Truist Financial 10Q 2021 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________

☒ Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2021

Commission File Number: 1-10853

_____________________________

TRUIST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

_____________________________________________


North Carolina		56-0939887
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

214 North Tryon Street
Charlotte,	North Carolina	28202
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(336)	733-2000

_____________________________________________

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $5 par value

TFC

New York Stock Exchange

Depositary Shares each representing 1/4,000th interest in a share of Series I Perpetual Preferred Stock

TFC.PI

New York Stock Exchange

5.853% Fixed-to-Floating Rate Normal Preferred Purchase Securities each representing 1/100th interest in a share of Series J Perpetual Preferred Stock

TFC.PJ

New York Stock Exchange

Depositary Shares each representing 1/1,000th interest in a share of Series O Non-Cumulative Perpetual Preferred Stock

TFC.PO

New York Stock Exchange

Depositary Shares each representing 1/1,000th interest in a share of Series R Non-Cumulative Perpetual Preferred Stock

TFC.PR

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

At September 30, 2021, 1,334,891,526 shares of the registrant’s common stock, $5 par value, were outstanding.



TABLE OF CONTENTS
TRUIST FINANCIAL CORPORATION
FORM 10-Q
September 30, 2021
		Page No.
PART I - Financial Information
	Glossary of Defined Terms	1
	Forward-Looking Statements	3
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Income (Unaudited)	5
	Consolidated Statements of Comprehensive Income (Unaudited)	6
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	7
	Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Consolidated Financial Statements (Unaudited)
	Note 1. Basis of Presentation	9
	Note 2. Business Combinations	9
	Note 3. Securities Financing Activities	10
	Note 4. Investment Securities	10
	Note 5. Loans and ACL	12
	Note 6. Goodwill and Other Intangible Assets	19
	Note 7. Loan Servicing	20
	Note 8. Other Assets and Liabilities	21
	Note 9. Borrowings	22
	Note 10. Shareholders’ Equity	23
	Note 11. AOCI	24
	Note 12. Income Taxes	25
	Note 13. Benefit Plans	25
	Note 14. Commitments and Contingencies	25
	Note 15. Fair Value Disclosures	28
	Note 16. Derivative Financial Instruments	33
	Note 17. Computation of EPS	37
	Note 18. Operating Segments	37
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management in MD&A)	60
Item 4.	Controls and Procedures	70
PART II - Other Information
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities - (none)
Item 4.	Mine Safety Disclosures - (not applicable)
Item 5.	Other Information - (none to be reported)
Item 6.	Exhibits	71

Glossary of Defined Terms

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


Term			Definition
ACL			Allowance for credit losses
AFS			Available-for-sale
Agency MBS			Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL			Allowance for loan and lease losses

ARRC			Alternative Reference Rates Committee of the FRB and the Federal Reserve Bank of New York
AOCI			Accumulated other comprehensive income (loss)

BB&T			BB&T Corporation and subsidiaries (changed to “Truist Financial Corporation” effective with the Merger)





Board			Truist’s Board of Directors

C&CB			Corporate and Commercial Banking, an operating segment
CARES Act			The Coronavirus Aid, Relief, and Economic Security Act
CB&W			Consumer Banking and Wealth, an operating segment
CCAR			Comprehensive Capital Analysis and Review

CDI			Core deposit intangible
CECL			Current expected credit loss model
CEO			Chief Executive Officer

CFO			Chief Financial Officer
CET1			Common equity tier 1



Company			Truist Financial Corporation and its subsidiaries (interchangeable with “Truist” below), formerly BB&T Corporation
COVID-19			Coronavirus disease 2019
CRA			Community Reinvestment Act of 1977
CRE			Commercial real estate
CRO			Chief Risk Officer
CVA			Credit valuation adjustment











EPS			Earnings per common share
EVE			Economic value of equity


FDIC			Federal Deposit Insurance Corporation


FHLB			Federal Home Loan Bank
FHLMC			Federal Home Loan Mortgage Corporation

FNMA			Federal National Mortgage Association
FRB			Board of Governors of the Federal Reserve System
FTE			Full-time equivalent employee
GAAP			Accounting principles generally accepted in the United States of America
GDP			Gross Domestic Product


Grandbridge			Grandbridge Real Estate Capital, LLC
GSE			U.S. government-sponsored enterprise
HFI			Held for investment





IH			Insurance Holdings, an operating segment




LCR			Liquidity Coverage Ratio
LHFS			Loans held for sale
LIBOR			London Interbank Offered Rate

Market Risk Rule			Market risk capital requirements issued jointly by the OCC, U.S. Treasury, FRB, and FDIC
MBS			Mortgage-backed securities
MD&A			Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger			Merger of BB&T and SunTrust effective December 6, 2019

MRM			Model Risk Management
MSR			Mortgage servicing right

NA			Not applicable

NIM			Net interest margin, computed on a TE basis
NM			Not meaningful
NPA			Nonperforming asset
NPL			Nonperforming loan
NSFR			Net stable funding ratio

OAS			Option adjusted spread
OCC			Office of the Comptroller of the Currency

Truist Financial Corporation 1


Term			Definition
OCI			Other comprehensive income (loss)

OPEB			Other post-employment benefit
OREO			Other real estate owned
OT&C			Other, Treasury and Corporate


Parent Company			Truist Financial Corporation, the parent company of Truist Bank and other subsidiaries

PCD			Purchased credit deteriorated loans
PCI			Purchased credit impaired loans

PPP			Paycheck Protection Program, established by the CARES Act
Re-REMICs			Re-securitizations of Real Estate Mortgage Investment Conduits

ROU assets			Right-of-use assets


RUFC			Reserve for unfunded lending commitments

SBIC			Small Business Investment Company
SCB			Stress Capital Buffer

SOFR			Secured Overnight Financing Rate
SunTrust			SunTrust Banks, Inc.

TDR			Troubled debt restructuring
TE			Taxable-equivalent

TRS			Total Return Swap
Truist			Truist Financial Corporation and its subsidiaries (interchangeable with the “Company” above), formerly BB&T Corporation
Truist Bank			Truist Bank, formerly Branch Banking and Trust Company
U.S.			United States of America
U.S. Treasury			United States Department of the Treasury
UPB			Unpaid principal balance


VaR			Value-at-risk

VIE			Variable interest entity

2 Truist Financial Corporation

Forward-Looking Statements

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

Forward-looking statements are not based on historical facts but instead represent management’s expectations and assumptions regarding Truist’s business, the economy, and other future conditions. Such statements involve inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As such, Truist’s actual results may differ materially from those contemplated by forward-looking statements. While there can be no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those contemplated by forward-looking statements include the following, without limitation, as well as the risks and uncertainties more fully discussed in Part I, Item 1A-Risk Factors in Truist’s Form 10-K for the year ended December 31, 2020:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•security risks, including denial of service attacks, hacking, social engineering attacks targeting Truist’s teammates and clients, malware intrusion, data corruption attempts, system breaches, cyber attacks, identity theft, ransomware attacks, and physical security risks, such as natural disasters, environmental conditions, and intentional acts of destruction, could result in the disclosure of confidential information, adversely affect Truist’s business or reputation or create significant legal or financial exposure; and

•widespread outages of operational, communication, or other systems, whether internal or provided by third parties, natural or other disasters (including acts of terrorism and pandemics), and the effects of climate change, including physical risks, such as more frequent and intense weather events, and risks related to the transition to a lower carbon economy, such as regulatory or technological changes or shifts in market dynamics or consumer preferences, could have an adverse effect on Truist’s financial condition and results of operations, lead to material disruption of Truist’s operations or the ability or willingness of clients to access Truist’s products and services.

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

Truist Financial Corporation 3

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES





Unaudited (Dollars in millions, except per share data, shares in thousands)	September 30, 2021		December 31, 2020

Assets
Cash and due from banks	$	4,656	$	5,029
Interest-bearing deposits with banks	15,171		13,839
Securities borrowed or purchased under resale agreements	1,919		1,745
Trading assets at fair value	6,972		3,872
AFS securities at fair value	151,038		120,788

LHFS (including $4,799 and $4,955 at fair value, respectively)	5,133		6,059
Loans and leases	285,522		299,734
ALLL	(4,702)		(5,835)
Loans and leases, net of ALLL	280,820		293,899
Premises and equipment	3,719		3,870
Goodwill	24,891		24,447
CDI and other intangible assets	2,930		2,984
MSRs at fair value	2,584		2,023
Other assets (including $4,002 and $4,891 at fair value, respectively)	30,051		30,673
Total assets	$	529,884	$	509,228
Liabilities
Noninterest-bearing deposits	$	143,595	$	127,629
Interest-bearing deposits	262,262		253,448
Short-term borrowings (including $1,735 and $1,115 at fair value, respectively)	5,226		6,092
Long-term debt	37,837		39,597
Other liabilities (including $601 and $555 at fair value, respectively)	12,064		11,550
Total liabilities	460,984		438,316

Shareholders’ Equity
Preferred stock	6,673		8,048
Common stock, $5 par value	6,674		6,745
Additional paid-in capital	34,977		35,843
Retained earnings	22,114		19,455
AOCI, net of deferred income taxes	(1,538)		716
Noncontrolling interests	—		105
Total shareholders’ equity	68,900		70,912
Total liabilities and shareholders’ equity	$	529,884	$	509,228
Common shares outstanding	1,334,892		1,348,961
Common shares authorized	2,000,000		2,000,000
Preferred shares outstanding	223		280
Preferred shares authorized	5,000		5,000

The accompanying notes are an integral part of these consolidated financial statements.

4 Truist Financial Corporation

CONSOLIDATED STATEMENTS OF INCOME

TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES






Unaudited (Dollars in millions, except per share data, shares in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020


Interest Income
Interest and fees on loans and leases	$	2,825	$	3,174	$	8,728	$	10,327
Interest on securities	548		393		1,488		1,331
Interest on other earning assets	53		56		147		279
Total interest income	3,426		3,623		10,363		11,937
Interest Expense
Interest on deposits	33		96		116		718
Interest on long-term debt	151		152		446		635
Interest on other borrowings	9		13		38		124
Total interest expense	193		261		600		1,477
Net Interest Income	3,233		3,362		9,763		10,460
Provision for credit losses	(324)		421		(710)		2,158
Net Interest Income After Provision for Credit Losses	3,557		2,941		10,473		8,302
Noninterest Income
Insurance income	645		518		1,961		1,648
Wealth management income	356		324		1,042		945
Service charges on deposits	276		247		787		754
Residential mortgage income	179		221		396		807
Investment banking and trading income	301		244		958		636
Card and payment related fees	225		200		650		558
Lending related fees	74		77		268		210
Operating lease income	57		72		191		232
Commercial real estate related income	78		55		259		148
Income from bank-owned life insurance	43		46		139		135
Securities gains (losses)	—		104		—		402
Other income	131		102		316		119
Total noninterest income	2,365		2,210		6,967		6,594
Noninterest Expense
Personnel expense	2,187		2,058		6,536		6,038
Professional fees and outside processing	372		323		1,063		859
Net occupancy expense	187		233		578		697
Software expense	251		221		707		647
Amortization of intangibles	145		170		431		513
Equipment expense	154		127		389		363
Marketing and customer development	94		75		226		215
Operating lease depreciation	47		56		144		204
Loan-related expense	52		59		161		177
Regulatory costs	43		34		99		93
Merger-related and restructuring charges	172		236		610		552
Loss (gain) on early extinguishment of debt	—		—		(3)		235
Other expense	91		163		475		471
Total noninterest expense	3,795		3,755		11,416		11,064
Earnings
Income before income taxes	2,127		1,396		6,024		3,832
Provision for income taxes	423		255		1,189		670
Net income	1,704		1,141		4,835		3,162
Noncontrolling interests	—		3		(3)		9
Net income available to the bank holding company	1,704		1,138		4,838		3,153
Preferred stock dividends and other	88		70		329		197
Net income available to common shareholders	$	1,616	$	1,068	$	4,509	$	2,956
Basic EPS	$	1.21	$	0.79	$	3.37	$	2.20
Diluted EPS	1.20		0.79		3.34		2.18
Basic weighted average shares outstanding	1,334,825		1,347,916		1,339,558		1,346,605
Diluted weighted average shares outstanding	1,346,854		1,358,122		1,351,712		1,357,174

The accompanying notes are an integral part of these consolidated financial statements.

Truist Financial Corporation 5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES






Unaudited (Dollars in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020


Net income	$	1,704	$	1,141	$	4,835	$	3,162
OCI, net of tax:
Net change in net pension and postretirement costs	(55)		(11)		(22)		18
Net change in cash flow hedges	5		8		51		30
Net change in AFS securities	(438)		(375)		(2,283)		1,267
Other, net	(2)		1		—		(1)
Total OCI, net of tax	(490)		(377)		(2,254)		1,314
Total comprehensive income	$	1,214	$	764	$	2,581	$	4,476
Income Tax Effect of Items Included in OCI:
Net change in net pension and postretirement costs	$	(13)	$	(4)	$	(3)	$	5
Net change in cash flow hedges	2		2		16		9
Net change in AFS securities	(133)		(114)		(701)		389

Total income taxes related to OCI	$	(144)	$	(116)	$	(688)	$	403

The accompanying notes are an integral part of these consolidated financial statements.

6 Truist Financial Corporation

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES




Unaudited (Dollars in millions, shares in thousands)	Shares of Common Stock	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		AOCI		Noncontrolling Interests		Total Shareholders’ Equity
Balance, July 1, 2020	1,347,609	$	7,143	$	6,738	$	35,676	$	18,373	$	847	$	106	$	68,883
Net income	—	—		—		—		1,138		—		3		1,141
OCI	—	—		—		—		—		(377)		—		(377)

Issued in connection with equity awards, net	509	—		3		(6)		—		—		—		(3)
Issued in connection with preferred stock offerings	—	905		—		—		—		—		—		905


Cash dividends declared on common stock	—	—		—		—		(607)		—		—		(607)
Cash dividends declared on preferred stock	—	—		—		—		(70)		—		—		(70)
Equity-based compensation expense	—	—		—		104		—		—		—		104

Other, net	—	—		—		—		—		—		(3)		(3)
Balance, September 30, 2020	1,348,118	$	8,048	$	6,741	$	35,774	$	18,834	$	470	$	106	$	69,973
Balance, July 1, 2021	1,334,770	$	6,673	$	6,674	$	34,898	$	21,139	$	(1,048)	$	—	$	68,336
Net income	—	—		—		—		1,704		—		—		1,704
OCI	—	—		—		—		—		(490)		—		(490)

Issued in connection with equity awards, net	122	—		—		(4)		(1)		—		—		(5)



Cash dividends declared on common stock	—	—		—		—		(640)		—		—		(640)
Cash dividends declared on preferred stock	—	—		—		—		(88)		—		—		(88)
Equity-based compensation expense	—	—		—		83		—		—		—		83

Balance, September 30, 2021	1,334,892	$	6,673	$	6,674	$	34,977	$	22,114	$	(1,538)	$	—	$	68,900















Balance, January 1, 2020	1,342,166	$	5,102	$	6,711	$	35,609	$	19,806	$	(844)	$	174	$	66,558
Net income	—	—		—		—		3,153		—		9		3,162
OCI	—	—		—		—		—		1,314		—		1,314

Issued in connection with equity awards, net	5,952	—		30		(115)		(2)		—		—		(87)
Issued in connection with preferred stock offerings	—	3,449		—		—		—		—		—		3,449

Redemption of preferred stock	—	(503)		—		—		3		—		—		(500)
Cash dividends declared on common stock	—	—		—		—		(1,817)		—		—		(1,817)
Cash dividends declared on preferred stock	—	—		—		—		(200)		—		—		(200)
Equity-based compensation expense	—	—		—		280		—		—		—		280
Cumulative effect adjustment for new accounting standards	—	—		—		—		(2,109)		—		—		(2,109)
Other, net	—	—		—		—		—		—		(77)		(77)
Balance, September 30, 2020	1,348,118	$	8,048	$	6,741	$	35,774	$	18,834	$	470	$	106	$	69,973
Balance, January 1, 2021	1,348,961	$	8,048	$	6,745	$	35,843	$	19,455	$	716	$	105	$	70,912
Net income	—	—		—		—		4,838		—		(3)		4,835
OCI	—	—		—		—		—		(2,254)		—		(2,254)

Issued in connection with equity awards, net	5,719	—		28		(118)		(3)		—		—		(93)

Repurchase of common stock	(19,788)	—		(99)		(1,017)		—		—		—		(1,116)
Redemption of preferred stock	—	(1,375)		—		—		(40)		—		—		(1,415)
Cash dividends declared on common stock	—	—		—		—		(1,847)		—		—		(1,847)
Cash dividends declared on preferred stock	—	—		—		—		(289)		—		—		(289)
Equity-based compensation expense	—	—		—		269		—		—		—		269

Other, net	—	—		—		—		—		—		(102)		(102)
Balance, September 30, 2021	1,334,892	$	6,673	$	6,674	$	34,977	$	22,114	$	(1,538)	$	—	$	68,900

The accompanying notes are an integral part of these consolidated financial statements.

Truist Financial Corporation 7

CONSOLIDATED STATEMENTS OF CASH FLOWS

TRUIST FINANCIAL CORPORATION AND SUBSIDIARIES







Unaudited Nine Months Ended September 30, (Dollars in millions)	2021		2020
Cash Flows From Operating Activities:
Net income	$	4,835	$	3,162
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses	(710)		2,158

Depreciation	610		694

Amortization of intangibles	431		513
Equity-based compensation expense	269		280
Securities (gains) losses	—		(402)
Net change in operating assets and liabilities:
LHFS	156		1,144
MSRs	(206)		639
Pension asset	(456)		(417)
Derivative assets and liabilities	905		(3,064)
Trading assets	(3,100)		1,063
Other assets and other liabilities	896		(299)

Other, net	(545)		(442)
Net cash from operating activities	3,085		5,029
Cash Flows From Investing Activities:
Proceeds from sales of AFS securities	137		5,219
Proceeds from maturities, calls and paydowns of AFS securities	25,424		14,917
Purchases of AFS securities	(59,578)		(28,242)


Originations and purchases of loans and leases, net of sales and principal collected	14,503		(4,328)
Net cash received (paid) for FHLB stock	116		599

Net cash paid for premises and equipment	(314)		(716)
Net cash received (paid) for mergers, acquisitions and divestitures	390		(1,811)
Other, net	(600)		275
Net cash from investing activities	(19,922)		(14,087)
Cash Flows From Financing Activities:
Net change in deposits	24,790		38,263
Net change in short-term borrowings	(866)		(11,972)
Proceeds from issuance of long-term debt	4,626		26,570
Repayment of long-term debt	(5,873)		(27,667)
Repurchase of common stock	(1,116)		—
Net proceeds from preferred stock issued	—		3,449
Redemption of preferred stock	(1,415)		(500)
Cash dividends paid on common stock	(1,847)		(1,817)
Cash dividends paid on preferred stock	(289)		(200)
Net cash received (paid) for hedge unwinds	—		1,111
Other, net	(214)		(136)
Net cash from financing activities	17,796		27,101
Net Change in Cash and Cash Equivalents	959		18,043
Cash and Cash Equivalents, January 1	18,868		19,065
Cash and Cash Equivalents, September 30	$	19,827	$	37,108
Supplemental Disclosure of Cash Flow Information:
Net cash paid (received) during the period for:
Interest expense	$	655	$	1,555
Income taxes	745		94

The accompanying notes are an integral part of these consolidated financial statements.

8 Truist Financial Corporation

NOTE 1. Basis of Presentation

General

See the Glossary of Defined Terms at the beginning of this Report for terms used herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q, and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2020 should be referred to in connection with these unaudited interim consolidated financial statements. There were no significant changes to the Company’s accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020 that could have a material effect on the Company’s financial statements.

Reclassifications

Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL; determination of fair value for financial instruments; valuation of MSRs; goodwill, intangible assets and other purchase accounting related adjustments; benefit plan obligations and expenses; and tax assets, liabilities, and expense.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

There were no standards adopted during the current year that had a material effect on the Company’s financial statements, and no standards not yet adopted by the Company that are expected to have a material effect on the Company’s financial statements.

NOTE 2. Business Combinations

On July 1, 2021, Truist acquired Constellation Affiliated Partners, which resulted in approximately $543 million of goodwill and $418 million of identifiable intangible assets in the IH segment. Fair value estimates related to the acquired assets and liabilities are subject to adjustment during the one-year measurement period following the closing of the acquisition. The intangible assets are being amortized on an accelerated basis over a term of 15.0 years based upon the estimated economic benefits received. Goodwill of $456 million and identifiable intangible assets of $277 million are deductible for tax purposes.

On August 10, 2021, Truist announced it will acquire Service Finance, LLC for $2.0 billion in cash consideration, which is expected to close in the fourth quarter of 2021.

Truist Financial Corporation 9

NOTE 3. Securities Financing Activities

Securities purchased under resale agreements are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which the securities will be subsequently sold, plus accrued interest. Securities borrowed are primarily collateralized by corporate securities. The Company borrows securities and purchases securities under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral values daily and calls for additional collateral to be provided as warranted under the respective agreements. At September 30, 2021 and December 31, 2020, the total market value of collateral held was $1.9 billion and $1.7 billion, of which $188 million and $27 million was repledged, respectively. The following table presents securities borrowed or purchased under resale agreements:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Securities purchased under resale agreements	$	1,302	$	1,158
Securities borrowed	617		587
Total securities borrowed or purchased under resale agreements	$	1,919	$	1,745

For securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of the collateral pledged. This risk is managed by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions. Refer to “Note 14. Commitments and Contingencies” for additional information related to pledged securities. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:


	September 30, 2021				December 31, 2020
(Dollars in millions)	Overnight and Continuous		Up to 30 days		Total		Overnight and Continuous		Up to 30 days		Total


U.S. Treasury	$	1,533	$	7	$	1,540	$	305	$	31	$	336
GSE	98		32		130		45		9		54
Agency MBS - residential	473		173		646		442		6		448
Corporate and other debt securities	172		112		284		204		179		383
Total securities sold under agreements to repurchase	$	2,276	$	324	$	2,600	$	996	$	225	$	1,221

There were no securities financing transactions subject to legally enforceable master netting arrangements that were eligible for balance sheet netting for the periods presented.

NOTE 4. Investment Securities

The following tables summarize the Company’s AFS securities:


September 30, 2021 (Dollars in millions)	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
AFS securities:
U.S. Treasury	$	9,700	$	18	$	21	$	9,697
GSE	1,829		47		2		1,874
Agency MBS - residential	133,933		954		1,826		133,061
Agency MBS - commercial	3,083		30		40		3,073
States and political subdivisions	422		38		2		458
Non-agency MBS	2,856		1		11		2,846
Other	29		—		—		29
Total AFS securities	$	151,852	$	1,088	$	1,902	$	151,038









December 31, 2020 (Dollars in millions)	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
AFS securities:
U.S. Treasury	$	1,721	$	25	$	—	$	1,746
GSE	1,840		77		—		1,917
Agency MBS - residential	111,589		1,975		23		113,541
Agency MBS - commercial	2,987		72		2		3,057
States and political subdivisions	447		47		1		493

Other	34		—		—		34
Total AFS securities	$	118,618	$	2,196	$	26	$	120,788

10 Truist Financial Corporation

Certain securities issued by FNMA and FHLMC exceeded 10% of shareholders’ equity at September 30, 2021. The FNMA investments had total amortized cost and fair value of $42.1 billion and $41.7 billion, respectively. The FHLMC investments had total amortized cost and fair value of $44.8 billion and $44.2 billion, respectively.

The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may be shorter than the contractual maturities because borrowers may have the right to prepay their obligations with or without penalties.


	Amortized Cost										Fair Value
September 30, 2021 (Dollars in millions)	Due in one year or less		Due after one year through five years		Due after five years through ten years		Due after ten years		Total		Due in one year or less		Due after one year through five years		Due after five years through ten years		Due after ten years		Total
AFS securities:
U.S. Treasury	$	276	$	8,446	$	978	$	—	$	9,700	$	276	$	8,441	$	980	$	—	$	9,697
GSE	432		1,237		—		160		1,829		437		1,274		—		163		1,874
Agency MBS - residential	—		1		317		133,615		133,933		—		1		327		132,733		133,061
Agency MBS - commercial	—		1		23		3,059		3,083		—		1		23		3,049		3,073
States and political subdivisions	38		95		118		171		422		39		98		135		186		458
Non-agency MBS	—		—		—		2,856		2,856		—		—		—		2,846		2,846
Other	1		6		—		22		29		1		6		—		22		29
Total AFS securities	$	747	$	9,786	$	1,436	$	139,883	$	151,852	$	753	$	9,821	$	1,465	$	138,999	$	151,038

The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
September 30, 2021 (Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

AFS securities:
U.S. Treasury	$	6,247	$	21	$	—	$	—	$	6,247	$	21
GSE	95		2		—		—		95		2
Agency MBS - residential	95,852		1,812		443		14		96,295		1,826
Agency MBS - commercial	1,943		34		257		6		2,200		40
States and political subdivisions	24		1		22		1		46		2
Non-agency MBS	2,183		11		—		—		2,183		11
Other	22		—		—		—		22		—
Total	$	106,366	$	1,881	$	722	$	21	$	107,088	$	1,902









	Less than 12 months				12 months or more				Total
December 31, 2020 (Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

AFS securities:
U.S. Treasury	$	17	$	—	$	—	$	—	$	17	$	—

Agency MBS - residential	4,028		21		203		2		4,231		23
Agency MBS - commercial	463		2		4		—		467		2
States and political subdivisions	20		—		32		1		52		1
Other	6		—		—		—		6		—
Total	$	4,534	$	23	$	239	$	3	$	4,773	$	26

At September 30, 2021 and December 31, 2020, 0 ACL was established for AFS securities. Substantially all of the unrealized losses on the securities portfolio were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.

The following table presents gross securities gains and losses recognized in earnings:






(Dollars in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020


Gross realized gains	$	—	$	104	$	—	$	404
Gross realized losses	—		—		—		(2)


Securities gains (losses), net	$	—	$	104	$	—	$	402

Truist Financial Corporation 11

NOTE 5. Loans and ACL

The following tables present loans and leases HFI by aging category. Government guaranteed loans are not placed on nonaccrual status regardless of delinquency because collection of principal and interest is reasonably assured. The past due status of loans that received a deferral under the CARES Act is generally frozen during the deferral period. In certain limited circumstances, accommodation programs result in the delinquency status being reset to current.


	Accruing
September 30, 2021 (Dollars in millions)	Current		30-89 Days Past Due		90 Days Or More Past Due		Nonperforming		Total
Commercial:
Commercial and industrial	$	128,448	$	131	$	2	$	411	$	128,992
CRE	24,285		4		—		20		24,309
Commercial construction	5,680		2		—		7		5,689
Lease financing	4,767		4		16		12		4,799
Consumer:
Residential mortgage	45,038		495		852		306		46,691
Residential home equity and direct	24,988		81		7		146		25,222
Indirect auto	26,189		560		2		172		26,923
Indirect other	11,094		53		2		6		11,155
Student	5,635		456		968		—		7,059
Credit card	4,623		37		23		—		4,683

Total	$	280,747	$	1,823	$	1,872	$	1,080	$	285,522

	Accruing
December 31, 2020 (Dollars in millions)	Current		30-89 Days Past Due		90 Days Or More Past Due		Nonperforming		Total
Commercial:
Commercial and industrial	$	137,726	$	83	$	13	$	532	$	138,354
CRE	26,506		14		—		75		26,595
Commercial construction	6,472		5		—		14		6,491
Lease financing	5,206		6		—		28		5,240
Consumer:
Residential mortgage	45,333		782		841		316		47,272
Residential home equity and direct	25,751		98		10		205		26,064
Indirect auto	25,498		495		2		155		26,150
Indirect other	11,102		68		2		5		11,177
Student	5,823		618		1,111		—		7,552
Credit card	4,759		51		29		—		4,839

Total	$	294,176	$	2,220	$	2,008	$	1,330	$	299,734

12 Truist Financial Corporation

The following table presents the amortized cost basis of loans by origination year and credit quality indicator:


September 30, 2021 (Dollars in millions)	Amortized Cost Basis by Origination Year												Revolving Credit		Loans Converted to Term		Other (1)
	2021		2020		2019		2018		2017		Prior								Total
Commercial:
Commercial and industrial:
Pass	$	25,433	$	17,587	$	14,278	$	9,315	$	5,670	$	10,042	$	41,570	$	—	$	(390)	$	123,505
Special mention	186		231		402		253		97		92		973		—		—		2,234
Substandard	302		314		493		213		71		289		1,160		—		—		2,842
Nonperforming	36		26		70		46		18		59		157		—		(1)		411
Total	25,957		18,158		15,243		9,827		5,856		10,482		43,860		—		(391)		128,992
CRE:
Pass	2,825		3,405		5,516		3,794		2,051		2,442		671		—		(61)		20,643
Special mention	57		107		486		317		51		129		—		—		—		1,147
Substandard	305		310		633		551		402		298		—		—		—		2,499
Nonperforming	2		1		—		2		3		12		—		—		—		20
Total	3,189		3,823		6,635		4,664		2,507		2,881		671		—		(61)		24,309
Commercial construction:
Pass	836		1,125		1,676		681		138		99		661		—		7		5,223
Special mention	—		26		140		102		—		—		—		—		—		268
Substandard	6		6		40		74		65		—		—		—		—		191
Nonperforming	—		1		1		—		4		—		—		—		1		7
Total	842		1,158		1,857		857		207		99		661		—		8		5,689
Lease financing:
Pass	970		1,232		811		525		528		707		—		—		(62)		4,711
Special mention	1		—		—		—		3		2		—		—		—		6
Substandard	—		1		29		2		2		36		—		—		—		70
Nonperforming	—		2		3		4		—		2		—		—		1		12
Total	971		1,235		843		531		533		747		—		—		(61)		4,799
Consumer:
Residential mortgage:
Performing	12,741		7,355		4,360		2,237		2,719		16,872		—		—		101		46,385
Nonperforming	—		3		22		27		22		232		—		—		—		306
Total	12,741		7,358		4,382		2,264		2,741		17,104		—		—		101		46,691
Residential home equity and direct:
Performing	4,061		3,028		2,015		829		241		482		10,946		3,405		69		25,076
Nonperforming	1		3		4		2		1		7		50		78		—		146
Total	4,062		3,031		2,019		831		242		489		10,996		3,483		69		25,222
Indirect auto:
Performing	8,950		7,705		5,106		2,612		1,426		778		—		—		174		26,751
Nonperforming	9		37		54		38		21		18		—		—		(5)		172
Total	8,959		7,742		5,160		2,650		1,447		796		—		—		169		26,923
Indirect other:
Performing	3,747		3,083		1,901		1,086		527		779		—		—		26		11,149
Nonperforming	—		3		2		—		—		1		—		—		—		6
Total	3,747		3,086		1,903		1,086		527		780		—		—		26		11,155

Student	—		22		94		79		66		6,765		—		—		33		7,059


Credit card	—		—		—		—		—		—		4,653		30		—		4,683
Total	$	60,468	$	45,613	$	38,136	$	22,789	$	14,126	$	40,143	$	60,841	$	3,513	$	(107)	$	285,522

Truist Financial Corporation 13


December 31, 2020 (Dollars in millions)	Amortized Cost Basis by Origination Year												Revolving Credit		Loans Converted to Term		Other (1)
	2020		2019		2018		2017		2016		Prior								Total
Commercial:
Commercial and industrial:
Pass	$	34,858	$	18,881	$	13,312	$	7,713	$	5,174	$	8,888	$	42,780	$	231	$	(579)	$	131,258
Special mention	471		434		343		98		120		157		1,808		5		(1)		3,435
Substandard	461		445		339		121		144		256		1,353		12		(2)		3,129
Nonperforming	38		92		48		29		25		61		233		4		2		532
Total	35,828		19,852		14,042		7,961		5,463		9,362		46,174		252		(580)		138,354
CRE:
Pass	4,563		6,600		4,427		2,752		1,473		2,096		617		—		(69)		22,459
Special mention	171		599		585		116		77		141		—		—		—		1,689
Substandard	410		776		438		281		182		280		5		—		—		2,372
Nonperforming	1		15		1		9		6		43		—		—		—		75
Total	5,145		7,990		5,451		3,158		1,738		2,560		622		—		(69)		26,595
Commercial construction:
Pass	1,052		2,141		1,889		232		27		110		534		—		2		5,987
Special mention	—		108		64		1		—		—		2		—		—		175
Substandard	70		106		73		59		6		1		—		—		—		315
Nonperforming	1		3		—		7		—		—		—		3		—		14
Total	1,123		2,358		2,026		299		33		111		536		3		2		6,491
Lease financing:
Pass	1,377		1,139		775		746		241		760		—		—		27		5,065
Special mention	1		39		20		5		—		7		—		—		—		72
Substandard	—		34		3		4		3		31		—		—		—		75
Nonperforming	2		5		3		9		4		5		—		—		—		28
Total	1,380		1,217		801		764		248		803		—		—		27		5,240
Consumer:
Residential mortgage:
Performing	8,197		6,729		3,735		4,374		5,424		18,333		—		—		164		46,956
Nonperforming	3		13		16		13		14		257		—		—		—		316
Total	8,200		6,742		3,751		4,387		5,438		18,590		—		—		164		47,272
Residential home equity and direct:
Performing	4,513		3,126		1,416		481		214		557		13,886		1,619		47		25,859
Nonperforming	1		4		2		1		1		7		87		101		1		205
Total	4,514		3,130		1,418		482		215		564		13,973		1,720		48		26,064
Indirect auto:
Performing	10,270		7,436		4,015		2,401		1,220		506		—		—		147		25,995
Nonperforming	13		50		44		27		15		12		—		—		(6)		155
Total	10,283		7,486		4,059		2,428		1,235		518		—		—		141		26,150
Indirect other:
Performing	4,433		3,019		1,706		826		431		718		—		—		39		11,172
Nonperforming	1		1		1		—		—		2		—		—		—		5
Total	4,434		3,020		1,707		826		431		720		—		—		39		11,177

Student	22		110		95		81		64		7,185		—		—		(5)		7,552


Credit card	—		—		—		—		—		—		4,802		37		—		4,839
Total	$	70,929	$	51,905	$	33,350	$	20,386	$	14,865	$	40,413	$	66,107	$	2,012	$	(233)	$	299,734

(1)Includes certain deferred fees and costs, unapplied payments, and other adjustments.

14 Truist Financial Corporation

ACL

The following tables present activity in the ACL:









(Dollars in millions)	Balance at Jul 1, 2020		Charge-Offs		Recoveries		Provision (Benefit)		Other (2)		Balance at Sep 30, 2020
Commercial:
Commercial and industrial	$	2,137	$	(112)	$	20	$	140	$	—	$	2,185
CRE	391		(44)		—		155		—		502
Commercial construction	134		(19)		2		17		—		134
Lease financing	59		(44)		4		34		—		53
Consumer:
Residential mortgage	431		(4)		3		(6)		—		424
Residential home equity and direct	697		(52)		16		43		—		704
Indirect auto	1,190		(72)		22		49		—		1,189
Indirect other	213		(8)		4		13		—		222
Student	123		(6)		—		11		2		130
Credit card	327		(44)		8		29		—		320

ALLL	5,702		(405)		79		485		2		5,863
RUFC	431		—		—		(64)		(1)		366
ACL	$	6,133	$	(405)	$	79	$	421	$	1	$	6,229

(Dollars in millions)	Balance at Jul 1, 2021		Charge-Offs		Recoveries		Provision (Benefit)		Other (2)		Balance at Sep 30, 2021
Commercial:
Commercial and industrial	$	1,757	$	(57)	$	21	$	(180)	$	—	$	1,541
CRE	440		(1)		1		(70)		—		370
Commercial construction	69		—		1		(11)		—		59
Lease financing	47		—		21		(37)		—		31
Consumer:
Residential mortgage	321		(7)		3		(6)		—		311
Residential home equity and direct	694		(51)		20		(18)		—		645
Indirect auto	1,116		(73)		22		6		—		1,071
Indirect other	181		(13)		5		21		—		194
Student	129		(6)		1		1		1		126
Credit card	367		(31)		9		9		—		354

ALLL	5,121		(239)		104		(285)		1		4,702
RUFC	315		—		—		(39)		—		276
ACL	$	5,436	$	(239)	$	104	$	(324)	$	1	$	4,978



















(Dollars in millions)	Balance at Jan 1, 2020 (1)		Charge-Offs		Recoveries		Provision (Benefit)		Other (2)		Balance at Sep 30, 2020
Commercial:
Commercial and industrial	$	560	$	(274)	$	58	$	937	$	904	$	2,185
CRE	150		(59)		4		325		82		502
Commercial construction	52		(22)		10		78		16		134
Lease financing	10		(50)		4		(5)		94		53
Consumer:
Residential mortgage	176		(50)		7		26		265		424
Residential home equity and direct	107		(185)		46		282		454		704
Indirect auto	304		(294)		63		298		818		1,189
Indirect other	60		(46)		18		40		150		222
Student	—		(20)		1		24		125		130
Credit card	122		(147)		22		148		175		320
PCI	8		—		—		—		(8)		—
ALLL	1,549		(1,147)		233		2,153		3,075		5,863
RUFC	340		—		—		5		21		366
ACL	$	1,889	$	(1,147)	$	233	$	2,158	$	3,096	$	6,229

Truist Financial Corporation 15


(Dollars in millions)	Balance at Jan 1, 2021		Charge-Offs		Recoveries		Provision (Benefit)		Other (2)		Balance at Sep 30, 2021
Commercial:
Commercial and industrial	$	2,156	$	(181)	$	60	$	(494)	$	—	$	1,541
CRE	573		(5)		6		(204)		—		370
Commercial construction	81		(2)		3		(23)		—		59
Lease financing	48		(8)		24		(33)		—		31
Consumer:
Residential mortgage	368		(22)		10		(45)		—		311
Residential home equity and direct	714		(163)		58		36		—		645
Indirect auto	1,198		(247)		71		49		—		1,071
Indirect other	208		(41)		18		9		—		194
Student	130		(12)		1		3		4		126
Credit card	359		(113)		28		80		—		354

ALLL	5,835		(794)		279		(622)		4		4,702
RUFC	364		—		—		(88)		—		276
ACL	$	6,199	$	(794)	$	279	$	(710)	$	4	$	4,978

(1)Balance is prior to the adoption of CECL.

(2)Includes the adoption of CECL, the ALLL for PCD acquisitions, and other activity.

The commercial ALLL decreased $312 million and $857 million for the three and nine months ended September 30, 2021, respectively. The decreases for both the three and nine month periods are due to an improving economic outlook and lower loan balances.

The consumer ALLL decreased $94 million and $271 million for the three and nine months ended September 30, 2021, respectively. The decrease for the three-month period reflects an improving economic outlook slightly offset by loan growth primarily in the residential mortgage portfolio. The decrease for the nine-month period reflects an improving economic outlook and lower loan balances primarily in the residential mortgage and home equity and direct portfolios.

The RUFC decreased $39 million and $88 million for the three and nine months ended September 30, 2021, respectively. The decreases reflect an improving economic outlook.

The quantitative models have been designed to estimate losses using macro-economic forecasts over a reasonable and supportable forecast period of two years, followed by a reversion to long-term historical loss conditions over a one-year period. These macro-economic forecasts include a number of key economic variables utilized in loss forecasting that include, but are not limited to, unemployment trends, US real GDP, corporate credit spreads, rental rates, property values, the primary 30-year mortgage rate, home price indices, and used car prices.

The primary economic forecast incorporates a third-party baseline forecast that is adjusted to reflect Truist’s interest rate outlook. Management also considers optimistic and pessimistic third-party macro-economic forecasts in order to capture uncertainty in the economic environment. These forecasts, along with the primary economic forecast, are weighted 40% baseline, 30% optimistic and 30% pessimistic in the September 30, 2021 ACL. The primary economic forecast shaping the ACL estimate at September 30, 2021 included GDP growth in the high single digits through 2021, then slowing to the low single digits in 2022, and an improving unemployment rate to the mid single digits through the end of 2021 followed by continued improvement through the remainder of the reasonable and supportable period.

Quantitative models have certain limitations with respect to estimating expected losses, particularly in times of rapidly changing macro-economic conditions and forecasts. As a result, management believes that the qualitative component of the ACL, which incorporates management’s expert judgment related to expected future credit losses, will continue to be an important component of the ACL for the foreseeable future. The September 30, 2021 ACL estimate includes adjustments to address risks not captured by the loss forecasting models including imprecision in future economic forecasts, uncertainty around the return of consumer and business confidence once stimulus ceases, and the impact of government relief programs and client accommodations on expected losses.

16 Truist Financial Corporation

PCD Loan Activity

For PCD loans, the initial estimate of expected credit losses is recognized in the ALLL on the date of acquisition using the same methodology as other loans held for investment. The following table provides a summary of purchased student loans with credit deterioration at acquisition:


Nine Months Ended September 30, 2021 (Dollars in millions)
Par value	$	286
ALLL at acquisition	(4)
Non-credit premium (discount)	1
Purchase price	$	283

NPAs

The following table provides a summary of nonperforming loans, excluding LHFS. Interest income recognized on nonperforming loans HFI was immaterial for the nine months ended September 30, 2021 and 2020, respectively.



	September 30, 2021				December 31, 2020
	Recorded Investment				Recorded Investment
(Dollars in millions)	Without an ALLL		With an ALLL		Without an ALLL		With an ALLL
Commercial:
Commercial and industrial	$	129	$	282	$	82	$	450
CRE	1		19		63		12
Commercial construction	4		3		—		14
Lease financing	—		12		—		28
Consumer:
Residential mortgage	4		302		4		312
Residential home equity and direct	3		143		2		203
Indirect auto	7		165		1		154
Indirect other	—		6		—		5


Total	$	148	$	932	$	152	$	1,178

The following table presents a summary of nonperforming assets and residential mortgage loans in the process of foreclosure.


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Nonperforming loans and leases HFI	$	1,080	$	1,330
Nonperforming LHFS	76		5
Foreclosed real estate	9		20
Other foreclosed property	39		32
Total nonperforming assets	$	1,204	$	1,387

Residential mortgage loans in the process of foreclosure	$	157	$	140

Truist Financial Corporation 17

TDRs

The following table presents a summary of TDRs:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Performing TDRs:
Commercial:
Commercial and industrial	$	144	$	78
CRE	8		47

Lease financing	56		60
Consumer:
Residential mortgage	712		648
Residential home equity and direct	105		88
Indirect auto	390		392
Indirect other	7		6
Student	23		5
Credit card	30		37
Total performing TDRs	1,475		1,361
Nonperforming TDRs	159		164
Total TDRs	$	1,634	$	1,525
ALLL attributable to TDRs	$	108	$	132

The primary type of modification for newly designated TDRs is summarized in the tables below. New TDR balances represent the recorded investment at the end of the quarter in which the modification was made. The prior quarter balance represents recorded investment at the beginning of the quarter in which the modification was made. Rate modifications consist of TDRs made with below market interest rates, including those that also have modifications of loan structures.



	As of / For the Three Months Ended September 30, 2021								As of / For the Nine Months Ended September 30, 2021
(Dollars in millions)	Type of Modification				Prior Quarter Loan Balance		ALLL at Period End		Type of Modification				Prior Quarter Loan Balance		ALLL at Period End
	Rate		Structure						Rate		Structure
Newly designated TDRs:
Commercial:
Commercial and industrial	$	8	$	17	$	27	$	3	$	35	$	116	$	168	$	15
CRE	—		—		—		—		—		10		12		1

Lease financing	—		3		3		1		—		3		3		1
Consumer:
Residential mortgage	33		24		57		3		122		163		285		12
Residential home equity and direct	2		8		10		—		6		41		48		2
Indirect auto	39		8		48		4		82		53		142		16
Indirect other	—		1		1		—		2		2		3		—
Student	—		10		10		—		—		18		18		—
Credit card	3		—		3		1		9		—		10		4
Re-modification of previously designated TDRs	23		9						51		37


	As of / For the Three Months Ended September 30, 2020								As of / For the Nine Months Ended September 30, 2020
	Type of Modification				Prior Quarter Loan Balance		ALLL at Period End		Type of Modification				Prior Quarter Loan Balance		ALLL at Period End
(Dollars in millions)	Rate		Structure						Rate		Structure
Newly designated TDRs:
Commercial:
Commercial and industrial	$	13	$	49	$	70	$	9	$	46	$	53	$	118	$	12
CRE	4		10		15		2		28		11		32		4

Lease financing	—		—		—		—		1		—		1		—
Consumer:
Residential mortgage	157		17		174		8		297		58		359		17
Residential home equity and direct	3		3		6		—		31		13		45		1
Indirect auto	20		4		25		5		98		26		129		17
Indirect other	1		1		1		—		3		1		3		—
Student	—		1		1		—		—		5		5		—
Credit card	6		—		6		2		24		—		23		8
Re-modification of previously designated TDRs	10		5						36		11

Charge-offs and forgiveness of principal and interest for TDRs were immaterial for all periods presented.

18 Truist Financial Corporation

The amount of modified loans that were classified as TDRs during the previous 12 months and experienced a payment default for the three and nine months ended September 30, 2021 and 2020 was immaterial. Payment default is defined as movement of the TDR to nonperforming status, foreclosure, or charge-off, whichever occurs first.

Unearned Income, Discounts and Net Deferred Loan Fees and Costs

The following table presents additional information about loans and leases:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Unearned income, discounts and net deferred loan fees and costs	$	1,142	$	2,219

NOTE 6. Goodwill and Other Intangible Assets

The Company performed a qualitative assessment of current events and circumstances, including macroeconomic and market factors, industry and banking sector events, Truist specific performance indicators, and a comparison of management’s forecast and assumptions to those used in its October 1, 2020 quantitative impairment test, concluding that it was not more-likely-than-not that the fair value of one or more of its reporting units is below its respective carrying amount as of September 30, 2021, and therefore no triggering event occurred that required a quantitative goodwill impairment test. See “Note 1. Basis of Presentation” and “Note 7. Goodwill and Other Intangible Assets” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

The changes in the carrying amount of goodwill attributable to operating segments are reflected in the table below. The adjustments for 2021 to CB&W reflect the divestiture of certain businesses. Refer to “Note 18. Operating Segments” for additional information on segments.



(Dollars in millions)	CB&W		C&CB		IH		Total



Goodwill, January 1, 2020	$	14,040	$	8,125	$	1,989	$	24,154
Mergers and acquisitions	—		—		450		450
Adjustments and other	1,801		(1,958)		—		(157)
Goodwill, December 31, 2020	15,841		6,167		2,439		24,447
Mergers and acquisitions	—		—		556		556
Adjustments and other	(139)		(18)		45		(112)
Goodwill, September 30, 2021	$	15,702	$	6,149	$	3,040	$	24,891

The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:


		September 30, 2021									December 31, 2020

(Dollars in millions)	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
CDI		$	2,563		$	(1,097)		$	1,466		$	2,600		$	(852)		$	1,748
Other, primarily client relationship intangibles		2,499			(1,035)			1,464			2,217			(981)			1,236
Total		$	5,062		$	(2,132)		$	2,930		$	4,817		$	(1,833)		$	2,984

Truist Financial Corporation 19

NOTE 7. Loan Servicing

The Company acquires servicing rights, and retains servicing rights related to certain of its sales or securitizations of residential mortgages and commercial mortgage loans. Servicing rights on residential and commercial mortgages are capitalized by the Company as MSRs on the Consolidated Balance Sheets. Income earned by the Company on its residential MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Income earned by the Company on its commercial mortgage servicing rights is derived primarily from contractually specified servicing fees and other ancillary fees.

Residential Mortgage Activities

The following tables summarize residential mortgage servicing activities:





(Dollars in millions)	Sep 30, 2021			Dec 31, 2020
UPB of residential mortgage loan servicing portfolio	$	248,546		$	239,034
UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate	198,119			188,341
Mortgage loans sold with recourse	269			328
Maximum recourse exposure from mortgage loans sold with recourse liability	171			201
Indemnification, recourse and repurchase reserves	89			93

As of / For the Nine Months Ended September 30, (Dollars in millions)	2021			2020
UPB of residential mortgage loans sold from LHFS	$	30,148		$	36,069
Pre-tax gains recognized on mortgage loans sold and held for sale	347			828
Servicing fees recognized from mortgage loans serviced for others	437			480
Approximate weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others	0.31		%	0.32		%
Weighted average interest rate on mortgage loans serviced for others	3.49			3.92

The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:



Nine Months Ended September 30, (Dollars in millions)	2021		2020
Residential MSRs, carrying value, January 1	$	1,778	$	2,371
Acquired	355		—
Additions	476		490
Change in fair value due to changes in valuation inputs or assumptions:
Prepayment speeds	12		(612)
OAS	238		53

Realization of expected net servicing cash flows, passage of time and other	(550)		(539)
Residential MSRs, carrying value, September 30	$	2,309	$	1,763

The sensitivity of the fair value of the Company’s residential MSRs to changes in key assumptions is presented in the following table:


	September 30, 2021							December 31, 2020
	Range				Weighted Average			Range				Weighted Average
(Dollars in millions)	Min		Max					Min		Max



Prepayment speed	11.3	%	15.3	%	14.2		%	12.8	%	30.8	%	15.4		%
Effect on fair value of a 10% increase					$	(119)						$	(89)
Effect on fair value of a 20% increase					(228)							(171)
OAS	1.8	%	10.1	%	4.0		%	3.5	%	13.7	%	7.3		%
Effect on fair value of a 10% increase					$	(36)						$	(45)
Effect on fair value of a 20% increase					(71)							(88)
Composition of loans serviced for others:
Fixed-rate residential mortgage loans					99.2		%					98.8		%
Adjustable-rate residential mortgage loans					0.8							1.2
Total					100.0		%					100.0		%
Weighted average life					5.1 years							4.8 years

20 Truist Financial Corporation

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in one assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change. See “Note 15. Fair Value Disclosures” for additional information on the valuation techniques used.

Commercial Mortgage Activities

The following table summarizes commercial mortgage servicing activities for the periods presented:



(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

UPB of CRE mortgages serviced for others	$	37,437	$	36,670
CRE mortgages serviced for others covered by recourse provisions	10,146		9,019
Maximum recourse exposure from CRE mortgages sold with recourse liability	2,922		2,624
Recorded reserves related to recourse exposure	18		18
CRE mortgages originated during the year-to-date period	6,490		6,739
Commercial MSRs at fair value	275		245

NOTE 8. Other Assets and Liabilities

Lessee Operating and Finance Leases

The Company leases certain assets, consisting primarily of real estate, and assesses at contract inception whether a contract is, or contains, a lease. The following tables present additional information on leases, excluding leases related to the lease financing businesses:





	September 30, 2021						December 31, 2020
(Dollars in millions)	Operating Leases			Finance Leases			Operating Leases			Finance Leases
ROU assets	$	1,207		$	25		$	1,333		$	36
Lease liabilities	1,694			31			1,896			42
Weighted average remaining term	6.7 years			6.4 years			6.9 years			6.3 years
Weighted average discount rate	2.4		%	3.6		%	2.4		%	4.8		%


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2021		2020		2021		2020

Operating lease costs	$	71	$	87	$	241	$	280

Lessor Operating Leases

The Company’s two primary lessor businesses are equipment financing and structured real estate with income recorded in Operating lease income on the Consolidated Statements of Income.

The following table presents a summary of assets under operating leases and activity related to assets under operating leases. This table excludes subleases on assets included in premises and equipment.


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Assets held under operating leases (1)	$	1,932	$	2,144


Accumulated depreciation	(405)		(517)
Net	$	1,527	$	1,627

(1) Includes certain land parcels subject to operating leases that have indefinite lives.

The carrying value of assets previously under operating leases was immaterial.

Bank-Owned Life Insurance

Bank-owned life insurance consists of life insurance policies held on certain teammates for which the Company is the beneficiary. These policies provide the Company an efficient form of funding for retirement and other employee benefits costs. The carrying value of bank-owned life insurance was $6.5 billion at September 30, 2021 and December 31, 2020.

Truist Financial Corporation 21

NOTE 9. Borrowings

The following table presents a summary of short-term borrowings:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020


Federal funds purchased	$	8		$	79
Securities sold under agreements to repurchase	2,600			1,221
FHLB advances	—			2,649
Collateral in excess of derivative exposures	310			385
Master notes	573			621
Other short-term borrowings	1,735			1,137
Total short-term borrowings	$	5,226		$	6,092

The following table presents a summary of long-term debt:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020





Truist Financial Corporation:
Fixed rate senior notes	$	14,365	$	15,984
Floating rate senior notes	1,348		900
Fixed rate subordinated notes	1,266		1,283
Capital notes	619		615
Structured notes (1)	84		108
Truist Bank:
Fixed rate senior notes	10,604		11,907
Floating rate senior notes	2,400		1,567
Fixed rate subordinated notes	5,099		5,142

FHLB advances	867		878

Other long-term debt (2)	1,185		1,014
Nonbank subsidiaries:
Other long-term debt (3)	—		199
Total long-term debt	$	37,837	$	39,597

(1)Consist of notes with various terms that include fixed or floating rate interest or returns that are linked to an equity index.

(2)Includes debt associated with finance leases, tax credit investments, and other.

(3)Includes debt associated with structured real estate leases.

The Company does not consolidate certain wholly-owned trusts which were formed for the sole purpose of issuing trust preferred securities. The proceeds from the trust preferred securities issuances were invested in capital notes of the Parent Company. The Parent Company’s obligations constitute a full and unconditional guarantee of the trust preferred securities.

22 Truist Financial Corporation

NOTE 10. Shareholders’ Equity

Common Stock

The following table presents the dividends declared per share of common stock:





	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020


Cash dividends declared per share	$	0.48	$	0.45	$	1.38	$	1.35

Share Repurchase Activity

As of September 30, 2021, the Board of Directors had authorized the repurchase of up to $4.2 billion of the Company’s common stock through September 30, 2022. For the nine months ended September 30, 2021, the Company repurchased $1.1 billion of common stock, which represented 19.8 million shares. Repurchased shares revert to the status of authorized and unissued shares. At September 30, 2021, Truist had remaining authorization to repurchase $3.1 billion of common stock under the Board approved repurchase plan. The amount of share repurchases is dependent on capital deployment through organic growth and acquisitions, giving consideration to economic and regulatory conditions.

Preferred Stock

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

During the second quarter of 2021, the Company redeemed all 18,600 outstanding shares of its perpetual preferred stock series H and the corresponding depositary shares representing fractional interests in such series for $465 million.

Truist Financial Corporation 23

NOTE 11. AOCI

AOCI includes the after-tax change in unrecognized net costs related to defined benefit pension and OPEB plans as well as unrealized gains and losses on cash flow hedges and AFS securities.





Three Months Ended September 30, 2021 and 2020 (Dollars in millions)	Pension and OPEB Costs		Cash Flow Hedges		AFS Securities		Other, net		Total
AOCI balance, July 1, 2020	$	(1,093)	$	(79)	$	2,022	$	(3)	$	847
OCI before reclassifications, net of tax	(25)		—		(380)		1		(404)
Amounts reclassified from AOCI:
Before tax	18		10		7		—		35
Tax effect	4		2		2		—		8
Amounts reclassified, net of tax	14		8		5		—		27
Total OCI, net of tax	(11)		8		(375)		1		(377)
AOCI balance, September 30, 2020	$	(1,104)	$	(71)	$	1,647	$	(2)	$	470
AOCI balance, July 1, 2021	$	(842)	$	(18)	$	(191)	$	3	$	(1,048)
OCI before reclassifications, net of tax	(59)		—		(496)		(2)		(557)
Amounts reclassified from AOCI:
Before tax	6		7		75		—		88
Tax effect	2		2		17		—		21
Amounts reclassified, net of tax	4		5		58		—		67
Total OCI, net of tax	(55)		5		(438)		(2)		(490)
AOCI balance, September 30, 2021	$	(897)	$	(13)	$	(629)	$	1	$	(1,538)

Nine Months Ended September 30, 2021 and 2020 (Dollars in millions)	Pension and OPEB Costs		Cash Flow Hedges		AFS Securities		Other, net		Total








AOCI balance, January 1, 2020	$	(1,122)	$	(101)	$	380	$	(1)	$	(844)
OCI before reclassifications, net of tax	(26)		—		1,411		(1)		1,384
Amounts reclassified from AOCI:
Before tax	58		39		(189)		—		(92)
Tax effect	14		9		(45)		—		(22)
Amounts reclassified, net of tax	44		30		(144)		—		(70)
Total OCI, net of tax	18		30		1,267		(1)		1,314
AOCI balance, September 30, 2020	(1,104)		(71)		1,647		(2)		470
AOCI balance, January 1, 2021	$	(875)	$	(64)	$	1,654	$	1	$	716
OCI before reclassifications, net of tax	(40)		—		(2,510)		—		(2,550)
Amounts reclassified from AOCI:
Before tax	24		67		296		—		387
Tax effect	6		16		69		—		91
Amounts reclassified, net of tax	18		51		227		—		296
Total OCI, net of tax	(22)		51		(2,283)		—		(2,254)
AOCI balance, September 30, 2021	$	(897)	$	(13)	$	(629)	$	1	$	(1,538)
Primary income statement location of amounts reclassified from AOCI	Other expense		Net interest income and Other expense		Securities gains (losses) and Net interest income		Net interest income

24 Truist Financial Corporation

NOTE 12. Income Taxes

For the three months ended September 30, 2021 and 2020, the provision for income taxes was $423 million and $255 million, respectively, representing effective tax rates of 19.9% and 18.3%, respectively. For the nine months ended September 30, 2021 and 2020, the provision for income taxes was $1.2 billion and $670 million, respectively, representing effective tax rates of 19.7% and 17.5%, respectively. The higher effective tax rate for the three and nine months ended September 30, 2021 was primarily due to higher pre-tax income without a corresponding increase in beneficial tax items. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete items that occurred during the period.

NOTE 13. Benefit Plans

The components of net periodic (benefit) cost for defined benefit pension plans are summarized in the following table:





		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	Income Statement Location	2021		2020		2021		2020
Service cost	Personnel expense	$	148	$	141	$	463	$	377
Interest cost	Other expense	80		78		239		234
Estimated return on plan assets	Other expense	(250)		(217)		(748)		(650)
Amortization and other	Other expense	9		20		26		58
Net periodic (benefit) cost		$	(13)	$	22	$	(20)	$	19

Truist makes contributions to the qualified pension plans in amounts between the minimum required for funding and the maximum deductible for federal income tax purposes. Discretionary contributions totaling $403 million were made to the Truist pension plan during the nine months ended September 30, 2021. There are no required contributions for the remainder of 2021.

NOTE 14. Commitments and Contingencies

Truist utilizes a variety of financial instruments to meet the financing needs of clients and to mitigate exposure to risks. These financial instruments include commitments to extend credit, letters of credit and financial guarantees and derivatives. Truist also has commitments to fund certain affordable housing investments and contingent liabilities related to certain sold loans.

Tax Credit and Certain Equity Investments

The Company invests in certain affordable housing projects throughout its market area as a means of supporting local communities. Truist receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. The following table summarizes certain tax credit and certain equity investments:


(Dollars in millions)	Balance Sheet Location	Sep 30, 2021		Dec 31, 2020

Investments in affordable housing projects:
Carrying amount	Other assets	$	3,911	$	3,823
Amount of future funding commitments included in carrying amount	Other liabilities	1,157		1,057
Lending exposure	NA	580		546

Renewable energy investments:
Carrying amount	Other assets	215		167
Amount of future funding commitments not included in carrying amount	NA	189		76
Private equity and certain other equity method investments:
Carrying amount	Other assets	1,758		1,574
Amount of future funding commitments not included in carrying amount	NA	474		471

Truist Financial Corporation 25

The following table presents a summary of tax credits and amortization associated with the Company’s tax credit investment activity:


		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	Income Statement Location	2021		2020		2021		2020

Tax credits:
Investments in affordable housing projects	Provision for income taxes	$	121	$	116	$	360	$	347
Other community development investments	Provision for income taxes	24		23		70		68
Renewable energy investments	NA (1)	36		32		96		134
Amortization and other changes in carrying amount:
Investments in affordable housing projects	Provision for income taxes	$	117	$	119	$	353	$	346
Other community development investments	Other noninterest income	21		19		59		57
Renewable energy investments	Other noninterest income	1		1		3		3

(1)Tax credits received for these investments are recorded as a reduction to the carrying value of these investments.

Letters of Credit and Financial Guarantees

In the normal course of business, Truist utilizes certain financial instruments to meet the financing needs of clients and to mitigate exposure to risks. Such financial instruments include commitments to extend credit and certain contractual agreements, including standby letters of credit and financial guarantee arrangements.

The following is a summary of selected notional amounts of off-balance sheet financial instruments:


(Dollars in millions)	September 30, 2021		December 31, 2020



Commitments to extend, originate, or purchase credit	$	202,167	$	186,731
Residential mortgage loans sold with recourse	269		328
CRE mortgages serviced for others covered by recourse provisions	10,146		9,019
Letters of credit	5,074		5,066

Total Return Swaps

The Company facilitates matched book TRS transactions on behalf of clients, whereby a VIE purchases reference assets identified by a client and the Company enters into a TRS with the VIE, with a mirror-image TRS facing the client. The Company provides senior financing to the VIE in the form of demand notes to fund the purchase of the reference assets. Reference assets are typically fixed income instruments primarily composed of syndicated bank loans. The TRS contracts pass through interest and other cash flows on the reference assets to the third party clients, along with exposing those clients to decreases in value on the assets and providing them with the rights to appreciation on the assets. The terms of the TRS contracts require the third parties to post initial margin collateral, as well as ongoing margin as the fair values of the underlying reference assets change.

The Company concluded that the associated VIEs should be consolidated because the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses and the right to receive benefits, that could potentially be significant. At September 30, 2021, the Company’s Consolidated Balance Sheet reflected $1.6 billion of assets and $133 million of other liabilities of the VIEs. At December 31, 2020, the Company’s Consolidated Balance Sheet reflected $1.3 billion of assets and $41 million of other liabilities of the VIEs. VIE assets include trading loans and bonds totaling $1.5 billion and $1.3 billion at September 30, 2021 and December 31, 2020, respectively. The activities of the VIEs are restricted to buying and selling the reference assets and the risks/benefits of any such assets owned by the VIEs are passed to the third party clients via the TRS contracts. For additional information on TRS contracts and the related VIEs, see “Note 16. Derivative Financial Instruments.”

26 Truist Financial Corporation

Pledged Assets

Certain assets were pledged to secure municipal deposits, securities sold under agreements to repurchase, certain derivative agreements, and borrowings or borrowing capacity, as well as for other purposes as required or permitted by law. Assets pledged to the FHLB and FRB are subject to applicable asset discounts when determining borrowing capacity. The Company obtains secured financing and letters of credit from the FRB and FHLB. The Company’s letters of credit from the FHLB can be used to secure various client deposits, including public fund relationships. Excluding assets related to employee benefit plans, the majority of the agreements governing the pledged assets do not permit the other party to sell or repledge the collateral. The following table provides the total carrying amount of pledged assets by asset type:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Pledged securities	$	25,914	$	24,974

Pledged loans:
FRB	72,030		75,615
FHLB	66,040		69,994
Unused borrowing capacity:
FRB	51,457		52,831
FHLB	52,459		52,274

Litigation and Regulatory Matters

Truist and/or its subsidiaries are routinely parties to numerous legal proceedings, including private, civil litigation, and regulatory investigations, arising from the ordinary conduct of its regular business activities. The matters range from individual actions involving a single plaintiff to class action lawsuits with multiple class members and can involve claims for substantial amounts. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration, or investigation and may consist of a variety of claims, including common law tort and contract claims, as well as statutory antitrust, securities, and consumer protection claims. The ultimate resolution of any proceeding is uncertain and inherently difficult to predict. It is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations, or consolidated cash flows of Truist.

Truist establishes accruals for legal matters when potential losses associated with the actions become probable and the amount of loss can be reasonably estimated. There is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts that Truist has accrued. Accruals for legal matters are based on management’s best judgment after consultation with counsel and others.

The Company estimates reasonably possible losses, in excess of amounts accrued, of up to approximately $200 million as of September 30, 2021. This estimate is based upon currently available information and involves considerable judgment, given that claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or unsubstantiated, among other factors. In addition, the matters underlying this estimate will change from time to time and actual losses may vary significantly from this estimate. As a result, the Company does not believe that an estimate of reasonably possible losses can be made for certain matters. Such matters are not reflected in the estimate provided herein.

The following is a description of a certain legal proceeding in which Truist is involved:

Bickerstaff v. SunTrust Bank

This class action case was filed in the Fulton County State Court on July 12, 2010, and an amended complaint was filed on August 9, 2010. Plaintiff asserts that all overdraft fees charged to his account which related to debit card and ATM transactions are actually interest charges and therefore subject to the usury laws of Georgia. Plaintiff has brought claims for violations of civil and criminal usury laws, conversion, and money had and received. On October 6, 2017, the trial court granted plaintiff’s motion for class certification and defined the class as “Every Georgia citizen who had or has one or more accounts with SunTrust Bank and who, from July 12, 2006, to October 6, 2017 (i) had at least one overdraft of $500.00 or less resulting from an ATM or debit card transaction (the “Transaction”); (ii) paid any Overdraft Fees as a result of the Transaction; and (iii) did not receive a refund of those Fees,” and the granting of a certified class was affirmed on appeal. On April 8, 2020, the Company filed a motion seeking to narrow the scope of this class, and on May 29, 2020, it filed a renewed motion to compel arbitration of the claims of some of the class members. On February 9, 2021, the trial court denied both motions as premature but held that the issues could be raised again after the conclusion of discovery, which is currently underway. The Company believes that the claims are without merit.

Truist Financial Corporation 27

NOTE 15. Fair Value Disclosures

Recurring Fair Value Measurements

Accounting standards define fair value as the price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level measurement hierarchy:

•Level 1: Quoted prices for identical instruments in active markets

•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets

•Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable

The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:


September 30, 2021 (Dollars in millions)	Total		Level 1		Level 2		Level 3		Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury	$	2,414	$	—	$	2,414	$	—	$	—
GSE	184		—		184		—		—
Agency MBS - residential	973		—		973		—		—
Agency MBS - commercial	5		—		5		—		—
States and political subdivisions	67		—		67		—		—

Corporate and other debt securities	1,031		—		1,031		—		—
Loans	1,943		—		1,943		—		—
Other	355		294		61		—		—
Total trading assets	6,972		294		6,678		—		—
AFS securities:
U.S. Treasury	9,697		—		9,697		—		—
GSE	1,874		—		1,874		—		—
Agency MBS - residential	133,061		—		133,061		—		—
Agency MBS - commercial	3,073		—		3,073		—		—
States and political subdivisions	458		—		458		—		—
Non-agency MBS	2,846		—		2,846		—		—
Other	29		—		29		—		—
Total AFS securities	151,038		—		151,038		—		—
LHFS at fair value	4,799		—		4,799		—		—
MSRs at fair value	2,584		—		—		2,584		—
Other assets:
Derivative assets	2,976		676		3,893		38		(1,631)
Equity securities	1,026		940		86		—		—

Total assets	$	169,395	$	1,910	$	166,494	$	2,622	$	(1,631)
Liabilities:
Derivative liabilities	$	601	$	304	$	3,132	$	28	$	(2,863)
Securities sold short	1,735		12		1,723		—		—
Total liabilities	$	2,336	$	316	$	4,855	$	28	$	(2,863)

28 Truist Financial Corporation


December 31, 2020 (Dollars in millions)	Total		Level 1		Level 2		Level 3		Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury	$	793	$	—	$	793	$	—	$	—
GSE	164		—		164		—		—
Agency MBS - residential	599		—		599		—		—
Agency MBS - commercial	21		—		21		—		—
States and political subdivisions	34		—		34		—		—

Corporate and other debt securities	545		—		545		—		—
Loans	1,586		—		1,586		—		—
Other	130		123		7		—		—
Total trading assets	3,872		123		3,749		—		—
AFS securities:
U.S. Treasury	1,746		—		1,746		—		—
GSE	1,917		—		1,917		—		—
Agency MBS - residential	113,541		—		113,541		—		—
Agency MBS - commercial	3,057		—		3,057		—		—
States and political subdivisions	493		—		493		—		—

Other	34		—		34		—		—
Total AFS securities	120,788		—		120,788		—		—
LHFS at fair value	4,955		—		4,955		—		—
MSRs at fair value	2,023		—		—		2,023		—
Other assets:
Derivative assets	3,837		752		4,903		186		(2,004)
Equity securities	1,054		996		58		—		—

Total assets	$	136,529	$	1,871	$	134,453	$	2,209	$	(2,004)
Liabilities:
Derivative liabilities	$	555	$	386	$	3,263	$	14	$	(3,108)
Securities sold short	1,115		3		1,112		—		—
Total liabilities	$	1,670	$	389	$	4,375	$	14	$	(3,108)

(1)Refer to “Note 16. Derivative Financial Instruments” for additional discussion on netting adjustments.

At September 30, 2021 and December 31, 2020, investments totaling $490 million and $387 million, respectively, have been excluded from the table above as they are valued based on net asset value as a practical expedient. These investments primarily consist of certain SBIC funds.

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see “Note 18. Fair Value Disclosures” of the Annual Report on Form 10-K for the year ended December 31, 2020.

Truist Financial Corporation 29

Activity for Level 3 assets and liabilities is summarized below:




Three Months Ended September 30, 2021 and 2020 (Dollars in millions)	Non-agency MBS		MSRs		Net Derivatives		Private Equity Investments
Balance at July 1, 2020	$	—	$	2,077	$	203	$	—
Total realized and unrealized gains (losses):
Included in earnings	—		(54)		128		—


Issuances	—		192		229		—

Settlements	—		(224)		(346)		—


Balance at September 30, 2020	$	—	$	1,991	$	214	$	—
Balance at July 1, 2021	$	—	$	2,231	$	38	$	—
Total realized and unrealized gains (losses):
Included in earnings	—		78		6		—

Purchases	—		303		—		—
Issuances	—		145		77		—
Sales	—		(1)		—		—
Settlements	—		(172)		(111)		—


Balance at September 30, 2021	$	—	$	2,584	$	10	$	—
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2021	$	—	$	78	$	21	$	—

Nine Months Ended September 30, 2021 and 2020 (Dollars in millions)	Non-agency MBS		MSRs		Net Derivatives		Private Equity Investments












Balance at January 1, 2020	$	368	$	2,618	$	19	$	440
Total realized and unrealized gains (losses):
Included in earnings	306		(616)		365		2
Included in unrealized net holding gains (losses) in OCI	(178)		—		—		—
Purchases	—		—		—		27
Issuances	—		523		655		—
Sales	(481)		—		—		—
Settlements	(15)		(534)		(825)		(21)

Transfers out of level 3 and other	—		—		—		(448)

Balance at September 30, 2020	$	—	$	1,991	$	214	$	—
Balance at January 1, 2021	$	—	$	2,023	$	172	$	—
Total realized and unrealized gains (losses):
Included in earnings	—		260		(77)		—

Purchases	—		355		—		—
Issuances	—		532		254		—
Sales	—		(1)		—		—
Settlements	—		(585)		(339)		—



Balance at September 30, 2021	$	—	$	2,584	$	10	$	—
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2021	$	—	$	260	$	16	$	—
Primary income statement location of realized gains (losses) included in earnings	Securities gains (losses)		Residential mortgage income and Commercial real estate related income		Residential mortgage income and Commercial real estate related income		Other income

During 2020, Truist sold non-agency MBS previously categorized as Level 3 that represented ownership interests in various tranches of Re-REMIC trusts. Additionally during 2020, as a result of a change in control of the funds’ manager, the Company deconsolidated certain SBIC funds for which it had previously concluded that it was the primary beneficiary.

Refer to “Note 7. Loan Servicing” for additional information on valuation techniques and inputs for MSRs.

30 Truist Financial Corporation

Fair Value Option

The following table details the fair value and UPB of LHFS that were elected to be measured at fair value. Trading loans, included in other trading assets, were also elected to be measured at fair value.


	September 30, 2021						December 31, 2020
(Dollars in millions)	Fair Value		UPB		Difference		Fair Value		UPB		Difference


Trading loans	$	1,943	$	1,912	$	31	$	1,586	$	1,619	$	(33)
LHFS at fair value	4,799		4,700		99		4,955		4,736		219

Nonrecurring Fair Value Measurements

The following table provides information about certain assets measured at fair value on a nonrecurring basis still held as of period end. The carrying values represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates throughout the period. These assets are considered to be Level 3 assets.


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020
Carrying value:
LHFS	$	255	$	979
Loans and leases	122		142
Other	102		92

The following table provides information about valuation adjustments for certain assets measured at fair value on a nonrecurring basis. The valuation adjustments represent the amounts recorded during the period regardless of whether the asset is still held at period end.


Nine Months Ended September 30, (Dollars in millions)	2021		2020
Valuation adjustments:
LHFS	$	(27)	$	(52)
Loans and leases	(41)		(38)
Other	(156)		(137)

LHFS with valuation adjustments in the table above consisted primarily of residential mortgages and commercial loans that were valued using market prices and measured at the lower of cost or market. LHFS as of December 31, 2020 includes the small ticket loan and lease portfolio that was sold during the first quarter of 2021. The table above excludes $79 million and $125 million of LHFS carried at cost at September 30, 2021 and December 31, 2020, respectively, that did not require a valuation adjustment during the period. The remainder of LHFS is carried at fair value. The Company held $76 million in nonperforming LHFS at September 30, 2021 and $5 million of nonperforming LHFS at December 31, 2020. LHFS that were 90 days or more past due and still accruing interest were not material at September 30, 2021.

Loans and leases consists of larger commercial loans and leases that do not share similar risk characteristics. These loans and leases are collateral dependent and may be subject to liquidity adjustments. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional discussion of individually evaluated loans and leases.

Other includes foreclosed real estate, other foreclosed property, ROU assets, premises and equipment, and OREO, and consists primarily of residential homes, commercial properties, vacant lots, and automobiles. ROU assets are measured based on the fair value of the assets, which considers the potential for sublease income. The remaining assets are measured at the lower of cost or fair value, less costs to sell.

Truist Financial Corporation 31

Financial Instruments Not Recorded at Fair Value

For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instruments. Values obtained relate to trading without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.

An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets. In addition, changes in assumptions could significantly affect these fair value estimates. Financial assets and liabilities not recorded at fair value are summarized below:


		September 30, 2021				December 31, 2020
(Dollars in millions)	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value


Financial assets:

Loans and leases HFI, net of ALLL	Level 3	$	280,820	$	281,198	$	293,899	$	295,461
Financial liabilities:
Time deposits	Level 2	16,675		16,810		21,941		22,095
Long-term debt	Level 2	37,837		38,491		39,597		40,864

The carrying value of the RUFC, which approximates the fair value of unfunded commitments, was $276 million and $364 million at September 30, 2021 and December 31, 2020, respectively.

32 Truist Financial Corporation

NOTE 16. Derivative Financial Instruments

Impact of Derivatives on the Consolidated Balance Sheets

The following table presents the gross notional amounts and estimated fair value of derivative instruments employed by the Company. Truist held 0 cash flow hedges as of September 30, 2021 and December 31, 2020.


	September 30, 2021						December 31, 2020
	Notional Amount		Fair Value				Notional Amount		Fair Value
(Dollars in millions)			Assets		Liabilities				Assets		Liabilities






Fair value hedges:
Interest rate contracts:



Swaps hedging AFS securities	$	24,006	$	—	$	(4)	$	17,765	$	—	$	—



Not designated as hedges:
Client-related and other risk management:
Interest rate contracts:
Swaps	149,428		2,103		(731)		156,338		3,399		(862)

Options	24,939		36		(21)		25,386		45		(18)
Forward commitments	8,426		7		(9)		4,847		9		(11)
Other	2,582		—		—		2,573		—		—
Equity contracts	30,431		1,484		(1,779)		31,152		1,856		(2,297)
Credit contracts:
Loans and leases	815		—		(2)		1,056		—		(5)
Risk participation agreements	8,413		1		(4)		7,802		1		(13)
Total return swaps	1,424		1		(27)		1,296		13		(33)

Foreign exchange contracts	16,224		175		(145)		12,066		189		(219)
Commodity	4,536		697		(689)		2,872		130		(124)

Total	247,218		4,504		(3,407)		245,388		5,642		(3,582)
Mortgage banking:
Interest rate contracts:
Swaps	634		—		—		687		—		—
Interest rate lock commitments	4,928		38		(16)		8,609		186		(3)
When issued securities, forward rate agreements and forward commitments	9,082		63		(2)		11,691		6		(73)
Other	308		1		—		466		—		—
Total	14,952		102		(18)		21,453		192		(76)
MSRs:
Interest rate contracts:
Swaps	38,329		—		(3)		36,161		—		(5)

Options	101		1		—		101		—		—
When issued securities, forward rate agreements and forward commitments	3,644		—		(32)		1,314		7		—
Other	1,682		—		—		760		—		—
Total	43,756		1		(35)		38,336		7		(5)
Total derivatives not designated as hedges	305,926		4,607		(3,460)		305,177		5,841		(3,663)
Total derivatives	$	329,932	4,607		(3,464)		$	322,942	5,841		(3,663)
Gross amounts in the Consolidated Balance Sheets:
Amounts subject to master netting arrangements			(1,314)		1,314				(1,561)		1,561
Cash collateral (received) posted for amounts subject to master netting arrangements			(317)		1,549				(443)		1,547

Net amount			$	2,976	$	(601)			$	3,837	$	(555)

Truist Financial Corporation 33

The following table presents the offsetting of derivative instruments including financial instrument collateral related to legally enforceable master netting agreements and amounts held or pledged as collateral. U.S. GAAP does not permit netting of non-cash collateral balances in the Consolidated Balance Sheets:


September 30, 2021 (Dollars in millions)	Gross Amount		Amount Offset		Net Amount in Consolidated Balance Sheets		Held/Pledged Financial Instruments		Net Amount
Derivative assets:
Derivatives subject to master netting arrangement or similar arrangement	$	3,714	$	(1,631)	$	2,083	$	(3)	$	2,080
Derivatives not subject to master netting arrangement or similar arrangement	521		—		521		—		521
Exchange traded derivatives	372		—		372		—		372
Total derivative assets	$	4,607	$	(1,631)	$	2,976	$	(3)	$	2,973
Derivative liabilities:
Derivatives subject to master netting arrangement or similar arrangement	$	(3,221)	$	2,863	$	(358)	$	53	$	(305)
Derivatives not subject to master netting arrangement or similar arrangement	(242)		—		(242)		—		(242)
Exchange traded derivatives	(1)		—		(1)		—		(1)
Total derivative liabilities	$	(3,464)	$	2,863	$	(601)	$	53	$	(548)

December 31, 2020 (Dollars in millions)	Gross Amount		Amount Offset		Net Amount in Consolidated Balance Sheets		Held/Pledged Financial Instruments		Net Amount
Derivative assets:
Derivatives subject to master netting arrangement or similar arrangement	$	4,383	$	(1,618)	$	2,765	$	(2)	$	2,763
Derivatives not subject to master netting arrangement or similar arrangement	705		—		705		(1)		704
Exchange traded derivatives	753		(386)		367		—		367
Total derivative assets	$	5,841	$	(2,004)	$	3,837	$	(3)	$	3,834
Derivative liabilities:
Derivatives subject to master netting arrangement or similar arrangement	$	(3,103)	$	2,722	$	(381)	$	35	$	(346)
Derivatives not subject to master netting arrangement or similar arrangement	(174)		—		(174)		—		(174)
Exchange traded derivatives	(386)		386		—		—		—
Total derivative liabilities	$	(3,663)	$	3,108	$	(555)	$	35	$	(520)

The following table presents the carrying value of hedged items in fair value hedging relationships:


	September 30, 2021						December 31, 2020
			Hedge Basis Adjustment						Hedge Basis Adjustment
(Dollars in millions)	Hedged Asset / Liability Basis		Items Currently Designated		Discontinued Hedges		Hedged Asset / Liability Basis		Items Currently Designated		Discontinued Hedges



AFS securities (1)	$	116,770	$	(495)	$	43	$	100,988	$	(33)	$	50
Loans and leases	394		—		16		470		—		18

Long-term debt	22,490		—		700		27,725		—		930

(1)The amortized cost of AFS securities was $117.8 billion at September 30, 2021 and $99.4 billion at December 31, 2020.

34 Truist Financial Corporation

Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income

Derivatives Designated as Hedging Instruments under GAAP

No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.

The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts.





	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2021		2020		2021		2020







Pre-tax gain (loss) reclassified from AOCI into interest expense:

Deposits	$	—	$	(2)	$	(2)	$	(8)
Short-term borrowings	—		(5)		(12)		(13)
Long-term debt	(7)		(3)		(17)		(18)
Total	$	(7)	$	(10)	$	(31)	$	(39)
Pre-tax gain (loss) reclassified from AOCI into other expense: (1)
Deposits	$	—	$	—	$	(12)	$	—
Short-term borrowings	—		—		(20)		—
Long-term debt	—		—		(4)		—
Total	$	—	$	—	$	(36)	$	—

(1)Represents the accelerated amortization of amounts reclassified from AOCI, where management determined that the forecasted transaction is probable of not occurring.

The following table summarizes the impact on net interest income related to fair value hedges:





	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2021		2020		2021		2020

AFS securities:
Amounts related to interest settlements	$	(15)	$	—	$	(39)	$	—
Recognized on derivatives	81		—		442		—
Recognized on hedged items	(83)		(3)		(448)		(7)
Net income (expense) recognized	(17)		(3)		(45)		(7)
Loans and leases:
Amounts related to interest settlements	—		(1)		—		(1)
Recognized on derivatives	—		—		—		(3)
Recognized on hedged items	(1)		—		(2)		1
Net income (expense) recognized	(1)		(1)		(2)		(3)





Long-term debt:
Amounts related to interest settlements	—		78		—		182
Recognized on derivatives	—		(99)		—		831
Recognized on hedged items	73		112		227		(817)
Net income (expense) recognized	73		91		227		196
Net income (expense) recognized, total	$	55	$	87	$	180	$	186

The following table presents information about the Company’s terminated cash flow and fair value hedges:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Cash flow hedges:

Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)	$	(13)	$	(64)
Estimated portion of net after-tax gain (loss) on terminated hedges to be reclassified from AOCI into earnings during the next 12 months	(13)		(42)

Fair value hedges:
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2029)	$	641	$	862
Portion of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months	223		292

Truist Financial Corporation 35

Derivatives Not Designated as Hedging Instruments under GAAP

The Company also enters into derivatives that are not designated as accounting hedges under GAAP to economically hedge certain risks as well as in a trading capacity with its clients.

The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:





		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	Income Statement Location	2021		2020		2021		2020

Client-related and other risk management:
Interest rate contracts	Investment banking and trading income and other income	$	28	$	14	$	142	$	(13)
Foreign exchange contracts	Investment banking and trading income and other income	73		(50)		107		31
Equity contracts	Investment banking and trading income and other income	2		3		(18)		(4)
Credit contracts	Investment banking and trading income and other income	13		(68)		(48)		238
Commodity contracts	Investment banking and trading income	1		1		6		5
Mortgage banking:
Interest rate contracts	Residential mortgage income	(18)		(137)		(15)		(285)
Interest rate contracts	Commercial real estate related income	—		1		(1)		1
MSRs:
Interest rate contracts	Residential mortgage income	(48)		(3)		(162)		534
Interest rate contracts	Commercial real estate related income	(1)		—		(8)		22
Total		$	50	$	(239)	$	3	$	529

Credit Derivative Instruments

As part of the Company’s corporate investment banking business, the Company enters into contracts that are, in form or substance, written guarantees; specifically, risk participations, TRS, and credit default swaps. The Company accounts for these contracts as derivatives.

Truist has entered into risk participation agreements to share the credit exposure with other financial institutions on client-related interest rate derivative contracts. Under these agreements, the Company has guaranteed payment to a dealer counterparty in the event the counterparty experiences a loss on the derivative due to a failure to pay by the counterparty’s client. The Company manages its payment risk on its risk participations by monitoring the creditworthiness of the underlying client through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. At September 30, 2021, the remaining terms on these risk participations ranged from less than one year to 10 years. The potential future exposure represents the Company’s maximum estimated exposure to written risk participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on scenario simulations and assuming 100% default by all obligors on the maximum value.

The Company has also entered into TRS contracts on loans. To mitigate its credit risk, the Company typically receives initial margin from the counterparty upon entering into the TRS and variation margin if the fair value of the underlying reference assets deteriorates. For additional information on the Company’s TRS contracts, see “Note 14. Commitments and Contingencies.”

The Company enters into credit default swaps to hedge credit risk associated with certain loans and leases. The Company accounts for these contracts as derivatives, and accordingly, recognizes these contracts at fair value.

The following table presents additional information related to interest rate derivative risk participation agreements and total return swaps:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Risk participation agreements:


Maximum potential amount of exposure	$	563	$	530
Total return swaps:

Cash collateral held	292		374

36 Truist Financial Corporation

The following table summarizes collateral positions with counterparties:


(Dollars in millions)	Sep 30, 2021		Dec 31, 2020

Dealer and other counterparties:
Cash and other collateral received from counterparties	$	319	$	446
Derivatives in a net gain position secured by collateral received	474		585
Unsecured positions in a net gain with counterparties after collateral postings	155		49
Cash collateral posted to dealer counterparties	1,603		1,524
Derivatives in a net loss position secured by collateral	1,703		1,604
Additional collateral that would have been posted had the Company’s credit ratings dropped below investment grade	5		3
Central counterparties clearing:
Cash collateral, including initial margin, posted to central clearing parties	37		172
Derivatives in a net loss position	32		90
Derivatives in a net gain position	18		5
Securities pledged to central counterparties clearing	1,193		1,281

NOTE 17. Computation of EPS

Basic and diluted EPS calculations are presented in the following table:





	Three Months Ended September 30,				Nine Months Ended September 30,

(Dollars in millions, except per share data, shares in thousands)	2021		2020		2021		2020
Net income available to common shareholders	$	1,616	$	1,068	$	4,509	$	2,956
Weighted average number of common shares	1,334,825		1,347,916		1,339,558		1,346,605
Effect of dilutive outstanding equity-based awards	12,029		10,206		12,154		10,569
Weighted average number of diluted common shares	1,346,854		1,358,122		1,351,712		1,357,174
Basic EPS	$	1.21	$	0.79	$	3.37	$	2.20
Diluted EPS	$	1.20	$	0.79	$	3.34	$	2.18
Anti-dilutive awards	5		1,647		3		3,267

NOTE 18. Operating Segments

Truist operates and measures business activity across 3 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.

Truist Financial Corporation 37

The following table presents results by segment:


Three Months Ended September 30, (Dollars in millions)	CB&W				C&CB				IH				OT&C (1)				Total
	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Net interest income (expense)	$	1,667	$	1,858	$	1,124	$	1,234	$	27	$	31	$	415	$	239	$	3,233	$	3,362
Net intersegment interest income (expense)	369		333		49		49		(2)		(7)		(416)		(375)		—		—
Segment net interest income	2,036		2,191		1,173		1,283		25		24		(1)		(136)		3,233		3,362
Allocated provision for credit losses	(5)		181		(264)		311		1		—		(56)		(71)		(324)		421
Segment net interest income after provision	2,041		2,010		1,437		972		24		24		55		(65)		3,557		2,941
Noninterest income	1,032		997		753		608		652		524		(72)		81		2,365		2,210
Amortization of intangibles	78		103		37		45		30		17		—		5		145		170
Other noninterest expense	1,855		1,834		783		800		507		429		505		522		3,650		3,585
Income (loss) before income taxes	1,140		1,070		1,370		735		139		102		(522)		(511)		2,127		1,396
Provision (benefit) for income taxes	268		252		295		149		34		25		(174)		(171)		423		255
Segment net income (loss)	$	872	$	818	$	1,075	$	586	$	105	$	77	$	(348)	$	(340)	$	1,704	$	1,141

Identifiable assets (period end)	$	161,116	$	166,640	$	177,578	$	191,625	$	9,454	$	6,999	$	181,736	$	133,919	$	529,884	$	499,183

Nine Months Ended September 30, (Dollars in millions)	CB&W				C&CB				IH				OT&C (1)				Total
	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Net interest income (expense)	$	5,110	$	5,564	$	3,511	$	4,116	$	76	$	99	$	1,066	$	681	$	9,763	$	10,460
Net intersegment interest income (expense)	1,162		1,033		115		(207)		(10)		(28)		(1,267)		(798)		—		—
Segment net interest income	6,272		6,597		3,626		3,909		66		71		(201)		(117)		9,763		10,460
Allocated provision for credit losses	91		887		(698)		1,244		1		7		(104)		20		(710)		2,158
Segment net interest income after provision	6,181		5,710		4,324		2,665		65		64		(97)		(137)		10,473		8,302
Noninterest income	2,877		3,074		2,254		1,684		1,983		1,679		(147)		157		6,967		6,594
Amortization of intangibles	236		316		113		130		80		53		2		14		431		513
Other noninterest expense	5,544		5,584		2,324		2,481		1,451		1,280		1,666		1,206		10,985		10,551
Income (loss) before income taxes	3,278		2,884		4,141		1,738		517		410		(1,912)		(1,200)		6,024		3,832
Provision (benefit) for income taxes	768		680		896		330		125		102		(600)		(442)		1,189		670
Segment net income (loss)	$	2,510	$	2,204	$	3,245	$	1,408	$	392	$	308	$	(1,312)	$	(758)	$	4,835	$	3,162

Identifiable assets (period end)	$	161,116	$	166,640	$	177,578	$	191,625	$	9,454	$	6,999	$	181,736	$	133,919	$	529,884	$	499,183

(1)Includes financial data from business units below the quantitative and qualitative thresholds requiring disclosure.

38 Truist Financial Corporation

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, 2020.

Regulatory Considerations

The regulatory framework applicable to banking organizations is intended primarily for the protection of depositors and the stability of the financial system, rather than for the protection of shareholders and creditors. Truist is subject to banking laws and regulations, and various other laws and regulations, which affect the operations and management of Truist and its ability to make distributions to shareholders. Truist and its subsidiaries are also subject to supervision and examination by multiple regulators. The descriptions below summarize updates since the filing of the Annual Report on Form 10-K for the year ended December 31, 2020 to state and federal laws to which Truist is subject. These descriptions do not summarize all possible or proposed changes in current laws or regulations, and are not intended to be a substitute for the related statues or regulatory provisions. Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional disclosures.

Supplementary Leverage Ratio

The temporary exclusion of U.S. Treasury securities and deposits at the FRB from the calculation of the supplementary leverage ratio expired as scheduled on March 31, 2021. This temporary relief previously benefited the Company’s supplementary leverage ratio by approximately 20 basis points. The FRB also announced plans to invite public comment on several potential supplementary leverage ratio modifications to ensure that the supplementary leverage ratio remains effective in an environment of higher reserves, though such proposal had not been published as of the date of this report.

Stress Capital Buffer

The FRB assigned Truist an SCB of 2.5%, which is effective from October 1, 2021 to September 30, 2022, at which point a revised SCB will be calculated and provided to Truist.

The FRB has lifted the restrictions on capital distributions for large banking organizations, including Truist, that had been in place due to the uncertainty caused by the COVID-19 pandemic. Going forward, Truist is subject to the normal restrictions on capital distributions under the SCB framework and applicable law.

Security-Based Swap Dealer Registration

In November 2021, Truist Bank conditionally registered with the SEC as a security-based swap dealer. As a result, Truist Bank’s security-based swaps business is now subject to requirements that are similar to the CFTC rules applicable to swap dealers, including trade reporting, business conduct standards, recordkeeping, margin, and potentially mandatory clearing and exchange trading requirements.

Resolution Plans

The FDIC issued a policy statement in June 2021 announcing that it will resume requiring bank level resolution plans for large banks, including Truist Bank, and bank-level resolution plans will have more streamlined content requirements. Truist Bank will be required to submit a bank-level resolution plan every three years. During the third quarter, Truist Bank was informed by the FDIC that its next resolution plan will be due on or before December 1, 2022. The FDIC also clarified the content requirements of the next resolution plan Truist Bank is required to submit.

Truist submitted its inaugural resolution plan to the FRB and FDIC in September 2021, which is currently under review.

Lifting of Consent Order

In June 2021, the FDIC terminated the consent order between SunTrust Bank and the FRB relating to certain identified legacy compliance issues. Truist Bank, as successor to SunTrust Bank, committed to comply with the obligations in the order in connection with the FDIC’s and FRB’s approval of the Merger.

Truist Financial Corporation 39

Executive Overview

Truist had solid financial performance in the third quarter of 2021 that was driven by strong fee income from a diverse business mix - including wealth, insurance brokerage, investment banking, and positive trends in a number of other businesses given improving economic conditions. Improving economic conditions also led to strong credit performance and a benefit from the provision for credit losses. The Company achieved a significant milestone in early October with the successful migration of approximately 7 million clients (primarily heritage BB&T) to the new Truist technology ecosystem. In addition, Truist completed the retail mortgage origination conversion and accelerated the roll-out of the new Truist digital app during the third quarter of 2021. Truist continues to reaffirm its commitment to achieving $1.6 billion in net cost saves on a run rate basis by the fourth quarter of 2022. Truist also continues to closely monitor the COVID-19 pandemic and its effects on stakeholders and the financial markets and is actively supporting teammates, clients, and communities.

Integration Efforts

Major milestones during 2021 include:

•Completed the Wealth brokerage and trust transitions.

•Completed the mortgage systems transition, enabling clients to get the best of both heritage SunTrust and heritage BB&T to meet their homeownership needs.

•Continued to activate the Integrated Relationship Management approach. Truist’s Integrated Relationship Management approach is designed to deepen client relationships and bring the full breadth and depth of Truist’s products and services to meet clients’ financial needs.

•Introduced the new Truist digital app; migrated approximately 7 million clients to the new Truist digital banking experience, with nearly half of clients beginning to use the app

•Converted heritage BB&T retail and commercial clients to the new Truist technology ecosystem, the most significant milestone to date.

Supporting Clients

Truist continues to work closely with clients as they navigate through the continuing challenges from the COVID-19 pandemic. Truist supported clients by being the sixth largest amongst commercial banks in the second round of PPP funding, assisting clients with the forgiveness process, and continuing to support clients as they transition from payment relief programs. Truist originated approximately $17 billion of PPP loans. As of September 30, 2021, Truist had $3.5 billion of PPP loans outstanding.

Supporting Teammates

Truist offered a voluntary separation and retirement program to eligible teammates in June 2021. Nearly 2,000 teammates elected to participate in the voluntary program designed to provide tenured teammates flexibility on how they want to manage their career. Approximately 50% of those that elected to participate had separation dates of September 30, 2021. While Truist is hiring in some areas and rightsizing in others through natural attrition, planned staffing reductions, and the voluntary separation and retirement program, Truist is actively supporting all teammates affected by reductions with opportunities and tools for internal placement, severance payments, and outplacement assistance and coaching. The Company recognized $189 million of merger-related and restructuring charges in 2021 related to the voluntary separation and retirement program.

Truist has made progress towards the commitment to increase racially and ethnically diverse teammates among senior leadership roles to more than 15% by 2023 with current progress at 14.2% as of September 30, 2021. For early career program hiring in 2021, 54% of seats at Truist were filled by candidates from various diverse backgrounds. Truist teammates have received $24 million through Truist Momentum, a workplace financial wellness program that educates, equips, and inspires teammates to manage their money based on what matters most to them.

Supporting Communities

Truist continued to fulfill its purpose in meaningful ways in the community in the third quarter through a number of unique and creative initiatives. Truist expanded its partnership with EVERFI bringing literacy tools to elementary schools across the nation. Truist showed leadership as the first top-10 bank to join BlackRock’s philanthropic Emergency Savings Initiative. Truist Community Capital provided over $300 million in equity in the third quarter to support communities through investments in affordable housing, access to healthy foods and education, and investments in job creation and small businesses. Truist continued to make solid progress towards the Company’s $60 billion Community Benefits Plan, ending August 2021 at 112% of the annual target. In July, Truist also released its second annual Corporate Social Responsibility and Environmental, Social and Governance report to outline its advancements and commitments with regard to diversity, equity, and inclusion; environmental sustainability and climate change; governance; community involvement; and financial inclusion.

40 Truist Financial Corporation

Executive Leadership changes

During the third quarter Truist announced its new executive leadership structure effective September 1, 2021. As previously announced as part of the Merger, William H. Rogers, Jr. succeeded Kelly S. King as CEO on September 12, 2021 and Kelly S. King transitioned to the role of executive chairman through March 12, 2022. The other members of the executive leadership team and their roles are:

Daryl N. Bible - Chief Financial Officer

Scott Case - Chief Information Officer

Hugh S. (Beau) Cummins, III - Vice Chair

Ellen M. Fitzsimmons - Chief Legal Officer and Head of Public Affairs

John Howard - Chief Insurance Officer

Michael B. Maguire - Chief National Consumer Finance Services and Payments Officer

Kimberly Moore-Wright - Chief Teammate Officer and Head of Enterprise Diversity

Brant J. Standridge - Chief Retail Community Banking Officer

Clarke R. Starnes III - Chief Risk Officer

Joseph M. Thompson - Chief Wealth Officer

David H. Weaver - Chief Commercial Community Banking Officer

Dontá L. Wilson - Chief Digital and Client Experience Officer

Financial Results

Net income available to common shareholders for the third quarter of 2021 totaled $1.6 billion, up 51%, compared with the third quarter of last year. On a diluted per common share basis, earnings for the third quarter of 2021 were $1.20, an increase of $0.41 compared to the third quarter of 2020. Truist’s results of operations for the third quarter of 2021 produced an annualized return on average assets of 1.28% and an annualized return on average common shareholders’ equity of 10.2% compared to prior year returns of 0.91% and 6.9%, respectively. Results for the third quarter of 2021 included merger-related and restructuring charges of $172 million ($132 million after-tax), incremental operating expenses related to the Merger of $191 million ($147 million after-tax), and a one-time professional fee expense of $30 million ($23 million after-tax). Results for the third quarter of 2020 included $236 million ($181 million after-tax) of merger-related and restructuring charges, $152 million ($115 million after-tax) of incremental operating expenses related to the Merger, securities gains of $104 million ($80 million after-tax), and a charitable contribution of $50 million ($38 million after-tax).

Truist’s revenue for the third quarter of 2021 was $5.6 billion. On a TE basis, revenue was also $5.6 billion for the third quarter of 2021, an increase of $25 million, or 0.4%, compared to the same period in 2020. Excluding securities gains of $104 million from the third quarter of 2020, adjusted taxable equivalent revenues increased $129 million, or 2.3%, compared to the earlier quarter.

TE net interest income for the third quarter of 2021 was down $130 million, or 3.8%, compared to the earlier quarter due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on PPP loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased $26.4 billion, or 6.1%, compared to the earlier quarter. The increase in average earning assets reflects a $66.4 billion, or 83%, increase in average securities, while average total loans and leases decreased $25.4 billion, or 8.0%, and average other earning assets decreased $16.5 billion, or 46%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased $30.5 billion, or 8.2%, compared to the earlier quarter, while average long-term debt and short-term borrowings decreased $3.6 billion, or 8.8%, and $849 million, or 14%, respectively.

Net interest margin was 2.81%, down 29 basis points compared to the same period in 2020. The yield on the total loan portfolio for the third quarter of 2021 was 3.90%, down 14 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion and a lower rate environment. The yield on the average securities portfolio was 1.50%, down 47 basis points compared to the earlier quarter primarily due to lower yields on new purchases.

The provision for credit losses was a benefit of $324 million, compared to a cost of $421 million for the same period in 2020. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Net charge-offs for the third quarter of 2021 totaled $135 million compared to $326 million in the earlier quarter. The third quarter of 2020 included $97 million of charge-offs related to the implementation of CECL, which required a gross up of loan carrying values in connection with the establishment of an allowance on PCD loans. The net charge-off ratio for the current quarter of 0.19% was down 23 basis points compared to the third quarter 2020, due primarily to the additional losses on PCD loans taken in the earlier quarter and lower actual net losses in the commercial portfolio.

Truist Financial Corporation 41

Noninterest income for the third quarter of 2021 increased $155 million, or 7.0%, compared to the same period in 2020. Noninterest income for the third quarter of 2020 included $104 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased $259 million, or 12%, compared to the earlier quarter. Insurance income increased $127 million due to acquisitions, as well as organic growth. Investment banking and trading income increased $57 million due to strong merger and acquisition activity and loan syndications. Wealth management income increased $32 million due to higher valuations of assets under management. Residential mortgage banking income decreased $42 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to increases in the valuation of mortgage servicing rights and lower prepayment rates. Additionally, there were increases in service charges on deposit accounts, other income, and card and payment related fees due to improved economic activity.

Noninterest expense for the third quarter of 2021 was up $40 million, or 1.1%, compared to the same period in 2020. Merger-related and restructuring charges decreased $64 million primarily due to facilities impairments in the earlier quarter, while incremental operating expenses related to the Merger increased $39 million, primarily reflected in professional fees and outside processing. The current quarter also includes a $30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger. The earlier quarter included $50 million for charitable contributions to the Truist Charitable Fund (other expense). Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up $110 million, or 3.5%, compared to the earlier quarter. Additionally, increases in personnel expense of $129 million were partially offset by a decline in net occupancy expense of $46 million and other expense of $72 million.

The provision for income taxes was $423 million for the third quarter of 2021, compared to $255 million for the same period in 2020. This produced an effective tax rate for the third quarter of 2021 of 19.9%, compared to 18.3% for the earlier quarter. The higher effective tax rate is primarily due to higher pre-tax income in the current quarter without a corresponding increase in beneficial tax items.

Truist’s total assets at September 30, 2021 were $529.9 billion, an increase of $20.7 billion, or 4.1%, compared to December 31, 2020. The increase in total assets was primarily a result of strong deposit growth, the deployment of which led to an increase in AFS securities of $30.3 billion, which was partially offset by a $15.1 billion decline in total loans and leases.

Total deposits at September 30, 2021 were $405.9 billion, an increase of $24.8 billion, or 6.5%, compared to December 31, 2020. Deposit growth was strong during the first nine months of 2021 resulting from fiscal and monetary stimulus, partially offset by the maturity of higher-cost personal accounts.

Asset quality remains excellent, reflecting Truist’s prudent risk culture, diverse portfolio, improving economic conditions, and the ongoing effects of government stimulus. As of September 30, 2021, nonperforming assets were 0.23% of total assets, down four basis points from December 31, 2020. The allowance for loan and lease loss coverage ratio was 4.35x nonperforming loans and leases held for investment, compared to 4.39x at December 31, 2020.

Truist maintained strong capital and liquidity. As of September 30, 2021, the CET1 ratio was 10.1% and the average LCR was 114%. For the nine months ended September 30, 2021, Truist completed $1.1 billion of share repurchases and redeemed $1.4 billion of preferred stock. Additionally, the Company had $5.8 billion of senior long term debt maturities and redemptions, partially offset by $4.5 billion of issuances. Truist increased the common dividend 7% during the third quarter to $0.48 per share, resulting in dividend and total payout ratios for the third quarter of 2021 of 40%. In October 2021, Truist declared common dividends of $0.48 per share for the fourth quarter of 2021.

Truist continues to target a CET1 ratio of approximately 9.75% over the near-term. As previously communicated, the Company expects to be able to, with appropriate approvals from its Board of Directors, deploy approximately $4 billion to $5 billion of capital (either in the form of share repurchases or acquisitions) between 3Q21 and 3Q22. During the third quarter of 2021, Truist completed the acquisition of Constellation Affiliated Partners and announced the acquisition of Service Finance, LLC, reducing the amount of capital deployment available for acquisitions or share repurchases to approximately $1 billion to $2 billion through 3Q22. Truist resumed repurchasing shares and expects to consume approximately $500 million of this capacity via share repurchases in the fourth quarter of 2021 reflecting the Company’s strong capital position, and the reduced integration risk with successful migration of heritage BB&T retail and commercial clients to the Truist ecosystem.

42 Truist Financial Corporation

Analysis of Results of Operations

Net Interest Income and NIM

Third Quarter 2021 compared to Third Quarter 2020

Net interest income for the third quarter of 2021 was down $130 million, or 3.8%, compared to the earlier quarter due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on Payroll Protection Program loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased $26.4 billion, or 6.1%, compared to the earlier quarter. The increase in average earning assets reflects a $66.4 billion, or 83%, increase in average securities, while average total loans and leases decreased $25.4 billion, or 8.0%, and average other earning assets decreased $16.5 billion, or 46%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased $30.5 billion, or 8.2%, compared to the earlier quarter, while average long-term debt and short-term borrowings decreased $3.6 billion, or 8.8%, and $849 million, or 14%, respectively.

Net interest margin was 2.81%, down 29 basis points compared to the earlier quarter. The yield on the total loan portfolio for the third quarter of 2021 was 3.90%, down 14 basis points compared to the earlier quarter, reflecting the impact of lower purchase accounting accretion and a lower rate environment. The yield on the average securities portfolio was 1.50%, down 47 basis points compared to the earlier quarter primarily due to lower yields on new purchases.

The average cost of total deposits was 0.03%, down seven basis points compared to the earlier quarter. The average rate on short-term borrowings was 0.68%, down 17 basis points compared to the earlier quarter. The average rate on long-term debt was 1.61%, up 13 basis points compared to the earlier quarter. The lower rates on deposits and short-term borrowings reflect the lower rate environment. The higher rates on long-term debt was due to the runoff of lower rate FHLB advances.

Nine Months of 2021 compared to Nine Months of 2020

Net interest income for the nine months ended September 30, 2021 was down $710 million, or 6.7%, compared to the prior period due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loans. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on Payroll Protection Program loans, and fewer interest deferrals on COVID-19 loan accommodations. Average earning assets increased $21.8 billion, or 5.0%, compared to the prior period. The increase in average earning assets reflects a $57.9 billion, or 75%, increase in average securities, while average total loans and leases decreased $22.4 billion, or 7.1%, and average other earning assets decreased $14.3 billion, or 42%. The growth in average earning assets is a result of an increase in investment securities driven by strong deposit growth resulting from fiscal and monetary stimulus. Average deposits increased $34.9 billion, or 9.7%, compared to the prior period, while average long-term debt and short-term borrowings decreased $10.3 billion, or 22%, and $5.3 billion, or 46%, respectively.

Net interest margin was 2.90% for the nine months ended September 30, 2021, down 36 basis points compared to the prior period. The yield on the total loan portfolio for the nine months ended September 30, 2021 was 4.00%, down 39 basis points compared to the prior period, reflecting the impact of lower purchase accounting accretion and the lower rate environment. The yield on the average securities portfolio was 1.48% for the nine months ended September 30, 2021, down 83 basis points compared to the prior period primarily due to lower yields on new purchases and premium amortization.

The average cost of total deposits was 0.04% for the nine months ended September 30, 2021, down 23 basis points compared to the prior period. The average rate on short-term borrowings was 0.84% for the nine months ended September 30, 2021, down 62 basis points compared to the prior period. The average rate on long-term debt was 1.59% for the nine months ended September 30, 2021, down 19 basis points compared to the prior period. The lower rates on interest-bearing liabilities reflect the lower rate environment.

As of September 30, 2021, the remaining unamortized fair value marks on the loan and lease portfolio, deposits, and long-term debt were $1.5 billion, $9 million, and $157 million, respectively. As of December 31, 2020, the remaining unamortized fair value marks on the loan and lease portfolio, deposits and long-term debt were $2.4 billion, $19 million, and $216 million, respectively.

The remaining unamortized fair value mark on loans and leases consists of $807 million for consumer loans and leases, and $733 million for commercial loans and leases. These amounts will be recognized over the remaining contractual lives of the underlying instruments or as paydowns occur.

The major components of net interest income and the related annualized yields as well as the variances between the periods caused by changes in interest rates versus changes in volumes are summarized below.

Truist Financial Corporation 43



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

Three Months Ended September 30, (Dollars in millions)	Average Balances (5)				Annualized Yield/Rate				Income/Expense				Incr. (Decr.)		Change due to
	2021		2020		2021		2020		2021		2020				Rate		Volume
Assets
Total securities, at amortized cost: (2)
U.S. Treasury	$	9,699	$	2,218	0.72	%	1.78	%	$	18	$	10	$	8	$	(9)	$	17
GSE	1,830		1,842		2.31		2.33		10		10		—		—		—
Agency MBS	132,890		75,232		1.53		1.95		509		366		143		(93)		236
States and political subdivisions	425		499		3.52		5.03		4		7		(3)		(2)		(1)
Non-agency MBS	1,398		—		2.20		—		8		—		8		—		8
Other	30		37		1.90		1.99		—		1		(1)		—		(1)

Total securities	146,272		79,828		1.50		1.97		549		394		155		(104)		259
Interest earning trading assets	5,809		4,056		2.81		3.23		41		32		9		(5)		14
Other earning assets (3)	19,331		35,819		0.25		0.26		13		24		(11)		(1)		(10)
Loans and leases, net of unearned income: (4)

Commercial and industrial	130,025		143,452		3.00		3.02		981		1,087		(106)		(7)		(99)
CRE	24,849		27,761		2.86		2.88		181		203		(22)		(1)		(21)
Commercial Construction	5,969		6,861		2.96		3.26		42		55		(13)		(5)		(8)
Lease financing	4,917		5,626		3.39		3.71		42		52		(10)		(4)		(6)

Residential mortgage	45,369		51,500		3.96		4.47		450		576		(126)		(62)		(64)
Residential home equity and direct	25,242		26,726		5.67		5.86		360		394		(34)		(13)		(21)
Indirect auto	26,830		24,732		5.99		6.51		405		405		—		(33)		33
Indirect other	11,112		11,530		6.54		7.05		183		204		(21)		(14)		(7)
Student	7,214		7,446		4.02		4.30		74		80		(6)		(4)		(2)
Credit card	4,632		4,810		9.01		9.03		105		109		(4)		—		(4)

Total loans and leases HFI	286,159		310,444		3.92		4.06		2,823		3,165		(342)		(143)		(199)
LHFS	4,179		5,247		2.69		2.78		28		37		(9)		(1)		(8)
Total loans and leases	290,338		315,691		3.90		4.04		2,851		3,202		(351)		(144)		(207)
Total earning assets	461,750		435,394		2.98		3.34		3,454		3,652		(198)		(254)		56
Nonearning assets	64,935		65,432
Total assets	$	526,685	$	500,826
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking	$	107,802	$	96,707	0.05		0.06		14		15		(1)		(3)		2
Money market and savings	136,094		123,598		0.03		0.06		9		19		(10)		(12)		2
Time deposits	17,094		27,940		0.23		0.89		10		62		(52)		(34)		(18)

Total interest-bearing deposits (6)	260,990		248,245		0.05		0.15		33		96		(63)		(49)		(14)
Short-term borrowings	5,360		6,209		0.68		0.85		9		13		(4)		(2)		(2)
Long-term debt	37,329		40,919		1.61		1.48		151		152		(1)		13		(14)
Total interest-bearing liabilities	303,679		295,373		0.25		0.35		193		261		(68)		(38)		(30)
Noninterest-bearing deposits (6)	141,738		123,966
Other liabilities	11,915		11,853
Shareholders’ equity	69,353		69,634
Total liabilities and shareholders’ equity	$	526,685	$	500,826
Average interest-rate spread					2.73	%	2.99	%
NIM/net interest income - taxable equivalent					2.81	%	3.10	%	$	3,261	$	3,391	$	(130)	$	(216)	$	86
Taxable-equivalent adjustment									$	28	$	29

(1) Yields are stated on a TE basis utilizing federal tax rate. The change in interest not solely due to changes in rate or volume has been allocated based on the pro-rata absolute dollar amount of each. Interest income includes certain fees, deferred costs, and dividends.

(2) Total securities include AFS securities.

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

(4) Fees, which are not material for any of the periods shown, are included for rate calculation purposes. NPLs are included in the average balances.

(5) Excludes basis adjustments for fair value hedges.

(6) Total deposit costs were 0.03% and 0.10% for the three months ended September 30, 2021 and 2020, respectively.

44 Truist Financial Corporation




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

Nine Months Ended September 30, (Dollars in millions)	Average Balances (5)				Annualized Yield/Rate			Income/Expense		Incr. (Decr.)			Change due to
	2021		2020			2021		2020				2021			2020			Rate		Volume
Assets
Total securities, at amortized cost: (2)
U.S. Treasury	$	6,872	$	2,243		0.74	%	1.86	%	$	38		$	31		$	7	$	(28)	$	35
GSE	1,837		1,847			2.32		2.33		32			32			—		—		—
Agency MBS	125,157		72,152			1.49		2.29		1,401			1,240			161		(533)		694
States and political subdivisions	435		512			3.53		4.04		12			16			(4)		(2)		(2)
Non-agency MBS	477		115			2.18		16.78		8			15			(7)		(21)		14
Other	32		37			1.90		2.44		—			1			(1)		(1)		—

Total securities	134,810		76,906			1.48		2.31		1,491			1,335			156		(585)		741
Interest earning trading assets	5,208		4,695			2.80		3.85		110			135			(25)		(39)		14
Other earning assets (3)	19,453		33,708			0.26		0.57		38			144			(106)		(60)		(46)
Loans and leases, net of unearned income: (4)

Commercial and industrial	133,218		142,731			3.06		3.47		3,045			3,710			(665)		(425)		(240)
CRE	25,563		27,538			2.86		3.46		553			717			(164)		(116)		(48)
Commercial Construction	6,293		6,673			2.98		3.92		135			192			(57)		(46)		(11)
Lease financing	4,928		5,872			3.86		4.24		143			187			(44)		(16)		(28)

Residential mortgage	44,931		52,288			4.25		4.53		1,431			1,778			(347)		(106)		(241)
Residential home equity and direct	25,378		27,161			5.74		6.08		1,089			1,237			(148)		(68)		(80)
Indirect auto	26,547		24,809			6.25		6.68		1,240			1,240			—		(83)		83
Indirect other	10,920		11,255			6.79		7.19		555			606			(51)		(33)		(18)
Student	7,375		7,622			3.96		4.75		219			271			(52)		(43)		(9)
Credit card	4,610		5,097			8.99		9.34		310			356			(46)		(13)		(33)

Total loans and leases HFI	289,763		311,046			4.02		4.42		8,720			10,294			(1,574)		(949)		(625)
LHFS	4,485		5,575			2.61		3.00		88			126			(38)		(15)		(23)
Total loans and leases	294,248		316,621			4.00		4.39		8,808			10,420			(1,612)		(964)		(648)
Total earning assets	453,719		431,930			3.08		3.72		10,447			12,034			(1,587)		(1,648)		61
Nonearning assets	64,444		65,780
Total assets	$	518,163	$	497,710
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Interest-checking	$	106,234	$	93,205		0.06		0.28		44			199			(155)		(178)		23
Money market and savings	133,167		123,536			0.03		0.27		27			254			(227)		(245)		18
Time deposits	18,609		32,157			0.32		1.10		45			265			(220)		(138)		(82)

Total interest-bearing deposits (6)	258,010		248,898			0.06		0.39		116			718			(602)		(561)		(41)
Short-term borrowings	6,081		11,350			0.84		1.46		38			124			(86)		(41)		(45)
Long-term debt	37,339		47,643			1.59		1.78		446			635			(189)		(63)		(126)
Total interest-bearing liabilities	301,430		307,891			0.27		0.64		600			1,477			(877)		(665)		(212)
Noninterest-bearing deposits (6)	136,118		110,375
Other liabilities	11,262		12,133
Shareholders’ equity	69,353		67,311
Total liabilities and shareholders’ equity	$	518,163	$	497,710
Average interest-rate spread						2.81	%	3.08	%
NIM/net interest income - taxable equivalent						2.90	%	3.26	%	$	9,847		$	10,557		$	(710)	$	(983)	$	273
Taxable-equivalent adjustment										$	84		$	97

(1)Yields are stated on a TE basis utilizing federal tax rate. The change in interest not solely due to changes in rate or volume has been allocated based on the pro-rata absolute dollar amount of each. Interest income includes certain fees, deferred costs and dividends.

(2)Total securities include AFS securities.

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

(4)Fees, which are not material for any of the periods shown, are included for rate calculation purposes. NPLs are included in the average balances.

(5)Excludes basis adjustments for fair value hedges.

(6)Total deposit costs were 0.04% and 0.27% for the nine months ended September 30, 2021 and 2020, respectively.

Truist Financial Corporation 45

Provision for Credit Losses

Third Quarter 2021 compared to Third Quarter 2020

The provision for credit losses was a benefit of $324 million, compared to a cost of $421 million for the earlier quarter. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Net charge-offs for the third quarter of 2021 totaled $135 million compared to $326 million in the earlier quarter. The third quarter of 2020 included $97 million of charge-offs related to the implementation of CECL, which required a gross up of loan carrying values in connection with the establishment of an allowance on PCD loans. The net charge-off ratio for the current quarter of 0.19% was down 23 basis points compared to the third quarter 2020, due primarily to the additional losses on PCD loans taken in the earlier quarter and lower actual net losses in the commercial portfolio.

Nine Months of 2021 compared to Nine Months of 2020

The provision for credit losses was a benefit of $710 million for the nine months ended September 30, 2021, compared to a cost of $2.2 billion for the prior period. The prior period included significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current period includes reserve releases due to the improving economic outlook. Net charge-offs for the nine months ended September 30, 2021 totaled $515 million compared to $914 million in the earlier period. The 2020 period included the previously mentioned $97 million of charge-offs related to the implementation of CECL. The net charge-off ratio for the current year of 0.24% was down 15 basis points compared to the prior period, primarily driven by lower losses across all portfolios, partially driven by additional losses on PCD loans taken in 2020, combined with higher recoveries.

Noninterest Income

Noninterest income is a significant contributor to Truist’s financial results. Management focuses on diversifying its sources of revenue to reduce Truist’s reliance on traditional spread-based interest income, as certain fee-based activities are a relatively stable revenue source during periods of changing interest rates.



Table 2: Noninterest Income
	Three Months Ended September 30,						Nine Months Ended September 30,

(Dollars in millions)	2021		2020		% Change		2021		2020		% Change


Insurance income	$	645	$	518	24.5	%	$	1,961	$	1,648	19.0	%
Wealth management income	356		324		9.9		1,042		945		10.3
Service charges on deposits	276		247		11.7		787		754		4.4
Residential mortgage income	179		221		(19.0)		396		807		(50.9)
Investment banking and trading income	301		244		23.4		958		636		50.6
Card and payment related fees	225		200		12.5		650		558		16.5
Lending related fees	74		77		(3.9)		268		210		27.6
Operating lease income	57		72		(20.8)		191		232		(17.7)
Commercial real estate related income	78		55		41.8		259		148		75.0
Income from bank-owned life insurance	43		46		(6.5)		139		135		3.0
Securities gains (losses)	—		104		NM		—		402		NM
Other income	131		102		28.4		316		119		165.5
Total noninterest income	$	2,365	$	2,210	7.0		$	6,967	$	6,594	5.7

Third Quarter 2021 compared to Third Quarter 2020

Noninterest income for the third quarter of 2021 increased $155 million, or 7.0%, compared to the earlier quarter. Noninterest income for the third quarter of 2020 included $104 million of securities gains on available-for-sale securities. Excluding securities gains, noninterest income increased $259 million, or 12%, compared to the earlier quarter. Insurance income increased $127 million due to acquisitions, as well as organic growth. Investment banking and trading income increased $57 million due to strong merger and acquisition activity and loan syndications. Wealth management income increased $32 million due to higher valuations of assets under management. Service charges on deposit accounts and card and payment related fees increased $29 million and $25 million, respectively, due to increased economic activity. Residential mortgage banking income decreased $42 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to increases in the valuation of mortgage servicing rights and lower prepayment rates. Other income increased $29 million primarily due to investment income (primarily valuation gains) from the Company’s SBIC investments.

46 Truist Financial Corporation

Nine Months of 2021 compared to Nine Months of 2020

Noninterest income for the nine months ended September 30, 2021 increased $373 million, or 5.7%, compared to the prior period. Other income for the nine months ended September 30, 2021 includes a $37 million gain from the divestiture of certain businesses, whereas noninterest income for the nine months ended September 30, 2020 included $402 million of securities gains on available-for-sale securities. Excluding securities gains and the divestiture gain, noninterest income increased $738 million, or 12%, compared to the prior period. Investment banking and trading income increased $322 million due to strong investment banking income from loan syndications and merger and acquisition fees, as well as the impact from CVA recoveries in the current period compared to losses in the earlier period. Insurance income increased $313 million due to acquisitions, as well as organic growth. Other income increased $197 million primarily due to higher valuations of $96 million for assets held for certain post-retirement benefits, which is largely offset by higher benefits expense included in personnel expense. In addition, other income increased $94 million related to increased investment income (primarily valuations gains) from the Company’s SBIC and Truist Ventures investments. Commercial real-estate related income increased $111 million primarily due to client-related structured real estate transactions. Wealth management increased $97 million due to higher valuations of assets under management. Card and payment related fees and service charges on deposits increased $92 million and $33 million, respectively, due to increased economic activity. Lending related fees increased $58 million due to gains from the sale of finance leases and noninterest loan fees due to higher unused line fees. Residential mortgage banking income decreased $411 million primarily due to lower production related revenues as a result of lower gain on sale margins and volumes, partially offset by higher servicing income due to an increase in the valuation of mortgage servicing rights. Operating lease income decreased $41 million due to declines in the lease portfolio.

Noninterest Expense

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



Table 3: Noninterest Expense
	Three Months Ended September 30,						Nine Months Ended September 30,

(Dollars in millions)	2021		2020		% Change		2021		2020		% Change



Personnel expense	$	2,187	$	2,058	6.3	%	$	6,536	$	6,038	8.2	%
Professional fees and outside processing	372		323		15.2		1,063		859		23.7
Net occupancy expense	187		233		(19.7)		578		697		(17.1)
Software expense	251		221		13.6		707		647		9.3
Amortization of intangibles	145		170		(14.7)		431		513		(16.0)
Equipment expense	154		127		21.3		389		363		7.2
Marketing and customer development	94		75		25.3		226		215		5.1
Operating lease depreciation	47		56		(16.1)		144		204		(29.4)
Loan-related expense	52		59		(11.9)		161		177		(9.0)
Regulatory costs	43		34		26.5		99		93		6.5
Merger-related and restructuring charges	172		236		(27.1)		610		552		10.5
Loss (gain) on early extinguishment of debt	—		—		—		(3)		235		(101.3)


Other expense	91		163		(44.2)		475		471		0.8
Total noninterest expense	$	3,795	$	3,755	1.1		$	11,416	$	11,064	3.2

Third Quarter 2021 compared to Third Quarter 2020

Noninterest expense for the third quarter of 2021 was up $40 million, or 1.1%, compared to the earlier quarter. Merger-related and restructuring charges decreased $64 million primarily due to facilities impairments in the earlier quarter, while incremental operating expenses related to the Merger increased $39 million, primarily reflected in professional fees and outside processing. The current quarter also includes a $30 million professional fee to develop an ongoing program to identify, prioritize, and roadmap teammate generated revenue growth and expense savings opportunities beyond the Merger. The earlier quarter included $50 million for charitable contributions to the Truist Charitable Fund (other expense). Excluding the aforementioned items and changes in amortization of intangibles, adjusted noninterest expense was up $110 million, or 3.5%, compared to the earlier quarter. Personnel expense increased $129 million primarily due to higher incentive expenses due to variable compensation from higher revenues and improved overall performance relative to targets, higher medical insurance claims, and personnel cost related to acquired companies, partially offset by lower equity based compensation. Additionally, net occupancy expense decreased $46 million primarily due to branch and property consolidations. Other expense also includes a decrease of $42 million for non-service-related pension cost components.

Truist Financial Corporation 47

Nine Months of 2021 compared to Nine Months of 2020

Noninterest expense for the nine months ended September 30, 2021 was up $352 million, or 3.2%, compared to the earlier period. Merger-related and restructuring charges increased $58 million and other incremental operating expenses related to the Merger increased $201 million. The current period also includes $200 million for charitable contributions to the Truist Foundation and the Truist Charitable Fund, $36 million of expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges, the previously mentioned $30 million professional fee expense and a small gain on the early extinguishment of debt, whereas the earlier period included a $235 million loss on the early extinguishment of debt and a $50 million charitable contribution. Excluding the aforementioned items and changes in amortization of intangibles, noninterest expense increased $197 million, or 2.1%, compared to the earlier period. Personnel expense increased $498 million primarily driven by higher incentive expenses due to variable compensation from higher revenues and improved overall performance relative to targets, higher other employee benefits due to the previously mentioned increase in noninterest income, higher medical insurance claims, and personnel cost related to acquired companies. These increases in personnel expense were partially offset by lower salaries due to fewer FTEs. Software expense increased $60 million due to higher spending on certain projects. Other expense includes decreases of $125 million for non-service-related pension cost components. There was also a decrease of $119 million from net occupancy expense primarily due to branch and property consolidations and a decrease in operating lease depreciation of $60 million due to valuation adjustments taken in the prior year.

Merger-Related and Restructuring Charges

The following table presents a summary of merger-related and restructuring charges and the related accruals:



Table 4: Merger-Related and Restructuring Accrual Activity
	Three Months Ended September 30, 2021								Nine Months Ended September 30, 2021

(Dollars in millions)	Accrual at Jul 1, 2021		Expense		Utilized		Accrual at Sep 30, 2021			Accrual at Jan 1, 2021		Expense		Utilized		Accrual at Sep 30, 2021
Severance and personnel-related (1)	$	152	$	77	$	(154)	$	75		$	36	$	269	$	(230)	$	75
Occupancy and equipment	5		3		(8)		—			—		110		(110)		—
Professional services	28		79		(69)		38			16		197		(175)		38
Systems conversion and related costs	—		9		(9)		—			—		22		(22)		—
Other	10		4		(4)		10			11		12		(13)		10
Total (2)	$	195	$	172	$	(244)	$	123		$	63	$	610	$	(550)	$	123

(1)Includes $189 million of restructuring charges for the nine months ended September 30, 2021 related to the Company’s voluntary separation and retirement program.

(2)Related to the Merger, the Company recognized $170 million of expenses for the three months ended September 30, 2021 and $578 million for the nine months ended September 30, 2021. At September 30, 2021, the Company had an accrual of $117 million related to the Merger. The remaining expense and accrual relate to other restructuring activities.

Segment Results

Truist operates and measures business activity across three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings, with functional activities included in Other, Treasury and Corporate. The Company’s business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. See “Note 18. Operating Segments” herein and “Note 21. Operating Segments” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional disclosures related to Truist’s reportable business segments, including additional details related to results of operations. Fluctuations in noninterest income and noninterest expense are more fully discussed in the Noninterest Income and Noninterest Expense sections above.



Table 5: Net Income by Reportable Segment




	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2021		2020		% Change		2021		2020		% Change
Consumer Banking and Wealth	$	872	$	818	6.6	%	$	2,510	$	2,204	13.9	%
Corporate and Commercial Banking	1,075		586		83.4		3,245		1,408		130.5
Insurance Holdings	105		77		36.4		392		308		27.3
Other, Treasury & Corporate	(348)		(340)		2.4		(1,312)		(758)		73.1
Truist Financial Corporation	$	1,704	$	1,141	49.3		$	4,835	$	3,162	52.9

48 Truist Financial Corporation

Third Quarter 2021 compared to Third Quarter 2020

Consumer Banking and Wealth

CB&W net income was $872 million for the third quarter of 2021, an increase of $54 million compared to the earlier quarter. Segment net interest income decreased $155 million primarily due to a decline in the funding credit provided on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased $186 million which reflects the impact of an allowance release during the current quarter and an allowance build during the earlier quarter. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Noninterest income increased $35 million due to increases in wealth management income due to favorable market conditions in the current quarter, card and related fee income, and service charges on deposits, partially offset by lower residential mortgage income driven by lower gain on sale margins and volumes. Noninterest expense was stable compared to earlier quarter.

CB&W average loans held for investment decreased $6.8 billion, or 4.9%, for the third quarter of 2021 compared to the earlier quarter, primarily driven by lower residential mortgage and home equity lending, partially offset by increased indirect auto lending. Average total deposits increased $23 billion, or 10.4%, for the third quarter of 2021 compared to the earlier quarter primarily due to the impact of fiscal and monetary stimulus.

Corporate and Commercial Banking

C&CB net income was $1.1 billion for the third quarter of 2021, an increase of $489 million compared to the earlier quarter. Segment net interest income decreased $110 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans, partially offset by higher spreads on loans. The allocated provision for credit losses decreased $575 million primarily reflecting an allowance release in the current quarter, whereas the earlier quarter included an allowance build. The earlier quarter reflected significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current quarter includes a reserve release due to the improving economic outlook. Noninterest income increased $145 million driven by investment banking income, commercial real estate income, and higher investment income (primarily valuation gains) from SBIC investments. Noninterest expense decreased $25 million primarily due to lower operating losses, operating lease depreciation, and lower allocated corporate expenses in the current quarter, partially offset by higher restructuring charges in the current quarter.

C&CB average loans held for investment decreased $17.6 billion, or 10.5%, for the third quarter of 2021 compared to the earlier quarter, primarily due to PPP loan forgiveness and lower line utilization in commercial loans, commercial real estate, and dealer floor plan. Average total deposits increased $8.8 billion, or 6.2%, for the third quarter of 2021 compared to the earlier quarter, primarily due to the impact of fiscal and monetary stimulus.

Insurance Holdings

IH net income was $105 million for the third quarter of 2021, an increase of $28 million compared to the earlier quarter. Noninterest income increased $128 million primarily due to acquisitions and higher property and casualty insurance production from strong organic growth. Noninterest expense increased $91 million primarily due to higher performance-based incentives and amortization of intangibles related to acquisitions.

Other, Treasury & Corporate

OT&C generated a net loss of $348 million in the third quarter of 2021, compared to a net loss of $340 million in the earlier quarter. Segment net interest income increased $135 million primarily due to lower net funding credits on liabilities to other segments and higher earnings in the securities portfolio from purchases to utilize excess liquidity. The allocated provision for credit losses increased $15 million which primarily reflects a smaller release in the reserve for unfunded commitments in the current quarter compared to the earlier quarter. Noninterest income decreased $153 million primarily due to a gain on sale of securities in the earlier quarter. Noninterest expense decreased $22 million primarily due to lower merger related charges in the current quarter and charitable contributions to the Truist Foundation and the Truist Charitable Fund in the earlier quarter, partially offset by higher incentive expense driven by executive incentive compensation and higher accruals reflecting the job regrading project in the fourth quarter 2020.

Truist Financial Corporation 49

Nine Months of 2021 compared to Nine Months of 2020

Consumer Banking and Wealth

CB&W net income was $2.5 billion for the nine months ended September 30, 2021, an increase of $306 million compared to the same period of the prior year. Segment net interest income decreased $325 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased $796 million primarily due to an allowance release that was primarily driven by an improving economic outlook and lower net charge offs in the auto, home equity, card, and mortgage portfolios as well as lower loan balances. Noninterest income decreased $197 million, due to lower residential mortgage income driven by lower gain on sale margins and volumes, partially offset by increased revenues in wealth management and card and payment related activities resulting from improving economic conditions as well as gains from the divestiture of certain businesses. Noninterest expense decreased $120 million primarily due to lower salary expense, pension costs, amortization of intangibles, and occupancy expenses, partially offset by increased incentives tied to performance and related benefits expense in the current year.

CB&W average loans and leases decreased $7.6 billion, or 5.4%, at September 30, 2021, compared to the same period of the prior year, primarily due to lower residential mortgage loans and home equity lending, partially offset by increased mortgage warehouse and indirect auto lending. Average total deposits were up $25.7 billion, or 12%, at September 30, 2021, compared to the same period of the prior year, primarily due to the impact of fiscal and monetary stimulus.

Corporate and Commercial Banking

C&CB net income was $3.2 billion for the nine months ended September 30, 2021, an increase of $1.8 billion compared to the same period of the prior year. Segment net interest income decreased $283 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans. The allocated provision for credit losses decreased $1.9 billion which reflects an allowance release driven by an improving economic outlook, lower net charge offs primarily in the commercial and industrial portfolio as well as lower loan balances. Noninterest income increased $570 million due to strong investment banking and trading income, commercial real-estate related income, increased lending related fees, income from strategic investments, and increased service charges on deposits. Noninterest expense decreased $174 million primarily due to lower operating lease depreciation, lower allocated corporate expenses, a reduction in LIHTC liability mark accretion, and reduced salary and equity based compensation expense, partially offset by higher incentives tied to performance and increased professional fees and outside processing expense.

C&CB average loans and leases decreased $14 billion, or 8.3%, at September 30, 2021, compared to the same period of the prior year, primarily due to lower line utilization in commercial loans, commercial real estate, and dealer floor plan. Average total deposits were up $12.5 billion, or 9.3%, at September 30, 2021, compared to the same period of the prior year, primarily due to the impact of fiscal and monetary stimulus.

Insurance Holdings

IH net income was $392 million for the nine months ended September 30, 2021, an increase of $84 million compared to the same period of the prior year. Noninterest income increased $304 million primarily due to higher property and casualty insurance production as well as acquisitions. Noninterest expense increased $198 million primarily due to commissions on higher production in the current year.

Other, Treasury and Corporate

OT&C generated a net loss of $1.3 billion in the nine months ended September 30, 2021, compared to a net loss of $758 million in the same period of the prior year. Segment net interest income decreased $84 million primarily due to lower net funding credits to other segments due to lower market rates partially offset by lower interest expense on borrowings. The allocated provision for credit losses decreased $124 million which primarily reflects changes in the reserve for unfunded commitments as well as an allowance release in the current year resulting from the improving economic outlook. Noninterest income decreased $304 million primarily due to a gain on the sale of non-agency MBS in the same period of the prior year, partially offset by income from assets held for certain post-employment benefits. Noninterest expense increased $448 million primarily due to charitable contributions to 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 year, partially offset by the loss on early extinguishment of long-term debt in the same period of the prior year.

50 Truist Financial Corporation

Analysis of Financial Condition

Investment Activities

The securities portfolio totaled $151.0 billion at September 30, 2021, compared to $120.8 billion at December 31, 2020. The increase was due primarily to increases in U.S. Treasury securities and MBS resulting from strong deposit growth resulting from fiscal and monetary stimulus.

As of September 30, 2021, approximately 2.9% of the securities portfolio was variable rate, excluding the impact of swaps, compared to 1.9% as of December 31, 2020. The effective duration of the securities portfolio was 5.6 years at September 30, 2021, compared to 4.0 years at December 31, 2020.

U.S. Treasury, GSE, and Agency MBS represents 98% of the total securities portfolio as of September 30, 2021 and more than 99% at December 31, 2020.

Lending Activities

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


Table 6: Average Loans and Leases
For the Three Months Ended (Dollars in millions)	Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020
Commercial:
Commercial and industrial	$	130,025	$	133,646	$	136,051	$	139,223	$	143,452
CRE	24,849		25,645		26,211		27,030		27,761
Commercial construction	5,969		6,359		6,557		6,616		6,861
Lease financing	4,917		4,893		4,975		5,401		5,626
Consumer:
Residential mortgage	45,369		43,605		45,823		48,847		51,500
Residential home equity and direct	25,242		25,238		25,658		26,327		26,726
Indirect auto	26,830		26,444		26,363		25,788		24,732
Indirect other	11,112		10,797		10,848		11,291		11,530
Student	7,214		7,396		7,519		7,519		7,446
Credit card	4,632		4,552		4,645		4,818		4,810

Total average loans and leases HFI	$	286,159	$	288,575	$	294,650	$	302,860	$	310,444

Average loans and leases held for investment for the third quarter of 2021 were $286.2 billion, down $2.4 billion, or 0.8%, compared to the second quarter of 2021.

Average commercial loans decreased $4.8 billion, or 2.8%, as $1.5 billion of average growth within the core commercial and industrial portfolio was more than offset by a $4.0 billion decrease in average Paycheck Protection Program loans (commercial and industrial), a $1.1 billion decrease in average dealer floor plan loans (commercial and industrial), a $796 million decrease in average CRE loans, and a $390 million decrease in average commercial construction loans. Approximately $600 million of senior care facility loans were transferred primarily from CRE to commercial and industrial at the beginning of August, which impacted the variances noted above.

Average consumer loans increased $2.3 billion, or 2.0%, primarily due to a $1.8 billion increase in residential mortgages due to increased capacity, lower prepayments, and the decision to balance sheet certain production from the correspondent channel, a $386 million increase in indirect auto loans primarily due to solid growth in the prime automobile segment, and a $315 million increase in other indirect loans primarily due to growth in recreational and power sports lending. Residential home equity and direct loans were up slightly due to solid growth from LightStream more than offsetting the decline in home equity lines of credit.

Truist Financial Corporation 51

COVID-19 Lending Activities

The CARES Act created the PPP, which has temporarily expanded the Small Business Administration’s business loan guarantee program. The carrying value of PPP loans was $3.5 billion as of September 30, 2021. The CARES Act additionally includes provisions that were designed to encourage financial institutions to support borrowers impacted by COVID-19. These modifications are generally not considered a TDR. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional disclosures related to modifications and TDRs. Payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The following table provides a summary of accommodations as of September 30, 2021:




Table 7: Client Accommodations (1)
	Active Accommodations			Exited Accommodations
September 30, 2021 (Dollars in millions)	Total Count	Outstanding Balance		Outstanding Balance		% Paid-off or Current (2)		Types of Accommodations
Commercial	324	$	4	$	17,297	98	%	Clients may elect to defer loan or lease payments for up to 90 days without late fees being incurred but with finance charges continuing to accrue.
Consumer	13,715	553		8,292		87		Clients may elect to defer loan payments for time periods that generally range from 30 to 90 days without late fees being incurred but with finance charges generally continuing to accrue. The Company’s residential mortgage forbearance program generally provides up to 180 days of relief. Additional relief may be provided in certain circumstances.
Credit card	454	2		156		88		Clients may elect to defer payments for up to 90 days without late fees being incurred but with finance charges accruing. In addition, Truist provided credit card clients with 5% cash back on qualifying card purchases for certain important basic needs.
Total	14,493	$	559	$	25,745

(1)Excludes approximately 9,000 client accommodations related to government guaranteed loans totaling approximately $1.2 billion.

(2)Calculated based on accommodation count; includes loans that are less than 30 days past due.

The following table provides a summary of the Company’s exposure related to loans that have exited accommodations:



Table 8: Accommodations Exposure
September 30, 2021 (Dollars in millions)	Exposure
Current	$	24,513
Past due and still accruing	492
Nonperforming	740
Total	$	25,745

The following table provides a summary of exposure to industries that management believes were more vulnerable during the COVID-19 pandemic. These selected industry exposures represent 8.8% of loans held for investment at September 30, 2021. Truist is actively managing these portfolios and will continue to make underwriting or risk acceptance adjustments as appropriate.



Table 9: Selected Credit Exposures
September 30, 2021 (Dollars in billions)	Outstanding Balance		Percentage of Loans HFI
Senior Care	$	6.7	2.4	%
Hotels, Resorts & Cruise Lines	5.7		2.0
Acute Care Facilities	4.9		1.7
Oil & Gas Portfolio	3.8		1.3
Restaurants	2.4		0.8
Sensitive Retail	1.7		0.6
Total	$	25.2	8.8	%

52 Truist Financial Corporation

Asset Quality

The following tables summarize asset quality information:



Table 10: Asset Quality

(Dollars in millions)	Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020
NPAs:
NPLs:
Commercial and industrial	$	411	$	397	$	451	$	532	$	507
CRE	20		25		58		75		52
Commercial construction	7		12		13		14		7
Lease financing	12		5		23		28		32
Residential mortgage	306		302		290		316		205
Residential home equity and direct	146		165		172		205		180
Indirect auto	172		148		158		155		137
Indirect other	6		6		6		5		4

Total NPLs HFI	1,080		1,060		1,171		1,330		1,124
Loans held for sale	76		78		72		5		130
Total nonaccrual loans and leases	1,156		1,138		1,243		1,335		1,254
Foreclosed real estate	9		13		18		20		30
Other foreclosed property	39		41		38		32		30
Total nonperforming assets	$	1,204	$	1,192	$	1,299	$	1,387	$	1,314
TDRs:
Performing TDRs:
Commercial and industrial	$	144	$	144	$	142	$	78	$	84
CRE	8		24		47		47		36
Commercial construction	—		—		—		—		1
Lease financing	56		58		59		60		1
Residential mortgage	712		727		733		648		640
Residential home equity and direct	105		107		109		88		71
Indirect auto	390		389		399		392		336
Indirect other	7		7		7		6		5
Student	23		13		8		5		5
Credit card	30		32		35		37		38
Total performing TDRs	1,475		1,501		1,539		1,361		1,217
Nonperforming TDRs	159		190		207		164		140
Total TDRs	$	1,634	$	1,691	$	1,746	$	1,525	$	1,357
Loans 90 days or more past due and still accruing: (1)
Commercial and industrial	$	2	$	14	$	14	$	13	$	6
CRE	—		—		—		—		8

Lease financing	16		—		—		—		—
Residential mortgage	852		976		975		841		573
Residential home equity and direct	7		7		11		10		5
Indirect auto	2		2		2		2		8
Indirect other	2		1		1		2		3
Student	968		1,046		1,037		1,111		570
Credit card	23		22		32		29		24

Total loans 90 days or more past due and still accruing	$	1,872	$	2,068	$	2,072	$	2,008	$	1,197
Loans 30-89 days past due and still accruing: (1)
Commercial and industrial	$	131	$	128	$	117	$	83	$	155
CRE	4		7		9		14		7
Commercial construction	2		1		4		5		—
Lease financing	4		18		35		6		9
Residential mortgage	495		543		577		782		796
Residential home equity and direct	81		73		82		98		103
Indirect auto	560		428		328		495		321
Indirect other	53		47		45		68		52
Student	456		548		556		618		666
Credit card	37		31		35		51		39

Total loans 30-89 days past due and still accruing	$	1,823	$	1,824	$	1,788	$	2,220	$	2,148

(1)The past due status of loans that received a deferral under the CARES Act is generally frozen during the deferral period.

Truist Financial Corporation 53

Nonperforming assets totaled $1.2 billion at September 30, 2021, up $12 million compared to June 30, 2021. Nonperforming loans and leases represented 0.40% of total loans and leases, up one basis point compared to June 30, 2021.

Performing TDRs were down $26 million compared to the prior quarter primarily due to declines in the residential mortgage and CRE portfolios.

Loans 90 days or more past due and still accruing totaled $1.9 billion at September 30, 2021, down $196 million compared to the prior quarter. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.66% at September 30, 2021, down six basis points from the prior quarter. The decline in loans 90 days or more past due and still accruing was primarily in residential mortgages and student loans. Excluding government guaranteed loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.03% at September 30, 2021, down one basis point from June 30, 2021.

Loans 30-89 days past due and still accruing of $1.8 billion at September 30, 2021 were stable compared to the prior quarter.

Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 10. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to “Note 5. Loans and ACL” for additional disclosures related to these potential problem loans.


Table 11: Asset Quality Ratios

As of / For the Three Months Ended	Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI	0.64	%	0.64	%	0.61	%	0.74	%	0.70	%
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI	0.66		0.72		0.71		0.67		0.39
NPLs as a percentage of loans and leases HFI	0.38		0.37		0.40		0.44		0.37
NPLs as a percentage of total loans and leases (1)	0.40		0.39		0.42		0.44		0.40
NPAs as a percentage of:
Total assets (1)	0.23		0.23		0.25		0.27		0.26
Loans and leases HFI plus foreclosed property	0.40		0.39		0.42		0.46		0.39
Net charge-offs as a percentage of average loans and leases HFI	0.19		0.20		0.33		0.27		0.42
ALLL as a percentage of loans and leases HFI	1.65		1.79		1.94		1.95		1.91
Ratio of ALLL to:
Net charge-offs	8.79x		8.98x		5.87x		7.15x		4.52x
NPLs	4.35x		4.83x		4.84x		4.39x		5.22x
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI, excluding PPP and other government guaranteed (2)	0.03	%	0.04	%	0.04	%	0.04	%	0.03	%

Applicable ratios are annualized.

(1)Includes LHFS.

(2)This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage, student, and PPP loans. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio such that it might not be reflective of asset collectability or might not be comparable to other periods presented or to other portfolios that do not have government guarantees.

54 Truist Financial Corporation

The following table presents activity related to NPAs:


Table 12: Rollforward of NPAs
(Dollars in millions)	2021		2020
Balance, January 1	$	1,387	$	684
New NPAs (1)	1,580		2,467
Advances and principal increases	280		255
Disposals of foreclosed assets (2)	(297)		(333)
Disposals of NPLs (3)	(203)		(521)
Charge-offs and losses	(279)		(443)
Payments	(775)		(553)
Transfers to performing status	(445)		(258)
Other, net	(44)		16
Ending balance, September 30	$	1,204	$	1,314

(1)For 2020, includes approximately $500 million of loans previously classified as PCI that would have otherwise been nonperforming as of December 31, 2019.

(2)Includes charge-offs and losses recorded upon sale of $95 million and $99 million for the nine months ended September 30, 2021 and 2020, respectively.

(3)Includes charge-offs and losses recorded upon sale of $1 million and $126 million for the nine months ended September 30, 2021 and 2020, respectively.

TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term and a concession has been granted to the borrower. As a result, Truist works with borrowers to prevent further difficulties and to improve the likelihood of recovery on a loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR. In accordance with the CARES Act, Truist implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. Payment relief assistance provided by Truist includes forbearance, deferrals, extension, and re-aging programs, along with certain other modification strategies. The Company adopted certain provisions of the CARES Act and other regulatory guidance that provide relief from the requirement to apply TDR accounting to (1) certain modifications of federally backed mortgages upon request from the borrower, and (2) certain modifications of other non-federally backed mortgages for borrowers impacted by the COVID-19 pandemic that were less than 30 days past due at December 31, 2019. Refer to “Note 1. Basis of Presentation” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for the policies related to TDRs and COVID-19 loan modifications.

TDRs identified by SunTrust prior to the Merger date are not included in Truist’s TDR disclosure because all such loans were recorded at fair value and a new accounting basis was established as of the Merger date. Subsequent modifications are evaluated for potential treatment as TDRs in accordance with Truist’s accounting policies.

The following table provides a summary of performing TDR activity:


Table 13: Rollforward of Performing TDRs
(Dollars in millions)	2021		2020
Balance, January 1	$	1,361	$	980
Inflows	548		599
Payments and payoffs (1)	(283)		(113)
Charge-offs	(33)		(34)
Transfers to nonperforming TDRs (2)	(31)		(66)
Removal due to the passage of time	(10)		(6)
Non-concessionary re-modifications	(15)		(2)


Transferred to LHFS, sold and other	(62)		(141)
Balance, September 30	$	1,475	$	1,217

(1)Includes scheduled principal payments, prepayments, and payoffs of amounts outstanding.

(2)Represent loans that no longer meet the requirements necessary to reflect the loan in accruing status.

Truist Financial Corporation 55

The following table provides further details regarding the payment status of TDRs outstanding at September 30, 2021:


Table 14: Payment Status of TDRs (1)
September 30, 2021 (Dollars in millions)	Current				Past Due 30-89 Days				Past Due 90 Days Or More				Total
Performing TDRs:
Commercial:
Commercial and industrial	$	144	100.0	%	$	—	—	%	$	—	—	%	$	144
CRE	8		100.0		—		—		—		—		8

Lease financing	56		100.0		—		—		—		—		56
Consumer:
Residential mortgage	482		67.7		81		11.4		149		20.9		712
Residential home equity and direct	101		96.2		4		3.8		—		—		105
Indirect auto	320		82.1		70		17.9		—		—		390
Indirect other	6		85.7		1		14.3		—		—		7
Student	22		95.7		1		4.3		—		—		23
Credit card	26		86.7		3		10.0		1		3.3		30
Total performing TDRs	1,165		78.9		160		10.9		150		10.2		1,475
Nonperforming TDRs	49		30.8		17		10.7		93		58.5		159
Total TDRs	$	1,214	74.3		$	177	10.8		$	243	14.9		$	1,634

(1)Past due performing TDRs are included in past due disclosures and nonperforming TDRs are included in NPL disclosures.

56 Truist Financial Corporation

ACL

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



Table 15: Activity in ACL
	For the Three Months Ended										For the Nine Months Ended
(Dollars in millions)	Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020		2021		2020
Balance, beginning of period	$	5,436	$	6,011	$	6,199	$	6,229	$	6,133	$	6,199	$	1,889
CECL adoption - impact to retained earnings before tax	—		—		—		—		—		—		2,762
CECL adoption - reserves on PCD assets	—		—		—		—		—		—		378
Provision for credit losses	(324)		(434)		48		177		421		(710)		2,158

Charge-offs:
Commercial and industrial	(57)		(51)		(73)		(84)		(112)		(181)		(274)
CRE	(1)		—		(4)		(19)		(44)		(5)		(59)
Commercial construction	—		—		(2)		(8)		(19)		(2)		(22)
Lease financing	—		(2)		(6)		(4)		(44)		(8)		(50)
Residential mortgage	(7)		(4)		(11)		(6)		(4)		(22)		(50)
Residential home equity and direct	(51)		(57)		(55)		(46)		(52)		(163)		(185)
Indirect auto	(73)		(69)		(105)		(84)		(72)		(247)		(294)
Indirect other	(13)		(11)		(17)		(14)		(8)		(41)		(46)
Student	(6)		(3)		(3)		(3)		(6)		(12)		(20)
Credit card	(31)		(42)		(40)		(35)		(44)		(113)		(147)

Total charge-offs	(239)		(239)		(316)		(303)		(405)		(794)		(1,147)
Recoveries:
Commercial and industrial	21		20		19		34		20		60		58
CRE	1		4		1		1		—		6		4
Commercial construction	1		1		1		1		2		3		10
Lease financing	21		3		—		—		4		24		4
Residential mortgage	3		5		2		3		3		10		7
Residential home equity and direct	20		20		18		20		16		58		46
Indirect auto	22		27		22		24		22		71		63
Indirect other	5		7		6		5		4		18		18
Student	1		—		—		—		—		1		1
Credit card	9		10		9		10		8		28		22
Total recoveries	104		97		78		98		79		279		233
Net charge-offs	(135)		(142)		(238)		(205)		(326)		(515)		(914)
Other	1		1		2		(2)		1		4		(44)
Balance, end of period	$	4,978	$	5,436	$	6,011	$	6,199	$	6,229	$	4,978	$	6,229
ALLL (excluding PCD loans)	$	4,577	$	4,979	$	5,506	$	5,668	$	5,675
ALLL for PCD loans	125		142		156		167		188
RUFC	276		315		349		364		366
Total ACL	$	4,978	$	5,436	$	6,011	$	6,199	$	6,229

Net charge-offs during the third quarter totaled $135 million, down $7 million compared to the prior quarter. The net charge-off ratio was 0.19%, down one basis point compared to the prior quarter.

The allowance for credit losses was $5.0 billion and includes $4.7 billion for the allowance for loan and lease losses and $276 million for the reserve for unfunded commitments. The ALLL ratio was 1.65% compared to 1.79% at June 30, 2021. The ALLL covered nonperforming loans and leases held for investment 4.35X compared to 4.83X at June 30, 2021. At September 30, 2021, the ALLL was 8.79X annualized net charge-offs, compared to 8.98X at June 30, 2021.

Truist Financial Corporation 57

The following table presents an allocation of the ALLL. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.


Table 16: Allocation of ALLL by Category
	September 30, 2021						December 31, 2020

(Dollars in millions)	Amount		% ALLL in Each Category		% Loans in Each Category		Amount		% ALLL in Each Category		% Loans in Each Category
Commercial and industrial	$	1,541	32.7	%	45.2	%	$	2,156	37.0	%	46.2	%
CRE	370		7.9		8.5		573		9.8		8.9
Commercial construction	59		1.3		2.0		81		1.4		2.2
Lease financing	31		0.7		1.7		48		0.8		1.7
Residential mortgage	311		6.6		16.4		368		6.3		15.8
Residential home equity and direct	645		13.7		8.8		714		12.2		8.7
Indirect auto	1,071		22.8		9.4		1,198		20.5		8.7
Indirect other	194		4.1		3.9		208		3.6		3.7
Student	126		2.7		2.5		130		2.2		2.5
Credit card	354		7.5		1.6		359		6.2		1.6
Total ALLL	4,702		100.0	%	100.0	%	5,835		100.0	%	100.0	%
RUFC	276						364
Total ACL	$	4,978					$	6,199

Truist monitors the performance of its home equity loans and lines secured by second liens similarly to other consumer loans and utilizes assumptions specific to these loans in determining the necessary ALLL. Truist also receives notification when the first lien holder, whether Truist or another financial institution, has initiated foreclosure proceedings against the borrower. When notified that the first lien is in the process of foreclosure, Truist obtains valuations to determine if any additional charge-offs or reserves are warranted. These valuations are updated at least annually thereafter.

Truist has limited ability to monitor the delinquency status of the first lien, unless the first lien is held or serviced by Truist. Truist estimates second lien loans where the first lien is delinquent based on historical experience; the increased risk of loss on these credits is reflected in the ALLL. As of September 30, 2021, Truist held or serviced the first lien on 30% of its second lien positions.

Other Assets

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


Table 17: Other Assets as of Period End
(Dollars in millions)	September 30, 2021		December 31, 2020

Bank-owned life insurance	$	6,512	$	6,479
Tax credit and other private equity investments	6,012		5,685
Prepaid pension assets	4,814		4,358
Derivative assets	2,976		3,837
Accrued income	1,841		1,934
Accounts receivable	1,910		1,833
Leased assets and related assets	1,846		1,810
ROU assets	1,207		1,333
Prepaid expenses	1,091		1,247
Equity securities at fair value	1,026		1,054
Structured real estate	322		390
FHLB stock	48		164
Other	446		549
Total other assets	$	30,051	$	30,673

58 Truist Financial Corporation

Funding Activities

Deposits

The following table presents average deposits:


Table 18: Average Deposits
Three Months Ended (Dollars in millions)	Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020
Noninterest-bearing deposits	$	141,738	$	137,892	$	128,579	$	127,103	$	123,966
Interest checking	107,802		106,121		104,744		99,866		96,707
Money market and savings	136,094		134,029		129,303		124,692		123,598
Time deposits	17,094		18,213		20,559		23,605		27,940

Total average deposits	$	402,728	$	396,255	$	383,185	$	375,266	$	372,211

Average deposits for the third quarter of 2021 were $402.7 billion, an increase of $6.5 billion, or 1.6%, compared to the prior quarter. Average noninterest bearing deposits grew 2.8% compared to the prior quarter and represented 35.2% of total deposits for the third quarter of 2021, compared to 34.8% for the prior quarter. Average interest checking and money market and savings grew 1.6% and 1.5%, respectively, compared to the prior quarter.

Average time deposits decreased 6.1% primarily due to the maturity of higher-cost personal accounts.

Borrowings

At September 30, 2021, short-term borrowings totaled $5.2 billion, a decrease of $866 million compared to December 31, 2020, due primarily to a decrease of $2.6 billion in short-term FHLB advances, partially offset by an increase of $1.4 billion in securities sold under agreements to repurchase.

Average short-term borrowings were $5.4 billion or 1.2% of total funding for the third quarter of 2021, as compared to $6.2 billion or 1.5% for the prior year. Average short-term borrowings decreased as a percentage of funding sources due to strong deposit growth. Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued by Truist and Truist Bank. Long-term debt totaled $37.8 billion at September 30, 2021, a decrease of $1.8 billion compared to December 31, 2020. During 2021, the Company had $5.8 billion of senior long term debt maturities and redemptions, partially offset by $2.3 billion of issuances of fixed rate senior notes with an interest rate of 1.27% to 1.89% maturing between 2027 to 2029 and issuances of $2.3 billion in variable rate senior notes maturing between 2024 and 2025. FHLB advances represented 2.3% of total outstanding long-term debt at September 30, 2021, compared to 2.2% at December 31, 2020. The average cost of long-term debt was 1.59% for the nine months ended September 30, 2021, down 19 basis points compared to the same period in 2020.

Shareholders’ Equity

Total shareholders’ equity was $68.9 billion at September 30, 2021, a decrease of $2.0 billion from December 31, 2020. This decrease includes a decrease of $2.3 billion in AOCI, redemptions of $1.4 billion in preferred stock for Series F, G, and H, $2.1 billion in dividends, and $1.1 billion in repurchases of common stock, partially offset by $4.8 billion in net income. Truist’s book value per common share at September 30, 2021 was $46.62, compared to $46.52 at December 31, 2020.

Refer to “Note 10. Shareholders’ Equity” for additional disclosures related to preferred stock redemptions.

Risk Management

Truist maintains a comprehensive risk management framework supported by people, processes, and systems to identify, measure, monitor, manage, and report significant risks arising from its exposures and business activities. Effective risk management involves optimizing risk and return while operating in a safe and sound manner, and promoting compliance with applicable laws and regulations. The Company’s risk management framework promotes the execution of business strategies and objectives in alignment with its risk appetite.

Truist has developed and employs a risk taxonomy that further guides business functions in identifying, measuring, responding to, monitoring, and reporting on possible exposures to the organization. The risk taxonomy drives internal risk conversations and enables Truist to clearly and transparently communicate to stakeholders the level of potential risk the Company faces, both presently and in the future, and the Company’s position on managing risk to acceptable levels.

Truist Financial Corporation 59

Truist is committed to fostering a culture that supports identification and escalation of risks across the organization. All teammates are responsible for upholding the Company’s purpose, mission, and values, and are encouraged to speak up if there is any activity or behavior that is inconsistent with the Company’s culture. The Truist code of ethics guides the Company’s decision making and informs teammates on how to act in the absence of specific guidance.

Truist seeks an appropriate return for the risk taken in its business operations. Risk-taking activities are evaluated and prioritized to identify those that present attractive risk-adjusted returns, while preserving asset value and capital.

Compensation decisions take into account a teammate’s adherence to and successful implementation of Truist’s risk values and associated policies and procedures. The Company’s compensation structure supports its core values and sound risk management practices in an effort to promote judicious risk-taking behavior.

Truist employs a comprehensive change management program to manage the risks associated with integrating heritage BB&T and heritage SunTrust. The Board and Executive Leadership oversee the change management program, which is designed to ensure key decisions are reviewed and that there is appropriate oversight of integration activities.

Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 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.

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

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

Interest Rate Market Risk

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

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

Deposit betas are an important assumption in the interest rate risk modeling process. Truist applies an average deposit beta (the sensitivity of deposit rate changes relative to market rate changes) of approximately 50% to its non-maturity interest-bearing deposit accounts when determining its interest rate sensitivity. Non-maturity, interest-bearing deposit accounts include interest checking accounts, savings accounts, and money market accounts that do not have a contractual maturity. Truist also regularly conducts sensitivity analyses on other key variables, including noninterest-bearing deposits, to determine the impact these variables could have on the Company’s interest rate risk position. The predictive value of the simulation model depends upon the accuracy of the assumptions, but management believes that it provides helpful information for the management of interest rate risk.

60 Truist Financial Corporation

The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next 12 months assuming a gradual change in interest rates as described below.




Table 19: Interest Sensitivity Simulation Analysis
Interest Rate Scenario					Annualized Hypothetical Percentage Change in Net Interest Income
Gradual Change in Prime Rate (bps)	Prime Rate
	Sep 30, 2021		Sep 30, 2020		Sep 30, 2021		Sep 30, 2020
Up 100	4.25	%	4.25	%	4.08	%	3.43	%
Up 50	3.75		3.75		3.15		2.68
No Change	3.25		3.25		—		—
Down 25 (1)	3.00		3.00		(1.22)		(1.62)
Down 50 (1)	2.75		2.75		(1.71)		(1.94)

(1)The Down 25 and 50 rates are floored at one basis point and may not reflect Down 25 and 50 basis points for all rate indices.

Rate sensitivity increased compared to prior periods, primarily driven by excess liquidity and hedging changes partially offset by an increase in the investment securities portfolio.

Management considers how the interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry has been very strong during the current economic cycle. Much of this liquidity increase has resulted in growth in noninterest-bearing demand deposits. Consistent with the industry, Truist has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of Truist. A decrease in the amount of these deposits in the future would reduce the asset sensitivity of Truist’s balance sheet because the Company would increase interest-bearing funds to offset the loss of this advantageous funding source.

The following table shows the results of Truist’s interest-rate sensitivity position assuming the loss of demand deposits and an associated increase in managed rate deposits under various scenarios. For purposes of this analysis, Truist modeled the incremental beta of managed rate deposits for the replacement of the demand deposits at 100%.



Table 20: Deposit Mix Sensitivity Analysis
Gradual Change in Rates (bps)	Base Scenario at September 30, 2021 (1)		Results Assuming a Decrease in Noninterest-Bearing Demand Deposits
			$20 Billion		$40 Billion
Up 100	4.08	%	3.22	%	2.37	%
Up 50	3.15		2.52		1.90

(1)The base scenario is equal to the annualized hypothetical percentage change in net interest income at September 30, 2021 as presented in the preceding table.

Truist also uses an EVE analysis to focus on longer-term projected changes in asset and liability values given potential changes in interest rates. This measure allows Truist to analyze interest rate risk that falls outside the net interest income simulation period. The EVE model is a discounted cash flow of the portfolio of assets, liabilities, and derivative instruments. The difference in the present value of assets minus the present value of liabilities is defined as EVE.

The following table shows the effect that the indicated changes in interest rates would have on EVE:


Table 21: EVE Simulation Analysis
Change in Interest Rates (bps)	Hypothetical Percentage Change in EVE
		Sep 30, 2021		Sep 30, 2020

Up 100		(5.1)	%	7.4	%
No Change		—		—

Down 100		(3.5)		(6.8)

Truist uses financial instruments including derivatives to manage interest rate risk related to securities, commercial loans, MSRs, and mortgage banking operations, long-term debt, and other funding sources. Truist hedges a portion of its AFS securities to reduce mark-to-market volatility within AOCI and also to increase its overall asset sensitivity position. As of September 30, 2021, the Company had $24.0 billion of pay-fixed swaps associated with this hedging program that are accounted for as fair value hedges. In the third quarter of 2021, this hedging program reduced net interest income by $17 million. Truist also uses derivatives to facilitate transactions on behalf of its clients and as part of associated hedging activities. As of September 30, 2021, Truist had derivative financial instruments outstanding with notional amounts totaling $329.9 billion, with an associated net fair value of $2.4 billion. See “Note 16. Derivative Financial Instruments” for additional disclosures.

Truist Financial Corporation 61

LIBOR in its current form will no longer be available after 2021. For most tenors of U.S. dollar LIBOR, the administrator of LIBOR extended publication until June 30, 2023. Tenors used infrequently by Truist, including one week and two month U.S. dollar LIBOR and all non-U.S. dollar LIBOR, will cease publication at December 31, 2021, based on this guidance. Truist has U.S. dollar LIBOR-based contracts that extend beyond June 30, 2023. In accordance with regulatory guidance, production of new U.S. dollar LIBOR contracts will cease before the end of 2021. To prepare for the transition to an alternative reference rate, management formed a cross-functional project team to address the LIBOR transition. The project team performed an assessment to identify the potential risks related to the transition from LIBOR to a new index. The project team provides updates to Executive Leadership and the Board.

Contract fallback language for existing loans and leases is under review and certain contracts will need updated provisions for the transition. The Company has plans for impacted lines of business to remediate these contracts, train impacted teammates, and provide timely notice to impacted clients. Current fallback language used for new, renewed, and modified contracts is generally consistent with ARRC recommendations and includes use of “hardwired fallback” language, where appropriate. Truist continues to manage the impact of these contracts and other financial instruments, systems implications, hedging strategies, and related operational and market risks on established project plans for business and operational readiness for the transition. Market risks associated with this change are dependent on the alternative reference rates available and market conditions at transition. In 2020, Truist began offering SOFR-based lending solutions to wholesale and consumer clients and entered into SOFR-based derivative contracts. The Company has actively been using SOFR as a reference rate in various loan contracts and has originated approximately $3 billion of loans as of September 30, 2021 using this alternative reference rate. Truist expects SOFR to become a more commonly-used pricing benchmark across the industry and will offer additional SOFR based products during 2021. Other alternative reference rates, such as emerging credit sensitive rates, will be evaluated as additional alternatives for LIBOR. For a further discussion of the various risks associated with the potential cessation of LIBOR and the transition to alternative reference rates, refer to the section titled “Item1A. Risk Factors” in the Form 10-K for the year ended December 31, 2020.

Market risk from trading activities

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

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

Covered Trading Positions

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

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

Securitizations

As of September 30, 2021, the aggregate market value of on-balance sheet securitization positions subject to the Market Risk Rule was $38 million, all of which were non-agency asset backed securities positions. Consistent with the Market Risk Rule requirements, the Company performs pre-purchase due diligence on each securitization position to identify the characteristics including, but not limited to, deal structure and the asset quality of the underlying assets, that materially affect valuation and performance. Securitization positions are subject to Truist’s comprehensive risk management framework, which includes daily monitoring against a suite of limits. There were no off-balance sheet securitization positions during the reporting period.

Correlation Trading Positions

The trading portfolio of covered positions did not contain any correlation trading positions as of September 30, 2021.

62 Truist Financial Corporation

VaR-Based Measures

VaR measures the potential loss of a given position or portfolio of positions at a specified confidence level and time horizon. Truist utilizes a historical VaR methodology to measure and aggregate risks across its covered trading positions. For risk management purposes, the VaR calculation is based on a historical simulation approach and measures the potential trading losses using a one-day holding period at a one-tail, 99% confidence level. For Market Risk Rule purposes, the Company calculates VaR using a 10-day holding period and a 99% confidence level. Due to inherent limitations of the VaR methodology, such as the assumption that past market behavior is indicative of future market performance, VaR is only one of several tools used to measure and manage market risk. Other tools used to actively manage market risk include stress testing, scenario analysis, and stop loss limits.

The trading portfolio’s VaR profile is influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. A portfolio of trading positions is typically less risky than the sum of the risk from each of the individual sub-portfolios, because, under normal market conditions, risk within each category partially offsets the exposure to other risk categories. The following table summarizes certain VaR-based measures for the three and nine months ended September 30, 2021 and 2020. In the third quarter of 2021, one and ten day VaR measures declined from the same period of last year as heightened market volatility experienced during March 2020 aged out of the 12-month VaR look-back window.


Table 22: VaR-based Measures
	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020

(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	$	6	$	3	$	65	$	11	$	68	$	16	$	65	$	11
Average	5		2		31		6		16		5		23		5
Minimum	3		2		13		3		3		1		3		1
Period-end	6		3		46		8		6		3		46		8
VaR by Risk Class:
Interest Rate Risk			2				1				2				1
Credit Spread Risk			4				10				4				10
Equity Price Risk			2				2				2				2
Foreign Exchange Risk			—				—				—				—
Portfolio Diversification			(5)				(6)				(5)				(6)
Period-end			3				8				3				8

Stressed VaR-based measures

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


Table 23: Stressed VaR-based Measures - 10 Day Holding Period
	Three Months Ended September 30,				Nine Months Ended September 30,

(Dollars in millions)	2021		2020		2021		2020
Maximum	$	82	$	65	$	91	$	65
Average	52		31		55		31
Minimum	31		14		26		13
Period-end	57		46		57		46

Compared to the prior year periods, stressed VaR measures increased in the third quarter of 2021 primarily due to the normalization of market making inventory levels this year compared to the same periods of 2020 when inventory levels were lower due to the market volatility.

Truist Financial Corporation 63

Specific Risk Measures

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

VaR Model Backtesting

In accordance with the Market Risk Rule, the Company evaluates the accuracy of its VaR model through daily backtesting by comparing aggregate daily trading gains and losses (excluding fees, commissions, reserves, net interest income, and intraday trading) from covered positions with the corresponding daily VaR-based measures generated by the model. As illustrated in the following graph, there were no Company-wide VaR backtesting exceptions during the twelve months ended September 30, 2021. The total number of Company-wide VaR backtesting exceptions over the preceding twelve months is used to determine the multiplication factor for the VaR-based capital requirement under the Market Risk Rule. The capital multiplication factor increases from a minimum of three to a maximum of four, depending on the number of exceptions. All Company-wide VaR backtesting exceptions are thoroughly reviewed in the context of VaR model use and performance. There was no change in the capital multiplication factor over the preceding twelve months.

Model Risk Management

MRM is responsible for the independent model validation of all decision tools and models including trading market risk models. The validation activities are conducted in accordance with MRM policy, which incorporates regulatory guidance related to the evaluation of model conceptual soundness, ongoing monitoring, and outcomes analysis. As part of ongoing monitoring efforts, the performance of all trading risk models are reviewed regularly to preemptively address emerging developments in financial markets, assess evolving modeling approaches, and to identify potential model enhancement.

Stress Testing

The Company uses a comprehensive range of stress testing techniques to help monitor risks across trading desks and to augment standard daily VaR and other risk limits reporting. The stress testing framework is designed to quantify the impact of extreme, but plausible, stress scenarios that could lead to large unexpected losses. Stress tests include simulations for historical repeats and hypothetical risk factor shocks. All trading positions within each applicable market risk category (interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk) are included in the Company’s comprehensive stress testing framework. Management reviews stress testing scenarios on an ongoing basis and makes updates, as necessary, which is intended to ensure that both current and emerging risks are captured appropriately. Management also utilizes stress analyses to support the Company’s capital adequacy assessment standards. See the “Capital” section of MD&A for additional discussion of capital adequacy.

64 Truist Financial Corporation

Liquidity

Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as cash, cash equivalents, and AFS securities, other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity, growing core deposits, loan repayment, and the ability to securitize or package loans for sale.

Truist monitors the ability to meet client demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates Truist’s funding mix based on client core funding, client rate-sensitive funding and national markets funding. In addition, management evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against 30 days of stressed cash outflows 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. As of September 30, 2021 and December 31, 2020, Truist’s liquid asset buffer, as a percent of total assets, was 24.5% and 20.2%, respectively.

The LCR rule directs large U.S. banking organizations to hold unencumbered high-quality liquid assets sufficient to withstand projected 30-day total net cash outflows, as defined under the LCR rule. As of January 1, 2020, Truist is subject to the Category III reduced LCR requirements. Truist’s average LCR was 114% for the three months ended September 30, 2021, well above the regulatory minimum of 100%.

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 September 30, 2021, the Company was compliant with this requirement.

The ability to raise funding at competitive prices is affected by the rating agencies’ views of the Parent Company’s and Truist Bank’s credit quality, liquidity, capital, and earnings. Management meets with the rating agencies on a regular basis to discuss current outlooks. During the nine months ended September 30, 2021, Fitch Ratings, S&P Global Ratings, DBRS Morningstar, and Moody’s Investors Service all affirmed their ratings and provided updates to their rating outlooks for the Company and the Bank as further detailed below.

On May 7, 2021, Fitch Ratings affirmed the ratings of the Parent Company and Truist Bank, and revised the rating outlook to “stable” from “negative.” The revision to the rating outlook reflects the rating agency’s view that the Company’s diverse business model and strategy execution will drive stable earnings performance that supports its credit ratings. The revised rating outlook also reflects increased confidence in a U.S. economic recovery, which reduces the likelihood of the downside scenario that was contemplated when Fitch Ratings revised the ratings outlook to “negative” in April 2020.

On May 24, 2021, S&P Global Ratings affirmed the ratings of the Parent Company and Truist Bank, and revised the rating outlook to “positive” from “stable”, citing the stabilization in U.S. economic trends and the easing industry risk in the U.S. banking system. The rating agency also noted that the positive outlook reflects the view that, as a merged entity, Truist’s better geographic diversity, increased market position, improved earnings power, and higher technology spending provide a sustainable competitive advantage, and that the financial and credit positives of the merged entity could outweigh the operational risks of integrating two large regional banks.

On June 10, 2021, DBRS Morningstar confirmed the ratings of the Parent Company and Truist Bank and revised the trend for all ratings to “positive” from “stable,” citing substantial progress to date with the Merger integration and the rating agency’s view that the impact of the economic fallout from the coronavirus pandemic on Truist’s asset quality and capital will continue to be manageable.

On July 12, 2021, Moody’s Investors Service upgraded Truist Bank’s long-term subordinated debt rating to A2 from A3, and downgraded Truist Bank’s long-term bank deposit rating to Aa3 from Aa2. The rating actions were driven by revisions to the rating agency’s advanced loss given failure analysis within its updated methodology published on July 9, 2021.

See the “Liquidity” section of MD&A in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding credit ratings.

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.

Truist Financial Corporation 65

See “Note 22. Parent Company Financial Information” in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 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 September 30, 2021 and December 31, 2020, the Parent Company had 36 months and 43 months, respectively, of cash on hand to satisfy projected cash outflows, and 20 months and 22 months, respectively, when including the payment of common stock dividends.

Truist Bank

Truist carefully manages liquidity risk at Truist Bank. Truist Bank’s primary source of funding is client deposits. Continued access to client deposits is highly dependent on public confidence in the stability 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. The following table presents a summary of Truist Bank’s available secured borrowing capacity and eligible cash at the FRB:


Table 24: Liquidity Sources
(Dollars in millions)	Sep 30, 2021		Dec 31, 2020
Unused borrowing capacity:
FRB	$	51,457	$	52,831
FHLB	52,459		52,274
AFS securities	120,462		93,623
Available secured borrowing capacity	224,378		198,728
Eligible cash at the FRB	14,674		13,437
Total	$	239,052	$	212,165

At September 30, 2021, Truist Bank’s available secured borrowing capacity represented approximately 10.8 times the amount of wholesale funding maturities in one-year or less.

66 Truist Financial Corporation

Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

Refer to Truist’s Annual Report on Form 10-K for the year ended December 31, 2020 for discussion with respect to Truist’s quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Truist’s commitments include investments in affordable housing projects throughout its market area, renewable energy credits, private equity funds, derivative contracts to manage various financial risks, as well as other commitments. Refer to “Note 14. Commitments and Contingencies,” “Note 15. Fair Value Disclosures,” and “Note 16. Derivative Financial Instruments” in this Form 10-Q, and “Note 16. Commitments and Contingencies” of the Annual Report on Form 10-K for further discussion of these commitments.

Capital

The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. Truist’s principal goals related to the maintenance of capital are to provide adequate capital to support Truist’s risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for Truist and its subsidiaries, and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital, and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

Truist regularly performs stress testing on its capital levels and is required to periodically submit the Company’s capital plans and stress testing results to the banking regulators. Management regularly monitors the capital position of Truist on both a consolidated and bank-level basis. In this regard, management’s overriding policy is to maintain capital at levels that are in excess of internal capital targets, which are above the regulatory “well capitalized” minimums. Management evaluates whether capital ratios calculated after the effect of alternative capital actions are likely to remain above minimums specified by the FRB for the annual CCAR process. Breaches of minimum targets prompt a review of the planned capital actions included in Truist’s capital plan.


Table 25: Capital Requirements
	Minimum Capital		Well Capitalized				Minimum Capital Plus Stress Capital Buffer (1)
			Truist		Truist Bank
CET1	4.5	%	NA		6.5	%	7.2	%
Tier 1 capital	6.0		6.0	%	8.0		8.7
Total capital	8.0		10.0		10.0		10.7
Leverage ratio	4.0		NA		5.0		NA
Supplementary leverage ratio	3.0		NA		NA		NA

(1)Reflects a SCB of 2.7% applicable to Truist through September 30, 2021.

Truist completed the 2021 CCAR process and received a SCB of 2.5% for the period October 1, 2021 to September 30, 2022. Truist increased the common dividend 7% during the third quarter of 2021 to $0.48 per share. Truist continues to target a CET1 ratio of approximately 9.75% over the near-term. As previously communicated, the Company expects to be able to, with appropriate approvals from its Board of Directors, deploy approximately $4 billion to $5 billion of capital (either in the form of share repurchases or acquisitions) between 3Q21 and 3Q22. During the third quarter of 2021, Truist completed the acquisition of Constellation Affiliated Partners and announced the acquisition of Service Finance, LLC, reducing the amount of capital deployment available for acquisitions or share repurchases to approximately $1 billion to $2 billion through 3Q22. Truist resumed repurchasing shares and expects to consume approximately $500 million of this capacity via share repurchases in the fourth quarter of 2021 reflecting the Company’s strong capital position, and the reduced integration risk with successful migration of heritage BB&T retail and commercial clients to the Truist ecosystem.

Truist Financial Corporation 67

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




Table 26: Capital Ratios - Truist Financial Corporation

(Dollars in millions, except per share data, shares in thousands)	Sep 30, 2021			Dec 31, 2020
Risk-based:	(preliminary)
CET1 capital to risk-weighted assets	10.1		%	10.0		%
Tier 1 capital to risk-weighted assets	11.9			12.1
Total capital to risk-weighted assets	13.9			14.5
Leverage ratio	9.0			9.6
Supplementary leverage ratio	7.8			8.7
Non-GAAP capital measure (1):
Tangible common equity per common share	$	26.34		$	26.78
Calculation of tangible common equity (1):
Total shareholders’ equity	$	68,900		$	70,912
Less:
Preferred stock	6,673			8,048
Noncontrolling interests	—			105
Goodwill and intangible assets, net of deferred taxes	27,066			26,629
Tangible common equity	$	35,161		$	36,130
Risk-weighted assets	$	383,073		$	379,153
Common shares outstanding at end of period	1,334,892			1,348,961

(1)Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. Truist’s management uses these measures to assess the quality of capital and returns relative to balance sheet risk. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies.

Capital ratios remained strong compared to the regulatory requirements for well capitalized banks. For the nine months ended September 30, 2021,Truist paid $1.8 billion in common stock dividends or $1.38 per share, and completed $1.1 billion in common share repurchases. The dividend and total payout ratios for the nine months ended September 30, 2021 were 41% and 66%, respectively. Truist also redeemed $1.4 billion of preferred stock to optimize the Company’s capital position.

Share Repurchase Activity


Table 27: Share Repurchase Activity
(Dollars in millions, except per share data, shares in thousands)	Total Shares Repurchased (1)	Average Price Paid Per Share (2)		Total Shares Repurchased Pursuant to Publicly-Announced Plan (3)	Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
July 2021	—	$	—	—	$	3,065
August 2021	—	—		—	3,065
September 2021	—	—		—	3,065
Total	—	—		—

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

(2)Excludes commissions.

(3)Pursuant to the 2020 Repurchase Plan, announced in December 2020, authorizing up to $2.0 billion of share repurchases beginning in the first quarter of 2021. In June 2021, the Board of Directors increased, effective July 1, 2021, the previous repurchase authority to effectuate repurchases up to an additional $2.2 billion in shares of the Company’s common stock through September 30, 2022 (up to $4.2 billion in aggregate amount). With the additional authorization, the Company has $3.1 billion remaining for share repurchases.

68 Truist Financial Corporation

Critical Accounting Policies

The accounting and reporting policies of Truist are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Truist’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations, and related disclosures. The more critical policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, income taxes, and benefit obligations associated with pension and postretirement benefit plans. Understanding Truist’s accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. The critical accounting policies are discussed in MD&A in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in “Note 1. Basis of Presentation” in Form 10-K for the year ended December 31, 2020. Disclosures regarding the effects of new accounting pronouncements are included in the “Note 1. Basis of Presentation” in this report. Except for the item noted below, there have been no other changes to the significant accounting policies during 2021.

Intangible Assets

The Company performed a qualitative assessment of current events and circumstances, including macroeconomic and market factors, industry and banking sector events, Truist specific performance indicators, and a comparison of management’s forecast and assumptions to those used in its October 1, 2020 quantitative impairment test, concluding that it was not more-likely-than-not that the fair value of one or more of its reporting units is below its respective carrying amount as of September 30, 2021, and therefore no triggering event occurred that required a quantitative goodwill impairment test. If economic conditions deteriorate, or the COVID-19 pandemic’s effects prolong or worsen, it may be more-likely-than-not that the fair value of one or more of Truist’s reporting units falls below its respective carrying amount, which would require a quantitative goodwill impairment test.

Truist Financial Corporation 69

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company’s CEO and CFO, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

Management of Truist is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to the Litigation and Regulatory Matters section in “Note 14. Commitments and Contingencies,” which is incorporated by reference into this item.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Truist’s Annual Report on Form 10-K for the year ended December 31, 2020. Additional risks and uncertainties not currently known to Truist or that management has deemed to be immaterial also may materially adversely affect Truist’s business, financial condition, or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Refer to the Share Repurchase Activity section in the MD&A, which is incorporated by reference into this item.

70 Truist Financial Corporation

ITEM 6. EXHIBITS

Exhibit No.

Description

Location

3.1

Amended and Restated Bylaws of Truist Financial Corporation.

Incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed August 17, 2021.

3.2

Amended and Restated Bylaws of Truist Financial Corporation.

Incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 26, 2021.

10.1

Employment Agreement by and between BB&T Insurance Holdings, Inc. and John Howard.

Filed herewith.

10.2

First Amendment to Employment Agreement with John Howard.

Filed herewith.

Statement re computation of earnings per share.

Filed herewith as Computation of EPS note to the consolidated financial statements.

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

101.INS

XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Filed herewith.

101.SCH

XBRL Taxonomy Extension Schema.

Filed herewith.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase.

Filed herewith.

101.LAB

XBRL Taxonomy Extension Label Linkbase.

Filed herewith.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.

Filed herewith.

101.DEF

XBRL Taxonomy Definition Linkbase.

Filed herewith.

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits101).

Filed herewith.

Truist Financial Corporation 71

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRUIST FINANCIAL CORPORATION

(Registrant)

Date:

November 1, 2021

By:

/s/ Daryl N. Bible

Daryl N. Bible

Senior Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date:

November 1, 2021

By:

/s/ Cynthia B. Powell

Cynthia B. Powell

Executive Vice President and Corporate Controller

(Principal Accounting Officer)

72 Truist Financial Corporation

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