 2 1 4 5 -
Lease financing 4 18 35 6 9
Residential mortgage 495 543 577 782 796
Residential home equity and direct 81 73 82 98 103
Indirect auto 560 428 328 495 321
Indirect other 53 47 45 68 52
Student 456 548 556 618 666
Credit card 37 31 35 51 39
Total loans 30-89 days past due and
(1)The past due status of loans that received a deferral under the CARES Act is generally frozen during the deferral period.
Truist Financial Corporation 53 -------------------------------------------------------------------------------- Nonperforming assets totaled$1.2 billion atSeptember 30, 2021 , up$12 million compared toJune 30, 2021 . Nonperforming loans and leases represented 0.40% of total loans and leases, up one basis point compared toJune 30, 2021 .
Performing TDRs were down
Loans 90 days or more past due and still accruing totaled$1.9 billion atSeptember 30, 2021 , down$196 million compared 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% atSeptember 30, 2021 , down six basis points from the prior quarter. The decline in loans 90 days or more past due and still accruing was primarily in residential mortgages and student loans. 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 0.03% atSeptember 30, 2021 , down one basis point fromJune 30, 2021 .
Loans 30-89 days past due and still accruing of
Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 10. 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 11: Asset Quality Ratios As of / For the Three Months Ended Sep 30, 2021 Jun
30, 2021
0.64 % 0.61 % 0.74 % 0.70 %
a percentage of loans and leases HFI
Loans 90 days or more past due and still 0.66 0.72 0.71 0.67 0.39
accruing as a percentage of loans and leases HFI
NPLs as a percentage of loans and leases HFI 0.38 0.37 0.40 0.44 0.37
NPLs as a percentage of total loans and leases 0.40 0.39 0.42 0.44 0.40
(1)
NPAs as a percentage of:
Total assets (1) 0.23 0.23 0.25 0.27 0.26
Loans and leases HFI plus foreclosed property 0.40 0.39 0.42 0.46 0.39
Net charge-offs as a percentage of average loans 0.19 0.20 0.33 0.27 0.42
and leases HFI
ALLL as a percentage of loans and leases HFI 1.65 1.79 1.94 1.95 1.91
Ratio of ALLL to:
Net charge-offs 8.79x 8.98x 5.87x 7.15x 4.52x
NPLs 4.35x 4.83x 4.84x 4.39x 5.22x
Loans 90 days or more past due and still
accruing as a percentage of loans and leases 0.03 % 0.04 % 0.04 % 0.04 % 0.03 %
HFI, excluding PPP and other government
guaranteed (2)
Applicable ratios are annualized.
(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
such that it might not be reflective of asset collectability or might not be
comparable to other periods presented or to other portfolios that do not have
government guarantees.
54 Truist Financial Corporation
--------------------------------------------------------------------------------The following table presents activity related to NPAs: Table 12: Rollforward of NPAs (Dollars in millions)
2021 2020
Balance, January 1 $ 1,387 $ 684
New NPAs (1) 1,580 2,467
Advances and principal increases 280 255
Disposals of foreclosed assets (2) (297) (333) Disposals of NPLs (3)
(203) (521)
Charge-offs and losses (279) (443)
Payments (775) (553)
Transfers to performing status (445) (258)
Other, net (44) 16
Ending balance, September 30 $ 1,204 $ 1,314
(1)For 2020, includes approximately $500 million of loans previously classified
as PCI that would have otherwise been nonperforming as of December 31, 2019 .
(2)Includes charge-offs and losses recorded upon sale of $95 million and $99
million for the nine months ended September 30, 2021 and 2020, respectively.
(3)Includes charge-offs and losses recorded upon sale of $1 million and $126
million for the nine months ended September 30, 2021 and 2020, respectively.
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. In
accordance with the CARES Act, Truist implemented loan modification programs in
response to the COVID-19 pandemic in order to provide borrowers with flexibility
with respect to repayment terms. Payment relief assistance provided by Truist
includes forbearance, deferrals, extension, and re-aging programs, along with
certain other modification strategies. The Company adopted certain provisions of
the CARES Act and other regulatory guidance that provide relief from the
requirement to apply TDR accounting to (1) certain modifications of federally
backed mortgages upon request from the borrower, and (2) certain modifications
of other non-federally backed mortgages for borrowers impacted by the COVID-19
pandemic that were less than 30 days past due at December 31, 2019 . Refer to
"Note 1. Basis of Presentation" in Truist's Annual Report on Form 10-K for the
year ended December 31, 2020 for the policies related to TDRs and COVID-19 loan
modifications.
TDRs identified by SunTrust prior to the Merger date are not included in
Truist's TDR disclosure because all such loans were recorded at fair value and a
new accounting basis was established as of the Merger date. Subsequent
modifications are evaluated for potential treatment as TDRs in accordance with
Truist's accounting policies.
The following table provides a summary of performing TDR activity:
Table 13: Rollforward of Performing TDRs
(Dollars in millions) 2021 2020
Balance, January 1 $ 1,361 $ 980
Inflows 548 599
Payments and payoffs (1) (283) (113)
Charge-offs (33) (34)Transfers to nonperforming TDRs (2) (31) (66) Removal due to the passage of time
(10) (6)
Non-concessionary re-modifications (15) (2)
Transferred to LHFS, sold and other (62) (141)
Balance,
$ 1,475 $ 1,217 (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 Corporation 55 -------------------------------------------------------------------------------- The following table provides further details regarding the payment status of TDRs outstanding atSeptember 30, 2021 : Table 14: Payment Status of TDRs (1)September 30, 2021 (Dollars in millions) Current Past Due 30-89 Days Past Due 90 Days Or More Total Performing TDRs: Commercial: Commercial and industrial$ 144 100.0 % $ - - % $ - - %$ 144 CRE 8 100.0 - - - - 8 Lease financing 56 100.0 - - - - 56 Consumer: Residential mortgage 482 67.7 81 11.4 149 20.9 712 Residential home equity and 101 96.2 4 3.8 - - 105 direct Indirect auto 320 82.1 70 17.9 - - 390 Indirect other 6 85.7 1 14.3 - - 7 Student 22 95.7 1 4.3 - - 23 Credit card 26 86.7 3 10.0 1 3.3 30 Total performing TDRs 1,165 78.9 160 10.9 150 10.2 1,475 Nonperforming TDRs 49 30.8 17 10.7 93 58.5 159 Total TDRs$ 1,214 74.3$ 177 10.8$ 243 14.9$ 1,634
(1)Past due performing TDRs are included in past due disclosures and nonperforming TDRs are included in NPL disclosures.
56Truist Financial Corporation --------------------------------------------------------------------------------
ACL
Activity related to the ACL is presented in the following tables:
Table 15: Activity in ACL
For the Three Months Ended For the Nine Months Ended
(Dollars in millions) Sep 30, 2021 Jun 30, 2021
Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 2021 2020 Balance, beginning of period$ 5,436 $ 6,011 $ 6,199 $ 6,229 $ 6,133 $ 6,199 $ 1,889 CECL adoption - impact to - - - - - - 2,762 retained earnings before tax CECL adoption - reserves on PCD - - - - - - 378 assets Provision for credit losses (324) (434) 48 177 421 (710) 2,158 Charge-offs: Commercial and industrial (57) (51) (73) (84) (112) (181) (274) CRE (1) - (4) (19) (44) (5) (59) Commercial construction - - (2) (8) (19) (2) (22) Lease financing - (2) (6) (4) (44) (8) (50) Residential mortgage (7) (4) (11) (6) (4) (22) (50) Residential home equity and (51) (57) (55) (46) (52) (163) (185) direct Indirect auto (73) (69) (105) (84) (72) (247) (294) Indirect other (13) (11) (17) (14) (8) (41) (46) Student (6) (3) (3) (3) (6) (12) (20) Credit card (31) (42) (40) (35) (44) (113) (147) Total charge-offs (239) (239) (316) (303) (405) (794) (1,147) Recoveries: Commercial and industrial 21 20 19 34 20 60 58 CRE 1 4 1 1 - 6 4 Commercial construction 1 1 1 1 2 3 10 Lease financing 21 3 - - 4 24 4 Residential mortgage 3 5 2 3 3 10 7 Residential home equity and 20 20 18 20 16 58 46 direct Indirect auto 22 27 22 24 22 71 63 Indirect other 5 7 6 5 4 18 18 Student 1 - - - - 1 1 Credit card 9 10 9 10 8 28 22 Total recoveries 104 97 78 98 79 279 233 Net charge-offs (135) (142) (238) (205) (326) (515) (914) Other 1 1 2 (2) 1 4 (44) Balance, end of period$ 4,978 $ 5,436 $ 6,011 $ 6,199 $ 6,229 $ 4,978 $ 6,229 ALLL (excluding PCD loans)$ 4,577 $ 4,979 $ 5,506 $ 5,668 $ 5,675 ALLL for PCD loans 125 142 156 167 188 RUFC 276 315 349 364 366 Total ACL$ 4,978 $ 5,436 $ 6,011 $ 6,199 $ 6,229
Net charge-offs during the third quarter totaled
The allowance for credit losses was$5.0 billion and includes$4.7 billion for the allowance for loan and lease losses and$276 million for the reserve for unfunded commitments. The ALLL ratio was 1.65% compared to 1.79% atJune 30, 2021 . The ALLL covered nonperforming loans and leases held for investment 4.35X compared to 4.83X atJune 30, 2021 . AtSeptember 30, 2021 , the ALLL was 8.79X annualized net charge-offs, compared to 8.98X atJune 30, 2021 . Truist Financial Corporation 57 -------------------------------------------------------------------------------- The following table presents an allocation of the ALLL. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases. Table 16: Allocation of ALLL by Category September 30, 2021 December 31, 2020 % ALLL in Each % Loans in Each % ALLL in Each % Loans in Each (Dollars in millions) Amount Category Category Amount Category Category Commercial and industrial$ 1,541 32.7 % 45.2 %$ 2,156 37.0 % 46.2 % CRE 370 7.9 8.5 573 9.8 8.9 Commercial construction 59 1.3 2.0 81 1.4 2.2 Lease financing 31 0.7 1.7 48 0.8 1.7 Residential mortgage 311 6.6 16.4 368 6.3 15.8 Residential home equity and 645 13.7 8.8 714 12.2 8.7 direct Indirect auto 1,071 22.8 9.4 1,198 20.5 8.7 Indirect other 194 4.1 3.9 208 3.6 3.7 Student 126 2.7 2.5 130 2.2 2.5 Credit card 354 7.5 1.6 359 6.2 1.6 Total ALLL 4,702 100.0 % 100.0 % 5,835 100.0 % 100.0 % RUFC 276 364 Total ACL$ 4,978 $ 6,199 Truist 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 ofSeptember 30, 2021 , Truist held or serviced the first lien on 30% of its second lien positions. Other Assets
The components of other assets are presented in the following table: Table 17: Other Assets as of Period End
September 30, December 31,
(Dollars in millions) 2021 2020
Bank-owned life insurance $ 6,512 $ 6,479
Tax credit and other private equity investments 6,012 5,685
Prepaid pension assets 4,814 4,358
Derivative assets 2,976 3,837
Accrued income 1,841 1,934
Accounts receivable 1,910 1,833
Leased assets and related assets 1,846 1,810
ROU assets 1,207 1,333
Prepaid expenses 1,091 1,247
Equity securities at fair value 1,026 1,054
Structured real estate 322 390
FHLB stock 48 164
Other 446 549
Total other assets $ 30,051 $ 30,673
58 Truist Financial Corporation
--------------------------------------------------------------------------------Funding Activities
Deposits
The following table presents average deposits: Table 18: Average Deposits Three Months Ended (Dollars in millions) Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 Noninterest-bearing deposits$ 141,738 $ 137,892 $ 128,579 $ 127,103 $ 123,966 Interest checking 107,802 106,121 104,744 99,866 96,707 Money market and savings 136,094 134,029 129,303 124,692 123,598 Time deposits 17,094 18,213 20,559 23,605 27,940 Total average deposits$ 402,728 $ 396,255 $ 383,185 $ 375,266 $ 372,211 Average deposits for the third quarter of 2021 were$402.7 billion , an increase of$6.5 billion , or 1.6%, compared to the prior quarter. Average noninterest bearing deposits grew 2.8% compared to the prior quarter and represented 35.2% of total deposits for the third quarter of 2021, compared to 34.8% for the prior quarter. Average interest checking and money market and savings grew 1.6% and 1.5%, respectively, compared to the prior quarter.
Average time deposits decreased 6.1% primarily due to the maturity of higher-cost personal accounts.
Borrowings
AtSeptember 30, 2021 , short-term borrowings totaled$5.2 billion , a decrease of$866 million compared toDecember 31, 2020 , due primarily to a decrease of$2.6 billion in short-term FHLB advances, partially offset by an increase of$1.4 billion in securities sold under agreements to repurchase. Average short-term borrowings were$5.4 billion or 1.2% of total funding for the third quarter of 2021, as compared to$6.2 billion or 1.5% for the prior year. Average short-term borrowings decreased as a percentage of funding sources due to strong deposit growth. Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued byTruist andTruist Bank . Long-term debt totaled$37.8 billion atSeptember 30, 2021 , a decrease of$1.8 billion compared toDecember 31, 2020 . During 2021, the Company had$5.8 billion of senior long term debt maturities and redemptions, partially offset by$2.3 billion of issuances of fixed rate senior notes with an interest rate of 1.27% to 1.89% maturing between 2027 to 2029 and issuances of$2.3 billion in variable rate senior notes maturing between 2024 and 2025. FHLB advances represented 2.3% of total outstanding long-term debt atSeptember 30, 2021 , compared to 2.2% atDecember 31, 2020 . The average cost of long-term debt was 1.59% for the nine months endedSeptember 30, 2021 , down 19 basis points compared to the same period in 2020.
Shareholders' Equity
Total shareholders' equity was$68.9 billion atSeptember 30, 2021 , a decrease of$2.0 billion fromDecember 31, 2020 . This decrease includes a decrease of$2.3 billion in AOCI, redemptions of$1.4 billion in preferred stock for Series F, G, and H,$2.1 billion in dividends, and$1.1 billion in repurchases of common stock, partially offset by$4.8 billion in net income. Truist's book value per common share atSeptember 30, 2021 was$46.62 , compared to$46.52 atDecember 31, 2020 .
Refer to "Note 10. Shareholders' Equity" for additional disclosures related to preferred stock redemptions.
Risk Management
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 Financial Corporation 59
--------------------------------------------------------------------------------Truist is committed to fostering a culture that supports identification and escalation of risks across the organization. All teammates are responsible for upholding the Company's purpose, mission, and values, and are encouraged to speak up if there is any activity or behavior that is inconsistent with the Company's culture. The Truist code of ethics guides the Company's decision making and informs teammates on how to act in the absence of specific guidance.
Truist seeks an appropriate return for the risk taken in its business operations. Risk-taking activities are evaluated and prioritized to identify those that present 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 risks associated with integrating heritage BB&T and heritage SunTrust. The Board and Executive Leadership oversee the change management program, which is designed to ensure key decisions are reviewed and that there is appropriate oversight of integration activities.
Refer to Truist's Annual Report on Form 10-K for the year ended
Market Risk
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 both on its assets and on its liabilities. 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, with the goal of keeping net interest margin as stable as possible. 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, and projected growth and/or contractions, accessibility of funds for short-term needs and capital maintenance. Deposit betas are an important assumption in the interest rate risk modeling process. Truist applies an average deposit beta (the sensitivity of deposit rate changes relative to market rate changes) of approximately 50% to its non-maturity interest-bearing deposit accounts 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 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. 60Truist Financial Corporation --------------------------------------------------------------------------------
The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next 12 months assuming a gradual change in interest rates as described below. Table 19: Interest Sensitivity Simulation Analysis
Interest Rate Scenario Annualized Hypothetical Percentage Change in Net
Gradual Change in Prime Rate Interest Income
Prime Rate (bps) Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Up 100 4.25 % 4.25 % 4.08 % 3.43 %
Up 50 3.75 3.75 3.15 2.68
No Change 3.25 3.25 - -
Down 25 (1) 3.00 3.00 (1.22) (1.62)
Down 50 (1) 2.75 2.75 (1.71) (1.94)
(1)The Down 25 and 50 rates are floored at one basis point and may not reflect Down 25 and 50 basis points for all rate indices.
Rate sensitivity increased compared to prior periods, primarily driven by excess
liquidity and hedging changes partially offset by an increase in the investment
securities portfolio.
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 would increase interest-bearing funds to
offset the loss of this advantageous funding source.
The following table shows the results of Truist's interest-rate sensitivity
position assuming the loss of demand deposits and an associated increase in
managed rate deposits under various scenarios. For purposes of this analysis,
Truist modeled the incremental beta of managed rate deposits for the replacement
of the demand deposits at 100%.
Table 20: Deposit Mix Sensitivity Analysis
Results Assuming a Decrease in Noninterest-Bearing Demand
Base Scenario at Deposits
Gradual Change in September 30, 2021
Rates (bps) (1) $20 Billion $40 Billion
Up 100 4.08 % 3.22 % 2.37 %
Up 50 3.15 2.52 1.90
(1)The base scenario is equal to the annualized hypothetical percentage change
in net interest income at
Truist also uses an EVE analysis to focus on longer-term projected changes in asset and liability values given potential changes in interest rates. This measure allows Truist to analyze interest rate risk that falls outside the net interest income simulation period. The EVE model is a discounted cash flow of the portfolio of assets, liabilities, and derivative instruments. The difference in the present value of assets minus the present value of liabilities is defined as EVE.
The following table shows the effect that the indicated changes in interest rates would have on EVE: Table 21: EVE Simulation Analysis
Hypothetical Percentage Change
Change in Interest Rates in EVE
(bps) Sep 30, 2021 Sep 30, 2020
Up 100 (5.1) % 7.4 %
No Change - -
Down 100 (3.5) (6.8)
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. As of September 30, 2021 ,
the Company had $24.0 billion of pay-fixed swaps associated with this hedging
program that are accounted for as fair value hedges. In the third quarter of
2021, this hedging program reduced net interest income by $17 million . Truist
also uses derivatives to facilitate transactions on behalf of its clients and as
part of associated hedging activities. As of September 30, 2021 , Truist had
derivative financial instruments outstanding with notional amounts totaling
$329.9 billion , with an associated net fair value of $2.4 billion . See "Note 16.
Derivative Financial Instruments" for additional disclosures.
Truist Financial Corporation 61
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LIBOR in its current form will no longer be available after 2021. 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, will cease
publication at December 31, 2021 , based on this guidance. Truist has U.S. dollar
LIBOR-based contracts that extend beyond June 30, 2023 . In accordance with
regulatory guidance, production of new U.S. dollar LIBOR contracts will cease
before the end of 2021. 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. The project
team provides updates to Executive Leadership and the Board.
Contract fallback language for existing loans and leases is under review and
certain contracts will need updated provisions for the transition. The Company
has plans for impacted lines of business to remediate these contracts, train
impacted teammates, and provide timely notice to impacted clients. 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. 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 for the transition. Market risks
associated with this change are dependent on the alternative reference rates
available and market conditions at transition. In 2020, Truist began offering
SOFR-based lending solutions to wholesale and consumer clients and entered into
SOFR-based derivative contracts. The Company has actively been using SOFR as a
reference rate in various loan contracts and has originated approximately $3
billion of loans as of September 30, 2021 using this alternative reference rate.
Truist expects SOFR to become a more commonly-used pricing benchmark across the
industry and will offer additional SOFR based products during 2021. Other
alternative reference rates, such as emerging credit sensitive rates, will be
evaluated as additional alternatives for LIBOR. 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, 2020 .
Market risk from 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 ofSeptember 30, 2021 , the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was$38 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 covered positions did not contain any correlation
trading positions as of
62Truist Financial Corporation --------------------------------------------------------------------------------
VaR-Based Measures
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 and nine months endedSeptember 30, 2021 and 2020. In the third quarter of 2021, one and ten day VaR measures declined from the same period of last year as heightened market volatility experienced duringMarch 2020 aged out of the 12-month VaR look-back window. Table 22: VaR-based Measures Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 10-Day 10-Day Holding 1-Day Holding
10-
10-Day Holding 1-Day Holding (Dollars in millions) Period Period Period Period Period Period Period Period VaR-based Measures: Maximum$ 6 $ 3 $ 65$ 11 $ 68 $ 16 $ 65$ 11 Average 5 2 31 6 16 5 23 5 Minimum 3 2 13 3 3 1 3 1 Period-end 6 3 46 8 6 3 46 8 VaR by Risk Class: Interest Rate Risk 2 1 2 1 Credit Spread Risk 4 10 4 10 Equity Price Risk 2 2 2 2 Foreign Exchange Risk - - - - Portfolio Diversification (5) (6) (5) (6) Period-end 3 8 3 8
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 23: Stressed VaR-based Measures - 10 Day Holding Period
Three Months Ended (Dollars in millions) 2021 2020 2021 2020 Maximum$ 82 $ 65 $ 91 $ 65 Average 52 31 55 31 Minimum 31 14 26 13 Period-end 57 46 57 46 Compared to the prior year periods, stressed VaR measures increased in the third quarter of 2021 primarily due to the normalization of market making inventory levels this year compared to the same periods of 2020 when inventory levels were lower due to the market volatility. Truist Financial Corporation 63 --------------------------------------------------------------------------------
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, 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.
VaR Model Backtesting
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, there were no Company-wide VaR backtesting exceptions during the twelve months endedSeptember 30, 2021 . 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-20210930_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.
Stress Testing
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. 64Truist Financial Corporation --------------------------------------------------------------------------------
Liquidity
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. 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 forTruist andTruist 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. As ofSeptember 30, 2021 andDecember 31, 2020 , Truist's liquid asset buffer, as a percent of total assets, was 24.5% and 20.2%, respectively. The LCR rule directs largeU.S. banking organizations to hold unencumbered high-quality liquid assets sufficient to withstand projected 30-day total net cash outflows, as defined under the LCR rule. As ofJanuary 1, 2020 , Truist is subject to the Category III reduced LCR requirements. Truist's average LCR was 114% for the three months endedSeptember 30, 2021 , well above the regulatory minimum of 100%. EffectiveJuly 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. AtSeptember 30, 2021 , the Company was compliant with this requirement. The ability to raise funding at competitive prices is affected by the rating agencies' views of the Parent Company's andTruist Bank's credit quality, liquidity, capital, and earnings. Management meets with the rating agencies on a regular basis to discuss current outlooks. During the nine months endedSeptember 30, 2021 , Fitch Ratings,S&P Global Ratings , DBRS Morningstar, and Moody's Investors Service all affirmed their ratings and provided updates to their rating outlooks for the Company and the Bank as further detailed below. OnMay 7, 2021 , Fitch Ratings affirmed the ratings of the Parent Company andTruist Bank , and revised the rating outlook to "stable" from "negative." The revision to the rating outlook reflects the rating agency's view that the Company's diverse business model and strategy execution will drive stable earnings performance that supports its credit ratings. The revised rating outlook also reflects increased confidence in aU.S. economic recovery, which reduces the likelihood of the downside scenario that was contemplated when Fitch Ratings revised the ratings outlook to "negative" inApril 2020 . OnMay 24, 2021 ,S&P Global Ratings affirmed the ratings of the Parent Company andTruist Bank , and revised the rating outlook to "positive" from "stable", citing the stabilization inU.S. economic trends and the easing industry risk in theU.S. banking system. The rating agency also noted that the positive outlook reflects the view that, as a merged entity, Truist's better geographic diversity, increased market position, improved earnings power, and higher technology spending provide a sustainable competitive advantage, and that the financial and credit positives of the merged entity could outweigh the operational risks of integrating two large regional banks. OnJune 10, 2021 , DBRS Morningstar confirmed the ratings of the Parent Company andTruist Bank and revised the trend for all ratings to "positive" from "stable," citing substantial progress to date with the Merger integration and the rating agency's view that the impact of the economic fallout from the coronavirus pandemic on Truist's asset quality and capital will continue to be manageable. OnJuly 12, 2021 , Moody's Investors Service upgradedTruist Bank's long-term subordinated debt rating to A2 from A3, and downgradedTruist Bank's long-term bank deposit rating to Aa3 from Aa2. The rating actions were driven by revisions to the rating agency's advanced loss given failure analysis within its updated methodology published onJuly 9, 2021 . See the "Liquidity" section of MD&A in Truist's Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional information regarding credit ratings. Parent CompanyThe Parent Company serves as the primary source of capital for the operating subsidiaries.The Parent Company's assets consist primarily of cash on deposit withTruist 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.Truist Financial Corporation 65
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See "Note 22. Parent Company Financial Information" in Truist's Annual Report on
Form 10-K for the year ended
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 toTruist Bank , and being able to withstand sustained market disruptions that could limit access to the capital markets. AtSeptember 30, 2021 andDecember 31, 2020 , the Parent Company had 36 months and 43 months, respectively, of cash on hand to satisfy projected cash outflows, and 20 months and 22 months, respectively, when including the payment of common stock dividends.
Truist carefully manages liquidity risk atTruist Bank .Truist Bank's primary source of funding is client deposits. Continued access to client deposits is highly dependent on public confidence in the stability ofTruist Bank and its ability to return funds to clients when requested.Truist Bank maintains 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 Bank also maintains access to secured borrowing sources including FHLB advances, repurchase agreements, and the FRB discount window. The following table presents a summary ofTruist Bank's available secured borrowing capacity and eligible cash at the FRB: Table 24: Liquidity Sources (Dollars in millions) Sep 30, 2021 Dec 31, 2020 Unused borrowing capacity: FRB$ 51,457 $ 52,831 FHLB 52,459 52,274 AFS securities 120,462 93,623 Available secured borrowing capacity 224,378 198,728 Eligible cash at the FRB 14,674 13,437 Total$ 239,052 $ 212,165
At
66Truist Financial Corporation --------------------------------------------------------------------------------
Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements
Refer to Truist's Annual Report on Form 10-K for the year endedDecember 31, 2020 for discussion with respect to Truist's quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Truist's commitments include investments in affordable housing projects throughout its market area, renewable energy credits, private equity funds, derivative contracts to manage various financial risks, as well as other commitments. Refer to "Note 14. Commitments and Contingencies," "Note 15. Fair Value Disclosures," and "Note 16. Derivative Financial Instruments" in this Form 10-Q, and "Note 16. Commitments and Contingencies" of the Annual Report on Form 10-K for further discussion of these commitments.
Capital
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, 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.
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 25: Capital Requirements
Minimum Capital
Well Capitalized Plus Stress
Capital Buffer
Minimum Capital Truist Truist Bank (1)
CET1 4.5 % NA 6.5 % 7.2 %
Tier 1 capital 6.0 6.0 % 8.0 8.7
Total capital 8.0 10.0 10.0 10.7
Leverage ratio 4.0 NA 5.0 NA
Supplementary leverage ratio 3.0 NA NA NA
(1)Reflects a SCB of 2.7% applicable to Truist through
Truist completed the 2021 CCAR process and received a SCB of 2.5% for the periodOctober 1, 2021 toSeptember 30, 2022 . Truist increased the common dividend 7% during the third quarter of 2021 to$0.48 per share. Truist continues to target a CET1 ratio of approximately 9.75% over the near-term. As previously communicated, the Company expects to be able to, with appropriate approvals from its Board of Directors, deploy approximately$4 billion to$5 billion of capital (either in the form of share repurchases or acquisitions) between 3Q21 and 3Q22. During the third quarter of 2021, Truist completed the acquisition ofConstellation Affiliated Partners and announced the acquisition ofService Finance, LLC , reducing the amount of capital deployment available for acquisitions or share repurchases to approximately$1 billion to$2 billion through 3Q22. Truist resumed repurchasing shares and expects to consume approximately$500 million of this capacity via share repurchases in the fourth quarter of 2021 reflecting the Company's strong capital position, and the reduced integration risk with successful migration of heritage BB&T retail and commercial clients to the Truist ecosystem.Truist Financial Corporation 67 --------------------------------------------------------------------------------
Truist's capital ratios are presented in the following table:
Table 26: Capital Ratios -
(Dollars in millions, except per share data, shares in thousands)
Sep 30, 2021 Dec 31, 2020 Risk-based:
(preliminary)
CET1 capital to risk-weighted assets 10.1 % 10.0 % Tier 1 capital to risk-weighted assets 11.9 12.1 Total capital to risk-weighted assets 13.9 14.5 Leverage ratio 9.0 9.6 Supplementary leverage ratio 7.8 8.7 Non-GAAP capital measure (1): Tangible common equity per common share$ 26.34 $ 26.78 Calculation of tangible common equity (1): Total shareholders' equity$ 68,900 $ 70,912 Less: Preferred stock 6,673 8,048 Noncontrolling interests - 105 Goodwill and intangible assets, net of deferred taxes 27,066 26,629 Tangible common equity$ 35,161 $ 36,130 Risk-weighted assets$ 383,073 $ 379,153 Common shares outstanding at end of period 1,334,892 1,348,961 (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 nine months endedSeptember 30 , 2021,Truist paid$1.8 billion in common stock dividends or$1.38 per share, and completed$1.1 billion in common share repurchases. The dividend and total payout ratios for the nine months endedSeptember 30, 2021 were 41% and 66%, respectively. Truist also redeemed$1.4 billion of preferred stock to optimize the Company's capital position. Share Repurchase Activity Table 27: 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, shares in thousands) Repurchased (1) (2) (3) Plan July 2021 - $ - - $ 3,065 August 2021 - - - 3,065 September 2021 - - - 3,065 Total - - - (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 inDecember 2020 , authorizing up to$2.0 billion of share repurchases beginning in the first quarter of 2021. InJune 2021 , the Board of Directors increased, effectiveJuly 1, 2021 , the previous repurchase authority to effectuate repurchases up to an additional$2.2 billion in shares of the Company's common stock throughSeptember 30, 2022 (up to$4.2 billion in aggregate amount). With the additional authorization, the Company has$3.1 billion remaining for share repurchases. 68Truist Financial Corporation --------------------------------------------------------------------------------
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. The more critical policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, income taxes, and benefit obligations associated with pension and postretirement benefit plans. 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 endedDecember 31, 2020 . 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 endedDecember 31, 2020 . Disclosures regarding the effects of new accounting pronouncements are included in the "Note 1. Basis of Presentation" in this report. Except for the item noted below, there have been no other changes to the significant accounting policies during 2021. Intangible Assets The Company performed a qualitative assessment of current events and circumstances, including macroeconomic and market factors, industry and banking sector events, Truist specific performance indicators, and a comparison of management's forecast and assumptions to those used in itsOctober 1, 2020 quantitative impairment test, concluding that it was not more-likely-than-not that the fair value of one or more of its reporting units is below its respective carrying amount as ofSeptember 30, 2021 , and therefore no triggering event occurred that required a quantitative goodwill impairment test. If economic conditions deteriorate, or the COVID-19 pandemic's effects prolong or worsen, it may be more-likely-than-not that the fair value of one or more of Truist's reporting units falls below its respective carrying amount, which would require a quantitative goodwill impairment test.Truist Financial Corporation 69 --------------------------------------------------------------------------------
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