TRUIST FINANCIAL CORP (TFC) FY 2022 MD&A

Executive Overview

This year was a strategic turning point for Truist as we began to shift our focus to executional excellence and purposeful growth. Results for 2022 were solid, reflecting post-integration momentum and progress in many areas. Robust loan growth, significant margin expansion, and good cost discipline contributed to our strong performance. Credit quality remains strong reflecting our conservative credit culture and diverse business mix. We also delivered on our commitment to achieve positive operating leverage for the full-year 2022.

We fulfilled our purpose to inspire and build better lives and communities in many ways throughout the year. We showed care for our teammates with a bold increase in our minimum wage; created new ways to meet clients’ needs through initiatives like Truist One Banking and enhanced digital offerings like Truist Assist, Truist Invest Pro, and Truist Trade; and supported our communities, including introducing a $120 million commitment to small businesses. In addition, we exceeded our $60 billion Community Benefits Plan commitment that we established at the time of the Merger.

We continued to have strong momentum during the year with regards to other environmental, social and governance initiatives that we have undertaken. We announced our goal to achieve net zero greenhouse gas emissions by 2050, which will help support our clients’ transition to a low-carbon economy. In support of this goal, we joined the Partnership for Carbon Accounting Financials, and set 2030 goals to reduce Scope 1 and Scope 2 emissions by 35% each, and to reduce water consumption by 25%, relative to 2019. With 17.2% of senior leadership roles being held by ethnically diverse teammates, we have exceeded our original goal and we aspire for continued growth in this area, and surpassed our goal of 10% spend with diverse suppliers in 2022. Truist was ranked 5th overall within the JUST 100 list and recognized as one of Fortune Magazine’s Most Admired Companies.

Truist maintained strong capital and liquidity in 2022 and made a number of strategic investments to deploy capital and expand on its businesses. During 2022, Truist made the following acquisitions:

•BankDirect Capital Finance, the insurance premium finance unit of Texas Capital Bancshares, which resulted in the addition of approximately $3.1 billion of loans;

•BenefitMall, one of the nation’s leading benefit wholesale general insurance agencies, to broaden the selection of products and services offered by IH’s wholesale insurance broker;

•Kensington Vanguard National Land Services, one of the largest independent full-service national title insurance agencies, to expand IH’s presence in the title insurance market; and

•A noncontrolling equity interest in SunTrust Merchant Services, LLC, in exchange for the rights to certain merchant banking relationships, including relationships previously referred by Truist to SunTrust Merchant Services, LLC.

Truist increased the quarterly common dividend 8% during the year and declared total common dividends of $2.00 per share during 2022. The dividend payout ratio for 2022 was 45% compared to 41% for the prior year. The total payout ratio for 2022 was 49% compared to 68% for the prior year.

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Financial Results

Net income available to common shareholders totaled $5.9 billion for 2022, a 1.8% decrease from the prior year. On a diluted per common share basis, earnings for 2022 were $4.43, compared to $4.47 for 2021. Truist’s results of operations for 2022 produced a return on average assets of 1.15% and a return on average common shareholders’ equity of 10.4% compared to prior year ratios of 1.23% and 9.7%, respectively. Results include merger-related and restructuring charges of $513 million ($393 million after-tax) for 2022 compared to $822 million ($631 million after-tax) for 2021, and incremental operating expenses related to the Merger of $465 million ($356 million after-tax) for 2022 compared to $771 million ($592 million after-tax) for 2021. Additionally, the 2022 results include a gain on the redemption of noncontrolling equity interest of $74 million ($57 million after-tax) related to the acquisition of certain merchant services relationships, a gain on the early extinguishment of long-term debt of $39 million ($30 million after-tax), partially offset by net losses on the sales of securities of $71 million ($54 million after-tax). The 2021 results include charitable contributions of $200 million ($153 million after-tax), an acceleration of loss recognition related to certain terminated cash flow hedges of $36 million ($28 million after tax), and a one-time professional fee expense of $30 million ($23 million after tax), partially offset by a small gain on extinguishment of debt.

Truist’s revenue for 2022 was $23.0 billion. On a TE basis, revenue was $23.2 billion, which represents an increase of $773 million compared to 2021. Net interest income on a TE basis was $14.5 billion, an increase of $1.3 billion primarily due to higher market interest rates coupled with strong loan growth and well controlled deposit costs. These increases were partially offset by lower purchase accounting accretion and lower PPP revenue. Average earning assets increased $22.3 billion, or 4.9%, compared to the earlier year. The increase in average earning assets reflects a $13.4 billion, or 4.6%, increase in average outstanding loans and a $7.8 billion, or 5.6%, increase in average securities. Average deposits increased $19.7 billion, or 4.9%, and average short-term borrowings increased $8.8 billion, or 142%, partially offset by a decrease in average long-term debt of $3.2 billion, or 8.7%, compared to the earlier year. Noninterest income for 2022 decreased $571 million compared to 2021 primarily due to lower investment banking and mortgage banking income, partially offset by growth in insurance revenues.

NIM was 3.01% for 2022, up 15 basis points compared to the prior year primarily due to higher market interest rates and well controlled deposit costs. The growth in NIM was negatively impacted by lower purchase accounting accretion, which benefited NIM by 13 basis points in 2022 compared to 26 basis points in 2021. The TE yield on the total loan portfolio for 2022 was 4.36%, up 41 basis points. The TE yield on the average securities portfolio was 1.88%, up 38 basis points. The average cost of interest-bearing deposits was 0.42%, up 36 basis points. The average cost of total deposits was 0.27%, up 23 basis points. The average cost of long-term debt was 2.31%, up 78 basis points. The increases in rates on assets and liabilities reflects the rising rate environment during 2022.

The provision for credit losses was $777 million, compared to a benefit of $813 million for the prior year. The current year reflects strong loan growth and a moderate decline in the ALLL ratio, whereas the prior year included reserve releases due to the improving economic environment during that period. Net charge-offs were $823 million, compared to $697 million for the prior year. The net charge-off ratio for the current year of 0.27% was up three basis points compared to the earlier year primarily driven by normalizing trends across certain consumer portfolios, partially offset by lower charge offs in the commercial and industrial portfolio.

Noninterest expense decreased $527 million, or 3.5%, compared to the prior year. Excluding the aforementioned items and the impact of amortization expense for intangibles, noninterest expense increased $380 million, or 3.0%, driven by higher professional fees, operational losses, expenses related to acquired companies and marketing expenses, partially offset by lower occupancy and equipment expenses.

The provision for income taxes was $1.4 billion for 2022, compared to $1.6 billion to 2021. The effective tax rate for 2022 was 18.3%, compared to 19.5% for the prior year. The decrease in the effective tax rate was primarily driven by higher favorable permanent tax items and an increase in discrete tax benefits.

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Truist’s total assets at December 31, 2022 were $555.3 billion, an increase of $14.0 billion, or 2.6%, compared to December 31, 2021. Total loans and leases at December 31, 2022, were $327.4 billion, an increase of $33.1 billion, or 11% compared with December 31, 2021. The increase in loans reflects strong production during the year across most industry verticals and product groups in the commercial and industrial portfolio, as well as growth in the majority of the consumer portfolios. Truist’s total investment securities portfolio declined $25.1 billion, or 16%, as paydowns and maturities were reinvested in the loan portfolio and the fair value of the AFS portfolio declined due to the rising rate environment. In the first quarter of 2022, Truist transferred $59.4 billion of AFS securities to HTM as the Company continues to execute upon its asset-liability management strategies.

Total liabilities at December 31, 2022 were $494.7 billion, an increase of $22.7 billion, or 4.8%, from the prior year, reflecting an increase of $18.1 billion in short-term borrowings and an increase of $7.3 billion, or 20%, in long-term debt, partially offset by a decrease of $3.0 billion, or 0.7%, in deposits.

Total shareholders’ equity was $60.5 billion at December 31, 2022, a decrease of $8.7 billion from December 31, 2021. This decline includes a decrease of $12.0 billion in AOCI and $3.0 billion in dividends, partially offset by $6.3 billion in net income. Truist’s book value per common share at December 31, 2022 was $40.58, compared to $47.14 at December 31, 2021.

Asset quality ratios were relatively stable at December 31, 2022 compared to the prior year, reflecting Truist’s prudent risk culture and portfolio diversification. Nonperforming loans and leases held for investment were 0.36% of loans and leases held for investment at December 31, 2022, down two basis points compared to December 31, 2021. The ALLL ratio was 1.34% compared to 1.53% for prior year. The ratio of the ALLL to net charge-offs was 5.32X for 2022, compared to 6.36X in 2021.

As of December 31, 2022, the CET1 ratio was 9.0% and the average LCR was 112%. The 60 basis point decline in the CET1 ratio compared to December 31, 2021 primarily reflects strong loan growth, acquisitions, and the impact from the phase-in of the CECL transition relief.

On February 16, 2023, the Company entered into an agreement to sell a 20% stake of the common equity in Truist Insurance Holdings, a subsidiary of Truist and the sixth-largest insurance brokerage in the U.S., for $1.95 billion to an investor group led by Stone Point Capital, LLC. The closing of the investment is expected to occur in the second quarter of 2023, subject to customary closing conditions and regulatory approvals. The transaction allows Truist to maintain strategic flexibility and future upside in Truist Insurance Holdings, which will continue to benefit from Truist’s operations, access to capital, and client relationships. Truist will also preserve and enhance its client service approach to offering leading insurance products to its banking clients. Moreover, Truist Insurance Holdings gains an experienced partner in Stone Point, which brings deep industry expertise and access to capital to help accelerate Truist Insurance Holdings’ growth. Upon closing of the transaction, a five-person Board will be formed to oversee Truist Insurance Holdings, comprising four members appointed by Truist and one member appointed by Stone Point.

Key Areas of Focus

Truist’s business is dynamic and complex. Consequently, management annually evaluates and, as necessary, adjusts the Company’s business strategy in the context of the current operating environment. During this process, management considers the current financial condition and performance of the Company and its expectations for future economic activity from both a national and local market perspective. Achieving key strategic objectives and long-term financial goals is subject to many uncertainties and challenges. In the opinion of management, the following are the key areas of focus most likely to impact Truist’s near to medium term performance:

•Actualizing our purpose to inspire and build better lives and communities and driving executional excellence to realize our potential;

•More focus on integrated relationship management to deepen relationships, improve client experiences, and/or deliver the bank as One Team;

•Digitizing the enterprise through our “T3 strategy” to create a world-class client experience and streamline, simplify, and automate processes and operations; and

•Making Truist a great place to work through our purpose-driven and inclusive culture, competitive compensation and benefits, and compelling career development and growth opportunities.

In addition, certain other challenges and unforeseen events could have a near term impact on Truist’s financial condition and results of operations. See the sections titled “Forward-Looking Statements” and “Risk Factors” for additional examples of such challenges.

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Analysis of Results of Operations

Net Interest Income and NIM

2022 compared to 2021

TE net interest income for the year ended December 31, 2022 was up $1.3 billion, or 10%, compared to the prior year primarily due to higher market interest rates coupled with strong loan growth and well controlled deposit costs, partially offset by lower purchase accounting accretion and lower PPP revenue. Average earning assets increased $22.3 billion, or 4.9%, compared to the prior period. The increase in average earning assets reflects a $13.4 billion, or 4.6%, increase in average total loans and leases and a $7.8 billion, or 5.6%, increase in average securities. Average deposits increased $19.7 billion, or 4.9%, and average short-term borrowings increased $8.8 billion, or 142%, compared to the prior year, while average long-term debt decreased $3.2 billion, or 8.7%.

Net interest margin was 3.01% for the year ended December 31, 2022, up 15 basis points compared to the prior year. The growth in NIM was negatively impacted by lower purchase accounting accretion, which benefited NIM by 13 basis points in 2022 compared to 26 basis points in 2021. The yield on the total loan portfolio for the year ended December 31, 2022 was 4.36%, up 41 basis points compared to the prior year, reflecting higher market interest rates, partially offset by lower purchase accounting accretion and lower PPP revenue. The yield on the average securities portfolio was 1.88% for the year ended December 31, 2022, up 38 basis points compared to the prior year primarily due to the higher rate environment.

The average cost of total deposits was 0.27% for the year ended December 31, 2022, up 23 basis points compared to the prior year. The average cost on short-term borrowings was 2.58% for the year ended December 31, 2022, up 182 basis points compared to the prior year. The average cost on long-term debt was 2.31% for the year ended December 31, 2022, up 78 basis points compared to the prior year. The increase in rates on deposits and other funding sources was largely attributable to the higher rate environment.

As of December 31, 2022, the remaining unamortized fair value marks on the loan and lease portfolio and long-term debt were $741 million and $81 million, respectively, with no remaining mark for deposits. As of December 31, 2021, the remaining unamortized fair value marks on the loan and lease portfolio, deposits and long-term debt were $1.3 billion, $7 million, and $139 million, respectively.

The remaining unamortized purchase accounting fair value mark on loans and leases consists of $474 million for consumer loans and leases, and $267 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.

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

(6)Total deposit costs were 0.27%, 0.04%, and 0.22% for the years ended December 31, 2022, 2021, and 2020, respectively.

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Provision for Credit Losses

2022 compared to 2021

The provision for credit losses was $777 million for the year ended December 31, 2022, compared to a benefit of $813 million for the prior year. The current year reflects strong loan growth and a moderate decline in the ALLL ratio, whereas the prior year included reserve releases due to the improving economic environment during that period. Net charge-offs for the year ended December 31, 2022 totaled $823 million compared to $697 million in the prior year. The net charge-off ratio for the current year of 0.27% was up three basis points compared to the prior year.

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

Noninterest Income

Noninterest income is a significant contributor to Truist’s financial results. Management focuses on diversifying its sources of revenue to reduce Truist’s reliance on traditional spread-based interest income, as certain fee-based activities are a relatively stable revenue source during periods of changing interest rates. During 2022, the Company reclassified certain line items within noninterest income. See “Note 1. Basis of Presentation” for additional details. The following table provides a breakdown of Truist’s noninterest income:

2022 compared to 2021

Noninterest income for the year ended December 31, 2022 decreased $571 million, or 6.1%, compared to the prior year. The current year includes net securities losses of $71 million and the gain on the redemption of noncontrolling equity interest (other income) of $74 million. The earlier year included a gain of $37 million from the divestiture of certain businesses (other income). Excluding the aforementioned items, noninterest income was down $537 million, or 5.8%, compared to the prior year. Investment banking and trading income decreased $446 million, or 31%, due to lower capital markets activity and lower merger and acquisition fees. Mortgage banking income decreased $274 million, or 37%, as lower production income (due to lower margins and refinance volumes resulting from the higher rate environment) was partially offset by higher residential servicing income (due to lower prepayments and servicing portfolio purchases). Excluding the aforementioned gains, other income decreased $237 million, or 46%, primarily due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, lower investment income and valuation marks from the Company’s SBIC and other strategic investments and lower derivative trading income. Wealth management income decreased $54 million, or 3.9%, primarily due to lower market valuations. Insurance income increased $416 million, or 16%, due to acquisitions and continued organic growth. Card and payment related fees increased $70 million, or 8.0%, due to the first quarter 2022 acquisition of certain merchant services relationships and increased activity.

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Noninterest Expense

During 2022, the Company reclassified certain line items within noninterest expense. See “Note 1. Basis of Presentation” for additional details. The following table provides a breakdown of Truist’s noninterest expense:

2022 compared to 2021

Noninterest expense for the year ended December 31, 2022 was down $527 million, or 3.5%, compared to the earlier year. Merger-related and restructuring charges decreased $309 million due to diminishing integration-related activities and lower costs in connection with the voluntary separation and retirement program, partially offset by higher costs for client day one conversions. Incremental operating expenses related to the Merger decreased $306 million, primarily reflecting lower personnel and professional fees and outside processing expenses. The current year includes a $39 million gain on the redemption of FHLB advances (other expense). The prior year includes $200 million for charitable contributions to the Truist Foundation and the Truist Charitable Fund (other expense), $36 million of expense associated with an acceleration of loss recognition related to certain terminated cash flow hedges (other expense), 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, and a small gain on the extinguishment of debt (other expense).

Excluding the aforementioned items and the amortization of intangibles, adjusted noninterest expense increased $380 million, or 3.0%, compared to the earlier year. Other expense was down $61 million, but was up $217 million, or 39%, on an adjusted basis primarily due to increased operational losses and teammate travel expenses. Professional fees and outside processing expenses were down $31 million, but up $173 million, or 20%, on an adjusted basis due to increased project spend for enterprise technology investments and increased call center staffing. Marketing and customer development expense increased $58 million ($66 million, or 23% on an adjusted basis) due to increased spend to continue to build and strengthen Truist’s brand. Net occupancy expense decreased $20 million ($47 million, or 6.2% on an adjusted basis) primarily due to consolidations of branches and other facilities. Equipment expense decreased $35 million ($41 million, or 8.2% on an adjusted basis) primarily due to laptop purchases in the prior year. Personnel expense decreased $165 million, or 1.9% ($18 million, or 0.2% on an adjusted basis) due to lower other post-retirement benefit expense, which is almost entirely offset by lower other income, lower incentives expenses, and lower defined benefit costs, partially offset by higher salaries due to additional personnel costs for acquisitions, annual merit increases, and investments in revenue producing businesses and enterprise technology, and higher medical claims.

Merger-Related and Restructuring Charges

Truist has incurred certain merger-related and restructuring charges, which include:

•severance and personnel-related costs or credits;

•occupancy and equipment charges or credits, which relate to costs or gains associated with lease terminations, obsolete equipment write-offs and the sale of duplicate facilities and equipment;

•professional services, which relate to legal and investment banking advisory fees and other consulting services pertaining to restructuring initiatives or transactions;

•systems conversion and related charges, which represent costs to integrate the entity’s information technology systems;

•other merger-related and restructuring charges or credits, which include expenses necessary to convert and combine the acquired branches and operations of merged companies, direct media advertising related to the mergers and acquisitions, asset and supply inventory write-offs, and other similar charges; and

•write-offs related to exiting certain businesses.

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Merger-related and restructuring accruals are established when the costs are incurred or once all requirements for a plan to dispose of or outsource certain business functions have been approved by management. Merger and restructuring accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at December 31, 2022 are generally expected to be utilized within one year, unless they relate to specific contracts that expire later.

The following table presents a summary of merger-related and restructuring charges and the related accruals. The 2022 and 2021 merger-related and restructuring costs primarily reflect charges as a result of the Merger, including costs for severance and other benefits, costs related to exiting facilities, and other restructuring initiatives.

(1)Related to the Merger, the Company recognized $368 million of expense for the year ended December 31, 2022. At December 31, 2022, the Company had an accrual of $19 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.

The segment results are presented based on internal management methodologies that were designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to GAAP. The application and development of management reporting methodologies is an active process and undergoes periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment, with no impact on consolidated results. When significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is revised.

Prior period results have been revised to reflect management reporting methodology changes resulting from the integration of heritage BB&T and heritage SunTrust measurement processes and systems. Changes primarily relate to funds transfer pricing and internal equity allocations. The changes impacted 2021 and 2020 segment net interest income reported in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2021. CB&W, C&CB, and IH increased $868 million, $566 million, and $15 million, respectively, for 2021 and increased $117 million, $375 million, and $15 million, respectively, for 2020. These increases were offset with decreases in OT&C of $1.4 billion for 2021 and $507 million for 2020.

See “Note 21. Operating Segments” for additional disclosures related to Truist’s operating segments, including the internal accounting and reporting practices used to manage these segments.

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2022 compared to 2021

Consumer Banking and Wealth

CB&W net income was $3.8 billion for the year ended December 31, 2022, an increase of $15 million, or 0.4%, compared to the prior year. Segment net interest income increased $975 million primarily due to favorable funding credit on deposits attributable to the higher rate environment and higher average loan and deposit balances, partially offset by decreased loan spreads and lower purchase accounting accretion. The allocated provision for credit losses increased $717 million primarily due to a reserve release in the prior year as well as loan growth and a moderately slower economic outlook in the current year. Noninterest income decreased $274 million primarily due to a decrease in residential mortgage income. Noninterest expense decreased $94 million primarily due to lower net occupancy and incentive expenses as well as lower merger-related and restructuring charges, partially offset by increased operational losses.

CB&W average loans and leases held for investment increased $4.9 billion, or 3.7%, for the year ended December 31, 2022 compared to the prior year driven primarily by an increase in residential mortgage loans as well as increases in the Service Finance, prime auto, and recreational lending portfolios. These increases were partially offset by lower mortgage warehouse lending as well as runoff in other partnership lending programs and student loans.

CB&W average total deposits increased $8.9 billion, or 3.7%, for the year ended December 31, 2022 compared to the prior year primarily due to increases in average noninterest bearing deposits, money market and savings, and interest bearing checking, partially offset by a decline in time deposits.

CB&W had 2,123 banking offices at December 31, 2022, a decrease of 394 offices compared to December 31, 2021. The decrease in offices was driven primarily by the consolidation of branches as a result of the Merger.

Truist Wealth had assets under management of $180.4 billion as of December 31, 2022, a decrease of $29.2 billion, or 14%, compared to the prior year primarily due to market declines, partially offset by positive organic growth in assets under management.

Corporate and Commercial Banking

C&CB net income was $4.4 billion for the year ended December 31, 2022, a decrease of $435 million, or 9.0%, compared to the prior year. Segment net interest income increased $740 million primarily due to higher funding credit on deposits and increases to noninterest bearing deposit balances, partially offset by lower purchase accounting accretion and lower fee income associated with PPP loan forgiveness. The allocated provision for credit losses increased $786 million which reflects lower allowance releases in the current year compared to the prior year, partially offset by lower net charge-offs in the current year. Noninterest income decreased $513 million primarily due lower investment banking revenue. Noninterest expense decreased $31 million primarily due to lower incentive expense tied to lower revenues and lower professional fees as well as lower merger-related and restructuring charges, partially offset by investments in revenue producers.

C&CB average loans and leases held for investment increased $11.0 billion, or 7.2%, for the year ended December 31, 2022 compared to the prior year. Excluding a $5.7 billion decrease in average PPP loans, average loans held for investment were up $16.6 billion, or 11%, primarily driven by an increase in the commercial and industrial portfolio loans, partially offset by a decrease in average commercial real estate and commercial construction loans.

C&CB average total deposits decreased $1.9 billion, or 1.3%, for the year ended December 31, 2022 compared to the prior year primarily due to a decrease in average interest bearing deposits, partially offset by an increase in noninterest bearing deposits.

Insurance Holdings

IH net income was $546 million for the year ended December 31, 2022, an increase of $16 million, or 3.0%, compared to the prior year. Noninterest income increased $441 million, or 17%, primarily due to acquisitions and organic growth. Noninterest expense increased $425 million, or 20%, primarily due to investments in new hires and teammates, performance-driven incentive expense, higher merger-related charges related to acquisitions, and an increase in travel and entertainment expense.

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Other, Treasury, and Corporate

OT&C generated a net loss of $2.5 billion for the year ended December 31, 2022, compared to a net loss of $2.7 billion in the prior year. Segment net interest income decreased $435 million due to higher funding credit on deposits to other segments, partially offset by higher funds transfer charges to other segments for loans and higher earnings in the securities portfolio from the higher rate environment. The allocated provision for credit losses increased $80 million, which reflects a build in the reserve for unfunded commitments in the current year compared to a release in the prior year. Noninterest income decreased $225 million primarily due to valuation changes from assets held for certain post-retirement benefits, which is primarily offset by lower personnel expense, and losses on the sale of securities in the current year. Noninterest expense decreased $827 million primarily due to lower personnel expense, charitable contributions to the Truist Foundation and the Truist Charitable Fund in the prior year, and lower merger-related and restructuring charges and incremental operating expenses related to the Merger.

Analysis of Financial Condition

Investment Activities

Truist’s Board-approved investment policy is carried out by the MRLCC, which meets regularly to review the economic environment and establish investment strategies. The MRLCC also has much broader responsibilities, which are discussed in the “Market Risk” section in MD&A.

Investment strategies are reviewed by the MRLCC based on the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and the overall interest rate sensitivity of the Company. In general, the goals of the investment portfolio are: (i) to provide sufficient liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (ii) to provide eligible securities to secure public funds, trust deposits and other borrowings; and (iii) to earn an optimal return on funds invested commensurate with meeting the requirements of (i) and (ii) and consistent with the Company’s risk appetite.

Truist Bank invests in securities allowable under bank regulations. These securities may include obligations of the U.S. Treasury, U.S. government agencies, GSEs (including MBS), bank eligible obligations of any state or political subdivision, non-agency MBS, structured notes, bank eligible corporate obligations (including corporate debentures), commercial paper, negotiable CDs, bankers’ acceptances, mutual funds, and limited types of equity securities.

The securities portfolio totaled $129.5 billion at December 31, 2022, compared to $154.6 billion at December 31, 2021. The decrease includes paydowns and maturities of $20.8 billion, as well as market declines of $14.0 billion, partially offset by purchases of $10.1 billion. In the first quarter of 2022, Truist transferred $59.4 billion of AFS securities to HTM as the Company continues to execute upon its asset-liability management strategies. As of December 31, 2022, 41% of the investment securities portfolio was classified as held-to-maturity based on amortized cost.

As of December 31, 2022, approximately 5.6% of the securities portfolio was variable rate, excluding the impact of swaps, compared to 4.6% as of December 31, 2021. The effective duration of the securities portfolio was 6.7 years at December 31, 2022, compared to 5.8 years at December 31, 2021, excluding the impact of unsettled security purchases at period end. The increase in duration was driven by higher rates, resulting in slower prepayments and longer average lives for the MBS portfolio.

U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of December 31, 2022 and December 31, 2021. While the overwhelming majority of the portfolio remains in agency MBS securities, the Company also holds AAA rated non-agency MBS as the risk adjusted returns for these securities are more attractive than agency MBS.

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The following table presents the securities portfolio by major category of security holdings with ranges of maturities and average yields:

(1)Yields represent interest computed under the effective interest method on a TE basis using the federal income tax rate and the amortized cost of the securities.

(2)For purposes of the maturity table, MBS, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life of MBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans.

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Lending Activities

Truist strives to meet the credit needs of its clients while pursuing a balanced strategy of loan profitability, loan growth, and loan quality. Management believes that this purpose can best be accomplished by building strong client relationships over time and developing in-depth local market knowledge. The Company employs strict underwriting criteria governing the degree of risk assumed and the diversity of the loan portfolio in terms of type, industry, and geographical concentration.

Truist lends to a diverse client base that is geographically dispersed to mitigate concentration risk arising from local and regional economic downturns. The following discussion provides additional information on the Company’s loan and lease portfolios. Refer to the “Risk Management” section for a discussion of the credit risk management policies used to manage the portfolios.

Commercial Loan and Lease Portfolio

Commercial loans and leases represent the largest category of the Company’s loan and lease portfolio. Commercial Community Banking generally targets small-to-middle market businesses with annual sales between $2 million and $500 million, while CIB provides lending solutions to large corporate clients. The commercial loan and lease portfolio consists of lending to public and private business clients and is composed of commercial and industrial, owner occupied, equipment leasing and financing, commercial real estate, government and institutional financing, and premium financing

In accordance with the Company’s lending policy, each commercial loan undergoes a detailed underwriting process. Commercial loans are typically priced with an interest rate tied to market indices, such as the prime rate or SOFR and are individually monitored and reviewed for deterioration in the ability of the client to repay the loan. The majority of Truist’s commercial loans are secured by real estate, business equipment, inventories, and other types of collateral.

Residential Mortgage Loan Portfolio

Truist primarily originates conforming mortgage loans, loans under FHA, U.S. Department of Veterans Affairs, or U.S. Department of Agriculture programs, and higher quality jumbo and construction-to-permanent loans for 1-4 family residential properties. Conforming loans are loans that are underwritten in accordance with the underwriting standards set forth by FNMA and FHLMC. They are generally collateralized by one-to-four-family residential real estate, typically have loan-to-collateral value ratios of 80% or less at origination, or have mortgage insurance as required by investors and are made to borrowers in good credit standing.

Risks associated with mortgage lending include interest rate risk, which is mitigated through the sale of a substantial portion of conforming fixed-rate loans in the secondary mortgage market and an effective MSR hedging process. Credit risk is managed through rigorous underwriting procedures and mortgage insurance. The right to service the loans and receive servicing income is generally retained when conforming loans are sold. Management believes that the retention of mortgage servicing diversifies income while enabling Truist to build long-term client relationships and offer high quality client service. Truist also purchases residential mortgage loans from correspondent originators. The loans purchased from third-party originators are subject to substantially the same underwriting and risk-management criteria as loans originated internally.

Residential Home Equity and Direct Loan Portfolio

The residential home equity and direct loan portfolio is composed of a wide variety of secured and unsecured loans offered through Truist’s branch network, as well as loans originated by LightStream, Truist’s national online consumer lending division. Loans originated through the Truist branch network include revolving home equity lines of credit secured by first or second liens on residential real estate and certain other secured and unsecured lending marketed to qualifying clients and other creditworthy candidates in Truist’s market areas. LightStream provides fixed-rate, unsecured lending to consumers with strong credit through its proprietary online loan origination system.

Indirect Auto Loan Portfolio

The indirect auto portfolio primarily includes secured indirect installment loans to consumers for the purchase of new and used automobiles. The indirect auto portfolio also includes nonprime and near prime automobile finance. Such loans are originated through approved franchised and independent dealers throughout the Truist market area and nationally through Regional Acceptance Corporation. These loans are relatively homogeneous, and no single loan is individually significant in terms of its size and potential risk of loss. Indirect auto loans are subject to rigorous lending policies and procedures and are underwritten with note amounts and credit limits that are consistent with the Company’s risk philosophy. In addition to its normal underwriting due diligence, Truist uses application systems and scoring systems to help underwrite and manage the credit risk in its indirect auto portfolio.

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Indirect Other Loan Portfolio

The indirect other portfolio includes secured indirect installment loans to consumers for the purchase of new and used boats and recreational vehicles. The indirect other portfolio also includes small ticket consumer lending related to the purchase of power sports and outdoor power equipment, and trailers. These loans are relatively homogeneous, and no single loan is individually significant in terms of its size and potential risk of loss. These loans are subject to similar rigorous lending policies and procedures as the indirect auto loan portfolio. The indirect other loan portfolio also includes other indirect and point-of-sale lending to consumers to finance home improvements, furniture purchases, certain elective health-care services, and other consumer products segments. These loans are originated in accordance with strict underwriting criteria as determined by Truist.

Student Loan Portfolio

The student loan portfolio is primarily composed of government guaranteed student loans and additionally includes certain private student loans originated by third parties. The government guarantee mitigates substantially all of the risk related to principal and interest repayment for this component of the portfolio. Private student loans were purchased from third-party originators with credit enhancements that partially mitigate the Company’s credit exposure.

Credit Card Loan Portfolio

The credit card portfolio consists of the outstanding balances on credit cards. Truist markets credit cards to its existing client base and does not solicit cardholders through nationwide programs or other forms of mass marketing. Such balances are generally unsecured and actively managed.

Refer to “Note 5. Loans and ACL” for additional information.

The following table summarizes the loan portfolio:

Loans and leases HFI were $326.0 billion at December 31, 2022, up $36.5 billion compared to 2021.

Commercial loans increased $25.1 billion during 2022 primarily due to broad-based growth within the commercial and industrial portfolio and the BankDirect acquisition, which added $3.1 billion of loans on November 1, 2022. These increases were partially offset by a $1.9 billion decline in PPP loans.

Consumer loans, including credit cards, increased $11.3 billion during 2022 primarily due to an $8.8 billion increase in residential mortgages due to correspondent channel production and lower prepayments, a $2.1 billion increase in indirect other primarily due to growth from Service Finance, recreational lending, and Sheffield portfolios, partially offset by runoff in other partnership lending programs, and a $1.5 billion increase in indirect auto primarily in the prime auto segment. These increases were partially offset by $1.5 billion runoff in student loans.

LHFS decreased $3.4 billion during 2022 primarily due to certain residential mortgage correspondent channel production being retained and lower overall mortgage volumes due to rising rate environment, as well as a decline in commercial loans.

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The following table presents a summary of the loans and leases by scheduled repayment period and interest rate terms. Determinations of maturities are based on scheduled repayments, except when rollovers or extensions are included for purposes of measuring the ACL. Truist’s credit policy typically does not permit automatic renewal of loans. At the scheduled maturity date (including balloon payment date), the client generally must request a new loan to replace the matured loan and execute either a new note or note modification with rate, terms and conditions negotiated at that time.

Certain residential mortgage loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both interest and principal over the remaining term. The outstanding balances of variable rate residential mortgage loans in the interest-only phase were approximately $342 million and $288 million at December 31, 2022 and December 31, 2021, respectively.

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

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Average loans and leases held for investment for the fourth quarter of 2022 were $320.7 billion, up $11.3 billion, or 3.6%, compared to the third quarter of 2022. The company added $3.1 billion of loans in conjunction with the acquisition of BankDirect on November 1, 2022, which contributed $2.1 billion of average loan growth for the fourth quarter of 2022. Excluding the acquisition, average loans and leases held for investment increased $9.2 billion, or 3.0% compared to the third quarter of 2022.

Average commercial loans increased $7.9 billion, or 4.4%, due to broad-based growth within the commercial and industrial portfolio and the BankDirect acquisition.

Average consumer loans increased $3.3 billion, or 2.7%, due to a $3.0 billion increase in residential mortgages due to correspondent channel production and lower prepayments. In addition, indirect other increased $548 million primarily due to growth from the Service Finance, recreational lending, and Sheffield portfolios, partially offset by runoff in other partnership lending programs. These increases were partially offset by $425 million runoff in student loans.

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Asset Quality

The following tables summarize asset quality information:

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Nonperforming assets totaled $1.3 billion at December 31, 2022, up $87 million compared to December 31, 2021 due to increases in the indirect auto and CRE portfolios, partially offset by a decrease in the residential mortgage portfolio. Nonperforming loans and leases represented 0.36% of total loans and leases, down two basis points compared to December 31, 2021.

Performing TDRs were up $596 million compared to the prior year primarily due to increases in residential mortgages and indirect auto.

Loans 90 days or more past due and still accruing totaled $1.6 billion at December 31, 2022, down $325 million compared to the prior year

primarily due to a decline in government guaranteed residential mortgages and government guaranteed 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 0.04% at December 31, 2022, up one basis point from December 31, 2021.

Loans 30-89 days past due and still accruing totaled $2.3 billion at December 31, 2022, up $223 million compared to the prior year due to increases in the commercial and industrial, nonguaranteed residential mortgage, and indirect other portfolios, partially offset by a decline in the student portfolio. The ratio of loans 30-89 days or more past due and still accruing as a percentage of loans and leases was 0.70% at December 31, 2022, down one basis point compared to the prior year.

Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 19. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to “Note 5. Loans and ACL” for the amortized cost basis of loans by origination year and credit quality indicator as well as additional disclosures related to NPLs.

(1)Includes LHFS.

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

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The following table presents activity related to NPAs:

(1)Includes charge-offs and losses recorded upon sale of $130 million and $115 million for the year ended December 31, 2022 and 2021, respectively.

(2)Includes gains, net of charge-offs recorded upon sale of $2 million and $3 million for the year ended December 31, 2022 and 2021, 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.

The following table provides a summary of performing TDR activity:

(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.

The following table provides further details regarding the payment status of TDRs outstanding: