Truist Financial Corporation

Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation first quarter 2020 earnings conference call. Currently, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Ryan Richards, Director of Investor Relations for Truist Financial Corporation. Please go ahead. Thank you, John, and good morning, everyone. We appreciate you joining us today and sincerely hope that you're doing well. On today's call, our Chairman and Chief Executive Officer, Kelly King, and our Chief Financial Officer, Darrell Bible, will review our first quarter results and provide some thoughts for the second quarter of 2020. We also have Bill Rogers, our President and Chief Operating Officer, Chris Henson, our Head of Banking and Insurance, and Clark Starnes, our Chief Risk Officer, to participate in the Q&A session. Note that we are conducting our call today from different locations to protect our executives and teammates. We will reference this live presentation during today's call. A copy of the presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website. Please note that Truist does not provide public earnings predictions or forecasts. However, there may be statements made during this call that express management's intentions, beliefs, or expectations. These statements are subject to inherent risks and uncertainties, including the impact of COVID-19, and truest actual results may differ materially from those contemplated by these forward-looking statements. Please refer to the cautionary notes regarding forward-looking information in our presentation and our SEC filings. Please also note that our presentation includes certain non-GAAP financial measures. Please refer to page three and the appendix of our presentation for the appropriate reconciliations to GAAP.

And now I will turn it over to Kelly.

Thank you, Ryan. Good morning, everybody. Thank you for joining our call. I certainly hope you and your families are safe and well in this difficult environment we're all living in. I want to take a minute before we get into the numbers to just talk about culture, because I believe now more than ever, culture matters most of all of the things we can talk about. So you've heard us say that our purpose is to inspire and build better lives and communities. This is absolutely a a critical time for us to live out that purpose. Our mission is focusing on our clients, our teammates, and our stakeholders in that order, and we do that very, very seriously every day. Our values are to be trustworthy, caring, operate as one team, focus on success, and ultimately happiness for our teammates. We're focusing during this environment, number one, on the health and safety of our teammates, We are pleased that about 35,000 of our 58,000 teammates are able to work remotely. We are spending a lot of time supporting our clients, particularly on the payroll protection program. We're spending a lot of energy and focus supporting our communities through our truest care of $25 million philanthropic donation that we did early in the cycle. I'll tell you that our teammates are working really, really hard. They're working 24-7 in many cases. They're working very, very closely together. It's incredible to see the kind of positive results that we're getting, particularly like in the PPP program where our people were able to stand up literally overnight and automated portals to allow our clients to access automatically with us in terms of getting their applications in. Our teammates are bonding faster than we would ever have expected. And I can say to you today that our culture at Truist is really, really strong. If you're following on the presentation, I'm on slide five. Just as a reminder, after the combination, we are the sixth largest US commercial bank by assets and market value. We have a very strong number two weighted average deposit market share in the top 20 MSAs. We have 12 million households, 58,000 teammates. we are very well positioned, we think, to achieve our purpose. We are recognized as one of the highest-rated financial institutions, and we're continuing to grow loans and deposits, particularly in this period of flight quality. Dale's going to cover a lot of information about our very strong capital and liquidity in just a bit. But I would point out that our diversification is a real strength. We are very diversified in product services and geographies. On slide six, we talk about some of the things we're doing with regard to the crisis. Like others, we have been providing payment relief assistance, including forbearance, deferrals, extensions, other ways we can help our clients. We've already done over 300,000 accommodations for consumers, 16,000 for our commercial clients. We temporarily waived ATM service charges. and we're uniquely offering a 5% cashback on qualifying card purchases for important basic needs. We're real pleased that we've been able to continue to allow our appointment interventions with our clients in terms of particular needs they have. We're fortunate that 90% of our branches have drive-thrus, so we've been able to keep those branches open in terms of activity. We've been really focused on the Paycheck Protection Program, Our average loan amount is about $323,000. We've been authorized for 32,000 companies, representing about 1 million employees. And we're expecting funding to be a little more than $10 billion on the first round, and it will likely be more on the second round if it is, in fact, approved. We're providing financial relief programs for small businesses in many other ways also. And we've been able to fund, without hesitation, extensive land draws for our commercial clients. For our teammates, we've awarded $1,200 coronavirus virus relief bonuses to about 78% of our teammates, making less than $100,000 a year. We've been very aggressive in providing work from home and other alternative work strategies for our teammates to provide safety for them. We also increase our on-site special rate pay for those that have to be at work in critical conditions. roles and $6.25 in special pay for those on hourly and $50 a day for those that are not. Our Truist Foundation is contributing $4 for every $1 that our Truist teammates donate to our One Team Fund, which helps our teammates that are in financial hardship and need assistance. For our communities, we announced earlier a $25 million philanthropic contribution. This has really gone a long way to help. We donated $1 million to each of the CDC Foundation, and Johns Hopkins. And our Truist Foundation donated $3 million to local United Way organizations. On page seven, just a few financial highlights. We did have $5.6 billion in taxable equivalent revenue. Our adjusted net income available to common shareholders was $1.18 billion. Saluted earnings per share on an adjusted basis was $0.87 billion. Our return on tangible common equity adjusted was 15.5, which is very strong in this environment. And our adjusted efficiency ratio was 53.4%. So we feel really good about that. Our January and February were, like a lot of people, really strong. And then we, of course, ran into all the challenges that we're all experiencing because of COVID-19. Interestingly, insurance and mortgage continued to have strong performance throughout the entire quarter. The quality that Clark will describe to you is actually very good right now, but we know that's the calm before the storm, and that's why we added a strong $893 million provision in anticipation of the challenges that we know we will face. We have a tight focus on our teammates and our clients and our communities, which we believe is our job number one right now. If you'll go to slide eight, just a couple of the unusual items this quarter. We know it's a little messy, but we've got the issue of the merger and the COVID impact. Merger-related charges are $107 million before tax, about $0.06 negative impact after tax. The incremental operating expenses, these are the ones that provide future benefits, but they're not a part of the ongoing run rates. We call them out separately, and that's $74 million or $0.04 a share. And then the COVID impact in terms of cost and foregoing revenues, is about $71 million or $0.04. So there really is, in my view, about $0.14 of unusual items, which gets you to the $0.87. If you go to slide nine, in loans and leases, it's been an interesting period. You can see that our first quarter average loans was $301 billion. But by the end of the period, it was 319 billion. Obviously, we had a surge at the end of March. We had about $18 billion in drawdowns. That continued in the early part of April. We had another about 1.4 billion. Then it kind of subsided and it's been relatively flat since then. We do expect substantial PPP funding. As I said, we have in process about $10 billion in committed loans that we expect will be drawn down relatively soon. You know, in terms of the market, I know everybody wants to know what's going to happen. I do, too. But the truth is we just don't know. It depends, obviously, on the depth and the length of the health crisis as we work through that and then how that has the knockoff effect with regard to the economy. The good news is going into this, the economy was very strong. The bad news is small businesses will really struggle to recover from this. Still, I would say to you, Americans are resilient, and I believe our country is likely to outperform the worst expectations. If you look at the projects on page 10, same kind of thing. Our average balances were $334 billion. It popped up to $350 billion as we had an increase of $15 billion during that period of time. About $7 billion of that was land laws. but then we also had some seasonal increases and some flight quality deposits that moved in, which we were very pleased to see. Our total average cost of deposits decreased by six basis points, which we're very happy to see.