The operator introduces the Truist Financial Corporation Fourth Quarter 2023 Earnings Conference Call and introduces the host, Brad Milsaps. The CEO, Bill Rogers, and CFO, Mike Maguire, will discuss the company's fourth quarter results and provide an updated outlook for 2024. Other executives are also present for the Q&A portion. The company's purpose of inspiring and building better lives in communities is emphasized, and the ways in which the company demonstrated this during 2023 are briefly mentioned.

In summary, Truist Community Capital has committed $2.1 billion to support affordable housing and has made a positive impact on over 130,000 people and created 15,000 jobs. The company's charitable giving and volunteer service have also had a significant impact on communities. Truist also reported solid fourth quarter results, with adjusted earnings of $1.1 billion, excluding several discrete items. The largest of these items was a non-cash goodwill impairment charge of $6.1 billion, which has no impact on the company's ability to do business or serve its clients. Pre-tax merger related and restructuring charges also impacted adjusted EPS by $0.10 per share.

The third paragraph of the article discusses the charges related to the company's cost saving plan and their underlying results. The company has made progress on their organization simplification plan and has seen a decline in expenses for the second consecutive quarter. They are committed to delivering on their cost initiatives while also investing in their core clients, technology, and risk management. The company is also encouraged by the decline in non-performing loans and the increase in their CET1 ratio. They prioritize supporting the financial needs of their clients and paying dividends. The paragraph also mentions the company's progress in improving the client experience through digital engagement.

Truist's mobile app users grew 9% in the fourth quarter of 2022, leading to a 62% increase in digital transactions. The bank plans to further shift its transaction mix towards digital by leveraging their T3 strategy, which combines touch and technology to create trust and enhance the client experience. The launch of Truist Assist in 2022 has seen increased client adoption and operational efficiencies, with 85% of conversations completed using the automated assistant. Despite a GAAP net loss of $5.2 billion for the quarter, reported earnings per share were impacted by non-cash goodwill impairment, a special FDIC assessment, and a discrete tax benefit.

During the quarter, adjusted net income was $1.1 billion or $0.81 per share, excluding certain items and charges related to mergers and restructuring. The company also incurred a non-cash goodwill impairment charge of $6.1 billion, driven by higher interest rates and decline in industry share prices. This charge has no impact on the company's liquidity, regulatory capital ratios, ability to pay dividends, or serve clients. Total revenue increased slightly and expenses decreased. The net interest margin improved and the company added to its capital and ALLL ratio. Average loans decreased due to balance sheet optimization and weaker client demand.

In the fourth quarter, average commercial loans decreased by 1.8% due to lower client demand, while average consumer loans also decreased by 1.8% due to reductions in indirect auto and mortgage loans. The bank expects a modest decline in both commercial and consumer loan balances in the first quarter due to a shift towards deeper client relationships and economic uncertainty. Average deposits also decreased by 1.4% due to declines in non-interest-bearing and money market balances, while deposit costs increased at a slower pace compared to previous quarters. The bank will continue to focus on core relationships and adding value outside of interest rates.

The bank's taxable equivalent net interest income decreased slightly in the quarter due to lower average earning assets and higher rates paid on deposits, but net interest margin improved. Fee income increased compared to the previous quarter, primarily due to higher service charges on deposits and lending-related fees. Non-interest expenses increased due to a goodwill impairment charge and FDIC special assessment, but excluding these items and intangible amortization, expenses decreased.

The decrease in adjusted expenses was due to lower personnel expenses and higher professional and outside processing expenses. The company is pleased with the progress made on their cost savings program, which aims to eliminate or avoid expenses of $750 million over 12 to 18 months. This includes a reduction in force, organizational simplification, and reexamining technology investment spend. The company expects to reduce headcount and branch footprint, and has estimated restructuring costs of $225 million.

In the fourth quarter, the company incurred $200 million in charges related to their program, mostly due to workforce reductions. They expect to incur the bulk of the remaining costs in the first quarter and are actively managing costs. Asset quality metrics are normalizing, with non-performing loans decreasing and early stage delinquencies increasing. The company is pleased with the decrease in non-performing and classified office loans and has increased reserves for this portfolio. Net charge-offs increased due to other consumer, indirect auto, and C&I loans, but the company continues to build reserves. The ALLL ratio has increased to 1.54% due to credit normalization and economic uncertainty. The company has tightened their risk appetite in certain areas but maintains a supportive approach for high-quality clients.

In the fourth quarter, Truist added 20 basis points of CET1 capital through various means, resulting in a CET1 ratio of 10.1%. They remain committed to building capital and have no plans for share repurchases in the near future. The company is also focused on managing RWA and supporting the financial needs of core clients. Their ownership stake in Truist Insurance Holdings provides additional capital flexibility. The AOCI at year-end saw a decline in the component attributable to securities due to a decrease in long-term interest rates. The AOCI related to their pension plan improved and is expected to remain static throughout 2024. Based on estimated cash flows, the component of AOCI attributable to securities is expected to decrease by 28% by the end of 2026.

The company is confident in their ability to meet the proposed capital rules and has refined their estimate for the impact on risk-weighted assets. They expect revenues to remain flat or decline slightly in the first quarter of 2024, with net interest income down 3-4%. Non-interest income is expected to improve, but expenses will increase due to seasonal factors. For the full year, revenues are expected to decrease by 1-3%. The company's balance sheet and interest rate sensitivity are positioned to be relatively neutral.

The forecast for the company assumes that net interest income will reach its lowest point in the first half of 2024 and then remain stable. This is based on the assumption of five reductions in the Fed funds rate, growth in insurance, and a recovery in capital markets. Adjusted expenses are expected to rise in the first quarter but remain flat or slightly increase for the full year. Asset quality is expected to improve, and the effective tax rate is predicted to be around 17-20%. The company's CEO is proud of the progress made in 2023 towards a simpler and more profitable company through efficiency and realignment within its operating segments.

In the third quarter, the company made strategic organizational changes to improve revenue growth and efficiency. These changes include consolidating business units, appointing new leaders, and implementing cost-saving measures. The company is also focused on growing relationships with core clients, gaining market share, meeting expense targets, and enhancing its digital experience in the upcoming year.

The company believes that by utilizing their various capabilities, including commercial consumer payments, investment banking, wealth, and insurance, they can help their clients achieve financial success. They have seen an increase in market share and lead roles in investment banking, as well as growth in CID referral revenue and positive asset flows in their wealth business. In the consumer sector, customer satisfaction scores have returned to pre-merger levels and they have seen positive growth in new checking accounts. The company also acquired a significant number of new accounts through their digital channel.

The speaker discusses the company's performance in the fourth quarter, acknowledging the need for further improvement and highlighting areas of progress, such as expense management, capital building, and realigning the business to serve clients. They express confidence in the future and thank their team for their leadership. The Q&A session is opened for participants to ask one primary question and one follow-up.

In response to a question about the outlook for net interest income in 2024, Mike Maguire explains that their base plan includes five cuts, with a potential for more or less cuts. He also mentions that there may be some pressure on loans and consumer side, but stable on the C&I side. Deposits are expected to decline, but at a slower rate throughout the year. There may be some caution needed when considering the repricing of betas. Maguire also states that they are relatively neutral on the number of cuts, and any significant delays or no cuts would be a headwind. In regards to expenses, the adjusted expenses are expected to be around 14.

The speaker discusses expenses to consider for modeling, including amortization and merger restructuring. They mention that there will be less noise in 2024 compared to 2023. The speaker does not expect significant factors to affect 2024. In response to a question about loan demand, the speaker mentions that they expect modest growth in the C&I portfolio in the second and third quarters, but most pressure is on the consumer side. They also mention that the projected five rate cuts may benefit demand, but any underestimated demand would be welcome news.

Bill Rogers and Mike discuss the factors that may affect the company's performance, including a shift in focus to indirect lending and growth in Sheffield and Service Finance. They also mention that the recovery in their markets may be faster and they are winning more deals on the C&I side. Mike also mentions a $3 billion improvement in AOC and Scott asks about the company's adjusted common equity Tier 1 ratio.

The speaker, Mike Maguire, is discussing the company's performance and efficiency with Scott Siefers. He mentions that on a stated basis, they finished the quarter at 10.1%, but when considering factors like AFS security and pension, it goes down to 7.2%. They have also done more work on estimating the impact of RWA and thresholds, which brings it down to low-6s. The next question comes from Mike Mayo, who asks if the company's optimization efforts are going fast and deep enough. The speaker, Bill Rogers, responds that they are committed to their plan and have seen significant momentum in the third and fourth quarter, with expense declines and a $750 million savings program. He is proud of the team's efforts and leadership.

The company is intensifying its efforts to become more efficient and streamlined, leading to stronger and better decision-making. They are also evaluating alternatives for their insurance business and will do what is best for both the business and Truist. The NPA has declined and there is an expected normalization of charge offs in the future.

The speaker is discussing the expected trend of losses in the company's portfolio and how they are working to get ahead of potential areas of stress. They are also expecting a rebound in the investment banking business, with a strong pipeline in equity capital markets.

In this paragraph, the speaker discusses the potential for growth in various areas of the investment banking industry, such as refinancing opportunities, M&A, and public finance. They mention having a strong pipeline and being confident in a recovery, but also acknowledge the potential for some volatility. The question from an analyst is about loan growth, which the speaker does not provide any new information on.

The speaker is discussing the merger of equals and how it has impacted their current adjusted capital. They mention that they will reflect the economy and opportunities in their growth and that they are not capital constrained. They also mention that the recovery will likely be seen disproportionately in their markets and that they are not constrained in terms of growth opportunities.

Ebrahim Poonawala asks Bill and Mike about the goodwill charge and expresses skepticism that higher rates would have a negative impact on Truist, given their strong deposit base.

The speaker discusses the recent decline in the perceived benefits of the SunTrust BB&T merger and how it may affect the company's financial outlook. They also mention that an annual test for impairment is conducted, taking into account various factors such as industry conditions and market valuations. This test has resulted in a lower estimated fair value for the company, but it has no impact on their financial condition or strategy. The impairment test is done by segment, including consumer and wealth, corporate and commercial, and insurance.

Bill Rogers discusses the progress of their company's growth and market share in the investment banking sector. He also mentions concerns about oversupply in certain Southeast markets for commercial real estate and multifamily properties, but notes that the overall demographics and in-migration in their markets are positive. Clarke Starnes agrees with this assessment.

The company still believes that multifamily long-term is a favorable asset class, despite some challenges related to increased rates and operating costs, as well as a new pipeline supply. They are working with their borrowers to address these issues and expect a temporary increase in watch lists and non-accruals, but not as much risk exposure as seen in the office sector. They also mention that there are active secondary placement sources and equity sources willing to support these assets. The company's targeted capital level is currently at 10.1, and they plan to continue building capital until they have more information and understanding of the dynamics.

Gerard Cassidy asks Bill Rogers about the targeted return on tangible common equity from the original merger, which was 20%. Bill responds that the environment has changed since 2019, with different rates, capital levels, and regulations. They now have Basel III in front of them.

The speaker believes that in the short and medium term, the company may not be able to achieve its previous target for ROTCE due to changes in the market. However, they are still focused on efficiency and revenue growth. Regarding credit quality, the company is seeing deterioration in the commercial real estate sector, particularly in downtown office spaces. This deterioration is expected to continue over the next few years, but the company is not heavily exposed to this risk.

The bank has a strategy to identify risks early and work with borrowers to address them. They have seen some success in this approach, but there are still uncertainties in the market. As leases mature, there may be changes in space needs that could impact loan performance. The bank is also seeing interest from long-term investors. In terms of NII, the impact of securities repricing is not significant, but the swap book may provide a tailwind in the first half of 2024.

The company has received fixed swaps that will have a negligible impact on NII for the year, but will create a headwind in the second half. The impact is factored into the NII outlook. The company has $30 billion of receivers on their swap portfolio, with $10 billion becoming effective this year. This is also incorporated into the outlook. The company encourages further questions from investors and concludes the earnings call.

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