Truist Reports Third Quarter 2020 Results

Earnings of $1.1 billion, or $0.79 per diluted share

CHARLOTTE, N.C., Oct. 15, 2020 /CNW/ -- Truist Financial Corporation (NYSE: TFC) today reported earnings for the third quarter of 2020.

Net income available to common shareholders was $1.1 billion, up 45.3 percent, compared to the third quarter last year. Earnings per diluted common share were $0.79, a decrease of 16.8 percent compared with the same period last year. Results for the third quarter produced an annualized return on average assets (ROA) of 0.91 percent, an annualized return on average common shareholders' equity (ROCE) of 6.87 percent, and an annualized return on tangible common shareholders' equity (ROTCE) of 13.31 percent.

Adjusted net income available to common shareholders was $1.3 billion, or $0.97 per diluted share, excluding merger-related and restructuring charges of $236 million ($181 million after-tax), incremental operating expenses related to the merger of $152 million ($115 million after-tax), securities gains of $104 million ($80 million after-tax) and a charitable contribution of $50 million ($38 million after-tax). Adjusted diluted earnings per common share increased $0.15 compared to the second quarter of 2020. Adjusted results produced an annualized ROA of 1.11 percent, an annualized ROCE of 8.50 percent and an annualized ROTCE of 16.08 percent.

"We are pleased to report strong performance for the quarter, particularly given the challenging environment," said Chairman and Chief Executive Officer Kelly S. King. "Our earnings reflect a modest build in our allowance for loan and lease losses, benefiting from our relatively stable asset quality. We also benefited from our diverse noninterest-income generating businesses and disciplined core expense control.

"Adjusted net income was $1.3 billion, or $0.97 per share, due to strong performances from wealth management, investment banking, retail banking and insurance. We experienced growth in service charges on deposit accounts and card and payment related fees due to some waiver abatement and increased activity from clients. In addition, we are selectively investing in our insurance, investment banking, residential mortgage and wealth teams to drive more client business.

"We also made progress in terms of our systems integration as we work to build out all the capabilities of Truist. In August, we completed the conversion of Truist Securities, integrating the corporate and investment banking businesses of BB&T and SunTrust. We were pleased with this very successful major client-facing systems conversion.

"We continue to actively support our communities during this time of need and were excited that our various foundations provided a donation of $40 million¹ to help establish CornerSquare Community Capital, formed to support community development financial institutions focused on providing funding to racially and ethnically diverse small business owners, women and individuals in low- and moderate-income communities, with a particular focus on African American-owned small businesses. We also contributed $50 million to the Truist Charitable Fund to support future community giving.

"I continue to be very proud of and inspired by our teammates, who continue to live the Truist purpose and make a positive difference in the lives of their clients and in their communities."

Third Quarter 2020 Performance Highlights

• Earnings per diluted common share were $0.79
• Adjusted diluted earnings per share were $0.97
• ROA was 0.91 percent; adjusted ROA was 1.11 percent
• ROCE was 6.87 percent; adjusted ROCE was 8.50 percent
• ROTCE was 13.31 percent; adjusted ROTCE was 16.08 percent
   
• Taxable-equivalent revenue was $5.6 billion; includes $104 million of securities gains
• Fee income ratio was 39.7 percent, compared to 41.3 percent for second quarter 2020; excluding securities gains, fee income ratio was 38.5 percent for the current quarter
• Net interest margin was 3.10 percent, down three basis points from second quarter 2020
• Core net interest margin was 2.72 percent, up 5 basis points from second quarter 2020
   
• Noninterest expense was $3.8 billion
• Noninterest expense includes $236 million of merger-related and restructuring charges, $152 million of incremental operating expenses related to the merger, and $50 million for a charitable contribution
• GAAP efficiency ratio was 67.4 percent, compared to 66.1 percent for second quarter 2020
• Adjusted efficiency ratio was 57.3 percent, compared to 55.8 percent for second quarter 2020
   
• Asset quality ratios remain relatively stable
• Nonperforming assets were 0.26 percent of total assets, up 1 basis point from the prior quarter
• Loans 90 days or more past due and still accruing were 0.39 percent of loans held for investment, up from 0.34 percent for the prior quarter
• Excluding government guaranteed loans, loans 90 days or more past due and still accruing were 0.03 percent of loans held for investment
• Net charge-offs were 0.42 percent of average loans and leases, up three basis points compared to the prior quarter
• The allowance for loan and lease losses was 1.91 percent of loans and leases held for investment compared to 1.81 percent for second quarter 2020
• Provision for credit losses was $421 million for the third quarter of 2020, which includes a modest build in the allowance for credit losses
• The allowance for loan and lease loss coverage ratio was 5.22 times nonperforming loans and leases held for investment, versus 5.24 times in the prior quarter
• Active client accommodations related to the CARES Act declined significantly; 98.0 percent and 94.5 percent of commercial and consumer clients, respectively, that have exited accommodation programs are current on their loans
   
• Capital and liquidity levels improved
• Common equity tier 1 to risk-weighted assets was 10.0 percent
• Tier 1 risk-based capital was 12.2 percent
• Total risk-based capital was 14.6 percent
• $925 million of preferred stock was issued to further strengthen capital
• Consolidated average LCR ratio was 117 percent

^1 The $40 million contribution to CornerSquare Community Capital consisted of two $20 million contributions made through the Truist Foundation, Inc. and the Truist Charitable Fund. These amounts did not impact Truist Financial Corporation's earnings.

Earnings Presentation and Quarterly Performance Summary

To listen to Truist's live third quarter 2020 earnings conference call at 8 a.m. ET today, please call 866-519-2796 and enter the participant code 892418. A presentation will be used during the earnings conference call and is available on our website at https://ir.truist.com/events-and-presentation. Replays of the conference call will be available for 30 days by dialing 888-203-1112 (access code 892418).

The presentation, including an appendix reconciling non-GAAP disclosures, and Truist's Third Quarter 2020 Quarterly Performance Summary, which contains detailed financial schedules, is available at https://ir.truist.com/earnings.

About Truist

Truist Financial Corporation is a purpose-driven financial services company committed to inspire and build better lives and communities. With 275 years of combined BB&T and SunTrust history, Truist has leading market share in many high-growth markets in the country. The company offers a wide range of services including retail, small business and commercial banking; asset management; capital markets; commercial real estate; corporate and institutional banking; insurance; mortgage; payments; specialized lending; and wealth management. Headquartered in Charlotte, North Carolina, Truist is the sixth-largest commercial bank in the U.S. with total assets of $499 billion as of September 30, 2020. Truist Bank, Member FDIC. Learn more at Truist.com.

Capital ratios and return on risk-weighted assets are preliminary.

This news release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Truist's management uses these "non-GAAP" measures in their analysis of the Corporation's performance and the efficiency of its operations. Management believes these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant items in the current period. The Corporation believes a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. Truist's management believes investors may find these non-GAAP financial measures useful. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Below is a listing of the types of non-GAAP measures used in this news release:

• The adjusted efficiency ratio is non-GAAP in that it excludes securities gains (losses), amortization of intangible assets, merger-related and restructuring charges and other selected items. Truist's management uses this measure in their analysis of the Corporation's performance. Truist's management believes this measure provides a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and charges.
• 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.
• Core net interest margin is a non-GAAP measure that adjusts net interest margin to exclude the impact of purchase accounting. The purchase accounting marks and related amortization for a) securities acquired from the FDIC in the Colonial Bank acquisition and b) loans, deposits and long-term debt from SunTrust, Susquehanna, National Penn and Colonial Bank are excluded to approximate the yields paid by clients. Truist's management believes the adjustments to the calculation of net interest margin for certain assets and liabilities acquired provide investors with useful information related to the performance of Truist's earning assets.
• The adjusted diluted earnings per share is non-GAAP in that it excludes merger-related and restructuring charges and other selected items, net of tax. Truist's management uses this measure in their analysis of the Corporation's performance. Truist's management believes this measure provides a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and charges.
• The adjusted performance ratios, including adjusted return on average assets, adjusted return on average common shareholders' equity and adjusted return on average tangible common shareholders' equity, are non-GAAP in that they exclude merger-related and restructuring charges, selected items and, in the case of return on average tangible common shareholders' equity, amortization of intangible assets. Truist's management uses these measures in their analysis of the Corporation's performance. Truist's management believes these measures provide a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and charges.
• EBITDA is a non-GAAP measurement of operating profitability that is calculated by adding back interest, taxes, depreciation and amortization to net income. Truist's management also adds back merger-related and restructuring charges, incremental operating expenses related to the merger and other selected items. Truist's management uses this measure in its analysis of the Corporation's Insurance Holdings segment. Truist's management believes this measure provides a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and charges.
• Allowance for loan and lease losses and unamortized fair value mark, and allowance for credit losses and unamortized fair value mark, as a percentage of gross loans and leases are non-GAAP measurements of credit reserves that are calculated by adjusting the ALLL or ACL, and loans and leases held for investment by the unamortized fair value mark. Truist's management uses these measures to assess loss absorption capacity.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in the appendix to Truist's Third Quarter 2020 Earnings Presentation, which is available at https://ir.truist.com/earnings.

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

Forward-looking statements are not based on historical facts but instead represent management's expectations and assumptions regarding Truist's business, the economy and other future conditions. Such statements involve inherent uncertainties, risks and changes in circumstances that are difficult to predict. As such, Truist's actual results may differ materially from those contemplated by forward-looking statements. While there can be no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those contemplated by forward-looking statements include the following, without limitation, as well as the risks and uncertainties more fully discussed under Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, Item 1A-Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and in Truist's subsequent filings with the Securities and Exchange Commission:

• risks and uncertainties relating to the merger of BB&T and SunTrust ("Merger"), 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;
• changes in the interest rate environment, including the replacement of LIBOR as an interest rate benchmark, 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;
• volatility in mortgage production and servicing revenues, and changes in carrying values of Truist's servicing assets and mortgages held for sale due to changes in interest rates;
• management's ability to effectively manage credit risk;
• inability to access short-term funding or liquidity;
• loss of client deposits, which could increase Truist's funding costs;
• changes in Truist's credit ratings, which could increase the cost of funding or limit access to capital markets;
• additional capital and liquidity requirements;
• 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, or other adverse consequences;
• 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;
• failure to execute on strategic or operational plans, including the ability to successfully complete and/or integrate mergers and acquisitions;
• risks relating to Truist's role as a servicer of loans, including an increase in the scope or costs of the services Truist is required to perform without any corresponding increase in Truist's servicing fee, or a breach of Truist's obligations as servicer;
• negative public opinion, which could damage Truist's reputation;
• increased scrutiny regarding Truist's consumer sales practices, training practices, incentive compensation design and governance;
• competition from new or existing competitors, including increased competition from 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;
• Truist's ability to introduce new products and services in response to industry trends or developments in technology that achieve market acceptance and regulatory approval;
• Truist's success depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements Truist's operations and integration activities could be adversely impacted. This could be exacerbated as Truist continues to integrate the management teams of heritage BB&T and heritage SunTrust, or if the organization is unable to hire and retain qualified personnel;
• legislative, regulatory or accounting changes may adversely affect the businesses in which Truist is engaged;
• evolving 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;
• accounting policies and processes require management to make estimates about matters that are uncertain;
• general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, slower deposit or asset growth, a deterioration in credit quality or a reduced demand for credit, insurance or other services;
• risk management oversight functions may not identify or address risks adequately;
• unfavorable resolution of legal proceedings or other claims or regulatory or other governmental investigations or inquiries could result in negative publicity, protests, fines, penalties, restrictions on Truist's operations or ability to expand its business or other negative consequences, all of which could cause reputational damage and adversely impact Truist's financial condition and results of operations;
• competitors of Truist may have greater financial resources or develop products that enable them to compete more successfully than Truist and may be subject to different regulatory standards than Truist;
• failure to maintain or enhance Truist's competitive position with respect to technology, whether it fails to anticipate client expectations or because its technological developments fail to perform as desired or are not rolled out in a timely manner or for other reasons, may cause Truist to lose market share or incur additional expense;
• fraud or misconduct by internal or external parties, which Truist may not be able to prevent, detect or mitigate;
• operational or communications systems, including systems used by vendors or other external parties, may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely impact Truist's financial condition and results of operations;
• security risks, including denial of service attacks, hacking, social engineering attacks targeting Truist's employees and clients, malware intrusion or data corruption attempts, and identity theft could result in the disclosure of confidential information, adversely affect Truist's business or reputation or create significant legal or financial exposure;
• the COVID-19 pandemic has disrupted the global economy, adversely impacted Truist's financial condition and results of operations, including through increased expenses, reduced fee income and net interest margin and increases in the allowance for credit losses, and continuation of current conditions could worsen these impacts and also adversely affect Truist's capital and liquidity position or cost of capital, impair the ability of borrowers to repay outstanding loans, cause an outflow of deposits, and impair goodwill or other assets;
• natural or other disasters, including acts of terrorism and pandemics, could have an adverse effect on Truist, including a material disruption of Truist's operations or the ability or willingness of clients to access Truist's products and services;
• widespread system outages, caused by the failure of critical internal systems or critical services provided by third parties could adversely impact Truist's financial condition and results of operations; and
• depressed market values for Truist's stock and adverse economic conditions sustained over a period of time may require a write down to goodwill.

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.

SOURCE Truist Financial Corporation

Investors: Ryan Richards, 980.465.5000, [email protected]; Aaron Reeves, 336.733.2874, [email protected]; Media: Shelley Miller, 704.692.1518, [email protected], https://www.truist.com

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