10-QPeriod: Q2 FY2023

TRUIST FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 31, 2023For Securities:TFCTFC-POTFC-PRTFC-PI

Summary

Truist Financial Corporation (TFC) reported mixed financial results for the second quarter of 2023, with net income available to common shareholders down 15.1% year-over-year to $1.2 billion, or $0.92 per diluted share. This decline was primarily driven by increased funding costs and lower capital markets activity, partially offset by record insurance income. Despite revenue headwinds, the company strengthened its balance sheet, with its CET1 capital ratio increasing to 9.6% due to the minority stake sale in IH and organic capital generation. The company prudently increased its provision for credit losses to $538 million, reflecting higher net charge-offs and an updated economic outlook, leading to a slight deterioration in asset quality metrics, particularly in the CRE and commercial and industrial portfolios. However, Truist maintained a strong liquidity position with $178 billion in available liquidity and a Loans to Deposits ratio of 112% for the quarter. Management is also actively addressing cost structures and pursuing efficiency opportunities to adapt to the evolving economic environment.

Financial Highlights

37 data points
Beta

Net Income

$1.34B

EPS (Diluted)

$0.92

Total Assets

$554.55B

Cash & Equivalents

$30.01B

Free Cash Flow

$3.73B

Financial Statements
Beta
Operating Income$2.58B
Interest Expense$2.57B
Net Income$1.34B
EPS (Basic)$0.93
EPS (Diluted)$0.92
Shares Outstanding (Basic)1.33B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Net income available to common shareholders decreased by 15.1% to $1.2 billion ($0.92/share) compared to Q2 2022, primarily due to higher funding costs and lower capital markets activity.
  • 2Net interest income increased by 7.1% year-over-year to $3.6 billion, driven by higher market interest rates and strong loan growth, though net interest margin saw only a slight increase of 2 basis points to 2.91%.
  • 3Insurance income was a strong performer, increasing by 13.3% to $935 million, contributing significantly to noninterest income, which grew 2.0% overall.
  • 4Provision for credit losses increased significantly by 215% to $538 million compared to Q2 2022, reflecting higher net charge-offs and an updated economic outlook.
  • 5Nonperforming loans and leases held for investment as a percentage of total loans and leases increased by 11 basis points to 0.47%, with increases concentrated in CRE and commercial and industrial portfolios.
  • 6The Common Equity Tier 1 (CET1) capital ratio improved to 9.6% from 9.0% at year-end 2022, boosted by the sale of a minority stake in IH and organic capital generation.
  • 7The company is experiencing deposit outflows, with average total deposits decreasing by 2.1% from the prior quarter, while short-term borrowings increased significantly by $1.0 billion, reflecting a shift in funding strategy.

Frequently Asked Questions

The primary driver for the decrease in net income was the increase in funding costs, particularly higher interest expenses on deposits and borrowings, coupled with lower-than-anticipated capital markets activity, which impacted revenue. These factors were partially offset by strong performance in insurance income.

Truist has increased its provision for credit losses significantly to $538 million due to higher net charge-offs and an updated, more cautious economic outlook. This proactive stance aims to cover potential future losses, particularly in commercial and industrial, and CRE portfolios.

While overall loan growth moderated, Truist is strategically shifting its loan mix towards higher-return assets. Asset quality shows some signs of normalization and modest deterioration, with nonperforming loans increasing slightly, particularly in commercial segments. The company continues to monitor these trends closely.

Truist's capital position remains strong, with its CET1 ratio improving to 9.6%, supported by a minority stake sale in IH and organic growth. The company also maintains a robust liquidity buffer of $178 billion, ensuring its ability to meet funding needs under various conditions.