Truist Financial Corporation

Please stand by. We're about to begin. Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Second Quarter 2020 Earnings Conference. Currently, all participants are on 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, sir.

Thank you, Alan, and good morning, everyone. We appreciate you joining us today. On today's call, our chairman and chief executive officer, Kelly King, and our chief financial officer, Darrell Bible, will review our second quarter results and provide some thoughts for the third 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. We are conducting our call today from different locations to help protect our executives and teammates. We will reference the slide 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 to express management's intentions, beliefs, or expectations. These statements are subject to inherent risks and uncertainty. Ensure that the 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 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.

Thanks, Ryan. Good morning, everybody. Thank you very much for joining our call. I hope you and your family are safe and well. You know, given the challenges that we face, I think this was a really strong quarter, primarily because we lived our purpose. And I'll say I'm really, really proud of our team. You know, our purpose is to inspire and build better lives and communities, and that is really, really important in the challenging environment that we are experiencing today. You know, we focused intensely on taking care of our clients. I've been really, really involved with our teammates, creating an inclusive and energizing environment, really focusing on trying to empower teammates to learn and grow and have meaningful careers. And I think we've done a good job across the board with regard to all of our stakeholders in optimizing their long-term returns. We do all that consistent with our values of trustworthy, caring, one team, success, and ultimately trying to provide a sense of happiness for our teammates and all of the people that we have a chance to inspire and encourage. and support. If you're following the presentation on Table 5, I just want to point out some of the things that we've done, because I think in today's world, this is as important, if not more important, than the actual numbers, because our communities need a lot of help. We've been really focused on living our purpose. You've heard about our Truist Cares philanthropic initiative, where we pledge $50 million to rebuild communities. Some of the things we're doing are really, really exciting. For example, we're doing technological support in areas that are unserved or underserved with regard to Internet and Wi-Fi capabilities. We're using that to support automated reading capabilities in these areas because these kids are sheltered in a place at home and don't have access easily to learning. We're supporting our communities, doing a lot of work with CDFIs in terms of supporting small businesses, minority-owned businesses, women-owned businesses. Feel good about that. Just to give you a perspective, over the last few years on our own up movement, we provided about 6 million people with tools to provide their financial confidence. Since 2009, we've done over 12,000 community projects. We've touched over 18 million people through our financial foundations program, which is focused on financial literacy. In high schools, we've reached more than 1 million high school students. And since the merger of equals, in a very short period of time, we've provided $440 million in financing to support 2,200 affordable housing units, creating 1,400 new jobs across our footprint. We've been really focused on addressing racial and social inequity. We are expanding our efforts to advance equity, economic empowerment and education for our clients, our communities, and our teammates. I'm very proud to say we observed Juneteenth holiday by giving our people time off. We had a virtual town hall with over 3,000 of our teammates that I was able to co-host along with Ben Crump, and it was a really, really good dialogue, good discussion. We've had over 200 days of understanding where we bring together teammates and give them an opportunity to just dialogue and talk about what's going on, the challenges that they face. Those have been really, really great sessions. I participated in some and found them to be very, very informative and helpful. We're in the process of doing even more town halls. We've conducted unconscious bias training. So we're doing a lot to try to help our communities and our teammates weather through the storm and get better through the storm. And I feel really good about that. I'll show you how that's playing out with regard to our second quarter highlights on slide six. We're very pleased that we had taxable equivalent revenue of $5.9 billion. It was up 7%, but as you know, that was merger timing affected. We did have adjusted net income of $1.1 billion. Felt good about that. Our diluted earnings per share on a GAAP basis were 67, but our adjusted basis earnings were 82, which was very, very strong relative to the environment. Our return on average common equity on an adjusted basis was 7.26. Return on average tangible common adjusted was 14.17. And I was very pleased that our adjusted efficiency ratio was 55.8, which is very strong in this environment. Our asset quality in terms of actual metrics, which you can get more detail on from Clark, were actually fantastic. But as we all know, That was substantially impacted by a lot of the CARES Act decisions around forbearances, et cetera. So we know that we'll get worse, and that's why we're prepared well in terms of our reserving for our future allowances. We felt good about our fee income, robust capital markets activity. Residential mortgage was fantastic. Our insurance brokerage operation, which really, really is important in times like these, had a record quarter. We continue to have very good expense discipline on a core basis. And our common equity tier one increased by 0.4 to 9.7, so we felt very, very good about that. If you look on page seven, I just want to hit a few of these material special items that affected the quarter. We did have securities gains. So these were non-agency mortgage securities that we'd had for a while. They had special gains and some risk of downside loss of those gains. And so it was a good opportunity for us to take those. That did provide $300 million in pre-tax gain or $0.17 diluted share. Now, we used most of that to extinguish debt. We took a loss on that of $235 million before tax. That improves forward run rate. which Daryl can give you detail on, but that was very good. That was a negative $0.13. We did have substantial merger-related restructuring charges of $209 million. That was $0.12 negative. And then, as we've explained to you, we do have incremental operating expenses that are related to the merger that are technically merger-related that we call out in a category, but they're not a part of our run rate going forward. So we consider those to be unusual expenses. And that's $0.07. So when you net through all that, it would be a positive impact of about 15 pennies. If you look at slide 8, just a few comments with regard to loans. It was a very interesting quarter for loans. I mean, at the beginning of the quarter, loans were booming. You know, we were having line draws like everybody else that were substantial. We were engaged in PPP, where we were the third largest lender PPP producer producing about $13 billion in those loans. We were happy to do that, although it was very hard in terms of supporting our small business clients. There was not much normal loan activity in the quarter, so it was just kind of an unusual quarter. Our average balances were $322 billion versus a $315 billion in the period, so you can see what happened with We advanced up all the lines, and then they started paying down. So now 80% of the COVID-related line advances have already been paid. So that activity was kind of a roller coaster. It's settled down now, and we feel good about where we are. Consumer loans decreased slightly in this stressed environment just because people, broadly speaking, are spending less. We did see a decrease in residential mortgages. on the loans that we hold, but our mortgage business in general is booming. We had mortgage applications of 21.3 billion second quarter and we originated 14.6 in the quarter. So we were really, really active in that and frankly moving resources into the mortgage area because that's a very, very important area for us. We did have substantial activity increasing loans in indirect which was primarily due to huge demand for loans to finance recreational and power sports. So we are seeing some robust activity in some categories, some temporary robust activity in others. The underlying normal activity is, I'd say, relatively stable, not going down, not going up. It's just not much going on right now for reasons you would understand. So we feel overall good about our loan book and loan activity. And we think we're well positioned as we go forward when confidence returns to be able to meet the needs of our clients. Just a couple of comments with regard to deposits on slide nine. Deposits are booming. Our non-interest-bearing deposits were $113 billion, up $20.7 billion on a linked quarter basis. Total deposits were up $36 billion on the same linked quarter basis. I would tell you that the majority of that is poor, but there are surge balances related to land draws, PPP loans, and government stimulus. We believe there continues to be a flight to quality, and we're the beneficiary of that. Business accounts drove about 80% of the growth in DDA, so that was what you would expect, businesses drawing down lines, investing into deposit accounts, etc., Our deposit mix for the second quarter consisted of 34.7 non-interest-bearing deposits, which is very strong, 26% on interest-bearing, 34% on money market, and savings were 8.9%. Our cost of average deposits and average interest-bearing deposits decreased 29 basis points and 38 basis points respectively, down to 22 and 32 respectively. So it's a very, very strong story for deposits. I will say that we have a real opportunity in terms of our interest-bearing deposits at 32 basis points. We didn't move them down as aggressively in the second quarter as maybe some did. We wanted our clients to have time to adjust. But we see there's a real opportunity for us as we move into third quarter, and we're already taking very bold and decisive action with regard to that. So let me turn it now to Darrell for some more detail.