Brad Milsaps:

Thank you, Betsy, and good morning, everyone. Welcome to Truist's Second Quarter 2024 Earnings Call. With us today are our Chairman and CEO, Bill Rogers; our CFO, Mike Maguire; our Vice-Chair and Chief Risk Officer, Clarke Starnes, as well as other members of Truist's senior management team. During this morning's call, they will discuss Truist's second quarter results, share their perspectives on current business conditions, and provide an updated outlook for 2024. 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 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 now turn it over to Bill.

Mike Maguire:

Thank you, Bill, and good morning, everyone. Before I begin discussing our second quarter results, I'd like to spend a few moments recapping the strategic actions that significantly impacted our second quarter results. First, on May 6, we completed the divestiture of our remaining ownership stake in Truist Insurance Holdings at an implied value of $15.5 billion. At closing, we received after-cash or after-tax cash proceeds of approximately $10.1 billion and recorded an after-tax gain of $4.8 billion. The sale of TIH created $9.5 billion of capital, which generated 230 basis points of CET1 under current capital rules and 250 basis -- 254 basis points of capital under proposed fully phased in Basel III rules. Our tangible book value per share also increased by 33%. On the same day, we executed a strategic balance sheet repositioning of a portion of our available-for-sale investment securities portfolio. We sold approximately $27.7 billion of market value, lower-yielding investment securities, which resulted in an after-tax loss of $5.1 billion. The investment securities that we sold had a book value of $34.4 billion and a weighted average book yield of 2.80% for the remainder of 2024, including the impact of hedges and based on the federal funds curve at that time. Including the tax benefit, the sale of investment securities generated $29.3 billion of proceeds available for reinvestment. When coupled with the proceeds from the sale of TIH, there were $39.4 billion of proceeds available for reinvestment. Of that, we invested approximately $18.7 billion in Investment Securities yielding 5.27%, with the remaining $20.7 billion held in cash. At the time we invested the proceeds, the blended reinvestment rate on the new investment securities purchased and the cash was 5.22% for the remainder of 2024, including the impact of hedges. As Bill mentioned, the reinvestment of the proceeds from the sale of TIH and the balance sheet repositioning completed during the quarter are expected to replace TIH's earnings contributions. These actions completed during the second quarter significantly accelerate our ability to meet increasing standards for capital and liquidity in the industry and importantly, create capacity for Truist to grow its core banking franchise and to return capital to shareholders via our strong dividend and share repurchases. Now turning to our second-quarter key performance highlights on Slide 9. We reported second quarter 2024 GAAP net income available to common shareholders of $826 million or $0.62 per share. This included a net loss of $4 billion from continuing operations or $2.98 per share and net income from discontinued operations of $4.8 billion or $3.60 per share. The net loss available to common shareholders from continuing operations of $4 billion or $2.98 per share was impacted by the following items

Brad Milsaps:

Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q&A session. As you do that, I'd like to ask the participants to please limit yourself to one primary question and one follow-up in order that we may accommodate as many of you as possible today.

Ryan Nash:

Hey, good morning, Bill. Good morning, Mike.

Ryan Nash:

And maybe to start off with NII, it feels post-restructuring, we've bottomed now and you should get a step up next quarter, but can you maybe just talk about the drivers of sequential NII growth over the next few quarters? Do you expect margin improvement? And then how do you think about where the margin could be headed over the medium-term? Thanks. And I have a follow-up

Ryan Nash:

Got it. Maybe this one for Mike or Bill. As a follow-up to Mike's comments. So it looks like loan balances are getting closer to level-off, but Mike, you highlighted 3Q, you're expecting it to be muted and my interpretation was that it doesn't sound like you're expecting a lot of growth in the fourth quarter. So maybe just flush those expectations a little further, Bill, when do you expect it to turn positive? What do you think the drivers are? And I guess, given the strength of your footprint, do you actually expect Truist to begin to outperform peers on growth at some point? Thank you.

Ryan Nash:

Thanks for all the color, Bill.

Operator:

The next question comes from Ken Usdin with Jefferies. Please go ahead.

William Rogers:

Yes, Ken, great question. And obviously, something that's important and we're going to be calibrating, priority one, two, and three is growing our business. I mean, we think we've got a great franchise, a great market. We're really well-positioned. We've invested in talent, we've invested in capabilities, so I think we've got the capacity and the capability to grow in our core business. So that is absolutely going to be the primary focus. We raised capital in the most efficient way possible. You just couldn't have raised it more efficiently than how we raised capital and we want to make sure that we deploy that also in the most efficient way possible long-term, long-term benefit for our shareholders. So I think we've put together a compelling return perspective with what Mike outlined. We're going to do about $500 million a quarter for the next couple of quarters, I would presume we'd enter next year in sort of the same kind of -- same kind of pace, but remember, that's also on top of we've got a really strong dividend. So in terms of total dollars returned to shareholders over the next six months, I mean, we have a really compelling value proposition. So we're going to calibrate that as we go along. We don't want to over-index on one and lose this incredible capital advantage we have for growth.

Mike Maguire:

Hey, Ken, it's Mike. Maybe take a swing at that one. No, you're right. I mean, look, we think we do see growth in the third quarter on the expense side, I think that's still on a like basis, close to flat, maybe even a touch better, and I think that implies, if you think about flat, maybe a touch of growth in the fourth as well. Look, I mean, the first half of the year, we were very focused on cost discipline and frankly following through on our commitment around flat. That's still important to us. But as we've sort of gotten to the midway mark, it's -- there have been certain projects, whether it be some marketing spend sort of you name it, nits and nats that perhaps were delayed and that drove some of the beat maybe even this quarter and even in last quarter, and so some of that stuff just makes a ton of sense. And as we really shift our mindset, and you heard Bill talk a little bit about it in his prepared remarks around some of the hiring we're doing in middle-market lending as an example, around our Payments business, some calibrating of marketing spend, et cetera, these are all factors that are driving our outlook for the second half, and so, look, we feel -- and we've said this is really since last fall, we are very, very confident and committed to being sort of 0.0 or better on expenses this year.

Ken Usdin:

Great. Thank you, guys.

Scott Siefers:

Good morning, everyone. Thanks for taking the question. Mike, I know you suggested you all are relatively neutral to rate moves. I think still kind of for better or worse, a lot of investors consider Truist is among the -- kind of closer to the liability-sensitive side of the equation. In that vein, you anticipate just one rate cut in the remainder of the year, how would another one or two affect that NII guidance? Obviously, timing would be a factor, but just curious on your overall thoughts.

Scott Siefers:

Perfect. Okay, good. Thank you. And then maybe switching gears just a second, I was hoping you might be able to address the investment banking line, down a little in the quarter, but I'd say, you at least -- I see you're still well above a recent run rate, so still a very strong number. Maybe if you could touch to or speak to sort of overall thoughts on the outlook and then maybe a thought on what you might consider sort of a sustainable base of revenues for you all.

Scott Siefers:

Perfect. All right. Bill, Mike, thank you, guys, very much.

Erika Najarian:

Hi, good morning. Just putting everything that you said together, Mike, maybe I'll address this one to you. Your net interest income was better than consensus, both mostly on the net interest margin. You mentioned that the impact of the margin from balance sheet restructuring is a partial one. If I look at the line items on non-interest income, you also be consensus there for the quarter in terms of the core items and consensus is at down, one, which is at the low end of your revenue range. I guess, like what are we missing? And I heard your response to Ryan's question about you expect balances to continue to come down in both the loan on deposit side, but if your starting point on net interest margin is higher than consensus and then you have a little bit more pull-through -- a month pull-through in the third quarter and your neutral to rates in September will help, I guess, are you being very conservative on what you could accomplish in the second half of the year because I get the conservatism from a business standpoint, but from a rate standpoint, it feels like you guys are in good shape to maybe do a little bit better.

Erika Najarian:

Got it. And my second question is for Bill on capital and returns. And maybe I'm just reading too much in the tea leaves because investors are very curious. The authorization for the $5 billion is through 2026. You said during your prepared remarks, tell me if I'm being too ticky-tacky, but you said initially target $5 billion for the remainder of the year, and I guess investors are wondering about timing and I know someone had already asked, Ken has already asked about capital priorities, but is this -- what's the timing in terms of that fulfilling that $5 billion authority? And as I think about returns, I know you'll probably tell us more during fall conference season, but initially, this franchise together with TIH had an ROTCE potential in the low 20s, with TIH out, could you still achieve like a high-teens ROTCE? And I'm sure you will get more details during fall conference season.

Erika Najarian:

Okay, Thank you.

Betsy Graseck:

Hi, good morning.

Betsy Graseck:

A bit of a follow-up on last question with Erika regarding capital, when I put together the $500 million that you're looking for in the buybacks and the dividend, it looks like you're -- for the most part returning earnings -- quarterly earnings to investors at least for the rest of this year and RWA doesn't change, that means you've got a CET1 stable where it is today. I know you're probably not -- you didn't put a target CET1 out. I'm going to guess you're going to highlight that we need the capital rules to put that out there. But is that a fair conclusion that 11.6% is essentially what we should anticipate as we roll through the rest of this year?

Betsy Graseck:

Right. And then on the pay downs that you experienced in the C&I book, how much of that did you capture in the Capital Markets business? In other words, if folks are terming out and paying down C&I, is that -- are we seeing a majority recaptured in the fee line? Thanks.

Betsy Graseck:

Got it. Thanks so much. Appreciate it.

Operator:

The next question comes from John Pancari with Evercore. Please go ahead.

Clarke Starnes:

Hey, John, this is Clarke. As Mike and Bill said, we were very pleased with the overall asset quality for the quarter and we generally had stable delinquencies. We had flat NPLs and our losses were a touch lower, particularly in this consumer area. So we still see in the consumer side, the normalization that's occurring due to higher rates, inflation, and the stimulus burndown, particularly for the lower end consumer. So we've been a little careful there even in this quarter's reserve. We added a little bit for those lower income consumer finance areas. And then you're right, on the CRE side and the office exposure, we still just want to make sure we're addressing the uncertainty there. On the wholesale C&I side, we actually had, as Bill said, lower watch list, and even though we're monitoring areas like the leverage book, consumer discretionary, senior care, transportation, some of those more rate-sensitive areas, we've not had any big sector issues to date, it's been more episodic. So when we think about our reserves, we feel really good about the adequacy of where we are today and it reflects what we know today. So unless there's a substantial change in the economic outlook or that level of uncertainty in areas of stress like CRE office would emerge higher, we wouldn't expect our reserve levels for the remainder of 2024 to be relatively stable.

William Rogers:

Yes, maybe I'll start with the latter, Mike, and then I'll turn it over to you for the performance if that's okay. So the build-out of Investment Banking business has been decades plus, so this isn't sort of a new thing, and so it has been consistent. I think the way you described it is exactly right. We'll continue to build where we have relevance, where we have opportunity, and so we can be competitive and win in our markets. I think the part that gets missed though is the investment we're making around the Investment Banking business. So this is the investment that we're making with our commercial teams and our middle-market teams and expanding their knowledge and capability to talk to clients about the things that are available to them. And so think about the amount of clients in our commercial business that are now private equity-owned and our capability to be relevant in those discussions and help them along that flight path. So investment is not just in the business itself, but it's in everything that surrounds the business and in support of. We like the pace that we're growing and we think we've had a really good CAGR. If you sort of go back over time and look at the CAGR of that business, you'd sort of say that's a really good growth pattern. Importantly, we're doing it profitably, which is also important. So we have a really good efficiency of that business certainly on a on a relative basis, and we want to keep all of those in check. I mean, we don't want to grow faster than the market. We want to grow coincident with the opportunity that we have within our markets. We want to do it profitably and we want to do it sustainably. So we want to have a little less variability relative to that business. So it's tied to more of our core client capability than the vagaries of a particular market. And Mike, there was a...

William Rogers:

And the upside to that is [Multiple Speakers] Yes, maybe upside is business is better. We're trying to take an approach with what we know right now.

Operator:

The next question comes from Mike Mayo with Wells Fargo. Please go ahead.

William Rogers:

Yes, Mike, you asked and answered part of your question as it relates to what will comment on and not comment on. But look, I've said very consistently actually since the day Truist was formed, is the size and complexity of our organization, we're going to invest in our risk framework. We're going to invest in a durable risk framework, so we can stay competitive, we can stay appropriate with our regulators and that's always been part of this expense profile. So I think even in today's prepared remarks, I mean, I'm always consistent with that, and I think everybody has got to stay in that mode. Post of March of last year, irrespective of anybody's ratings, there was just increased focus on creating a durable risk profile. So we're going to continue to be in that mode. I can't see that changing short-term, medium-term, or long-term. Are there peaks and valleys in that as you go up? Yes, does it increase proportionately? Absolutely. I mean, I just think that's the price of being in our business and also the importance of creating a durable sustainable risk framework for a company of our size and the company of our opportunity.

William Rogers:

Yes. I mean there are efficient frontiers is the way, Mike, that I like to talk about it. They're efficient frontiers and where you are on the efficient frontier relative to that. But today, I feel like we're in a good place. So we're in a good place in terms of the investments that we need and should make relative to our company our size and our ability to return and have an efficient company relative to that. So I think we're at a good place. But that efficient frontier moves, so you always have to be flexible and think about that in the context of where it moves and we're conscious of that. So today, I feel like we're in a good place. By the way, we merged our companies because we thought we were at a different place and that that was going to be more complex and we needed to have a company of the size and scale sort of seeing -- I mean, we didn't project March of last year in fairness, but understanding that the complexity and the durability and the investments needed to create that kind of risk platform was going to be needed. So that efficient frontier, I think we're in a good place on it, but it does move.

William Rogers:

Yes. I mean our sneak peek is the momentum we're creating right now. So that's the sneak peek and we want to continue to do that. Mike, you and I've talked about this. I mean, we have a strong focus on positive operating leverage. So all of our businesses have plans that are focused on positive operating leverage, that's what they try to build over time. The controllable -- more controllable factor over that is on the expense side right now, and I'm really pleased with the progress we're making. And I expect to continue to have that kind of discipline going forward. Those expenses will better reflect the revenue opportunity that we see in next year. So be assured that we've got to focus on creating that, but also be confident that we're building momentum. And I think this quarter is good evidence of that and our guidance for the rest of the year is good evidence of that.

Operator:

The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

William Rogers:

Yes, thanks. I'm not going to give expense guidance for next year. Just to say, confidence that we'll be focused on positive operating leverage, confidence that we've got great expense discipline, and expenses will more parallel the revenue opportunity. So if we see the investments that we're making, better growth opportunities in our markets, we're going to take advantage of that. And if that requires a requisite -- expense increase, then we'll do that, but that will all be in the appropriate context of focus on positive operating leverage, an efficient company that has high returns.

William Rogers:

Yes. I mean, all that's been factored into the discussions that we have. I mean, our ability -- this year, particularly to invest a lot in the payment side, is all predicated on the existing platforms that we have. The advent of the use of APIs have been really, really great opportunities to continue to invest. We had huge investments in our lending portfolios as part of the merger. So there's no like one big stair step sequenced investment, these are continuous investments in our platform and capabilities over time.

William Rogers:

Well, the momentum we've seen in the last several quarters, the impression from our clients is that we have a really good platform. So our acquisition of clients, our performance metrics, client satisfaction scores, all the things that we look in terms of how do clients think about us is real positive and continuing.

Operator:

We will take our last question today from Matt O'Connor with Deutsche Bank. Please go ahead.

Mike Maguire:

Hey, Matt, thanks for the question. Maybe just taking loans first. We were hopeful we'll see some relief. We were down a little less than 1% this quarter average. In the third quarter, I think, again, base case, probably expected to be down, maybe not quite as much. We'd love to see that be different, but that's sort of what we're thinking about. And then hopefully kind of stable from there. Same on deposits -- or actually deposits a little lower perhaps in the third. We mentioned that we felt like we had some outperformance in the second quarter. We did late in the quarter, just like a lot of others, some of the just sort of seasonality and tax payments. We saw balances a little lower at the end of the quarter. That's not unusual. So we probably expect a little bit of pressure in the third quarter as well, but again, even that stabilizing in the fourth. So think down a touch in the third for both and then hopefully stable in the fourth-ish.

William Rogers:

Yes, sure. Rest assured that our teammates are highly focused, and there are places that we can dial more specifically and you sort of seen it. Our consumer production was up 37% over a linked-quarter, premier banking lending numbers sort of similar per branch production, those type things, so the places that we can dial in a little bit. And then on the wholesale side, it's just a lot about training, it's a lot about hiring, it's a lot about market opportunity, it's a lot about dialogue with clients, so we look at all the pitches kind of approach and we're seeing really good activity. But our teammates are on offense and they make -- let there be no confusion. I mean, our teammates are on offense. They are not in a defensive position. Trust me, the shift for them happened quite quickly. There was a -- you could hear it and feel it in terms of momentum. People are attracted to come work for our franchise for some of the same reasons as we have the capital and capability to invest in the future. So rest assured that -- your point is right, I mean, the battleship, it's hard to turn, but in terms of its direction, clear direction, clear communication, and clear focus from our teams.

William Rogers:

Thanks, Matt.

Brad Milsaps:

Okay. Thank you. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you now may disconnect the call.

Brad Milsaps:

Thank you, Jamie, and good morning, everyone. Welcome to Truist's first quarter 2024 earnings call. With us today are our Chairman and CEO, Bill Rogers; our CFO, Mike Maguire; and our Vice Chair and Chief Risk Officer, Clarke Starnes, as well as other members of Truist's Senior Management team. During this morning's call, they will discuss Truist's first-quarter results, share their perspective on current business conditions, and provide an updated outlook for 2024. 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 slides two and three 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.

Mike Maguire:

Thank you, Bill, and good morning, everyone. As Bill mentioned, our financial statements for the first quarter and for previous periods have been restated due to the pending sale of Truist Insurance Holdings. This restatement has no impact on our net income or earnings per share for historical or current reporting periods. However, and as you can see on our financial tables, revenue and expense associated with TIH is no longer shown on our financial statements. TIH's contribution to Truist net income and earnings per share is now captured in net income from discontinued operations. My comments today will focus on revenue and expense from continuing operations, although I will also provide some detail on revenue and expense for the quarter inclusive of TIH for comparative purposes. We reported net income available from continuing operations of $1 billion or $0.76 per share, which includes a $75 million pre-tax or $0.04 per share after-tax expense related to the industry-wide FDIC special assessment. We reported net income available from discontinued operations, which represents earnings from TIH of $64 million or $0.05 per share, which includes an $89 million pre-tax or $0.05 per share negative impact from the acceleration of incentive compensation at TIH due to the pending sale. So on an adjusted basis, we reported net income available to common shareholders of $1.2 billion or $0.90 per share, which includes adjusted net income from continuing operations of $0.80 and adjusted net income from discontinued operations of $0.10. In addition to the items I just noted, we also had pre-tax restructuring charges totaling $70 million in the quarter, which negatively impacted adjusted EPS to common shareholders by $0.04 per share. The bulk of these charges were related to severance and real-estate rationalization. Total revenue, which excludes revenue associated with TIH, decreased by 1.4% linked-quarter due to a decline in net interest income, partially offset by stronger non-interest income led by investment banking and trading. Revenue before the impact of discontinued operations accounting increased 0.2% on a linked quarter basis. Adjusted expenses, which excludes adjusted expense associated with TIH, increased by 0.7%. Adjusted expenses before the impact of discontinued operations accounting increased 1% on a linked quarter basis. Next, I'll cover loans and leases on slide nine. Average loans decreased 1.3% sequentially, reflecting overall weaker client demand and our decision to deemphasize certain lending activities during 2023, which impacted growth during the first quarter. Average commercial loans decreased to 0.9%, primarily due to a 1.2% decrease in C&I balances due mostly to lower client demand. In our consumer portfolio, average loans decreased 2%, primarily due to further reductions in indirect auto and mortgage. During the quarter, we did increase our appetite for high-quality indirect auto loans, which as Bill mentioned, resulted in consumer loan balances showing positive growth for the month of March. Overall, we expect average loan balances to decline modestly in the second quarter, albeit at a slower pace than the first quarter. Moving to deposit trends on slide 10. Average deposits decreased 1.6% sequentially as growth in client time deposits and interest checking was more than offset by declines in non-interest-bearing brokered and money market balances. Approximately $1.9 billion of the $6.3 billion linked quarter decline in average deposits was due to lower brokered deposits. Adjusting for broker deposits, our average deposits declined approximately 1%. Non-interest bearing deposits decreased 4.9% and represented 28% of total deposits, compared to 29% in the fourth quarter of 2023. During the quarter, consumers continued to seek higher-rate alternatives, which drove an increase in deposit costs. Specifically, total deposit costs increased 11 basis points sequentially to 2.03%, which resulted in a 2% increase in our cumulative total deposit beta to 38%. Similarly, interest-bearing deposit costs increased 11 basis points sequentially to 2.82%, which also resulted in a 2% increase in our cumulative total interest-bearing deposit beta of 53%. Moving to net interest income and net interest margin on slide 11. For the quarter, taxable equivalent net interest income decreased by 4.2% linked quarter, primarily due to higher rate paid on deposits, lower day count in the quarter, and lower average earning assets. Reported net interest margin declined 7 basis points on a linked quarter basis, due primarily to higher rate paid on deposits. Turning to non-interest income on slide 12. Non-interest income increased $83 million or 6.1% relative to the fourth quarter. The linked quarter increase was primarily attributable to higher investment banking and trading income, which was up $158 million linked quarter, due to strong results across much of our entire capital markets platform with specific strength in M&A and equity capital markets. Lending-related fees decreased $57 million linked-quarter due to lower leasing-related gains. Non-interest income increased 1.8% on a like-quarter basis, as higher investment banking and trading, wealth, and other income were partially offset by lower service charges on deposit and mortgage banking income. Next, I'll cover non-interest expense on slide 13. GAAP expenses of $3 billion decreased $6.6 billion linked quarter, as fourth quarter 2023 expenses were negatively impacted by a $6.1 billion goodwill impairment charge, a $507 million FDIC special assessment, and $155 million of restructuring charges primarily related to our cost-savings initiatives. Excluding these items and the impact of intangible amortization, adjusted non-interest expense increased 0.7% sequentially. The increase in adjusted expense was driven by higher personnel expense of $156 million due to normal seasonal factors and higher variable incentive compensation, partially offsetting the increase in personnel expense were lower other expenses, which declined $82 million, reflecting lower operating charge-offs and lower pension expense. Adjusted non-interest expenses before the impact of discontinued operations, accounting -- discontinued operations accounting increased 1% on a linked quarter basis. On a like quarter basis, adjusted expenses declined $120 million or 4.2%, reflecting lower headcount and continued expense discipline. Moving to asset quality on slide 14. Asset quality metrics continue to normalize in the first quarter, but overall remained manageable. Non-performing loans remained relatively stable to linked-quarter, while total delinquencies were down 6 basis points sequentially, driven by a 7 basis point decline in loans 30 to 89 days past due. Included in our appendix is updated data on our office portfolio, which is virtually unchanged at 1.7% of total loans. However, we did increase our reserve on this portfolio from 8.5% to 9.3% during the quarter to reflect continued stress in this sector. We expect stress to remain in the office sector, but believe that the size of our office portfolio is manageable and well reserved. Approximately 5.5% of our office portfolio is currently classified as non-performing, but 89% of these loan balances are paying in accordance with the original terms of the loan. During the quarter, our net charge-offs increased 7 basis points to 64 basis points. The increase in net charge-offs for the quarter reflects increases in our CRE and consumer portfolios, offset by lower C&I and CRE construction losses. Our ALLL ratio increased to 1.56%, up 2 basis points sequentially, and 19 basis points on a year-over-year basis due to ongoing credit normalization and stress in the office sector. Consistent with our commentary last quarter, we've tightened our risk appetite in select areas that we maintain our through-the-cycle supportive approach for high-quality long-term clients. Turning now to capital on slide 15. Truist's CET1 ratio remained relatively stable on a linked-quarter basis at 10.1%, as organic capital generation and the impact of lower risk-weighted assets were mostly offset by the impact of the CECL phase-in that occurred during the quarter. We still anticipate the sale of TIH will generate approximately 230 basis points of CET1 under current rules and 255 basis points of CET1 capital under proposed Basel III endgame rules. It will also increase our tangible book value per share by 33% through a combination of a $4.8 billion after-tax gain and the deconsolidation of $4.7 billion of goodwill and intangibles from our balance sheet. The divestiture of TIH has a 255 basis point positive impact under the fully proposed phase-in Basel III endgame rules, which is 25 basis points higher than under current rules. The larger impact on our CET1 ratio under the proposed rules is due to the reduction in certain threshold deductions due to the overall higher level of capital from selling TIH. The sale of TIH accelerates our ability to meet increasing standards for capital and liquidity in the industry. And importantly, creates capacity for Truist to evaluate a wide variety of capital deployment alternatives, including growing our core banking franchise during a time when much of the industry is conserving capital, repositioning our balance sheet, and resuming share repurchases. As it relates to a possible repositioning, recognizing securities losses under proposed Basel III rules would have no impact on our fully phased-in CET1 ratio since current proposed rules include AOCI in the calculation. Moreover, any decision to sell market value securities has no impact on our tangible book value per share. I will now review our updated guidance on slide 16. First, all of my comments today related to second quarter and full-year 2024 guidance exclude any benefit from interest income that Truist will earn on the $10.1 billion of after-tax cash proceeds that we expect to receive from the pending sale of TIH. Our guidance also excludes any impact from a potential balance sheet repositioning that we plan to evaluate post-closing. In addition, revenue and expense guidance for the second quarter and full year 2024 is based on revenue and expense from continuing operations and does not include any contribution from TIH in previous or in future periods. Looking into the second quarter of 2024, we expect revenue to decline about 2% from 1Q '24 GAAP revenue of $4.9 billion. Net interest income is likely to be down 2% to 3% in the second quarter due to continued pressure on rate paid and a smaller balance sheet. We expect non-interest income to remain relatively stable on a linked-quarter basis. Adjusted expenses of $2.7 billion in the first quarter are expected to increase 4% in Q2, due to higher professional fees, some timing of projects delayed from Q1, higher marketing costs, and annual merit increases. For the full-year 2024, we previously expected revenues to be down 1% to 3%, which would have included revenue from Truist Insurance Holdings. If we had excluded revenue from Truist Insurance Holdings from our outlook, our expectation would have been closer to down 3% to down 5% in 2024. Today, we are tightening our previous revenue guidance adjusted for TIH of down approximately 3% to down 5% to now down approximately 4% to 5% to reflect the latest interest-rate outlook and continued pressure on the deposit mix, partially offset by our improved outlook for non-interest income. Our outlook assumes three reductions in the Fed Funds rate with the first reduction coming in June 2024. Previously, we assumed five reductions in the Fed Funds rate with the first reduction occurring in May 2024. We still assume that net interest income will trough in the second quarter of 2024 and modestly improve in the second-half of the year. Fewer than three rate reductions would add pressure to our NII outlook and result in our annual revenue coming in at the lower end of our range for revenue to be down 4% to 5%. As a reminder, our second quarter and full-year revenue outlook excludes any benefit from interest income earned on the cash proceeds from the sale of TIH or the benefit of potential balance sheet repositioning. As Bill mentioned, we still expect the sale of TIH to be completed during the second quarter. We previously expected our expenses to remain flat or to increase by 1% in 2024, which included expenses associated with Truist Insurance Holdings. If we had excluded expected expenses from Truist Insurance Holdings from our outlook, our expectation would equate to expenses remaining approximately flat in 2024. Consistent with our previous expense outlook adjusted for TIH, we expect full-year ‘24 adjusted expenses to remain approximately flat over 2023 adjusted expenses of $11.4 billion. In terms of asset quality, we continue to expect net charge-offs of about 65 basis points in 2024. Finally, we expect our effective tax rate to approximate 16% or 19% on a taxable equivalent basis. Our estimated tax rate excludes any impact from the gain on the sale of TIH or a potential balance sheet repositioning that we might consider following the sale. So now I'll turn it back to Bill for some final remarks.

Brad Milsaps:

Thank you, Bill. Jamie, at this time will you please explain how our listeners can participate in the Q&A session. As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one follow-up, in order that we may accommodate as many of you as possible today on the call.

John McDonald:

Great. Thank you. Good morning. How the rate environment changes at all -- if at all, the ability and willingness to deploy through the restructuring of the securities book. Mike, maybe you could just comment higher rates, presumably achieving that neutral impact gets a little bit easier. Does that affect how much you might do? And maybe Bill could just make some broader comments about the options you'll have to deploy organically and buybacks and other things? Thank you.

Bill Rogers:

I'll go into the others, and as you said, John, I mean, we're in a different rate environment, so we'll evaluate all the other alternatives that exist with that, and there's some things that have some shorter paybacks that I think should be evaluated in that alternative. And then also we have some tax efficiency as it relates to this. So we have some unique components of doing this in line with the TIH sale. And then you mentioned sort of what are the other capital deployment options? You know obviously, the first and foremost for us is growth in our business. I mean sort of investing in our business. You saw in this quarter some of the things we did on the consumer side where we leaned in a little bit. Quite frankly, we think some of the margins are still strong in those businesses. So that, what we're adding is a little more accretive than it would have been in the past. The risk profile has been strong. So we have the capacity to dial some of that up on the consumer side. And then on the wholesale side, just our relevance is more important. So what we're -- we don't want to give up all the discipline. We created a lot of discipline around pricing and around structure and again, what we're adding today is much more accretive. So we'll continue to pursue opportunities in our markets and through our industry verticals and we've got good momentum in that front. And then lastly, on the share repurchase side, we're going to--we'll be back in the share repurchase business, that will be part of the portfolio. As I mentioned before, we're going to do all this with pace. So I think it would be -- you know, reasonable to assume we'll have some type of meaningful share repurchase sort of -- sort of short, medium-term, and then longer-term, and just a more durable consistent share repurchase plan. So it's a combination of all those things factored into the equation, which give us, as I said before a lot of optimism about being able to improve those returns short-term, importantly, but most importantly over the long-term.

Mike Maguire:

Yes. I mean, a lot of it obviously is from market improvement, but as you noted, I mean, we've been investing in this business for quite some time, particularly over the last several years. You know, our existing team has really set horizon to the challenge. They're working really great with the commercial team. So we're seeing all the pull-through from our franchise, we've brought 30 plus new MDs into our -- into our business. So these are teammates with great expertise and great access. So I think it's a combination of all those things and we're really confident. I mean, we're confident heading into the second quarter and the rest of the year about the momentum in this business.

Operator:

Our next question comes from Betsy Graseck from Morgan Stanley. Please go ahead with your question.

Mike Maguire:

Hi.

Betsy Graseck:

Thanks so much.

Betsy Graseck:

Thanks so much, Bill. I really appreciate it. So I did just want to lean in on the loan side, a couple of comments in the prepared remarks that you made. One was on commercial lending pipelines building and I wanted to understand, is this a change? And I mean, we often hear about pipelines in the investment banking side, not as much on the commercial lending side. And I wanted to understand your thoughts around what execution on that requires, is it lower rates, is it customers building more inventory, or just some color on that would be really helpful? Thank you.

Betsy Graseck:

And is that -- okay, so then the follow-up is on the auto side, you mentioned that you're leaning into indirect and high quality. So I just wanted to understand, you know, what does high-quality indirect autos mean to you? And then the relevance to corporate clients increasing, is that a function of balance sheet size or product mix or maybe you just -- I know I squeezed in two, but it was a follow-up plus a follow-up? Thanks.

Betsy Graseck:

Okay. Thank you.

Betsy Graseck:

Okay. Thank you so much, Bill. I appreciate it.

Scott Siefers:

Good morning, everyone. Thanks for taking the question. Let's see, Mike, I wanted to just ask a little on the guide and the nuance. So if I understood it correctly, on an apples-to-apples basis, the full-year guide is the same for expenses, but tightened up to the low-end of a prior range as better fees are offset by slightly weaker NII outlook. So hopefully, I got that right. But within there, just curious for expanded thoughts on what has changed within the NII expectations. I imagine the preponderance of it is just fewer rate cut expectations with the 3% versus 6% previously, but maybe you could speak to other factors such as deposit mix or pricing nuance that might have impacted as well?

Mike Maguire:

Yes. It's Mike, as you know that does not include TIH repositioning. So we still have to say all this in the same setup [Multiple Speakers]

Mike Maguire:

Yes. I mean, look, we -- one of the benefits of operating in such attractive high-growth markets is they're attractive to others as well. And so it's always been a competitive marketplace for us. But I don't think we're seeing -- I would -- what I would describe as irrational behavior in the market. I think we're at a little unusual moment in the cycle being as high as we are for as long as we've been here. And so you're seeing a variety of strategies, but by and large, I think people are all trying to solve the same problem we are, which is when will we perhaps see some relief on the rate side. Meanwhile, we're really just focused on supporting our clients, right? So we've got the right products we think, and the right client experiences. And we're going to pay a competitive rate to defend the relationships that you would expect us to defend.

Scott Siefers:

Perfect. Okay, good. Thank you all for the color.

Ken Usdin:

Hey, thanks, guys. Just wondering -- just in terms of sequencing and how we'll understand how the rest of the potential benefits look like following the close of the transaction. I guess just wondering, are you still anticipating a June 1 close? And then do you anticipate like just next earnings season, we'll kind of get the understanding of the full impacts of both cash reinvestment and whatever you may decide to do on restructuring?

Ken Usdin:

Okay, got it. And then just underneath the surface, I guess it's hard because by 3Q, you'll probably have done some of these things, but you mentioned NII down a little bit in the second quarter. Ex the deal, do you have a view of kind of where that core NII would be heading as we look into the second-half of the year and kind of when that gets to a stability point?

Ken Usdin:

Okay, great. Yes, it was a second-half point that I was looking for that incremental color on.

Ken Usdin:

Thank you on kind of how it improves. Okay, and then just one more follow-up on IB. You mentioned the investments you've been making at the quarter was outstandingly good. Are you kind of implying that flat fees in the second quarter that this is a new run-rate for IB and trading? Some other banks have talked about pull-forward in DCM, but I just want to kind of understand the color of where you think the puts and takes are for fee income growth from here? Thanks.

Ken Usdin:

Thanks very much, guys.

Mike Mayo:

Hi, if I can just get one simple question and one more complex question. The simple question is, so you're guiding for a trough in NII in second quarter and that does not include any deployment of the $10 billion. So if you just put the $10 billion, say you get a 5% yield on that, then you get $500 million, that would add 2% to your year-over-year revenue growth. And also, how much would the sale of insurance improve your tangible book value?

Mike Mayo:

Okay. And then, Bill, for you, I know I brought this up before, but we're -- after five years, the announcement of this merger and at least five years ago, as of today, your stock is down one-fourth, the BTX is flat, the S&P is up two-thirds. And I'm looking -- I guess your annual meeting is tomorrow and you talk about leaning into your purpose, inspiring to build better lives. And I just don't see the word shareholder there or on that side. By the way, love purpose purpose-driven capitalism and I love how you bring that up. But I think if you don't bring shareholders along on that slide, you say happiness. I don't think the shareholders are too happy if they've been around for the last five years. So can you just pull the lens back the day before your Annual Shareholders meeting and say what you're doing to help make shareholders happy, assuming that your clients, employees, and communities are happy, how do you bring the shareholders along a little bit more? Thanks.

Mike Mayo:

All right. Thank you.

Ebrahim Poonawala:

Good morning. I guess...

Ebrahim Poonawala:

Maybe just Bill, following up on from a shareholder focus, I think there's a lot of focus around what this company can earn on a go-forward basis as we think about the turn-on tangible equity. Maybe you want to wait for a few months, I appreciate that till the deal closes. But give us a sense, when you look at sort of consensus numbers, 12% return on tangible equity, I'm assuming that's not kind of what you're aspiring for. So give us a framework when we think about your peer set, whether you think you can get there? And then just how quickly given maybe there's still some more tech spend to be undertaken over the next few years? Yeah, if you could start there. Thank you.

Ebrahim Poonawala:

Got it. And Mike, just a quick one for you. So it sounds like few rate cuts is negative, but at the same time, the cash will make the balance sheet assets sensitive. With the cash, I mean, I'm just wondering if we have to -- if were to assume there are no rate cuts this year, is that really negative or more a neutral scenario given the cash will be sort of earning higher for longer in that backdrop? If you could clarify that, thank you.

Ebrahim Poonawala:

That's good. Thank you so much.

Matt O'Connor:

Good morning. What do you think is a good capital level to be running at kind of looking out medium-term, including AOCI?

Matt O'Connor:

Okay. And then just -- I didn't see any disclosures, but remind me what the adjusted CET1 is right now? And again, obviously, you're picking up a lot in the deal, but what's the starting point right now?

Matt O'Connor:

Okay. And then obviously, off that 6%, we would add the 2.5% or 2.6% you said, so...

Mike Maguire:

Yes.

Operator:

Our next question comes from Gerard Cassidy from RBC Capital Markets. Please go ahead with your question.

Bill Rogers:

Good morning.

Bill Rogers:

Sure, Gerard. The first question, no, the HTM portfolio wouldn't be eligible for repositioning. We wouldn't be in a position to sell those securities or the consequences that we would have to mark the rest of the HTM securities. In terms of Basel, obviously, we've been engaged in the advocacy there as well. We've been monitoring the evolution of the rule. It does seem at this point that a final rule certainly is delayed versus our -- what we probably would have expected a year-ago or even six months ago. But I don't think we have an expectation that the substance of the rule that's going to be most relevant to Truist is likely to change, which is the inclusion of -- or the deduction of AOCI from regulatory capital. So I think we feel good about our path forward. And look, I mean, I think we were pretty clear in February again around our objectives with a potential repositioning. And just to sort of state it again, I mean, one, whatever we do, we want to make sure that we still have ample capacity to grow the business and execute on the buyback that Bill has mentioned. But it's really important to us to at least replace the TIH earnings in whatever we would -- whatever we would contemplate.

Clarke Starnes:

Yes, Gerard, this is Clark. We were very pleased in the quarter. To your point, we did see our total CRE, NPLs go down, and that was driven by deliberate actions we took to continue to work through, the stressed exposure in the CRE office. We actually reduced CRE office $222 million or 4.5% for the quarter, while addressing about $230 million worth of maturity. So as we've said before, we're not going to kick the can down the road. So we're trying to be very intentional about recognizing where we have exposure and going ahead and dealing with that. And that's what created the higher losses for the quarter, but the trade-off was lower NPLs. To your point, we also feel very good about our reserves. Our office reserves were increased to 9.3%. And also for the stressed more institutional style, we're nearly -- we're about 11.8%. So we're well reserved. I would say the other CRE segments are holding up really well. I know there's a lot of talk about multifamily. I'd say for us, what we see there is mostly a migration to the watchlist, but not to NPL or losses yet. And we're working with those borrowers and we're quite pleased that most sponsors are coming in and addressing, resizing if necessary, interest reserves, or other structural ways to keep those performing. So we feel good about the overall CRE book and our trajectory right now.

Operator:

And our final question today comes from Vivek Juneja from JPMorgan. Please go ahead with your question.

Bill Rogers:

Maybe let me hit that [button] (ph), so I mean the spirit would be simultaneous. So that would be -- that would be the spirit in terms of you know, how we would -- how we would potentially restructure.

Mike Maguire:

Yes. Hey, Vivek, it's Mike. I'll take it. In February, what we laid out was sort of an even redeployment into cash and securities. I think even that I think was hypothetical as you can imagine, we are keeping an eye on the market and thinking about the trade-offs around different, whether it'd be mortgages or treasuries and cash. So, I think we'll get that mix right and we'll be guided on not just earnings. Obviously, we have an objective of shortening the balance sheet and improving our, you know our readiness around what we think will be more rigorous liquidity requirements over time. And so that's actually one of the great benefits of this transaction or this collection of potential transactions is, it's not just about capital. This really does move us forward more broadly.

Operator:

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Operator:

Ladies and gentlemen, that does conclude today's conference call. We thank you for attending. You may now disconnect your lines.

Brad Milsaps:

Thank you, Rocco, and good morning, everyone. Welcome to Truist's fourth quarter 2023 earnings call. With us today are our Chairman and CEO Bill Rogers and our CFO Mike Maguire. During this morning's call, they will discuss Truist's fourth quarter results, share their perspectives on current business conditions, and provide an updated outlook for 2024. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau Cummins, our Vice Chair and Chief Operating Officer; Donta Wilson, Chief Consumer and Small Business Banking Officer; 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 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 these disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliations to GAAP. With that, I'll turn it over to Bill.

Mike Maguire:

Great, thank you Bill and good morning everyone. For the quarter we reported a GAAP net loss of $5.2 billion or $3.85 per share. As Bill noted reported earnings per share were impacted by several items detailed at the top of slide eight. Those include a non-cash goodwill impairment charge of $6.1 billion, a special FDIC assessment of $507 million, and a discrete tax benefit of $204 million. Excluding these three items, adjusted net income was $1.1 billion or $0.81 per share. In addition, merger-related and restructuring charges, primarily related to severance and branch consolidation associated with our call-saves initiatives, negatively impacted EPS by another $0.10. Before providing further details on this quarter's underlying financial performance, I do want to provide some additional background on the goodwill impairment charge that occurred during the quarter. We test our goodwill for impairment annually on October 1. This year's test resulted in an impairment of $6.1 billion. The impairment was primarily driven by the continued impact of higher interest rates and higher discount rates and a sustained decline in banking industry share prices, including Truist share price. Importantly, as Bill noted in his opening remarks, this is a non-cash charge and has no impact on our liquidity, no impact on our regulatory capital ratios, our ability to pay our common stock dividend or to serve the needs of our clients. Moving on to the results for the quarter. Total revenue increased 50 basis points sequentially due to a more modest decline in net interest income than expected. Adjusted expenses declined 4.5% or 5.2%, if excluding the impact of TIH Independence Readiness Costs. Our net interest margin improved 3 basis points to 2.98% during the quarter. We added 20 basis points to CET1 capital in the quarter and increased our ALLL ratio by 5 basis points in light of ongoing economic uncertainty. Finally, our tangible book value per share increased 13% on a linked quarter basis, due primarily to the impact of lower interest rates on the value of our available for sale investment portfolio. Next, we'll turn to page nine to cover loans and leases. Average loans decreased 1.7% sequentially, reflecting our ongoing balance sheet optimization efforts and overall weaker client demand. Average commercial loans decreased 1.8%, primarily due to a 2.3% decrease in CNI balances, primarily due to lower client demand. In our consumer portfolio, average loans decreased 1.8%, primarily due to further reductions in indirect auto and mortgage. Overall, we expect average commercial and consumer balances decline modestly in the first quarter driven by our ongoing mix shift toward deeper client relationships, deemphasizing lower return portfolios, and the effects of continued economic uncertainty. Moving now to deposit trends on slide 10. Average deposits decreased 1.4% sequentially as growth in time deposits and interest checking was more than offset by declines in non-interest-bearing and money market balances. Non-interest-bearing deposits decreased 3.7% and represented 29% of total deposits, compared to 30% in the third quarter and 34% in the fourth quarter of 2022. During the quarter, consumers continued to seek higher rate alternatives, which drove an increase in deposit costs, albeit at a slower pace relative to recent periods. Typically, total deposit costs increased 9 basis points sequentially to 1.90%, down from a 30 basis point increase in the prior quarter, which resulted in just a 100 basis point increase to our cumulative total deposit beta to 36%. Similarly, interest bearing deposit costs increased 10 basis points, sequentially to 2.67%, down from a 38 basis point increase in the prior quarter, which also resulted in a 100 basis point increase to our cumulative total interest bearing deposit beta to 50%. Going forward, we will continue to maintain a balanced approach, focusing on core relationships, staying attentive to client needs, and striving to maximize the value we can add to relationships outside of rate paid. Moving the net interest income and net interest margin on slide 11. For the quarter, taxable equivalent net interest income decreased by 0.6% linked quarter due to lower average earning assets and higher rate paid on deposits partially offset by favorable hedge income. Reported net interest margin improved 3 basis points on a linked basis quarter. While net interest margin expanded in each of the last two quarters, we expected to contract in the first quarter due to an increase in rate paid on deposits partially offset by continued improvement and spreads on new and renewed loans. Turning the non-interest income on slide 12. Fee income increased $47 million or 2.2% relative to the third quarter. The linked quarter increase was primarily attributable to higher service charges on deposits, which were up $76 million in the fourth quarter, due primarily to the third quarter being impacted by $87 million of client refunds. Lending-related fees increased $51 million linked quarter, due to higher leasing related gains. And other fees declined $66 million due to lower equity income. Fee income was down 3.2% on a like quarter basis as lower investment banking and trading, deposit service charges, mortgage banking and other income were partially offset with higher insurance income and higher lending related fees. Next I'll cover non-interest expense on slide 13, GAAP expenses of $10.3 billion increased 6$.5 billion linked quarter due primarily to the previously mentioned $6.1 billion goodwill impairment charge, the $507 million FDIC special assessment, and a $108 million increase in merger-related restructuring expense, partially offset by a $183 million decline in personnel costs. Excluding these items and the impact of intangible amortization, adjusted non-interest expense declined 4.5% sequentially or 5.2%, excluding the impact of $33 million of TIH independence readiness costs. The decrease in adjusted expense was driven by lower personnel expense due to the execution of our cost savings program, resulting in headcount reductions, as well as lower incentive compensation to reflect our performance in 2023. These improvements were partially offset with higher professional and outside processing expenses. Adjusted non-interest expenses were essentially flat on a light-quarter basis. As Bill mentioned, we are pleased with the progress that we've made on the cost savings initiative that we announced in September. Our original goal was to eliminate or avoid expenses of approximately $750 million over a 12 to 18 month period, which would help us manage our expense growth in 2024 to flat to up 1%. The largest category of savings targeted in our plan was a reduction in force driven by a company-wide assessment of spans and layers of management, the elimination of redundant functions, and the restructuring of certain business lines. We've made significant progress here. FTEs are down 4% from June 30 to December 31 with the final set of reductions underway in the first quarter. The second category we highlighted included cost savings opportunities that would be driven by organizational simplification. Examples include reimagining our go-to-market strategy and CRE, simplifying our benefits programs, and right sizing our branch network and related staffing. As part of these efforts, we anticipate reducing the size of our branch footprint by nearly 4% during the first-half of 2024. In addition to lowering headcount and simplifying our organization, we also reexamined our technology investment spend. Through this process, we have rationalized, rescoped, or delayed the start of a number of projects primarily in non-core areas. We estimated restructuring costs related to this initiative to be approximately $225 million or 30% of our initial $750 million goal. So far, we have incurred around $200 million of charges related to the program, mostly driven by reductions in force in the facilities-related decisions. We would expect to recognize the bulk of the remaining costs in the first quarter. It's clear to state here that the work is never done and we continue to assertively manage costs. But we feel confident that we will achieve our flat to up 1% expense target for 2024. Okay, moving on to asset quality on slide 14. Asset quality metrics continue to normalize in the fourth quarter, but overall remain manageable. Non-performing loans declined 6% linked quarter, while early stage delinquencies increased 11 basis points sequentially due to an increase in 30 to 89 day past due consumer and C&I loans. Included in our appendix is an updated data on our office portfolio represents 1.7% of total loans. We are pleased that non-performing and criticizing classified office loans decreased modestly linked quarter, while we increased the reserve on this portfolio from 8.3% at September 30 to 8.5% at year end. During the quarter our net charge off ratio increased 6 basis points to 57 basis points. The increase in net charge offs for the quarter reflects increases on our other consumer, indirect auto and C&I lending portfolios partially offset by lower CRE losses. We continued to build reserves as provision expense exceeded net charge-offs by $119 million. Our ALLL ratio increased to 1.54%, up 5 basis points sequentially, and 20 basis points year-over-year, due to ongoing credit normalization and greater economic uncertainty. Consistent with our commentary last quarter, we've tightened our risk appetite in select areas, though we remain -- maintain our through-the-cycle supportive approach for high-quality long-term clients. Turning now to capital on slide 15. Truist added 20 basis points of CET1 capital in the fourth quarter through a combination of organic capital generation, disciplined RWA management, and this quarter's tax benefit, partially offset by the FDIC special assessment. With a CET1 ratio of 10.1%, Truist remains well-capitalized relative to our minimum regulatory requirement of 7.4% that became effective on October 1. We remain committed to building capital and do not have plans to repurchase shares over the near-term. We continue to be disciplined with our RWA management strategy as we allocate less capital to certain businesses, though we have been clear that our balance sheet remains open to core clients. Our primary capital priorities are supporting the financial needs of new and existing core clients, as well as the payment of our $0.52 per share quarterly dividend. In addition, we continue to believe that Truist’s capital flexibility with Truist Insurance Holdings is a distinctive advantage. We estimate that our residual 80% ownership stake provides greater than 200 basis points of additional capital flexibility and we continue to evaluate our strategic options with respect to TIH. The table in the center of the slide provides an updated analysis of our AOCI at year-end. During the fourth quarter, the component of AOCI attributable to securities declined from $13.5 billion to $11.1 billion or by $2.4 billion due to the decline in long-term interest rates during the quarter and finished 2023 essentially flat when compared to year-end 2022. AOCI related to our pension plan improved from $1.5 billion to $1.1 billion, which is a level that will remain static throughout 2024. Based on estimated cash flows in today's forward curve, we would expect the component of AOCI attributable to securities to decline from $11.1 billion at the end of the fourth quarter to $8 billion by the end of 2026 or by approximately 28%. We continue to feel confident in our ability to meet the requirements and build capital under the proposed phase and periods based on our assessment of the proposed capital rules. We have refined our estimate for the impact to risk-weighted assets under Basel III and now expect a mid-single-digit increase in risk-weighted assets, compared to our previous estimate of a high-single-digit increase. Finally, as it relates to the proposed rules for a long-term debt requirement, we estimate the Truist binding constraint is at the bank level and that the shortfall is approximately $12 billion. We remain confident that we will be able to meet the proposed requirement at both the bank and the holding company level through normal debt issuance during the phase-in period. As part of our regular way funding plan, we issued $1.75 billion of long-term debt during the fourth quarter of 2023. All right, I'll now turn to page 16 to review our updated guidance. Looking into the first quarter of 2024, we expect revenues to remain flat or decline by 1% from 4Q 2023 GAAP revenue of $5.8 billion. Net interest income is likely to be down 3% to 4% in the first quarter, which is more than we experienced in the fourth quarter due primarily to one less day, a smaller balance sheet, and some pressure on our net interest margin driven by rate paid. We expect linked quarter improvement in non-interest income due to higher insurance and investment banking and trading income partially offset by lower other and lending related fee income. Adjusted expenses of $3.4 billion are expected to increase by 4%, due to normal seasonal increases related to payroll taxes and higher incentive accruals. For the full-year 2024, we expect revenues to decrease by 1% to 3%. Our balance sheet and interest rate sensitivity continue to be positioned as relatively neutral, which is in line with our long-term goal. Our forecast assumes that net interest income troughs in the first-half of 2024, and then remains relatively stable, assuming five reductions in the Fed funds rate with the first reduction coming in May 2024. In addition, we assume that insurance continues to grow at high-single-digit rate, while investment banking and trading should benefit from a recovery in capital markets. Although we anticipate adjusted expenses rising 4% in the first quarter due to seasonal factors, full-year 2024 adjusted expenses are still expected to remain flat or to increase 1% over 2023 adjusted expenses of $14 billion, which includes TIH Independence Readiness Costs. Our 2024 expense guidance of flat to up 1% also includes $85 million of TIH independence readiness costs. In terms of asset quality, we expect net charge-offs of about 65 basis points, reflecting a continued normalization of loss rates across our consumer and wholesale loan portfolios, a lower denominator from declining loan balances, and our strategy to be proactive in resolving higher-risk portfolios. Finally, we expect our effective tax rate to approximate 17% or 20% on a taxable equivalent basis. I'll now turn it back to Bill for some final remarks.

A - Brad Milsaps:

Rocco, at this time, will you please explain how our listeners can participate in the Q&A session? As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one follow-up, in order that we may accommodate as many of you as on the call as possible today.

John McDonald:

Hi, good morning. Mike, I was wondering if you could unpack the outlook for the net interest income in 2024 a little bit, including, you know, the assumptions around deposits and whether taking out some Fed cut assumptions would change the outlook and how sensitive they are? Thanks.

John McDonald:

Okay, and then just a quick one on expenses, the guide for adjusted expenses, you know, in the 14 area. What expenses should we keep in mind for a modeling that are outside that adjusted so that you have some amortization that's usually, I guess, around $500 million and then some merger restructuring expected this year?

John McDonald:

Okay. And I guess just other Mercs or incremental operating costs, like any of that throughout the year that we should keep in mind or placeholder for some of that to occur beyond the first quarter?

John McDonald:

Okay, great, thank you.

Scott Siefers:

Thank you. Good morning everybody. Mike, I was hoping you could talk a little bit about sort of how you might see loan demand projecting through the years? Certainly understand and appreciate the comments about a little more pressure on loan balances in the early part of the year? And then more stability, but just curious how you're thinking about whether demand can come back if we begin to get some rate cuts, more macroeconomic clarity, et cetera?

Bill Rogers:

Yes, and it's not just part of the pressure on the consumer side is we're creating, you know, as we're really reducing some of our focus on, you know, indirect as an example. And that's somewhat offset by the growth in Sheffield and Service Finance, but that doesn’t sort of isn't a perfect balance in there. So the consumer reflects probably a little more of our own action and capital allocation than where we are from a market perspective. And then I think as Mike said, I mean, on the C&I side, you know, we're open for business, you know, so, you know, we're going to serve our markets. And I think we've got really, really strong markets. And when I think recovery comes, it will come disproportionately faster in our markets. And if that happens sooner, we'll see the benefit of that. And we'll be a recipient of that, because we are, I think, gaining share in most of those capabilities. And then the other part I just mentioned is that like and when we're winning, we're winning more disproportionately, so on the C&I side particularly, you know, just you know 15% to 20% more of the deals are in left leads as an example. So, you know, if we look at some of our portfolio last year, we're winning more on the left side. So that's got more profitability and more tailwind in terms of an ability to expand those relationships. So I don't know if we're being conservative, to use that word, but I think we've got to sort of see what's in front of us. And hopefully by the end of the year, you know, if the rates turn out as we all forecast, we'll see a little spur in the economy and I think we'll be direct beneficiaries of that.

Mike Maguire:

Yes, Scott, I can give that to you. So, you know, on a stated basis, you know, we finished the quarter at 10.1%. You know, if you look at our -- the new balance from an OCI perspective, and this would include the AFS security, as well as the pension, that's about a 2.9% impact. So that would take you down to, you know, call it, I guess 7.2%. And then, you know, the other factors like the thresholds and the RWA inflation we mentioned, you know, earlier in the call that we have done more work around an estimate for what the RWA impact might be under Basel and also a little more work on the thresholds, call those another percent. So that walks you down to low-6s.

Operator:

And our next question today comes from Mike Mayo with Wells Fargo Securities. Please go ahead.

Bill Rogers:

Yes, Mike, I think an appropriate challenge is always, we've done a lot. So I think I'm really encouraged by the momentum and you can see it really in the third and fourth quarter. And you see that significantly and particularly the expense declines. And we're committed to what we, you know, what we talked about in September. I think our $750 million plan, I'm really proud of our teammates. I'm proud of our leadership. You know, they really got the sleeves rolled up and got after it. So the intensity that's in this company right now about being more efficient, I feel is demonstrably better. And being able to apply that over this more simplified organizational structures where we see the benefits. So if you think about, as I've made in my comments, I mean sort of that process is complete. So now this intensity, these efforts, these initiatives, we apply that over a much more simplified business model. And the decisions that leaders are making, I think are just better, stronger decisions, which lead us to a more efficient company long-term.

Elyse Greenspan:

Yes, thanks, Mike, and good morning to everyone. On the insurance side, I know there's been press reports on the potential monetization and sales process of that asset. So I was just hoping that you can provide, you know, an update to us and just, you know, where you stand with that process?

Elyse Greenspan:

Okay, thank you.

Operator:

And our next question today comes from Ken Usdin with Jefferies. Please go ahead.

Clarke Starnes:

And this is Clarke. Thanks for the question, our ‘24 NCO guidance, as Mike said, it assumes we're going to continue to see normalization occur, both in consumer and wholesale. We've already seen a lot of it in the consumer side. We have a higher mix, as Bill said, of higher margin consumer finance businesses and less relative mortgage and prime auto, that's a factor on the loss assumption. But I think the biggest one that you’ve pointed out, we're working really hard to get ahead of any potential areas of stress, think CRE office and so our guidance also reflects opportunities to be opportunistic to work through if we see more challenges in that space as that structural risk unfolds. So we hope to do better, but we're assuming we're going to work hard to make sure of that we get ahead of any risk.

Bill Rogers:

Yes, great question. And the good news is we've got a really good balanced investment banking business. So, and, you know, seeing some positive things on, you know, a lot of the different buckets. So if you think about equity capital markets, I mean they're starting to come back. I think we're starting to see some IPO components of that. Our pipeline there is probably the strongest it's been in a long time. And pipeline as active book runner. When and if all that comes to bear, I think that's we'll just have to, that'll be a little bit market dependent. On the debt side, sort of the high yield investment grade, I mean, you've got a lot of maturity sort of running off in ‘24, so there's sort of a natural refinance opportunity. I think, again, sort of that'll be where clients are projecting where they think rates are going to come. So they've got a lot of natural things they have to do and they'll have to pick that point of demarcation where they want to start the refinancing side. And then the M&A pipeline is really strong. We spent a lot of time in energy with our verticals and being really relevant. So the size and scope of some of the things that we're doing are proportionally higher, but we've also built this really great pipeline with our transition advisory business, with our commercial clients. And we've got more in the pipeline there than we closed all of last year, just as an example. So that's sort of that core bread and butter kind of work. And then we have things that were like public finance, which was sort of a nascent business for us 12, 18 months ago, and now starting to build up some momentum and as we see public finance opportunities starting to grow. So we have a lot of cylinders that are working that I think can offset each other and would be a good reason that we would be confident in a pretty nice recovery on the investment banking side. It will be like everything else, a little bit quarter-to-quarter dependent, but hopefully a little less volatility for us given that we've got a lot of cylinders running.

Mike Maguire:

Yes.

Erika Najarian:

Hi, good morning. The first question is for Bill. Bill, Mike is not saying anything too different about loan growth from the rest of your peers for 2024. That being said, I think obviously one of the genesis of the merger of equals is this combined franchise in this footprint that was better than everybody else's? So I guess my question here is, you know, how much of your current adjusted capital, state right now is sort of impacting still how you're thinking about growth and going to market? And you know, clearly there's going to be a lot of questions on use of proceeds, you know, if you do sell the rest of Truist Insurance Holdings. But how much different is your approach going to be to market, if at all, if you do monetize TIAs?

Erika Najarian:

Got it, And just a follow-up question for Mike. One of your peers had framed it this way, so I think the investors found it helpful. But you did mention earlier that you had caution on the betas to the downside, and your first cut is presumed to be May. Considering a lag could you give us a sense of what your range of assumptions is in terms of downside betas for the first 100 basis points of cuts that's embedded in your guide?

Erika Najarian:

Got it. Thank you.

Ebrahim Poonawala:

Hey, good morning. I guess, I just wanted to follow-up maybe Bill and Mike on the goodwill charge. I'm assuming it's more than a mathematical exercise and it's hard for me to imagine that higher rates are structurally bad for banking organizations with good deposit base, which is the case for Truist. So to some extent I guess the read-through is some of the deal synergies tied to the SunTrust BB&T merger no longer look as appealing as they did at the time of the deal announcement. One, is am I missing something there? And secondly, Bill, just so you've talked about a bunch of strategic actions, is it fair for us to expect that if we look a year from now, we will see very clearly some of the synergies, be it in terms of market share gains, efficiency tied to the deal where investors can start getting on board with the franchise?

Bill Rogers:

And it's just done by segment too, Mike.

Bill Rogers:

And then on your second question, hopefully, what I was indicating is that process has started. So if you look at the net new account gains we're seeing, the growth in primacy accounts, the growth in market share and investment banking. So those things are actually underway and happening. I think they'll continue to accelerate, they'll continue to build, they'll continue to manifest, as you said, both on the revenue and both on the efficiency side. I think you actually pointed out, you know, you'll see both sides of that.

Bill Rogers:

Yes, I'll give Clarke to comment as well. But yes, there are, you know, part of the great part of our markets is we have a lot of in-migration. So we've had a lot of building in anticipation of that. So if you think about some of our larger markets, Austin, Orlando, I mean, some of the suspects where you've seen a little bit of that. I'll get Clarke to comment on the quality of the portfolio. So that you know the multifamily, large developers that were in and long-term the migration positive continues. So I was looking at some data interesting enough just to make a comment broadly on that. Within our markets last year, we added a metropolitan Charlotte. So just think about that in context. So we added about 2.2 net in-migration into our market. So the overall demographics are good, but I think in fairness to your question, we probably have a little bit of a shorter term watch item versus worry item. Maybe Clarke, you can…

Ebrahim Poonawala:

Thank you so much.

Matt O'Connor:

Hi, good morning. Sorry I missed it, but have you guys talked about what your targeted capital level is? You know, obviously you said going from here with no buybacks in the near-term and again, with the impact on the RWAs from the Basel III and getting proposals, but how are you thinking about targeted capital levels over the medium and long-term? Thanks.

Matt O'Connor:

Okay. And as you think about kind of the 10 plus medium term, is that including AOCI? Because obviously you're already 10 plus now and you're going to create capital fairly quickly this year with things given earnings and not much balance in growth?

Matt O'Connor:

Okay, thank you.

Gerard Cassidy:

Good morning, Bill. Good morning, Mike. Bill, when we go back to the original merger, I think if I recall correctly, there was a targeted 20% return on tangible common equity and you've just discussed about the capital levels, you know, Basel III being higher than what I presumed to be lower numbers back and when the deal was announced? Can you share with us, are you still thinking 20% return on tangible common equity is a reasonable goal or you can attain it even with these higher capital levels that you and the industry has to carry?

Gerard Cassidy:

Very good. And then coming back on -- obviously, you guys talked about credit quality. You referenced, Mike, about commercial real estate in your opening remarks and you just talked about multifamily again. And Truist has always been good on its credit. So my question on commercial real estate in the office area, and maybe this is for Clarke, can you kind of draw a line for us from early ‘22 when there wasn't really any problems before rates started to go higher in downtown office, really, or maybe just emerging? And incrementally, it's clearly deteriorated. Clarke, can you share with us, is the deterioration accelerating on a sequential basis in the office market? Or have we seen the rapid acceleration of down values, real workouts taken charge-offs? And going forward, yes, you're still going to see higher charge-offs probably, but the actual incremental deterioration is lessening or worsening, can you share with us from that standpoint?

Gerard Cassidy:

Great. Thank you.

Manan Gosalia:

Hi, good morning. Thanks for taking my question. I wanted to come back to the NII guide, and I appreciate all the detail on loan growth and deposit betas. Can you talk about how we should think about the impact of securities repricing and the impact of swaps as we think through that 2024 NII?

Manan Gosalia:

Got it. And just as we think through the sensitivity to the different rate environment, I think you mentioned some forward starting swaps. Is there any more color, any quantification there? Or anything else we need to think through in terms of the impact on NII from any swings in the forward rate assumptions?

Manan Gosalia:

Got it. Thank you.

Brad Milsaps:

Okay. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Rocco, you may now disconnect the call.

Brad Milsaps:

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 Maguire. 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. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau 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 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 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'll turn it over to Bill.

Mike Maguire:

Great. Thank you, Bill, and good morning, everyone. I'm going to begin with net interest income on Slide 11. For the quarter, taxable equivalent, net interest income decreased 1.6% linked quarter primarily due to lower average earning assets and higher deposit costs. Although net interest income was down linked quarter, we are encouraged that the decline was slower than the 6.1% decrease observed in the second quarter as deposit betas increased at a more moderate pace. Reported net interest margin increased 4 basis points after declining for two consecutive quarters. NIM stabilization reflected our ongoing balance sheet optimization initiatives, including

Brad Milsaps:

Thank you, Bill. Anthony, at this time, will you please explain how our listeners can participate in the Q&A session As you do that, I’d like to ask participants to please limit yourselves to one primary question and one follow-up in order that we may accommodate as many of you as possible in the call today.

Ken Usdin:

Hi, good morning guys. Thanks for the color and update. I just – Bill, just coming back to the independence preparation for TIH and articles that were in the paper, I know you're still, I'm talking about the optionality. Can you just give us an updated sense of just how you're looking at the value of the business financially versus strategically? And what would change here to make you guys move forward with some type of transaction to move it forward?

Ken Usdin:

Yes. And I guess just a follow-up on it as well. Like at what point does financial benefit become strategic? Because a lot of the questions we get are the trade-off between the two. An obvious ability to improve capital versus a delta in terms of like fee contribution, ROE, et cetera. So it's hard for the investor community to kind of just understand what that incremental switch is. I guess, maybe, how do you think about that notion of like when financial becomes strategic?

Ken Usdin:

Right. Okay. Thank you, Bill.

Operator:

Our next question will come from John McDonald with Autonomous Research. You may now go ahead.

Mike Maguire:

Yes, good morning, John. We obviously did see some pressure this quarter, actually probably a little bit better than we expected and that we talked about during the second quarter. We do expect to continue to see some pressure in the fourth, and frankly, even into the first half of 2024. And I think that just has to do with the rate path. We have an expectation that we think we've seen our last hike, and we don't have a cut in forecast until July of next year. We have two cuts in the second half. And so as betas - sort of, again, the good news is, are slowing down, and we feel like grinding a bit lower, we should still feel a little bit of pressure there. We're trying to combat some of that pressure. We've been very intentional around how we're managing rate paid across our client base. We're beginning to see some nice progress as it relates to new and renewed credit spreads. We're repricing some of the fixed rate loans. So the good news is, is while there's pressure, it's moderating, but we still do see that pressure into early next year.

Mike Maguire:

Yes. I can start there, John. I think Bill may want to weigh in, too. Hard to say. I mean, we said on the 750. It's kind of 12 to 18 months. I mean, I think if you think about two-thirds plus or minus being recognized next year, maybe it's a little more than that. That's how we're thinking about the math there. And that would again, John, give us the confidence that we have to make sure we manage expense growth to less than 1%. You asked about TIH readiness costs as well. We're not ready to talk about 2024 yet there. We will give you more visibility to that when we guide for the full year in January.

Operator:

Our next question will come from Ebrahim Poonawala with Bank of America. You may now go ahead.

Mike Maguire:

Good morning.

Mike Maguire:

Yes. Ebrahim, I think the way I'd answer that question is, a lot of the action we're taking, actually right now and in the rest of the fourth quarter and early next year around, for example, some of the organizational design and health and some of the reductions in force, you'll see that come into the run rate relatively quickly. Same goes for some of the realignment of businesses. Those have different flavors. In certain cases, if we significantly restructure a business, like as a good example, we discontinued our middle market agency trading business earlier this year. That was a pretty quick adjustment to run rate. Other adjustments we're making maybe take place throughout the course of next year. And then technology spend, which as you recall is a pretty significant component of our cost savings plan. That has a variety of flavors as well. So I'd say for the most part, you're going to see pretty good progress on run rate adjustment sort of as we exit 2023 and enter 2024. And you'll see, I think, just sort of continuous improvement throughout the course of the year.

Mike Maguire:

I think we got after the lowest hanging fruit pretty quickly. Ebrahim, the student portfolio was not a strategic asset for us. It was less profitable. There have been other businesses within even our C&I business, for example, that we didn't feel like we're as highly as strategic. We've talked a lot about correspondent mortgage and some of our national indirect lending businesses. So, I think that we have a pretty good line of sight to it. I think going forward, it's just much more around optimization, right? And being more disciplined in how we select opportunities, how we price opportunities. We're seeing that come through in our results as well. But there's not, I don't think a significant shoe to drop on portfolio sales and those types of things.

Ebrahim Poonawala:

That’s helpful. Thank you both.

Erika Najarian:

Hi, good morning.

Erika Najarian:

This first question is for you, Bill. I think just taking a step back and thinking about Slide 16, I think a handful of your investors did think that once you struck the deal with Stone Point, that it was a sort of one-way exit. That being said, that deal was struck in February, right? The world didn't change in until March. And so my question for you is that you have this monetization opportunity for Truist Insurance Holdings. And as you think about the proceeds, again, clearly, the world has changed. So, how do you balance essentially the push that some investors are calling for in terms of restructuring your portfolio very meaningfully? And I can see in that in that middle chart Slide 16 that portfolio is a very, very slow lead versus if you do that, you're essentially making the same call you did in 4Q 2020, which is assume that rates are going to stay where they are versus maybe doing more on the RWA mitigation side, which will cost you more in NII over the near-term, but won't trap you into making a rate bet.

Erika Najarian:

Thank you. And my second question is far more boring. On the service charges, Mike, it went down to 150 from like a 240 handle and 249 in the previous quarter - previous March quarter. Was that a onetime reversal? Or is this a new run rate? I know that there was some offset in other income, but just trying to think about the moving pieces for fees from here?

Erika Najarian:

Thank you.

Operator:

Our next question will come from John Pancari with Evercore ISI. You may now go ahead.

Mike Maguire:

Morning, John.

Mike Maguire:

John, I'll just maybe give you a sense for the outlook on NIM for the fourth quarter. I think we're - again, as I mentioned, with the deposit betas, creeping, we're at 49%. As you know, as of the third quarter, we were at 44 in the second. We would expect that to continue to worsen a bit. Just as customers continue to reprice a bit, that's obviously slowing. And for the most part, across three or four of our segments is sort of all the way where we think terminal betas might be, but we're still seeing some movement on the consumer side of things. So, I think a little bit of pressure from the betas, again, offset perhaps a bit by some of the credit spread widening that we're seeing. So from a NIM perspective, maybe it's a few basis points. As far as our revenue outlook for the quarter, we have a sense that it's probably worse, 1%, perhaps flat. NII is going to be down a touch and fees will be up a touch. So I'd just sort of maybe leave it at that. As far as the balance sheet sizing, we had a much more significant decline in earning assets during the third quarter, around $18 billion, we would expect that to be much, much smaller in the fourth quarter, so maybe closer to the tune of $5 billion or so. You've got the securities portfolio that's cash flowing at about $3 billion and maybe just a little bit of pressure on loans. So, I think that's probably the math you need.

Mike Maguire:

Yes. I think the third quarter was unique in the amount of remixing that was accomplished. I mean, you saw the student loan portfolio was a big component of that. And that's a pretty low net interest margin contributor. Same thing, the investment portfolio at $3 billion. We took cash down by close to $5 billion. So if you think about that stuff as sort of right at SOFR, really, really thin spreads, and then at the same time taking off the FHLB advances. That was really the driver, that mixing that saw some of the benefit on the NIM and that sort of aided the NII in the quarter. I think in the fourth quarter you're going to see a more sort of traditional March of again I've hit it deposit costs creeping up a little bit higher. Hopefully, again will continue to be successful as we have been around. Thinking about rate paid, I mean, I'm really pleased by how the businesses has been performing. I mean, we've been testing different rate strategies. We've been looking at promo rates. We've looked at exception-based pricing and structure and so that will continue. And so we're going to try to do the best we can to manage that. But I think the mix driver that we saw in Q3 is really a Q3-only opportunity.

Operator:

Our next question will come from Mike Mayo with Wells Fargo Securities. Fargo Securities. You may now go ahead.

Bill Rogers:

Yes. Mike, thanks. The intensity is - I don't know what superlative to use other than high. So, the intensity is really good. And what's happened with the cost save program, and we talk about the $750 million in cost saves, but I don't want to diminish the simplification of our business. So, creating these consumer and wholesale towers and creating the simplification of our business, that really has allowed us to move a lot faster. So, I've been really pleased with how the team has embraced this whole process. I mean, leaders are stepping up in really demonstrable ways, getting in front of it and they're making decisions at a much, much faster pace. So, I outlined a bunch of the different consolidation and those type of things. Those would have been more sequential in the past. You sort of do one, you another one, you sort of go through the process. And today, they're all on these great parallel paths. And I think that's going to have a faster, longer-term impact. And look, I mean, to your point, I mean, we're not happy with where the efficiency is now. One of them stated that as publicly possible and we have demonstrable plans. We talked about the overall play on the cost saves. But long-term, that also has to result in better revenue growth. And all the things that we do together of bringing these businesses together, optimizing the balance sheet, creating capacity, creating product and capability, training our teammates, having them lean in, demonstrated net new, all the things that are building in terms of the momentum, those are key. And I can assure you, for our Board, we have presented an improvement plan on the efficiency ratio, long-term improvement plan. And we'll be on that track. I mean, we share your frustration, trust me. But I think we've got now the structure in place, the leadership in place, the commitment, the intensity, support and we're moving fast. And our team can feel it and they've embraced it.

Bill Rogers:

Yes. On the - they're just as with efficiency, there is a positive operating leverage long-term plan in all of our businesses. And part of the simplification allows them to control that destiny and make decisions about that on a faster basis. It will be harder in the first part of next year. I mean, as you know, I mean, you're sort of running off an NII comparison. So that's just the tougher hurdle. But as we get into the latter part of next year, I mean, we're going to see continuous improvement and commitment to that on a long-term basis. So I can't - without sort of a rate forecast and all that, particularly, I can't comment exactly. But I can comment that during the second half of that, of next year, you're going to start seeing a lot of improvement on the operating leverage and going into 2025, we'll be firmly committed and be a really good flight path. And then as you - and then to the simplification things, we'll continue to - it's a really good question. We'll continue to outline some of those. I mean just think about, for example, care centers. I mean, we have a lot of care centers serving a lot of different businesses. In the merger. We needed to bring those all over the transom and have them perform well. We've invested in a lot of technology and we can consolidate care centers. Just think about that as one of dozens and dozens of examples of this component of simplification. So while I agree with you, we're not sort globally in 100 countries or whatever that parallel may have been, but we still have a lot of opportunity to make this company simpler, faster, leaner and more responsive to clients and as you noted, more responsive to shareholders.

Operator:

Our next question will come from Matt O'Connor with Deutsche Bank. You may now go ahead.

Bill Rogers:

Yes, Matt. This is Bill. Yes. We did that on our own volition. I mean, we've looked at all of our products and offerings. We've listened to a lot of client feedback. We reviewed and changed our protocols with respect to deposit-related fees. And that resulted in refunds that did impact revenue and other expense. I think we're taking just a more contemporary view of sort of where the world is, where the puck is going and making sure that we get ahead that, we're staying in front and creating this clearer path as possible for next year and the continuous improvement we want to make in our business.

Mike Maguire:

Yes. Look, I mean, I think there's been pressure on this item in general, just given the evolution of the service charges on deposits. But I think you can safely assume that the $87 million that we've noted here during the third quarter was a quarter event. So, again, I think you should expect there to be the same style of pressure you've seen on this line item sort of trending in the industry and for Truist, but this particular event wasn't sort of a step functional driver.

Bill Rogers:

Yes, I think we've got a great product in Truist One and that really reflects where we're going. And so we're adding almost all of our new clients to Truist One. I highlighted some of the benefits, some of the things we're doing that. And then migrating some of our back book to Truist One. So, I don't know how to characterize conservative work, but I do know this is purposeful. And I think we've got an incredibly competitive product that has all the right mixes and that it's really, really client responsive, but it's also contributed to our growth. So, while service charges as an overall, as Mike talked, will continue to click down, we're balancing that with growth, adding new clients, expanding relationships. And I think that's sort of the right mix as we think going forward. Those things won't align perfectly quarter-to-quarter. But long-term, I think we're on a really, really good long-term shareholder value building path.

Bill Rogers:

Thanks Matt.

Gerard Cassidy:

Thank you. Good morning Bill. Good morning Mike.

Gerard Cassidy:

Bill, can you share with us - when you think about the game plan that you and your peers have had to use post financial crisis in this low interest rate environment, of 0 to 25 basis points, there was a blip in 2018, of course. But now we're in this new rate environment that was really pre-financial crisis, what changes are you - if you are having some changes, what changes are you implementing to win new business in this new rate environment since it's quite a bit different than it was three or four years ago with both commercial and consumer customers, loans, deposits, et cetera?

Gerard Cassidy:

Same here.

Gerard Cassidy:

I appreciate those insights, Bill. And then on credit, maybe this is best answered by Clarke. You guys talked about tightening up, I think, the credit standards a bit. But I'm more interested - we're not worried about you folks. You guys have a good track record of credit underwriting. But can you make any comments about what others might have been doing over the last two or three years, whether it's non-depositories or depositories in lending, and those may be aggressive actions, if there were any? How that could impact your customers? Who - again, you've underwritten fine but maybe they've done something crazy with somebody else, which then the second derivative, you guys get impacted. But Clarke, any color on that, especially compared to prior cycles?

Gerard Cassidy:

Thank you.

Ryan Kenny:

Hi. Good morning. So I just want to clarify something on the earlier questions on the NII path. So we heard the comment around not expecting any significant loan portfolio sales from here. But can you give us an update on your current approach to managing the securities portfolio? And specifically, what are your views on potentially repositioning parts of the securities portfolio, especially if more capital is freed up from potential future exits or optionality?

Ryan Kenny:

Thanks. And then just as a follow-up, on the credit side. Just give a little bit more color on what you're seeing in terms of credit quality. And I'm asking because it does look like you've increased your 2023 NCO guide slightly to the higher end of the prior range. Just wondering if you can share what you're seeing under the surface.

Ryan Kenny:

Great. Thank you.

Brad Milsaps:

Okay. Thanks, Anthony. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Anthony, you can now disconnect the call.

Brad Milsaps:

Thank you, Tarren, and good morning, everyone. Welcome to Truist's second quarter 2023 earnings call. With us today are our Chairman and CEO, Bill Rogers; and our CFO, Mike Maguire. During this morning's call, they will discuss Truist's second quarter results, share their perspectives on current business conditions and provide an updated outlook for 2023. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau Cummins, our Vice Chair; and John Howard, Truist Insurance Holdings ' Chairman and CEO are also in attendance and are available to participate in the Q&A portion of our 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 slides two and three of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. With that, I'll now turn it over to Bill.

Mike Maguire:

Great. Thank you, Bill, and good morning, everybody. I'll begin with net interest income on slide 10. For the quarter, taxable equivalent net interest income decreased 6.1% sequentially as higher funding costs more than offset the benefits of higher rates on earning assets. Reported net interest margin decreased 26 basis points to 2.91% due primarily to an acceleration of interest-bearing deposit betas and mix-shift out of DDA into other high cost alternatives. The lower net interest margin also reflected our liquidity build late in the first quarter, while liquidity remained elevated throughout April and May, it has normalized by June and will provide some modest boost in NIM going forward. On a year-over-year basis, net interest income is still up 7.1%, and core net interest margin is up 13 basis points. This reflects the cumulative benefit we've seen from the rising rates during the cycle, particularly throughout 2022, but now we are losing some of that benefit in 2023. Moving to fee income on slide 11. Fee income rebounded 2.6% relative to the first quarter. Insurance income increased $122 million sequentially to a record $935 million, demonstrating the strength of Truist Insurance Holdings. Year-over-year organic revenue grew by 9.1%, the highest in four quarters, driven by strong new business growth, improved retention and a favorable pricing backdrop. Other income increased $65 million primarily due to higher income from our non-qualified plan and higher other investment income. In contrast, investment banking and trading income decreased $50 million, reflecting lower bond originations, loan syndications and asset securitizations as well as lower core trading income from derivatives and credit trading. Finally, mortgage banking income increased or may decreased $43 million, with most of the decrease related to prior quarter gain on sale of a servicing portfolio. Turning to non-interest expense on slide 12. Adjusted noninterest expense increased $67 million or 1.9% sequentially. The increase in adjusted expenses reflected a $75 million increase in personnel costs due to higher variable compensation and non-qualified plan expense and a $38 million increase in professional fees associated with enterprise technology and other investments. These increases were partially offset by a $41 million reduction and other expenses due to lower operational losses during the quarter. As a company, we have substantial opportunities to operate more efficiently and are committed to generating expense reductions. On the April earnings call, we discussed a strategic realignment within our fixed-income sales and trading business in which we discontinued certain market making activities and services provided by middle-market fixed-income platforms that had an unattractive ROE. We also identified various expense reduction activities that had already been underway, including realigning our LightStream platform to our broader consumer business and ongoing capacity adjustments to market-sensitive businesses such as mortgage. We're actively working to identify and accelerate additional actions that could be implemented over the course of the next 12 to 18 months to generate cost reductions to reflect efficiency opportunities and changing conditions. These actions include taking a much more aggressive approach towards FTE management, realigning and consolidating businesses to advance our long-term strategy, rationalizing our tech spend to drive more efficient and effective delivery and optimizing our operations and contact centers, which will help us transform Truist into a more effective and efficient company. Taken together, we believe these actions will increase our focus, double down on our core, simplify our business, bend the expense curve, and enhance returns for our shareholders. Moving to slide 13, asset quality metrics reflected continued normalization during the second quarter. Nonperforming loans rose 11 basis points primarily due to increases in our CRE and C&I portfolios, though they remain manageable at 47 basis points. While the increase in CRE, nonperforming loans, include some office, these loans are generally paying as agreed. Our net charge-off ratio was 54 basis points inclusive of a 12 basis point impact from the sale of the student loan portfolio, excluding the student loan sale, net charge-offs were 42 basis points up 5 basis points sequentially. We'd also note that the student loan sale had no impact on our provision expense this quarter as the charge-offs taken in conjunction with the sale was essentially equal to the allowance on the portfolio. During the quarter, we also increased our ALLL ratio 6 basis points to 1.43% due to greater economic uncertainty. Consistent with our commentary last quarter, we have tightened credit and reduced our risk appetite in select areas though we maintain our through-the-cycle approach for high-quality long-term clients. Next, I'll provide more details on our CRE portfolio, which takes us to slide 14. On June 30th, CRE, including commercial construction represented 8.9% of loans held for investment, while the office segment comprised only 1.6%. We maintain a high-quality CRE portfolio through disciplined risk management and prudent client selection. We typically work with developers and sponsors we know well and have observed their performance through multiple cycles. Our larger exposures tend to be associated with sponsors that have strong institutional ownership and we have actively managed less strategic exposures out of the portfolio since the close of the merger. Looking at office in particular, the chart at the lower right provides a breakdown of our office portfolio by tenant and Class. Our office exposure tends to be weighted towards multi-tenant Class A properties that are situated within our footprint. All factors that we believe will drive outperformance. In addition, we have a strong CRE team that is highly proactive in working with clients to get ahead of the problems. During the second quarter, we completed a thorough review of the majority of our CRE office exposure. We considered current conditions and client support in our risk rating approach. As a result, a handful of loans were moved to non-accrual, though the preponderance of the clients in exposure are paying as agreed. We believe our actions are prudent in light of current market dynamics and demonstrate our commitment to proactive and early identification and resolution of credit risk. While problem loans have increased in recent months, we believe overall issues will be manageable in light of our laddered maturity profile, conservative LTVs, and reserves which for office totaled 6.2% of loans held for investment. Turning to capital on slide 15. As you can see from the capital waterfall, Truist is well-capitalized and has significant flexibility to respond to potential changes in the risk and regulatory environment. Beginning on the left, CET1 capital increased 50 basis points to 9.6% at June 30th. This was driven by organic capital generation and the completion of the sale of the 20% stake in Truist Insurance Holdings. I would also point out that at 9.6%, we're well above our new regulatory minimum of 7.4% which takes effect on October 1st. We expect to achieve an approximate 10% CET1 ratio by year-end through a combination of organic capital generation and disciplined management of RWA growth. This view does contemplate the headwind from the pending FDIC assessment. On top of this, Truist has more than 200 basis points of additional flexibility given the residual 80% ownership stake in Truist Insurance Holdings. As we look beyond '23, we do expect regulatory and capital requirements to become more stringent and potentially require us to deduct AOCI from our CET1 ratio, while the final form of any regulatory changes remains to be seen Truist is well-positioned to respond due to our strong organic capital generation and the likely phasing periods of any potential new requirement. Specifically, and as shown on the right-hand side of the slide, based on estimated cash flows and assuming today's forward curve, we would expect Truist AOCI to decline by 36% by the end of 2026. Assuming our current rate of organic capital generation remains constant, Truist should generate sufficient capital to offset the estimated remaining impact of AOCI on CET1 over this time period while maintaining the strategic capital flexibility with Truist Insurance Holdings. And now I will review our updated guidance on slide 16. Looking into the third quarter of 2023, we expect revenues to be down 4% due to seasonally lower insurance revenue and slightly lower loan balances, which will lead to continued pressure on net interest income, albeit at a slower pace relative to the decline we experienced in the second quarter. Adjusted expenses are anticipated to decline zero to 1% as seasonally lower insurance commissions and our efforts to bend the expense curve will offset several seasonal headwinds like marketing and employee benefits that should change the tailwinds in the fourth quarter. For the full year 2023, we now expect revenues to increase 1% to 2% compared to 2022. The decline from our previous outlook for 3% growth is primarily driven by lower net interest income due to higher deposit betas, slower loan growth and lower investment banking revenue. Adjusted expenses are expected to increase 7%, which is at the upper end of our previously guided range due to continued investments in enterprise technology and other areas. This excludes the anticipated FDIC surcharge. This is a number that is higher than where we've been targeting, but as we've discussed, we are pursuing a number of actions to reduce costs. In terms of asset quality, our expectation is for the net charge-off ratio to be between 40 and 50 basis points, which includes the impact of the student loan sale. Finally, we expect an effective tax rate of 19% or 21% on a taxable equivalent basis. Now Bill, I'll hand it back to you for some final remarks.

Brad Milsaps:

Thank you, Bill. Tarren, at this time, will you please explain how our listeners can participate in the Q&A session, as you do that, I'd like to ask the participants to please limit yourselves to one primary question and one follow-up in order that we may accommodate as many of you as possible today.

Ken Usdin:

Thanks. Good morning, everyone. So I just wanted to follow-up, of course, it makes sense that the funding cost and slower loan growth is part of the change in the revenue outlook. I'm just wondering as you look forward and you think about that deposit mix and deposit cost trajectory as far as funding cost looking past the second quarter, how do you see that affecting the NII trajectory within that new revenue guide for the third and fourth? Thanks, guys.

Ken Usdin:

And just on the follow-up, what do you think that means for kind of the view of where you think terminal interest-bearing beta might land?

Ken Usdin:

Yeah. That makes sense. Okay, thank you.

Ebrahim Poonawala:

Good morning. I guess maybe the first question, Mike, just following up on what -- your response to Ken around just the change in deposit beta expectations even relative to last month. Are they -- like when we think about what you said on deposit beta outlook, are there any real signs that are suggesting that deposit trends are in fact slowing down and the likelihood of the beta -- deposit beta update you provided today is more likely to play-out versus having to change this again next month. I'm just wondering are you seeing any tangible signs on the ground that suggest things are getting better?

Ebrahim Poonawala:

Got it. And I guess, a separate question, you've talked a lot -- both you and Bill, throughout the call around wanting to bend the cost curve and the expense focus. I know you're not giving '24 guidance today, but as we think about the opportunity there, I'm just wondering if you can put some framework around what we should expect around what this entails with regards to just quantifying it.

Ebrahim Poonawala:

Thanks a lot. Appreciate it.

Erika Najarian:

Hi, good morning. And I apologize in advance if it feels like everyone's asking the same question, but I think it's important for investors to have clarity. Mike, just on the net interest income trajectory, I apologize that we're asking you to spoon-feed it to us, and for everybody could model it later, but investors are really thinking about what the exit rate for the fourth quarter will be -- and potentially overlay your net interest income sensitivity that you disclosed in your Q which at down 100 basis points, just down 70 basis points would imply pretty good stability from fourth quarter levels. So I guess I'm wondering from the 3, 6, 7, and 9, what is the range of NII outcomes that you expect for the fourth quarter and do you agree with -- that notion that if the Fed does cut 100 basis points, which a lot of investors are putting in their models, there is going to be relative stability in terms of your net interest income power next year?

Erika Najarian:

And within guide -- go ahead, Bill.

Erika Najarian:

Got it. And just a follow-up question and then I'll step aside. Mike, I guess, let me ask this a different way within the down or up one to two in terms of adjusted revenue, what is the NII outlook there -- embedded there?

Erika Najarian:

Perfect. Thank you.

Operator:

Our next question comes from Betsy Graseck with Morgan Stanley. Please go ahead.

Mike Maguire:

It's been remixing at about 1% a quarter for us that was about $7 billion in average balance, and 5.5% in the quarter. I would expect that trend to continue at that rate. We spent a lot of time last quarter talking about where that might ultimately land. I think there's a chance that that rate of a percent or whatever 5% to 6% a quarter does begin to moderate some here. Bill and I both talked about sort of maybe it's a mid-20s terminal mix of DDA, but even now I think is in many respects and estimate and trying to rely on pre-pandemic and even pre -- back to the pre-GFC proxy. So, Betsy, I don't know that helps or not, but we are assuming that DDA will continue to decline in the third and the fourth quarter, again, the second quarter is a little tougher because of the tax payments and the likes.

Bill Rogers:

Yeah, Betsey. This is Bill. So I think the position right now as we continue to build. And so, the targets are developing, more information is coming, and we'll know more over the next 90 days in terms of different proposals and impact on us. And really what this slide was meant to do rather than show sort of an absolute level or a target was really to show the flexibility and the organic creation of capital that we have. So we start from a good position of 9.6 will be organically at 10 end of this year without sort of doing anything dramatic related to risk-weighted assets sort of staying on the process that we're on. And then we just have a lot of flexibility that the AOCI sort of runs off, and then we have -- and we just have other flexibility. So we'll know more as it develops. But I think we're in left lane of capital accretion and we'll stay in that mode until we're not. And that same thing applies to any buybacks or whatnot. We sort of have to understand where the stopping point is before we make any comment about buybacks. And today, that would be short-term, not on the table as we're building capital.

Bill Rogers:

Yeah.

Mike Mayo:

Hi. I want to recognize that accelerated capital pass CET1 10% by year-end. So certainly progress with capital. But otherwise, Bill, I need help in understanding how you can say you're on the right path. One, you had a merger, an end-market merger, an end-market merger predicated on cost synergies, and here we are over three years later and your efficiency ratio in the second quarter is 63% worse than peer. Second, your new guide is for '23 operating leverage -- negative operating leverage of 500 basis points to 600 basis points and to build the revenue guide was lowered by 500 basis points in your expense guide, what's the high-end of your prior range, your personnel expenses are up 3% quarter-over-quarter and 7% year-over-year. And then three, you talked about bending the cost curve, but over the past three years, you've mentioned when I hood was open, you said let's invest more than it was investing more for growth. Now I hear you say you're investing more in enterprise tech. So, from the merger is predicated on cost synergies, the guide is for big negative operating leverage, you are still spending more. So I understand the employee should be happy. They are being paid more. The customers are happy. You have strong relationships. The communities are happy. You're immersed in them. But the shareholders, I think, I can safely say are not happy, I mean, not happy about the expense growth, and they're not happy about the negative operating leverage. And it just seems like -- I love you personally, but I just wonder if you've just been a little too soft and not taking the tougher actions like some of your peers have. So correct my logic or thinking or my observations, if you would.

Mike Mayo:

So you mentioned you'll come back with some plan for 12 to 18 months. And I know, look, I know you wanted to have positive operating leverage in the environment worked against you partly and you acknowledge there are some other things internally. But it looks like it's going be tough to get positive operating leverage in 2024. Is that something you're going to shoot for? And when do we hear about these new expense plans over the next 12 to 18 months? You gave us a laundry list earlier and what sort of magnitude might that be?

Mike Mayo:

And then last short follow-up. I asked this with everybody, the NII guide is much lower for you and for others. Do you think you've captured it all here? I mean do you lead the year at that kind of fourth quarter level and that say? Or do you see more downside after that?

Mike Mayo:

All right. Thank you.

John McDonald:

Hi. Good morning. I wanted to ask a little bit about credit. Could you talk a little bit about the asset quality trends you saw this quarter? What drove the increase in nonperformers, particularly around C&I and CRE?

Clarke Starnes:

Yes. Thanks, Bill, and thanks, John. So I would just say we had a number of moving pieces this quarter from a credit perspective and a lot of that was an intentionality around actively managing the portfolio. So the takeaways I would give you are. First, we had really solid consumer performance overall with lower NPLs and losses versus our forecast, so the consumer is holding up really well. So where we did see some of the impact, to your point, is in the C&I and CRE books. From a C&I standpoint, we did see some uptick in NPLs and losses, but what I'd tell you is it's more episodic. There's no particular trend or segment issue, as Bill said, and we're coming off really low historical numbers, and so even where we are today would be lower than our long-term numbers. But as far as the NPL increase, most of that was driven by an intentional focus on CRE office. So what we did is we did an intense loan-by-loan review of our -- almost our entire book. So I would just give you some color on Q1 and our community bank, we looked at every -- we looked at all office loans greater than $2 million and in Q2, we looked at everything over $25 million, so we've done a loan-by-loan review with the vast majority of all of our CRE office. That included updated risk assessments and view evaluation. So we work really, really hard to make sure we're not kicking the can down the road and we understand where we are. So as a result of that, we put a few loans on nonaccrual. I would tell you that the predominance of those loans are actually current . They're swapped to maturity from a rate standpoint, and they've got good economic risk. But we're trying to stay focused on their ability to exit at maturity, and so we're looking and making sure we fully understand that, so that drove the increase in NPLs. And then we did recognize that with six bp increase in our allowance. And so our office allocation is up six point overall, so we feel really good about that. So again, I would say the takeaway is worked really hard to make sure we have good visibility in the portfolio. And the good news is our overall guidance for losses really didn't change. We included our student loan impact for Q2, but we maintain otherwise, our loss guidance for the year.

Clarke Starnes:

Yes. Again, we're very confident we'll be within the range of 40 to 50 for the entire year. And I would just remind you all that the second half of the year is always seasonally high in our Consumer businesses, particularly in our subprime auto, and so that's why you see the range stay in the 40 to 50 range, so it will be higher than Q2, but within the guidance we've given you.

Operator:

We'll move to our next question from John Pancari with Evercore ISI. Please go ahead.

Bill Rogers:

Hey, John, this is Bill. I'll take that. What I said was, obviously, is that the expense growth is going to decrease materially, so that's what we're going to see. And then the absolute expense base related to our businesses. I think the way to think about it, and this was very similar sort of how we came out of the merger is we should be sort of top quartile efficiency ratio. So the efficiency ratio is kind of be a bit determined by a little bit of the market conditions where rates are. But our business model, our construct, things that we're engaged in, I think rather than sort of honing in on a specific number because I think that's sort of boxes you in, so to speak, in terms of business mix and those type of things. I think really hone in on the expectation from shareholders ought to be that we ought to be sort of top quartile from an efficiency ratio given the opportunities that we have, both on the revenue side, and then the diversity and construct of our business mix.

Clarke Starnes:

Hey, John. This is Clarke. While we're comfortable with our reserve levels right now based on what we know today, obviously, CECL's life of loan, given what you know today, obviously, if the economic outlook deteriorates any further or we do see additional deterioration beyond what we believe we've seen and forecasted today around the portfolio performance or risk attributes. You could see some additional incremental build, but I would not expect to see any sort of large build or hockey stick type. So I think it would be more incremental if we see some. And then as far as did say the CRE office reserve is 6.2% overall, I would remind you all, we have about 40% of our portfolio with our small loans and our wealth and CCB segments, which carries higher reserves. So we've got -- but I think are really strong reserves against where I think the fundamental risk is in the office side and then our total CRE allocation right now is 240.

Operator:

We'll move to our next question from Gerard Cassidy with RBC. Please go ahead.

Bill Rogers:

Good morning.

Clarke Starnes:

Great question, Gerard. I would say for us, we take a very strict view of accrual status when we think about whether a loan needs to be on nonaccrual or not. And I would just remind you what I said but majority of the loans that we placed on nonaccrual this quarter in the CRE office segment and C&I, but in the CRE office segment are actually currently -- current from a contractual basis right now because they still have good economic rents. They're hedged on the rate side, and so they're performing on their payments. But we're looking at what might happen at the end of term as the rate impact fully hit after the swaps go off and whether there's any risk in leasing activity and then what it costs to, for example, reposition the property from an operating standpoint or structurally to be sure the loan could be resized at maturity. And so that's what's driving our view of accrual status, so a lot of it is the valuation side unless the sponsor of principle can address these risks. The good news is we're working with our sponsors. We don't see our clients in any way just walking away from the loans. We have long-term relationships there. And so we're looking at things like asking them to refit, bring in more equity, give us an LC, bring us some interest reserves. We may do some AB note splits while as they attempt to sell the property. So we've got a lot of tools in the tool chest and we're working all of those. Our goal is to be early on this and work with as many borrowers as we can. And hopefully, the market will improve and will have good success.

Mike Maguire:

Very good, Bill.

Mike Maguire:

Well, a couple of. I think the positive catalyst even away from rates would be, I guess, in connection with rates would be speeds increasing in terms of the actual cash flow profile. But if you're looking at the rates, we would need to see the long end rally and we'd actually need to see a parallel benefit from mortgage spreads as well. So some of the, for example, rate rally you saw even from the end of the quarter to this to where we are 20, 30 basis points on the 10-year. If mortgage spreads don't come with it, it can lag a bit. But that would be the -- and Gerard thanks for the question because what we tried to lay out on the right-hand part of that slide, frankly, was a pretty conservative burn-down analysis based on today's speeds, which are quite slow and with no benefit from yield curve normalization.

Operator:

We have time for one more question from Matt O'Connor with Deutsche Bank. Please go ahead.

Bill Rogers:

Matt, maybe at its simplest form, it's me in terms of sort of who's responsible, but our executive leadership team, and we've got a really good focus on this. We've got -- and by the way, we have different third parties helping us with different elements, so they're not an Uber approach because I actually think we need to own it. It needs to be part of the work that we do as a leadership team. But we have a variety of consultants looking on specific areas, so they may be focused on or consolidation of a specific technology or an outsourcing of a particular thing, so they exist as part of the process. But this is an overall leadership team, sleeves rolled up, everybody is in it. Not only line of business up, but most importantly, enterprise across where I think the real efficiencies are achieved and are more permanent as we think about the company.

Bill Rogers:

Yes. I mean it's already underway, and it's a continuous improvement. I mean, I think the mentality of structuring the company around our strategic focus and creating a chassis that attaches to it is not a onetime thing. I think that's something that we're constantly doing, constantly looking at again, back to that commitment to sort of be top quartile in terms of how we run the company from an efficient standpoint, so that's both the revenue and the expense part that comes along with that. So it's not a onetime big bang thing because I actually don't think those are permanent. I don't think they stick. This is a philosophy of how we run the company and the approach that we take long-term.

Operator:

That concludes our question-and-answer session for today. I'll turn the floor back over for any closing remarks.

Operator:

This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.

Ankur Vyas:

Thank you, Allay, and good morning, everyone. Welcome to Truist's first quarter 2023 earnings call. With us today are our Chairman and CEO, Bill Rogers; and our CFO, Mike Maguire. During this morning's call, they will discuss Truist's first quarter results, share their perspectives on current business conditions and recent events, and provide an outlook -- updated outlook for 2023. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau Cummins, our Vice Chair; John Howard, Truist Insurance Holdings' Chairman and CEO are also in attendance and are available to participate in the Q&A portion of our 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 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'll now turn the call over to Bill.

Mike Maguire:

Thank you, Bill, and good morning, everyone. I'll begin with net interest income on Slide 12. For the quarter, taxable equivalent net interest income decreased 2.8% sequentially as higher funding costs and two fewer days in the quarter more than offset the effects of solid loan growth. Reported net interest margin decreased 8 basis points, while core net interest margin decreased 7 basis points. When you break down the decrease in the core net interest margin, approximately 5 basis points was driven by a shift in the funding mix from DDA and other low cost deposit products into interest-bearing deposits and about 2 basis points was due to our decision to conservatively carry more liquidity during the last few weeks of March. Moving to fee income on Slide 13. Fee income was relatively stable compared to the fourth quarter and modestly exceeded our expectations in light of typical seasonal headwinds. Insurance income increased $47 million, largely due to seasonality. Year-over-year organic revenue growth was 4.7%. Mortgage banking income rose $25 million, primarily due to a gain on sale of a servicing portfolio, which was partially offset by MSR valuation adjustments. Income from core mortgage activity was relatively stable compared to the prior quarter. Wealth management income improved $15 million, benefiting from an increase in brokerage commissions, asset flows and higher fees due to rising asset prices during the quarter. Wealth continues to build momentum as net organic asset flows, which exclude the impact of market value changes, were approximately $1 billion for the quarter and have been positive for seven of the last eight quarters. In addition, we were pleased by the modest increase in investment banking and trading income, led by strength in investment grade and high yield bond originations, fixed income derivatives and loan syndications. CIB's performance continues to be aided by two idiosyncratic factors, strategic hiring over the past two years as well as increased integrated relationship management activity. With respect to IRM, capital markets fees from non-CIB clients increased 12% sequentially and were 20% up from first quarter 2022. Other income decreased $56 million, primarily due to lower income from our non-qualified plan. While fee income remains below its potential, our investments in key areas such as insurance, investment banking and wealth will continue to be a source of momentum as markets normalize and as our IRM execution continues to mature. Turning now to Slide 14. Reported non-interest expense declined $31 million driven by a $107 million reduction in merger costs due to the completion of integration activities and a $27 million decrease in amortization expense. The expense reductions I just described were largely offset by $103 million or a 3% increase in adjusted non-interest expense. Expense drivers included a $39 million increase in pension expense and a $23 million increase in regulatory charges due to higher FDIC premiums. We also experienced a $33 million increase in operating losses, which are reflected in other expense due to industry check fraud issues and then operating loss within Truist Insurance recognized prior to completing our transaction with Stone Point. As a company, we are committed to generating expense reductions and have undertaken a number of actions that help bend the expense arc at Truist. Last week, we announced a strategic realignment within our fixed income sales and trading business in which we discontinued certain market-making activities and services provided by our middle markets fixed income platform. This platform was largely focused on MBS-related sales and trading for depositories and had produced an unattractive ROE. This realignment will result in an approximate $50 million run rate expense save with little PPNR impact and enable us to focus more on our core strategy of being a fulsome and premier investment bank for corporates, sponsors and municipal issuers. We're also in the process of realigning our LightStream platforms with our broader consumer business with the goal of bringing the innovation, digital capabilities, efficiencies and cloud-based infrastructure of LightStream to Truist's broader client base. This will reduce the cost of supporting a separate brand and strategy and enhance the experience and primacy with our existing and prospective clients. In addition, we continue to adjust our capacity and focus in mortgage to reflect current challenging market conditions and our own strategic focus on client primacy. These actions, among others, are what drove the $63 million of restructuring charges during the quarter. Furthermore, we've also aligned executive compensation to Truist to shareholder expectations, which I shared with many of you about a month ago. Taken together, we believe these as well as other actions we're taking will increase our focus, bend our expense curve and improve returns for Truist. Moving to Slide 15. Asset quality remained strong in the first quarter, reflecting our prudent risk culture and diverse loan portfolio. Leading indicators remain favorable. Loans 30 to 89 days past due decreased 15 basis points sequentially and were down 17 basis points versus the first quarter of 2022. Our NPL ratio was steady at a relatively benign 36 basis points. Net charge-offs increased 3 basis points to 37 basis points, primarily due to C&I and continued normalization in the consumer and are consistent with pre-pandemic levels. We became even more cautious in our outlook regarding CRE fundamentals. And in light of increased economic uncertainty, we prudently increased our allowance by $102 million and increased our ALLL ratio by 3 basis points to 1.37%. In anticipation of an increasing risk environment, we are also tightening credit and reducing our risk appetite in selected areas while maintaining our through-the-cycle approach for high-quality, long-term clients. Next, given high investor interest, I will dive deeper into CRE on Slide 16. As we began the integration process to become Truist, we were very intentional about retaining the diversification benefits of the merger. To achieve this outcome, we carefully evaluated our various portfolios, including CRE to ensure we fully understood their combined risk profile and to establish how we would manage them going forward. While we did not wholly pause CRE production during this process, we did deemphasize it until we aligned on a single go-to-market strategy. As a result of this decision, Truist CRE portfolio actually decreased by 2.2% from the end of 2019 to the end of 2022, whereas our median peer grew CRE 21%. Our disciplined focus on diversification has also resulted in less CRE concentration and risk relative to our peer group. At year-end, CRE represented 11% of our loan mix compared to 12% at our median peer and the office segment comprised 1.6% of our loan book versus 1.9% at our median peer. We maintain a high-quality CRE portfolio through disciplined risk management and prudent client selection. We typically work with developers and sponsors we know well and have observed their performance through the cycle. Our exposure tends to be large CRE with strong institutional sponsorship, and we have reduced our exposure to smaller CRE. The quality of our CRE portfolio is also reflected in the Federal Reserve's annual stress test results. Our disciplined approach to CRE is reflected in our asset quality metrics, which remain solid. In the lower right, you can see a snapshot of our office portfolio, which had approximately $5 billion in outstanding balances as of March 31 and another area where Truist has been risk averse and highly selective over the past two years. Our office portfolio tends to be weighted towards Class A properties within our footprint, which we believe will perform better than large urban markets. We have a great CRE team that is very proactive in working with clients to get ahead of any problems. Criticized trends have increased over the past few months, but we believe overall problems will be manageable given our conservative LTVs, our reserves and the laddered maturity profile of the portfolio. Turning to capital and liquidity on Slide 17. Our CET1 ratio increased from 9% to 9.1% as approximately 20 basis points of organic capital generation was partially offset by 12 basis points of CECL phase-in. While not included in our CET1 ratio, AOCI improved by $1 billion from December 31 to March 31. Of our $12.6 billion of after-tax OCI, as of March 31, $8.5 billion is related to our AFS portfolio, $2.5 billion is related to the frozen portion of the HTM portfolio, and $1.5 billion is related to our pension plan. We would expect the securities portfolio related OCI to decrease by $2 billion to $2.5 billion by the end of 2024 or by approximately 20%, and that's in a static rate environment. In addition, this accretion will be a powerful driver of higher tangible book value per share over time, a small glimpse of which we saw this past quarter with tangible book value increasing 8%. On April 3, we also closed on the sale of a 20% minority stake in Truist Insurance Holdings, which added approximately 30 basis points to our capital ratios and provides flexibility in the future. Additionally, we declared a strong common dividend of $0.52 per share, which was paid on March 1. Finally, Truist continues to have significant access to liquidity and a very robust liquidity managed process that includes internal and external stress testing as well as real-time monitoring of our liquidity position. Our average consolidated LCR improved to 113% during the first quarter and remains well above the regulatory minimum of 100%. We have access to approximately $166 billion of liquidity, including cash, FHLB borrowing capacity, unpledged securities and discount window capacity. As a reminder, government and agency obligations represent 97% of our securities portfolio, which produces about $2.5 billion to $3 billion of cash flow per quarter. During the quarter, we conservatively increased our cash position from $16 billion as of December 31 to $33 billion at the end of March, funded largely by callable FHLB advances and would expect that to somewhat normalize going forward given that activity has stabilized. More broadly, we do expect regulatory requirements around capital and liquidity to heighten, but believe we're in a strong position to respond given the already high expectations for an institution of our size, the strategic and financial flexibility we have as a company in the orderly phase-in period that would likely accompany potential changes. Now I will review our updated guidance on Slide 18. Looking into the second quarter of 2023, we expect revenues to be relatively stable compared to the first quarter as a modest decline in NII is offset by seasonally stronger insurance revenue. Adjusted expenses are anticipated to increase 1% to 2% linked quarter primarily as a result of higher incentive-based compensation from insurance revenue growth. For the full year 2023, we now expect revenues to increase 5% to 7% compared to 2022. The decline from our previous outlook is driven almost entirely by a lower net interest income outlook given higher deposit and funding costs. Adjusted expenses are still expected to increase between 5% and 7%. As I indicated earlier, we remain focused on taking actions throughout the year to reduce costs. Excluded from our adjusted expense outlook are two items. First, we are not including the impact of any potential incremental FDIC surcharge or assessment. After we receive clarity, we'll provide an update on estimated impact. Secondly, there will be some one-time costs occurring in 2023 and 2024 tied to preparing Truist Insurance Holdings to transition its operating model to be more independent, which is consistent with its new capital structure. These expenses directly correlate to realizing significant value in the business over time. We will not adjust for these expenses in our results, but we will provide transparency. Our goal is still to produce positive operating leverage and positive adjusted PPNR growth for the full year, excluding these two items. The degree of difficulty has increased relative to January given higher funding costs. Our expectations for the net charge-off ratio to be between 35 basis points for the full year is unchanged. Lastly, excluding discrete items, we now expect our effective tax rate will be approximately 20%, which translates to approximately 22% on a taxable equivalent basis due to our adoption of recent accounting guidance regarding the amortization of new market tax credits. This change simply shifts contra revenue and other income to the tax expense line and has no impact on the bottom line. Now I'll hand it back to Bill for some final remarks.

Ankur Vyas:

Great. Thank you, Bill. Allay, at this time, will you explain to our listeners how they can participate in the Q&A session? As you do that, I'd like to ask the participants to limit yourselves to one primary question and one follow-up so that we can accommodate as many of you as possible today.

Ken Usdin:

Thanks. Good morning. Just wanted to start just on the deposit front, good color you gave in terms of the relationships. You mentioned in the deck that end-of-period was down 2%, and some of that was seasonal. So just wondering if you can give us a little bit more color on just how you saw deposits end the quarter and if you've seen stabilization and what kind of outlook you just see for the flow and mix of deposits from here? Thanks.

Ken Usdin:

Okay. And just my follow-up is just then what about that mix? And what -- how do you expect that mix of DDAs to total as there's more cycling of that? I think you're down to about 32% in the first quarter. What do you think -- you had previously said you thought you could approach that 30% over time. Has that view changed at all given what's happened?

Ken Usdin:

Understood. Thank you.

Operator:

We'll move on to our next question from Betsy Graseck with Morgan Stanley. Please go ahead.

Bill Rogers:

Good morning.

Mike Maguire:

Sure. I'd say from a TLAC perspective, this is something that we've had our eyes on for a number of quarters that the entire industry has, certainly, companies our size. We've studied the framework. We've previously probably were considering tailored versions of TLAC, perhaps that will ultimately be the case. But in the abundance of caution, the framework that we've assessed is sort of a traditionally applied framework, the same that the largest banks in the country have applied. And from our perspective, our regular way issuance, certainly given some reasonable phase-in period will allow Truist to comply really without much effort. And so to your question around debt issuance, we -- you saw we raised $3 billion in January. Our expectation given Truist scale and funding needs and perspective is that we'll be a relatively regular issuer. And to the extent that we get a better sense for what's eligible and not eligible from a TLAC perspective, that may influence how we issue whether it's at the holding company or the opco. But I think the net of it is that we feel really well prepared and positioned to comply with TLAC to the extent that that's applied to Truist.

Bill Rogers:

Yeah. They're going to continue to get lower like, we instituted our Truist One, which is sort of a big part of the deposit generation and new client acquisition, but it's also our no overdraft fee accounts. So those will continue to draft lower. And those are in all of our guidance and everything that we talked about. And they’re basically right on path to where we thought they’d be.

Operator:

We'll take our next question from John Pancari with Evercore ISI. Please go ahead.

Bill Rogers:

Hi. Good morning.

Mike Maguire:

Yeah. That's a quarterly view. And I'm not sure that's going to sort of be linear in its progression. If we think about just the impact of qualitative tightening and some of the work that we've done and certainly prior to this first quarter was just getting a sense for our share of the easing and how that may impact our share of the tightening. And so that 1% to 2% is reflective of QT continuing on a quarterly basis, and it's also reflective of, frankly, is the rate environment that we're in as people continue to assess bank alternative products where perhaps higher rates or investment products are or an alternative, but that's a quarterly view.

Mike Maguire:

Sure. Maybe just -- and we mentioned in our prepared remarks, our net interest margin in the first quarter, we were down on a reported basis, about 8 basis points, and that really had two primary drivers. The first was, we also mentioned that we have a little bit more liquidity on the balance sheet. That was something that we made the decision to do sort of in the abundance of caution. And so while that doesn't really have an impact on NII because there's very sort of de minimis negative carry relative to the funding cost there, it did swell the size of the balance sheet a bit. So the denominator impact drove about 2 basis points of net interest margin decline. And then we also had just the overall funding mix shift, which probably drove the bulk of the rest. There's also 1 basis point in there for PAA. Those same factors that drove our NIM down 8 basis points in the first quarter exist in the second quarter as well. Perhaps to -- and to some extent, in terms of the behaviors, maybe it will be a little bit more modest, but you also have to quarterize some of those impacts. And so our expectation is that NIM probably has downside of another, call it, dozen basis points in the second quarter. As far as the second half, probably have a more stable outlook for the NIM. There's -- we've mentioned before that we've sort of intentionally approached a more neutral kind of rate sensitivity position, but I think beyond that, it's really going to depend on some of these other factors. The betas, the mix that Bill just talked about on the DDA side, whether or not we see credit spreads widen as an example, is a factor two. The beta that we have in our assumption around NII and NIM, you mentioned we're at 36% today. That until now, we've been exceeding our expectations just as the first quarter where we performed a little worse than we expected, our spot data today on a IBD basis is 40%. We expect that to migrate to the low-40s for the full second quarter, and we have a terminal outlook of 44%.

Operator:

Our next question comes from Mike Mayo with Wells Fargo Securities. Please go ahead.

Bill Rogers:

Right. And Mike, I'm going to spare from the corvette analogies is just try to sort of go right at it. As Mike said, I mean, we're really -- we're going to continue to focus on positive operating leverage. The revenue guidance is really an NII guidance issue. Our continued focus on insurance, investment banking, all the other things that comprise that, we're still very confident of. And hopefully, if markets really improve in the second half of the year, might even have some upside. But your point on the expense side is exactly right. I mean, we have call it, 4% or so, sort of embedded in the categories that you talked about. So the ability to manage in that other component of that. And trust me, every business leader has a positive operating leverage plan, and they are readjusting those plans based on particularly those that have an NII component to their plans and the things that they can do. You saw already this quarter, things that we're doing that are more reflective of the strategy you talked about the realignment of fixed income, consolidation of LightStream. I mean in the past, these might have been things that sort of would have been off the table. Now they're firmly on the table like everything else as it relates to expenses. We'll do more work in the mortgage area, all the things with spans and layers, real estate, digitization, automation, all that is firmly on the table and a clear focus for us as we move into the rest of this year with a keen focus and eye on positive operating leverage.

Bill Rogers:

Yeah. Really sort of same way around actually. So we really -- we're going to eventually wind down the LightStream brand and increase the Truist side of that. We created LightStream for completely different reasons that don't really exist today as it relates to Truist. So we've got this incredible franchise, incredible market, really good digital capabilities. And what we're doing now is say, let's bring all those digital capabilities, really fast turnaround times, incredible Net Promoter Scores with LightStream to all the Truist client base. So the emphasis will be on the Truist client base and then also with partnerships that are Truist clients rather than sort of this national brands. So I'm pleased with what we did. I think we did all the right things. We created this really cool capability. But to the comment I made earlier, we are also supporting a separate brand, and that has a lot of expense associated with it. There's a lot of marketing and other things with that. And we're having incredible success with the Truist brand. So we want to bring it under that umbrella, create some more efficiencies from an expense standpoint and then I think accelerate from a revenue standpoint and penetrating and further cementing these incredible deposit relationships we have.

Bill Rogers:

Thanks.

Bill Rogers:

Ebrahim, are you on mute.

Operator:

And our next question will come from Erika Najarian with UBS. Please go ahead.

Bill Rogers:

Good morning.

Bill Rogers:

Yeah, Erika. Thanks. Remember, we're actually at 9.4 today, as we've completed the interest and Truist Insurance Holdings. So if we start with there, I mean the mode we're in right now, I mean, we're comfortable where our capital level is. But we're in a capital build mode right now until we're not. So we want to really understand the landscape, understand the regulatory landscape, be prepared. We've got 20 basis points or so of sort of organic capital accretion that comes into play. That's post our dividend. Our dividend will continue to be important to us, and we'll continue to support our dividend. So I think we've got -- we're at a good place right now with capital. We'll continue to be in a little bit of the capital build mode. So we'll sort of blow through that 9.5 number you mentioned here in several quarters. And then we'll see. We'll just sort of see where the regulatory things line up and the opportunities that we have. And I think we've got the most organic combined with financial and strategic flexibility on capital to respond to sort of anything that might come our way. You did mention though, our focus is going to continue to be on supporting organic growth. We're going to maximize RWA, but we don't need to reduce RWA. So that we don't need to change RWA from a capital standpoint. But we do want to optimize it. We do want to create more velocity around RWA, which I talked about. Dividend being important and then M&A on particularly things like insurance and then capabilities to create sustainable advantages. And then as you mentioned, share repurchase is just not in our short-term window. I mean that's just not our focus right now.

Bill Rogers:

Yeah. Let me try to break that up into two components, if I understood the question. So the question is around the strategic parts of our business and optimizing those, you are seeing a little bit of an acceleration around there. That's not sort of a dramatic shift, but you're all seeing a speed up in that, and it's things around the edges. And I talked a little bit about those today. There are some more of those that we're thinking through. Because as you know, I mean, our core franchise is so powerful. And what we want to do is make sure that the resources that we have at this company are devoted towards growing, expanding that incredible franchise. So the things that we talked about, about capital markets and LightStream, I think, are really good examples of those. And you could argue they were probably a little accelerated maybe with a small A of accelerating. If you're going to the balance sheet side, are we going to do anything on the securities portfolio, the answer to that is not at this time. I mean there's just not a really good economic benefit for that, and we want to be long-term protectors of shareholder value. And so I think we'll stay the course there unless something were to change dramatically that would cause us to change our posture. Did that [indiscernible], Erika?

Bill Rogers:

Yeah. I think relative to the first part of that, yes, that would be the goal. And I think they’re getting cleaner every quarter, and they’re going to continue to stay on that flight path. But when we have opportunities that we think are long-term beneficial, we’re not going to miss those. But I think your basic statement of we’ll be – will we have a cleaner quarter process in ‘24, yes. And I think they get cleaner every quarter along that path.

Operator:

Our next question will come from Gerard Cassidy with RBC. Please go ahead.

Bill Rogers:

Good morning.

Clarke Starnes:

Great. Hey, Gerard.

Clarke Starnes:

So as far as what areas are we focused on, first and foremost, what I'd say is that we want to maintain our through-the-cycle lending approach as we always have for our clients. So we're not going to make dramatic shifts in our appetite or how we lend. We just want to be more cautious and prudent where it makes sense. So things like less exceptions, more due diligence and some of the areas we're focused on right now would be the ones you would expect, higher leverage. So leverage finance would be one, things like senior care given the market aspects of CRE, lower-end consumer, things like that, Gerard. So I think it's more around being cautious, but being consistent there for our clients. And to your other question, our leverage book is performing very well right now. So I would just remind you all the portion that you would be focused on is about 3.6% of our total loans. Portfolio is 50% investment grade. We have very modest hold levels. Our leverage multiples have come down over the last couple of years in that book. And right now, it's performing very well. We have NPLs at 0.6%. Our NCOs are at 0.11%. So very good overall performance. And then as far as the C&I losses in Q1, there's nothing episodic there. We're coming off such extremely low levels. If we go back into 2022, we were in just a couple of basis point range, and we were up just more toward a normalized range. So nothing specific there.

Mike Maguire:

Yeah. I'll start there and maybe Bill may have something to add. But the investment banking business is performing well. It was a bright spot for us. In the first quarter, we have expectations that it will continue to perform well. Pipelines remain solid. And I think that a lot of that is driven by the fact that we've been adding really high caliber sort of franchise type talent to that platform, not just recently but consistently over the years. And so look, I mean, there's no doubt about it. There's market interruptions, transaction markets, deal markets are a little harder. But in sort of the middle market and upper middle market space, where we feel like we've really got a powerful franchise, we continue to get deals done for our clients on the corporate and sponsor side. And so we're still very supportive and optimistic about the investment banking business. And look, we're managing it carefully and revenues will be highly correlated with expenses in that business, but that's always been the case.

Gerard Cassidy:

Great. Thank you for the insights gentlemen.

Operator:

And we'll take our last question from John McDonald with Autonomous Research. Please go ahead.

Bill Rogers:

Hey, John. Do you want to…

John McDonald:

Great. Thanks.

Operator:

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.

Ankur Vyas:

Thank you, Jess and good morning everyone. Welcome to Truist’s fourth quarter 2022 earnings call. With us today are our Chairman and CEO, Bill Rogers, and our CFO, Mike Maguire. During this morning’s call, they will discuss Truist’s fourth quarter results and share their perspectives on our continued activation of Truist’s purpose, current business conditions and our outlook for 2023. Clarke Starnes, our Vice Chair and 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 our 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 Slides 2 and 3 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 and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third-parties. The only authorized live and archived webcast are located on our website. With that, let me now turn it over to Bill.

Mike Maguire:

Great. Thank you, Bill and good morning everyone. I am going to begin on Slide 13. For the quarter, taxable equivalent net interest income rose a very strong 7% to $4 billion, primarily due to ongoing margin expansion and strong loan growth. Deposit costs were well controlled and reflect the strength of our deposit franchise. Purchase accounting accretion decreased $19 million and is expected to continue to gradually diminish. Reported net interest margin increased 13 basis points and core net interest margin improved 15 basis points as a result of higher short-term interest rates alongside well-controlled deposit costs. Overall, we maintain a balanced approach to managing interest rate risk, maintaining modest upside to higher short-term interest rates while having some downside protection when and if interest rates begin to decline. Looking to Slide 14, fee income rebounded during the quarter, increasing $125 million or 6% sequentially. The improvement was largely attributable to seasonality and insurance and the BenefitMall acquisition as well as higher investment banking and lending-related fee income. Insurance income increased $41 million, largely due to seasonality and a full quarter of BenefitMall results. Organic revenue for the full year grew 7% driven by a firm pricing environment, new business and strong retention. Investment banking and trading income increased $35 million as higher investment banking fees and strong core trading results in the quarter were partially offset by negative impacts from CVA/DVA. For the full year, investment banking income declined 37%, which we believe compares favorably to overall industry fee performance as the partnership between CIB and other lines of business continues to grow and earn momentum builds. Strategic hiring within CIB over the past 2 years has also led to improved lead table standards. Fee income declined 4% compared to a year ago, primarily driven by declines in market-sensitive businesses such as investment banking, wealth and mortgage and partially offset by organic and inorganic growth in insurance. Overdraft fees also declined from approximately $150 million in 4Q ‘21 to approximately $120 million in 4Q ‘22 as a result of the actions we took last year to eliminate a host of overdraft-related fees and the continued introduction of Truist One Banking to new existing clients. We expect overdraft fees to decline another 40% as we move from year end 2022 to year end 2024. While fee income remains below its potential, we are optimistic that our investments in key areas such as insurance, investment banking and wealth will payoff as markets normalize and our IRM execution continues to progress. Turning to Slide 15, reported non-interest expense increased $109 million or 3% sequentially. Merger and restructuring costs rose $18 million linked quarter and exceeded our October guide by $70 million due to higher-than-expected restructuring charges related to planned facility and branch reductions that will occur in 2023. These were business-as-usual decisions unrelated to the MOE and have solid financial returns. As Bill indicated, we will have no more restructuring charges or incremental operating expenses related to the MOE going forward. We would anticipate restructuring costs related to prior acquisition activity and other BAU expense normal rationalization efforts. It is difficult to forecast these with accuracy, but we would anticipate approximately $100 million to $125 million for 2023. Adjusted non-interest expense increased $68 million or 2% primarily due to the effects of our non-qualified plan. Excluding changes associated with the non-qualified plan, adjusted expense rose 0.6% sequentially, fairly consistent with our outlook from October. Personnel expense increased $84 million, half of which was from changes in the non-qualified plan and half of which was from the recent increase in our minimum wage. These increases were partially offset by a $35 million decrease in marketing expense and a $28 million reduction in other expense. The decline in other expense was driven by lower operational losses, which have decreased for two consecutive quarters, as recent investments in talent, technology, and process have begun to mitigate our fraud-related costs. Compared to the fourth quarter of 2021, adjusted non-interest expense grew by 8% as a result of the increase in minimum wage, investments in revenue-generating businesses, technology and acquisitions, higher call center staffing to support our clients post merger and a normalizing T&E spend. For the full year, adjusted expenses were $13.1 billion, up modestly from the $12.8 billion baseline in 2019. This performance is strong, reflecting the achievement of the $1.6 billion net cost save target. Overall, we continue to focus on generating expense reductions in certain areas to fund longer-term investments in talent and technology and to generate ongoing operating leverage. Below the line, our fourth quarter results also reflected an effective tax rate of 16.7%, down from 18.2% in the third quarter, primarily due to annual true-ups for state income tax returns. Moving to Slide 16. Asset quality is strong, reflecting our prudent risk culture and diverse loan portfolio. Net charge-offs increased 7 basis points to 34 basis points largely due to seasonality in indirect auto and lower recoveries. The allowance increased $172 million, reflecting strong loan growth and the ALLL ratio was stable at 1.34% as the effects of a moderately slower economic outlook were offset by high quality organic loan growth and the BankDirect acquisition. Excluding the BankDirect portfolio, which has extremely low losses through cycles, the ALLL ratio would have increased approximately 2 basis points. Continuing to Slide 17. Our CET1 ratio decreased from 9.1% to 9.0% as we deployed capital to support strong organic loan growth and close the BankDirect acquisition. We also continue to pay a strong dividend at $0.52 per share. Overall, our capital position remains strong relative to our risk and profitability profile. We expect organic capital generation to improve in 2023 due to the elimination of MOE-related costs and more focused loan growth, all of which will provide additional flexibility and opportunities for Truist. Finally, our liquidity position remains strong with an average LCR of 112% and access to multiple funding sources. Our securities portfolio remains high quality at 97% government guaranteed and continues to produce approximately $3 billion of cash flow per quarter, which has supported our loan growth. Turning to Slide 18 where I’ll provide guidance for the first quarter and full year 2023. Looking into 1Q ‘23, we expect revenues to decline 2% to 3% relative to 4Q 2022, primarily driven by 2 fewer days impacting net interest income in addition to typical seasonal patterns in investment banking, card and payments and service charges, amongst other factors. Adjusted expenses are anticipated to increase 1% to 2% as higher pension expense and FDIC premiums, along with seasonally higher personnel expenses are partially offset by ongoing cost discipline. For the full year 2023, we expect revenues to increase 7% to 9%, driven largely by strong net interest income growth and modestly improving fees. Adjusted expenses are anticipated to increase 5% to 7% as a result of higher pension expense, higher FDIC premiums, the full annual impact of our minimum wage increase and acquisitions that closed throughout 2022. These four factors drive about 4% of our year-over-year increase. Given these factors, we are targeting adjusted operating leverage to be 200 basis points or greater, which would be more than 3x our pace in 2022. We also expect the net charge-off ratio to be between 35 and 50 basis points in 2023, given our expectations for continued normalization across the loan portfolio. Lastly, excluding discrete items, we expect our effective tax rate will be approximately 19%, which translates to approximately 21% if you model it on a taxable equivalent basis. Now I’ll hand it back to Bill for some final remarks.

Ankur Vyas:

Thanks, Bill. Jess, at this time, if you would explain how our listeners can participate in the Q&A session. [Operator Instructions]

Mike Mayo:

Hi. Can you hear me?

Mike Mayo:

Okay. Great. So it looks like – I’m going to push the Corvette analogy. It looks like you’re guiding for your Corvette of a franchise to go from first to second gear or maybe second or third, but you’re guiding for twice as much revenue growth. You’re guiding for 3x more operating leverage. But I and others are going to be unsure if you’re going to be able to get that given your headcount’s up 3% quarter-over-quarter in the fourth quarter, you have NII pressures from deposits, and you have capital market headwinds. So I guess the question is, what’s your degree of confidence with this 2023 guidance given some of the pressures and the internal expenses? And along with that, your merger saves, are they all in now? Or do you still get some payout effect that you benefit in the first quarter? I know you disconnected three data centers. Thanks.

Mike Mayo:

And then a follow-up, you mentioned good insurance, maybe this is for you, Bill and Mike. You have an insurance operation where publicly comparable peers trade at like 3x the valuation of Truist. So lot of press, no comment from you guys. All you did present involving about this business. How do you think about monetizing some of that unrealized value that tracks value so that shareholders might benefit more? Or is this just part of your firm forever and you would never consider a move like that?

Mike Mayo:

Alright. Thank you.

Ken Usdin:

Thanks. Good morning. Just wondering if you can provide us a little breakdown detail between – inside your revenue growth guide for the year, just generally speaking, what are you expecting for NII versus fees? And what rate curve are you using in your NII forecast?

Ken Usdin:

Okay. Great. And then a follow-up on deposits, 27% cumulative interest-bearing deposit beta through the fourth quarter. You guys were in the mid-30s last time. I don’t think yet you’ve given us an idea of what you think the cumulative could be this cycle, any views on that at this point in terms of the direction and the endpoint? Thank you.

Bill Rogers:

And again, it’s Bill. The only thing I’d add is just the strength of our deposit franchise. So you said I asked about our relative deposit beta performance. But we’re really experiencing what we hope we would experience as Truist. We’re sitting in great markets. We’ve got a 21% average share, our competitors’ mainly large banks. We’ve introduced some great new product capability in Truist One. Our branch production’s up. Our teammates are really doing a great job, the ubiquity of presence, the ability to amortize your marketing and be more effective. So our just strength of our overall deposit franchise is starting to manifest itself and show itself of what we thought we could create and create at Truist.

Operator:

Our next question comes from Matt O’Connor with Deutsche Bank. Your line is open. Please go ahead.

Bill Rogers:

Yes. Matt, our priorities remain the same in terms of the top four priorities. The first is to continue to invest in our business. And we’ve seen a lot of opportunity to do that. I mean you’ve seen the asset growth in our business and RWA growth, and we feel really good about the opportunities to invest in that. The second is to have a secure and growing dividend base. That’s important to our – both our institutional and our retail shareholders. So that’s a critical. And then the third is M&A opportunities, inorganic opportunities. And you’ve seen we’ve been active. They have been – some have been smaller by nature, but we’ve seen opportunities to enhance our businesses mostly in the insurance business, but also on the technology side and some capability side and some talent side that we’ve added in those areas. And then the fourth is the – is share repurchase. And for us, that just hasn’t been as big a priority because we’ve done a lot in the first three of those priorities. And as it relates to target, I mean, we’ve been sort of careful to say we really – we like where we’re operating right now. So we think we have got the capacity to do the things we need to do. We think given our risk profile, given our stress adjusted risk profile, we think we’re in a really strong position from a capital perspective. But also, as Mike noted in his comments, we accrete. If you think about our earnings profile, but also the fact that our MOE expenses come off, we are sort of in a unique position to accrete capital. So, we will accrete about 25 basis points worth of capital. We have been using some of that for those first two, three priorities that we talked about. So, I think on balance, we will probably see capital increase, but we are comfortable that we have got enough capital to execute our strategies and support our businesses.

Bill Rogers:

I don’t want to answer a hypothetical lottery question because we are not lottery ticket buyers. That’s not part of our strategy. I think we have got that’s really based on, can we support our businesses long-term. And can we provide the capital they need to grow. And we are going to use all of our strategies and all of our capabilities to ensure that we are supporting businesses and their growth.

Bill Rogers:

Thanks Matt.

John McDonald:

Yes. Hi. Good morning. I was wondering if you could give us some color on how you see credit unfolding for Truist this year and what you have baked into the charge-off guidance that you gave for this year?

Clarke Starnes:

John, this is Clarke. I will take that one. As you saw, we had 34 basis points in losses in Q4. That reflected primarily seasonality – normal seasonality in our consumer segments and a little bit of normalization. And as Mike mentioned, we had lower recoveries in our wholesale areas. So, that’s what the delta was from Q3 to Q4. And then what we are seeing is the consumer segments are normalizing. And also just to remind you all that the whole industry has had anemic wholesale and CRE losses over the last couple of years. So, we are pretty similar to that. So therefore, we would expect losses to return towards the lower range of our long-term loss range of 40 basis points to 60 basis points as we go through ‘23, and it just depends upon how the economy performs. And that’s why you see that reflected in our guidance of 35 bps to 50 bps.

Mike Maguire:

Sure. In ‘23, I believe the annualized M&A impact is $127-or-so million. So, that’s about 1% of that growth. You recall in the guide, we talked about these four components that were – where we have quite a bit of visibility into and frankly, not much flexibility, and that’s the pension, the M&A impact, the annualized impact of minimum wage and the FDIC expense. And those components in the aggregate are about 4%. Hope that helps.

Operator:

Our next question comes from Ebrahim Poonawala at Bank of America. Your line is open. Please go ahead.

Bill Rogers:

Good morning.

Bill Rogers:

Yes. Ebrahim, again, I am not going to comment on sort of where we are from a speculative standpoint, other than to say, we love the insurance business. We want the insurance business to grow. We have done, I am staring at John, probably 100 acquisitions over time. So, we have got a really good framework in assisting that business to grow. But as I mentioned in my earlier comments, it is a consolidated business. So, we want to make sure that we have got all the flexibility and capability to create capital and support all of our businesses and their growth.

Bill Rogers:

Yes. Great question. And one of them I talked about just a minute ago was the deposit franchise. So, the scale, and the ubiquity, and the size, and the prowess that we have in our markets, I think is a distinct advantage and you see that. The other component of that is the markets that we are in. So, not only is it scale, but at scale in the right places. So, we have markets that I think will sustain sort of any economic environment with higher beta to the upside and a lower beta to the downside, so, in markets where we have a lot of in-migration versus out-migration and business development and growth. So, that’s one component. You mentioned the capital markets side, and I have talked about the community bank, the prowess that we have seen there, 36% increase in left leads and those type things. That comes from scale. That comes from an ability to be more relevant to our clients, to have discussions with them that we weren’t having before, to be more strategic and to be in that left lead spot versus that right lead spot. And we all know the economics of that. I mean the economics are multiples of where you are in the spectrum. So, our relevance is not only related to our scale, but also related to our product and capabilities. We have tried to sort of put a number on that. And I would say sort of back-of-the-envelope kind of math, I mean it’s at least 10% of some of the growth that we have seen in our investment banking business, we could attribute to being more scale-oriented, again, not taking outsized positions, but taking positions that are on the left versus the right and the economics that come along with that. And then everything to do with all the operations and efficiency, so, everything to do with the base that we operate from. We just had more opportunity to create more efficiency. So, when we do something that has previously had tens of millions of dollars of impact. Today, it can have $50 million and $60 million of impact because you are doing it across a bigger base and a bigger capability. The ability to negotiate better contracts with our providers and our partners and we saw a lot of that in the merger. Our ability to go in and be more relevant and more important to them, get terms that we think better reflect that. Mike, what else am I forgetting in that list because it’s a long list, I mean it’s a great question and one we probably ought to talk more about.

Bill Rogers:

The financial markets, our pricing on debt deals.

Bill Rogers:

So, the list is pretty long.

Operator:

Our next question comes from Stephen Scouten at Piper Stanley. Your line is open. Please go ahead.

Operator:

Absolutely. We will do that. We will go back to Gerard Cassidy with RBC. Your line is open. Please go ahead.

Mike Maguire:

Yes. Sure, Gerard. As we look into ‘23, I think a couple of factors. One, we – obviously, 2022 was a year where we had outsized, particularly in the second half, loan growth and net interest margin expansion, which obviously was a great tailwind on the revenue side. As we look into ‘23, we expect to continue to have nice growth from a year-over-year perspective, but we are expecting that NII trend to really stabilize. And frankly, we are going to begin to experience some pressure on the NIM side probably in the second quarter. From an expense perspective, we also mentioned, there are a few just structural expenses that are in the plan for ‘23 that when combined, add up to about 4% year-over-year change. We obviously intend to make investments beyond those four categories in our clients and our teammates and in other strategic investment priorities. But that structural expense growth is there. So, again, we feel good about that sort of 2% with upside operating leverage guide and feel good about our – frankly, our revenue guide as well. So, hopefully, that’s helpful to you.

Bill Rogers:

Yes. I mean I think you pointed out, I mean the data are confusing. There is just no doubt about that. I mean you see some positives and you see some negatives. If you look at – just think about the last few days, retail sales were not really very strong, sort of a poor Christmas selling season. You have seen inflation being a bigger part of what people do, and supply chain seems to sort of be reconciling itself. So, I think it’s more of a perspective, just – there has to be a higher impact from higher inflation. And whether that’s reduced hiring from our clients, whether that’s reduced capital investment, and all those type things. And in fairness, it’s a little more prospective. So, when we talk to our clients and we look at our portfolios today, things are great. I mean as Clarke mentioned, our commercial portfolio looks fantastic. Our clients are in really good shape. But rents will come due, things will – payments will come due, things will change over time. So, I think it’s just a little more of trying to understand where the economy is puck’s going versus where it is today, because I think today, it actually looks pretty strong. Clarke, what would you add to that?

Bill Rogers:

Consumer side, I mean on the consumer side, it is normalizing and in some cases, normalized to where we are right now. So, you do start to see some of that. We have done a lot of work looking at sort of our lower-income borrowers and some of the challenges that they may be facing from inflation. Maybe they are not facing it today, but that’s starting to build as they start to withdraw a little more deposits. So, it is more of a prospective thing than a current thing and we are all trying to find the right calibration of where things might land. And we don’t want to undershoot that runway. I mean we want to be conservative. We want to be appropriate and think through all the risk that could exist in the portfolio.

Bill Rogers:

Great.

Betsy Graseck:

Hi. Good morning.

Betsy Graseck:

Hi. I just want to understand a little bit more. I know we touched in a couple of different ways, but you have got the revenue outlook for 2023, up 7% to 9%. And what I am hearing is loan growth slowing slightly from the 11% level you have now, but really not that much and that the fees – fee growth will be lower due to some of the things you have mentioned around mortgage. But that loan growth is likely to be a little bit above that adjusted revenue number with the pressure coming a little bit in fees and then also NIM pulling back in the back half of the year. Is that a fair summary?

Betsy Graseck:

And I know in the press release, you talked a bit about having – managing your deposit costs well and tightly, etcetera. Can you give us a sense as to how you think about the trajectory of that line item as we go through ‘23?

Mike Maguire:

Yes. We mentioned in an earlier question that we see betas increasing. Whether they reach the 40% level or not, we will see. I would say the other trend, Betsy, which is consistent with what others are expecting and what’s consistent with our expectation is we are still seeing a remixing from DDA and interest-bearing so that makes sense. And we are still well above where we were sort of pre-stimulus. We were in the high-20s, 28%, 29%. We peaked during the sort of height of stimulus in the 35.5%, 36%. We are back at like 34% right now and going to 33% and probably approaching 30% over time. And I think, Bill, you hit it right. I mean I think we are seeing some deposit balance pressure in the aggregate and we would expect that to continue in 2023, perhaps moderate a bit.

Mike Maguire:

That’s great.

Operator:

Thank you. Ladies and gentlemen that will conclude today’s call. We thank you for your participation. You may disconnect your line at this time.

Ankur Vyas:

Thank you, Jake, and good morning, everyone. Welcome to Truist's third quarter 2022 earnings call. With us today are our Chairman and CEO, Bill Rogers; and our CFO, Mike Maguire. During this morning's call, they will discuss Truist's third 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. Clarke Starnes, our Vice Chair and 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 Slides 2 and 3 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 webcast are located on our website. With that, I'll now turn the call over to Bill.

Mike Maguire:

Thank you, Bill, and good morning, everyone. Before I begin, I would also like to thank Daryl for his guidance and his support throughout my transition into the CFO role. I'm excited about the opportunity, and I'm confident that the transition will be seamless for all of our stakeholders. I also want to thank my teammates in the finance organization for welcoming me and for their support. We have a really talented team, and I look forward to working with all of them. For our analysts and investors, I'll be on the road soon, and hope to meet as many of you as possible. This is really a great opportunity, and I'm excited about helping take Truist to new heights. So moving to Slide 12, for the quarter, net interest income increased 10% sequentially to $3.8 billion as higher short-term interest rates and strong loan growth more than offset lower purchase accounting accretion. Core net interest income was up a strong 14%. Deposit costs remain well-controlled, reflecting the strength of our deposit franchise. Lower purchase accounting accretion was the result of elevated accretion in previous periods due to conversion activity and slowing prepays in the current period. Reported net interest margin increased 23 basis points, while core net interest margin increased 30 basis points, driven by similar trends as net interest income. Moving to Slide 13, fee income decreased $146 million or 6.5% sequentially. Insurance income decreased $100 million primarily due to seasonally lower property and casualty commissions. Investment banking and trading income decreased $33 million as lower fees from structured real estate, investment grade and high-yield bonds and syndicated and leveraged finance were partially offset by increased M&A fees. Wider credit spreads, tightening liquidity and general macroeconomic and geopolitical uncertainty are all contributing to slower activity levels. Despite these current headwinds, we continue to make strong strategic progress within Corporate and Investment Banking. Capital Markets revenue from non-corporate and investment banking clients is up 25% year-over-year as our commercial community bank, commercial real estate and wealth teammates continue to learn how to successfully partner with CIB to deliver strategic advice to our clients. Our lead table position has improved across most products, including equity capital markets, high yield, investment grade and syndicated and leveraged finance. Given the strategic progress, we intend to continue to take advantage of the challenging environment to invest in Truist Securities by selectively adding talent to drive long-term share gains as we've successfully done during previous market disruptions. Other income, excluding impacts from our non-qualified plan, decreased $17 million link quarter, primarily due to valuation-related marks. Compared to a year ago, other income decreased $81 million as a result of lower investment income and valuation marks on SBIC-related and other strategic investments. Turning to Slide 14, adjusted non-interest expense increased $83 million or 2.6% sequentially, reflecting forward-focused investments in talent and technology, as well as elevated operational losses. Professional fees and outside processing expense increased $34 million on an adjusted basis as we advanced critical projects, including investments in cybersecurity, contact center modernization, fraud detection and the build-out of our in-house payments capabilities. Other expense increased $28 million, primarily due to higher operational losses. Personnel expense increased $23 million on an adjusted basis, reflecting strategic and purposeful additions in technology, commercial community banking, CIB, consumer finance and wealth, as well as the BenefitMall acquisition. Compared to the third quarter of last year, adjusted non-interest expense only increased 2%. This modest increase was driven by higher operational losses and investment spend, which were partially offset by merger-related cost savings in software and net occupancy expense. Overall, we continue to focus on generating expense reductions in certain areas to fund longer-term investments in talent and technology and to generate ongoing operating leverage. As an example, we believe recent technology investments to enhance identity authentication, fraud detection, among other factors, will mitigate operational losses. Also, with the conversion behind us, we have additional flexibility to rationalize certain businesses such as mortgage, where capacity exceeds demand. Lastly, we have our final leg of data center-related technology savings that is expected to materialize throughout the fourth quarter. Below the line, our third quarter results also reflected an effective tax rate of 18.2% down from 19.5% in the second quarter primarily due to discrete tax benefits arising from final true-ups to our 2021 tax return. We continue to expect a normal effective tax rate to be 20% which translates to 21% on a fully taxable equivalent basis. Moving to Slide 15, asset quality continues to be excellent, reflecting our prudent risk culture and diverse portfolio. Leading credit indicators remain strong. Non-performing loans decreased 1 basis point and loans 30 to 89 days past due decreased 7 basis points. Net charge-offs remained benign at 27 basis points, up 5 basis points from the prior quarter, primarily due to normalizing trends and seasonality in certain consumer portfolios. Our total allowance increased $18 million to support our loan growth and the ALLL ratio decreased 4 basis points due to strong portfolio performance and growth in higher-quality loans, partially offset by a moderately slower economic outlook. Moving on to Slide 16, our CET1 ratio decreased from 9.2% to 9.1% as we deployed capital to support strong loan growth and to complete the BenefitMall acquisition. We also increased the dividend 8% to $0.52 per share beginning in the third quarter, reflecting our confidence in our improving earnings trajectory. Overall, our capital position remains strong in light of our risk and profitability profile, and we maintain a strong liquidity position with access to multiple sources of funding for incremental loan growth. Turning now to Slide 17, I'll next outline the strategic rationale and financial impact of two recently announced insurance acquisitions. First, BenefitMall closed on September 1, providing a scaled entry into wholesale employee benefits and filling one of the remaining strategic gaps in our capability set. BenefitMall is expected to add $160 million of annual revenue at an initial EBITDA margin in the mid-20% that will build to the mid-30% over time as synergies are realized. The transaction also has potential earn benefits within Truist Insurance by supporting our brokers at McGriff, our retail insurance business and also outside Truist Insurance with our corporate and commercial clients. We also recently announced the acquisition of BankDirect Capital Finance. Strategically, BankDirect effectively doubles our premium finance business, broadens our capabilities to include life insurance and expands our West Coast presence. Pro forma, we estimate Truist Insurance Holdings will be the number two premium finance player in the market after this deal closes later this quarter. BankDirect brings with it a $3.2 billion loan portfolio with strong projected growth, attractive profitability, limited credit risk and short duration. While both acquisitions are expected to be dilutive initially, we believe they are strategic and financially attractive over the long run. So, I'll now provide new guidance for the fourth quarter. Looking into the fourth quarter, we expect a mid double-digit basis point increase in both our core and reported net interest margin due to benefits from the recent rate hikes and a projected 75 basis point hike in November. Fees will rebound sequentially, driven by insurance income improving due to seasonality, solid organic growth and the full impact of the BenefitMall acquisition. The extent to which investment banking fees improve will be dictated by levels of capital markets activity. Adjusted expenses are anticipated to increase approximately 1% as the increase to minimum wage, investments and revenue-producing businesses and technology and acquisitions are partially offset by the impacts of cost savings. Putting these pieces all together, we expect adjusted PPNR to grow approximately 10% with some upside based on the realization of investment banking pipelines. Based on our year-to-date results and fourth quarter expectations, we are on track to achieve positive operating leverage for the full year. We remain consistent with our expectations that the net charge-off ratio will be between 25 and 35 basis points for the full year due to our performance year-to-date and normalizing trends across our loan portfolio. With that, I will turn it back to Bill to conclude.

Ankur Vyas:

Thanks, Bill. Jake, at this time, if you don't mind, will you please explain how our listeners can will you please explain how our listeners can participate in the Q&A session. As you do that, I'd like to ask the participants to please limit yourself to one primary question and one follow-up, so that we can accommodate as many of you as possible today.

Gerard Cassidy:

Bill, you mentioned that you guys had positive operating leverage on an adjusted basis of 260 basis points. Can you give us some color what you're thinking about -- and when you look at adjusted positive operating leverage for the next 12 months, what do you think that could come in at?

Gerard Cassidy:

And then as a follow-up question, you pointed out that the deposit beta was 21% on a cumulative basis and then 14% without the brokered CDs. And that was below your models. Two things, can you tell us what your model would have suggested the deposit beta would have been? And then second, using the forward curve, where do you think you end up with a final cumulative deposit beta?

Operator:

We'll move to Ken Usdin with Jefferies.

Mike Maguire:

Ken, it's Mike, I'll start here as well. So again, we have been very pleased from the deposit perspective with only a sequential decrease of 1%. And so very pleased by how the balances are hanging in there. We are expecting, I think, over the near term, to continue to have some pressure on deposits, as well as some pressure on mix. We did see some shift from DDA into interest-bearing. That's been a moderate shift so far, and we're still well above levels that we experienced pre-COVID. But we are beginning to see that shift take place. In terms of short-term borrowings, you're right, we are accessing brokered markets. We are accessing short-term markets and do expect that to continue over the intermediate term. But don't expect that to shift significantly. As we think about funding, loan growth for one has been very, very high. So far year-to-date, we do expect loan growth to moderate somewhat, which should alleviate some of that gap. But between the deposit balance levels, between leveraging some of the securities portfolio running off to the tune of $10 billion to $15 billion per year, accessing some of the wholesale markets, which is a pretty wide array of tools and even thinking about the capital markets, we feel really good about our funding capability.

Ken Usdin:

And just one quick follow-up, just can you just give us a sense of where you're reinvesting the cash flows that are going back into the securities portfolio versus what's rolling off?

Bill Rogers:

The great news is we have something to deploy it towards, which is perfect.

Operator:

Moving on to Ryan Nash with Goldman Sachs.

Bill Rogers:

Michael, I'll let you start, and I'll talk about that as well.

Bill Rogers:

To Mike's point, a lot of it also depend on loan growth and what we see going into next year, really positive momentum through this quarter, which I think will continue into the fourth quarter. It all for -- it's a little murkier as we head into next year, but I like the momentum and the production and the pipelines and the relevance and the competitiveness of our franchise right now from that standpoint.

Bill Rogers:

Yes, I think overall, I mean, we've talked about this. It's the measurement of can we grow revenue long term over time and PPNR faster and relative to our market opportunities. And I think that opportunity sits squarely in front of us. I think if I look at the things that contribute to that in the areas of production, like loan production, AUM production, deposit production, I'd argue, actually, we're sort of getting to sort of a peak kind of performance in those areas. As it relates to the expense side, and this stuff just doesn't go quarter-to-quarter. You just -- they're going to have different levels of investment. We've made a conscious decision. And while I'll acknowledge, I'm cranky on the operating losses side. So operational losses, I think we've got some opportunity there. I see some improvements coming, but that has been longer and taken longer than I had anticipated, but we're consciously investing in some areas. So we're consciously investing in investment banking and wealth and insurance. And you know us well. I mean we've got a good track record here. When times are a little bumpy and the opportunity is there, we've taken advantage of it, and that's proven to be really, really smart investments on our standpoint. So, we're sort of unabashed about that, and that has a quarter-to-quarter implication to it. And I just have to absorb it and take it because I'm confident that we're doing the things that will create better opportunity for us and allow us to gain share over time. So long answer to a short direct question, I think we can grow disproportionately over time. It just won't look like that quarter-to-quarter. And I think look at the production, look at the capabilities that we're creating today, and I'm confident in manifesting those towards the future.

Betsy Graseck:

It's Betsy. I wanted to just dig into a couple of things, one is on loan growth. It's been really strong. And I heard the comments around how you're funding it and how you're thinking about driving that from here. I wanted to get a little bit of an understanding on how you're thinking about the quality of the book relative to its ability to absorb this interest rate hike. So obviously, we've had about 300 basis points so far. We're going to get at least another 150-plus over the next quarter or so. And how are you assessing your borrower's ability to pay you back? Are we all too worried about credit risk? I know you gave the guide for the full year NCOs, which I'm wondering why not having -- have brought that down given the performance you've had to date. So just a few questions on credit from that perspective.

Clarke Starnes:

Yes, thanks, Bill, and I agree with you. We're very careful in our underwriting right now. So we're looking obviously at rate shock and the ability to absorb that. We're looking at other things like pricing power and their margins, given supply and input costs and inflation, looking at clients' investment decisions, how they're deploying capital, their liquidity, their balance sheet and just overall strength. So, we feel really good about the core underwriting. In fact, I would tell you for the quarter, about 95% of our C&I production was investment grade or near investment grade credit, so really high quality there. And as far as our NCO guidance for the full year, we feel really good about where we are. But remember, we normalize as we go into the fourth quarter from a consumer standpoint and we have the seasonal impact. So that's really truly the consumer side that may increase losses on.

Bill Rogers:

Yes, Clarke, why don't you take that?

Bill Rogers:

I think you characterized it right that as part of the benefits of the merger is the diversification of that portfolio by definition of the denominator. So, we haven't grown it in proportion to the increase in the size of our business, and it's well-diversified. Leverage portfolio is well diversified. Exposures are not significant to any one person. And it's about 50% sponsors and about 50% on us. So this is a business that supports our client base, and it's categorized as leverage, but it's really supporting the growth in our client base and consistent with our strategy of helping our clients with their business life cycles. I mean I think -- so it's a little bit different and a little more focused on an on-us component.

Mike Mayo:

I'll continue my analogy with your franchise as a core. I mean, you're clearly in the country's sweet spot for population growth. I mean I keep meeting more of investing clients that have moved to New York to Florida permanently, entire firms. And -- so you're certainly in the sweet spot. You did mention momentum and certainly NII and loan growth and how you're going from defense to offense. So I get it. But then I hear, Bill, your target for positive operating leverage of over 0%. It just seems like with a target like that, you're aiming for the Charlotte Motor Speedway instead of Indianapolis 500, right? It seems like -- and this is at a time when your peers are showing much greater positive operating leverage and they don't have this unique in-market merger with these incredible synergies that are possible. So I know you're not giving too much guidance for next year right now, but can you just talk about whatever headwinds may be going away? You talk about the operational losses. It seems like you're doing a lot for your customers. You're making them whole more than others perhaps. You're doing a lot for your employees. You're raising what they get paid, but I'm just thinking about the shareholders here. And so what are some of the headwinds that may or may not go away? And what are some of the tailwinds that you think we'll see more of?

Mike Mayo:

So a follow-up, even if I can see the speed part, I guess, the cost of gas is quite high, and maybe, Mike, from your perspective, coming into the CFO spot, things that you might be able to do to control the expenses, as Bill was alluding to.

Operator:

Now, we'll move to our next question from Ebrahim Poonawala with Bank of America.

Clarke Starnes:

That's a great question. In our base case, which we wait at 40%, we have unemployment going up to 4% and then going higher into the mid-4s as we go into '23 and beyond. So clearly, a little more pessimistic on as we ran the reserves this quarter. I would say for us, other big drivers would be a housing HPI would be another input there in our models, and you've already mentioned GDP. So from our standpoint, the big driver for us would be the scenario weighting and the scenario outlook would have the biggest impact on our reserves, obviously, versus other things like our mix of production and our overall portfolio performance. But right now, I think the scenario outlook would be the biggest driver.

Bill Rogers:

Yes. I mean right now, we have the best franchise to invest in and it's called Truist. And that's where our focus is and that's where our opportunity is. And ability to expand and create more capacity within our existing markets is really our primary focus right now.

Matt O'Connor:

Can you guys talk about the openness to maybe some restructuring of the securities portfolio? I mean obviously, rates have gone up a lot and the yields on your current book are a lot lower. So it would cost a lot to restructure a big part of it, but there might be some opportunities here and there as you think about the strong capital generation and what to use the capital for?

Bill Rogers:

Yes, and Matt, I mean, today, we -- today, we're redeploying it into the growth in our business, and you acknowledge that would be very expensive. And what we try to do is look at that securities portfolio over time. And so we're going to take that cash flow. And right now, we've got great opportunities to reinvest it and not take a capital hit for the securities portfolio. I'd rather use that capital to invest in our business.

Bill Rogers:

Yes, Matt, it's just basically sort of an overall return focus and make sure that we're maximizing our capital. As we see some of the returns in the mortgage business and the auto business being a little more stretched. We want to make sure we're serving our clients, and we're doing a great job in doing that. But by the same token, we're seeing the other opportunities in our commercial portfolio and our consumer portfolio. So we just want to get the right balance and a return focus versus we've never been sort of the growth for growth's sake. We want to be return-oriented. We want to maximize the return on the capital that we're investing in the portfolio.

Operator:

And that final question will come from Erika Najarian with UBS.

Bill Rogers:

I think that's really well stated, and I wish I had stated it as well as your question. So no, I think that's exactly right. And as I mentioned, I mean positive operating leverage will be a hallmark of what we do. So that is -- that's core and focus of what we do. We just can't be wed to that quarter-to-quarter when we see an opportunity. So we're going to have positive operating leverage this year. It will be a little less than we'd hoped for six months ago, but we're investing that I think is going to create not only better operating leverage, but more importantly, strong PPNR growth for the future. And we just have to make sure that we're, for the benefit of our shareholders, thinking long term and thinking about this incredible opportunity that sits in front of us and maximizing our ability to capitalize on it. So I think you stated actually quite well.

Clarke Starnes:

Great question. I would say, keep in mind that we run multiple scenarios. So we have our base case, which I described, but we also run a much more severe set of downside scenarios. And as we look forward, those scenarios get worse as well as even if the baseline deteriorates some additionally. So we weigh all of that, and we look at it each quarter. And so, even if the baseline is at one place, the downside scenarios may be more and would be more severe. So, we're going to look at all of that and decide how we weigh all of those factors and determine the allowance. And so yes, I mean, the downside scenario could push it even further even if the baseline is going up.

Operator:

Very well. Once again, everyone, this does conclude your conference for today. Thank you for your participation and you may now disconnect.

Ankur Vyas:

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, Daryl Bible. During this morning's call, they will discuss Truist's second quarter results and share their perspective on our efforts to transition from an integration focus to an operating focus, current business conditions and our continued activation of Truist's purpose. Clarke 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 2 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 webcast are located on our website. With that, I'll now turn it over to Bill.

Daryl Bible:

Good morning, everyone. Turning to Slide 12. Net interest income increased 7% sequentially, driven by higher short-term interest rates alongside limited deposit betas in addition to strong loan growth. We also saw a positive asset mix shift with the investment portfolio shrinking and funding strong loan growth. As Bill indicated, the strong quality of our deposit franchise also limited deposit rate repricing. Reported net interest margin increased 13 basis points and core net interest margin increased 15 basis points. Net interest margin and net interest income increased for similar reasons and exceeded the high end of our April guidance, primarily due to our teammates delivering lower than modeled deposit betas. Overall, we continue to take a balanced approach to managing interest rate risk. We continue to be asset sensitive and that will decrease over time with the diminishing benefit associated with future rate increases and the disintermediation of funding sources. We forecasted an approximate 25% cumulative interest-bearing deposit beta through the second and third quarters. To protect against any potential downside in rates, we also added $16 billion of swaps, which are primarily forward starting. These swaps begin in 2023 and 2024 and will have laddered maturities that range from three to five years to minimize earnings volatility. Moving to Slide 13. Fee income increased $106 million or 4.9% sequentially. Insurance income increased $98 million due to the seasonality, strong organic growth and the full quarter of Kensington Vanguard acquisition. Car and payment-related fees increased $34 million, reflecting the prior quarter acquisition of merchant relationships and the increased activity. Residential mortgage income decreased $15 million or 17% as higher interest rates pressured volumes and gain-on-sale margins. Servicing income was essentially flat from the prior quarter as lower prepays were offset by increasing hedging costs. While this is a very challenging environment for mortgage, our mortgage team is playing some offense. By leveraging Truist's strong purpose and balance sheet to hire select, well-regarded loan officers as well as acquire certain servicing portfolios. Investment banking and trading income was relatively flat sequentially and declined 37% year-over-year as market volatility continues to negatively impact most products. Investment banking pipelines remain full across all products, but the realization of these pipelines will continue to remain subject to more stable market conditions. Service charges on deposits were relatively flat sequentially as favorable seasonal trends were offset by the elimination of certain overdraft fees in April, resulting in client savings of approximately $20 million during the quarter. We included a table at the bottom of Slide 13 to make other income trends more clear. Other income, excluding changes in our nonqualified plan and last quarter's merchant gain, decreased $25 million, primarily due to a loss on a certain sale of SBIC funds to diversify our private equity investment portfolio. Turning to Slide 14. Reported expenses decreased $94 million sequentially to $3.6 billion. The lower expenses were driven by $180 million or 43% reduction in merger costs due to diminishing integration activity. Adjusted expenses increased $119 million. Personnel expenses increased $64 million due to seasonally higher insurance-related incentive compensation, the full impact of normal first quarter compensation increases and ongoing investments in talent across our lines of business and technology teams. In addition, other expense increased $19 million due to higher operational losses and ongoing normalization of teammate travel. Professional fees and outside processing costs increased $16 million, primarily due to the increase in call center staffing. As Bill mentioned, our minimum wage will increase to $22 per hour effective October 1. This represents a significant investment in our teammates and is expected to increase our personnel expense by $200 million annually, offset by lower turnover expense and improved execution and client experience. Moving to Slide 15. Asset quality remains excellent, reflecting our prudent risk culture, diverse portfolio and solid economic conditions. Leading credit indicators remain benign. Criticized and classified commercial loans decreased 6% sequentially and are 37% lower to a year ago. Our NPL ratio was flat at 36 basis points and loans 30 to 89 days past due decreased 3 basis points to 69 basis points. Our net charge-off ratio also decreased 3 basis points to 22 basis points. We experienced a slight build in the allowance due to loan growth. Although the allowance coverage ratio decreased 6 basis points to 138 basis points, given our strong portfolio performance, tempered somewhat by our moderately slower economic outlook. While the weighting of our pessimistic baseline and optimistic scenarios were unchanged from the first quarter, each scenario is moderately worse, a trend that may continue. Moving on Slide 16. Our CET1 ratio declined 20 basis points to 9.2%, strong loan growth and a $250 million share repurchase during the second quarter. As previously announced, our Board will consider an 8% increase in the quarterly common dividend at its July meeting. If approved, the increase will take effect in the third quarter and will continue to position Truist as one of the dividend leaders in our peer group. We were also pleased with the performance during the 2022 stress test. Truist had the second lowest CET1 erosion and a loan loss reserve rate in the peer group under severely adverse scenario. Our preliminary stress test capital buffer remained flat at 250 basis points. We believe these results demonstrate our strong capital relative to the risk and profitability profile, the latter of which should improve over time. We are now more comfortable operating below our previously announced CET1 ratio target of 9.75% given our continued strong stress test results and significantly reduced integration risk. Overall, the economic outlook will influence how much we operate below the prior target. From a funding perspective, end-of-period loan growth exceeded deposit growth. Truist has multiple sources available to fund incremental loan growth, as seen this quarter with the use of brokered deposits and Federal Home Loan Bank advances and our securities portfolio. I will now provide guidance for full year 2022 and new guidance for the third quarter. In 2022, we now expect adjusted revenue to grow 3.5% to 4.5% from 2021. The mixture of revenue continues to tilt more towards net interest income given the outlook for higher short-term interest rates, partially offset by lower fees, primarily in market-sensitive businesses such as investment banking, mortgage, and wealth. We now expect adjusted non-interest expense to increase 2% to 3% from 2021. This increase in expense outlook largely reflects higher operating losses and intentional investments to support our shift from integrating to operating, including increasing our minimum wage, hiring teammates to support client experience and growth, and ongoing investments in technology. Net-net, this is slightly higher PPNR outlook versus our previously full year guide. In light of our performance during the first half of the year and the benign credit environment, we expect net charge-off ratio to be in the 25 to 35 basis points for the full year. Looking into the third quarter, we expect adjusted PPNR to grow high single-digits in the second quarter level, primarily as a result of higher net interest income, partially offset by higher non-interest expense. We expect mid-20 basis point increase in our core net interest margin due to the benefits from recent rate hikes and a projected 75 basis point hike in July. We also expect low 20 basis point increase in GAAP net interest margin as a result of core net interest margin expansion, offset by continued declines in purchase accounting accretion. Now, I'll turn it back to Bill to conclude.

Ankur Vyas:

Thanks, Bill. Jennifer, at this time, will you please explain how our listeners can participate in the Q&A session? As you do that, I'd like to ask the participants to please limit yourself to one primary question and one follow-up, so that we can accommodate as many of you as possible today.

Betsy Graseck:

Hi. Good morning.

Daryl Bible:

Good morning.

Daryl Bible:

Yes, Betsy. So I would first start with, we were really excited to have really strong broad-based loan growth this quarter, and we expect that to continue, as Bill said in his prepared remarks. To fund that, we're going to start with the runoff of our investment portfolio. We built the investment portfolio when we had all that excess liquidity. We're very comfortable letting that run off and have that -- have a positive mix change on the balance sheet. As far as brokered deposits, we did add some brokered deposits over the last several months. I would say, we're probably at where we want to be from that perspective, knowing that we still have a lot of capacity and other funding sources available in the marketplace. You look at Federal Home Loan Bank advances and negotiable CDs and other amounts, we paid all that off during COVID in 2020 and we have much amount of capacity there. The other thing from an investment portfolio perspective, we're about $145 billion, give or take. And we feel comfortable we could shrink that portfolio probably $20 billion to $25 billion easily and still stay within our liquidity and LCR guidelines that we have to for regulatory purposes. Though, as far as our strategies for pricing, we were really pleased, as Bill talked about, across our company, our deposit betas came in much better than modeled. We modeled 25 for the first 100. And if you look in the second quarter, we came at 15, and that includes brokered. When you back out the brokered, we were only at 8%, which is really, really low. I would say, we will continue to use that strategy. We're going to make sure that we take care of our clients and use the ability to do exception pricing. But I think overall, I think we will continue to hopefully continue to outperform our model expectations.

Betsy Graseck:

And the loan growth…

Bill Rogers:

Oh, yeah, yeah.

Betsy Graseck:

Got it. Okay. No, that's helpful. And then on your point on loan growth, yeah, loan growth was very strong. And I guess the follow-up question here is, what are you hearing from the field with regard to the pace of that loan growth? Is it poised to accelerate, continue at this pace for the foreseeable future? Just a little bit of a sensing color for how we should be thinking about that? Thanks so much.

Betsy Graseck:

Yeah.

Ken Usdin:

Yes. Good morning. Sorry about that. Yeah, as a follow-up on the fee side, you had great insurance revenue this quarter, up 13%. We heard your comments about some of the challenges looking out on some of the other lines. So can you just kind of help us walk through just what you're expecting on the fee income side, inside that third quarter PPNR outlook that you gave, because I think you talked mostly just about higher NII and higher expenses. So any granularity on the fee side would be great? Thank you.