DBRS Morningstar Upgrades Truist Financial Corporation to AA (low), Revises Trend to Stable

DBRS, Inc. (DBRS Morningstar) upgraded the ratings of Truist Financial Corporation (Truist or the Company), including the Company’s Long-Term Issuer Rating to AA (low) from A (high). At the same time, DBRS Morningstar upgraded the ratings of its primary banking subsidiary, Truist Bank (the Bank). The trend for all ratings has been revised to Stable from Positive. The Intrinsic Assessment (IA) for the Bank is AA, 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
The upgrade reflects the scale, quality and diversity of Truist’s leading franchise. Indeed, in our view, Truist, the result of the 2019 merger of equals between BB&T and SunTrust, has created one of the top franchises in the industry. The merger integration is now basically complete with the Company largely achieving the goals outlined when the merger was announced.

The ratings and Stable trend reflect Truist’s strong franchise that is highly diversified by both products and geography with leading market shares. Unique to Truist is their insurance brokerage business, the 6th largest in the U.S., that bolsters non-interest income. The ratings also consider the Company's sound balance sheet fundamentals, including robust funding and liquidity, as well as a conservative risk profile.

RATING DRIVERS
Given Truist’s recent ratings upgrade and high rating levels, further ratings upgrades are unlikely. If Truist’s earnings generation capacity falters or if there is a significant deterioration in asset quality, the ratings would be downgraded.

RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Very Strong / Strong
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 $545 billion in total assets at the end of 2Q22 with 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.

Earnings Combined Building Block (BB) Assessment: Strong
Truist is expected to deliver top-tier financial results as it fully realizes cost savings and revenue synergies associated with the merger. Truist’s earnings are highly diversified and not overly dependent on market conditions. Truist delivered solid results in 2Q22 with a reported return on assets and common equity of 1.14% and 10.3%, respectively. The solid performance was driven by a 6% linked-quarter increase in revenues and lower operating expenses (down 3% from 1Q22), which was partially offset by a higher provision for credit losses.

Risk Combined Building Block (BB) Assessment: Strong
Truist has strong risk controls and a conservative risk culture. As such, 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 very low levels. As current levels are unsustainable, we expect credit metrics will likely begin to normalize.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong / Strong
The Company’s funding and liquidity remains favorable, with an average LCR of 110% for 2Q22 and strong levels of deposit funding. Additionally, Truist has ready access to additional funding and strong levels of on balance sheet liquidity.

Capitalization Combined Building Block (BB) Assessment: Strong / Good
Truists’s capitalization remain sounds and the Company has strong levels of capital generation. Truist reported a CET1 ratio of 9.2% at June 30, 2022. The Company performed well in recent Federal Reserve stress tests with a below median capital erosion in the tests. Additionally, its stress capital buffer remained at 2.5%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/401378

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 23, 2022): https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations.
Other applicable methodologies include DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022): https://www.dbrsmorningstar.com/research/394683/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022): https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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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