Truist Financial Corporation

Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation's second quarter 2022 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. Ankur Vyas, Head of Investor Relations, Truist Financial Corporation.

Thank you, Jennifer, and good morning, everyone. Welcome to Truist's second quarter 2022 earnings call. With us today are our chairman and CEO, Bill Rogers, and our CFO, Darrell Bible. During this morning's call, they will discuss Truist's second quarter results and share their perspectives on our efforts to transition from an integration focus to an operating focus, current business conditions, and our continued activation of Truist's purpose. Clark Starnes, our chief risk officer. Beau Cummins, our Vice Chair, and John Howard, our Chief Insurance Officer, are also in attendance and are available to participate in the Q&A portion of the call. The accompanying presentation, as well as our earnings release and supplemental financial information, are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two and three of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. In addition, Truist is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized live and archived webcasts are located on our website. With that, I'll now turn it over to Bill.

Thanks, Hacker. Good morning, everyone, and thank you for joining our call this morning. True has delivered a good second quarter, reflecting our improving momentum after the integration and the resiliency of our diverse business mix in a volatile market environment. Our financial results modestly exceeded the guidance we provided in April with several puts and takes. Long growth was strong and broad-based. Net interest margin expanded significantly due to higher interest rates and our strong deposit franchise. Credit quality remains excellent, and we are pleased by our relative and absolute performance in the recent stress test. In light of these results, our Board will consider a resolution to increase the common dividend by 8% at its July meeting. This quarter's performance, combined with improving client experience trends and dramatically lower merger costs, reflect the initial benefits of our shift from integrating to operating. While there's still work to do, such as stemming elevated operational losses, closing out residual integration issues, and completing our decommissioning process, I am very confident in Truist's trajectory and reaffirm our commitment to delivering positive operating leverage for the full year of 2022. I'm going to share some more details on those topics in a moment. Going to slide four, as you all know, Truist is fundamentally a deep purpose-led company dedicated to inspire and build better lives and communities. We know that our purpose-driven culture is the foundation for our success as a company. Our purpose drives performance and defines how we do business every day. It very intentionally begins with the word inspire, and to be inspirational, it's often necessary to be bold and to be first. I'll highlight four examples that I think reflect that purpose on the next slide. First and foremost, we recently announced that we're making a significant investment in our teammates by raising our minimum wage to $22 an hour, effective October 1st. This increase will benefit approximately 14,000 teammates, about 80% of whom will have client-facing roles in a retail and small business banking business. Purposeful growth is dependent on attracting and retaining the best talent. In addition to our industry-leading benefits, we desire a compensation program that also helps teammates who need it most to blunt the impact of inflation in their daily lives. Second, we had a historic launch of Truist One Banking yesterday. This is our new differentiated suite of checking solutions that reimagine everyday banking, including two new accounts that eliminate overdraft fees and provide greater access to credit. The flagship Truist One checking account has zero overdraft fees and the capability to provide qualifying clients the liquidity they need through a simple $100 negative balance buffer. We also introduced the Truist Confidence account, which provides consumers with access to mainstream banking services and no overdraft fees. We're mindful of the impacts that inflation and reduced stimulus may have on some of our clients, and Truist One provides is one of many examples of how we're advancing financial inclusion across our communities. Third, Truist committed $120 million to strengthen and support diverse and small businesses. This commitment exemplifies our purpose by supporting small businesses, which are so vital to the health and vibrancy of our communities. And fourth, we released our 2021 ESG and CSR report in early June. At Truist, we view all the elements of ESG as an opportunity to improve our company and to put our purpose into action, and that includes climate change. As we look to externalize our own net zero aspirations and further the transition to a lower carbon economy, we recently created new advisory practices within our CIB and commercial community banks to help our clients make their own transition. We're pleased with how our clients have welcomed and embraced our advice and expertise around ESG as it underscores the possibilities in viewing ESG as an opportunity for growth. Turning to slide seven. Consistent with our previous guidance, merger-related costs totaled $238 million, roughly half of what they were in the first quarter. We expect merger costs to decrease significantly in the back half of 2022 before going away entirely in 2023. This trajectory should be welcome news to shareholders as diminishing merger costs correspond to a less complex narrative, improving earnings quality, more capital, and ultimately industry-leading returns. Lastly, we incurred a $39 million pre-tax gain related to the early extinguishment of $800 million in FHLB debt. Turning to our second quarter performance highlights on the next slide. We earned $1.5 billion, or $1.09 a share, on a reported basis. Excluding the selected items on slide seven, adjusted earnings totaled $1.6 billion, or $1.20 a share, down 23% compared to a year ago, primarily due to a sizable reserve release in the prior quarter. Relative to the first quarter, adjusted EPS decreased 2% as higher loan loss provision offset a 10% increase in adjusted EPNR. Adjusted revenue benefited from higher short-term rates alongside well-controlled deposit costs, strong loan growth, consumer seasonality, and strong insurance results, partially offset by continued softness and market-sensitive fee businesses such as investment banking, wealth, and mortgage. Adjusted ROTCE was 25%, up from 23% in the prior three quarters. Even when normalizing things like AOCI to zero and assuming a flat ALL ratio, adjusted ROTC was a strong 17%. Adjusted expenses increased 3.8%, reflecting higher insurance-related incentive compensation and intentional investments in talent and technology to support our shift from integrating to operating. Other expenses also increased due to normalization of teammate travel and elevated operational losses. We have plans, products, processes, and technology enhancements underway to reduce these losses and enhance the overall client experience, including the launch of innovative authentication approaches later this quarter. While operating leverage was a negative 200 basis points year-to-date, this primarily reflects the 435 million year-to-date headwind we have from PPP and PAA revenue Despite these headwinds, we're still targeting positive operating leverage on both a GAAP and adjusted basis for the full year. Asset quality remains excellent, and net charge-offs decreased relative to the first quarter. Capital deployment was healthy in the second quarter as we funded strong loan growth and completed $250 million worth of share repurchases. Capital levels remain strong in light of our risk and profitability profile, demonstrated by our continued strong performance in the 2022 CCAR process. Overall, the second quarter begins to reflect the power of Truist post-integration. Now turning to slide nine, digital activity increased in the second quarter attributable seasonality and nearly 200 enhancements we implemented across the platform representing a significantly higher pace of value delivery for our clients. Our ability to rapidly incorporate client feedback reflects the capabilities of a more modern and agile digital platform and has resulted in improved client satisfaction scores, which have risen consistently since our initial introduction of Truist Digital in Waves in 2021. In June, we announced the grand opening of our state-of-the-art innovation and technology center. Located within our headquarters, the ITC provides an environment conducive to reimagining the client experience, such as by facilitating new ways of working with Agile teams to better collaborate with clients to co-create dynamic and marketable cross-channel services. The new space features client journey rooms, a maker space for building, testing, and refining new products and services, a reality lab where we can utilize virtual and augmented reality technology, and a contact center incubator where we can collect and respond to real-time feedback directly from our clients. I'm personally excited about our improved ability to aid our teammates as they reimagine how we serve clients. We also acquired San Francisco-based Loan Game, the award-winning gamification app that utilizes behavioral economics, prize-linked savings, and mobile gaming to motivate positive financial behaviors and drive new account growth and client retention. By leveraging Long Game's innovative technology, Truist can empower our clients to build long-term financial wellness. I'm also pleased to report that our merger integration activities are now complete. Our final merger release is rolled out in May, and we recently held our last merger oversight committee meeting. As we shift to BAU, our digital and technology teams are looking forward to accelerating our pace of innovation and client experience improvements. Yesterday, as I mentioned, we introduced Truist One. As I referenced earlier, we'll soon expand Lightstream to include a new deposit product on a real-time cloud-based core, enhance the sophistication of our underwriting models through a partnership with Zest, roll out Truist Assist, our virtual assistant, to millions of clients, just to name a few examples. Overall, we're increasingly optimistic about the performance and the potential of our increased investments and focus on digital and technology. Now turning to loans and leases on slide 10. Average loan balances increased a very robust 8.1 billion or 2.8% sequentially with growth across most businesses. The pace of growth accelerated during the quarter with end of period loans of 4.7%. Growth was primarily driven by C&I, where average balances increased $6.7 billion or 4.8% overall. We delivered broad-based loan growth across most CID industry verticals, notably energy, consumer and retail, financial institutions, TMT. Due to M&A activity, the current shift to banks from the bond market increased relevance with new and existing clients and higher revolver usage for CapEx inventories and inflation. As in recent quarters, growth continues to be strong within our asset finance group as we continue to build out that business with more talent, product capabilities, and a larger balance sheet. Commercial community bank C&I balances increased 2%, excluding PPP and dealer floor plan, reflecting growth across all our geographic regions, and it was the second strongest end-of-period growth since 2019. Revolver utilization increased 300 basis points to just over 30%, the highest level since mid-2020. CRE remains a headwind, reflecting both a highly competitive market and our disciplined approach. At the same time, though, I continue to be optimistic about the future of our CRE business as we create more strategic clarity internally, and non-bank competition rationalizes somewhat with rising rates. Wealth lending was up $600 million sequentially, as our advisors and clients continue to benefit from the combined capabilities of both heritage firms. Residential mortgage increased 2.6%, reflecting ongoing correspondent purchases and slower prepayment speeds. Excluding mortgage, consumer and card balances increased $1 billion, or 1.3%, as strong growth in Service Finance, Prime Auto, Sheffield, and Lightstream more than offset runoff in our partnership and student portfolios. Service Finance is performing in line with our high expectations and experiencing good business development momentum given the alignment with Truist. Second quarter production by Service Finance was about double the volume loss and double the profitability from our terminated partnerships. Our prime auto business is also back on its front foot after regaining some momentum it lost following its own fourth quarter conversion. In addition, our consumer finance businesses continue to advance their automated decision capabilities, which ultimately improves consistency, efficiency, and creates better client experiences. Overall, clients are generally positive on current economic conditions and demand in their businesses. At the same time, concerns about labor shortages and margin pressure given rising rates and higher input costs are growing, creating the potential for more defensive postures. Truist is well-positioned to advise clients across a range of scenarios, giving our broad capabilities and talented teammates. Given all of this, we remain generally positive about our prospects for continued loan growth, particularly taking into account our post-integration momentum. At the same time, we have to acknowledge the increased uncertainty associated with a softening economic environment, which may cause loan growth to deviate from this outlook. Turning to deposits on slide 11. Average deposit balances increased $8.5 billion, or 2%, during the second quarter, largely attributable to an increase in brokered deposits in mid-March. Excluding brokered deposits, average deposits decreased $2.9 billion, or 0.7%. Deposit costs were very well controlled, reflecting Truist's strong retail and commercial-oriented franchise and our enviable market share position. In addition, our lines of business and corporate treasury teams delivered excellent execution against a thoughtful strategy to be attentive to client needs and client relationships while maximizing value outside of rate paid. As a result, interest-bearing client deposit betas were 8%, well below our modeled assumptions. As the interest rate environment evolves, we'll continue to take a balanced approach to managing deposit growth and rate paid, particularly given our broad access to other forms of funding. And now, let me turn it over to Darrell to review our financial performance in greater detail.