Truist Financial Corporation

Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Third Quarter 2023 Earnings Conference Call. Currently, all participants are in 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. Brad Millsaps.

Thank you, Anthony, and good morning, everyone. Welcome to Truist Third Quarter 2023 Earnings Call. With us today are our Chairman and CEO, Bill Rogers, and our CFO, Mike McGuire. During this morning's call, they will discuss Truist's third quarter results, share their perspectives on current business conditions, and provide an updated outlook for 2023. Clark Starnes, our Vice Chair and Chief Risk Officer, Bo Cummins, our Vice Chair, and John Howard, Truist Insurance Holdings Chairman and CEO, are also in attendance and available to participate in the Q&A portion of our call. The accompanying presentation, as well as our injury lease and supplemental financial information, are available on the Truist Investor Relations website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slides 2 and 3 of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliations to GAAP. With that, I will turn it over to Bill.

Thanks, Brad, and good morning, everyone, and thank you for joining our call today. To get into the third quarter results, let's begin as always with our purpose on slide four. As we all know, Truist is a purpose-driven company committed to inspiring and building better lives and communities. I'd like to take a few minutes just to highlight some of the ways we demonstrated our purpose last quarter. Truist is driving positive change by supporting organizations that promote the growth and vibrancy of our communities. In August, we invested $17 million to support affordable housing in Charlotte and career development and economic mobility programs across the state of North Carolina. And just last week, we announced our allocation of $65 million in new market tax credits from the U.S. Treasury's Community Development Financial Institution Fund. This is the 12th time Truist has received an award which has allowed us to invest $750 million in underserved communities by providing loans with reduced rates of interest and or nontraditional terms. Over the years, these loans have helped spark economic development and job growth in communities across the regions we serve. I'm really proud of the meaningful work we're doing as a company to have a positive effect on the lives of our clients, our teammates, and our communities, and of course our shareholders as we work to realize our purpose. Now let's turn to some of the key takeaways on slide six. Tourists reported solid third quarter earnings that met our guidance despite certain discrete non-interest income and expense items that negatively impacted our results. Mike's going to cover those later in the call. As you can see on the slide, our solid performance was defined by several underlying key themes. On our July earnings call, we discussed our intent to significantly reduce the rate of expense growth at our company, which was followed up with the introduction of our simplification efforts and $750 million cost saves program in September. We're fully committed to delivering on this work, and the reduction in third quarter expenses is evidence of the hard work that's been ongoing throughout the year. We'll also manage our balance sheet more efficiently. During the past few earnings calls, I've described how we're focusing on core clients, reducing lower yielding portfolios, and paying down higher cost borrowings, all of which occurred during the third quarter and helped drive our NIM hire by four basis points during the quarter. Moreover, these efforts have increased our CET1 ratio to nearly 10%, which is a level that we believe we can maintain throughout the proposed phase-in period under pending Basel III rules based on our current rate of organic capital growth. Although asset quality is normalizing off historically low levels, we are encouraged that our metrics remained relatively stable during the quarter while we continue to build our loan loss reserve considering the uncertain economic environment. Lastly, we're making strong progress on our cost saves program and organizational simplification, which we'll discuss in more detail later in the call. I'm pleased with our direction, the intensity and focus, and I'm confident in our ability to emerge as a stronger company. While the quarter was solid, we acknowledge there's more work to do as we strive to produce better and more consistent results in the future. We view this third quarter performance as a step forward in that direction. So let's do some more specific work on slide seven. Net income available to common shareholders was $1.1 billion or 80 cents per share. Merger related and restructuring charges primarily related to severance associated with our cost savings program per DPS by 4 cents. Total revenue decreased as expected and was essentially in line with our guidance despite an $87 million discreet impact to service charges on deposits revenue. We're also encouraged that our net interest margin improved for basis points, driven by our ongoing balance sheet optimization efforts, including a reduction in FHLB borrowings, a decline in lower yielding loan balances, and improving new and renewed loan spreads. Adjusted expenses were down 50 basis points, and within our guidance range, it would have decreased 250 basis points, excluding $70 million of higher than normal other expense. Average loans decreased 2.5%, primarily due to the sale of the student loan portfolio in the second quarter and our continued repositioning towards higher return core assets. Average deposits increased modestly as we continued to experience a remixing towards higher yielding alternatives. We added 29 basis points of CET1 capital in the quarter and increased our A-triple-L ratio by six basis points in light of ongoing economic uncertainty. Lastly, we maintained our strong quarterly common stock dividend at 52 cents per share paid on September 1st. So let's move to our digital update on slide 8. Digital engagement trends at Truist remain positive, as you can see on the left side of the slide. Mobile app users have grown steadily over the past year, and we're currently focused on driving additional growth through our mobile-first engagement initiatives. From an activity standpoint, digital transactions increased 9% relative to the fourth quarter last year, driven primarily by Zelle transactions, which were up 32% over the same period. Due to the rapid growth we've experienced, digital has quickly become a preferred channel for interacting with Truist. In fact, digital transactions now account for more than 60% of total bank transactions. And while that's certainly positive, Truist has a meaningful opportunity to shift the transaction mix even more towards digital, specifically by leveraging what we call T3, which is this concept that touch and technology work together to create trust. And that further enhances the client experience and drives greater digital adoption and efficiency. As a proof point, recent enhancements to the digital onboarding have helped drive a 19% increase in Truist One funding rates year to date. which may in turn lead to additional balances and transactant activity with those new clients. In sum, Truist has solid momentum in digital, and I'm highly optimistic about the potential we have to leverage T3 to further expand our digital user base and drive transaction volume. Next, I'm going to cover loans and leases on slide nine. Average loans decreased 2.5% sequentially, reflecting our ongoing balance sheet optimization efforts, including the sale of our student loan portfolio last quarter and further reductions in lower return portfolios. Excluding the student loan sale, average loans were down 1.1%. Average commercial loans decreased 1.1% primarily due to a 1.5% decrease in C&I balances driven by lower revolver utilization and production. Lower CNI production in our corporate and commercial banking segment reflected a combination of moderately lower demand due to economic uncertainty and greater pricing discipline, which contributed to wider spreads on new production and commercial community bank. In our consumer and credit card portfolios, average loans decreased 4.6%, primarily due to the sale of our student loan portfolio and further reductions in indirect auto production. Consumer and card balances were down 1%, excluding the student loan sale. Residential mortgage was essentially flat relative to the prior quarter. We do continue to experience growth in higher yielding portfolios, especially Sheffield and Service Finance. Loan production increased 21% year-over-year at Sheffield and 17% at Service Finance. Overall, we expect average commercial and consumer balances to decline modestly in the fourth quarter, driven by our ongoing mixed shift towards deeper client penetrations, deeper relationships, de-emphasis of lower return portfolios, and the effects of continued economic uncertainty. Let's move to the deposit trends on slide 10. Average deposits were flat sequentially, although we continued to experience remixing within the portfolio as clients sought higher rate alternatives. Non-interest buried deposits decreased 3.9% and currently represent 30% of total deposits compared to 31% in the second quarter and 34% in the fourth quarter of last year. Within our segments, average deposits were down 1% in corporate and commercial banking and relatively flat in consumer banking and wealth due to the effects of quantitative tightening and availability of higher rate alternatives. We continue to deepen our relationships with consumer banking and wealth clients, especially in payments. Net new checking account production has been positive for three quarters in a row. We're also seeing solid adoption of our flagship Truist One checking product. In addition, small business deposits were up sequentially, and August was the strongest month for net new small business checking account production in the last three years. Deposit costs continue to rise during the third quarter, though at a slower pace. Interest bearing deposit cost increased 38 basis points sequentially down from a 55 basis point increase in the prior quarter. Our interest bearing cumulative deposit beta was 49% up from 44% in the second quarter due to the presence of higher rate alternatives and ongoing mix shift from non-interest bearing accounts into higher yielding products. Going forward, we'll continue to maintain our balanced approach. being attentive to our client needs and relationships while also striving to maximize value for them outside of rate paid. Now let me turn it over to Mike to discuss the financial results in a little more detail. Mike?