Please standby, we're about to begin. Greetings ladies and gentlemen. Welcome to the Truist Financial Corporation Third Quarter 2021 Earnings Call. Currently, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Ankur Vyas, Truist Financial Corporation. Please go ahead, sir.

Thank you, Allen (ph). Good morning, everyone. Welcome to Truist third quarter 2021 earnings call. With us today are our CEO, Bill Rogers; and our CFO, Daryl Bible. During this morning's call, they will discuss Truist's third-quarter results, and also share perspectives and how we continue to activate Truist purpose, our progress on the merger, and current business conditions. 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 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 slide 2 and 3 of the presentation regarding these statements and measures, as well as the appendix, for 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 on our website. With that, I will now turn the call over to Bill.

Thanks, Ankur. Good morning and thank you for joining our call. I hope everyone's well and safe. I'm very pleased by Truist continued progress on our solid third-quarter performance. Our quarterly results reflect the diversity of our business mix, which drove strong fee income and helped overcome continued softness in net interest income. Credit quality was outstanding, resulting another provision benefit. Loan growth was modest, excluding PPP, generally in line with our expectations. We also achieved a major integration milestone this past weekend, and we'll share more details on these topics during the presentation. If I move you to slide 4, I'd like to begin with our purpose, which is to inspire and build better lives and communities. We believe our purpose-driven culture is the primary factor behind our success as a Company. Our purpose defines how we do business every day and it serves as a framework for how we make decisions. A recent example of this was our decision to remain open during our conversion last Saturday, so we could care for our clients and address any questions. To my knowledge, that's the first for a major systems conversions such as ours. I've said in our culture, purpose, performance, teamwork, and a client-first mindset, all coexist, and there's no better evidence of that than the extraordinary success our teammates delivered this past weekend in our most significant merger milestone to-date, details of which I'll cover shortly. Slide 5 describes how we're living out our purpose and highlights some of the notable progress we've made during the quarter. During the pandemic, philanthropic giving was a natural way to put our purpose into action due to the effects of the coronavirus on our clients, teammates, and communities. Our purpose is much broader than philanthropy. We developed this slide around major…

Thank you, Bill. And good morning, everyone. Turning to slide 14, net interest income was down slightly versus prior quarter. This was consistent with our guidance and reflected two competing factors. Purchase accounting accretion decreased 53 million [Indiscernible] quarter, and contributed 23 basis points to reported margin, down from 28 basis points in the second quarter. However, core non-interest income increased 41 million. This was driven by a larger investment portfolio, which resulted in strong deposit growth. We have more than offset lower PPP revenue. Core net interest margin decreased two basis points due to higher liquidity and lower PPP revenue. We expect to earn an additional 125 million in PPP revenues over the coming three quarters and for the balance to be demonyms by mid-2022. We continue to be asset-sensitive. We estimate that 100 basis point ramp increase would increase Nii by 4.1%. A 100 basis point shock would increase NII by 7.9%. We're also well-positioned to benefit from rising rates, at both the short and long end of the curve. 2/3 of our reported asset sensitivity is from the short end, and it assumes a deposit beta of approximately 50%. In reality, we have experienced, over the last few years ago, deposit betas are likely to be significantly lower than our modeled assumptions when the first few rate hikes. For every 10% decline in deposit beta, our asset sensitivity increases by about 100 basis points. Moving to Slide 15. As Bill highlighted, we had a very strong quarter from a fee income perspective. Fee income, excluding security gains from last year, was up a very strong 12% like quarter exceeding our initial expectations. Insurance income increased 25% in total. This was due to acquisitions and also a very strong 12% organic growth. Investment banking at its best --…

Thanks Daryl. Slide 25 provides an overview of our value proposition. Made the details, obviously we've shared in the past. But flipping to slide 26 that provides some performance highlights that support our value proposition with actual performance this quarter. Our markets continue to have strong in-migration, the data of which can lag, fee income from insurance investment banking and wealth was up 20% year-over-year, and up approximately a billion dollars compared to 2019. our third-quarter results clearly reflect the potential for profitability levels to be industry leading as we come out of the merger. Lastly, we continue to deploy more capital on behalf of our clients and shareholders, and we'll have that capacity to do more over time as integration risk subside and the economy stays on sound footing. So in conclusion, the effects of the pandemic are moderate, economy is getting better. We are one major step away from completing our integration process. We're beginning to shift from a more defensive to a more offensive position and from a merger focus to performance focus. We fully believe that Truist best days are ahead. So with that, Ankur, let me turn it back over to you and Q&A.

Thanks, Bill. Allen, at this time, if you don't mind explaining 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 1 primary question and 1 follow-up so that we can accommodate as many of you as possible today.

Thank you, sir. [Operator instructions]. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. And like Mr. Vyas said, please limit yourselves to 1 question and 1 follow-up question. We'll first go to Betsy Graseck with Morgan Stanley.

Hi.

Morning. Ankur Vyas: Morning

Hi. Good morning. Thanks. I had a first question just around the Service Finance acquisition. And I just wanted to understand how you're thinking about leveraging this acquisition from here, both on the merchant side, as well as on the customer side, talking about opportunities for expansion and integration into your platform, and then on the customer side cross-sell.

Yeah. Betsy, it's a great question. As Daryl mentioned, we didn't model any of that into the basic models. The basic model you saw is for the Service Finance as a standalone. One of the really attractive parts of this integration for Truist, it was the fact that they've developed relationships with 14 thousand contractors, 180 manufacturers, just so to think about that in context or 80 manufacturers, think about that in context, many of those which are existing clients of Truist. We've got this incredible opportunity to expand those relationships, they are adding a lot of new clients to our base who are single-product clients, who we got an opportunity to expand using things like Light Stream and the capabilities that we have there using the prowess of our CIB bankers with the manufacturers, helping expand with the contractors. There's a whole another component to service finance, which is really interesting as the whole ESG Ps of what they're doing to create more energy efficiency, and the concept of just everything related to home improvement. What we really like about service finance, it's a pure-play on the home side. If you think about all of the things that we have related to home. Think about insurance that we have related to home, think about home equity, think about mortgage, think about all the prowess and product and capabilities we have related to home. We're just starting to explore those kind of opportunities. This is why we feel so good about this. This to us is where the buck's going, as I said, versus where it is. And to your question, I think those are significant opportunities ahead of us.

And what I would add to that, Betsy, is that the returns on this will be eventually over 3% ROE business, and our risk-adjusted yield will be really attractive.

Yeah, just on the standalone. Yeah, exactly.

Annual basis.

Follow-up question here, Daryl on the rate sensitivity, you did give us the first 100 basis points. And I know that the question is going to be, what about that second 100 basis points? The first 100 is really low deposit beta 15% historically, I think you mentioned, can you remind us what the deposit beta was like on that second 100? Thanks.

If you go back to the last rate cycle that we went to, it was basically when rates bottomed out that Fed moved up 6 times 150 basis points. If you look at the deposit betas the first probably 2 or 3 deposit betas was probably about plus or minus 20%. And then as it continued to climb, it was getting closer to 30% to 40%. I'm not sure if it ever really got to the 50% in the 6 moves that you saw there, but it gradually went up as every couple of moves happened in the last rebound with the Fed.

Right, so you never -- you never got over 100 or anything like that on those last couple of moves?

No, I don't think we ever got to 50% beta on any even [Indiscernible].

Okay. Alright, thanks so much.

The next question comes from the line of Ryan Nash with Goldman Sachs.

Hey, good morning guys.

Good morning Ryan.

Daryl, maybe to start on the expenses. So you are reiterating the 294 billion and you're calling for expenses to decline 3%-4%. Can you maybe just talk high level about some of the puts and takes of -- on expenses as we move into 2022? Clearly the core is coming down due to expense saves, but we're hearing about cost inflation is increasing. You have a handful of insurance deals and insurance finance as well as investments in the business. So how should we think about the costs into '22 and maybe can they be down on an absolute or an adjusted basis into next year? Thanks.

Yeah. We're still putting together our plan for 2022, but I'll tell you what I can tell you now. From a cost perspective, we have our 5 buckets that we talk about. We definitely will see more branch closures in the first half of 2022, with almost 400 more branches closing. They also will have more -- last corporate real estate, so more reductions in that space as 2022 comes along. The big cost savings in technology will happen as we phase through the conversions in the first quarter, the decommissioning. We're going to reduce about 40% of the application systems and move towards from six data centers to three data centers, that will be big reductions in cost saves. Bill talked about our continuation of our VSRP that will continue throughout in 2022. And then finally, we have that team-led synergies program to basically get synergies on expenses and revenues, and that will play out over the next couple of years. That will assure us to make sure that we get our expense targets and also give us ammunition to make more investments in digital technology and other talents.

Got it. And Bill, last quarter you were talking about green shoots in loan growth, and this quarter, I think it sounded a little bit more balanced. You are talking about core momentum. Can you maybe just talk about expectations for loan growth over the next few quarters on both the consumer and the commercial side? What do you see as some of the drivers? And could we see something like Service Finance starting to help drive accelerating growth on the consumer side? Thanks.

Before you start, can I finish that? From still '22 expenses, inflation is real and inflation is definitely going to be in our numbers. If you look at the last couple of years, we did not really factor our end inflation in '20 and '21. And not sure exactly what that number is, but it's probably, give or take around 2% of fee expense base. And you also have to factor in acquisitions as well for '22, and the impact of that would have both revenue and expense. But at the end of the day we're going to have good overall operating leverage, probably top quartile when it's all said and done.

Yeah. Thanks for that addition, Daryl. But I think to that question, Ryan, that's the focus. I mean there are tons of puts and takes, but we're going to hit the expense targets that we committed to. I mean I feel very, very confident about that, and have a business that creates positive operating leverage and industry-leading efficiency. That's the shift and the target that we're headed to. I didn't mean to imply that they weren't green shoots, I still think there are definitely green shoots, and I think they manifested themselves in this quarter, as we highlighted. When I think about loan growth as an output, output, I look at production pay downs, utilization, and pipelines selling those 4 elements and then try to see where they're going. On the production side, we're hitting some high points in the quarter for C&I and consumers, our production is strong. Paydowns stayed pretty consistent. Paydowns are about where they have been. Utilization is still pretty flat, you could say grinding up in certain areas, but in fairness probably pretty flat. But pipelines are strong. In CIG and CRE and CCB for us, we're at high points for the last several quarters in pipelines. So it's hard to guide. If I said, view it as medium-term X PPP, I think low single-digit growth is at the forefront. But our positioning sort of longer-term when liquidity comes out of this, I just feel great about our -- great about our positioning, and our capacity to -- we've grown our revolvers, so our utilization going up, the fantastic markets we're in, the business investments that we've made and talent, the consumer businesses as you pointed out, point-of-sale businesses, things that are just adding capabilities and adding more opportunity for us to capture growth as we go forward. So I -- so yes, I think there are green shoots, hard to predict when they're going to grow. But I feel really, really good about how we're positioned.

Great, thanks for all the color, Bill.

All right. The next question will come from the line of Gerard Cassidy with RBC. Gerard? Gerard, your line might be on mute. Please go ahead.

Thank you. I was on mute. I appreciate it. Good morning, gentlemen.

Morning.

Bill, can you share with us -- you've done some smaller acquisitions. Obviously, the most recent one is the finance Company, and then the insurance companies. Can you give us your picture of what you see, maybe, for added bolt-on opportunities that could be on the horizon for Truist?

Yeah. I'd say first, as Core Truist, I think the biggest opportunity is with Truist. I see the biggest opportunity to actualize and optimize the opportunity that came from this fantastic merger vehicle, so let me say that, as it's primary where we are going. But then the bolt-on, clearly on the insurance side. I mean, we've had a fantastic track record on the insurance side. It is a really good toggle between organic and inorganic growth and managed well, and I would expect that to continue. Maybe other things that look around and bolt-on that are important to us strategically and add some scale; We've been adding a lot of talent. I view that as the equivalent of an acquisitions, so we've been adding talent and you see the benefits of that, for example, in the investment -- in the investment banking side. But I think if you [Indiscernible], bolt-on and the places where we've -- where we're experienced or where we have opportunity, and then primary emphasis on Truist and maximizing and optimizing this merger.

Very good. Thank you. And maybe this question could be directed at Clarke. The credit quality for you and many of your peers has been outstanding, particularly in the net charge-off area. Can you guys give us a flavor of how sustainable are these levels of very low net charge-offs, is it another 2 or 3 quarters and then maybe a creeping up to normalization as we enter '23 or end of '22?

It's great question, Gerard, on what is the lower longer question for the industry. And I would say for us in the industry, we had significant stimulus, the accommodation programs, and frankly strong asset values, and all of those have been tailwinds. And you saw for us almost really historic low loss point for the quarter. So we feel really good about where we are, and given the current economic backdrop, we would certainly expect to continue to see outperformance with, to your point, a steady return over time to normalization as we go into '22 and beyond. And so I think it can go on longer. It again depends on the economics scenario. But for us right now, I think we would believe we have an opportunity to outperform and you will see that reflected in our 4Q guidance.

Great. Thank you.

The next question comes from the line of Ken Usdin with Jefferies.

Hi, guys. Good morning. Hey, Bill.

Good morning.

Just when you think longer-term out about the points you made about operating leverage, efficiency, maybe there's some inflation, the business mix has changed. How confident are you -- do you remain in that low 50s long-term efficiency ratio and how much, if at all, is rates still part of that equation? Thanks.

Yeah, I would start with industry-leading efficiency. So let me start without the concept. I think given some normalization and rates, I feel really confident in the low 50s. But most importantly, being able to achieve positive operating leverage, being able to be industry-leading top or top quartile efficiency, I think, is imminently short, medium, and long-term achievable for Truist.

Okay. Got it. And then, just on the near-term perspective, can you just -- Daryl, can you just walk us through, when we take the 2940 in the slides and you kind of add back the add-backs, where approximately does this put us as a starting point for the end of the year on a GAAP basis for cost?

Yeah. If you go back, you have to add back in incentive pieces on the acquisition pieces, as well as whatever non-qualified turns out to be, plus or minus. You probably get to -- we gave guidance on an adjusted expense number down 3% to 4% from where we are today. That is your starting off point for 2022.

Okay. Got it. And then we add back intangibles for the all-in.

That's correct.

Thank you.

All right. Next question will come from the line of Matt O'Connor with Deutsche Bank.

Good morning. Bill, you took over as CEO about a month ago and also announced changes to the senior leadership team. Obviously, all of these guys have been in very prominent roles since the deal was announced, I wouldn't expect meaningful changes. But any kind of tweak that we should expect or what was the process of picking who does what underneath you given some of changes? However you want to frame that. Thank you.

Yeah. The great thing, Matt, is we have an incredibly strong, skilled, experienced, purposeful team. So I'm really fortunate to be surrounded by really great leaders. As you noted, we didn't want to put a lot of change in place because actually I feel really good about the momentum and where things are going. So the leaders who were responsible for those businesses, we shifted a couple of things around, but they still have the primary responsibility that they had before. I'd say the shift though is more -- what I talked about in my opening statements, it's more of a transition from merging to operating. That doesn't have anything to do with me or anything. It just has to do with the timing of where we are in those process. Getting this merger -- major conversion this weekend was just a shot of adrenaline for us, to be fair. I mean, that's a big significant milestone for us. And just gives us more confidence to be starting to shift some of our time, some of our responsibility, some of our focus to maximizing the opportunities that are true. So I would say, if I were to describe the transition and what it feels may be different now, is that -- it's more of that. And I just think that's a function of timing and where we are and our confidence building.

And then just separately, can you talk about the retention of some of the front office client-facing folks really across the franchise? I would imagine initially there wasn't that much movement because of COVID, and I think you also had some retention agreement for key people. But just update us on how that's been going more recently as things have been opening up and maybe people in general are more open to looking elsewhere, not just at Truist, but the workplace overall. Chris Henson: Bill, let me put maybe a global perspective on it and then try to get a little more idiosyncratic to Truist. Globally, there's more activity and more people are moving and we see that particularly in some of the frontline areas and you don't drive around any place in the country where you don't see a help wanted sign, and we've got several million people out of the workforce right now. So we and the industry are experiencing some of that. Going into this merger, our retention numbers in the first year to 18 months were actually better than they were at either Company. So our retention numbers were really, really good. They've turned over a spike up a little bit, but it's still I think below where the industry is. From everything that we can determine. As it relates to some of our most senior team and what we look at, high performer turnover is one of the things that we look at in our senior team, I've been really pleased. We've been really solid and keeping the kind of players we want. The retention on those has been really good. The places that I worry about are frontline, teller, care centers, all those things, that's just a more challenging environment today than it was before. And the other side of that is our ability to attract talent is fantastic. The people that wanted to join our Company and want to be part of what we're doing at Truist has exceeded any expectations that I might have had and they were really high. The opportunity for people that are here to grow and expand their careers and the opportunity to bring new talent in, I think is just really good at Truist. All that again with that global overlay of what's going on in the market in the world.

Understood. Thank you.

Next question will come from the line of Mike Mayo with Wells Fargo.

Hi, Bill. You've spoken a lot about investing in technology and digital, and I think the expenses were a little elevated before you taken over the CEO reins. So it's good seeing that you're guiding for expenses to be 3% to 4% lower next quarter. But can you just talk a -- I think it was your quote saying, once the hoods open, let's fix the engine a little bit more than we could have otherwise done. Where is the digital dividend, so to speak, going to come from as it relates to Truist and the extra efforts that you're putting in place? We can talk about the back office, with the cloud, or the front office with enhanced digital banking that you maybe didn't have before. Thanks.

Yeah. Mike, it's a great question. And I think about it in two ways, one digital dividend as you put it, but also the avoidance of opportunity cost. And that's really what's happening with this merger. So if you think about it in the core basis, we're creating a much more agile platform; so the ability to move fast, to add, to create more opportunities for our clients, our teammates on a more agile platform. The base is really important. I didn't say we have a new state-of-the-art commercial ecosystem. We have a new state-of-the-art mortgage ecosystem. We have a new state-of-the-art digital platform. All of those in my mind are opportunity costs. So those are things we don't have to invest in disproportionately going forward, and they create the opportunity to expand and add to as we go into the next few years. The other part of that is something we call the digital straddle. This thing that we did to convert our clients digitally, I think, is actually fairly unique. And what that allows us to do again, from an agility standpoint, is to leverage that back-end platform, and through the use of APIs and the straddle, we can do a whole lot more for our clients than we could before. So when the hood is up, we've been looking at virtually everything. The hood-up and the best of both mentality has allowed us to not only expand and create a better ecosystem, but I also look at it as a board of lot of opportunity cost in the future of having to do these major changes.

You said you're still committed, I guess, to low 50s efficiency. It just seems like it's been a long way, stocks underperformed since the merger was announced despite a merger on paper that has the chance to be best merger as ever, and I think part of the reason for the under performance may have been, you had the pandemic, you had the low rate s, so there are some excuses there. But looking ahead, are you able to commit to positive operating leverage next year? Given the way -- given all these investments, you're avoiding costs, you're getting gains from the technology investments. I think it's -- investors are thinking let's see more of that digital dividend. Let's see more of that payoff. How much can you lead us or give a little bit more hope as it relates to positive operating leverage?

Maybe I have that a little more than hope. No, I think it's totally reasonable to expect us to have positive operating for next year in the middle of this merger. And that's against investments we want to make. That's overcoming inflation. That's overcoming all the other things that exist: rate, environment, pandemic, all those type things. Now, we're committed to having a business that has positive operating leverage and has industry-leading efficiency. There's no -- I feel more confident about that today than I did the day we announced the merger. It's sometimes hard to peel back the Clouds in the merger costs, in the one-times, and all of that to see that. But the underlying capacity of our Company to deliver a positive operating leverage growth on the top line and world-class efficiency is absolutely there.

All right. Next year, positive operating leverage and debt, you're committed to that. And this is your first earnings call as the CEO. Did I hear that correctly?

That is absolutely what will be in our plan for next year.

Got it. Thank you very much.

All right. Next, we'll go to John McDonald with Autonomous Research.

Morning, Daryl. I just want to clarify the outlook for net interest income next quarter. I think you said on a reported basis down 1% on a core net interest income flattish. Just clarify if that was the guide and then how does that set you up more broadly for growing NII into 2022 when you think about all the puts and takes there.

Yes. So you are correct. We will have stable NII on the core basis in the fourth quarter. We'll be down 1% just because of purchase accounting, accretion. As '22 plays out -- when I look at '22, as we put this together, the three break drivers of NI, the impacts will be loan growth, deposit growth depending on how large the balance sheet gets and how much liquidity we invest, and then interest rates. When I look at all that, I think it's very possible that -- I'm very sure that the core [Indiscernible] income will grow. I think we have a chance of having an offset overall that run-off of purchase accounting. It doesn't take a huge amount of loan growth coupled with a Fed move, that's not in the implied right now. But even as steepening of the yield curve would add. If you just steepen the yield curve like 25 basis points, that would give us another 100 million in for the year next year. I think there's a lot of variables that could play out, but we feel pretty good that trajectory of core mar -- net interest margin will rise in '22, and that our reported net interest margin should be relatively stable if we can offset that.

And Bill, just a bigger picture question in terms of the capital target and what you need to run the Company. You brought down the capital target CET1 to 975. It seems like you'll get there with the Service Finance acquisition soon. So longer-term, what will be the factors as you think about lowering that capital to maybe something closer to what shares that look like you target on CET1?

And, John, remember we also announced we'll do some more share repurchase this quarter to get there faster. We've said all along and we went into the merger with a little bit of a higher capital base, very intentionally. And what we said was, as the risk of the merger decreases and the solid definition of the economy increases, we have a Company that has a lower-than-average risk profile and a higher-than-average PPNR profile. I think we will start thinking about capital positions that reflect that. We don't want to do this on a quarter-by-quarter basis. This is sort of a long-term strategy and philosophy. But this weekend was a good milestone for us in terms of reducing the risk of the merger and our confidence at where we are in the first part of next year. We'll get that behind us, and we'll continue to evaluate where we are from a capital standpoint. No reason to think we are going to change the profile of our Company, our diversifications, our risk profile is going to stay strong, and we're confident in the PPR components of the growth in our business.

Got it. Great. Not quarter-to-quarter, but getting through the conversions will be a big factor as you think about lowering that target over time.

Yeah. I think we've got to be in the first part of next year to have another conversation about this, but we're going to be thoughtful in moving to the existing target quickly.

Got it. Thank you. Ankur Vyas: Allen, that completes our call. Thanks everybody for joining. We appreciate it. If you have any additional questions, please feel free to reach out to the IR team. We hope everybody has a great day. We appreciate your interest in Truist. Allen, you can now disconnect.

Thank you, sir. And once again, everyone that does conclude today's conference. We thank you for your participation. You may now disconnect.