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. 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 added 24 basis points to the Company's supplementary leverage ratio as ofMarch 31, 2021 . The FRB also announced plans to propose several potential modifications to the supplementary leverage ratio 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
In
At the same time, the FRB 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 will be subject to the normal restrictions on capital distributions under the SCB framework and applicable law.
Bank Level 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. TheFDIC has not yet providedTruist Bank with a due date for its next resolution plan, but stated banks will not be required to submit a resolution plan without at least 12 months of advance notice.
Lifting of Consent Order
InJune 2021 , the FRB lifted theNovember 2019 consent order betweenSunTrust Bank and the FRB, relating to certain identified legacy compliance issues, and requiring certain remediation actions with respect to the identified issues.Truist Financial Corporation 39 --------------------------------------------------------------------------------
Executive Overview
Truist had a strong financial performance in the second quarter of 2021 and achieved several significant milestones that are reflective of its purpose in action. Truist 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. Truist also continues to make significant progress on Merger integration and conversion efforts.
Integration Efforts
Recent highlights include:
•Reaffirmed its commitment to achieving$1.6 billion in net cost saves on a run rate basis by the fourth quarter of 2022. •Completed the Wealth brokerage and trust transitions. •Continued 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. •Completed testing protocols for core bank transition events. •Launched teammate and client pilot program for digital experience.
Supporting Clients
Truist is continuing to work closely with clients as they experience 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 throughJune 30, 2021 .
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. 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$144 million of merger-related and restructuring charges during the second quarter of 2021 related to the voluntary separation and retirement program.
Additionally, this quarter Truist was recognized as one of America's Best
Employers for Diversity by
Supporting Communities
Truist continued to fulfill its purpose in meaningful ways in the community. In the quarter, Truist released its inaugural supplier diversity report, which reflects a$1 billion impact for 2020, significantly expanded its partnership with Operation HOPE to help provide more education, insights and tools to help more people build better lives, and contributed a combined$200 million to theTruist Foundation and theTruist Charitable Fund to further support the important work of organizations across Truist's diverse markets. In addition, Truist continued to make solid progress towards the Company's$60 billion Community Benefits Plan, endingMay 2021 at 114% 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 --------------------------------------------------------------------------------
Financial Results
Net income available to common shareholders for the second quarter of 2021 totaled$1.6 billion , up 73%, compared with the second quarter of last year. On a diluted per common share basis, earnings for the second quarter of 2021 were$1.16 , an increase of$0.49 compared to the second quarter of 2020. Truist's results of operations for the second quarter of 2021 produced an annualized return on average assets of 1.28% and an annualized return on average common shareholders' equity of 10.1% compared to prior year returns of 0.75% and 5.9%, respectively. Results for the second quarter of 2021 included merger-related and restructuring charges of$297 million ($228 million after-tax), incremental operating expenses related to the Merger of$190 million ($146 million after-tax), and charitable contributions to theTruist Foundation and theTruist Charitable Fund of$200 million ($153 million after-tax). Results for the second quarter of 2020 included$209 million ($160 million after-tax) of merger-related and restructuring charges,$129 million ($99 million after-tax) of incremental operating expenses related to the Merger, securities gains of$300 million ($230 million after-tax), and losses from the early extinguishment of long-term debt of$235 million ($180 million after-tax). Truist's revenue for the second quarter of 2021 was$5.7 billion . On a TE basis, revenue was also$5.7 billion for the second quarter of 2021, a decrease of$224 million , or 3.8%, compared to the same period in 2020, due primarily to securities gains of$300 million in the second quarter of 2020. Net interest income for the second quarter of 2021 was down$206 million , or 5.9%, compared to the earlier quarter due to lower purchase accounting accretion and lower rates on earning assets. This decrease was partially offset by lower funding costs, higher fees on PPP loans and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$8.4 billion compared to the earlier quarter. The increase in average earning assets reflects a$60.5 billion increase in average securities, while average total loans and leases decreased$33.5 billion and average other earning assets decreased$19.9 billion . Average interest-bearing liabilities decreased$20.1 billion compared to the earlier quarter, which was offset by significant growth in average noninterest-bearing deposits, which increased$24.0 billion compared to the earlier quarter. Net interest margin was 2.88%, down 25 basis points compared to the earlier quarter. The yield on the total loan portfolio for the second quarter of 2021 was 4.01%, down 18 basis points compared to the earlier quarter, reflecting the impact of a lower rate environment and lower purchase accounting accretion. The yield on the average securities portfolio was 1.47%, down 90 basis points compared to the earlier quarter primarily due to lower yields on new purchases. The average costs of interest-bearing liabilities was 0.26%, down 29 basis points compared to the prior year. Provision for credit losses was a negative$434 million compared to$844 million for the second quarter of 2020. The earlier quarter included significant uncertainty of the economic impacts resulting from the COVID-19 pandemic, whereas the current quarter includes a reserve release due to improving economic outlook and lower loan balances. The net charge-off ratio of 0.20% was down 19 basis points compared to the second quarter of 2020, primarily driven by lower losses in the indirect auto and commercial portfolios combined with higher recoveries, as well as lower losses in the residential mortgage portfolio. The net charge-off ratio for the second quarter of 2021 was a post financial crisis low. Noninterest income for the second quarter of 2021 decreased$18 million , or 0.7%, compared to the earlier quarter. Noninterest income for the second quarter of 2020 included$300 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased$282 million , or 13%, compared to the earlier quarter. The current quarter reflects record revenues from insurance, wealth management, card and payment related fees, and commercial real estate related revenues, as well as very strong investment banking income due to strong execution across multiple lines of business. In addition, other income increased from higher investment income (primarily valuation gains) related to the Company'sSBIC and Truist Ventures strategic investments. These increases were partially offset by a decline in residential mortgage income due to lower production related revenues, coupled with lower servicing income. Noninterest expense for the second quarter of 2021 was up$133 million , or 3.4%, compared to the earlier quarter. Merger-related and restructuring charges increased$88 million and other incremental operating expenses related to the merger increased$61 million , primarily reflected in professional fees and outside processing. The current quarter also includes$200 million for charitable contributions (other expense) to theTruist Foundation and theTruist Charitable Fund , whereas the earlier quarter included a$235 million loss on the early extinguishment of debt. Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up$55 million , or 1.8%, compared to the earlier quarter. Additionally, increases in personnel expense of$199 million were partially offset by a decline in net occupancy expense of$61 million and other expense of$86 million (excluding the$200 million charitable contributions mentioned above.) The provision for income taxes was$415 million for the second quarter of 2021, compared to$191 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2021 of 20.0%, compared to 16.6% for the earlier quarter. The higher effective tax rate is primarily due to higher pre-tax income in the current quarter and lower discrete tax benefits compared to the earlier quarter.Truist Financial Corporation 41 -------------------------------------------------------------------------------- Truist's total assets atJune 30, 2021 were$522.0 billion , an increase of$12.7 billion , or 2.5%, 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$19.1 billion and balances held at theFederal Reserve of$7.8 billion . These increases were partially offset by a$16.3 billion decline in total loans and leases. Total deposits atJune 30, 2021 were$398.3 billion , an increase of$17.2 billion , or 4.5%, compared toDecember 31, 2020 . Deposit growth was strong during the first six months of 2021 resulting from fiscal and monetary stimulus, partially offset by a decrease in time deposits primarily due to the maturity of wholesale negotiable certificates of deposit and higher-cost personal accounts. Asset quality ratios improved reflecting improving economic conditions and effective problem asset resolution. As ofJune 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 4.83x nonperforming loans and leases held for investment, compared to 4.39x atDecember 31, 2020 . Truist maintained strong capital and liquidity. As ofJune 30, 2021 , the CET1 ratio was 10.2% and the average LCR was 113%. For the six months endedJune 30, 2021 , Truist completed$1.1 billion of share repurchases and redeemed$1.4 billion of preferred stock. Additionally, the Company had$4.5 billion of senior long term debt maturities and redemptions, partially offset by issuances of$3.3 billion . Truist declared common dividends of$0.45 per share during the second quarter of 2021, resulting in dividend and total payout ratios for the second quarter of 2021 of 39% and 78%, respectively. Truist completed the 2021 CCAR process and received a preliminary stress capital buffer of 2.5% for the periodOctober 1, 2021 toSeptember 30, 2022 . InJuly 2021 , the Board of Directors approved an increase in the quarterly dividend of 7% to$0.48 beginning in the third quarter of 2021. Truist plans to target a CET1 ratio of approximately 9.75% over the near-term, and accordingly, 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) over the next 5 quarters (3Q21-3Q22). EffectiveJuly 1, 2021 , the Board of Directors increased the previous repurchase authority of the Company's common stock, of which the Company has$3.1 billion remaining. The amount of share repurchases is dependent on capital deployment through organic growth, earnings, and acquisitions, giving consideration to 9.75% CET1 target. Additionally, onJuly 1, 2021 , Truist acquiredConstellation Affiliated Partners , which resulted in approximately$900 million of goodwill and identifiable intangible assets, reducing the amount of capital deployment available for share repurchases or acquisitions to approximately$3 billion to$4 billion through 3Q22.
Analysis of Results of Operations
Net Interest Income and NIM
Second Quarter 2021 compared to Second Quarter 2020
Taxable-equivalent net interest income for the second quarter of 2021 was down$206 million , or 5.9%, compared to the earlier quarter due to lower purchase accounting accretion and lower rates on earning assets. These decreases were partially offset by lower funding costs, higher fees on PPP loans and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$8.4 billion compared to the earlier quarter. The increase in average earning assets reflects a$60.5 billion increase in average securities, while average total loans and leases decreased$33.5 billion and average other earning assets decreased$19.9 billion . The growth in average earnings assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average interest-bearing liabilities decreased$20.1 billion compared to the earlier quarter. The decline in average interest-bearing liabilities was offset by significant growth in average noninterest-bearing deposits, which increased$24.0 billion compared to the earlier quarter. Average interest-bearing deposits increased$1.4 billion , while average long-term debt decreased$18.7 billion and average short-term borrowings decreased$2.8 billion . Net interest margin was 2.88%, down 25 basis points compared to the earlier quarter. The yield on the total loan portfolio for the second quarter of 2021 was 4.01%, down 18 basis points compared to the earlier quarter, reflecting the impact of a lower rate environment and lower purchase accounting accretion. The yield on the average securities portfolio was 1.47%, down 90 basis points compared to the earlier quarter primarily due to lower yields on new purchases. The average cost of total deposits was 0.04%, down 18 basis points compared to the earlier quarter. The average rate on short-term borrowings was 0.98%, down 26 basis points compared to the earlier quarter. The average rate on long-term debt was 1.60%, up eight basis points compared to the earlier quarter. 42Truist Financial Corporation --------------------------------------------------------------------------------
Six Months of 2021 compared to Six Months of 2020
Taxable-equivalent net interest income for the six months endedJune 30, 2021 was down$580 million , or 7.6%, compared to the prior period due to lower purchase accounting accretion and lower rates on earning assets. These decreases were partially offset by lower funding costs, higher fees on PPP loans and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased$19.5 billion compared to the prior period. The increase in average earning assets reflects a$53.6 billion increase in average securities, while average total loans and leases decreased$20.9 billion and average other earning assets decreased$13.1 billion . The growth in average earnings assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average interest-bearing liabilities decreased$13.9 billion compared to the prior period. The decline in average interest-bearing liabilities was offset by significant growth in average noninterest-bearing deposits, which increased$29.8 billion compared to the prior period. Average interest-bearing deposits increased$7.3 billion , while average long-term debt decreased$13.7 billion and average short-term borrowings decreased$7.5 billion . Net interest margin was 2.95% for the six months endedJune 30, 2021 , down 39 basis points compared to the prior period. The yield on the total loan portfolio for the six months endedJune 30, 2021 was 4.05%, down 52 basis points compared to the prior period, reflecting the impact of a lower rate environment and lower purchase accounting accretion. The yield on the average securities portfolio was 1.46% for the six months endedJune 30, 2021 , down 103 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 six months endedJune 30, 2021 , down 31 basis points compared to the prior period. The average rate on short-term borrowings was 0.90% for the six months endedJune 30, 2021 , down 70 basis points compared to the prior period. The average rate on long-term debt was 1.58% for the six months endedJune 30, 2021 , down 32 basis points compared to the prior period. The lower rates on interest-bearing liabilities reflect the lower rate environment. As ofJune 30, 2021 , the remaining unamortized fair value marks on the loan and lease portfolio, deposits, and long-term debt were$1.8 billion ,$12 million , and$176 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$929 million for consumer loans and leases, and$848 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 EndedJune 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 $ 9,070 $ 2,237 0.73 % 1.88 %$ 16 $ 10 $ 6 $ (10) $ 16 GSE 1,840 1,844 2.33 2.33 11 12 (1) - (1) Agency MBS 124,251 70,374 1.50 2.35 466 413 53 (186) 239 States and political subdivisions 437 505 3.55 3.57 4 4 - - - Non-agency MBS 17 162 2.46 16.71 - 7 (7) (3) (4) Other 32 37 1.88 2.27 - - - - - Total securities 135,647 75,159 1.47 2.37 497 446 51 (199) 250 Interest earning trading assets 5,061 3,700 2.82 4.19 37 39 (2) (14) 12 Other earning assets (3) 21,592 41,531 0.19 0.28 9 28 (19) (8) (11)
Loans and leases, net of unearned income: (4)
Commercial and industrial 133,646 152,991 3.07 3.16 1,024 1,204 (180) (33) (147) CRE 25,645 27,804 2.84 3.26 183 227 (44) (27) (17)Commercial Construction 6,359 6,748 2.95 3.70 45 61 (16) (13) (3) Lease financing 4,893 5,922 3.91 4.71 48 70 (22) (11) (11) Residential mortgage 43,605 52,380 4.35 4.65 474 608 (134) (37) (97) Residential home equity and direct 25,238 27,199 5.74 5.78 361 391 (30) (3) (27) Indirect auto 26,444 24,721 6.20 6.63 409 407 2 (27) 29 Indirect other 10,797 11,282 6.86 7.18 185 201 (16) (8) (8) Student 7,396 7,633 3.90 4.55 72 87 (15) (12) (3) Credit card 4,552 4,949 8.73 9.27 99 114 (15) (6) (9) Total loans and leases HFI 288,575 321,629 4.03 4.21 2,900 3,370 (470) (177) (293) LHFS 4,390 4,806 2.57 3.04 28 36 (8) (5) (3) Total loans and leases 292,965 326,435 4.01 4.19 2,928 3,406 (478) (182) (296) Total earning assets 455,265 446,825 3.06 3.52 3,471 3,919 (448) (403) (45) Nonearning assets 63,509 67,895 Total assets$ 518,774 $ 514,720 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-checking$ 106,121 $ 97,863 0.06 0.23 15 55 (40) (44) 4 Money market and savings 134,029 126,071 0.03 0.18 8 57 (49) (52) 3 Time deposits 18,213 33,009 0.28 1.09 13 89 (76) (47) (29) Total interest-bearing deposits (6) 258,363 256,943 0.06 0.32 36 201 (165) (143) (22) Short-term borrowings 6,168 8,998 0.98 1.24 15 28 (13) (5) (8) Long-term debt 36,873 55,537 1.60 1.52 147 211 (64) 11 (75) Total interest-bearing liabilities 301,404 321,478 0.26 0.55 198 440 (242) (137) (105) Noninterest-bearing deposits (6) 137,892 113,875 Other liabilities 10,813 12,504 Shareholders' equity 68,665 66,863
Total liabilities and shareholders' equity
2.80 % 2.97 %
NIM/net interest income - taxable equivalent 2.88 % 3.13 % $ 3,273 $
3,479
$ 28 $
31
(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 0.22% for the three months endedJune 30, 2021 and 2020, respectively. 44Truist Financial Corporation -------------------------------------------------------------------------------- Table 1-2: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis (1) Six Months EndedJune 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 $ 5,435 $ 2,255 0.76 % 1.91 %$ 20 $ 21 $ (1) $ (18) $ 17 GSE 1,840 1,850 2.33 2.33 22 22 - - - Agency MBS 121,228 70,595 1.47 2.48 892 874 18 (444) 462 States and political subdivisions 441 518 3.54 3.57 8 9 (1) - (1) Non-agency MBS 8 174 2.45 16.71 - 15 (15) (7) (8) Other 32 38 1.90 2.65 - - - - - Total securities 128,984 75,430 1.46 2.49 942 941 1 (469) 470 Interest earning trading assets 4,902 5,017 2.81 4.09 69 103 (34) (32) (2) Other earning assets (3) 19,515 32,641 0.27 0.74 25 120 (95) (58) (37)
Loans and leases, net of unearned income: (4)
Commercial and industrial 134,843 142,367 3.08 3.70 2,064 2,623 (559) (425) (134) CRE 25,926 27,425 2.87 3.75 372 514 (142) (115) (27)Commercial Construction 6,457 6,578 2.99 4.27 93 137 (44) (41) (3) Lease financing 4,933 5,996 4.09 4.49 101 135 (34) (11) (23) Residential mortgage 44,708 52,687 4.39 4.56 981 1,202 (221) (44) (177) Residential home equity and direct 25,447 27,381 5.78 6.19 729 843 (114) (55) (59) Indirect auto 26,403 24,848 6.38 6.76 835 835 - (49) 49 Indirect other 10,823 11,116 6.92 7.27 372 402 (30) (20) (10) Student 7,457 7,710 3.93 4.97 145 191 (46) (40) (6) Credit card 4,598 5,242 8.99 9.49 205 247 (42) (13) (29) Total loans and leases HFI 291,595 311,350 4.07 4.60 5,897 7,129 (1,232) (813) (419) LHFS 4,640 5,741 2.58 3.10 60 89 (29) (13) (16) Total loans and leases 296,235 317,091 4.05 4.57 5,957 7,218 (1,261) (826) (435) Total earning assets 449,636 430,179 3.13 3.91 6,993 8,382 (1,389) (1,385) (4) Nonearning assets 64,196 65,956 Total assets$ 513,832 $ 496,135 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-checking$ 105,436 $ 91,435 0.06 0.41 30 184 (154) (179) 25 Money market and savings 131,680 123,504 0.03 0.38 18 235 (217) (231) 14 Time deposits 19,379 34,289 0.36 1.19 35 203 (168) (104) (64) Total interest-bearing deposits (6) 256,495 249,228 0.07 0.50 83 622 (539) (514) (25) Short-term borrowings 6,448 13,949 0.90 1.60 29 111 (82) (37) (45) Long-term debt 37,344 51,042 1.58 1.90 295 483 (188) (73) (115) Total interest-bearing liabilities 300,287 314,219 0.27 0.78 407 1,216 (809) (624) (185) Noninterest-bearing deposits (6) 133,261 103,505 Other liabilities 10,932 12,274 Shareholders' equity 69,352 66,137 Total liabilities and shareholders' equity$ 513,832 $ 496,135 Average interest-rate spread 2.86 % 3.13 % NIM/net interest income - taxable equivalent 2.95 % 3.34 %$ 6,586 $ 7,166 $ (580) $ (761) $ 181 Taxable-equivalent adjustment$ 56 $ 68 (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 0.35% for the six months endedJune 30, 2021 and 2020, respectively. Truist Financial Corporation 45 --------------------------------------------------------------------------------
Provision for Credit Losses
Second Quarter 2021 compared to Second Quarter 2020
The provision for credit losses was a negative$434 million , compared to$844 million for the earlier quarter. The earlier quarter included significant uncertainty of the economic impacts resulting from the COVID-19 pandemic, whereas the current quarter includes a reserve release due to improving economic outlook and lower loan balances. Net charge-offs for the second quarter of 2021 totaled$142 million compared to$316 million in the earlier quarter. The net charge-off ratio for the current quarter of 0.20% was down 19 basis points compared to the second quarter of 2020, primarily driven by lower losses in the indirect auto and commercial portfolios combined with higher recoveries, as well as lower losses in the residential mortgage portfolio.
Six Months of 2021 compared to Six Months of 2020
The provision for credit losses was a negative$386 million for the six months endedJune 30, 2021 , compared to$1.7 billion for the prior period. The prior period included significant uncertainty of the economic impacts resulting from the COVID-19 pandemic, whereas the current year includes a reserve release due to improving economic outlook and lower loan balances. Net charge-offs for the six months endedJune 30, 2021 totaled$380 million compared to$588 million in the earlier period. The net charge-off ratio for the current year of 0.26% was down 12 basis points compared to the prior period, primarily driven by lower losses in the commercial and indirect auto portfolios combined with higher recoveries, as well as lower losses in the residential mortgage portfolio.
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 June 30, Six Months Ended June 30,
(Dollars in millions) 2021 2020 % Change 2021 2020 % Change
Insurance income $ 690 $ 581 18.8 % $ 1,316 $ 1,130 16.5 %
Wealth management income 345 289 19.4 686 621 10.5
Service charges on deposits 253 202 25.2 511 507 0.8
Residential mortgage income 117 341 (65.7) 217 586 (63.0)
Investment banking and trading 317 274 15.7 657 392 67.6
income
Card and payment related fees 225 171 31.6 425 358 18.7 Lending related fees 94 66 42.4 194 133 45.9 Operating lease income 66 83 (20.5) 134 160 (16.3) Commercial real estate related 138 49 181.6 181 93
94.6
income
Income from bank-owned life 46 45 2.2 96 89 7.9 insurance Securities gains (losses) - 300 NM - 298 NM Other income 114 22 NM 185 17 NM Total noninterest income$ 2,405 $ 2,423 (0.7)$ 4,602 $ 4,384 5.0
Second Quarter 2021 compared to Second Quarter 2020
Noninterest income for the second quarter of 2021 decreased$18 million compared to the earlier quarter. Noninterest income for the second quarter of 2020 included$300 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased$282 million , or 13%, compared to the earlier quarter. Insurance income increased$109 million due to acquisitions, as well as new business and higher retention. Commercial real-estate related income increased$89 million primarily due to client-related structured real estate transactions. Investment banking and trading income increased$43 million due to strong investment banking income from loan syndications, merger and acquisition fees and asset securitization transactions, which was partially offset by lower trading income. Other income increased$92 million primarily due to an increase of$67 million related to increased investment income (primarily valuations gains) from the Company'sSBIC and Truist Ventures investments. In addition, other income increased$43 million from higher valuations of assets held for certain post-retirement benefits, which is primarily offset by higher benefits expense included in personnel expense. Revenues related to wealth management, service charges on deposits and card and payment related activities increased$161 million as transaction volumes and asset levels increased compared to the levels in the earlier quarter due to improving economic conditions. Residential mortgage banking income decreased$224 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, coupled with lower servicing income due to a reduction in the third-party servicing portfolio as a result of prepayments. 46Truist Financial Corporation --------------------------------------------------------------------------------
Six Months of 2021 compared to Six Months of 2020
Noninterest income for the six months endedJune 30, 2021 increased$218 million compared to the prior period. Other income for the six months endedJune 30, 2021 includes a$37 million gain from the divestiture of certain businesses, whereas noninterest income for the six months endedJune 30, 2020 included$298 million of securities gains on available-for-sale securities. Excluding securities gains and the divestiture gain, noninterest income increased$479 million , or 12%, compared to the prior period. Investment banking and trading income increased$265 million due to strong investment banking income from loan syndications, equity originations, merger and acquisition fees, and asset securitization transactions, as well as the impact from CVA recoveries in the current period compared to losses in the earlier period. Other income increased$168 million primarily due to higher valuations of$105 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$57 million related to increased investment income (primarily valuations gains) from the Company'sSBIC and Truist Ventures investments. Insurance income increased$186 million due to acquisitions, as well as new business and higher retention. Commercial real-estate related income increased$88 million primarily due to client-related structured real estate transactions. Revenues related to wealth management and card and payment related activities increased$132 million as transaction volumes and asset levels increased compared to the levels in the earlier period due to improving economic conditions. Lending related fees increased$61 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$369 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, coupled with lower servicing income due to a reduction in the third-party servicing portfolio as a result of prepayments.
Noninterest Expense
The following table provides a breakdown of Truist's noninterest expense: Table 3: Noninterest Expense
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions) 2021 2020 % Change 2021 2020 % Change
Personnel expense $ 2,207 $ 2,008 9.9 % $ 4,349 $ 3,980 9.3 %
Professional fees and outside
processing 341 289 18.0 691 536 28.9
Net occupancy expense 182 243 (25.1) 391 464 (15.7)
Software expense 246 216 13.9 456 426 7.0
Amortization of intangibles 142 178 (20.2) 286 343 (16.6)
Equipment expense 122 120 1.7 235 236 (0.4)
Marketing and customer development 66 56 17.9 132 140 (5.7)
Operating lease depreciation 47 77 (39.0) 97 148 (34.5)
Loan-related expense 55 56 (1.8) 109 118 (7.6)
Regulatory costs 31 30 3.3 56 59 (5.1)
Merger-related and restructuring
charges 297 209 42.1 438 316 38.6
Loss (gain) on early extinguishment of debt - 235 (100.0) (3) 235 (101.3) Other expense 275 161 70.8 384 308 24.7 Total noninterest expense$ 4,011 $ 3,878 3.4$ 7,621 $ 7,309 4.3
Second Quarter 2021 compared to Second Quarter 2020
Noninterest expense for the second quarter of 2021 was up$133 million compared to the earlier quarter. Merger-related and restructuring charges increased$88 million primarily due to costs in connection with a voluntary separation and retirement program, partially offset by lower severance costs in the earlier quarter. Other incremental operating expenses related to the merger increased$61 million , primarily reflected in professional fees and outside processing. The current quarter also includes$200 million for charitable contributions to theTruist Foundation and theTruist Charitable Fund , whereas the earlier quarter included a$235 million loss on the early extinguishment of debt. Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up$55 million , or 1.8%, compared to the earlier quarter. Personnel expense increased$199 million primarily due to higher incentive expenses due to improved performance, higher other employee benefits due to the previously mentioned increase in noninterest income, as well as higher pension and insurance benefits expense. These increases in personnel expense were partially offset by lower salaries due to fewer FTEs. Other expense also includes decreases of$42 million for non-service-related pension cost components and$31 million for certain expenses provided in the earlier quarter related to support for teammates through the COVID-19 pandemic. There was also a decrease of$61 million from net occupancy expense primarily due to branch and property consolidations.Truist Financial Corporation 47
--------------------------------------------------------------------------------
Six Months of 2021 compared to Six Months of 2020
Noninterest expense for the six months endedJune 30, 2021 was up$312 million compared to the earlier period. Merger-related and restructuring charges increased$122 million and other incremental operating expenses related to the Merger increased$162 million . The current period also includes$200 million for charitable contributions to theTruist Foundation and theTruist Charitable Fund and$36 million of expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges, whereas the earlier period included a$235 million loss on the early extinguishment of debt. Excluding the aforementioned items and changes in amortization of intangibles, noninterest expense increased$87 million , or 1.4%, compared to the earlier period. Personnel expense increased$369 million primarily due to higher incentive expenses due to improved performance, higher other employee benefits due to the previously mentioned increase in noninterest income, as well as higher pension and insurance benefits expense. These increases in personnel expense were partially offset by lower salaries due to fewer FTEs. Other expense also includes decreases of$84 million for non-service-related pension cost components and$31 million for certain expenses provided in the earlier quarter related to support for teammates through the COVID-19 pandemic. There was also a decrease of$73 million from net occupancy expense primarily due to branch and property consolidations and a decrease in operating lease depreciation of$51 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 June 30, 2021 Six Months Ended June 30, 2021
Accrual at Accrual at Jun Accrual at Jan Accrual at Jun
(Dollars in millions)
30, 2021 1, 2021 Expense Utilized 30, 2021
Severance and $ 12 $ 166 $ (26) $ 152 $ 36
- 53 (48) 5 - 107 (102) 5
Professional services 29 63 (64) 28 16 117 (105) 28
Systems conversion and - 6 (6) - - 13 (13) -
related costs
Other 11 9 (10) 10 11 9 (10) 10
Total (2) $ 52 $ 297 $ (154) $ 195 $ 63 $ 438 $ (306) $ 195
(1)Includes $144 million of restructuring charges related to the Company's
voluntary separation and retirement program.
(2)The Company recognized $278 million of expenses for the three months ended
June 30, 2021 and $408 million for the six months ended June 30, 2021 related to
the Merger. At June 30, 2021 , the Company had an accrual of $178 million related
to the Merger. The remaining expense and accrual relate to other restructuring
activities.
Segment Results
Truist operates and measures business activity across three segments: Consumer
Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings ,
with functional activities included in Other, Treasury and Corporate. The
Company's business segment structure is based on the manner in which financial
information is evaluated by management as well as the products and services
provided or the type of client served. See "Note 17. Operating Segments" herein
and "Note 21. Operating Segments" in Truist's Annual Report on Form 10-K for the
year ended December 31, 2020 for additional disclosures related to Truist's
reportable business segments, including additional details related to results of
operations. Fluctuations in noninterest income and noninterest expense are more
fully discussed in the Noninterest Income and Noninterest Expense sections
above.
Table 5: Net Income by Reportable Segment
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions) 2021 2020 % Change 2021 2020 % Change
Consumer Banking and Wealth$ 862 $ 712 21.1 %$ 1,662 $ 1,400 18.7 % Corporate and Commercial Banking 1,227 402 NM 2,139 810 164.1 Insurance Holdings 156 126 23.8 287 232 23.7 Other, Treasury & Corporate (587) (282) 108.2 (957) (421) 127.3 Truist Financial Corporation$ 1,658 $ 958 73.1$ 3,131 $ 2,021 54.9 48Truist Financial Corporation --------------------------------------------------------------------------------
Second Quarter 2021 compared to Second Quarter 2020
Consumer Banking and Wealth
CB&W net income was$862 million for the second quarter of 2021, an increase of$150 million compared to the earlier quarter. Segment net interest income decreased$45 million primarily due to a decline in the funding credit provided on liabilities, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$274 million which reflects the impact of an allowance release during the current quarter, an allowance build during the earlier quarter resulting from the deteriorating economic outlook caused by the COVID-19 pandemic, and lower net charge-offs in the current quarter primarily in the mortgage, home equity and auto portfolios. Noninterest income decreased$83 million driven by lower residential mortgage income due to lower gain on sale margins and volumes, partially offset by increases in card and related fee income as well as wealth management income due to favorable market conditions in the current quarter. Noninterest expense decreased$47 million primarily due to lower amortization of intangibles related to the merger, occupancy expenses, and personnel related expenses, partially offset by increased restructuring charges in the current quarter. CB&W average loans held for investment decreased$9.5 billion , or 6.7%, for the second quarter of 2021 compared to the earlier quarter, primarily driven by lower residential mortgage and home equity lending, partially offset by increased mortgage warehouse and indirect auto lending. Average total deposits increased$26.3 billion , or 12%, for the second quarter of 2021 compared to the earlier quarter primarily due to the impact of government stimulus programs.
Corporate and Commercial Banking
C&CB net income was$1.2 billion for the second quarter of 2021, an increase of$825 million compared to the earlier quarter. Segment net interest income decreased$78 million primarily due to reduced funding credit on liabilities, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$933 million primarily reflecting the allowance release in the current quarter and a significant allowance build in the earlier quarter resulting from the deteriorating economic outlook caused by the onset of the COVID-19 pandemic. Noninterest income increased$188 million driven by commercial real estate income, investment banking, lending related fees, service charges on deposits, and income from strategic investments, partially offset by lower trading fees. Noninterest expense decreased$36 million primarily due to lower operating lease depreciation, reduction in LIHTC liability mark accretion in the earlier quarter, and lower allocated corporate expenses in the current quarter, partially offset by higher incentives tied to performance as well as increased restructuring charges in current quarter. C&CB average loans held for investment decreased$23.8 billion , or 13%, for the second quarter of 2021 compared to the earlier quarter, primarily due to lower line utilization in commercial loans, commercial real estate, and dealer floor plan. Average total deposits increased$4.3 billion , or 3.1%, for the second quarter of 2021 compared to the earlier quarter, primarily due to the government stimulus programs.Insurance Holdings IH net income was$156 million for the second quarter of 2021, an increase of$30 million compared to the earlier quarter. Noninterest income increased$100 million primarily due to higher property and casualty insurance production from strong organic growth, as well as acquisitions. Noninterest expense increased$67 million primarily due to higher performance-based incentives, merger related expenses, and amortization of intangibles related to acquisitions.
Other,
OT&C generated a net loss of$587 million in the second quarter of 2021, compared to a net loss of$282 million in the earlier quarter. Segment net interest income decreased$78 million primarily due to lower net funding charges to other segments due to lower market rates partially offset by an increase in income on securities. The allocated provision for credit losses decreased$64 million which primarily reflects an allowance release in the current quarter resulting from the improving economic outlook and an allowance build during the earlier quarter related to the deteriorating economic outlook caused by the onset of the pandemic. Noninterest income decreased$223 million primarily due to a gain on sale of non-agency MBS in the earlier quarter. Noninterest expense increased$149 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 quarter, partially offset by the loss on early extinguishment of long-term debt in the earlier quarter.Truist Financial Corporation 49 --------------------------------------------------------------------------------
Six Months of 2021 compared to Six Months of 2020
Consumer Banking and Wealth
CB&W net income was$1.7 billion for the six months endedJune 30, 2021 , an increase of$262 million compared to the same period of the prior year. Segment net interest income decreased$164 million primarily due to lower rates, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$611 million primarily due to an allowance release that was primarily driven by an improving economic outlook and lower net charge offs in the auto, mortgage, and home equity portfolios as well as lower loan balances. Noninterest income decreased$231 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$123 million primarily due to lower salary expense, pension costs, amortization of intangibles, and occupancy expenses in the current year. CB&W average loans and leases decreased$7.9 billion , or 5.7%, atJune 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$28.2 billion , or 13%, atJune 30, 2021 , compared to the same period of the prior year, primarily due to the impact of government stimulus programs.
Corporate and Commercial Banking
C&CB net income was$2.1 billion for the six months endedJune 30, 2021 , an increase of$1.3 billion compared to the same period of the prior year. Segment net interest income decreased$191 million primarily due to lower rates, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased$1.4 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$426 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$144 million primarily due to lower operating lease depreciation, a reduction in LIHTC liability mark accretion in the same period of 2020, lower allocated corporate expenses and reduced salary expense, partially offset by higher incentives tied to performance and increased professional fees and outside processing expense. C&CB average loans and leases decreased$12.1 billion , or 7.2%, atJune 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$13.3 billion , or 10%, atJune 30, 2021 , compared to the same period of the prior year, primarily due to the impact of government stimulus programs.Insurance Holdings IH net income was$287 million for the six months endedJune 30, 2021 , an increase of$55 million compared to the same period of the prior year. Noninterest income increased$176 million primarily due to higher property and casualty insurance production as well as acquisitions. Noninterest expense increased$107 million primarily due to commissions on higher production in the current year. Other,Treasury and Corporate OT&C generated a net loss of$957 million in the six months endedJune 30, 2021 , compared to a net loss of$421 million in the same period of the prior year. Segment net interest income decreased$206 million primarily due to lower net funding charges to other segments due to lower market rates partially offset by lower interest expense on borrowings. The allocated provision for credit losses decreased$138 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$153 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$472 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$139.9 billion atJune 30, 2021 , compared to$120.8 billion atDecember 31, 2020 . The increase was due primarily to increases inU.S. Treasury securities and MBS resulting from strong deposit growth resulting from fiscal and monetary stimulus. As ofJune 30, 2021 , approximately 1.6% of the securities portfolio was variable rate, compared to 1.9% as ofDecember 31, 2020 . The effective duration of the securities portfolio was 5.5 years atJune 30, 2021 , compared to 4.0 years atDecember 31, 2020 .
Lending Activities
The following table presents the composition of average loans and leases: Table 6: Average Loans and Leases For the Three Months Ended (Dollars in millions) Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 Jun 30,
2020
Commercial:
Commercial and industrial$ 133,646 $
136,051
25,645 26,211 27,030 27,761 27,804
Commercial construction 6,359 6,557 6,616 6,861 6,748
Lease financing 4,893 4,975 5,401 5,626 5,922
Consumer:
Residential mortgage 43,605 45,823 48,847 51,500 52,380
Residential home equity and direct 25,238 25,658 26,327 26,726 27,199
Indirect auto 26,444 26,363 25,788 24,732 24,721
Indirect other 10,797 10,848 11,291 11,530 11,282
Student 7,396 7,519 7,519 7,446 7,633
Credit card 4,552 4,645 4,818 4,810 4,949
Total average loans and leases HFI $ 288,575 $ 294,650 $ 302,860 $ 310,444 $ 321,629
Average loans and leases held for investment for the second quarter of 2021 were
$288.6 billion , down $6.1 billion , or 2.1%, compared to the first quarter of
2021.
Average commercial loans decreased $3.3 billion primarily due to a $1.3 billion
decrease in average PPP loans (commercial and industrial), a $1.2 billion
decrease in average dealer floor plan loans (commercial and industrial), a $566
million decrease in average CRE loans, and a $198 million decrease in average
commercial construction loans.
Average consumer loans decreased
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$6.0 billion as ofJune 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 ofJune 30, 2021 : Table 7: Client Accommodations (1) Active Accommodations Exited AccommodationsJune 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 412 $ 4$ 18,700 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 14,563 611 9,244 89 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 1,533 9 167 89 accruing. In addition, Truist provided credit card clients with 5% cash back on qualifying card purchases for certain important basic needs. Total 16,508 $ 624$ 28,111 (1)Excludes approximately 24,000 of active accommodations related to government guaranteed loans totaling approximately$1.7 billion . (2)Calculated based on accommodation count; includes loans that are less than 30 days past due. The following table provides a summary of the Company's exposure related to loans that have exited accommodations: Table 8: Accommodations Exposure June 30, 2021 (Dollars in millions) Exposure Current$ 26,899 Past due and still accruing 524 Nonperforming 688 Total$ 28,111 The following table provides a summary of exposure to industries that management believes were considered more vulnerable during the COVID-19 pandemic. These selected industry exposures represent 9.0% of loans held for investment atJune 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 June 30, 2021 (Dollars in billions) Outstanding Balance Percentage of Loans HFI Senior Care $ 6.2 2.1 % Hotels, Resorts & Cruise Lines 5.9 2.1 Acute Care Facilities 5.0 1.7 Oil & Gas Portfolio 4.2 1.5 Restaurants 2.5 0.9 Sensitive Retail 2.0 0.7 Total $ 25.8 9.0 % 52Truist Financial Corporation --------------------------------------------------------------------------------
Asset Quality
The following tables summarize asset quality information: Table 10: Asset Quality (Dollars in millions) Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 NPAs: NPLs: Commercial and industrial $ 397 $ 451 $ 532 $ 507 $ 428 CRE 25 58 75 52 42 Commercial construction 12 13 14 7 13 Lease financing 5 23 28 32 56 Residential mortgage 302 290 316 205 198 Residential home equity and direct 165 172 205 180 192 Indirect auto 148 158 155 137 155 Indirect other 6 6 5 4 3 Total NPLs HFI 1,060 1,171 1,330 1,124 1,087 Loans held for sale 78 72 5 130 102 Total nonaccrual loans and leases 1,138 1,243 1,335 1,254 1,189 Foreclosed real estate 13 18 20 30 43 Other foreclosed property 41 38 32 30 20 Total nonperforming assets$ 1,192 $ 1,299 $ 1,387 $ 1,314 $ 1,252 TDRs: Performing TDRs: Commercial and industrial $ 144 $ 142 $ 78 $ 84 $ 57 CRE 24 47 47 36 22 Commercial construction - - - 1 36 Lease financing 58 59 60 1 1 Residential mortgage 727 733 648 640 533 Residential home equity and direct 107 109 88 71 71 Indirect auto 389 399 392 336 342 Indirect other 7 7 6 5 4 Student 13 8 5 5 4 Credit card 32 35 37 38 37 Total performing TDRs 1,501 1,539 1,361 1,217 1,107 Nonperforming TDRs 190 207 164 140 111 Total TDRs$ 1,691 $ 1,746 $ 1,525 $ 1,357 $ 1,218 Loans 90 days or more past due and still accruing: (1) Commercial and industrial $ 14 $ 14 $ 13 $ 6 $ 9 CRE - - - 8 3 Lease financing - - - - 1 Residential mortgage 976 975 841 573 521 Residential home equity and direct 7 11 10 5 9 Indirect auto 2 2 2 8 10 Indirect other 1 1 2 3 3 Student 1,046 1,037 1,111 570 478 Credit card 22 32 29 24 38 Total loans 90 days or more past due and$ 2,068 $ 2,072 $ 2,008 $ 1,197 $ 1,072 still accruing Loans 30-89 days past due and still accruing: (1) Commercial and industrial $ 128 $
117 $ 83 $ 155 $ 282 CRE
7 9 14 7 6
Commercial construction 1 4 5 - 1
Lease financing 18 35 6 9 10
Residential mortgage 543 577 782 796 703
Residential home equity and direct 73 82 98 103 108
Indirect auto 428 328 495 321 265
Indirect other 47 45 68 52 50
Student 548 556 618 666 442
Credit card 31 35 51 39 34
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 atJune 30, 2021 , down$107 million compared toMarch 31, 2021 . Nonperforming loans and leases represented 0.39% of total loans and leases, down three basis points compared toMarch 31, 2021 . The decrease in nonperforming loans and leases was primarily in the commercial loan portfolios.
Performing TDRs were down
Loans 90 days or more past due and still accruing totaled$2.1 billion atJune 30, 2021 , down slightly 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 0.72% atJune 30, 2021 , up one basis point from the prior quarter. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.04% atJune 30, 2021 , unchanged fromMarch 31, 2021 . Loans 30-89 days past due and still accruing totaled$1.8 billion atJune 30, 2021 , up$36 million compared to the prior quarter. The increase was primarily in indirect automobile due to seasonality. The ratio of loans 30-89 days past due and still accruing as a percentage of loans and leases was 0.64% atJune 30, 2021 , up 3 basis points from the prior quarter. 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 4. Loans and ACL" for additional disclosures related to these potential problem loans. Table 11: Asset Quality Ratios As of / For the Three Months Ended Jun 30, 2021 Mar
31, 2021
0.61 % 0.74 % 0.70 % 0.60 %
a percentage of loans and leases HFI
Loans 90 days or more past due and still 0.72 0.71 0.67 0.39 0.34
accruing as a percentage of loans and leases HFI
NPLs as a percentage of loans and leases HFI 0.37 0.40 0.44 0.37 0.35
NPLs as a percentage of total loans and leases 0.39 0.42 0.44 0.40 0.37
(1)
NPAs as a percentage of:
Total assets (1) 0.23 0.25 0.27 0.26 0.25
Loans and leases HFI plus foreclosed property 0.39 0.42 0.46 0.39 0.37
Net charge-offs as a percentage of average loans 0.20 0.33 0.27 0.42 0.39
and leases HFI
ALLL as a percentage of loans and leases HFI 1.79 1.94 1.95 1.91 1.81
Ratio of ALLL to:
Net charge-offs 8.98x 5.87x 7.15x 4.52x 4.49x
NPLs 4.83x 4.84x 4.39x 5.22x 5.24x
Loans 90 days or more past due and still
accruing as a percentage of loans and leases 0.04 % 0.04 % 0.04 % 0.03 % 0.04 %
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) 1,015 1,710
Advances and principal increases 227 172
Disposals of foreclosed assets (2) (220) (248) Disposals of NPLs (3)
(141) (269)
Charge-offs and losses (181) (322)
Payments (564) (318)
Transfers to performing status (309) (177)
Other, net (22) 20
Ending balance, June 30 $ 1,192 $ 1,252
(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 $70 million and $73
million for the six months ended June 30, 2021 and 2020, respectively.
(3)Includes charge-offs and losses recorded upon sale of $5 million and $54
million for the six months ended June 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 411 340
Payments and payoffs (1) (160) (64)
Charge-offs (21) (27)Transfers to nonperforming TDRs (2) (31) (28) Removal due to the passage of time
(9) (6)
Non-concessionary re-modifications (13) (1)
Transferred to LHFS, sold and other (37) (87)
Balance, June 30$ 1,501 $ 1,107 (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 atJune 30, 2021 : Table 14: Payment Status of TDRs (1)June 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 24 100.0 - - - - 24 Lease financing 58 100.0 - - - - 58 Consumer: Residential mortgage 475 65.3 95 13.1 157 21.6 727 Residential home equity and 101 94.4 6 5.6 - - 107 direct Indirect auto 333 85.6 56 14.4 - - 389 Indirect other 6 85.7 1 14.3 - - 7 Student 13 100.0 - - - - 13 Credit card 29 90.6 2 6.3 1 3.1 32 Total performing TDRs 1,183 78.8 160 10.7 158 10.5 1,501 Nonperforming TDRs 89 46.9 16 8.4 85 44.7 190 Total TDRs$ 1,272 75.2$ 176 10.4$ 243 14.4$ 1,691
(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 Six Months Ended
(Dollars in millions) Jun 30, 2021 Mar 31, 2021
Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 2021 2020 Balance, beginning of period$ 6,011 $ 6,199 $ 6,229 $ 6,133 $ 5,611 $ 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 (434) 48 177 421 844 (386) 1,737 Charge-offs: Commercial and industrial (51) (73) (84) (112) (123) (124) (162) CRE - (4) (19) (44) (14) (4) (15) Commercial construction - (2) (8) (19) - (2) (3) Lease financing (2) (6) (4) (44) (4) (8) (6) Residential mortgage (4) (11) (6) (4) (35) (15) (46) Residential home equity and (57) (55) (46) (52) (65) (112) (133) direct Indirect auto (69) (105) (84) (72) (80) (174) (222) Indirect other (11) (17) (14) (8) (20) (28) (38) Student (3) (3) (3) (6) (6) (6) (14) Credit card (42) (40) (35) (44) (50) (82) (103) Total charge-offs (239) (316) (303) (405) (397) (555) (742) Recoveries: Commercial and industrial 20 19 34 20 21 39 38 CRE 4 1 1 - 4 5 4 Commercial construction 1 1 1 2 7 2 8 Lease financing 3 - - 4 - 3 - Residential mortgage 5 2 3 3 2 7 4 Residential home equity and 20 18 20 16 15 38 30 direct Indirect auto 27 22 24 22 18 49 41 Indirect other 7 6 5 4 7 13 14 Student - - - - 1 - 1 Credit card 10 9 10 8 6 19 14 Total recoveries 97 78 98 79 81 175 154 Net charge-offs (142) (238) (205) (326) (316) (380) (588) Other 1 2 (2) 1 (6) 3 (45) Balance, end of period$ 5,436 $ 6,011 $ 6,199 $ 6,229 $ 6,133 $ 5,436 $ 6,133 ALLL (excluding PCD loans)$ 4,979 $ 5,506 $ 5,668 $ 5,675 $ 5,408 ALLL for PCD loans 142 156 167 188 294 RUFC 315 349 364 366 431 Total ACL$ 5,436 $ 6,011 $ 6,199 $ 6,229 $ 6,133 Net charge-offs during the second quarter totaled$142 million , down$96 million compared to the prior quarter. The net charge-off ratio was 0.20%, down 13 basis points compared to the prior quarter. The decrease in net charge-offs was primarily due to lower losses in the indirect auto and commercial portfolios combined with higher recoveries. AtJune 30, 2021 , the allowance for credit losses was$5.4 billion and includes$5.1 billion for the allowance for loan and lease losses and$315 million for the reserve for unfunded commitments. The allowance for loan and lease loss ratio was 1.79% compared to 1.94% atMarch 31, 2021 . The allowance for loan and lease losses covered nonperforming loans and leases held for investment 4.83X compared to 4.84X atMarch 31, 2021 . AtJune 30, 2021 , the allowance for loan and lease losses was 8.98X annualized net charge-offs, compared to 5.87X atMarch 31, 2021 . Truist Financial Corporation 57 -------------------------------------------------------------------------------- The following table presents an allocation of the ALLL. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases. Table 16: Allocation of ALLL by Category June 30, 2021 December 31, 2020 % ALLL in Each % Loans in Each % ALLL in Each % Loans in Each (Dollars in millions) Amount Category Category Amount Category Category Commercial and industrial$ 1,757 34.3 % 45.6 %$ 2,156 37.0 % 46.2 % CRE 440 8.6 8.9 573 9.8 8.9 Commercial construction 69 1.3 2.2 81 1.4 2.2 Lease financing 47 0.9 1.7 48 0.8 1.7 Residential mortgage 321 6.3 15.4 368 6.3 15.8 Residential home equity and 694 13.6 8.8 714 12.2 8.7 direct Indirect auto 1,116 21.8 9.3 1,198 20.5 8.7 Indirect other 181 3.5 3.9 208 3.6 3.7 Student 129 2.5 2.6 130 2.2 2.5 Credit card 367 7.2 1.6 359 6.2 1.6 Total ALLL 5,121 100.0 % 100.0 % 5,835 100.0 % 100.0 % RUFC 315 364 Total ACL$ 5,436 $ 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 ofJune 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
December 31,
(Dollars in millions) June 30, 2021 2020
Bank-owned life insurance $ 6,494 $ 6,479
Tax credit and other private equity investments 5,854 5,685
Prepaid pension assets 4,837 4,358
Derivative assets 3,188 3,837
Accrued income 1,874 1,934
Accounts receivable 2,809 1,833
Leased assets and related assets 1,560 1,810
ROU assets 1,233 1,333
Prepaid expenses 1,120 1,247
Equity securities at fair value 912 1,054
Structured real estate 536 390
FHLB stock 91 164
Other 491 549
Total other assets $ 30,999 $ 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) Jun 30, 2021 Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Noninterest-bearing deposits$ 137,892 $ 128,579 $ 127,103 $ 123,966 $ 113,875 Interest checking 106,121 104,744 99,866 96,707 97,863 Money market and savings 134,029 129,303 124,692 123,598 126,071 Time deposits 18,213 20,559 23,605 27,940 33,009 Total average deposits$ 396,255 $ 383,185 $ 375,266 $ 372,211 $ 370,818 Average deposits for the second quarter of 2021 were$396.3 billion , an increase of$13.1 billion , or 3.4%, compared to the linked quarter. Average noninterest bearing deposits grew 7.2% compared to the prior quarter and represented 35% of total deposits for the second quarter of 2021, compared to 34% for the prior quarter. Average money market and savings and interest checking grew 3.7% and 1.3%, respectively, compared to the linked quarter.
Average time deposits decreased primarily due to the maturity of wholesale negotiable certificates of deposit and higher-cost personal accounts.
Borrowings
AtJune 30, 2021 , short-term borrowings totaled$5.7 billion , a decrease of$440 million compared toDecember 31, 2020 , due primarily to a decrease of$1.5 billion in short-term FHLB advances, partially offset by an increase of$1.0 billion in securities sold under agreements to repurchase. Average short-term borrowings were$6.2 billion or 1.4% of total funding for the second quarter of 2021, as compared to$9.0 billion or 2.1% 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$38.0 billion atJune 30, 2021 , a decrease of$1.6 billion compared toDecember 31, 2020 . During 2021, the Company had$4.5 billion of senior long term debt maturities and redemptions, partially offset by issuances of$2.3 billion of fixed rate senior notes with an interest rate of 1.27% to 1.89% maturing between 2027 to 2029 and issuances of$1.0 billion in variable rate senior notes maturing in 2025. FHLB advances represented 2.3% of total outstanding long-term debt atJune 30, 2021 , compared to 2.2% atDecember 31, 2020 . The average cost of long-term debt was 1.58% for the six months endedJune 30, 2021 , down 32 basis points compared to the same period in 2020. OnAugust 2, 2021 , Truist redeemed$500 million of fixed rate senior notes due inAugust 2022 and$300 million in floating rate senior notes due inAugust 2022 . InJuly 2021 , Truist announced plans to redeem$500 million of fixed rate senior notes onAugust 3, 2021 due inSeptember 2021 .
Shareholders' Equity
Total shareholders' equity was$68.3 billion atJune 30, 2021 , a decrease of$2.6 billion fromDecember 31, 2020 . This decrease includes a decrease of$1.8 billion in AOCI, redemptions of$1.4 billion in preferred stock for Series F, G, and H,$1.4 billion in dividends, and$1.1 billion in repurchases of common stock, partially offset by$3.1 billion in net income available. Truist's book value per common share atJune 30, 2021 was$46.20 , compared to$46.52 atDecember 31, 2020 .
Refer to "Note 9. Shareholders' Equity" for additional disclosures related to preferred stock redemptions.
EffectiveJuly 1, 2021 , the Board of Directors increased the previous repurchase authority of the Company's common stock, of which the Company has$3.1 billion remaining. The amount of share repurchases is dependent on capital deployment through organic growth and acquisitions, giving consideration to economic and regulatory conditions.Truist Financial Corporation 59 --------------------------------------------------------------------------------
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 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. 60Truist Financial Corporation -------------------------------------------------------------------------------- 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.
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) Jun 30, 2021 Jun 30, 2020 Jun 30, 2021 Jun 30, 2020
Up 100 4.25 % 4.25 % 3.93 % 2.39 %
Up 50 3.75 3.75 3.07 1.84
No Change 3.25 3.25 - -
Down 25 (1) 3.00 3.00 (1.47) (1.24)
Down 50 (1) 2.75 2.75 (1.93) (1.44)
(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 the prior periods, primarily driven by hedging changes.
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
Gradual Change in Base Scenario at Deposits
Rates (bps) June 30, 2021 (1) $20 Billion $40 Billion
Up 100 3.93 % 3.08 % 2.23 %
Up 50 3.07 2.45 1.83
(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.
Truist Financial Corporation 61--------------------------------------------------------------------------------
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) Jun 30, 2021 Jun 30, 2020
Up 100 (3.0) % 6.6 %
No Change - -
Down 100 (3.6) (7.3)
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's 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 June 30, 2021 , the
Company had $20.4 billion of pay-fixed swaps associated with this hedging
program that are accounted for as fair value hedges. In the second quarter of
2021, this hedging program reduced net interest income by $15 million . Truist
also uses derivatives to facilitate transactions on behalf of its clients and as
part of associated hedging activities. As of June 30, 2021 , Truist had
derivative financial instruments outstanding with notional amounts totaling
$315.9 billion , with an associated net fair value of $2.6 billion . See "Note 15.
Derivative Financial Instruments" for additional disclosures.
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 more than $1 billion
of loans as of June 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. 62Truist Financial Corporation -------------------------------------------------------------------------------- Valuation policies and methodologies exist for all trading positions. Additionally, these positions are subject to independent price verification. See "Note 15. Derivative Financial Instruments," "Note 14. Fair Value Disclosures," and "Critical Accounting Policies" herein for discussion of valuation policies and methodologies. Securitizations As ofJune 30, 2021 , the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was$23 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
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 six months endedJune 30, 2021 and 2020. In the second quarter of 2021, one and ten day VaR measures declined from the prior quarter and 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 10-Day 10-Day Holding 1-Day Holding 10-Day Holding 1-Day Holding Holding 1-Day
Holding 10-
Period Period Period Period Period Period Period Period
VaR-based Measures:
Maximum $ 8 $ 3 $ 65 $ 9 $ 68 $ 16 $ 65 $ 10
Average 5 2 29 6 22 6 20 4
Minimum 4 1 13 3 3 1 3 1
Period-end 6 2 17 3 6 2 17 3
VaR by Risk Class:
Interest Rate Risk 1 3 1 3
Credit Spread Risk 3 4 3 4
Equity Price Risk 1 1 1 1
Foreign Exchange Risk - - - -
Portfolio Diversification (4) (6) (4) (6)
Period-end 2 3 2 3
Truist Financial Corporation 63--------------------------------------------------------------------------------
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 June 30, Six Months Ended June 30,
(Dollars in millions) 2021 2020 2021 2020
Maximum $ 91 $ 65 $ 91 $ 65
Average 60 29 57 31
Minimum 43 13 26 13
Period-end 49 17 49 17
Compared to the prior year periods, stressed VaR measures increased in the second 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.
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 endedJune 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-20210630_g1.jpg]] 64Truist Financial Corporation --------------------------------------------------------------------------------
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.
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 ofJune 30, 2021 andDecember 31, 2020 , Truist's liquid asset buffer, as a percent of total assets, was 24.7% 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 113% for the three months endedJune 30, 2021 , well above the regulatory minimum of 100%. 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 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.Truist Financial Corporation 65
-------------------------------------------------------------------------------- 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.
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. AtJune 30, 2021 andDecember 31, 2020 , the Parent Company had 39 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. AtJune 30, 2021 ,Truist Bank had$212.1 billion of available secured borrowing capacity, which represents approximately 9.8 times the amount of wholesale funding maturities in one-year or less. In addition to secured borrowing sources, Truist had excess eligible cash at theFederal Reserve Bank of$21.3 billion atJune 30, 2021 .
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 13. Commitments and Contingencies," "Note 14. Fair Value Disclosures," and "Note 15. 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. 66Truist Financial Corporation -------------------------------------------------------------------------------- Truist regularly performs stress testing on its capital levels and is required to periodically submit the Company's capital plans and stress testing results to the banking regulators. Management regularly monitors the capital position of Truist on both a consolidated and bank-level basis. In this regard, management's overriding policy is to maintain capital at levels that are in excess of internal capital targets, which are above the regulatory "well capitalized" minimums. Management evaluates whether capital ratios calculated after the effect of alternative capital actions are likely to remain above minimums specified by the FRB for the annual CCAR process. Breaches of minimum targets prompt a review of the planned capital actions included in Truist's capital plan. Table 24: 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 until
Truist completed the 2021 CCAR process and received the preliminary SCB of 2.5% for the periodOctober 1, 2021 toSeptember 30, 2022 . InJuly 2021 , the Board of Directors approved an increase in the quarterly dividend of 7% to$0.48 beginning in the third quarter of 2021. Truist plans to target a CET1 ratio of approximately 9.75% over the near-term, and accordingly, 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) over the next 5 quarters (3Q21-3Q22). EffectiveJuly 1, 2021 , the Board of Directors increased the previous repurchase authority of the Company's common stock, of which the Company has$3.1 billion remaining. The amount of share repurchases is dependent on capital deployment through organic growth, earnings, and acquisitions, giving consideration to 9.75% CET1 target. Additionally, onJuly 1, 2021 , Truist acquiredConstellation Affiliated Partners , which resulted in approximately$900 million of goodwill and identifiable intangible assets, reducing the amount of capital deployment available for share repurchases or acquisitions to approximately$3 billion to$4 billion through 3Q22.
Truist's capital ratios are presented in the following table:
Table 25: Capital Ratios -
(Dollars in millions, except per share data, shares in thousands) Jun 30, 2021 Dec 31, 2020 Risk-based: CET1 capital to risk-weighted assets 10.2 % 10.0 % Tier 1 capital to risk-weighted assets 12.0 12.1 Total capital to risk-weighted assets 14.2 14.5 Leverage ratio 9.1 9.6 Supplementary leverage ratio 7.9 8.7 Non-GAAP capital measure (1): Tangible common equity per common share$ 26.50 $ 26.78 Calculation of tangible common equity (1): Total shareholders' equity$ 68,336 $ 70,912 Less: Preferred stock 6,673 8,048 Noncontrolling interests - 105 Goodwill and intangible assets, net of deferred taxes 26,296 26,629 Tangible common equity$ 35,367 $ 36,130 Risk-weighted assets$ 379,044 $ 379,153 Common shares outstanding at end of period 1,334,770 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 six months endedJune 30 , 2021,Truist paid$1.2 billion in common stock dividends or$0.90 per share, and completed$1.1 billion in common share repurchases. The dividend and total payout ratios for the six months endedJune 30, 2021 were 42% and 80%, respectively. Truist also redeemed$1.4 billion of preferred stock to optimize the Company's capital position. Truist Financial Corporation 67 -------------------------------------------------------------------------------- Share Repurchase Activity Table 26: Share Repurchase Activity Maximum Remaining Dollar Value of Shares Total Shares Repurchased Available for Average Price Pursuant to Repurchase Pursuant to (Dollars in millions, except per share Total Shares Paid Per
Share Publicly-Announced Plan Publicly-Announced data, shares in thousands)
Repurchased (1) (2) (3) Plan
April 2021 4,715 $ 57.74 4,715 $ 1,222
May 2021 5,569 60.64 5,569 884
June 2021 - - - 884
Total 10,284 59.31 10,284
(1)Includes shares exchanged or surrendered in connection with the exercise of
equity-based awards under equity-based compensation plans.
(2)Excludes commissions.
(3)Pursuant to the 2020 Repurchase Plan, announced in December 2020 , authorizing
up to $2.0 billion of share repurchases beginning in the first quarter of 2021.
In June 2021 , the Board of Directors increased, effective July 1, 2021 , the
previous repurchase authority to effectuate repurchases up to an additional $2.2
billion in shares of the Company's common stock through September 30, 2022 (up
to $4.2 billion in aggregate amount). With the additional authorization, the
Company has $3.1 billion remaining for share repurchases.
Critical Accounting Policies
The accounting and reporting policies of Truist are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Truist's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations, and related disclosures. 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 . Additional 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 ofJune 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. 68Truist Financial Corporation --------------------------------------------------------------------------------
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