The operator introduces the Truist Financial Corporation Third Quarter 2023 Earnings Conference Call and introduces the host, Brad Milsaps. The host then introduces the speakers, Chairman and CEO Bill Rogers and CFO Mike Maguire. They will discuss the company's third quarter results and provide an updated outlook for 2023. Other executives, including the Vice Chair and Chief Risk Officer, are also present for the Q&A portion. The presentation, earnings release, and supplemental financial information are available on the company's Investor Relations website. The company's purpose of inspiring and building better lives and communities is highlighted, and the ways in which they demonstrated this purpose in the third quarter are mentioned.

Truist has been actively investing in affordable housing and economic development programs in Charlotte and across North Carolina, with a recent announcement of $65 million in new market tax credits. This is part of their ongoing efforts to have a positive impact on the communities they serve. Despite some non-interest income and expense items affecting their third quarter earnings, Truist reported solid performance, driven by a focus on reducing expenses and managing their balance sheet more efficiently. The company remains committed to delivering on their simplification efforts and cost-saving program, which has already shown results in the reduction of expenses. Additionally, their focus on core clients and strategic portfolio management has led to a four basis point increase in their net interest margin.

The company's efforts have led to an increase in the CET1 ratio and stable metrics, despite normalizing asset quality. They are also making progress on cost-saving measures and organizational simplification. Net income available to common shareholders was $1.1 billion, with a $0.04 impact from merger-related and restructuring charges. Total revenue decreased but was in line with guidance. The net interest margin improved due to balance sheet optimization efforts. Adjusted expenses were within guidance range and would have decreased even more without higher-than-normal other expenses.

Truist's average loans decreased due to the sale of the student loan portfolio and a focus on higher-return core assets. However, average deposits increased and the bank added CET1 capital and increased their ALLL ratio. The bank also maintained their quarterly common stock dividend. Truist's digital engagement trends are positive, with steady growth in mobile app users and a focus on driving further growth through their MobileFirst initiative. Digital transactions have increased, with Zelle transactions up 32%, and now account for over 60% of total bank transactions. Truist aims to shift the transaction mix even more towards digital by leveraging their T3 concept and recent enhancements to digital onboarding have led to a 19% increase in Truist One funding rates.

Truist's digital momentum is strong, and they are optimistic about leveraging T3 to expand their digital user base and increase transaction volume. Average loans decreased due to balance sheet optimization efforts and lower production in commercial and consumer portfolios. Deposits remained flat but there was a shift in the portfolio as clients sought higher rate alternatives.

The bank's noninterest bearing deposits decreased and currently represent 30% of total deposits. Average deposits were down in corporate and commercial banking, but relatively flat in consumer banking and wealth due to quantitative tightening and availability of higher rate alternatives. The bank is focused on deepening relationships with consumer banking and wealth clients, and has seen positive growth in checking accounts. Small business deposits were up and the bank experienced a slower increase in deposit costs during the third quarter. The interest-bearing cumulative deposit beta increased, but the bank will continue to maintain a balanced approach to maximize value for clients. The net interest income decreased primarily due to lower average earning assets and higher deposit costs.

In the third quarter, the company saw a slower decline in net interest income compared to the previous quarter, with a 4 basis point increase in net interest margin. This was attributed to balance sheet optimization efforts, such as focusing on core clients and reducing lower-yielding loan portfolios and higher cost borrowings. Non-interest income decreased primarily due to lower insurance income, but fundamentals in this area remain strong. Non-interest expense was flat, with lower adjusted expenses offset by higher merger-related and restructuring expenses.

The adjusted non-interest expense for the company decreased in line with their previous guidance, driven by lower personnel expense and reduced professional fees and outside processing expense. However, there was an increase in other expense due to client deposit service charge refunds and settlement of litigation matters. The company has implemented a $750 million cost savings plan, with $300 million coming from reductions in force, $250 million from organizational realignment, and $200 million from technology expense reductions. The company has already begun implementing these initiatives and expects one-time costs associated with the program to be 25-30% of the gross cost saves.

The company is projecting a cost saves program that will help them manage adjusted expense growth in 2024. Asset quality metrics remain manageable, with non-performing assets unchanged and early-stage delinquencies increasing slightly. The company has also increased reserves for their office portfolio. The net charge-off ratio decreased, but the ALLL ratio increased due to ongoing credit normalization and economic uncertainty. The company is confident in their ability to meet proposed capital requirements and added CET1 capital in the third quarter.

Truist is well capitalized with a CET1 ratio of 9.9%, which is above the minimum regulatory requirement of 7.4%. They are committed to reaching a CET1 ratio of 10% by the end of the year, taking into account potential challenges such as the pending FDIC assessment. Their primary capital priorities include supporting organic growth and paying dividends, with no plans for share repurchases. They continue to manage their risk-weighted assets carefully and believe their ownership stake in Truist Insurance Holdings provides additional capital flexibility. Their AOCI is expected to decline by 28% by the end of 2026. They are confident they will meet the proposed long-term debt requirement through normal debt issuance.

In the fourth quarter of 2023, it is expected that revenues will either remain the same or decrease by 1% compared to the third quarter. Non-interest income is expected to increase, but net interest income may be affected by a smaller balance sheet. Expenses are expected to decrease due to lower personnel and other expenses, excluding expenses related to TIH independence readiness. For the full year 2023, revenues are expected to increase by 1.5%, while expenses are expected to increase by 7%, excluding TIH independence readiness costs. Asset quality guidance has been adjusted to approximately 50 basis points for the full year, and the tax rate is expected to be around 18% or 20% on a taxable equivalent basis.

Truist's transformation into a simpler, more profitable company is underway, with key organizational changes taking place. These changes include streamlining regions, realigning units, and merging businesses to drive efficiency and cost savings. The company will continue to invest in risk management and maintaining strong asset quality metrics. Despite these changes, Truist remains focused on its core consumer and commercial businesses, with positive net new checking account production and asset flows. Client satisfaction scores have also remained stable or increased across most channels.

The paragraph discusses the financial performance and progress of Truist, highlighting a 45% increase in new left lead transactions and a 10% increase in the wholesale payments pipeline. The company is also operating its balance sheet more efficiently and building capital. The CEO expresses optimism for the company's future and thanks the retiring members of the Board of Directors. The company's Board will consist of 13 members, including 12 Independent Directors, who will oversee the company's strategic plans during a period of industry transformation. The paragraph concludes with the CEO expressing gratitude for the leadership and confidence of the retiring Board members.

During the Q&A session, the participants are asked to limit themselves to one primary question and one follow-up to accommodate as many questions as possible. The first question comes from Ken Usdin of Jefferies, who asks about the independence preparation for TIH and recent articles in the paper. Bill Rogers, the CEO, responds by stating that the recent partnership with Standpoint has provided financial and strategic flexibility for both Truist and TIH. He also mentions that the insurance business is growing and they want to retain this flexibility to respond to any potential changes in the market. There is no specific plan in place, but the goal is to continue to apply this flexibility to both the bank and insurance business.

The speaker is discussing the relationship between financial benefit and strategic decisions. They do not have a specific trigger point for when financial benefit becomes strategic, but they constantly evaluate and consider various factors. They also mention that net interest income may continue to experience pressure in the fourth quarter and the first half of 2024 due to the rate path.

The speaker states that they do not expect any more hikes in interest rates and are predicting two cuts in the second half of the year. They are trying to manage the pressure by strategically managing rate paid across their client base and repricing fixed rate loans. They expect expenses to be flat or slightly up next year, with two-thirds of the $750 million gross being recognized. They are not ready to discuss TIH readiness costs for 2024 yet.

Ebrahim Poonawala asks Mike Maguire about the expense savings for the company and when they will be realized. Maguire explains that some of the actions being taken, such as organizational design and health, will have a quick impact on the run rate, while others will take place throughout next year. He also mentions technology spend as a significant component of their cost savings plan. Poonawala then asks about the company's plans to make their balance sheet more efficient and if there are more assets they plan to exit or sell.

Mike Maguire and Bill Rogers discuss the optimization of their company's portfolio, particularly in areas such as Sheffield and Service Finance. They plan to increase velocity through securitization and focus on disciplined selection and pricing of opportunities. This strategy has already shown positive results in their NIM. Erika Najarian asks a question to Bill Rogers.

The speaker discusses the potential impact of the recent deal with Stone Point on the company's portfolio and the balance between restructuring and mitigating RWAs. They note that the world changed significantly in March and that all options are being considered, but no decisions have been made yet. The speaker also mentions the trade-offs involved in each potential path.

The speaker explains that the company's main priority is making decisions that benefit their shareholders in the long-term. They also address a decrease in service charges and mention that it was a one-time event. The speaker then answers a question about the impact of interest rates on the company's net interest income and deposit growth. They mention that deposit betas have been increasing and expect this trend to continue, which will put pressure on net interest margin in the fourth quarter.

The company is seeing some movement on the consumer side, but they believe they have reached the maximum potential for terminal betas. They expect a slight decrease in NIM and a decrease in NII, but an increase in fees for the quarter. They anticipate a smaller decline in earning assets and a slight pressure on loans. In the third quarter, they were able to significantly remix their funding base, but they do not expect as much remixing in the future.

The speaker acknowledges that the expense guide for next year is better than expected, but the core efficiency ratio is not where investors wanted it to be. They ask how management plans to improve decision-making and prioritize shareholder value in Truist 2.0, as the current share price does not reflect the optimism expressed by the CEO.

Truist's CEO Bill Rogers discusses the company's cost-saving measures and simplification of their business, which has allowed them to move faster and make decisions more efficiently. He acknowledges that the company is not satisfied with its current efficiency and has presented a long-term improvement plan to the board. The company is focused on improving revenue growth and is working on optimizing their balance sheet, creating new products and capabilities, and training their employees to drive momentum.

The speaker discusses the progress made in implementing their efficiency plan and their commitment to improving efficiency in the long-term. They acknowledge that the first part of next year may be tough due to a tougher hurdle, but expect continuous improvement and commitment to the plan in the second half of the year and going into 2025. They also mention simplification as a key factor in improving efficiency and state that it will be an ongoing focus.

The speaker discusses the company's efforts to simplify and improve its operations, citing the example of consolidating care centers. They also mention a recent issue with service charges, which they self-identified and addressed, resulting in refunds and impacting revenue and expenses. Going forward, they aim to stay ahead of changes and continuously improve their business.

During a recent financial call, Bill Rogers and Mike discussed the pressure on service charges on deposits and how it is a trend in the industry. They also mentioned an $87 million event in the third quarter but assured that it was not a major driver. When asked about their approach to service charges, Bill emphasized their competitive product, Truist One, and how they are purposefully balancing growth and reducing service charges. He believes this approach will lead to long-term shareholder value.

Bill Rogers and Gerard Cassidy discuss the changes that have been made in the banking industry post-financial crisis due to the current low interest rate environment. Rogers mentions the importance of offering competitive products and capabilities, as well as focusing on full relationships with clients. He also emphasizes the need for banks to be in the advice business rather than just the rate business, and highlights the success of their product, Truist One. The focus is on winning new business through offering more than just competitive rates.

Bill highlights the success of left lead relationships and the importance of being relevant to clients. This is not a new concept, but rather a reinforcement of the company's strategy. The focus on being good at the job, providing advice, and having strong products and capabilities aligns well with the company's future plans and the new definition of winning. Gerard asks about credit standards and potential impacts from others' aggressive lending practices, but Clarke assures that overall industry discipline has been good since the Great Recession.

The speaker believes that the credit approach in the industry is in a better place than before the financial crisis, and that even non-bank players have done well. They do not anticipate any major issues in the future, but are evaluating the impact of shifting from a low rate environment. The speaker also mentions that they do not expect significant loan portfolio sales, but continue to see cash flow and maturities from the securities portfolio. They are constantly evaluating potential strategies for the bond portfolio.

The company added pay-fixed hedges to manage potential volatility in the future, and about one-third of their AFS securities are hedged. Credit quality is normalizing, particularly in the low-end consumer area, and the company is seeing some seasonality in the second half of the year. They are also remixing their balance sheet for higher-margin businesses, but this comes with higher normal losses. The company is also working to resolve problem credits in the CRE office risk and took some losses in Q3 to do so. They anticipate more opportunities to do this in Q4.

The speaker discusses three factors that will impact where losses go. The operator then concludes the question-and-answer session and the speaker gives closing remarks. The call is then disconnected.

This summary was generated with AI and may contain some inaccuracies.