Truist Financial 10-K 2020-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________

FORM 10-K

____________________________________________________

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

Commission File Number: 1-10853

TRUIST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

At January 31, 2021, the Company had 1,347,198,511 shares of its common stock, $5 par value, outstanding. As of June 30, 2020, the aggregate market value of voting stock held by nonaffiliates of the Company was approximately $50.5 billion. Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant's 2021 annual meeting of stockholders are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.

| Item 2 | | | Properties | | | 37 | | | | | | | Item 3 | | | Legal Proceedings (see Note 16) | | | 133 | | | | | |

| PART II | | | | | | | | | | | | | Item 5 | | | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | | 38 | | | | | | | Item 6 | | | Selected Financial Data | | | 41 | | | | | | | Item 7 | | | Management's Discussion and Analysis of Financial Condition and Results of Operations | | | 42 | | | | | | | Item 7A | | | Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management) | | | 66 | | | | | | Item 8. Financial Statements and Supplementary Data | | | | Quarterly Financial Summary | | | 79 | | | | | | | | | | Report of Independent Registered Public Accounting Firm | | | 85 | | | | | | | | | | Consolidated Balance Sheets | | | 88 | | | | | | | | | | Consolidated Statements of Income | | | 89 | | | | | | | | | | Consolidated Statements of Comprehensive Income | | | 90 | | | | | | | | | | Consolidated Statements of Changes in Shareholders' Equity | | | 91 | | | | | | | | | | Consolidated Statements of Cash Flows | | | 92 | | | | | | | | | | Notes to Consolidated Financial Statements | | | | | | | | | | | | | Note 1. Basis of Presentation | | | 93 | | | | | | | | | | Note 2. Business Combinations | | | 108 | | | | | | | | | | Note 3. Securities Financing Activities | | | 110 | | | | | | | | | | Note 4. Investment Securities | | | 111 | | | | | | | | | | Note 5. Loans and ACL | | | 113 | | | | | | | | | | Note 6. Premises and Equipment | | | 120 | | | | | | | | | | Note 7. Goodwill and Other Intangible Assets | | | 120 | | | | | | | | | | Note 8. Loan Servicing | | | 121 | | | | | | | | | | Note 9. Other Assets and Liabilities | | | 122 | | | | | | | | | | Note 10. Deposits | | | 123 | | | | | | | | | | Note 11. Borrowings | | | 124 | | | | | | | | | | Note 12. Shareholders' Equity | | | 125 | | | | | | | | | | Note 13. AOCI | | | 127 | | | | | | | | | | Note 14. Income Taxes | | | 128 | | | | | | | | | | Note 15. Benefit Plans | | | 130 | | | | | | | | | | Note 16. Commitments and Contingencies | | | 133 | | | | | | | | | | Note 17. Regulatory Requirements and Other Restrictions | | | 137 | | | | | | | | | | Note 18. Fair Value Disclosures | | | 138 | | | | | | | | | | Note 19. Derivative Financial Instruments | | | 144 | | | | | | | | | | Note 20. Computation of EPS | | | 148 | | | | | | | | | | Note 21. Operating Segments | | | 148 | | | | | | | | | | Note 22. Parent Company Financial Information | | | 152 | | | | | | | | | | | | | | | | | | |

| Item 9A | | | Controls and Procedures | | | 154 | | | | | |

| PART III | | | | | | | | | | | |

| PART IV | | | | | | | | | | | | Item 15. Exhibits, Financial Statement Schedules | | | | Financial Statements (see Listing in Item 8 above) | | | | | | | | | | | | | Exhibits | | | 155 | | | | | | | | | | Financial Statement Schedules (None required) | | | | | | | | |

| | | | | | | | | | | | |

Glossary of Defined Terms

The following terms may be used throughout this report, including the consolidated financial statements and related notes.

Truist Financial Corporation 1

2 Truist Financial Corporation

Truist Financial Corporation 3

Forward-Looking Statements

This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of Truist. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," "would," "could" and other similar expressions are intended to identify these forward-looking statements.

Forward-looking statements are not based on historical facts but instead represent management's expectations and assumptions regarding Truist's business, the economy and other future conditions. Such statements involve inherent uncertainties, risks and changes in circumstances that are difficult to predict. As such, Truist's actual results may differ materially from those contemplated by forward-looking statements. While there can be no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those contemplated by forward-looking statements include the following, without limitation, as well as the risks and uncertainties more fully discussed under Item 1A-Risk Factors:

• risks and uncertainties relating to the Merger of heritage BB&T and heritage SunTrust, including the ability to successfully integrate the companies or to realize the anticipated benefits of the Merger;

• expenses relating to the Merger and integration of heritage BB&T and heritage SunTrust;

• deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;

• the COVID-19 pandemic has disrupted the global economy, adversely impacted Truist's financial condition and results of operations, including through increased expenses, reduced fee income and net interest margin and increases in the allowance for credit losses, and continuation of current conditions could worsen these impacts and also adversely affect Truist's capital and liquidity position or cost of capital, impair the ability of borrowers to repay outstanding loans, cause an outflow of deposits, and impair goodwill or other assets;

• Truist is subject to credit risk by lending or committing to lend money and may have more credit risk and higher credit losses to the extent that loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral;

• changes in the interest rate environment, including the replacement of LIBOR as an interest rate benchmark and potentially negative interest rates, which could adversely affect Truist's revenue and expenses, the value of assets and obligations, and the availability and cost of capital, cash flows, and liquidity;

• inability to access short-term funding or liquidity, loss of client deposits or changes in Truist's credit ratings, which could increase the cost of funding or limit access to capital markets;

• risk management oversight functions may not identify or address risks adequately, and management may not be able to effectively manage credit risk;

• risks resulting from the extensive use of models in Truist's business, which may impact decisions made by management and regulators;

• failure to execute on strategic or operational plans, including the ability to successfully complete or integrate mergers and acquisitions;

• increased competition, including from new or existing competitors that could have greater financial resources or be subject to different regulatory standards, for products and services offered by non-bank financial technology companies may reduce Truist's client base, cause Truist to lower prices for its products and services in order to maintain market share or otherwise adversely impact Truist's businesses or results of operations;

• failure to maintain or enhance Truist's competitive position with respect to new products, services and technology, whether it fails to anticipate client expectations or because its technological developments fail to perform as desired or do not achieve market acceptance or regulatory approval or for other reasons, may cause Truist to lose market share or incur additional expense;

• negative public opinion, which could damage Truist's reputation;

• increased scrutiny regarding Truist's consumer sales practices, training practices, incentive compensation design and governance;

• regulatory matters, litigation or other legal actions, which may result in, among other things, costs, fines, penalties, restrictions on Truist's business activities, reputational harm, negative publicity or other adverse consequences;

• evolving legislative, accounting and regulatory standards, including with respect to capital and liquidity requirements, and results of regulatory examinations, may adversely affect Truist's financial condition and results of operations;

• the monetary and fiscal policies of the federal government and its agencies could have a material adverse effect on profitability;

• accounting policies and processes require management to make estimates about matters that are uncertain, including the potential write down to goodwill if there is an elongated period of decline in market value for Truist's stock and adverse economic conditions are sustained over a period of time;

• general economic or business conditions, either globally, nationally or regionally, may be less favorable than expected, and instability in global geopolitical matters or volatility in financial markets could result in, among other things, slower deposit or asset growth, a deterioration in credit quality or a reduced demand for credit, insurance or other services;

• risks related to originating and selling mortgages, including repurchase and indemnity demands from purchasers related to representations and warranties on loans sold, which could result in an increase in the amount of losses for loan repurchases;

• risks relating to Truist's role as a loan servicer, including an increase in the scope or costs of the services Truist is required to perform without any corresponding increase in servicing fees, or a breach of Truist’s obligations as servicer;

• Truist's success depends on hiring and retaining key personnel, and if these individuals leave or change roles without effective replacements, Truist's operations and integration activities could be adversely impacted, which could be exacerbated as Truist continues to integrate the management teams of heritage BB&T and heritage SunTrust;

• fraud or misconduct by internal or external parties, which Truist may not be able to prevent, detect or mitigate;

• security risks, including denial of service attacks, hacking, social engineering attacks targeting Truist's teammates and clients, malware intrusion, data corruption attempts, system breaches, cyber attacks and identity theft, could result in the disclosure of confidential information, adversely affect Truist's business or reputation or create significant legal or financial exposure; and

• widespread outages of operational, communication or other systems, whether internal or provided by third parties, natural or other disasters (including acts of terrorism and pandemics), and the effects of climate change could have an adverse effect on Truist's financial condition and results of operations, or lead to material disruption of Truist's operations or the ability or willingness of clients to access Truist's products and services.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by applicable law or regulation, Truist undertakes no obligation to revise or update any forward-looking statements.

4 Truist Financial Corporation

Truist is a banking organization headquartered in Charlotte, North Carolina. Truist conducts its business operations primarily through its bank subsidiary, Truist Bank, and other nonbank subsidiaries.

Merger with SunTrust

The Company completed its Merger with SunTrust on December 6, 2019. Refer to "Note 2. Business Combinations" for additional details related to the Merger.

Operating Subsidiaries

Truist Bank, Truist's largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina. Truist Bank provides a wide range of banking and trust services for clients through 2,781 offices as of December 31, 2020 and its digital platform.

Services

Truist's subsidiaries offer commercial and consumer clients a full array of products and services to meet their financial needs.

Truist Financial Corporation 5

Market Area

The following table reflects Truist's deposit market share and branch locations by state:

(1)Excludes home office deposits.

(2)Source: FDIC.gov data as of June 30, 2020.

(3)As of December 31, 2020.

Management believes that Truist's community bank approach to providing client service is a competitive advantage that strengthens the Company's ability to effectively provide financial products and services to businesses and individuals in its markets. In addition, management has made significant investments in recent years to develop its digital platform and believes that its mobile and online applications are highly competitive in meeting clients' expectations.

Competition

The financial services industry is intensely competitive and constantly evolving. Legislative, regulatory, economic, and technological changes as well as continued consolidation within the industry could result in competition from new and existing market participants. Truist's subsidiaries compete actively with national, regional and local financial services providers, including banks, thrifts, securities dealers, mortgage bankers, finance companies, financial technology companies and insurance companies. The ability of non-banking entities, including financial technology companies, to provide services previously limited to commercial banks has increased competition. Non-banking entities are not subject to the same regulatory framework as banks and BHCs, and therefore, can often operate with greater flexibility and lower costs. In addition, the ability to access and use technology is an increasingly significant competitive factor in the financial services industry. Having the right technology is a critically important component to client satisfaction because it affects the Company’s ability to deliver the products and services that clients desire in a manner that they find convenient and attractive. Management believes that the Company is well positioned to compete and that its continued focus on touch and technology will engender trust among its current and future clients. For additional information concerning markets, Truist's competitive position and business strategies, see "Market Area" above and "General Business Development" in the discussion that follows.

General Business Development

Truist seeks to satisfy all of its clients' financial needs, enabling the Company to grow and diversify its sources of revenue and profitability. Truist's long-term strategy encompasses both organic and inorganic growth, including mergers or acquisitions of complimentary financial institutions or other businesses.

Merger and Acquisition Strategy

Truist's merger and acquisition strategy focuses on meeting the following criteria:

• the organization must be a good fit with Truist's culture;

• the merger or acquisition must be strategically attractive;

• associated risks must be identified and mitigation plans put in place, such that any residual risks fall within Truist's risk appetite; and

• the transaction must meet Truist's financial criteria.

6 Truist Financial Corporation

Truist's growth in business, prof

Showing the first 8K of 83K characters. Open the full section

Summary of Risk Factors

Merger-Related Risks

*•*Truist may not be able to successfully integrate the companies or to realize the anticipated benefits of the Merger.

*•*Truist will continue to incur substantial expenses related to the Merger and the integration.

COVID-19 Risks

*•*The effects of COVID-19 have adversely impacted, and will likely continue to adversely impact, the Company's financial condition and results of operations.

Market Risks

*•*Changes in interest rates could adversely affect revenue and expenses, the value of assets and liabilities, as well as the availability and cost of capital, cash flows and liquidity.

*•*The monetary and fiscal policies of the federal government and its agencies could have a material adverse effect on profitability.

*•*Financial results, lending or other business activities could be materially affected by a deterioration of economic conditions.

*•*Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Company's operations, earnings and financial condition.

*•*The replacement of LIBOR could adversely affect Truist's profitability and financial condition.

Credit Risks

*•*The Company is subject to credit risk by lending or committing to lend money, or entering into a letter of credit or other types of contracts with counterparties.

*•*The Company may have more credit risk and higher credit losses to the extent that loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral.

Liquidity Risks

*•*Truist's liquidity could be impaired by an inability to access short-term funding or an unforeseen outflow of cash.

*•*Loss of deposits or a change in deposit mix could increase Truist's funding costs.

*•*Truist relies on the mortgage secondary market and GSEs for some of the Company's liquidity.

*•*Any reduction in the Company's credit rating could increase the cost of the Company's funding from the capital markets.

*•*The Parent Company has less access to funding sources and its liquidity could be constrained if the Bank becomes unable to pay dividends during a time of stress.

Compliance Risks

*•*Truist is subject to extensive and evolving government regulation and supervision, which could increase the cost of doing business, limit Truist's ability to make investments and generate revenue and lead to costly enforcement actions.

*•*Truist is subject to regulatory capital and liquidity standards that affect the Company's business, operations and ability to pay dividends or otherwise return capital to shareholders.

*•*Truist is subject to certain risks related to originating and selling mortgages and may be required to repurchase mortgage loans or indemnify mortgage loan purchasers.

*•*Truist faces risks as a servicer of loans.

Strategic Risks

*•*Truist may face the risk of financial loss or negative impact resulting from ineffective strategy setting and execution, adverse business decisions, or lack of responsiveness to changes in the external environment.

*•*Competition may reduce Truist's client base or cause Truist to modify pricing for products and services in order to maintain market share.

*•*Truist may not be able to complete future mergers or acquisitions.

*•*Truist has businesses other than banking that are subject to a variety of risks.

Reputational Risks

*•*Negative public opinion could damage the Company's reputation and adversely impact business and revenues.

*•*Scrutiny of the Company's sales, training and incentive compensation practices could damage the Company’s reputation and adversely impact business and revenues.

Operational Risks

*•*Litigation may adversely affect the Company's results.

*•*The Company may incur fines, penalties and other negative consequences from regulatory violations, including inadvertent or unintentional violations.

*•*Truist relies on other companies to provide key components of the Company's business infrastructure.

*•*Truist depends on the expertise of key personnel. If these individuals leave or change their roles without effective replacements, operations may suffer.

Truist Financial Corporation 21

*•*The Company may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of changes in the marketplace, which may increase costs and adversely impact the Company's ability to implement business strategies.

*•*The Company's framework for managing risks may not be effective.

*•*There are risks resulting from the extensive use of models in Truist's business, which may impact decisions made by Management and regulators.

*•*The Company is at risk of increased losses from fraud.

*•*The Company's operational or security systems or infrastructure or those of third parties, could fail or be breached, which could disrupt the Company's business and adversely impact the Company's results of operations, liquidity and financial condition, as well as cause legal or reputational harm.

*•*Natural disasters and other catastrophic events could have a material adverse impact on the Company’s operations or the Company’s financial condition and results.

*•*Truist may be impacted by the soundness of other financial institutions.

*•*Truist depends on the accuracy and completeness of information about clients and counterparties.

*•*The Company's accounting policies and processes are critical to how it reports the Company's financial condition and results of operations. They require management to make estimates about matters that are uncertain.

*•*Depressed market values for the Company's stock and adverse economic conditions sustained over a period of time may require the Company to write down all or some portion of the Company's goodwill.

*•*Certain banking laws and certain provisions of the Company's articles of incorporation may have an anti-takeover effect.

Technology Risks

*•*The Company faces cybersecurity risks, including denial of service, hacking and social engineering attacks that could result in the disclosure of confidential information, adversely affect the Company's operations or reputation and create significant legal and financial exposure.

*•*Truist will continually encounter technological change and must effectively develop and implement new technology.

The following discussion sets forth some of the more important risk factors that could materially affect Truist's financial condition and operations. When a risk factor spans several risk categories, the risks have been listed by their primary risk category. The risks described are not all inclusive. Additional risks that are not presently known or risks deemed immaterial may have a material adverse effect on Truist's financial condition, results of operations, business and prospects.

Merger-Related Risks

Truist may not be able to successfully integrate the companies or to realize the anticipated benefits of the Merger.

The Company was formed by the Merger of BB&T and SunTrust on December 6, 2019. Truist anticipates further integration of systems, operations, and personnel of BB&T and SunTrust over the next couple of years.

The successful integration of BB&T's and SunTrust's operations will depend substantially on the Company's ability to successfully consolidate operations, management teams, corporate cultures, systems and procedures and to eliminate redundancies and costs. Truist may encounter difficulties during integration, such as:

• the loss of key teammates and clients;

• the disruption of operations and businesses;

• loan, deposit, and revenue attrition;

• inconsistencies in standards, control procedures and policies;

• unexpected issues with planned branch and other facilities closures;

• unexpected issues with costs, operations, personnel, technology; and

• problems with the assimilation of new op

Showing the first 8K of 86K characters. Open the full section

Truist’s owns its headquarters building at 214 North Tryon Street, Charlotte, NC, 28202. Truist owns or leases free-standing operations centers, with its primary operations and information technology centers located in various locations in the Southeastern and Mid-Atlantic United States. Truist owns or leases retail branches and other offices in a number of states, primarily concentrated in the Southeastern and Mid-Atlantic United States. See Table 2 for a list of Truist's branches by state. Truist also operates numerous insurance agencies and other businesses that occupy facilities throughout the U.S. and Canada. Management believes that these premises are well-located and suitably equipped to serve as financial services facilities. See "Note 6. Premises and Equipment" for additional disclosures related to properties and other fixed assets.

Truist Financial Corporation 37

Truist's common stock is traded on the NYSE under the symbol "TFC." As of December 31, 2020, Truist's common stock was held by 92,600 registered shareholders.

Common Stock, Dividends and Share Repurchases

Truist's ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets for distribution and is subject to its capital plan meeting the SCB requirements from the FRB. Truist's ability to generate liquid assets for distribution is dependent on the ability of Truist Bank to pay dividends to the Parent Company. The payment of cash dividends is an integral part of providing a competitive return on shareholders' investments and needs to be balanced with maintaining sufficient capital to support future growth and meet regulatory requirements.

Management’s target common dividend payout ratio (computed by dividing common stock dividends by net income available to common shareholders) is between 30% and 50% during normal economic conditions. Truist's common dividend payout ratio was 58.0% in 2020 compared to 43.2% in 2019 and 39.3% in 2018. Management's target total payout ratio (computed by dividing the sum of common stock dividends declared and share repurchases, excluding shares repurchased in connection with equity awards, by net income available to common shareholders) is between 30% and 80% during normal economic conditions. Truist may consider higher total distributions based on its capital position, earnings and prevailing economic conditions. The total payout ratio was 58.0%, 43.2% and 78.7% in 2020, 2019 and 2018, respectively.

Truist expects common dividend declarations, if made, to occur in January, April, July and October with payment dates on or about the first of March, June, September and December. A discussion of dividend restrictions is included in "Note 17. Regulatory Requirements and Other Restrictions" and in the "Regulatory Considerations" section.

Share Repurchases

Truist has periodically repurchased shares of its own common stock. In accordance with North Carolina law, repurchased shares cannot be held as treasury stock, but revert to the status of authorized and unissued shares upon repurchase. Repurchases may be effected through open market purchases, privately negotiated transactions, trading plans established in accordance with SEC rules or other means. The timing and exact amount of repurchases are subject to various factors, including the Company's capital position, liquidity, financial performance, alternative uses of capital, stock trading price and general market conditions, and may be suspended at any time. Shares repurchased constitute authorized but unissued shares of the Company and are therefore available for future issuances. During 2020, the Company had no common stock repurchases, except shares exchanged or surrendered in connection with the exercise of equity-based awards under equity-based compensation plans.

In December 2020, Truist announced that its Board of Directors had authorized the repurchase of up to $2.0 billion of the Company's common stock, beginning in the first quarter of 2021, consistent with recent FRB capital restriction guidance, to optimize Truist's capital position.

(1)Includes shares exchanged or surrendered in connection with the exercise of equity-based awards under equity-based compensation plans.

(2)Excludes commissions.

38 Truist Financial Corporation

Preferred Stock

Issuances

During 2020, Truist issued $3.5 billion in series O, series P, series Q and series R preferred stock, gross of issuance cost, to further strengthen its capital position. During 2019, the Company issued $1.7 billion of series N non-cumulative perpetual preferred stock.

Upon closing of the Merger, each outstanding share of SunTrust perpetual preferred stock was converted into the right to receive one share of an applicable newly issued series of Truist preferred stock having substantially the same terms as such share of SunTrust preferred stock. The Company issued series I, J, K, L and M non-cumulative perpetual preferred stock with a total par and fair value of $2.0 billion on the Merger closing date.

Redemptions

Early in 2021, the Company announced the forthcoming redemption of all 18,000 outstanding shares of its perpetual preferred stock series F and the corresponding depositary shares representing fractional interests in such series for $450 million and all 20,000 outstanding shares of its perpetual preferred stock series G and the corresponding depositary shares representing fractional interests in such series for $500 million.

During 2020, the Company redeemed all 5,000 outstanding shares of its perpetual preferred stock series K and the corresponding depositary shares representing fractional interests in such series for $500 million plus any unpaid dividends. The preferred stock redemption was in accordance with the terms of the Company’s Articles of Amendment to its Articles of Incorporation, effective as of December 6, 2019.

During 2019, the Company redeemed all 23,000 outstanding shares of series D and 46,000 outstanding shares of series E non-cumulative perpetual preferred stock and the corresponding depositary shares representing fractional interests in each such series for $1.7 billion. In connection with the redemptions, net income available to common shareholders was reduced by $46 million to recognize the difference in the redemption price and the carrying value.

See "Note 12. Shareholders' Equity" for information about preferred stock and "Note 2. Business Combinations" for additional information related to the Merger.

Equity Compensation Plan Information

In connection with the Merger, each outstanding heritage SunTrust equity award granted under heritage SunTrust's equity compensation plans was converted into a corresponding award with respect to Company common stock, with the number of shares underlying such award (and, in the case of stock options, the applicable exercise price) adjusted based on the exchange ratio. Each such converted Company equity award will continue to be subject to the same terms and conditions as applied to the corresponding heritage SunTrust equity award, except that, in the case of heritage SunTrust performance stock unit awards, the number of shares underlying the converted Company equity award was determined based on actual performance through September 30, 2019 and target performance for the balance of the applicable performance period and such award will continue to vest after the Merger solely based on continued service. The following table provides information concerning securities to be issued upon the exercise of outstanding equity-based awards as of December 31, 2020:

(1)Includes 11,286,223 RSUs and PSUs in plans approved by security holders.

(2)Plans not approved by security holders consists of 668,015 options outstanding with a weighted average exercise price of $20.60 and 6,801,489 RSUs for plans that were assumed in mergers and acquisitions.

(3)Excludes RSUs and PSUs because they do not have an exercise price.

(4)Plans not approved by security holders consists of shares of common stock issuable pursuant to the 2012 Incentive Plan, as amended, in respect of shares reserved for issuance under the SunTrust Banks, Inc. 2018 Omnibus Incentive Compensation Plan, which share reserve was assumed by the Company on December 6, 2019 in connection with the Merger. Awards with respect to such shares may only be granted to heritage SunTrust teammates.

Truist Financial Corporation 39

Performance Graph

The following graph and table compares the cumulative total returns (assuming concurrent $100 initial investments as of December 31, 2015 and reinvestment of dividends without commissions) of Truist common stock, the S&P 500 Index and an industry peer group. The companies in the peer group are Bank of America Corporation, Citizens Financial Group, Inc., Fifth Third Bancorp, JPMorgan Chase & Co, KeyCorp, M&T Bank Corporation, The PNC Financial Services Group, Inc., Regions Financial Corporation, U.S. Bancorp and Wells Fargo & Company.

40 Truist Financial Corporation

(1)Revenue is defined as net interest income plus noninterest income.

(2)TE adjustment is based on the federal income tax rate.

(3)Include AFS and HTM securities.

(4)Loans and leases are net of unearned income and include LHFS.

(5)Includes AFS securities at fair value and HTM securities at amortized cost.

Truist Financial Corporation 41

This 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 and accompanying Notes to the Consolidated Financial Statements in this Form 10-K, as well as with the other information contained in this document. Truist’s financial results for 2020 reflect the first full calendar year of operations of the combined Company. Results for 2019 reflect heritage BB&T results prior to the completion of the Merger on December 6, 2019, and Truist results from the Merger closing date forward. For discussion of 2019 results as compared to 2018 results, see "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K for the year ended December 31, 2019.

Executive Overview

Despite the challenges Truist and its clients faced in 2020, significant progress was made on integration and conversion efforts during the year. Below is an overview on progress in a few key areas.

Integration Efforts

Truist completed the Merger on December 6, 2019, and made significant progress on integration and conversion efforts in 2020. Some milestones include unveiling Truist’s purpose, mission, and values; launching the Truist brand and visual identity; completing the purchase of Truist Center, the new corporate headquarters in Charlotte, NC; launching Truist social media platforms; announcing brand conversions for several business units including Truist Insurance, Truist Securities, and Truist Leadership Institute; launching Truist Foundation and Truist Ventures; beginning early migrations for the mortgage business; and introducing the blended branch program. Recent highlights include:

• Completed the job regrading initiative for all teammates.

• Activated Integrated Relationship Management.

• Migrated correspondent mortgage lenders to the Truist origination ecosystem.

• Executed numerous corporate function integration activities across Audit, Risk, Legal and Finance.

• Truist reaffirmed its commitment to achieving $1.6 billion in net cost saves on a run rate basis by the fourth quarter of 2022.

Supporting Clients

Truist acted swiftly to support clients, teammates and communities in response to the COVID-19 pandemic last year and continues to support these stakeholders. Truist is actively helping clients impacted by COVID-19, providing payment relief assistance for credit cards, personal loans, auto loans, home equity lines of credit, and residential mortgages. Truist was one of the largest lenders of PPP loans in 2020 and remains committed to helping small businesses get access to emergency funds for first and second-draw PPP loans. Truist is working closely with clients, providing resources and guidance to ensure a smooth and efficient experience from application to funding and forgiveness. The carrying value of PPP loans was $11.0 billion as of December 31, 2020.

Supporting Teammates

Through the challenges faced, Truist’s concern for teammates and their families remains a top priority. Truist provided over $100 million in special COVID-19 support to teammates, including bonuses, special reimbursement for childcare and an increase in emergency child- and elder-care benefits, enhanced onsite pay, and steps to enhance wellness and family support. Truist released its first Corporate Social Responsibility report, which included a commitment to increasing the number of racially and ethnically diverse teammates among senior leadership positions from approximately 12% to at least 15%. Truist is also committed to ensuring regular, ongoing pay equity reviews for teammates. On the topic of racial inequity, Truist hosted more than 260 "Days of Understanding" sessions designed to encourage bold dialogue on real world topics in an open, trusting environment. The Company also rolled out enhanced unconscious bias training for teammates and Executive Leadership.

Supporting Communities

In response to COVID-19 in 2020, the Company launched Truist Cares, providing a total of $50 million in philanthropic support to aid charities meeting basic needs, furnishing medical supplies and addressing financial hardships across the nation, and have provided a total of 355 grants to community partners.

Truist is committed to addressing racial and social inequity and has taken a number of actions to expand efforts towards advancing equity, economic empowerment and education for clients, communities and teammates.

42 Truist Financial Corporation

In 2020, Truist provided $78 million to support historically underrepresented communities, including a $40 million initial donation to help establish CornerSquare Community Capital made through the Truist Foundation, Inc. and the Truist Charitable Fund, and approximately $20 million over three years to develop and strengthen partnerships, programs, and scholarships that benefit historically black colleges and universities and their students. The Company increased financial resources for low- and moderate-income communities through a $60 billion Community Benefits Plan from 2020-2022 to support home ownership, small business growth and community revitalization.

Financial Results

Net income available to common shareholders totaled $4.2 billion for 2020, a 38.2% increase from the prior year. On a diluted per common share basis, earnings for 2020 were $3.08, compared to $3.71 for 2019. Truist's results of operations for 2020 produced a return on average assets of 0.90% and a return on average common shareholders' equity of 6.82% compared to prior year ratios of 1.31% and 9.87%, respectively. Results include merger-related and restructuring charges of $860 million ($660 million after-tax) for 2020 compared to $360 million ($285 million after-tax) for 2019, and incremental operating expenses related to the Merger of $534 million ($409 million after-tax) for 2020 compared to $164 million ($127 million after-tax) for 2019. Additionally, the 2020 results include a loss on extinguishment of debt of $235 million ($180 million after-tax) and charitable contributions of $50 million ($38 million after-tax), offset by securities gains of $402 million ($308 million after-tax). The 2019 results include securities losses of $116 million ($90 million after-tax), a reduction in net income available to common shareholders of $46 million arising from the redemption of preferred stock, partially offset by a $14 million after-tax net gain from the sale of residential mortgage loans.

Truist's revenue for 2020 was $22.7 billion. On a TE basis, revenue was $22.8 billion, which represents an increase of $10.2 billion compared to 2019. Net interest income on a TE basis was $14.0 billion, an increase of $6.5 billion compared to the prior year, which reflects a $6.2 billion increase in interest income and a $374 million decrease in interest expense. The increase in net interest income was due primarily to a $152.9 billion increase in average outstanding loans, a $32.6 billion increase in average securities, partially offset by a 78 basis point decrease in earning asset yields.

NIM was 3.22% for 2020, down 20 basis points compared to the prior year. Average earning assets increased $217.2 billion or 100.4%, while average interest-bearing liabilities increased $153.7 billion or 101.8%, and noninterest-bearing deposits increased $59.1 billion or 106.4%. The TE yield on the total loan portfolio for 2020 was 4.33%, down 66 basis points compared to the prior year. The TE yield on the average securities portfolio was 2.09%, down 53 basis points compared to the prior year. The average cost of interest-bearing deposits was 0.32%, down 61 basis points compared to the prior year. The average cost of total deposits was 0.22%, down 42 basis points compared to the prior year.

The provision for credit losses was $2.3 billion, compared to $615 million

Showing the first 8K of 276K characters. Open the full section

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Truist Financial Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Truist Financial Corporation and its subsidiaries (the "Company") as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2020, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Truist Financial Corporation 85

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses for Certain Commercial and Consumer Portfolios

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses (ACL) represents management's best estimate of expected future credit losses related to loan and lease portfolios and off-balance sheet lending commitments at the balance sheet date. The consolidated ACL balance was $6.2 billion as of December 31, 2020, including $2.9 billion for commercial portfolios and $2.6 billion for consumer portfolios. Estimates of expected future credit losses are determined by management using quantitative models and by applying qualitative adjustments to the modeled results. The models are designed to forecast probability of default, exposure at default, and loss given default by correlating certain macroeconomic forecast data to historical experience. The models are applied to pools of loans with similar risk characteristics. The macroeconomic forecast data used in the quantitative models is based on forecasted variables for a reasonable and supportable period. The qualitative adjustments incorporate management judgment and are used to account for limitations in modeled results related to current economic conditions and other risks in the portfolios.

The principal considerations for our determination that performing procedures relating to the ACL for certain commercial and consumer portfolios is a critical audit matter are (i) the significant judgment by management in determining the AC

Showing the first 8K of 454K characters. Open the full section

Management's Report on Internal Control over Financial Reporting and Evaluation of

Disclosure Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

Management of Truist is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Truist's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with the authorizations of Truist's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material impact on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the "COSO" criteria. Based on this evaluation under the COSO criteria, management concluded that the internal control over financial reporting was effective as of December 31, 2020.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their accompanying report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2020.

Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.

There was no change in the Company's internal control over financial reporting that occurred during the fourth quarter of 2020 that has materially affected, or is likely to materially affect, the Company's internal control over financial reporting.

154 Truist Financial Corporation

Truist Financial Corporation 155

156 Truist Financial Corporation

Truist Financial Corporation 157