DBRS Morningstar Revises Truist Financial Corporation’s Trend to Positive; Confirms at A (high)

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Truist Financial Corporation (Truist or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Truist Bank (the Bank). The trend for all ratings has been revised to Positive from Stable. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
Formed from the merger of BB&T Corporation and SunTrust Banks, Inc. (completed in December 2019) and rebranded as Truist, the Positive trend reflects the Company’s substantial progress to date with the integration, which positions it well to produce improved and more diversified financial results going forward. While the integration still has some important tasks to execute on, these concerns are mitigated when considering senior management’s proven track record at their legacy institutions. Moreover, the Positive trend reflects DBRS Morningstar’s view that that the impact of the economic fallout from the Coronavirus Disease (COVID-19) pandemic on Truist’s asset quality and capital will continue to be manageable.

The ratings reflect the scale, quality and diversity of Truist’s franchise. Additionally, the Company’s conservative risk profile and robust funding, liquidity and capitalization are also factored into the ratings. DBRS Morningstar views the merger of equals as providing even greater scale and further diversifying the business mix and loan portfolio from what were already very strong franchises on a standalone basis. We expect these characteristics to be particularly beneficial going forward, given the current low interest rate, slow loan growth and increasingly digital operating environment. The ratings also consider expected normalizing credit trends within the loan portfolio.

RATING DRIVERS
If Truist continues to generate top-tier financial results, while maintaining strong balance sheet fundamentals and a conservative risk profile, the ratings would be upgraded. If the Company does not sustain its profitability and credit metrics, or fails to deliver on the merger assumptions, or if integration-related missteps arise, the trend would revert to Stable. A material decline in Truist’s earnings generation capacity or a severe deterioration in asset quality, would result in a downgrade.

RATING RATIONALE
The Company’s very strong banking franchise is underpinned by a deeply entrenched deposit base, covering the South and Mid-Atlantic regions. Overall, Truist is the seventh largest U.S. bank, with $518 billion in total assets at the end of 1Q21 and leading deposit market shares across its footprint. Additionally, Truist generates a comparatively high amount of noninterest income (around 40% of total revenue) driven by its insurance brokerage business, which is the sixth largest in the U.S., as well as its investment bank, which is the largest regional bank-owned investment bank in the country.

Truist delivered solid results in 2020 in the context of the challenging operating environment, with a reported return on assets of 0.90%. Performance was driven by record results in investment banking and continued strength in insurance. More recently, the Company reported $1.5 billion of net income in 1Q21, up 11% from the prior quarter. Excluding merger-related and other non-core items, the Company's adjusted return on assets was a strong 1.39%, reflecting the benefits of its diversified franchise. Additionally, Truist maintained its medium-term performance targets and reaffirmed its cost savings targets for 2021 and 2022.

Truist’s credit fundamentals remain strong, providing key support to the ratings. Specifically, the Company continues to report very strong asset quality metrics, as non-performing assets and net charge-offs remain at historically low levels. In addition, Truist’s exposure to COVID-19 impacted industries, at 9.2% of total loans, appears manageable, considering that well over 90% of commercial and consumer borrowers that have exited payment relief programs have either paid off their loan balances or are in current status. Finally, the Company’s funding, liquidity and capitalization remain favorable, with an average LCR of 111% and CET1 ratio of 10.1% for 1Q21.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Truist Financial Corporation are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Very Strong/Strong; Risk Profile – Strong; Funding & Liquidity – Very Strong/Strong; Capitalization – Strong.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021):
https://www.dbrsmorningstar.com/research/379424/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support.
Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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