Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

185K characters. Original on sec.gov · Markdown

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements in this Form 10-Q, other information contained in this document, as well as with Truist’s Annual Report on Form 10-K for the year ended December 31, 2022.

A description of certain factors that may affect our future results and risk factors is set forth in Part I, Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

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 ended December 31, 2022 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 ended December 31, 2022 for additional disclosures.

In March 2023, the FRB created the Bank Term Funding Program to support American businesses and households by making additional funding available to eligible depository institutions. This program offers loans up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the FRB in open market operations, such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par.

In the aftermath of the recent bank failures, we expect that the banking agencies will propose certain actions, including reforms that may impose different capital and liquidity requirements, including increased requirements to issue long term debt. On July 27, 2023, the U.S. banking regulators issued the first proposal to revise the risk-based capital standards applicable to the Company and Truist Bank. We continue to evaluate the proposal and the potential impacts, if adopted as proposed, on the Company’s and Truist Bank’s capital requirements.

In addition, the FDIC proposed a special assessment to repay losses to the FDIC’s Deposit Insurance Fund. If the final rule is adopted as proposed, the special assessment for Truist is estimated at approximately $460 million to be recognized at the time the rule is finalized and paid in eight quarterly installments beginning in the first quarter of 2024. Refer to the “Note 14. Commitments and Contingencies” for additional information related to the FDIC’s special assessments.

On July 26, 2023, the SEC finalized rules requiring registrants to disclose material cybersecurity incidents that they experience on Form 8-K and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. Annual disclosures will be required in Truist’s Annual Report on Form 10-K for the year ended 2023. The Form 8-K disclosure requirements will become effective beginning on the later of 90 days after publication of the final rules in the Federal Register or December 18, 2023.

Executive Overview

During the second quarter, we continued to make progress adapting to the new operating environment by strengthening our balance sheet and sharpening our strategic focus on our core businesses.

Second quarter financial results were mixed as revenue headwinds from higher funding costs and lower-than-anticipated capital markets activity were partially offset by record insurance income. We prudently increased our provision and allowance amid the uncertain economic backdrop. Adjusted expenses were up as anticipated for the quarter. However, we are accelerating our plans to adjust our cost base to reflect efficiency opportunities and changing conditions.

Our CET1 capital ratio increased 50 basis points driven by the investment in IH and organic capital generation. The most recent FRB stress test highlighted our capacity to respond to stressed scenarios and we announced plans to maintain our strong quarterly common stock dividend at $0.52 per share, subject to board approval.

We are executing on our strategy to optimize our core businesses exemplified by the sale of our non-core student loan portfolio at net carrying value with no income impact. We also made solid progress towards shifting our loan mix towards higher-return assets.

44 Truist Financial Corporation

Our unwavering foundation of purpose to inspire and build better lives and communities, the dedication of our talented teammates, the momentum created by maximizing our diverse business model, and key leadership positions in growth markets are competitive advantages that are propelling Truist to reach its full potential.

Detailed below are actions that we have taken to fulfill our purpose to inspire and build better lives and communities, followed by a discussion of our financial results for the second quarter of 2023.

In May, we announced the launch of Truist Long Game, our mobile app that leverages behavioral economics to reward clients for building financial wellness. This is also the first product from Truist Foundry, our very own start-up tasked with creating digital solutions to help meet clients where they are.
Truist is also highlighting small business owners through our Small Business Community Heroes initiative, which is all about focusing on the small business owners who work tirelessly to serve our neighbors, create jobs, build our communities, and help drive our economy.
Truist teammates dedicated more than 16,000 hours during the second quarter of 2023 to volunteer in their communities.

Financial Results

Net income available to common shareholders for the second quarter of 2023 of $1.2 billion was down 15.1% compared with the second quarter of 2022. On a diluted per common share basis, earnings for the second quarter of 2023 were $0.92, a decrease of $0.17, or 15.6%, compared to the second quarter of 2022. Truist’s results of operations for the second quarter of 2023 produced an annualized return on average assets of 0.95% and an annualized return on average common shareholders’ equity of 8.6% compared to prior year returns of 1.14% and 10.3%, respectively.

Results for the second quarter of 2023 included merger-related and restructuring charges of $54 million ($41 million after-tax, or $0.03 per share) and a small loss on extinguishment of debt.
Results for the second quarter of 2022 included $121 million ($92 million after-tax, or $0.07 per share) of merger-related and restructuring charges, $117 million ($89 million after-tax, or $0.07 per share) of incremental operating expenses related to the Merger, and a gain on the redemption of FHLB advances of $39 million ($30 million after-tax, or $0.02 per share).

Taxable-equivalent net interest income for the second quarter of 2023 was up $244 million, or 7.1%, compared to the second quarter of 2022 primarily due to higher market interest rates and strong loan growth. These increases were partially offset by lower purchase accounting accretion. Net interest margin was 2.91%, up two basis points.

The yield on the total loan portfolio was 6.07%, up 216 basis points, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion. The yield on the average securities portfolio was 2.17%, up 35 basis points primarily due to the higher rate environment.
The average cost of total deposits was 1.51%, up 142 basis points. The average cost of short-term borrowings was 5.19%, up 393 basis points. The average cost of long-term debt was 4.62%, up 287 basis points. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.

Noninterest income was up $45 million, or 2.0%, compared to the second quarter of 2022 due to higher insurance income and other income, partially offset by lower investment banking and trading income.

Noninterest expense was up $168 million, or 4.7%, compared to the second quarter of 2022 due to higher personnel expense, other expense, and regulatory costs, partially offset by lower merger-related and restructuring charges. Merger-related and restructuring charges and incremental operating expenses related to the merger decreased $67 million and $117 million, respectively, due to the completion of integration-related activities. Adjusted noninterest expenses, which exclude merger-related costs, the amortization of intangibles, and the aforementioned gains and losses on the early extinguishment of debt increased $321 million, or 9.9%.

The effective tax rate decreased compared to the second quarter of 2022 primarily driven by lower income before taxes.

Asset quality reflects normalization and modest deterioration in commercial portfolios.

Nonperforming loans and leases held for investment were 0.47% of loans and leases held for investment at June 30, 2023, up 11 basis points compared to March 31, 2023. The increase in nonperforming assets was concentrated in the CRE and commercial and industrial portfolios.

Truist Financial Corporation 45

The allowance for credit losses was $4.9 billion and includes $4.6 billion for the allowance for loan and lease losses and $273 million for the reserve for unfunded commitments. The ALLL ratio was 1.43%, up six basis points compared with March 31, 2023 primarily due to an updated economic outlook.
The provision for credit losses was $538 million compared to $171 million for the second quarter of 2022. The increase in the current quarter provision expense primarily reflects higher net charge-offs and an updated economic outlook.
The net charge-off ratio was 54 basis points, up 32 basis points compared to the second quarter of 2022 driven by the sale of the student loan portfolio, which had a 12 basis point impact, as well as higher charge-offs in the commercial and industrial, CRE, and indirect auto portfolios.

Capital and liquidity strengthened during the second quarter of 2023.

Truist CET1 ratio was 9.6% as of June 30, 2023. The increase since March 31, 2023 resulted from the minority stake sale in IH and organic capital generation. Truist closed the sale of the minority stake in IH on April 3, 2023, which added 31 basis points to the risk-based regulatory capital ratios.
Truist declared common dividends of $0.52 per share during the second quarter of 2023. The dividend payout ratio for the second quarter of 2023 was 56%. Truist did not repurchase any shares in the second quarter of 2023.
Truist’s average consolidated LCR was 112% for the three months ended June 30, 2023, compared to the regulatory minimum of 100%.
Truist has significant and strong access to liquidity with $178 billion of available liquidity as of June 30, 2023 compared to $171 billion as of December 31, 2022.

46 Truist Financial Corporation

Analysis of Results of Operations

Net Interest Income and NIM

Average earning assets increased $30.3 billion, or 6.4%, primarily due to growth in average total loans of $28.4 billion, or 9.5%, and growth in other earning assets of $13.8 billion, or 65%, primarily due to an increase in balances held at the Federal Reserve to support liquidity build, partially offset by a decrease in average securities of $10.3 billion, or 6.9%.
The yield on the total loan portfolio was 6.07%, up 216 basis points, primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion. The yield on the average securities portfolio was 2.17%, up 35 basis points primarily due to the higher rate environment.
Average deposits decreased $23.9 billion, or 5.6%, average short-term borrowings increased $14.4 billion, and average long-term debt increased $32.4 billion, or 104%.
The average cost of total deposits was 1.51%, up 142 basis points. The average cost of short-term borrowings was 5.19%, up 393 basis points. The average cost of long-term debt was 4.62%, up 287 basis points. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.

Taxable-equivalent net interest income for the six months ended June 30, 2023 was up $954 million, or 14%, compared to the same period in 2022 primarily due to higher market interest rates and strong loan growth. These increases were partially offset by lower purchase accounting accretion. Net interest margin was 3.04% for the six months ended June 30, 2023, up 21 basis points compared to the prior period.

Average earning assets increased $29.7 billion, or 6.3%, compared to the prior period primarily due to growth in average total loans of $31.7 billion, or 11%, and growth in other earning assets of $10.2 billion, or 51%, primarily due to an increase in balances held at the Federal Reserve to support liquidity build, partially offset by a $11.2 billion, or 7.4%, decrease in average securities.
The yield on the total loan portfolio was 5.94% for the six months ended June 30, 2023, up 214 basis points, compared to the prior period primarily reflecting higher market interest rates, partially offset by lower purchase accounting accretion. The yield on the average securities portfolio was 2.16% for the six months ended June 30, 2023, up 41 basis points compared to the prior period primarily due to the higher rate environment.
Average deposits decreased $15.4 billion, or 3.7%, while average short-term borrowings increased $15.7 billion, or 190%, compared to the prior period and average long-term debt increased $24.1 billion, or 72%.
The average cost of total deposits was 1.31% for the six months ended June 30, 2023, up 125 basis points compared to the prior period. The average cost of short-term borrowings was 4.94% for the six months ended June 30, 2023, up 396 basis points compared to the prior period. The average cost on long-term debt was 4.37% for the six months ended June 30, 2023, up 276 basis points compared to the prior period. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.

As of June 30, 2023, the remaining unamortized fair value marks on the loan and lease portfolio and long-term debt were $579 million and $59 million, respectively. As of December 31, 2022, the remaining unamortized fair value marks on the loan and lease portfolio and long-term debt were $741 million and $81 million, respectively.

The remaining unamortized purchase accounting fair value mark on loans and leases consists of $389 million for consumer loans and leases, and $190 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 47


Table 1-1: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis
Three Months Ended June 30, (Dollars in millions)	Average Balances(1)						Annualized Yield/Rate(2)						Income/Expense					Incr. (Decr.)		Change due to
2023			2022			2023			2022			2023			2022			Rate		Volume
Assets
AFS and HTM securities at amortized cost:
U.S. Treasury	$	11,115		$	10,544		1.10	%		0.86	%		$	30		$	22	$	8	$	7	$	1
GSE	329			255			2.70			1.96			3			1		2		2		—
Agency MBS	122,647			133,339			2.25			1.88			690			625		65		117		(52)
States and political subdivisions	425			371			4.18			3.83			5			4		1		—		1
Non-agency MBS	3,852			4,097			2.32			2.30			22			23		(1)		—		(1)
Other	25			75			5.20			3.66			—			1		(1)		—		(1)

Total securities	138,393			148,681			2.17			1.82			750			676		74		126		(52)
Interest earning trading assets	4,445			6,073			6.73			3.55			75			55		20		37		(17)
Other earning assets(3)	34,988			21,203			5.02			0.85			437			45		392		346		46
Loans and leases, net of unearned income:

Commercial and industrial	166,588			145,558			6.28			3.24			2,610			1,174		1,436		1,244		192
CRE	22,706			22,508			6.73			3.41			384			193		191		189		2
Commercial Construction	5,921			5,256			7.64			3.46			111			43		68		62		6


Residential mortgage	56,320			49,237			3.77			3.58			531			440		91		24		67
Home equity	10,478			10,677			7.26			4.52			190			118		72		74		(2)
Indirect auto	26,558			26,496			6.01			5.47			398			362		36		35		1
Other consumer	28,189			25,918			7.10			6.00			499			391		108		73		35
Student	4,766			6,331			6.76			4.20			80			66		14		33		(19)
Credit card	4,846			4,728			11.48			8.91			137			105		32		29		3

Total loans and leases HFI	326,372			296,709			6.07			3.91			4,940			2,892		2,048		1,763		285
LHFS	1,886			3,152			5.94			4.20			28			33		(5)		11		(16)
Total loans and leases	328,258			299,861			6.07			3.91			4,968			2,925		2,043		1,774		269
Total earning assets	506,084			475,818			4.93			3.12			6,230			3,701		2,529		2,283		246
Nonearning assets	59,738			64,750
Total assets	$	565,822		$	540,568
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking	$	102,105		$	112,375		1.91			0.15			487			43		444		448		(4)
Money market and savings	138,149			148,632			1.99			0.13			686			50		636		640		(4)
Time deposits	35,844			14,133			3.73			0.17			333			6		327		305		22

Total interest-bearing deposits	276,098			275,140			2.19			0.14			1,506			99		1,407		1,393		14
Short-term borrowings	23,991			9,618			5.19			1.26			311			30		281		190		91
Long-term debt	63,665			31,263			4.62			1.75			734			137		597		366		231
Total interest-bearing liabilities	363,754			316,021			2.81			0.34			2,551			266		2,285		1,949		336
Noninterest-bearing deposits	123,728			148,610
Other liabilities	14,239			12,437
Shareholders’ equity	64,101			63,500
Total liabilities and shareholders’ equity	$	565,822		$	540,568
Average interest-rate spread							2.12	%		2.78	%
NIM/net interest income - taxable equivalent							2.91	%		2.89	%		$	3,679		$	3,435	$	244	$	334	$	(90)
Taxable-equivalent adjustment													$	54		$	28
Memo: Total deposits	$	399,826		$	423,750		1.51	%		0.09	%		$	1,506		$	99	$	1,407

(1)Represents daily average balances. Excludes basis adjustments for fair value hedges.

(2)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.

(3)Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets.

48 Truist Financial Corporation




Table 1-2: Taxable-Equivalent Net Interest Income and Rate / Volume Analysis

Six Months Ended June 30, (Dollars in millions)	Average Balances(1)					Annualized Yield/Rate(2)					Income/Expense			Incr. (Decr.)			Change due to
2023			2022				2023			2022			2023			2022			Rate		Volume
Assets
AFS and HTM securities at amortized cost:
U.S. Treasury	$	11,116		$	10,219			1.08	%		0.79	%		$	60		$	40	$	20	$	16	$	4
GSE	332			685				2.78			2.11			5			7		(2)		2		(4)
Agency MBS	123,692			135,185				2.24			1.80			1,384			1,215		169		277		(108)
States and political subdivisions	425			372				4.12			3.77			9			7		2		1		1
Non-agency MBS	3,879			4,161				2.33			2.27			45			47		(2)		1		(3)
Other	22			51				5.24			3.22			—			1		(1)		—		(1)

Total securities	139,466			150,673				2.16			1.75			1,503			1,317		186		297		(111)
Interest earning trading assets	4,951			5,956				6.38			3.30			158			98		60		79		(19)
Other earning assets(3)	30,314			20,074				4.87			0.75			732			75		657		601		56
Loans and leases, net of unearned income:

Commercial and industrial	165,846			142,233				6.13			3.06			5,046			2,161		2,885		2,476		409
CRE	22,698			23,029				6.52			3.12			739			361		378		383		(5)
Commercial Construction	5,892			5,152				7.39			3.26			212			78		134		120		14


Residential mortgage	56,370			48,610				3.75			3.57			1,057			868		189		45		144
Home equity	10,606			10,747				7.03			4.43			370			234		136		139		(3)
Indirect auto	27,147			26,293				5.91			5.51			796			719		77		53		24
Other consumer	27,876			25,424				6.93			6.12			958			774		184		106		78
Student	4,947			6,489				6.91			4.02			169			129		40		76		(36)
Credit card	4,815			4,705				11.45			8.94			273			209		64		59		5

Total loans and leases HFI	326,197			292,682				5.94			3.81			9,620			5,533		4,087		3,457		630
LHFS	1,708			3,511				6.28			3.47			53			61		(8)		34		(42)
Total loans and leases	327,905			296,193				5.94			3.80			9,673			5,594		4,079		3,491		588
Total earning assets	502,636			472,896				4.83			3.01			12,066			7,084		4,982		4,468		514
Nonearning assets	60,105			65,391
Total assets	$	562,741		$	538,287
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking	$	105,477		$	112,268			1.75			0.10			917			57		860		864		(4)
Money market and savings	138,972			145,085				1.69			0.08			1,162			61		1,101		1,104		(3)
Time deposits	32,276			14,885				3.45			0.18			552			13		539		506		33

Total interest-bearing deposits	276,725			272,238				1.92			0.10			2,631			131		2,500		2,474		26
Short-term borrowings	24,023			8,289				4.94			0.98			589			40		549		374		175
Long-term debt	57,396			33,289				4.37			1.61			1,248			269		979		689		290
Total interest-bearing liabilities	358,144			313,816				2.51			0.28			4,468			440		4,028		3,537		491
Noninterest-bearing deposits	127,393			147,279
Other liabilities	14,109			12,052
Shareholders’ equity	63,095			65,140
Total liabilities and shareholders’ equity	$	562,741		$	538,287
Average interest-rate spread								2.32	%		2.73	%
NIM/net interest income - taxable equivalent								3.04	%		2.83	%		$	7,598		$	6,644	$	954	$	931	$	23
Taxable-equivalent adjustment														$	105		$	54
Memo: Total deposits	$	404,118		$	419,517			1.31	%		0.06	%		$	2,631		$	131	$	2,500

(1)Represents daily average balances. Excludes basis adjustments for fair value hedges.

(3)Includes cash equivalents, interest-bearing deposits with banks, FHLB stock and other earning assets.

Truist Financial Corporation 49

Provision for Credit Losses

The provision for credit losses was $538 million for the second quarter of 2023 compared to $171 million for the second quarter of 2022.

The increase in the current quarter provision expense primarily reflects higher net charge-offs and an updated economic outlook.
The net charge-off ratio was up compared to the second quarter of 2022 driven by the sale of the student loan portfolio as well as higher charge-offs in the commercial and industrial, CRE, and indirect auto portfolios.

The provision for credit losses was $1.0 billion for the six months ended June 30, 2023 compared to $76 million in the same period in 2022. The net charge-off ratio for the current period of 0.46% was up 23 basis points compared to the prior period.

The increase in the current quarter provision expense primarily reflects higher net charge-offs and an updated economic outlook.

*•*The net charge-off ratio was up compared to the prior period driven by higher charge-offs in the commercial and industrial, indirect auto, and CRE portfolios as well as the sale of the student loan portfolio.

Refer to “Note 5. Loans and ACL” for additional discussion of the ACL.

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. The following table provides a breakdown of Truist’s noninterest income:


Table 2: Noninterest Income
	Three Months Ended June 30,				% Change		Six Months Ended June 30,				% Change
(Dollars in millions)	2023		2022		2023 vs. 2022		2023		2022			2023 vs. 2022
Insurance income	$	935	$	825	13.3	%	$	1,748	$	1,552		12.6	%
Wealth management income	330		337		(2.1)		669		680			(1.6)
Investment banking and trading income	211		255		(17.3)		472		516			(8.5)
Service charges on deposits	240		254		(5.5)		489		506			(3.4)
Card and payment related fees	236		246		(4.1)		466		458			1.7
Mortgage banking income	99		100		(1.0)		241		221			9.0
Lending related fees	86		100		(14.0)		192		185			3.8
Operating lease income	64		66		(3.0)		131		124			5.6
Securities gains (losses)	—		(1)		NM		—		(70)			NM
Other income	92		66		39.4		119		218			(45.4)
Total noninterest income	$	2,293	$	2,248	2.0		$	4,527	$	4,390		3.1

Noninterest income was up $45 million, or 2.0%, for the second quarter of 2023 compared to the second quarter of 2022 due to higher insurance income and other income, partially offset by lower investment banking and trading income.

Insurance income increased primarily due to strong 9.1% organic growth and acquisitions.
Other income increased primarily due to higher income from investments held for certain post-retirement benefits (which is primarily offset by higher personnel expense), partially offset by derivative collateral related costs.
Investment banking and trading income decreased due to lower structured real estate income and lower trading income.

Noninterest income was up $137 million, or 3.1%, for the six months ended June 30, 2023 compared to the same period in 2022 due to higher insurance income, partially offset by lower investment banking and trading income and lower other income. The prior period included $70 million of securities losses and a $74 million gain on the redemption of noncontrolling equity interest (included in other income).

Insurance income increased primarily due to strong 7.0% organic growth and acquisitions.
Investment banking and trading income decreased due to lower structured real estate income, partially offset by higher merger and acquisition fees.
Other income decreased primarily due to the aforementioned gain on the redemption of noncontrolling equity in the prior period and higher derivative collateral related costs, partially offset by higher income from investments held for certain post-retirement benefits (which is primarily offset by higher personnel expense).

50 Truist Financial Corporation

Noninterest Expense

The following table provides a breakdown of Truist’s noninterest expense:


Table 3: Noninterest Expense
	Three Months Ended June 30,				% Change		Six Months Ended June 30,				% Change
(Dollars in millions)	2023		2022		2023 vs. 2022		2023		2022			2023 vs. 2022
Personnel expense	$	2,256	$	2,102	7.3	%	$	4,437	$	4,153		6.8	%
Professional fees and outside processing	352		349		0.9		666		712			(6.5)
Software expense	237		234		1.3		451		466			(3.2)
Net occupancy expense	180		181		(0.6)		363		389			(6.7)
Amortization of intangibles	131		143		(8.4)		267		280			(4.6)
Equipment expense	92		114		(19.3)		202		232			(12.9)
Marketing and customer development	79		93		(15.1)		157		177			(11.3)
Operating lease depreciation	44		47		(6.4)		90		95			(5.3)
Regulatory costs	73		44		65.9		148		79			87.3
Merger-related and restructuring charges	54		121		(55.4)		117		337			(65.3)
Other expense	250		152		64.5		541		334			62.0
Total noninterest expense	$	3,748	$	3,580	4.7		$	7,439	$	7,254		2.6

Noninterest expense was up $168 million, or 4.7%, for the second quarter of 2023 compared to the second quarter of 2022 due to higher personnel expense, other expense, and regulatory costs, partially offset by lower merger-related and restructuring charges. Merger-related and restructuring charges and incremental operating expenses related to the merger decreased $67 million and $117 million, respectively, due to the completion of integration-related activities. The second quarter of 2022 included a gain on the redemption of FHLB advances of $39 million. Adjusted noninterest expenses, which exclude merger-related costs, the amortization of intangibles, and gains and losses on the early extinguishment of debt, increased $321 million, or 9.9%.

Personnel expense increased due to investments in teammates by increasing Truist’s minimum wage, the impact from acquisitions, investments in revenue producing businesses and enterprise technology, and higher other post-retirement benefit expense (which is almost entirely offset by higher other income), partially offset by lower pension expenses.
Other expense increased primarily due to higher pension expense (driven primarily by lower plan assets), partially offset by lower operating losses.
Regulatory costs increased primarily due to an increase in the FDIC’s deposit insurance assessment rate.

Noninterest expense was up $185 million, or 2.6%, for the six months ended June 30, 2023 compared to the same period in 2022 due to higher personnel expense, other expense, and regulatory costs, partially offset by lower merger-related and restructuring charges. Merger-related and restructuring charges and incremental operating expenses related to the merger decreased $220 million and $319 million, respectively, due to the completion of integration-related activities. The prior period included a gain on the redemption of FHLB advances of $39 million. Adjusted noninterest expenses, which exclude merger-related costs, the amortization of intangibles, and gains and losses on the early extinguishment of debt, increased $694 million, or 11%.

Personnel expense increased due to investments in teammates by increasing Truist’s minimum wage, the impact from acquisitions, investments in revenue producing businesses and enterprise technology, and higher other post-retirement benefit expense (which is almost entirely offset by higher other income), partially offset by lower pension expenses.
Other expense increased primarily due to higher pension expense (driven primarily by lower plan assets), partially offset by lower operating losses.
Regulatory costs increased primarily due to an increase in the FDIC’s deposit insurance assessment rate.

Truist Financial Corporation 51

Merger-Related and Restructuring Charges

The following table presents a summary of merger-related and restructuring charges and the related accruals. The 2023 merger-related and restructuring costs predominately reflect various restructuring initiatives, including costs for severance and other benefits and costs related to exiting facilities.



Table 4: Merger-Related and Restructuring Accrual Activity
	Three Months Ended June 30, 2023								Six Months Ended June 30, 2023
(Dollars in millions)	Accrual at Apr 1, 2023		Expense		Utilized		Accrual at Jun 30, 2023			Accrual at Jan 1, 2023		Expense		Utilized		Accrual at Jun 30, 2023
Severance and personnel-related	$	17	$	40	$	(39)	$	18		$	9	$	79	$	(70)	$	18
Occupancy and equipment	—		11		(11)		—			—		30		(30)		—
Professional services	1		2		(3)		—			12		3		(15)		—

Other	4		1		(3)		2			5		5		(8)		2
Total	$	22	$	54	$	(56)	$	20		$	26	$	117	$	(123)	$	20

Provision for Income Taxes

The provision for income taxes was $287 million for the three months ended June 30, 2023, compared to $372 million for the earlier quarter. The effective tax rate for three months ended June 30, 2023 was 17.6% compared to 19.5% for the earlier quarter. The effective tax rate decreased compared to the second quarter of 2022 primarily driven by lower income before taxes.

The provision for income taxes was $681 million for the six months ended June 30, 2023, compared to $702 million for the same period in 2022. The effective tax rate for six months ended June 30, 2023 and 2022 was 19.2%.

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.

During the first quarter of 2023, Truist realigned Prime Rate Premium Finance Corporation, which includes AFCO Credit Corporation and CAFO Holding Company, into the C&CB segment from the IH segment. Prior period results have been revised to conform to the current presentation. During the second quarter of 2023, Truist updated its segment cost allocation methodology. Results for the first quarter of 2023 have been revised to conform to the current presentation. Management concluded the impact to 2022 was not material.

In conjunction with the Company’s April 3, 2023 sale of a 20% stake of the common equity in IH, IH issued $5 billion of 8.25% mandatorily redeemable preferred units to the Company, with the related interest expense, which is fully allocable to the Company, reported in Net intersegment interest income (expense).

Also related to the same transaction, IH was recapitalized from a corporate entity to an LLC, such that each member is allocated its share of IH’s income before taxes, and beginning in the second quarter of 2023 the Company recognizes its associated income tax provision through Other, Treasury & Corporate. The Company elected not to restate prior periods for this change based on IH’s previous status as a corporate entity. The Company recognized $54 million for the second quarter 2023 tax provision related to IH in Other, Treasury & Corporate.

See “Note 18. Operating Segments” herein and “Note 21. Operating Segments” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 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,				% Change		Six Months Ended June 30,				% Change
(Dollars in millions)	2023		2022		2023 vs. 2022		2023		2022		2023 vs. 2022
Consumer Banking and Wealth	$	931	$	760	22.5	%	$	1,913	$	1,626	17.7	%
Corporate and Commercial Banking	880		986		(10.8)		1,880		2,006		(6.3)
Insurance Holdings	155		171		(9.4)		264		313		(15.7)
Other, Treasury & Corporate	(621)		(385)		(61.3)		(1,197)		(997)		(20.1)
Truist Financial Corporation	$	1,345	$	1,532	(12.2)		$	2,860	$	2,948	(3.0)

52 Truist Financial Corporation

Consumer Banking and Wealth

CB&W net income was $931 million for the second quarter of 2023, an increase of $171 million compared to the second quarter of 2022.

Segment net interest income increased $375 million primarily driven by favorable funding credit on deposits attributable to the higher rate environment and higher average loan balances, partially offset by a decrease in loan spread, lower average deposit balances, and lower purchase accounting accretion.
The provision for credit losses increased $25 million reflecting higher charge offs in the indirect auto and other consumer portfolios as well as an updated economic outlook. The impact of the student loan sale in the current quarter was net neutral to provision.
Noninterest income was flat compared to earlier quarter.
Noninterest expense increased $121 million compared to the earlier quarter driven by higher corporate technology costs, salaries expense, pension cost and corporate risk support along with higher operations support expenses and FDIC’s deposit insurance assessment rate, partially offset by lower operational losses, merger-related and restructuring charges, marketing and customer development, and professional fees and outside processing.

CB&W average loans and leases held for investment increased $8.6 billion, or 6.4%, for the second quarter of 2023 compared to the second quarter of 2022, primarily driven by increases in residential mortgage balances, Service Finance, and Sheffield loans along with an increase in commercial lending in Wealth, partially offset by runoff in the student loan portfolio and other partnership lending programs and lower mortgage warehouse lending.

CB&W average total deposits decreased $19.1 billion, or 7.4%, for the second quarter of 2023 compared to the second quarter of 2022, primarily driven by decreases in interest-bearing checking, money market and savings, and noninterest-bearing deposits, partially offset by an increase in time deposits.

Corporate and Commercial Banking

C&CB net income was $880 million for the second quarter of 2023, a decrease of $106 million compared to the second quarter of 2022.

Segment net interest income increased $341 million primarily due to higher funding credit on deposits and higher average loan balances, partially offset by lower purchase accounting accretion.
The provision for credit losses increased $339 million which reflects an increase in reserves driven by an updated economic outlook, higher commercial and industrial loan charge offs, and loan growth in the current quarter as well as an allowance release in the earlier quarter.
Noninterest income decreased $112 million compared to the earlier quarter primarily due to lower structured real estate fees, core trading revenues, income from credit default swaps, and lending related fees.
Noninterest expense increased $57 million compared to the earlier quarter primarily due to higher corporate technology expenses, and merger-related and restructuring charges, partially offset by lower corporate marketing expense.

C&CB average loans held for investment increased $18.8 billion, or 11%, for the second quarter of 2023 compared to the second quarter of 2022, primarily due to increases in core commercial and industrial loans.

C&CB average total deposits decreased $16.3 billion, or 11%, for the second quarter of 2023 compared to the second quarter of 2022, primarily due to declines in average noninterest-bearing deposits, partially offset by increases in money market and savings.

Insurance Holdings

IH net income was $155 million for the second quarter of 2023, a decrease of $16 million compared to the second quarter of 2022.

Segment net interest income decreased $90 million driven primarily by interest expense accruals on new intercompany mandatorily redeemable preferred units resulting from the recapitalization of IH.
Noninterest income increased $114 million primarily due to continued organic growth and acquisitions.
Noninterest expense increased $95 million primarily due to the impact of acquisitions, investments in new hires and teammates, performance-driven incentive expense, and higher professional fees and outside processing.

Truist Financial Corporation 53

Other, Treasury & Corporate

OT&C generated a net loss of $621 million in the second quarter of 2023, compared to a net loss of $385 million in the second quarter of 2022.

Net interest income decreased $408 million primarily due to higher funding credit on deposits to other segments, partially offset by higher funding charges to other segments from the higher rate environment.
The provision for credit losses was flat compared to the earlier quarter.
Noninterest income increased $46 million primarily due to higher income from investments held for certain post-retirement benefits (which is primarily offset by higher personnel expense).
Noninterest expense decreased $105 million compared to the earlier quarter primarily due to a decrease in incremental operating expenses related to the merger as well as credit from other segments for corporate technology project support, partially offset by an increase in professional fees and outside processing and personnel expenses.

Six Months of 2023 compared to Six Months of 2022

Consumer Banking and Wealth

CB&W net income was $1.9 billion for the six months ended June 30, 2023, an increase of $287 million, or 18%, compared to the prior year.

Segment net interest income increased $934 million driven by favorable funding credit on deposits attributable to the higher rate environment and higher average loans, partially offset by higher funding costs, lower average deposits, and lower purchase accounting accretion.
The provision for credit losses increased $226 million reflecting an updated economic outlook in the current period, a reserve release in the earlier period, and higher charge offs in the indirect auto and other consumer portfolios. The impact of the student loan sale in the current quarter was net neutral to provision.
Noninterest income decreased $41 million primarily due to a gain on the redemption of noncontrolling equity interest in the earlier period as well as lower service charges on deposits and lower wealth management income, partially offset by higher mortgage banking income in the current period.
Noninterest expense increased $291 million primarily driven by higher corporate technology costs, salaries expense, pension cost and corporate risk support along with higher operations support expenses and FDIC’s deposit insurance assessment rate, partially offset by lower operational losses, marketing and customer development, merger-related and restructuring charges, and professional fees and outside processing.

CB&W average loans and leases held for investment increased $9.9 billion, or 8.0%, for the six months ended June 30, 2023 compared to the prior year driven primarily by an increase in residential mortgage loans as well as increases in the Service Finance, prime auto, and recreational lending portfolios. These increases were partially offset by runoff in the student loan portfolio and other partnership lending programs and lower mortgage warehouse lending.

CB&W average total deposits decreased $17.1 billion, or 6.7%, for the six months ended June 30, 2023 compared to the prior year primarily due to decreases in average interest-bearing checking, money market and savings, and noninterest-bearing deposits, partially offset by an increase in time deposits.

Truist Wealth had assets under management of $191 billion as of June 30, 2023, an increase of $11 billion, or 6.0%, compared to the prior year primarily due to higher markets and positive net asset flows.

Corporate and Commercial Banking

C&CB net income was $1.9 billion for the six months ended June 30, 2023, a decrease of $126 million, or 6.3%, compared to the prior year.

Segment net interest income increased $803 million primarily due to higher funding credit on deposits and higher average loan balances, partially offset by lower purchase accounting accretion.
The provision for credit losses increased $721 million which reflects an increase in reserves driven by an updated economic outlook, higher charge offs, and loan growth in the current period as well as an allowance release in the earlier period.
Noninterest income decreased $138 million primarily due to lower structured real estate fees, other investment income, and lower commercial mortgage income as well as lower income from credit default swaps, partially offset by increases in merger and acquisition fees.
Noninterest expense increased $151 million primarily due to higher corporate technology expenses, personnel expenses, merger-related and restructuring charges, and FDIC insurance expense, partially offset by lower corporate marketing expense.

54 Truist Financial Corporation

C&CB average loans and leases held for investment increased $22.7 billion, or 14%, for the six months ended June 30, 2023 compared to the prior year driven by an increase in the commercial and industrial portfolio loans.

C&CB average total deposits decreased $13.5 billion, or 9.1%, for the six months ended June 30, 2023 compared to the prior year primarily due to a decrease in average noninterest-bearing deposits, partially offset by an increase in money market and savings.

Insurance Holdings

IH net income was $264 million for the six months ended June 30, 2023, a decrease of $49 million, or 16%, compared to the prior year.

Segment net interest income decreased $78 million driven primarily by interest expense accruals on new intercompany mandatorily redeemable preferred units resulting from the recapitalization of IH.
Noninterest income increased $198 million primarily due to continued organic growth and acquisitions.
Noninterest expense increased $235 million primarily due to the impact of acquisitions, investments in new hires and teammates, performance-driven incentive expense, and higher operational loss reserves.

Other, Treasury, and Corporate

OT&C generated a net loss of $1.2 billion for the six months ended June 30, 2023, compared to a net loss of $997 million in the prior year.

Segment net interest income decreased $756 million due to higher funding credit on deposits to other segments, partially offset by higher funds transfer charges to other segments for loans and higher earnings in the securities portfolio from the higher rate environment.
The provision for credit losses increased $17 million, which reflects a reserve release in the prior year as well as an updated economic outlook in the current period.
Noninterest income increased $118 million primarily due to losses on the sale of securities in the earlier period and valuation changes from assets held for certain post-retirement benefits in the current period, which is primarily offset by higher personnel expense.
Noninterest expense decreased $492 million primarily due to a decrease in incremental operating expenses related to the merger and credit from other segments for corporate technology project support, partially offset by an increase in professional fees and outside processing, personnel expenses and a gain on the redemption of FHLB advances in the prior year.

Truist Financial Corporation 55

Analysis of Financial Condition

Investment Activities

The securities portfolio totaled $124.9 billion at June 30, 2023, compared to $129.5 billion at December 31, 2022. U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of June 30, 2023 and December 31, 2022. While the overwhelming majority of the portfolio remains in agency MBS securities, the Company also holds AAA rated non-agency MBS as the risk adjusted returns for these securities are more attractive than agency MBS.

The decrease includes paydowns and maturities of $5.4 billion during 2023.
As of June 30, 2023, 41% of the investment securities portfolio was classified as held-to-maturity based on amortized cost.
As of June 30, 2023 and December 31, 2022, approximately 5.7% of the securities portfolio was variable rate, excluding the impact of swaps.
The effective duration of the AFS securities portfolio was 6.2 years at June 30, 2023 and December 31, 2022. The effective duration of the HTM securities portfolio was 7.4 years at June 30, 2023 and 7.3 years at December 31, 2022.

Lending Activities

The following table presents the composition of average loans and leases:


Table 6: Average Loans and Leases
	Three Months Ended
(Dollars in millions)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022
Commercial:
Commercial and industrial	$	166,588	$	165,095	$	159,308	$	152,123	$	145,558
CRE	22,706		22,689		22,497		22,245		22,508
Commercial construction	5,921		5,863		5,711		5,284		5,256

Consumer:
Residential mortgage	56,320		56,422		56,292		53,271		49,237
Home equity	10,478		10,735		10,887		10,767		10,677
Indirect auto	26,558		27,743		28,117		28,057		26,496
Other consumer	28,189		27,559		27,479		26,927		25,918
Student	4,766		5,129		5,533		5,958		6,331
Credit card	4,846		4,785		4,842		4,755		4,728

Total average loans and leases HFI	$	326,372	$	326,020	$	320,666	$	309,387	$	296,709

Average loans held for investment increased $352 million, or 0.1%, compared to the prior quarter, while period-end loans held for investment were $322.1 billion, down $5.6 billion compared to March 31, 2023, primarily due to the sale of the student loan portfolio at the end of the second quarter of 2023 and loan growth moderation in lower return portfolios.

Average commercial loans increased 0.8% due to a seasonal increase in mortgage warehouse lending and growth within the core commercial and industrial portfolio.
Average consumer loans decreased 1.0% due to lower indirect auto production, the continued run-off of the student loan portfolio (prior to the sale at the end of the period), and lower home equity balances, partially offset by growth in higher-return point-of-sale lending in the other consumer portfolio (Service Finance and Sheffield).

At June 30, 2023 and December 31, 2022, 53% of loans and leases HFI were variable rate.

56 Truist Financial Corporation

Asset Quality

The following tables summarize asset quality information:


Table 7: Asset Quality
(Dollars in millions)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022
NPAs:
NPLs:
Commercial and industrial	$	562	$	394	$	398	$	443	$	393
CRE	275		117		82		5		19
Commercial construction	16		1		—		—		—

Residential mortgage	221		233		240		227		269
Home equity	129		132		135		132		133
Indirect auto	262		270		289		260		244
Other consumer	46		45		44		39		32

Total NPLs HFI	1,511		1,192		1,188		1,106		1,090
Loans held for sale	13		—		—		72		33
Total nonaccrual loans and leases	1,524		1,192		1,188		1,178		1,123
Foreclosed real estate	3		3		4		4		3
Other foreclosed property	56		66		58		58		47
Total nonperforming assets	$	1,583	$	1,261	$	1,250	$	1,240	$	1,173

















Loans 90 days or more past due and still accruing:
Commercial and industrial	$	36	$	35	$	49	$	44	$	27
CRE	—		—		1		1		3
Commercial construction	5		—		—		—		3

Residential mortgage - government guaranteed	541		649		759		808		884
Residential mortgage - nonguaranteed	23		25		27		26		27
Home equity	7		10		12		9		8
Indirect auto	—		—		1		1		1
Other consumer	12		10		13		9		5
Student - government guaranteed	—		590		702		770		796
Student - nonguaranteed	—		4		4		5		5
Credit card	38		38		37		36		28

Total loans 90 days or more past due and still accruing	$	662	$	1,361	$	1,605	$	1,709	$	1,787
Loans 30-89 days past due and still accruing:
Commercial and industrial	$	142	$	125	$	256	$	162	$	223
CRE	38		34		25		15		10
Commercial construction	6		3		5		3		4

Residential mortgage - government guaranteed	267		232		268		234		233
Residential mortgage - nonguaranteed	254		259		346		300		302
Home equity	56		65		68		67		68
Indirect auto	549		511		646		591		584
Other consumer	175		164		187		152		166
Student - government guaranteed	—		350		396		375		447
Student - nonguaranteed	—		6		6		6		6
Credit card	63		56		64		52		48

Total loans 30-89 days past due and still accruing	$	1,550	$	1,805	$	2,267	$	1,957	$	2,091

Nonperforming assets totaled $1.6 billion at June 30, 2023, up $322 million compared to March 31, 2023. Nonperforming loans and leases held for investment were 0.47% of loans and leases held for investment at June 30, 2023, up 11 basis points compared to March 31, 2023. The increase in nonperforming assets was concentrated in the CRE and commercial and industrial portfolios.

Loans 90 days or more past due and still accruing totaled $662 million at June 30, 2023, down $699 million, or twenty-one basis points as a percentage of loans and leases, compared with the prior quarter primarily due to the sale of government guaranteed student loans and a decline in government guaranteed residential mortgages. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.04% at June 30, 2023, unchanged from March 31, 2023.

Loans 30-89 days past due and still accruing of $1.6 billion at June 30, 2023 were down $255 million, or 7 basis points as a percentage of loans and leases, compared to the prior quarter primarily due to declines in government guaranteed student loans as a result of exiting that portfolio.

Truist Financial Corporation 57

Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 7. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to “Note 5. Loans and ACL” for the amortized cost basis of loans by origination year and credit quality indicator as well as additional disclosures related to NPLs.


Table 8: Asset Quality Ratios
	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI	0.48	%	0.55	%	0.70	%	0.62	%	0.69	%
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI	0.21		0.42		0.49		0.54		0.59
NPLs as a percentage of loans and leases HFI	0.47		0.36		0.36		0.35		0.36
NPLs as a percentage of total loans and leases(1)	0.47		0.36		0.36		0.37		0.37
NPAs as a percentage of:
Total assets(1)	0.29		0.22		0.23		0.23		0.22
Loans and leases HFI plus foreclosed property	0.49		0.38		0.38		0.37		0.38

ALLL as a percentage of loans and leases HFI	1.43		1.37		1.34		1.34		1.38


Ratio of ALLL to NPLs	3.0x		3.8x		3.7x		3.8x		3.8x
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI, excluding government guaranteed(2)	0.04	%	0.04	%	0.04	%	0.04	%	0.04	%

(1)Includes LHFS.

(2)This asset quality ratio has been adjusted to remove the impact of government guaranteed loans. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio because collection of principal and interest is reasonably assured, or the ratio might not be comparable to other periods presented or to other portfolios that do not have government guarantees.


Table 9: Asset Quality Ratios (Continued)
											As of/For the Year-to-Date
	Three Months Ended										Period Ended June 30
	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022		2023		2022
Net charge-offs as a percentage of average loans and leases HFI:
Commercial:
Commercial and industrial	0.23	%	0.15	%	0.08	%	0.02	%	0.01	%	0.19	%	0.03	%
CRE	0.62		0.09		0.19		(0.01)		(0.10)		0.35		(0.04)
Commercial construction	(0.02)		(0.04)		(0.06)		(0.10)		(0.08)		(0.03)		(0.05)

Consumer:
Residential mortgage	(0.01)		—		(0.02)		0.01		(0.02)		(0.01)		(0.02)
Home equity	(0.12)		(0.15)		(0.01)		(0.13)		(0.17)		(0.14)		(0.14)
Indirect auto	1.28		1.47		1.52		1.15		0.77		1.38		1.00
Other consumer	1.20		1.29		1.11		1.31		1.27		1.25		1.07
Student	8.67		0.42		0.34		0.40		0.30		4.42		0.31
Credit card	3.66		3.54		3.68		2.80		2.63		3.60		2.70
Total(1)	0.54		0.37		0.34		0.27		0.22		0.46		0.23

Ratio of ALLL to net charge-offs(2)	2.6x		3.7x		4.1x		5.0x		6.5x		3.1x		6.2x

Ratios are annualized, as applicable.

(1)2Q23 includes 12 basis point impact from student loan portfolio sale.

(2)Excluding the impact from the student loan charge-offs, the ALLL to annualized net charge-offs was 3.4X at June 30, 2023.

58 Truist Financial Corporation

The following table presents activity related to NPAs:


Table 10: Rollforward of NPAs
(Dollars in millions)	2023		2022
Balance, January 1	$	1,250	$	1,163
New NPAs	1,563		836
Advances and principal increases	463		175
Disposals of foreclosed assets(1)	(300)		(215)
Disposals of NPLs(2)	(80)		(68)
Charge-offs and losses	(414)		(194)
Payments	(628)		(347)
Transfers to performing status	(263)		(190)
Other, net	(8)		13
Ending balance, June 30	$	1,583	$	1,173

(1)Includes charge-offs and losses recorded upon sale of $84 million and $50 million for the six months ended June 30, 2023 and 2022, respectively.

(2)Includes charge-offs and losses recorded upon sale of $24 million and $1 million for the six months ended June 30, 2023 and 2022, respectively.

CRE and Commercial Construction

Truist has noted that the CRE and commercial construction portfolios have the potential for heightened risk in the current environment. Truist maintains a high-quality portfolio through disciplined risk management and prudent client selection. In addition, the Company’s exposure to large CRE tends to have more institutional sponsorship and the Company has reduced exposure to smaller CRE. Truist’s CRE and commercial construction portfolios were $28.8 billion as of June 30, 2023.

Our office portfolio, which makes up approximately 18% of total CRE and commercial construction loans, is weighted towards Class A properties as of June 30, 2023. Truist maintains rigorous credit risk management surveillance routines across all loan portfolios. During 2023, Truist performed multiple reviews of the CRE office portfolio. Nonperforming loans and criticized loans in this portfolio have increased in this period.


Table 11: CRE and Commercial Construction by Type
	June 30, 2023				December 31, 2022
(Dollars in millions)	LHFI		NPL		LHFI		NPL
CRE and commercial construction:
Multifamily	$	8,590	$	17	$	7,762	$	—
Office	5,158		264		5,258		75
Retail	4,548		4		4,668		2
Industrial	4,731		—		4,329		—
Hotel	2,601		—		2,965		—
Other	3,140		6		3,543		5
Total	$	28,768	$	291	$	28,525	$	82

See additional information on the CRE and commercial construction portfolios in “Note 5. Loans and ACL,” including loans by origination year and credit quality indicator.

Truist Financial Corporation 59

ACL

Activity related to the ACL is presented in the following tables:


Table 12: Activity in ACL
	Three Months Ended										Six Months Ended June 30,
(Dollars in millions)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022		2023		2022
Balance, beginning of period(1)	$	4,761	$	4,649	$	4,455	$	4,434	$	4,423	$	4,649	$	4,695


Provision for credit losses	558		482		467		234		171		1,040		76

Charge-offs:
Commercial and industrial	(107)		(75)		(44)		(51)		(17)		(182)		(48)
CRE	(35)		(6)		(11)		—		(1)		(41)		(2)
Commercial construction	—		—		—		—		—		—		(1)

Residential mortgage	(1)		(1)		(1)		(4)		(2)		(2)		(4)
Home equity	(2)		(2)		(6)		(3)		(3)		(4)		(4)
Indirect auto	(115)		(127)		(129)		(103)		(77)		(242)		(179)
Other consumer	(104)		(105)		(96)		(109)		(100)		(209)		(176)
Student	(103)		(5)		(5)		(7)		(4)		(108)		(10)
Credit card	(53)		(51)		(53)		(42)		(40)		(104)		(81)

Total charge-offs	(520)		(372)		(345)		(319)		(244)		(892)		(505)
Recoveries:
Commercial and industrial	13		13		14		43		13		26		30
CRE	—		1		1		—		6		1		7
Commercial construction	—		1		1		2		1		1		2

Residential mortgage	2		2		3		3		4		4		10
Home equity	5		6		6		8		6		11		11
Indirect auto	31		26		21		21		26		57		49
Other consumer	20		17		17		21		20		37		41
Student	—		—		1		—		—		—		—
Credit card	9		9		8		8		9		18		18
Total recoveries	80		75		72		106		85		155		168
Net charge-offs	(440)		(297)		(273)		(213)		(159)		(737)		(337)
Other(2)	—		(73)		—		—		(1)		(73)		—
Balance, end of period	$	4,879	$	4,761	$	4,649	$	4,455	$	4,434	$	4,879	$	4,434


ACL:(1)
ALLL	$	4,606	$	4,479	$	4,377	$	4,205	$	4,187
RUFC	273		282		272		250		247
Total ACL	$	4,879	$	4,761	$	4,649	$	4,455	$	4,434

(1)Excludes provision for credit losses and allowances related to other financial assets at amortized cost.

(2)The first quarter of 2023 includes the impact from the adoption of the Troubled Debt Restructurings and Vintage Disclosures accounting standard.

The allowance for credit losses was $4.9 billion and includes $4.6 billion for the allowance for loan and lease losses and $273 million for the reserve for unfunded commitments. The ALLL ratio was 1.43%, up six basis points compared with March 31, 2023 primarily due to an updated economic outlook. The ALLL covered nonperforming loans and leases held for investment 3.0X compared to 3.8X at March 31, 2023. At June 30, 2023, the ALLL was 2.6X annualized net charge-offs, compared to 3.7X at March 31, 2023. The ALLL to annualized net charge-offs for the current quarter was impacted by the charge-off related to the sale of the student loan portfolio. Excluding the impact from the student loan charge-offs, the ALLL to annualized net charge-offs was 3.4X at June 30, 2023.

60 Truist Financial Corporation

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 13: Allocation of ALLL by Category
	June 30, 2023						December 31, 2022
(Dollars in millions)	Amount		% ALLL in Each Category		% Loans in Each Category		Amount		% ALLL in Each Category		% Loans in Each Category
Commercial and industrial	$	1,536	33.5	%	52.0	%	$	1,409	32.3	%	50.3	%
CRE	402		8.7		7.1		224		5.1		7.0
Commercial construction	109		2.4		1.8		46		1.1		1.8

Residential mortgage	320		6.9		17.5		399		9.1		17.4
Home equity	85		1.8		3.2		90		2.0		3.3
Indirect auto	981		21.3		8.0		981		22.4		8.6
Other consumer	808		17.5		8.9		770		17.6		8.5
Student	—		—		—		98		2.2		1.6
Credit card	365		7.9		1.5		360		8.2		1.5
Total ALLL	4,606		100.0	%	100.0	%	4,377		100.0	%	100.0	%
RUFC	273						272
Total ACL	$	4,879					$	4,649

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 credit losses on second lien loans where the first lien is delinquent based on historical experience; the increased risk of loss on these credits is reflected in the ALLL. As of June 30, 2023, Truist held or serviced the first lien on 32% of its second lien positions.

Other Assets

The components of other assets are presented in the following table:


Table 14: Other Assets as of Period End
(Dollars in millions)	Jun 30, 2023		Dec 31, 2022
Bank-owned life insurance	$	7,667	$	7,618
Tax credit and other private equity investments	6,943		6,825
Prepaid pension assets	5,927		4,539
DTAs	2,682		3,027
Accounts receivable	3,129		2,682
Accrued income	2,133		2,265
Leased assets and related assets	2,045		2,082
FHLB stock	1,258		1,279
ROU assets	1,128		1,193
Prepaid expenses	1,204		1,162
Equity securities at fair value	910		898
Derivative assets	805		684
Other	598		874
Total other assets	$	36,429	$	35,128

Truist Financial Corporation 61

Funding Activities

Deposits

The following table presents average deposits:


Table 15: Average Deposits
	Three Months Ended
(Dollars in millions)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022
Noninterest-bearing deposits	$	123,728	$	131,099	$	141,032	$	146,041	$	148,610
Interest checking	102,105		108,886		110,001		111,645		112,375
Money market and savings	138,149		139,802		144,730		147,659		148,632
Time deposits	35,844		28,671		17,513		14,751		14,133

Total average deposits	$	399,826	$	408,458	$	413,276	$	420,096	$	423,750

Average deposits for the second quarter of 2023 were $399.8 billion, a decrease of $8.6 billion, or 2.1%, compared to the prior quarter. The decrease in deposits was primarily due to the impact of client tax payments and prior quarter activity.

Average noninterest-bearing deposits decreased 5.6% compared to the prior quarter and represented 30.9% of total deposits for the second quarter of 2023 compared to 32.1% for the first quarter of 2023 and 35.1% compared to the year ago quarter. Average interest checking and money market and savings declined 6.2% and 1.2%, respectively, compared to the prior quarter. Average time deposits increased 25% due to an increase in retail client time deposits primarily due to migration from other deposit products and brokered time deposits. Average brokered deposits were $26.2 billion, up $5.0 billion compared to the prior quarter.

Truist has a very granular and relationship-based deposit franchise. Approximately 63% of deposits are insured or collateralized. Truist deposit accounts are typically based on long-term relationships and include multiple products and services.

The estimated amount of deposits that are uninsured was $171.8 billion, $175.9 billion, and $189.6 billion as of June 30, 2023, March 31, 2023, and December 31, 2022, respectively, calculated using the same methodology as the Call Report for Truist Bank. The decrease in uninsured deposits from December 31, 2022 to June 30, 2023 was largely due to commercial clients that chose to diversify into money market mutual funds or across multiple banks late in the first quarter. These outflows were primarily higher-cost, non-operational deposits.

Borrowings

At June 30, 2023, short-term borrowings totaled $24.5 billion, an increase of $1.0 billion compared to December 31, 2022. Average short-term borrowings were $24.0 billion, or 4.9% of total funding, for the six months ended June 30, 2023, as compared to $8.3 billion, or 1.8%, for the same period in the prior year.

Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued by Truist and Truist Bank. Long-term debt totaled $44.7 billion at June 30, 2023, an increase of $1.5 billion compared to December 31, 2022. During the six months ended June 30, 2023, the Company had:

Maturities and redemptions of $4.0 billion of senior notes.
Issued $6.3 billion fixed-to-floating rate senior notes with interest rates between 4.87% and 6.05% due from June 8, 2027 to June 8, 2034.
Net redemptions of $500 million of FHLB floating rate advances as issuances in the first quarter of 2023 were redeemed in the second quarter.

In July 2023, Truist announced it will redeem all $500 million principal amount outstanding of its 3.69% fixed-to-floating rate senior bank notes due August 2, 2024 on the redemption date of August 2, 2023.

62 Truist Financial Corporation

Shareholders’ Equity

Truist’s book value per common share and TBVPS are presented in the following table:


Table 16: Book Value per Common Share
(Dollars in millions, except per share data, shares in thousands)	Jun 30, 2023		Dec 31, 2022
Common equity per common share	$	42.68	$	40.58
Non-GAAP capital measure:(1)
Tangible common equity per common share	$	20.44	$	18.04
Calculation of tangible common equity:(1)
Total shareholders’ equity	$	63,681	$	60,537
Less:
Preferred stock	6,673		6,673
Noncontrolling interests	155		23
Goodwill and intangible assets, net of deferred taxes	29,628		29,908
Tangible common equity	$	27,225	$	23,933

Common shares outstanding at end of period	1,331,976		1,326,829

(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 profitability, returns relative to balance sheet risk, and shareholder value.

Total shareholders’ equity was $63.7 billion at June 30, 2023, an increase of $3.1 billion from December 31, 2022. This increase includes $2.9 billion in net income, $1.4 billion received in connection with the IH minority stake sale, net of tax, and a $227 million increase in AOCI, partially offset by $1.6 billion in common and preferred dividends. Truist’s book value per common share at June 30, 2023 was $42.68, compared to $40.58 at December 31, 2022. Truist TBVPS of $20.44 at June 30, 2023, increased 13% compared to December 31, 2022.

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 framework 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 measurement and monitoring and enables Truist to clearly and transparently communicate to stakeholders the level of potential risk the Company faces 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.

Truist’s compensation plans are designed to consider 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.

Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional disclosures under the section titled “Risk Management.”

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.

Truist Financial Corporation 63

Effective management of market risk is essential to achieving Truist’s strategic financial objectives. Truist’s most significant market risk exposure is to interest rate risk in its balance sheet; however, market risk also results from underlying product liquidity risk, price risk, and volatility risk in Truist’s business units. Interest rate risk results from differences between the timing of rate changes and the timing of cash flows associated with assets and liabilities (re-pricing risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options inherently embedded in bank products (options risk).

The primary objectives of effective market risk management are to minimize adverse effects from changes in market risk factors on net interest income, net income, and capital, and to offset the risk of price changes for certain assets and liabilities recorded at fair value. At Truist, market risk management also includes the enterprise-wide IPV function.

Interest Rate Market Risk

As a financial institution, Truist is exposed to interest rate risk from assets, liabilities, and off-balance sheet positions. To keep net interest margin as stable as possible, Truist actively manages its interest rate risk exposure through the strategic repricing of its assets and liabilities, taking into account the volumes, maturities, and mix. Truist primarily uses three methods to measure and monitor its interest rate risk: (i) simulations of possible changes to net interest income over the next two years based on gradual changes in interest rates; (ii) analysis of interest rate shock scenarios; and (iii) analysis of economic value of equity based on changes in interest rates.

The Company’s simulation model takes into account assumptions related to prepayment trends, using a combination of market data and internal historical experiences for deposits and loans, as well as scheduled maturities and payments, and the expected outlook for the economy and interest rates. These assumptions are reviewed and adjusted monthly to reflect changes in current interest rates compared to the rates applicable to Truist’s assets and liabilities. The model also considers Truist’s current and prospective liquidity position, current balance sheet volumes, projected growth and/or contractions, accessibility of funds for short-term needs and capital maintenance.

Deposit betas (the sensitivity of deposit rate changes relative to market rate changes) are an important assumption in the interest rate risk modeling process. Truist applies deposit beta assumptions to non-maturity interest-bearing deposit accounts 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 applies an average deposit beta of approximately 50% to its interest-bearing accounts when determining its interest rate sensitivity, which is consistent with Truist’s long-term expectations. 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 17: Interest Sensitivity Simulation Analysis
Interest Rate Scenario								Annualized Hypothetical Percentage Change in Net Interest Income
Gradual Change in Prime Rate (bps)		Prime Rate
	Jun 30, 2023			Jun 30, 2022			Jun 30, 2023			Jun 30, 2022
Up 100		9.25	%		5.75	%		(1.00)	%		1.68	%
Up 50		8.75			5.25			(0.61)			1.65
No Change		8.25			4.75			—			—
Down 50(1)		7.75			4.25			(0.04)			(2.86)
Down 100(1)		7.25			3.75			0.09			(3.94)

(1)The Down 50 and 100 rate scenarios incorporate a floor of one basis point.

Rate sensitivity decreased compared to prior periods, primarily driven by higher starting rates, higher deposit betas as rates increase and move into the highest beta tiers, and the addition of forward starting swaps.

Management considers how the interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry was very strong post-COVID-19, which resulted in growth in noninterest-bearing demand deposits. However, with the significant increase in rates in 2022 and the first half of 2023, noninterest-bearing deposits have begun to shift to interest-bearing accounts. Additional movement above what is currently projected would reduce the asset sensitivity of Truist’s balance sheet because the Company may increase interest-bearing funds to offset the loss of these advantageous noninterest-bearing deposits. Alternatively, the Company may reduce the size of its investment portfolio to offset the loss of noninterest-bearing demand deposits to limit the impact on the balance sheet’s asset sensitivity. The behavior of these noninterest-bearing deposits is one of the most important assumptions used in determining the interest rate risk position of Truist.

64 Truist Financial Corporation

The following table shows the results of Truist’s interest-rate sensitivity position assuming the loss of additional demand deposits and an associated increase in managed rate deposits versus current projections under various interest rate 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 18: Deposit Mix Sensitivity Analysis
Gradual Change in Rates (bps)	Base Scenario at June 30, 2023(1)		Results Assuming a Decrease in Noninterest-Bearing Demand Deposits
	$20 Billion		$40 Billion
Up 100	(1.00)	%	(1.77)	%	(2.54)	%
Up 50	(0.61)		(1.17)		(1.74)

(1)The base scenario is equal to the annualized hypothetical percentage change in net interest income at June 30, 2023 as presented in the preceding table.

Truist uses financial instruments including derivatives to manage interest rate risk related to securities, commercial loans, MSRs, mortgage banking operations, long-term debt, and other funding sources. Truist has utilized derivatives to facilitate transactions on behalf of its clients and as part of associated hedging activities. As of June 30, 2023, Truist had derivative financial instruments outstanding with notional amounts totaling $509.8 billion. See “Note 16. Derivative Financial Instruments” for additional disclosures. In the second quarter of 2023, there was a $135 billion increase in notional amounts on derivatives with central clearing parties as a result of the conversion from LIBOR to SOFR. This increased notional amount is a short term impact of the conversion, with most of the increase maturing in the third and fourth quarter of 2023.

LIBOR Transition

The remaining tenors of U.S. dollar LIBOR ceased publication on June 30, 2023. 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 risks related to the transition from LIBOR to a new index or multiple indices and provides updates to Executive Leadership and the Board on progress. Training has been provided for impacted teammates and will continue during the second half of 2023. Truist provided timely notices and information to impacted clients about the transition during the first half of 2023. Truist continues to manage the impact of LIBOR-based contracts and other financial instruments, systems implications, hedging strategies, and related operational and market risks.

Contract fallback language for LIBOR contracts was reviewed to identify required remediation to support the transition away from LIBOR. Impacted lines of business have remediated substantially all of these contracts to include standardized fallback language or amended contracts to new reference rates ahead of cessation. Fallback language used to remediate loan agreements was generally consistent with ARRC recommendations and included use of “hardwired fallback” language, which will transition loans to a SOFR based rate after June 30, 2023. Similarly, fallback language used to remediate LIBOR based derivatives was generally consistent with ISDA publications.

Loan contracts, excluding mortgage loans, that mature post June 30, 2023 will transition primarily to SOFR following the cessation date. For contracts remaining without fallback language, Truist leveraged the LIBOR Act and corresponding safe harbor provision to transition these loans to SOFR. Truist’s adjustable-rate mortgage products had consistent and adequate fallback language to transition to SOFR, based on lender discretion and as supported by the LIBOR Act; therefore, these contracts did not require remediation. For many consumer lending portfolios, LIBOR will transition to the SOFR rate specified in the LIBOR Act and the rules promulgated thereunder by the FRB and will benefit from the safe harbor provisions of the LIBOR Act.

Derivatives that reference LIBOR will transition to a SOFR-based replacement rate as set forth in the ISDA protocol addressing LIBOR fallbacks between the Company and its counterparties which have adhered to the protocol, through bilateral amendments between the Company and each of its counterparties, or as established under the LIBOR Act and rules promulgated thereunder by the FRB.

The Company’s preferred securities and the Company’s and Truist Bank’s floating rate notes that reference LIBOR will transition to a SOFR based rate utilizing application of the LIBOR Act and the rules promulgated thereunder by the FRB. Truist recently announced that these securities would move to a 3-month adjusted term SOFR in accordance with the LIBOR Act. See “Note 12. Shareholders’ Equity” in Truist’s Annual Report on Form 10-K for information about preferred stock using LIBOR.

Alternatives, such as SOFR, may react differently from LIBOR in times of economic stress. Truist expects SOFR to be the primary pricing benchmark used across the industry and will continue to offer additional SOFR based products. Additional alternative reference rates will be supported based on market demand. For a further discussion of the various risks associated with the 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, 2022.

Truist Financial Corporation 65

Market Risk from Trading Activities

As a financial intermediary, Truist provides its clients access to derivatives, foreign exchange and securities markets, which generate market risks. Trading market risk is managed using a comprehensive risk management approach, which includes measuring risk using VaR, stress testing, and sensitivity analysis. Risk metrics are monitored against a suite of limits on a daily basis at both the trading desk level and at the aggregate portfolio level, which is intended to ensure that exposures are in line with Truist’s risk appetite.

Truist is also subject to risk-based capital guidelines for market risk under the Market Risk Rule.

Covered Trading Positions

Covered positions subject to the Market Risk Rule include trading assets and liabilities, specifically those held for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits. Truist’s trading portfolio of covered positions results primarily from market making and underwriting services for the Company’s clients, as well as associated risk mitigating hedging activity. The trading portfolio, measured in terms of VaR, consists primarily of four sub-portfolios of covered positions: (i) credit trading, (ii) fixed income securities, (iii) interest rate derivatives, and (iv) equity derivatives. As a market maker across different asset classes, Truist’s trading portfolio also contains other sub-portfolios, including foreign exchange, loan trading, and commodity derivatives; however, these portfolios do not generate material trading risk exposures.

Valuation policies and methodologies exist for all trading positions. Additionally, these positions are subject to independent price verification. See “Note 16. Derivative Financial Instruments,” “Note 15. Fair Value Disclosures,” and “Critical Accounting Policies” herein for discussion of valuation policies and methodologies.

Securitizations

As of June 30, 2023, the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was $56 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 June 30, 2023.

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 months and six months ended June 30, 2023 and 2022. Average one and ten-day VaR measures for the second quarter ended June 30, 2023 increased from the same period of last year, primarily driven by higher market making inventory.

66 Truist Financial Corporation


Table 19: VaR-based Measures
	Three Months Ended June 30,								Six Months Ended June 30,
	2023				2022				2023				2022
(Dollars in millions)	10-Day Holding Period		1-Day Holding Period		10-Day Holding Period		1-Day Holding Period		10-Day Holding Period		1-Day Holding Period		10-Day Holding Period		1-Day Holding Period
VaR-based Measures:
Maximum	$	24	$	9	$	26	$	7	$	24	$	9	$	38	$	14
Average	18		7		13		4		17		6		16		5
Minimum	14		5		6		3		10		4		6		3
Period-end	17		7		26		7		17		7		26		7
VaR by Risk Class:
Interest Rate Risk			4				4				4				4
Credit Spread Risk			6				6				6				6
Equity Price Risk			4				3				4				3
Foreign Exchange Risk			1				—				1				—
Portfolio Diversification			(8)				(7)				(8)				(7)
Period-end			7				7				7				7

Stressed VaR-based measures

Stressed VaR, another component of market risk capital, is calculated using the same internal models as used for the VaR-based measure. Stressed VaR is calculated over a ten-day holding period at a one-tail, 99% confidence level and employs a historical simulation approach based on a continuous twelve-month historical window selected to reflect a period of significant financial stress for the Company’s trading portfolio. The following table summarizes Stressed VaR-based measures:


Table 20: Stressed VaR-based Measures - 10 Day Holding Period
	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Maximum	$	96	$	87	$	96	$	109
Average	54		66		49		71
Minimum	25		40		25		40
Period-end	96		81		96		81

Compared to the prior year, Stressed VaR measures decreased primarily due to higher diversification benefits in 2023.

Specific Risk Measures

Specific risk is a measure of idiosyncratic risk that could result from risk factors other than broad market movements (e.g., default or event risks). The Market Risk Rule provides fixed risk weights under a standardized measurement method while also allowing a model-based approach, subject to regulatory approval. Truist utilizes the standardized measurement method to calculate the specific risk component of market risk regulatory capital. As such, incremental risk capital requirements do not apply.

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 ended June 30, 2023. 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.

Truist Financial Corporation 67

15400

Model Risk Oversight

MRO 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 MRO 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 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 for Truist and Truist Bank. To ensure a strong liquidity position and compliance with regulatory requirements, management maintains a liquid asset buffer of cash on hand and highly liquid unencumbered securities.

68 Truist Financial Corporation

Internal Liquidity Stress Testing

Liquidity stress testing is designed to ensure that Truist and Truist Bank have sufficient liquidity for a variety of institution-specific and market-wide adverse scenarios. Each liquidity stress test scenario applies defined assumptions to execute sources and uses of liquidity over varying planning horizons. The types of expected liquidity uses during a stressed event may include deposit attrition, contractual maturities, reductions in unsecured and secured funding, and increased draws on unfunded commitments. To mitigate liquidity outflows, Truist has identified sources of liquidity; however, access to these sources of liquidity could be affected within a stressed environment.

Truist maintains a liquidity buffer of cash on hand and highly liquid unencumbered securities that is sufficient to meet the projected net stressed cash-flow needs and maintain compliance with regulatory requirements. The liquidity buffer consists of unencumbered highly liquid assets and Truist’s liquidity buffer is substantially the same in composition to what qualifies as HQLA under the LCR Rule.

Contingency Funding Plan

Truist has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and commitments, particularly in the event of a liquidity contraction. This plan is designed to examine and quantify the organization’s liquidity under the various internal liquidity stress scenarios and is periodically tested to assess the plan’s reliability. Additionally, the plan provides a framework for management and other teammates to follow in the event of a liquidity contraction or in anticipation of such an event. The plan addresses authority for activation and decision making, liquidity options, and the responsibilities of key departments in the event of a liquidity contraction.

LCR and HQLA

The LCR rule requires that Truist and Truist Bank maintain an amount of eligible HQLA that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of stress. Eligible HQLA, for purposes of calculating the LCR, is the amount of unencumbered HQLA that satisfy operational requirements of the LCR rule. Truist and Truist Bank are subject to the Category III reduced LCR requirements. Truist held average weighted eligible HQLA of $84.8 billion and Truist’s average LCR was 112% for the three months ended June 30, 2023.

Effective July 2021, Truist became subject to final rules implementing the NSFR, which are designed to ensure that banking organizations maintain a stable, long-term funding profile in relation to their asset composition and off-balance sheet activities. At June 30, 2023 and March 31, 2023, Truist’s NSFR was 127%.

Sources of Funds

Management believes current sources of liquidity are sufficient to meet Truist’s on- and off-balance sheet obligations. Truist funds its balance sheet through diverse sources of funding including client deposits, secured and unsecured capital markets funding, and shareholders’ equity. Truist Bank’s primary source of funding is client deposits. Continued access to client deposits is highly dependent on public confidence in the stability of Truist 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. Available investment securities could be pledged to create additional secured borrowing capacity. The following table presents a summary of Truist Bank’s available secured borrowing capacity and eligible cash at the FRB:


Table 21: Selected Liquidity Sources
(Dollars in millions)	Jun 30, 2023		Dec 31, 2022
Unused borrowing capacity:
FRB	$	52,737	$	49,250
FHLB	23,219		20,770
Available investment securities (after haircuts)	77,875		85,401
Available secured borrowing capacity	153,831		155,421
Eligible cash at the FRB	24,658		15,556
Total	$	178,489	$	170,977

At June 30, 2023, Truist Bank’s available secured borrowing capacity represented approximately 3.2 times the amount of wholesale funding maturities in one-year or less. Truist additionally has the ability to increase sources of funding by pledging available investment securities to receive the par value of the collateral under the FRB Bank Term Funding Program.

Truist Financial Corporation 69

Parent Company

The Parent Company serves as the primary source of capital for the operating subsidiaries. The Parent Company’s assets consist primarily of cash on deposit with Truist Bank, equity investments in subsidiaries, advances to subsidiaries, and notes receivable from subsidiaries. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiaries, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are investments in subsidiaries, advances to subsidiaries, dividend payments to common and preferred shareholders, repurchases of common stock, and payments on long-term debt. See “Note 22. Parent Company Financial Information” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding dividends from subsidiaries and debt transactions.

Access to funding at the Parent Company is more sensitive to market disruptions. Therefore, Truist prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities, without the benefit of any new cash inflows. Truist maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, Truist considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, serving as a source of strength to Truist Bank, and being able to withstand sustained market disruptions that could limit access to the capital markets. At June 30, 2023 and December 31, 2022, the Parent Company had 47 months and 37 months, respectively, of cash on hand to satisfy projected cash outflows, and 25 months and 22 months, respectively, when including the payment of common stock dividends.

Credit Ratings

Credit ratings are forward-looking opinions of rating agencies as to the Company’s ability to meet its financial commitments and repay its securities and obligations in accordance with their terms of issuance. Credit ratings influence both borrowing costs and access to the capital markets. The Company’s credit ratings are continuously monitored by the rating agencies and are subject to change at any time. As Truist seeks to maintain high-quality credit ratings, management meets with the major rating agencies on a regular basis to provide financial and business updates and to discuss current outlooks and trends. See Item 1A, “Risk Factors” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding factors that influence credit ratings and potential risks that could materialize in the event of downgrade in the Company’s credit ratings: Recent changes in the Company’s credit ratings and outlooks include:

On March 31,2023, S&P Global Ratings affirmed the ratings of Truist and Truist Bank and revised the outlook on those ratings to “stable” from “positive,” citing heightened market volatility in the wake of recent bank failures and, with inflation still elevated, higher uncertainty, and greater downside risk in the economic outlook. The change in outlook was part of a broader action by S&P Global Ratings whereby the “positive” outlook on three other large U.S. banks was revised to “stable.”

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, remain a source of strength for its subsidiaries, and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital, and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

70 Truist Financial Corporation

Truist regularly performs stress testing on its capital levels and is required to periodically submit the Company’s capital plans and stress testing results to the banking regulators. Management regularly monitors the capital position of Truist on both a consolidated and bank-level basis. In this regard, management’s objective is to maintain capital at levels that are in excess of internal capital limits, which are above the regulatory “well capitalized” minimums. Management has implemented internal stress capital ratio minimums to evaluate whether capital ratios calculated after the effect of alternative capital actions are likely to remain above internal minimums. Breaches of internal stressed minimums prompt a review of the planned capital actions included in Truist’s capital plan.


Table 22: Capital Requirements
	Minimum Capital			Well Capitalized					Minimum Capital Plus Stress Capital Buffer(1)
			Truist			Truist Bank
CET1	4.5	%		NA			6.5	%	7.0	%
Tier 1 capital	6.0			6.0	%		8.0		8.5
Total capital	8.0			10.0			10.0		10.5
Leverage ratio	4.0			NA			5.0		NA
Supplementary leverage ratio	3.0			NA			NA		NA

(1)Reflects a SCB requirement of 2.5% applicable to Truist as of June 30, 2023. Truist’s SCB requirement, received in the 2022 CCAR process, is effective from October 1, 2022 to September 30, 2023. Under the 2023 CCAR process, Truist was notified its preliminary SCB requirement would remain 2.9% from October 1, 2023 through September 30, 2024.

Truist’s capital ratios are presented in the following table:


Table 23: Capital Ratios - Truist Financial Corporation
(Dollars in millions)	Jun 30, 2023			Dec 31, 2022
Risk-based:	(preliminary)
CET1	9.6		%	9.0		%
Tier 1 capital	11.1			10.5
Total capital	13.2			12.4
Leverage ratio	8.8			8.5
Supplementary leverage ratio	7.5			7.3
Risk-weighted assets	$	434,985		$	434,413

Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. Truist declared common dividends of $0.52 per share during the second quarter of 2023. The dividend payout ratio for the second quarter of 2023 was 56%. Truist did not repurchase any shares in the second quarter of 2023.

Truist CET1 ratio was 9.6% as of June 30, 2023. The increase since December 31, 2022 resulted from the minority stake sale in IH and organic capital generation. Truist closed the sale of the minority stake in IH on April 3, 2023, which added 31 basis points to the risk-based regulatory capital ratios.

Truist completed the 2023 CCAR process and received the preliminary SCB requirement of 2.9% for the period October 1, 2023 to September 30, 2024. The Federal Reserve will provide Truist with its final SCB requirement by August 31, 2023.

Share Repurchase Activity


Table 24: Share Repurchase Activity
(Dollars in millions, except per share data, shares in thousands)	Total Number of Shares Purchased(1)	Average Price Paid Per Share(2)		Total Number of Shares Purchased as part of Publicly Announced Plans(3)	Approximate Dollar Value of Shares that may yet be Purchased Under the Plans(3)
April 1, 2023 to April 30, 2023	—	$	—	—	$	4,100
May 1, 2023 to May 31, 2023	—	—		—	4,100
June 1, 2023 to June 30, 2023	—	—		—	4,100
Total	—	$	—	—

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

(2)Excludes commissions.

(3)In July 2022, the Board of Directors approved, effective October 1, 2022, new repurchase authority to effectuate repurchases up to an aggregate of $4.1 billion in shares of the Company’s common stock through September 30, 2023.

Truist Financial Corporation 71

Critical Accounting Policies

The accounting and reporting policies of Truist are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Truist’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations, and related disclosures. Material estimates that are particularly susceptible to significant change include the determination of the ACL; determination of fair value for securities, MSRs, LHFS, trading loans, and derivative assets and liabilities; goodwill and other intangible assets; income taxes; and pension and postretirement benefit obligations. Understanding Truist’s accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. The critical accounting policies are discussed in MD&A in Truist’s Annual Report on Form 10-K for the year ended December 31, 2022. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in “Note 1. Basis of Presentation” in Form 10-K for the year ended December 31, 2022. Disclosures regarding the effects of new accounting pronouncements are included in “Note 1. Basis of Presentation” in this report. There have been no changes to the significant accounting policies during 2023.

Previous: Item 1. FINANCIAL STATEMENTS · Next: Item 4. CONTROLS AND PROCEDURES