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Text: We appreciate you joining our call today.
We have our Chairman and Chief Executive Officer, Kelly King; President and COO, Bill Rogers; and CFO, Daryl Bible, who will highlight a number of strategic priorities and discuss Truist's first quarter '21 results.
Chris Henson, Head of Banking and Insurance; and Clarke Starnes, our Chief Risk Officer, will also participate in the Q&A portion of our call.
We also want to note that Ryan Richards, the former Head of Investor Relations has left Truist to pursue an opportunity outside of the Company.
If you have questions following today's call, please contact me or Aaron Reeves of Investor Relations.
We had overall I consider a strong quarter with strong earnings and returns, very good expense control and strong fee income, especially in insurance and investment banking, excellent asset quality, which Clarke will talk about, really good progress on merger integration and excellent internal recognitions, including an outstanding CRA rating for our community development efforts.
If you're following along on Slide 4, we always like to focus on the most important, which is our culture.
As you've heard us say many times, we continue to reiterate culture is the primary determinant of our long-term success.
Our purpose really connects with our teammates.
We've been really excited about this.
Our teammates are driven to really help our clients.
We really enjoy serving our communities and our shareholders.
Even with COVID, we've made great progress in activating our culture, created a cultural council, which works every day with our EL team causing our culture to really come alive.
So we've made excellent progress in terms of culture, which is ultimately the driver.
On Slide 5, just a couple of points and some things that I think are good with regard to how we are serving our communities.
We were very excited to be the first issuer of a social bond of the US regional banks, a $1.25 billion bond that was well, well-received 120 investors, very favorable pricing.
We're very excited about that in terms of our ability to focus on affordable housing and other community needs.
We became the lead investor for Greenwood, which is very excited in innovative digital banking platform designed for Black and Latinx consumers and business owners.
We signed the Hispanic Promise, a first-of-its-kind national pledge to prepare, hire, promote, retain, and celebrate Hispanics in the workplace.
And we received 100% score on Human Rights Campaign's Corporate Equality Index, and we were named the Best Place to Work in '21.
We also continue to make great progress in terms of executing on our $60 billion Community Benefits agreement and we are already at 114% of our annual target.
We were very proudly recognized once again by Fortune as one of the world's most admired companies.
On Slide 6, just a few indicators for you about how well the merger is going.
I just want to point out to you that the risk of executing our merger has already been reduced substantially and is going down daily as we do conversion and we're getting a lot of the actual merger work done.
A huge amount of work has already been done on the core bank conversion.
And you will see in the bubble chart there that a number of conversion has already been done.
For example, Truist Securities conversion, wealth brokerage conversion.
We did huge amount of work in terms of grading all of the Truist jobs.
And that is all being executed.
We already in the process of testing protocols for our core bank conversion, our wealth trust conversion is well along -- occurring in just a few weeks.
So you can see that we are making tremendous progress and I just want to emphasize the point that for those who think that the risk is going to remain high and won't subside until we do the final branch conversion that is not a good way to look at it.
The risk is being mitigated daily as we do these various conversions and make progress in terms of preparing for the final conversion.
We did close 226 branches in the first quarter, which was part of our strategy.
We have been very, very happy with our teammates reaction to that.
They're very, very engaged.
Recall that we promised all of our client-facing performing teammates that they would not lose their jobs.
And so, it's going very, very well.
And our clients are very supportive because remember, most of these branches are very, very close to each other.
And so, it's no inconvenience to our clients.
We are very focused on meeting our expense targets, which Daryl will talk about and we believe we will be able to accomplish that.
Just a few performance highlights on 7A.
I think it was a very, very good quarter.
We had strong adjusted net income of $1.6 billion, or $1.18 per share adjusted, both up 42% versus the first quarter of '20.
We had adjusted ROTCE of 19.36%.
Recall that we said our mid-term target was in the low-20s.
So we are well on the way to achieving that already and we have huge cost saves yet to come.
We recorded investment banking and trading income at a record level along with insurance.
It was offset some by decreases in residential mortgage income and commercial real estate-related income.
Strong expense discipline, as our adjusted non-interest expense decreased $57 million sequentially, and our merger-related and restructuring charges decreased $167 million.
We significantly had lower provision for credit losses of $48 million versus $177 million in the fourth quarter.
So we had a reserve release of $190 million.
Clarke will talk about that more if we have questions.
NPAs decreased $88 million, or 6.3%, which we were very happy about.
We completed $506 million of the share repurchases.
So we had a total payout for the quarter of about 83%.
We did redeemed $950 million of preferred stock during the quarter at an after-tax cost of $26 million, or $0.02 per share, which was not excluded in terms of our adjustment to net income.
So overall, if you look at Slide 8, you will see how the adjustments worked with the merger-related charges having a diluting impact of $0.08, incremental operating expenses related to the merger that are not in our ongoing recurring charges going forward was $0.10 and an acceleration for cash flow hedge unwind expense of $0.02.
So overall, it was a very strong quarter across the wide array of performance areas.
Importantly, we continue to execute on our T3 concept, which is the concept of seamlessly integrating technology and touch so that we yield a high level of trust, creasing a very high value proposition, which is providing excellent client focus, which is ultimately the most important factor in terms of judging our current and our future performance.
Now, let me turn it to Bill for some additional detail.
If you can see from Page 9, our clients continue to adopt digital at a rapid pace.
Since last March, the population of active mobile app users has increased 11% to more than 4 million users, and that marks an important milestone along our digital journey of the Company.
We're absolutely committed to meeting our clients where they are.
And increasingly these interactions are happening in the digital space.
Our digital commerce data bear this out as digital client needs have met -- digital client needs met have improved 44% since the first quarter of 2020 and represent more than one-third of total bank production of core bank products.
This percentage is even higher when you include LightStream and Mortgage.
As we accompany clients along their digital journey we also interact with them across multiple digital products and services, mobile check deposits and Zelle are two examples, both of which were up significantly from a year ago and this just creates additional opportunities to deepen those relationships.
Importantly, the increase of digital transaction activity allows our teammates to spend less time on manual execution and more time assessing the meeting client needs enabled by our Integrated Relationship Management.
We're also excited about the new Truist digital experience that's rolling out our clients later this year.
In order to complete the digital migration ahead of the core bank conversion, we're utilizing an innovative proprietary approach known as the Digital Straddle.
The Digital Straddle allows us to migrate clients to the new digital experience in waves, reducing migration risk, as Kelly discussed earlier, and avoiding a one-time migration early next year.
We recently launched a successful internal pilot of our new digital experience and expect to migrate our clients on a series of waves during the third and fourth quarter.
First quarter balance sheet dynamics reflected a combination of mild loan demand, ongoing government stimulus and elevated liquidity.
Average loans decreased $8.2 billion, compared to the fourth quarter, primarily due to a $4.5 billion reduction in commercial balances and $3 billion of residential mortgage run off.
The decrease in commercial loan balance was primarily attributable to lower revolver utilization and continued pay down of PPP loans, which outpaced new loan commitments.
Approximately $3.3 billion of PPP loans were repaid during the quarter, impacting average commercial balances by $1.8 billion.
Revolver utilization remained low as clients continue to hold elevated liquidity and access the capital markets.
In addition, the dealer floor plan portfolio continues to experience headwinds related to supply chain disruptions.
Average consumer loans decreased $3.6 billion as ongoing refinance activity impacted residential mortgage, home equity and direct loan balances.
These declines though partially offset by higher indirect order balances, which benefited from strong production, especially in the prime segment.
We made a conscious decision in support of our purpose to lean in on PPP loans and we've been the largest lender in many of our markets.
We recognize these are headwinds, but we're also optimistic that given vaccination rates, government stimulus and our own view of productivity and pipelines, all supported economic recovery and corresponding core loan growth.
Let me switch to the next page and talk about deposits.
Average deposits increased $7.9 billion sequentially and are up more than $28 billion from the first quarter of 2020, reflecting government stimulus and pandemic-related client behaviors.
Average balances increased across all deposit categories except time deposits.
While the largest increases were in interest checking and money market and savings, the deposit mix remains favorable, as non-interest-bearing accounts represent one-third of total deposits.
Truist continues to experience strong deposit growth while maximizing our value proposition to clients outside of rate paid as we continue to experience net new household growth.
During the first quarter, average total deposits cost decreased 2 basis points to 5 basis points and average interest-bearing deposit cost declined 4 basis points to 7 basis points.
Due to new stimulus, we are up double digits in total deposits since the quarter end.
Continuing on Slide 12.
Net interest income decreased $81 million linked quarter due to fewer days, lower purchase accounting accretion and lower earning asset yields.
Reported net interest margin was down 7 basis points, reflecting a 4 basis point impact from lower purchase accounting accretion.
Core net interest margin decreased 3 basis points as deposit inflows resulted in higher combined Fed balances and securities.
Interest sensitivity decreased slightly as the investment portfolio grew in response to the elevated liquidity.
Turning to Slide 13.
Non-interest income decreased $88 million despite record income from insurance and investment banking and trading.
Insurance income increased $81 million linked quarter, reflecting seasonality, $28 million from recent acquisitions, and $19 million due to a timing change related to certain employee benefit accounts.
Organic revenue grew 6.4% due to strong new business, stable retention and higher property and casualty rates.
Investment banking and trading rose $32 million, benefiting from strength in high-yield, investment-grade and equity originations, as well as a recovery in CVA.
Residential mortgage income decreased $93 million due to lower production margins and volumes.
Commercial real estate income decreased $80 million due to seasonality and strong fourth quarter transaction activity.
Other income was down $18 million as lower partnership income was partially offset by gains from a divestiture.
Continuing on Slide 14.
Expense discipline remained strong in the first quarter.
Non-interest expense was down $223 million linked quarter, reflecting a $167 million decrease in merger-related and restructuring charges.
Adjusted non-interest expense decreased $57 million, primarily due to lower professional fees and non-service-related pension costs offset by personnel expense.
Personnel expense increased $34 million, reflecting higher equity-based compensation, higher incentive compensation and payroll tax resets, partially offset by lower salaries and wages.
Turning to Slide 15.
We are taking full advantage of our unique opportunity to grow the best of both franchise.
The best of both is harder to execute in a typical acquisition.
But we are convinced that the client benefits and internal efficiencies justify the effort and expense.
As we said in January, we continue to expect total combined merger costs of approximately $4 billion.
This consists of merger-related and restructuring charges of approximately $2.1 billion and incremental operating expenses related to the merger of approximately $1.8 billion.
These costs are not in the future run rate and will come out in 2022 after we complete the core bank conversion and decommission redundant systems.
Since the merger was announced, we have incurred $1.3 billion of merger-related and restructuring charges and $900 million incremental operating expenses related to the merger.
Continuing on Slide 16.
Strong asset quality metrics remained relatively stable, reflecting diversification benefits from the merger and effective problem asset resolution.
Non-performing assets were down $88 million, or 2 basis points as a percentage of total loans, largely driven by decreases in the commercial and industrial portfolio.
Net charge-offs came in 33 basis points, which was at the lower end of the guidance range.
Linked quarter increase was mostly driven by seasonality and indirect auto.
The provision for credit losses was $48 million, including a reserve release of $190 million due to lower loan balances and improved economic outlook.
The allowance for credit losses was relatively stable at 2.06% of loans and leases.
Our exposure of COVID sensitive industries was essentially flat at $27 billion.
Turning to Slide 17.
Truist has strong capital and ended the first quarter with a CET1 ratio of 10.1%.
With respect to capital return, we paid a common dividend of $0.45 per share and had $506 million of share buybacks.
We also redeemed $950 million of preferred stock, resulting in an after-tax charge of $26 million, or $0.02 per share that was not excluded from the adjusted results.
We have $1.5 billion in repurchase authorization remaining under the share repurchase program the Board approved in December.
We intend to maintain approximate 10% CET1 ratio after taking into account strategic actions, stock repurchases and changes in risk-weighted assets.
As a result, we anticipate second quarter repurchases of about $600 million.
We continue to have strong liquidity and are ready to meet the needs of our clients and communities.
Continuing on Slide 18.
This slide shows excellent progress toward the net cost saves of $1.6 billion.
Through fourth quarter, we reduced sourceable spend 9.3% and are closing in on our 10% target.
In terms of retail banking, we closed 226 branches in the first quarter, bringing the cumulative closures to 374.
We are on track to close approximately 800 branches by the first quarter of '22.
We've reduced our non-branch facilities by approximately 3.5 million square feet and are making progress toward the overall target of approximately 5 million square feet.
Average FTEs are down 9% since the merger announcement.
We expect technology savings of $425 million by the end of 2022 compared to 2019.
We continue to look at these expense buckets and are broadening to look at other across the board.
We are highly committed to our $1.6 billion cost savings target.
Continuing to Slide 19.
The waterfall on the left shows that we measure core expenses and cost savings.
Beginning with adjusted non-interest expense and then adjusting for the non-qualified plan and the insurance acquisition expenses, we arrive at a core expense of $3.65 billion.
If you adjust for seasonality of high payroll taxes, equity compensation and variable commissions, core expenses would approach fourth quarter target of $2.94 billion.
Our adjusted return on tangible common equity was 19.36% for the first quarter.
We maintained our medium-term performance and cost saving targets for 2021 and 2022.
Further moderation of the merger and economic risks may enable us to revisit our target CET1 ratio.
Now, I will provide guidance for the second quarter, expressed in linked quarter changes.
We expect taxable equivalent revenue excluding security gains to be relatively flat.
We expect reported net interest margin to be down high-single-digit, driven by a mid-single-digit decrease in core margin and 3 basis points to 4 basis points of purchase accounting accretion run off.
Net interest income should be relatively flat due to the growth of the balance sheet.
Non-interest expense adjusted for merger costs and amortization expected to be relatively flat.
We anticipate net charge-offs in the range of 30 basis points to 45 basis points and a tax rate between 19% to 20%.
As you look out into 2021, our prudent economic conditions may allow for further reserve releases.
Overall, we had a strong quarter, including excellent expense management and strong asset quality.
Now, let me hand it back to Bill for an update on IRM.
And I'm going to take us to Page 20.
I'm going to take this opportunity to share our progress on Integrated Relationship Management and share two examples of what we call natural fit businesses working together to benefit our clients.
When Truist was formed, we said, we create value by combining our distinctive client-focused banking experiences with greater investment in technology and a stronger mix of financial services offerings.
As Kelly noted earlier, we call this approach T3, touch integrated with technology equals trust.
We're confident in this strategy because it really builds on Truist strengths.
Those strengths include industry-leading client service and loyalty, an advice-based business model, differentiated offerings included Truist Securities, Truist Insurance Holdings and the Truist Leadership Institute and leading technology like our mobile banking app.
Integrated Relationship Management is a framework for putting T3 into practice across Truist through all of our lines of businesses and most importantly, for all of our clients.
We start with the client, understand their needs and engage our business partners through a common technology-based referral and accountability process.
As mentioned, we have natural synergies such as the relationship between Commercial Community Bank and Truist Securities.
This business is by nature a little lumpy and episodic-driven by client needs, but we're very pleased with our momentum.
Referrals are up by a factor of three- and one-year and have more than doubled since last quarter.
We continue to train bankers and are increasing both the number and quality of referrals.
As we share client wins, teammates gain confidence and motivation to fully leverage all the tools that we have for the benefit of their like clients.
Moving to Slide 21, we'll discuss the effort of Truist Securities and Truist Insurance Holdings and the relationship with heritage SunTrust clients, in particular.
Referrals to insurance have increased more than 2.3 times compared to the first quarter of 2020 and more than 50% sequentially.
We've aligned systems and trained around the similar practice groups, which allows us to double down on industry expertise for our clients.
I can really speak from experience if this was a real area of excitement from heritage SunTrust and this is really just in the early stages of growth.
So Integrated Relationship Management is working.
It's been embraced fully by our teammates.
It's in support of our clients and a distinguishable benefit for our shareholders.
Keep in mind, this is a long game, but you do see the beginning of this incremental opportunity in the overall insurance and investment banking results even in this quarter.
So, Kelly, let me turn that back over to you.
So, on Slide 22, I just want to point out and reemphasize our value proposition.
We believe it is a very strong value proposition, driven by our purpose to inspire and build better lives and communities.
We have an exceptional franchise with diverse products, services and markets, some of the best in the world.
We are uniquely positioned to deliver best-in-class efficiency and returns while investing in the future and you're seeing that happening already.
We've very strong capital and liquidity vision with very strong resilience in terms of our risk profile enhanced by the merger.
So we have a growing earnings stream with less volatility relative to many of our peers over the long-term.
So if you think about the quarter in all and overall and wrapping up, I'll just say, again, I think it was a very strong quarter in a very interesting and challenging times.
But look, things are getting better.
COVID is getting better.
It's too soon to declare this over, but hospitalization rates are down and infection rates are down and vaccines are getting out really, really fast.
So we're encouraged by that.
The economy is clearly improving.
We've said before and I'll reemphasize, we believe as we head into the second half, we will have a snap back economy.
This economy was not wounded before we headed into this.
We simply shut it down for appropriate reasons.
Now we're beginning to see the opportunities that we believe could happen, which is turning it back on as easy than it might have been on the other types of economic crisis that we've seen.
So Truist is positioned really, really well.
We have a great culture.
We have great markets.
We have a great team.
We have a great purpose to inspire and build better lives and communities and it's creating really engaged teammates.
We have real benefits from the merger that are being realized every single day.
You've heard some of those.
A very strong performance in T3 and IRM as Bill described, and that's really powerful.
The merger integration is on track.
We are reducing risk every single day.
It's all going really, really well.
We believe we had the opportunity to accelerate and to what I consider to be a very positive snap back economy.
We fully believe our best days are ahead.
Katie, at this time, if you will come back on the line and explain how our listeners can participate in the Q&A session?

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q1 adjusted earnings per share $1.18 excluding items.

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