Truist Financial (TFC) 8-KTruist reports second quarter 2021 results

Net income available to common shareholders was $1.6 billion, up 73%, compared to the second quarter last year. Earnings per diluted common share were $1.16, also an increase of 73% compared with the same period last year. Results for the second quarter produced an annualized return on average assets (ROA) of 1.28%, an annualized return on average common shareholders' equity (ROCE) of 10.1% and an annualized return on tangible common shareholders' equity (ROTCE) of 18.9%.

Adjusted net income available to common shareholders was $2.1 billion, or $1.55 per diluted share, excluding merger-related and restructuring charges of $297 million ($228 million after-tax), incremental operating expenses related to the merger of $190 million ($146 million after-tax) and charitable contributions of $200 million ($153 million after-tax). Adjusted results produced an annualized ROA of 1.69%, an annualized ROCE of 13.5% and an annualized ROTCE of 24.7%. Adjusted earnings per diluted share were up 89% compared to the prior year and 31% compared to first quarter 2021.

“Truist produced record adjusted earnings for the second quarter, driven by a negative loan loss provision and strong fee income, including record insurance commissions, wealth management income, card and payment related fees and commercial real estate related income,” said Chairman and Chief Executive Officer Kelly S. King. “In addition to this strong performance, earlier this month we successfully completed the acquisition of Constellation Affiliated Partners through our CRC Group insurance subsidiary. The acquisition is CRC’s eighth in the last 18 months and more than doubles our specialty and programs business. The acquisition makes CRC one of the largest program managers in North America and continues to drive growth in our largest fee income generating business.

“We were also excited to announce the results of the CCAR stress testing process in June. Truist was one of the top performers compared with our peers that were subject to the process with the second lowest loan loss rate among our peers under the severely adverse stress scenario. We also announced plans to propose a 7% increase in our dividend to a record $0.48 as part of our mission to continue providing a stable and growing dividend for our shareholders. In addition, given our progress towards a successful conversion, an improving economic outlook, and successful CCAR results, we plan to lower our near-term CET1 target to approximately 9.75%, giving us additional capacity to deploy incremental capital on behalf of our clients and shareholders.

“We continued to fulfill our purpose in meaningful ways in the communities we serve. In the quarter, we released our inaugural supplier diversity report, which reflects a $1 billion impact for last year, significantly expanded our partnership with Operation HOPE to help provide more education, insights and tools to help more people build better lives, and contributed a combined $200 million to the Truist Foundation and the Truist Charitable Fund to further support the important work of organizations across our diverse markets.”

Total taxable-equivalent revenue was $5.7 billion for the second quarter of 2021, an increase of $168 million, or 3.0%, compared to the prior quarter.

Net interest income for the second quarter of 2021 was down $40 million, or 1.2%, compared to the prior quarter due primarily to lower purchase accounting accretion. Average earning assets increased $11.3 billion compared to the prior quarter. Average securities available for sale increased $13.4 billion, and average other earning assets (primarily cash at the Federal Reserve) increased $4.2 billion, while average total loans decreased $6.6 billion. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. The investment in securities positively impacted net interest income compared to the yields available on excess balances at the Federal Reserve. Average deposits increased $13.1 billion primarily due to the ongoing impacts of stimulus.

The net interest margin was 2.88% for the second quarter, down 13 basis points compared to the prior quarter. The net interest margin was negatively impacted by 6 basis points from a net liquidity build of approximately $17.8 billion (cash and securities) due to strong deposit growth and lower loan balances. The yield on the total loan portfolio for the second quarter was 4.01%, down eight basis points compared to the prior quarter primarily due to lower purchase accounting accretion and lower rates on new volumes. The yield on the average securities portfolio for the second quarter was 1.47%, up two basis points compared to the prior quarter.

The average cost of total deposits was 0.04%, down one basis point compared to the prior quarter. The average rate on long-term debt was 1.60%, up three basis points compared to the prior quarter.

The provision for credit losses was negative $434 million and net charge-offs were $142 million for the second quarter, compared to $48 million and $238 million, respectively, for the prior quarter. The net charge-off rate for the current quarter of 0.20% was down 13 basis points compared to the first quarter of 2021, primarily due to lower losses in the indirect auto and commercial portfolios combined with higher recoveries. The decrease in the provision for credit losses was primarily related to the commercial portfolio due to an improving economic outlook and lower loan balances.

Noninterest income was $2.4 billion, an increase of $208 million, or 9.5%, compared to the prior quarter. Insurance income increased $64 million primarily due to seasonality and premium growth. Commercial real-estate related income increased $95 million primarily due to client-related structured real estate transactions and an increase in the commercial mortgage banking business. Other income was up $43 million as a result of $71 million of increased investment income (primarily valuation gains) from the Company's SBIC and Truist Ventures investments. In addition, other income increased $18 million related to higher valuations of assets held for certain post-retirement benefits, which is largely offset by higher benefits expense included in personnel expense. These increases were partially offset by the gain of $37 million from the divestiture of certain businesses recorded in the prior quarter.

Noninterest expense was $4.0 billion for the second quarter, up $401 million compared to the prior quarter. Merger-related and restructuring charges increased $156 million primarily due to costs in connection with a voluntary separation and retirement program. Incremental operating expenses related to the merger increased $15 million. The current quarter also includes $200 million of expense associated with charitable contributions to the Truist Foundation and the Truist Charitable Fund, whereas the prior quarter included $36 million for an acceleration of loss recognition related to certain terminated cash flow hedges. Excluding the aforementioned items, changes in amortization of intangibles, and a small gain from debt extinguishment, adjusted noninterest expense was up $65 million, or 2.1%, compared to the prior quarter. Personnel expense increased $65 million compared to the prior quarter primarily due to higher incentives due to variable compensation from higher revenues and improved overall performance relative to targets, higher equity-based compensation due to timing of grants late in first quarter 2021 and higher other benefits expense primarily due to the previously mentioned increase in noninterest income. These increases in personnel expense were partially offset by lower salaries and wages due to fewer FTEs and lower payroll taxes as a result of teammates reaching limits in the first half of 2021.

The provision for income taxes was $415 million for the second quarter of 2021, compared to $351 million for the prior quarter. The effective tax rate for the second quarter of 2021 was 20.0%, compared to 19.2% for the prior quarter.

Total taxable-equivalent revenues were $5.7 billion for the second quarter of 2021, a decrease of $224 million, or 3.8%, compared to the earlier quarter, due primarily to securities gains of $300 million in the second quarter of 2020.

Net interest income for the second quarter of 2021 was down $206 million, or 5.9%, compared to the earlier quarter due to lower purchase accounting accretion and lower rates on earning assets. These decreases were partially offset by lower funding costs, higher fees on Payroll Protection Program loans and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased $8.4 billion compared to the earlier quarter. The increase in average earning assets reflects a $60.5 billion increase in average securities, while average total loans and leases decreased $33.5 billion and average other earning assets decreased $19.9 billion. The growth in average earnings assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average interest-bearing liabilities decreased $20.1 billion compared to the earlier quarter. The decline in average interest-bearing liabilities was offset by significant growth in average noninterest-bearing deposits, which increased $24.0 billion compared to the earlier quarter. Average interest-bearing deposits increased $1.4 billion, while average long-term debt decreased $18.7 billion and average short-term borrowings decreased $2.8 billion.

Net interest margin was 2.88%, down 25 basis points compared to the earlier quarter. The yield on the total loan portfolio for the second quarter of 2021 was 4.01%, down 18 basis points compared to the earlier quarter, reflecting the impact of a lower rate environment and lower purchase accounting accretion. The yield on the average securities portfolio was 1.47%, down 90 basis points compared to the earlier quarter primarily due to lower yields on new purchases.

The average cost of total deposits was 0.04%, down 18 basis points compared to the earlier quarter. The average rate on short-term borrowings was 0.98%, down 26 basis points compared to the earlier quarter. The average rate on long-term debt was 1.60%, up eight basis points compared to the earlier quarter. The lower rates on interest-bearing liabilities reflect the lower rate environment.

The provision for credit losses was a negative $434 million, compared to $844 million for the earlier quarter. The earlier quarter included significant uncertainty of the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to improving economic outlook and lower loan balances. Net charge-offs for the second quarter of 2021 totaled $142 million compared to $316 million in the earlier quarter. The net charge-off ratio for the current quarter of 0.20% was down 19 basis points compared to the second quarter of 2020, primarily driven by lower losses in the indirect auto and commercial portfolios combined with higher recoveries, as well as lower losses in the residential mortgage portfolio.

Noninterest income for the second quarter of 2021 decreased $18 million compared to the earlier quarter. Noninterest income for the second quarter of 2020 included $300 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased $282 million, or 13%, compared to the earlier quarter. Insurance income increased $109 million due to acquisitions, as well as new business and higher retention. Commercial real-estate related income increased $89 million primarily due to client-related structured real estate transactions. Investment banking and trading income increased $43 million due to strong investment banking income from loan syndications, merger and acquisition fees and asset securitization transactions, which was partially offset by lower trading income. Other income increased $92 million primarily due to an increase of $67 million related to increased investment income (primarily valuations gains) from the Company's SBIC and Truist Ventures investments. In addition, other income increased $43 million from higher valuations of assets held for certain post-retirement benefits, which is primarily offset by higher benefits expense included in personnel expense. Revenues related to wealth management, service charges on deposits and card and payment related activities increased $161 million as transaction volumes and asset levels increased compared to the levels in the earlier quarter due to improving economic conditions. Residential mortgage banking income decreased $224 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, coupled with lower servicing income due to a reduction in the third-party servicing portfolio as a result of prepayments.

Noninterest expense for the second quarter of 2021 was up $133 million compared to the earlier quarter. Merger-related and restructuring charges increased $88 million and other incremental operating expenses related to the merger increased $61 million, primarily reflected in professional fees and outside processing. The current quarter also includes $200 million for charitable contributions to the Truist Foundation and the Truist Charitable Fund, whereas the earlier quarter included a $235 million loss on the early extinguishment of debt. Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up $55 million, or 1.8%, compared to the earlier quarter. Personnel expense increased $199 million primarily due to higher incentive expenses due to improved performance, higher other employee benefits due to the previously mentioned increase in noninterest income, as well as higher pension and insurance benefits expense. These increases in personnel expense were partially offset by lower salaries due to fewer FTEs. Other expense also includes decreases of $42 million for non-service-related pension cost components and $31 million for certain expenses provided in the earlier quarter related to support for teammates through the pandemic. There was also a decrease of $61 million from net occupancy expense primarily due to branch and property consolidations.

The provision for income taxes was $415 million for the second quarter of 2021, compared to $191 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2021 of 20.0%, compared to 16.6% for the earlier quarter. The higher effective tax rate is primarily due to higher pre-tax income in the current quarter and lower discrete tax benefits compared to the earlier quarter.

Average loans and leases held for investment for the second quarter of 2021 were $288.6 billion, down $6.1 billion compared to the first quarter of 2021.

Average commercial loans decreased $3.3 billion primarily due to a $1.3 billion decrease in average Paycheck Protection Program loans (commercial and industrial), a $1.2 billion decrease in average dealer floor plan loans (commercial and industrial), a $566 million decrease in average CRE loans, and a $198 million decrease in average commercial construction loans.

Average consumer loans decreased $2.7 billion primarily due to refinance activity resulting in a decline in residential mortgages and residential home equity and direct loans.

Average deposits for the second quarter of 2021 were $396.3 billion, an increase of $13.1 billion compared to the prior quarter. Average noninterest bearing deposits grew 7.2% compared to the prior quarter and represented 34.8% of total deposits for the second quarter of 2021, compared to 33.6% for the prior quarter. Average money market and savings and interest checking grew 3.7% and 1.3%, respectively, compared to the prior quarter.

Average time deposits decreased primarily due to the maturity of wholesale negotiable certificates of deposit and higher-cost personal accounts.

Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. Truist declared common dividends of $0.45 per share during the second quarter of 2021 and completed $610 million of share repurchases. The dividend and total payout ratios for the second quarter of 2021 were 39% and 78%, respectively. Truist also redeemed $465 million of preferred stock during the quarter to optimize the Company's capital position.

Truist completed the 2021 Comprehensive Capital Analysis and Review (CCAR) process and received the preliminary stress capital buffer of 2.5% for the period October 1, 2021 to September 30, 2022. Truist also previously announced plans to increase the quarterly dividend 7% to $0.48 beginning in the third quarter of 2021. Truist's dividends are subject to approval by its Board of Directors, and the third quarter dividend will be considered by the Truist Board at its upcoming meeting. Truist plans to target a CET1 ratio of approximately 9.75% over the near-term, and accordingly, the Company expects to be able to, with appropriate approvals from its Board of Directors, deploy approximately $4 billion to $5 billion of capital (either in the form of share repurchases or acquisitions) over the next 5 quarters (3Q21-3Q22).

Truist's average LCR was 113% for the three months ended June 30, 2021, compared to the regulatory minimum of 100%. Truist continues to maintain a strong liquidity position and is prepared to meet the funding needs of clients. In addition, the liquid asset buffer, which is defined as high quality unencumbered liquid assets as a percentage of total assets, was 24.7% at June 30, 2021.

Nonperforming assets totaled $1.2 billion at June 30, 2021, down $107 million compared to March 31, 2021. Nonperforming loans and leases represented 0.39% of total loans and leases, down three basis points compared to March 31, 2021. The decrease in nonperforming loans and leases was primarily in the commercial loan portfolios.

Performing TDRs were down $38 million during the second quarter compared to the prior quarter.

Loans 90 days or more past due and still accruing totaled $2.1 billion at June 30, 2021, down slightly compared to the prior quarter. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.72% at June 30, 2021, up one basis point from the prior quarter. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.04% at June 30, 2021, unchanged from March 31, 2021.

Loans 30-89 days past due and still accruing totaled $1.8 billion at June 30, 2021, up $36 million compared to the prior quarter. The increase was primarily in indirect automobile due to seasonality. The ratio of loans 30-89 days past due and still accruing as a percentage of loans and leases was 0.64% at June 30, 2021, up 3 basis points from the prior quarter.

Net charge-offs during the second quarter totaled $142 million, down $96 million compared to the prior quarter. The net charge-off ratio was 0.20%, down 13 basis points compared to the prior quarter. The decrease in net charge-offs was primarily due to lower losses in the indirect auto and commercial portfolios combined with higher recoveries.

The allowance for credit losses was $5.4 billion and includes $5.1 billion for the allowance for loan and lease losses and $315 million for the reserve for unfunded commitments. The allowance for loan and lease loss ratio was 1.79% compared to 1.94% at March 31, 2021. The allowance for loan and lease losses covered nonperforming loans and leases held for investment 4.83X compared to 4.84X at March 31, 2021. At June 30, 2021, the allowance for loan and lease losses was 8.98X annualized net charge-offs, compared to 5.87X at March 31, 2021.

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. For additional information, see “Note 21. Operating Segments” of the Annual Report on Form 10-K for the year ended December 31, 2020.

CB&W net income was $862 million for the second quarter of 2021, an increase of $62 million compared to the prior quarter. Segment net interest income decreased $17 million primarily driven by a decline in retail loan balances and credit card spreads, as well as lower purchase accounting accretion. The allocated provision for credit losses decreased $104 million which reflects lower net charge offs primarily in the auto portfolios and an allowance release that was primarily driven by an improving economic outlook. Noninterest expense increased $12 million primarily due to higher restructuring charges, partially offset by lower personnel related expenses as well as lower professional fees and outside processing expenses.

Average loans held for investment decreased $2.9 billion compared to the prior quarter primarily due to lower residential mortgage and home equity lending, partially offset by increased indirect auto lending. Average total deposits increased $10.8 billion compared to the prior quarter primarily due to the impact of government stimulus programs.

C&CB net income was $1.2 billion for the second quarter of 2021, an increase of $315 million compared to the prior quarter. Segment net interest income was stable. The allocated provision for credit losses decreased $364 million which reflects an allowance release driven by an improving economic outlook, lower net charge offs primarily in the commercial and industrial portfolio and lower loan balances. Noninterest income increased $115 million primarily due to client-related structured real estate activity and an increase in the commercial mortgage banking business, higher income from strategic investments, and record investment banking fees, partially offset by lower trading revenues associated with counterparty derivative reserves. Noninterest expense increased $69 million primarily due to higher incentives related to fee income growth and restructuring charges.

Average loans held for investment decreased $3.1 billion compared to the prior quarter primarily due to a decline in Paycheck Protection Program loans and a decrease in dealer floor plan line utilization. Average total deposits increased $3.1 billion compared to the prior quarter primarily due to the impact of the government stimulus programs.

IH net income was $156 million for the second quarter of 2021, an increase of $25 million compared to the prior quarter. Noninterest income increased $65 million primarily due to seasonality in property and casualty insurance commissions and strong organic growth. Noninterest expense increased $36 million primarily due to seasonally higher performance-based incentives and increased merger-related charges.

OT&C generated a net loss of $587 million for the second quarter of 2021, compared to a net loss of $370 million for the prior quarter. Segment net interest income decreased $24 million primarily due to lower net funding charges to other segments due to lower market rates partially offset by higher earnings in the securities portfolio from purchases to utilize excess liquidity. The allocated provision for credit losses decreased $12 million primarily driven by an improving economic outlook. Noninterest income increased $23 million primarily due to investment income from Truist Ventures related partnerships and investments and gains on equity securities from market value changes this quarter. Noninterest expense increased $284 million primarily due to charitable contributions to the Truist Foundation and the Truist Charitable Fund, restructuring charges, and higher software expenses, partially offset by lower occupancy expense.

CB&W net income was $862 million for the second quarter of 2021, an increase of $150 million compared to the earlier quarter. Segment net interest income decreased $45 million primarily due to a decline in the funding credit provided on liabilities, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased $274 million which reflects the impact of an allowance release during the current quarter, an allowance build during the earlier quarter resulting from the deteriorating economic outlook caused by the pandemic, and lower net charge-offs in the current quarter primarily in the mortgage, home equity and auto portfolios. Noninterest income decreased $83 million driven by lower residential mortgage income due to lower gain on sale margins and volumes, partially offset by increases in card and related fee income as well as wealth management income due to favorable market conditions in the current quarter. Noninterest expense decreased $47 million primarily due to lower amortization of intangibles related to the merger, occupancy expenses, and personnel related expenses, partially offset by increased restructuring charges in the current quarter.

C&CB net income was $1.2 billion for the second quarter of 2021, an increase of $825 million compared to the earlier quarter. Segment net interest income decreased $78 million primarily due to reduced funding credit on liabilities, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased $933 million primarily reflecting the allowance release in the current quarter and a significant allowance build in the earlier quarter resulting from the deteriorating economic outlook caused by the onset of the pandemic. Noninterest income increased $188 million driven by commercial real estate income, investment banking, lending related fees, service charges on deposits, and income from strategic investments, partially offset by lower trading fees. Noninterest expense decreased $36 million primarily due to lower operating lease depreciation, reduction in LIHTC liability mark accretion in the earlier quarter, and lower allocated corporate expenses in the current quarter, partially offset by higher incentives tied to performance as well as increased restructuring charges in current quarter.

IH net income was $156 million for the second quarter of 2021, an increase of $30 million compared to the earlier quarter. Noninterest income increased $100 million primarily due to higher property and casualty insurance production from strong organic growth, as well as acquisitions. Noninterest expense increased $67 million primarily due to higher performance-based incentives, merger related expenses, and amortization of intangibles related to the acquisitions.

OT&C generated a net loss of $587 million in the second quarter of 2021, compared to a net loss of $282 million in the earlier quarter. Segment net interest income decreased $78 million primarily due to lower net funding charges to other segments due to lower market rates partially offset by an increase in income on securities. The allocated provision for credit losses decreased $64 million which primarily reflects an allowance release in the current quarter resulting from the improving economic outlook and an allowance build during the earlier quarter related to the deteriorating economic outlook caused by the onset of the pandemic. Noninterest income decreased $223 million primarily due to gain on sale of non-agency mortgage-backed securities in the earlier quarter. Noninterest expense increased $149 million primarily due to charitable contributions to the Truist Foundation and the Truist Charitable Fund, as well as higher incremental operating expenses related to the merger and higher restructuring charges in the current quarter, partially offset by the loss on early extinguishment of long-term debt in the earlier quarter.

To listen to Truist's live second quarter 2021 earnings conference call at 8 a.m. ET today, please call 866-519-2796 and enter the participant code 391805. A presentation will be used during the earnings conference call and is available on our website at https://ir.truist.com/events-and-presentation. Replays of the conference call will be available for 30 days by dialing 888-203-1112 (access code 391805).

The presentation, including an appendix reconciling non-GAAP disclosures and Truist's Second Quarter 2021 Quarterly Performance Summary, which contains detailed financial schedules, are available at https://ir.truist.com/earnings.

Truist Financial Corporation is a purpose-driven financial services company committed to inspiring and building better lives and communities. Formed by the historic merger of equals of BB&T and SunTrust, Truist has leading market share in many high-growth markets in the country. The company offers a wide range of services including retail, small business and commercial banking; asset management; capital markets; commercial real estate; corporate and institutional banking; insurance; mortgage; payments; specialized lending; and wealth management. Headquartered in Charlotte, North Carolina, Truist is a top 10 U.S. commercial bank with total assets of $522 billion as of June 30, 2021. Truist Bank, Member FDIC. Learn more at Truist.com.