The operator introduces the Truist Financial Corporation Second Quarter 2024 Earnings Conference Call and introduces the host, Brad Milsaps. The CEO, CFO, and other senior management members will discuss the company's results, current business conditions, and outlook for 2024. The presentation, earnings release, and supplemental financial information are available on the company's investor relations website. The presentation will include forward-looking statements and non-GAAP financial measures. The company is purpose-driven and dedicated to inspiring and building better lives and communities. The CEO shares some ways the company brought their purpose to life in the last quarter.

During the quarter, Truist Securities played a significant role in Oglethorpe Power's $350 million green bond, which will support their investment in clean energy. Truist also launched a financial education program for young people called Truist Life, Money, and Choices. These efforts reflect Truist's commitment to their purpose of making a positive impact on clients, teammates, communities, and shareholders. In terms of financial results, adjusted net income was $1.2 billion, excluding certain gains and losses, and pre-tax restructuring charges. Overall, Truist's performance was strong and driven by several key themes.

The company saw a 3% growth in adjusted revenue and a 4.5% increase in net interest income due to a balance sheet reposition. They also maintained expense discipline and saw stable non-performing loans. The sale of their stake in Truist Insurance Holdings strengthened their capital position and allowed for a $150 million charitable contribution to their foundation. The company also authorized a $5 billion share repurchase plan and is actively pursuing growth opportunities in their core banking businesses.

The company has seen slow loan demand but is encouraged by increased wallet share and talent acquisition. They are focused on improving client experiences through digital capabilities, with growth in mobile app users and transactions. There has been a shift towards self-service, driven by strong growth in Zelle transactions. The company has added new accounts and seen higher digital checking account production among younger clients. A new small-business digital onboarding experience has resulted in higher application completion rates and increased engagement. The company has also made enhancements to empower teammates to deliver knowledge and care, resulting in higher client satisfaction scores. Overall, the company is proud of their momentum in digital engagement.

In the second quarter, the company completed the divestiture of its remaining ownership stake in Truist Insurance Holdings, resulting in a gain of $4.8 billion and creating $9.5 billion of capital. They also sold a portion of their investment securities, resulting in a loss of $5.1 billion but generating $29.3 billion of proceeds for reinvestment. The company reinvested $18.7 billion in securities yielding 5.27% and held $20.7 billion in cash, resulting in a blended reinvestment rate of 5.22%.

The company reported second quarter 2024 GAAP net income of $826 million, which included a net loss from continuing operations and a net income from discontinued operations. The net loss from continuing operations was impacted by various factors such as a loss on the sale of investment securities and a charitable contribution. The net income from discontinued operations was affected by a gain on the sale of Truist Insurance Holdings. On an adjusted basis, the company reported net income of $1.2 billion.

The company had pre-tax restructuring charges of $96 million in the quarter, which had a negative impact on adjusted EPS. Net interest income increased by 4.5% and non-interest income remained stable, leading to a 3% increase in total revenue. The CET1 ratio increased by 150 basis points and net charge-offs decreased. Average loans decreased by 0.7%, mainly due to weaker client demand. Commercial loans decreased by 0.8% and consumer loans decreased by 0.9%. Overall, client loan demand is expected to remain low in the third quarter. Deposit trends will be discussed on the next slide.

The average deposits for the company decreased slightly in the second quarter due to declines in non-interest bearing time and brokered balances, offset by growth in money market and savings. Non-interest bearing deposits remained at 28% of total deposits. Deposit costs increased at a slower pace compared to the first quarter, resulting in a 6 basis point increase in total deposit costs and a 7 basis point increase in interest-bearing deposit costs. Net interest income increased by 4.5% due to a strategic balance sheet repositioning. Net interest margin also increased by 14 basis points. Non-interest income decreased by 0.6% after excluding losses from the balance sheet repositioning.

The decrease in net charge-offs for the quarter reflects lower consumer losses due to normal second quarter seasonal declines and certain derisking initiatives put in place in the second half of 2022. This resulted in a 6 basis point decrease in the net charge-off ratio to 58 basis points. Overall, asset quality remained stable on both a like and linked quarter basis, demonstrating the bank's strong credit risk culture and proactive approach to resolving problem loans. Additionally, non-interest expense increased due to a charitable donation and higher personnel costs, but was partially offset by lower restructuring charges and FDIC expenses. On a year-to-date basis, investment banking and trading income has increased significantly.

The loan loss provision for the company decreased by $49 million compared to the previous quarter, but still exceeded net charge-offs, resulting in a slight increase in the overall loan loss allowance. The ALLL ratio also increased slightly, reflecting ongoing credit normalization and stress in the office sector. Non-performing loans remained stable, while delinquencies increased slightly. The wholesale criticized loans also decreased, with the office portfolio remaining at 1.6% of total loans. However, the reserve for this portfolio was increased to 9.7% due to continued stress in the sector. The company expects stress to remain in the office sector and is actively managing and resolving issues in this portfolio. The company's CET1 ratio also increased due to the sale of Truist Insurance Holdings and organic capital generation, partially offset by losses on certain investment securities.

Truist's sale of TIH has created capacity for growth and returning capital to shareholders. They performed well in a recent stress test and their capital ratio is above regulatory minimums. They expect revenue to increase in the third quarter and for the full year to decline slightly. Expenses are expected to increase due to various factors.

The company's updated outlook for 2024 includes slightly better client deposit balance performance, lower client loan demand, and one expected reduction in the Federal Funds rate. They also expect flat adjusted expenses and net charge-offs of 65 basis points. The company's top priorities for 2024 remain the same, including growing relationships with clients, maintaining expense discipline, returning capital to shareholders, and enhancing their digital experience. The company made progress on these priorities in the quarter, including completing the divestiture of Truist Insurance Holdings and repositioning their balance sheet. These actions have created significant capital capacity for growth and returning capital to shareholders.

The company's strong balance sheet allows it to weather economic and interest-rate changes, despite potential short-term dilution to return on equity. The company is focused on profitable growth and plans to share more details as the year progresses. The company is confident in its ability to deepen relationships with existing clients and grow its core banking business through investments in various areas, including investment banking, trading, and hiring experienced bankers. This has led to increased mind share with clients and more lead roles in various product lines.

The company has made significant investments in its Payments business and has hired new leadership to drive growth in this area. They are focused on adding talent in the wholesale sector, particularly in the middle-market commercial lending segment. They are also investing in technology to improve the client experience and risk management. In the consumer sector, the company has seen positive momentum with increased client satisfaction, net-new checking account production, and lower attrition rates. They have also seen a 17% increase in new clients through digital channels and a 60% increase in balances from digital account openings compared to the previous year.

In the second quarter, the company has seen growth in small business lending and applications, leading to confidence that average consumer balances will stabilize in the third quarter. The company is pleased with their progress and acknowledges there is more work to be done. They have momentum with clients and teammates and believe their ability to grow their core banking business and return capital to shareholders sets them apart. The CEO is optimistic about the future and thanks the company's teammates and leaders for their focus and productivity. The call is now open for questions.

Ryan Nash asks William Rogers about the drivers of sequential NII growth and how the margin could be affected in the medium-term. Mike Maguire responds that they expect NII to improve next quarter due to repositioning, but there may be pressure on client deposit and loan balances. He also mentions the November rate cut and the need for increased client loan demand. The company is focused on realizing growth opportunities but there has been limited client activity.

William Rogers responds to Mike's comments about loan balances and expectations for growth. He states that clients are currently on the sidelines and discussions are more strategic. Production is up in consumer lending, but utilization is flat and paydowns are high. He believes that Truist will eventually outperform peers in terms of growth, but is hesitant to give a specific timeline due to market uncertainty.

The speaker discusses their approach to managing excess capital, emphasizing the importance of prioritizing growth in their core business. They also mention their efficient capital raising strategy and their goal of deploying it in a way that benefits shareholders in the long-term.

The company expects to make $500 million per quarter for the next few quarters, and will likely continue at the same pace next year. They also have a strong dividend and plan to calibrate their spending to balance growth and shareholder returns. In the second half of the year, expenses are expected to increase, but the company is still committed to keeping them flat or slightly higher. They were focused on cost discipline in the first half of the year and will continue to prioritize this.

The company has reached the midway mark and has experienced some delays in projects that have contributed to their success in the current quarter. They are confident in their ability to keep expenses flat or better for the rest of the year, thanks to investments in areas such as payments and talent and increased discipline in both investments and expenses.

The speaker asks about the potential impact of one or two rate cuts on NII guidance for Truist. The speaker also asks about the investment banking line, which was down in the quarter but still above recent run rates. The speaker asks for thoughts on the outlook and a potential sustainable base of revenues for Truist.

In the first quarter, the Investment Banking business had a high M&A fee, which impacted the quarter's results. However, the company is gaining market share and has good momentum. The company has been adding and upgrading talent, leading to strategic dialogue with clients. Net interest income was better than expected, mostly due to the net interest margin. The impact of margin from balance sheet restructuring is only partially reflected. Non-interest income was also better than expected, but consensus is still at the low end of the company's revenue range.

The speaker is responding to a question about the bank's expectations for balance and net interest margin in the second half of the year. They acknowledge that their starting position is better than expected due to higher balances and lower rates paid. However, they still expect pressures to persist in the third quarter. The speaker also mentions that they paid down some liabilities and will see more net interest margin improvement on a smaller balance sheet. On rates, they are cautious and do not want to make any definitive predictions. They also mention that historically, the betas have been slow in down cycles.

The speaker discusses the potential for increased loan volume and deposits, which could lead to higher returns. They also mention the authorization for $5 billion in capital and the timing for fulfilling it, as well as the potential for high-teens ROTCE. The speaker emphasizes the need for discipline in making investment decisions.

The company is focused on providing a strong return to shareholders through a combination of dividends and buybacks. They are also looking at their business model and capital requirements to determine their future growth strategy. While they have not set a specific target for CET1, they plan to provide more guidance towards the end of the year. Overall, the company believes they have a compelling proposition for investors.

The speaker predicts that the capital rules will remain steady at 11.6% for the rest of the year, as there will be no significant improvement or decline in ROA. The company prefers to operate with a higher level of capital for strength and resiliency, and has a growth agenda. The C&I book experienced pay downs, but the majority was recaptured in the fee line, resulting in a strong DCM quarter.

The speaker is discussing the difficulty in accurately quantifying the percentage of growth attributed to various factors, but it is reflected in their overall DCM growth. They then move on to discussing credit progression and mention stable delinquencies and flat NPLs, but express caution in the consumer finance and office exposure areas. They also mention lower watch list numbers and no major sector issues.

The speaker discusses the adequacy of the company's reserves and expects them to remain stable unless there is a significant change in the economic outlook. They also mention that the non-interest income outlook for the third quarter will be relatively stable and that they are continuously investing in and expanding their Investment Banking business. This investment includes training their commercial and middle-market teams to better serve clients.

The company is focused on growing and being profitable in its commercial business, which is now mostly owned by private equity. They want to maintain a stable growth trajectory and keep expenses in check. The outlook for fees in the second half of the year is stable, but there is potential for upside if business improves. The company expects higher expenses in the third quarter and does not have a preview for next year at this time.

The speaker discusses a Bloomberg report that claims 11 of 22 large banks fall short on operational risk according to the OCC. The speaker cannot confirm this and cannot comment on their own regulatory ratings. They emphasize the importance of investing in a durable risk framework and staying compliant with regulators. They also mention the increased focus on risk management since March 2020 and anticipate this to continue in the short, medium, and long term.

The CEO of Truist discusses the importance of creating a durable risk framework for a company of their size and opportunity. He acknowledges that the company's investments in this area may hurt them in comparison to larger banks, but believes they are currently in a good place on the "efficient frontier." He also mentions that the merger of their companies was driven by the need for a larger company to handle the complexity and investments needed for their risk platform. The CEO acknowledges that the efficient frontier can change and they are conscious of this.

When asked about the definition of a good place in 2025, William Rogers, CEO of the bank, stated that their focus is on creating momentum and positive operating leverage. He mentioned that they have plans in place to achieve this and are making progress in controlling expenses. He expects this discipline to continue and for expenses to better reflect the revenue opportunity in the coming year. However, he did not provide specific expense guidance for next year.

The speaker expresses confidence in the company's focus on positive operating leverage and expense discipline. They mention potential investments in growth opportunities and any necessary expense increases will be made in the context of maintaining a focus on efficiency and high returns. The speaker also mentions ongoing investments in the company's platforms and capabilities, with no one big investment needed. They clarify that the company is not at a disadvantage in terms of technology compared to peers who have not undergone mergers.

The company's acquisition of clients and performance metrics have been positive and continue to improve. The loans and deposit balances may be down slightly in the third quarter, but the company is hoping for stability in the fourth quarter. The company has also increased spending on marketing and hiring.

The speaker discusses their plans for the third and fourth quarters, including stabilizing and increasing loan deposits. They also mention their efforts to get the message out to employees about their capital and liquidity, and how they are focused on offense rather than defense. They also mention their success in consumer production and hiring new employees.

Brad Milsaps thanks the audience for participating in the earnings call and invites any further questions to be directed to the Investor Relations team. He concludes the call and the operator disconnects the conference.

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