TRUIST FINANCIAL CORP (TFC) FY 2021 MD&A

Executive Overview

Truist financial performance in 2021 was solid, highlighted by strong performances from investment banking, insurance, wealth and card and payment related fees, and positive trends in a number of other businesses given improving economic conditions. Improving economic conditions also led to a strong credit performance and a benefit from the provision for credit losses. Truist achieved its fourth quarter 2021 net cost saves target and 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. Truist formed a Together Safely Committee focused on developing new working models in a post-pandemic era. Further, Truist continued to activate its Integrated Relationship Management approach, which is designed to deepen client relationships and bring the full breadth and depth of Truist’s products and services to meet clients’ financial needs. As we enter 2022 and shift priorities, aiming past systems integrations and the pandemic, Truist is well positioned for purposeful growth.

Executive Leadership Changes

Truist made several Executive Leadership changes during 2021 as we continued to execute on the strategy first agreed upon in the Merger. In September 2021, Kelly S. King, transitioned to the role of Executive Chairman, and William H. Rogers, Jr. became the CEO of Truist. There were other changes to Truist’s Executive Leadership team that included the addition of John M. Howard, as Chief Insurance Officer, the appointment of Hugh S. Cummins III as Vice Chair, and the retirement of Christopher L. Henson, Head of Banking and Insurance. The members of the Executive Leadership team as of December 31, 2021 are detailed in the Executive Officers table within Item 1 “Business.”

In January 2022, Truist appointed Denise M. DeMaio as Chief Audit Officer, effective February 28, 2022. Denise will join the Executive leadership team and will lead Truist's internal audit function and provide counsel to senior management on emerging risk trends from the vantage points of governance, processes, technologies and reporting.

Integration Efforts

Major milestones during 2021 and early 2022 include:

•Made critical progress on core bank conversions, including migrating heritage BB&T clients to the Truist ecosystem in October. We recently completed the core bank conversion in February 2022 for heritage SunTrust clients.

•Completed the Wealth brokerage and trust transitions and the mortgage systems transition.

•Introduced the new Truist digital app for Truist retail, wealth, and small business commercial clients.

•Launched new Truist.com and Truist Digital Commerce platform offering Truist‑branded products in a goal-based, mobile-optimized experience.

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ESG Efforts

Supporting Clients

Truist is committed to investing in and serving all clients, no matter where they are in their financial journey. Some of the ways we are helping clients include:

•In January 2022, Truist announced a first-of-its-kind approach to the checking account experience, designed to address clients’ direct feedback, which will be available to clients beginning in the summer of 2022. The Truist One checking account features will include: no overdraft fees; a $100 negative balance buffer for qualifying clients; an easily accessible, deposit-based line of credit of up to $750; and premium rewards that instantly recognize relationships and honor loyalty. In addition, Truist will offer an alternative checking account product created for clients who are new to credit and want simplicity and control without overdraft fees. This will help clients avoid high fees from check-cashing and payday lenders, bring many more households into mainstream banking, and create a pathway to upgrade to Truist One.

•Increased access to financial education for Truist’s clients through a partnership with Operation HOPE.

•Partnering with the Bank Policy Institute to publish the Child Tax Credit Toolkit and promoting Child Tax Credit expansion awareness with modules on all digital financial education platforms.

•Truist continues to work closely with clients as they navigate through the continuing challenges from the COVID-19 pandemic. Truist ranked as the fourth largest PPP lender amongst commercial banks overall.

Supporting Teammates

•Truist met its commitment to increase racially and ethnically diverse representation in senior leadership roles to more than 15% one year early with 15.1% as of December 31, 2021.

•Truist offered a voluntary separation and retirement program to eligible teammates in June 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 $231 million of merger-related and restructuring charges in 2021 related to the voluntary separation and retirement program.

•Implemented onsite, remote, and hybrid work styles in order to provide the most flexible work environment.

Supporting Communities

Truist continued to fulfill its purpose in meaningful ways in the community through a number of unique and creative initiatives. Some highlights from these initiatives and recognition of Truist’s efforts include:

•Truist continued to make solid progress towards the Company’s $60 billion Community Benefits Plan, ending November 2021 at 113% of the annual target.

•Recognized in JUST Capital’s ‘JUST 100’ list for ongoing efforts around good corporate citizenship.

•Released inaugural TCFD report, joined the Partnership for Carbon Accounting Financials, issued its first social bond, 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.

•Announced plans to achieve net zero greenhouse gas emissions by 2050, furthering the Company's aspiration to support the transition to a low-carbon economy.

•Released 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.

•In December 2021, Truist and Sterling Capital Management LLC established the Sterling Capital Diverse Multi-Manager Active Exchange Traded Fund to demonstrate the Company’s support for increasing access for individuals and institutions to invest using strategies from diverse-owned firms.

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Financial Results

Net income available to common shareholders totaled $6.0 billion for 2021, a 44% increase from the prior year. On a diluted per common share basis, earnings for 2021 were $4.47, compared to $3.08 for 2020. Truist's results of operations for 2021 produced a return on average assets of 1.23% and a return on average common shareholders' equity of 9.7% compared to prior year ratios of 0.90% and 6.8%, respectively. Results include merger-related and restructuring charges of $822 million ($631 million after-tax) for 2021 compared to $860 million ($660 million after-tax) for 2020, and incremental operating expenses related to the Merger of $771 million ($592 million after-tax) for 2021 compared to $534 million ($409 million after-tax) for 2020. Additionally, 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. The 2020 results include securities gains of $402 million ($308 million after-tax), a loss on extinguishment of debt of $235 million ($180 million after tax), and charitable contributions of $50 million ($38 million after-tax). The following table provides Truist’s earnings highlights:

Truist's revenue for 2021 was $22.3 billion. On a TE basis, revenue was $22.4 billion, which represents a decrease of $426 million compared to 2020. Net interest income on a TE basis was $13.1 billion, a decrease of $837 million. The decrease in net interest income was due primarily to lower purchase accounting accretion and a $21.1 billion decrease in average outstanding loans, partially offset by a $56.3 billion increase in average securities as a result of strong deposit growth. Noninterest income for 2021 increased $411 million compared to 2020 due to strong performance from investment banking, insurance, wealth, and card and payment related fees. Excluding gains of $37 million from the divestiture of certain businesses in 2021 and securities gains of $402 million from 2020, adjusted taxable equivalent revenues decreased $61 million, or 0.3%, compared to the earlier year.

NIM was 2.86% for 2021, down 36 basis points compared to the prior year. Average earning assets increased $24.4 billion or 5.6%, while average interest-bearing liabilities decreased $1.4 billion or 0.5%, and noninterest-bearing deposits increased $24.2 billion or 21%. The TE yield on the total loan portfolio for 2021 was 3.95%, down 38 basis points. The TE yield on the average securities portfolio was 1.50%, down 59 basis points. The average cost of interest-bearing deposits was 0.06%, down 26 basis points. The average cost of long-term debt was 1.53%, down 22 basis points. The average cost of total deposits was 0.04%, down 18 basis points.

The provision for credit losses was a benefit of $813 million, compared to a cost of $2.3 billion for the prior year. Net charge-offs were $697 million, compared to $1.1 billion for the prior year. Asset quality ratios were relatively stable at December 31, 2021 compared to the prior year, reflecting Truist’s prudent risk culture, portfolio diversification, improving economic conditions, and the ongoing effects of government stimulus. The ratio of the ALLL to net charge-offs was 6.36X for 2021, compared to 5.21X in 2020, reflecting lower net charge-offs. NPAs decreased $224 million year over year due to declines across almost all portfolios, partially offset by an increase in the indirect auto portfolio.

Noninterest income increased $411 million, or 4.6%, compared to the prior year. Excluding securities gains and a gain on the divestiture of certain businesses, noninterest income was up $776 million, or 9.2%, highlighted by strong performance from investment banking, insurance, wealth, and card and payment related fees.

Noninterest expense increased $219 million, or 1.5%, compared to the prior year. Excluding merger-related and restructuring charges, incremental operating expenses related to the Merger, the impact of the extinguishment of debt, charitable contributions, an acceleration of loss recognition related to certain terminated cash flow hedges, a one-time professional fee expense, and the impact of amortization expense for intangibles, noninterest expense increased $154 million, or 1.2%. This increase in noninterest expense was driven by incentives expense due to stronger performance and insurance acquisitions, partially offset by the ongoing impact of cost saving efforts from the Merger.

Truist's total assets at December 31, 2021 were $541.2 billion, an increase of $32.0 billion compared to December 31, 2020, reflecting a $33.8 billion increase in securities, a $2.3 billion increase in securities borrowed or purchased under agreements to resell, a $2.1 billion increase in goodwill and intangible assets, partially offset by a decrease of loans and leases HFI, net of ALLL, of $8.8 billion.

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Total liabilities at December 31, 2021 were $472.0 billion, an increase of $33.7 billion from the prior year, reflecting an increase of $35.4 billion in deposits, partially offset by a decrease of $3.7 billion in long-term debt.

Total shareholders' equity was $69.3 billion at December 31, 2021, down $1.6 billion compared to the prior year, reflecting a decrease in AOCI of $2.3 billion, primarily due to unrealized losses on AFS debt securities, $1.6 billion common share repurchases, and the redemption of $1.4 billion of preferred shares, partially offset by net income in excess of dividends paid of $3.6 billion.

Truist maintained strong capital and liquidity in 2021. As of December 31, 2021, the CET1 ratio was 9.6% and the average LCR was 114%. Truist increased the quarterly common dividend 7% during the year and declared total common dividends of $1.86 per share during 2021. The dividend payout ratio for 2021 was 41% compared to 58% for the prior year. The total payout ratio for 2021 was 68% compared to 58% for the prior year, reflecting the resumption of share repurchases. During 2021, Truist completed the acquisition of Service Finance to expand point-of-sale lending capabilities and Constellation Affiliated Partners to expand IH’s wholesale division. In early 2022, Truist declared common dividends of $0.48 per share for the first quarter of 2022, and announced the acquisition of Kensington Vanguard National Land Services to expand IH’s title insurance operation.

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 established 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:

•Championing the Company’s purpose to inspire and build better lives and communities;

•Leading with purpose to provide profitable growth and achieve positive operating leverage;

•Shifting from an integration focus to an operating focus, with a particular emphasis on executional excellence and profitable growth,

•Attracting and retaining key teammates and advancing teammate and leadership development;

•Driving innovation and remaining attuned to evolving client preferences to succeed in an intensely competitive environment;

•Executing the Company’s "T3 strategy" by focusing on personal touch and technology to engender trust and provide distinctive, secure and successful client experiences;

•Advancing DEI and ESG initiatives;

•Achieving the benefits from the Merger, including anticipated synergies through cost saving and Truist’s Integrated Relationship Management approach; and

•Managing the integration of systems and operations, while safeguarding the Company against external threats.

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

2021 compared to 2020

Net interest income for the year ended December 31, 2021 was down $837 million, or 6.0%, compared to the prior year due to lower purchase accounting accretion, lower rates on earning assets, and a decrease in loan balances. These decreases were partially offset by growth in the securities portfolio, lower funding costs, higher fees on PPP loans, and releases of interest deferrals related to COVID-19 loan accommodations established in 2020. Average earning assets increased $24.4 billion, or 5.6%, compared to the prior period. The increase in average earning assets reflects a $56.3 billion, or 68%, increase in average securities, while average total loans and leases decreased $21.1 billion, or 6.7%, and average other earning assets decreased $11.7 billion, or 38%. 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 $35.1 billion, or 9.7%, compared to the prior year, while average long-term debt and short-term borrowings decreased $8.4 billion, or 18%, and $4.0 billion, or 39%, respectively.

Net interest margin was 2.86% for the year ended December 31, 2021, down 36 basis points compared to the prior year. The yield on the total loan portfolio for the year ended December 31, 2021 was 3.95%, down 38 basis points compared to the prior year, reflecting the impact of lower purchase accounting accretion and the ongoing impact of the low rate environment. The yield on the average securities portfolio was 1.50% for the year ended December 31, 2021, down 59 basis points compared to the prior year primarily due to lower yields on new purchases and higher premium amortization.

The average cost of total deposits was 0.04% for the year ended December 31, 2021, down 18 basis points compared to the prior year. The average cost on short-term borrowings was 0.76% for the year ended December 31, 2021, down 59 basis points compared to the prior year. The average cost on long-term debt was 1.53% for the year ended December 31, 2021, down 22 basis points compared to the prior year. The lower rates on interest-bearing liabilities reflect the lower rate environment.

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. 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 consist of $700 million for consumer loans and leases, and $623 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 0.04%, 0.22%, and 0.64% for the years ended December 31, 2021, 2020, and 2019, respectively.

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Provision for Credit Losses

2021 compared to 2020

The provision for credit losses was a benefit of $813 million for the year ended December 31, 2021, compared to a cost of $2.3 billion for the prior year. The prior year included significant uncertainty related to the economic impacts resulting from the pandemic, whereas the current year includes reserve releases due to the improving economic outlook. Net charge-offs for the year ended December 31, 2021 totaled $697 million compared to $1.1 billion in the prior year. Net charge-offs for 2020 included $97 million of charge-offs related to the implementation of CECL as more fully discussed in the “ACL” section of MD&A. The net charge-off ratio for the current year of 0.24% was down 12 basis points compared to the prior year, primarily driven by lower losses across the majority of 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.

In the fourth quarter of 2021, the Company reclassified certain structured real estate activity from commercial mortgage income to investment banking trading income and certain LIHTC activity from commercial mortgage income to other income. Prior periods were reclassified to conform to the current presentation.

2021 compared to 2020

Noninterest income for the year ended December 31, 2021 increased $411 million, or 4.6%, compared to the prior year. Other income for the year ended December 31, 2021 includes a $37 million gain from the divestiture of certain businesses, whereas noninterest income for the year ended December 31, 2020 included $402 million of securities gains on available-for-sale securities. Excluding securities gains and a gain on the divestiture of certain businesses, noninterest income was up $776 million, or 9.2%, compared to the prior year. Insurance income increased $434 million due to acquisitions, as well as organic growth. Investment banking and trading income increased $431 million due to strong investment banking income from loan syndications and merger and acquisition fees, and structured real estate income, and the impact from CVA recoveries in the current year compared to losses in the earlier year. Other income increased $140 million primarily due to $96 million related to increased investment income (primarily valuations gains) from the Company’s SBIC and Truist Ventures investments and higher valuations of $46 million for assets held for certain post-retirement benefits, which is primarily offset by higher benefits expense included in personnel expense. Wealth management increased $115 million due to higher valuations of assets under management, partially offset by the divestiture of the record keeping business. Card and payment related fees and service charges on deposits increased $113 million and $40 million, respectively, due to increased economic activity. Lending related fees increased $34 million due to higher noninterest loan fees, primarily unused line fees. Residential mortgage banking income decreased $445 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 $47 million due to declines in the lease portfolio.

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Noninterest Expense

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

2021 compared to 2020

Noninterest expense for the year ended December 31, 2021 was up $219 million, or 1.5%, compared to the earlier year. Merger-related and restructuring charges decreased $38 million and other incremental operating expenses related to the Merger increased $237 million, primarily reflected in professional fees and outside processing expense. The current year also 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, a $30 million professional fee expense, and a small gain on the early extinguishment of debt, whereas the earlier year included a $235 million loss on the early extinguishment of debt and a $50 million charitable contribution. Excluding the aforementioned items and a decrease of $111 million for amortization of intangibles, noninterest expense increased $154 million, or 1.2%, compared to the earlier year. Personnel expense increased $486 million primarily driven by higher incentive expenses due to variable compensation from higher revenues and improved overall performance relative to targets, higher medical insurance claims, higher other employee benefits due to the previously mentioned increase in noninterest income, 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 $83 million due to higher spending on certain projects. Other expense includes a decrease of $167 million for non-service-related pension cost components. There was also a decrease of $140 million from net occupancy expense primarily due to branch and property consolidations and a decrease in operating lease depreciation of $68 million due to valuation adjustments taken in the prior year.

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.

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, 2021 are generally expected to be utilized within one year, unless they relate to specific contracts that expire later.

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The following table presents a summary of merger-related and restructuring charges and the related accruals. The 2021 and 2020 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)Includes $231 million of restructuring charges for the year ended December 31, 2021 related to the Company’s voluntary separation and retirement program.

(2)Related to the Merger, the Company recognized $790 million and $825 million for the year ended December 31, 2021 and 2020, respectively. At December 31, 2021, the Company had an accrual of $119 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 21. Operating Segments” for additional disclosures related to Truist’s operating segments, the internal accounting, and reporting practices used to manage these segments and financial disclosures for these segments, including additional details related to results of operations.

2021 compared to 2020

Consumer Banking and Wealth

Consumer Banking and Wealth had 2,517 banking offices at December 31, 2021, a decrease of 264 offices compared to December 31, 2020. The decrease in offices was driven primarily by the consolidation of 226 branches in the first quarter leveraging the blended branch program strategy, as well as closure of 39 branches in non-overlapping markets in the third quarter.

Consumer Banking and Wealth net income was $3.2 billion for 2021, an increase of $192 million, or 6.3%, compared to 2020. Segment net interest income decreased $533 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 $853 million primarily due to allowance releases in the current year as the economic outlook improved as well as lower net charge offs in the auto, home equity, card, and mortgage portfolios and lower loan balances compared to reserve builds in 2020 due to uncertainty regarding the pandemic. Noninterest income decreased $206 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 $131 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.

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Consumer Banking and Wealth average loans and leases HFI decreased $6.8 billion, or 4.9%, compared to 2020 driven primarily by a decline in residential mortgage loans and home equity and direct lending, partially offset by increased indirect auto and mortgage warehouse lending. Average loan and leases HFI for residential mortgage and home equity and direct loans declined $5.9 billion, or 12%, and $1.6 billion, or 6.0%, respectively, while indirect auto and mortgage warehouse loans increased $1.6 billion, or 6.3%, and $649 million, or 16%, respectively.

Consumer Banking and Wealth average total deposits increased $25.2 billion, or 12%, compared to 2020 driven primarily due to ongoing impacts of fiscal and monetary stimulus. Average noninterest-bearing deposits, money market and savings accounts, and interest checking accounts increased $11.7 billion, or 21%, $11.1 billion, or 12%, and $9.8 billion, or 22%, respectively, partially offset by a decline in time deposits of $7.3 billion, or 31%.

Truist Wealth had assets under management of $209.6 billion as of December 31, 2021, up $27.3 billion, or 15%, compared to 2020 driven primarily due to favorable market performance.

Corporate and Commercial Banking

Corporate and Commercial Banking net income was $4.3 billion for 2021, an increase of $1.9 billion, or 84%, compared to 2020. Segment net interest income decreased $421 million primarily due to reduced funding credit on deposits, lower purchase accounting accretion, and a decline in average loans partially offset by higher margin fees tied to PPP loan forgiveness. The allocated provision for credit losses decreased $2.2 billion which reflects allowance releases in the current year driven by an improving economic outlook compared to allowance builds in 2020 due to uncertainty regarding the pandemic as well as lower net charge offs primarily in the commercial and industrial portfolio and lower loan balances. Noninterest income increased $572 million due to strong investment banking and trading income, increased lending related fees, income from SBIC equity investments, and increased service charges on deposits slightly offset by lower operating lease income. Noninterest expense decreased $196 million primarily due to lower operating lease depreciation, lower allocated corporate expenses and reduced salary and equity based compensation expense, partially offset by higher incentives tied to performance.

Corporate and Commercial Banking average loans and leases HFI decreased $13.5 billion, or 8.1%, compared to 2020 driven primarily by lower client revolver utilization, lower dealer floor plan levels, and lower PPP.

Corporate and Commercial Banking average total deposits increased $12.8 billion, or 9.3%, compared to 2020 driven primarily by ongoing impacts of fiscal and monetary stimulus. Average noninterest-bearing deposits increased $12.3 billion, or 21%, while Interest bearing deposits increased $460 million, or 0.6%.

Insurance Holdings

Insurance Holdings net income was $508 million in 2021, an increase of $101 million, or 25%, compared to 2020. Noninterest income increased $423 million primarily due to organic growth as well as acquisitions. Impact from organic growth was $238 million, or 11%, and impact from acquisitions was $185 million, or 8%. Noninterest expense increased $295 million primarily due to commissions on higher production in the current year along with higher amortization of intangibles and operating expenses related to acquisitions.

Other, Treasury, and Corporate

Other, Treasury, and Corporate generated a net loss of $1.6 billion in 2021, compared to a net loss of $1.3 billion in 2020. Segment net interest income increased $142 million due to lower expense on borrowings and growth in the securities portfolio. The allocated provision for credit losses decreased $101 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 $378 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 $251 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.

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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 Management" 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 $154.6 billion at December 31, 2021, compared to $120.8 billion at December 31, 2020. The increase was due primarily to increases in MBS and U.S. Treasury securities resulting from strong deposit growth resulting from fiscal and monetary stimulus.

As of December 31, 2021, approximately 4.6% 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 5.8 years at December 31, 2021, compared to 4.0 years at December 31, 2020, excluding the impact of unsettled security purchases at period end.

U.S. Treasury, GSE, and Agency MBS represents 97% of the total securities portfolio as of December 31, 2021 and more than 99% at December 31, 2020. While the overwhelming majority of the portfolio remains in agency MBS securities, the Company purchased $4.3 billion of AAA rated non-agency MBS as the risk adjusted returns for these securities was more attractive than agency MBS.

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The following table presents the securities portfolio at December 31, 2021, segregated by major category of security holdings with ranges of maturities and average yields disclosed:

(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.

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. International loans were immaterial as of December 31, 2021 and 2020. 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.

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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, and government and institutional 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, LIBOR, 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.

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 equipment. 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, power sports, trailer, and other consumer products segments. These loans are originated in accordance with strict underwriting criteria as determined by Truist.

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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:

In the fourth quarter of 2021, the Company reclassified the lease financing portfolio to the commercial and industrial portfolio. Prior periods were reclassified to conform to the current presentation.

Loans and leases HFI were $289.5 billion at December 31, 2021, down $10.2 billion compared to 2020.

Commercial loans decreased $9.0 billion during 2021 primarily due to a decline of $8.7 billion in PPP loans (commercial and industrial). The carrying value of PPP loans was $2.1 billion and $10.8 billion as of December 31, 2021 and 2020, respectively. Excluding PPP loans, commercial and industrial loans were up $3.8 billion, or 2.9%, while CRE and commercial construction declined $2.6 billion, or 10%, and $1.5 billion, or 23%, respectively.

Consumer loans decreased $1.2 billion during 2021 primarily due to refinance activity resulting in a $998 million decline in residential home equity and direct loans and a $772 million decline in student loans due to paydowns on government guaranteed loans. This was partially offset by a $580 million increase in residential mortgages due to the strategy to put certain correspondent channel production onto the balance sheet and lower prepayments.

LHFS decreased $1.2 billion during 2021 primarily due to the sale of $1.0 billion due to the divestiture of certain businesses.

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The following table presents a summary of the loans and leases, segregated by contractual maturity of payments and interest rate terms. Determinations of maturities are based on contractual terms, 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 $288 million and $358 million at December 31, 2021 and December 31, 2020, respectively.

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

Average loans and leases held for investment for the fourth quarter of 2021 were $286.3 billion, up $185 million, or 0.1%, compared to the third quarter of 2021. Excluding a $2.0 billion decrease in average PPP loans, average loans held for investment were up $2.2 billion, or 0.8%.

Average commercial loans decreased $1.2 billion, or 0.7%, as $1.8 billion, or 1.4%, growth within the commercial and industrial portfolio, excluding PPP, was more than offset by a $2.0 billion decrease in average PPP loans (commercial and industrial), a $628 million decrease in average commercial construction loans, and a $453 million decrease in average CRE loans.

Average consumer loans increased $1.3 billion, or 1.1%, primarily due to a $1.8 billion increase in residential mortgages due to the continued strategy to put certain correspondent channel production onto the balance sheet and lower prepayments. Student loans declined $330 million primarily due to paydowns on government guaranteed loans. Indirect other was down $134 million due to a seasonal decline in Sheffield.

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Asset Quality

The following tables summarize asset quality information:

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

(2)Includes government guaranteed loans of $978 million and $787 million as of December 31, 2021 and 2020, respectively.

(3)Includes government guaranteed loans of $865 million and $1.1 billion as of December 31, 2021 and 2020, respectively.

Nonperforming assets totaled $1.2 billion at December 31, 2021, down $224 million compared to December 31, 2020 due to declines across almost all portfolios, partially offset by an increase in the indirect auto portfolio. Nonperforming loans and leases represented 0.38% of total loans and leases, down six basis points compared to December 31, 2020.

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Performing TDRs were up $29 million compared to the prior year.

Loans 90 days or more past due and still accruing totaled $1.9 billion at December 31, 2021, down $78 million compared to the prior year due to declines in the student portfolio, partially offset by an increase in the residential mortgage portfolio. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.67% at December 31, 2021, flat compared to the prior year. Excluding government guaranteed and PPP 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 December 31, 2021, down one basis point from December 31, 2020.

Loans 30-89 days past due and still accruing totaled $2.0 billion at December 31, 2021, down $176 million compared to the prior year due to declines in the residential mortgage and student portfolios, partially offset by increases in the indirect auto and commercial and industrial portfolios. The ratio of loans 30-89 days or more past due and still accruing as a percentage of loans and leases was 0.71% at December 31, 2021, down three basis points 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 additional disclosures related to these potential problem loans.

(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 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)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 $115 million and $139 million for the year ended December 31, 2021 and 2020, respectively.

(3)Includes gains, net of charge-offs and losses recorded upon sale of $3 million and charge-offs and losses of $132 million for the year ended December 31, 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. For loan modification programs in response to the COVID-19 pandemic, Truist applied the relief from TDR accounting described in the CARES Act. Payment relief assistance provided by Truist includes forbearance, deferrals, extension, and re-aging programs, along with certain other modification strategies. Refer to “Note 1. Basis of Presentation” for the policies related to TDRs and COVID-19 loan modifications. The following table provides a summary of performing TDR activity: