Q2 2022 Truist Financial Corp Earnings Call

Speaker 2: Please stand by, we're about to begin.

Speaker 2: Greetings, ladies and gentlemen, and welcome to the truest financial corporations 2nd quarter, 2022 earnings conference call. Currently, all participants aren't a listen only mode. A brief question and answer session will follow the formal presentation.

Speaker 2: As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Ankervias, head of Investor Relations to its financial corporation.

Speaker 3: Thank you, Jennifer, and good morning, everyone. Welcome to Truist's second quarter of 2022 earnings call. With this today are our chairman and CEO , Bill Rogers, and our CFO , Darrell Bible. During this morning's call, they will discuss Truist's second quarter results and share their perspectives on our efforts to transition from the integration focus to an operating focus, current business conditions, and our continued activation of Truist's purpose.

Speaker 3: Clark Starns, our Chief Risk Officer, Bo 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 truest investor relations website, ir.truest.com.

Speaker 3: 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 the appropriate reconciliation to GAP. As well as the appendix for the appropriate reconciliation to GAP.

Speaker 3: In addition, truth 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 archive webcasts are located on our website. With that, I'll now turn it over to Bill. Thanks, Laker. Good morning, everyone. Thank you for joining our call this morning.

Speaker 4: Truth is delivered a good second quarter, reflecting our improving momentum after the integration and the resiliency of our diverse business mix and a volatile market environment. Our financial results modestly exceeded the guidance we provided in April , but several puts it takes. Long growth was strong and broad-based. Net interest margin expanded significantly due to higher interest rates and our strong deposit franchise. Credit quality remains excellent. We are pleased by our relative and absolute performance in the recent stress test.

Speaker 4: And a lot of these results are, board will consider a resolution to increase the common dividend by 8% at its July meeting. The common dividend by 8% at its July meeting.

Speaker 4: This court's performance combined with improving client experience trends and dramatically lower merger costs reflect the initial benefits of our shift from integrating to operating. While there still work to do, such as stemming elevated operational losses, closing out residual integration issues, and completing our decommissioning process, I am very confident and true trajectory and reaffirm our commitment to delivering positive operating leverage for the full year 2022.

Speaker 4: But share some more details on those topics in a moment.

Speaker 4: and going to slide four.

Speaker 4: As you all know, TRUS is fundamentally a deep, purpose-lit company dedicated to inspire and build federal lives and communities. TRUS is a deep, purpose-lit company dedicated to inspire and build federal lives and communities. TRUS represents a attractive community. TRUS isinte process that involves technology delivered through in the computer and that has been built up through in the computer and that has been built through in the computer. TRUS is an independent, independent, sustainable, for this area.

Speaker 4: We know that our purpose driven culture is the foundation for our success as a company. Our purpose drives performance and defines how we do business every day. It very intentionally begins with the word inspire and to be inspirational, it's often necessary to be bold and to be first. It's often necessary to be bold and to be first.

Speaker 4: I'll highlight four examples and I think we'll collect that purpose on the next slide.

Speaker 4: First and foremost, we recently announced that we're making a significant investment in our teammates, but raising our minimum wage to $22 an hour effective October 1st.

Speaker 4: This increase will benefit approximately 14,000 teammates about 80% of whom will have client facing roles in a retail and small business banking business. And a retail and small business banking business.

Speaker 4: Purposeful growth is dependent on attracting and retaining the best talent. In addition to our industry leading benefits, we desire a compensation program that also helps teammates who need it most to want the impact of inflation in their daily lives.

Speaker 4: Second, we had a historic launch of truest one banking yesterday. This is our new differentiated suite of checking solutions that reimagine everyday banking, including two new accounts that eliminate overdraft fees and prevent greater access to credit.

Speaker 4: The flagship Truus 1 checking account has zero overdraft fees and the capability to provide qualifying clients the liquidity they need to a simple $100 negative balance buffer. The flagship Truus 1 checking account has zero overdraft fees and the capability to provide qualifying clients The flagship Truus 1 checking account has zero overdraft fees and the capability to provide qualifying clients and the capability to provide qualifying clients you

Speaker 4: We also introduced the Truus Confidence Account, which provides consumers with access to main street banking services and overdraft fees.

Speaker 4: We're mindful of the impacts and inflation and reduced stimulus may have on some of our clients. And true one is one of many examples of how we're advancing financial inclusion across our communities.

Speaker 4: That's true. It's committed $120 million to strengthen and support diverse and small businesses.

Speaker 4: This commitment exemplifies our purpose by supporting small businesses which are so vital to the help and vibrancy of our communities. You know, we're just so vital to the health and vibrancy of our communities.

Speaker 4: At fourth, we released our 2021 ESG and CSR report in early June . At first, we view all the elements of ESG as an opportunity to improve our company and to put our purpose into action. And that includes climate change.

Speaker 4: As we look to externalize our own net zero aspirations and further the transition to a lower carbon economy, we recently created new advisory practices within our CIV and commercial community banks to help our clients make their own transition. To help our clients make their own transition.

Speaker 4: We're pleased with how our clients have welcomed and embraced our advice and expertise around ESG as an underscores the possibilities in viewing ESG as an opportunity for growth.

Speaker 4: I turn to slide seven.

Speaker 4: Consistent with our previous guidance, merger-related costs totaled 238 million, roughly half of what they were in the first quarter. surface or

Speaker 4: We expect merger calls to decrease significantly in the back half of 2022 before going away entirely in 2023.

Speaker 4: This trajectory should be welcome news to shareholders as diminishing merger costs correspond to a less complex narrative, improving earnings quality, more capital and ultimately industry-leading returns. More capital and ultimately industry-leading returns.

Speaker 4: Lastly, we incurred a $39 million pretext gain related to the early extinguishment of $800 million and FHLD.

Speaker 4: Turning to our second quarter performance highlights on the next slide.

Speaker 4: We earned 1.5 billion or a dollar nine share on a reported basis.

Speaker 4: Excluding the selected items on slide seven, adjusted earnings total 1.6 billion or $1.20 a share, down 23% compared to a year ago, primarily due to a sizable reserve release in the prior quarter.

Speaker 4: Relative to the first quarter, adjusted EPS decreased 2% as higher loan laws provision offset a 10% increase and adjusted EPS.

Speaker 4: Adjusted revenue benefited from higher short-term rates alongside well-controlled deposit costs, strong loan growth, consumer seasonality, and strong insurance results, partially offset by continued softness and market sensitive fee businesses such as investment banking, wealth, and mortgage. to

Speaker 4: Adjusted ROTCE was 25% up from 23% in the prior three quarters. Even when normalizing things like AOCI to zero and assuming a flat ALL ratio, adjusted ROTCE was a strong 17% adjustment ROTCE was a strong 17%

Speaker 4: But Justin Expense has increased 3.8%, reflecting higher insurance-related incentive compensation, and intentional investments in talent and technology to support our shift from integrating to operating.

Speaker 4: Other expenses also increased due to normalization of teammate travel and elevated operational losses.

Speaker 4: We have plans, products, processes, and technology enhancements underway to reduce these losses and enhance the overall client experience, including the launch of innovative authentication approaches later this quarter. We have plans, products, and technology enhancements underway to reduce the overall client experience and enhancements underway to reduce the overall client experience, including the launch of innovative and enhancements underway to reduce the overall client experience, including the launch of innovative

Speaker 4: While operating leverage was a negative 200 basis point year to date, this primary reflects the 435 million year-to-date headwind we have from PPP and PAA revenue.

Speaker 4: Despite these headwinds, we're still targeting positive operating leverage on both a gap and adjusted basis for the full year. First of all, we're still targeting positive operating you

Speaker 4: Pestic quality remains excellent and that charge-offs decreased relative to the first quarter.

Speaker 4: Capital deployment was helping in the second quarter as we funded strong long run and completed $250 million worth of share repurchases. Capital deployment was helping in the second quarter as we funded strong long run

Speaker 4: Capital levels remain strong and light of our risk and profitability profile demonstrated by our continued strong performance in the 2022 C-Carp process. warm air plays a big sketched Identitystrong Dark maneuverôn Tw Snowarettes on the Day powered with notify clearedasten Tuning air on the side Cost Alfred drone estamos totally bleais st We're here at an Big incident for- n s x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x you

Speaker 4: Overall, the second quarter begins to reflect the power of truest host integration.

Speaker 4: Now turning to slide 9.

Speaker 4: Digital activity increased in the second quarter at Tributable Seasonality, and nearly 200 enhancements we implemented across the platform, representing a significantly higher pace of value delivery for our clients. The

Speaker 4: Our ability to rapidly incorporate client feedback reflects the capabilities of a more modern and agile digital platform, and has resulted in improved client satisfaction scores, which have written consistently since our initial introduction of truest digital in waves in 2021. The introduction of truest digital in waves in 2021.

Speaker 4: In June , we announced the grand opening of our State of the Art Innovation and Technology Center, located within our headquarters, the IPC provides an environment conducive to re-imagining the client experience. We are re-imagining the client experience.

Speaker 4: Such as by facilitating new ways of working with Agile teams to better collaborate with clients to co-create dynamic and marketable cross-channel services.

Speaker 4: The new space feature is client journey rooms, a maker space for building testing and refining new products and services, a reality lab, where we can utilize virtual and augmented reality technology, and a contact center incubator where we can collect and respond to real time feedback directly from our clients. I'm firstly excited about our approved ability to aid our teammates as they reimagine how we serve clients. The new space feature is a virtual space for building testing and services for building testing. We can utilize virtual and augmented reality to help us with our new space feature. Thank you for your time. I hope you enjoyed this video. Thank you for watching. I hope you enjoyed this video. Bye.

Speaker 4: We also acquired San Francisco-based long game, the award-winning gamification app that utilizes behavioral economics. That utilizes behavioral economics. That utilizes behavioral economics. That utilizes behavioral economics.

Speaker 4: Prize-linked savings and mobile gaming to motivate positive financial behaviors and drive new account growth and client retention.

Speaker 4: By leveraging long games, innovative technology can empower our clients to build long-term financial wellness. deadly catastrophe organizations to potentially replace more racial violence. By leveraging 1990, our impact can empower our clients to build long-term financial wellness. you

Speaker 4: I'm also pleased to report that our merger integration activities are now complete. Our final merger releases rolled out in May and we recently held our last merger oversight committee meeting.

Speaker 4: As we shift to BAU, our digital and technology teams are looking forward to accelerating our pace of innovation and client experience improvements. That blue engine is an automatic motor! The dashboard is automatic! It is a smart,?. There is no robust engine across myself! and improvement.

Speaker 4: Yesterday as I mentioned we introduced truest one.

Speaker 4: As I referenced earlier, as I referenced earlier, we'll soon expand Lightstream to include a new deposit product on a real-time cloud-based core, enhance the sophistication of our underwriting models that our partnership possessed, roll out trueist assist, our virtual assistant, the millions of clients, just to name a few examples. The millions of clients, just to name a few examples.

Speaker 4: Overall, we're increasingly optimistic about the performance and the potential of our increase investments and focus on digital and technology. And focus on digital and technology.

Speaker 4: Now turning the loans and leases on slide 10.

Speaker 4: Average loan balances increased a very robust 8.1 billion or 2.8% sequentially would close growth across most businesses. Average loan balance increased a very robust 8.1 billion or 2.8% sequentially would close growth across most businesses. Average loan balance increased a very robust 8.1 billion or 2.8% sequentially would close growth across most businesses. Average loan balance increased a very robust 8.1 billion

Speaker 4: The pace of growth accelerated during the quarter with end of period loans of 4.7%. The pace of growth accelerated during the quarter with end of period loans of 4.7%. The pace of growth accelerated during the quarter

Speaker 4: Growth was primarily driven by CNI, where average balances increased 6.7 billion per cent overall. The average is 4.8% overall. The average is 4.8% overall.

Speaker 4: We delivered broad-based loan growth across most CID industry verticals, notably energy, consumer and retail, financial institutions, TMT, and other financial institutions.

Speaker 4: Due to M&A activity, the current shift to banks from the bond market increased relevance with new and existing clients and higher revolver usage for cat-packs, and the inventory is in inflation.

Speaker 4: As in recent quarters, growth continues to be strong within our asset finance group as we continue to build up that business with more talent, product capabilities, and a larger balance sheet.

Speaker 4: Commercial community banks, C&I balances increased 2% excluding PPP and dealer floor plan reflecting growth across all our geographic regions. It was the second strongest end of period growth since 2019. It was the second strongest end of period growth since 2019.

Speaker 4: Revolver utilization increased 300 basis points to just over 30%, the highest level since mid-2020.

Speaker 4: The R.E. remains a headwind reflecting both a highly competitive market and our disciplined approach.

Speaker 4: At the same time though, I continue to be optimistic about the future of our CRE business as we create a more strategic, as we create more strategic clarity internally and non-bank competition rationalizes'!

Speaker 4: Welfel ending was up 600 million sequentially, as our advisors and clients continue to benefit from the combined capabilities of both heritage firms. PIB

Speaker 4: Residential mortgage increased 3% reflecting ongoing correspondent purchases and slower prepayment feedes.

Speaker 4: Excluding mortgage consumer and card balances increased one billion or 1.3% as strong oath and service finance, primal auto, shift field and light stream, more than offset runoff in our partnership and student portfolios.

Speaker 4: Service finance is performing in line with our high expectations and experiencing good business development momentum given the alignment with Truist.

Speaker 4: Second quarter production by Service Finance was about double the volume loss and double the profitability from our terminated partnerships.

Speaker 4: Our prime auto business is also back on its front foot after regaining some momentum it lost following its own fourth quarter conversion.

Speaker 4: In addition, our consumer finance businesses continue to advance their automated decision capabilities which ultimately improves consistency, efficiency, and creates better client experiences.

Speaker 4: Overall, clients are generally positive on current economic conditions and demand in their businesses.

Speaker 4: At the same time, concerns about labor shortages and margin pressure, given rising rates and higher input costs are growing, creating the potential for more defensive postures. Looking at the U.S.

Speaker 4: Truth is, well positioned, to advise clients across a range of scenarios, giving our broad capabilities and talent and teammates. Giving our broad capabilities and talent and teammates.

Speaker 4: Given all of this, we remain generally positive about our prospects for continued loan growth, particularly taking into account our postintegration momentum. At the same time, we have to acknowledge the increased uncertainty associated with the softening economic environment, which may cause loan growth to deviate from this outlook.

Speaker 4: Turning to deposits on slide 11.

Speaker 4: Average deposit balances increased $8.5 billion, or 2%, during the second quarter, largely attributable to an increase in brokered deposits in mid-March. Early brokered deposits, average deposits, decreased $2.9 billion, or 0.7%.

Speaker 4: Deposit costs were very well controlled, reflecting Truist's strong retail and commercial oriented franchise and our enviable market share position.

Speaker 4: In addition, our lines of business and corporate treasury teams delivered excellent execution against a thoughtful strategy to be attentive to client needs and client relationships while maximizing value outside of rate pay.

Speaker 4: As a result, interest-bearing client deposit betas were 8%, well below our modeled assumptions.

Speaker 4: As the interest rate environment involves, we'll continue to take a balanced approach to managing deposit growth and rate paid, particularly given our broad access to other forms of funding. The interest rate is increasing.

Speaker 4: And now let me turn over to Darrell to review our financial performance and greater detail.

Speaker 5: 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.

Speaker 5: We also saw a positive asset makes shift with the investment portfolio shrinking and fighting strong love growth. And fighting strong love growth. And fighting strong love growth.

Speaker 5: As Bill indicated, the strong quality of our deposit franchise also limited deposit rate repricing.

Speaker 5: Retorted net interest margin increased 13 basis points, and core net interest margin increased 15 basis points.

Speaker 5: Nettitrous margin and nettitrous 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. Nettitrous margin and nettitrous income increased for similar reasons and exceeded the high end of our for similar reasons and exceeded the high end of our

Speaker 5: Overall, we continue to take a balanced approach to managing interest rate risk.

Speaker 5: 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. And the disintermediation of funding sources.

Speaker 5: We forecasted an approximate 25% cumulative interest bearing deposit data through the second and third quarters. We forecasted an approximate 25% cumulative interest bearing deposit data through the second and third quarters. We forecasted an approximate 25% cumulative interest bearing

Speaker 5: To protect against any potential downside in rates, we also added $16 billion of swaps, which are primarily forward-starting.

Speaker 5: These swaps begin in 2023 and 2024, and will have laddered luxurities that range from three to five years to minimize earnings volatility.

Speaker 5: Might be in the slide 13.

Speaker 5: B income increased to 106 million or 4.9% sequentially.

Speaker 5: Insurance income increased $98 million due to seasonality, strong organic growth, and a full quarter of Kennedy then Vanguard acquisition.

Speaker 5: Part and payment-related fees increase 34 million, reflecting the prior-pointer acquisition of merchant relationships and the increased activity. 72 million receive monthly payments 2 million. 1 Minister will be taken. 2 Minister will be taken. 3 Minister will be taken. 3 Minister will will generally pay you

Speaker 5: Residential mortgage income decreased 15 million or 17% as higher interest rates pressured volumes and gained on sale margins.

Speaker 5: Fervicine income was essentially flat from the prior quarter, as slower pre-prays were offset by increasing hedging costs.

Speaker 5: While this is a very challenging environment for mortgage, our mortgage team is playing some offense.

Speaker 5: by leveraging true or strong purpose and balance sheet to higher select row recorded loan officers, as well as acquire a certain service in portfolios.

Speaker 5: Investment banking and trading income was relatively flat sequentially and declined 37% year-over-year as market volatility continues to negatively impact most products.

Speaker 5: Invest in banking pipelines remain full across all products, but the realization of these pipelines will continue to remain subject to more stable market conditions. State where its

Speaker 5: 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.

Speaker 5: We included a table at the bottom of slide 13 to make other income trends more clear.

Speaker 5: Other income excluding changes in our non-qualified 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. For diversify our private equity investment portfolio.

Speaker 5: Turning to slide 14, reported expenses decreased $94 million sequentially to $3.6 billion.

Speaker 5: The lower expenses were driven by 180 million for a 43% reduction in merger costs due to diminishing integration activities. Due to diminishing integration activities.

Speaker 5: Adjusted expenses increased $119 million.

Speaker 5: Personnel expenses increase 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.??

Speaker 5: In addition, other expense increased $19 million.

Speaker 5: due to higher operational losses and ongoing normalization of teammate travel.

Speaker 5: Professional fees and outside processing costs increase $16 million primarily due to the increase in call center staffing.

Speaker 5: As Bill mentioned, our minimum wage will increase to $22 per hour effective October 1st. The minimum wage will increase to $22 per hour effective October 1st.

Speaker 5: This represents a significant investment in our teammates.

Speaker 5: and is expected to increase our personnel expense by $200 million annually, offset by lower turnover expense and improved execution and client experience.

Speaker 5: Moving to slide 15.

Speaker 5: Asset quality remains excellent, reflecting our prudent risk culture, diverse portfolio, and solid economic conditions.

Speaker 5: Leading credit indicators remain benign.

Speaker 5: Redisized and classified commercial loans increased 6% sequentially and are 37% lower to a year ago.

Speaker 5: Our MPR ratio was flat at 36 basis points and loans 30 to 89 days past due decreased 3 basis points to 69 basis points.

Speaker 5: Our net charge-off ratio also decreased three basis points to 22 basis points.

Speaker 5: We experience the swipe build and the allowance due to long growth.

Speaker 5: 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.

Speaker 5: While the weightings of our pessimistic baseline and optimistic scenarios were unchanged from the first quarter, each scenario is moderately worse, a trend that may continue.

Speaker 5: 29516.

Speaker 5: Our CET-1 ratio declined 20 basis points to 9.2%.

Speaker 5: 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. That will prove 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.

Speaker 5: We were also pleased with the performance during the 2022 stress test.

Speaker 5: Truest head, the second lowest CET1 erosion, and a low loss reserve rate in the peer group under severely adverse scenario.

Speaker 5: Our primary stress test capital buffer remains flat at children's 50 basis points.

Speaker 5: We believe these results demonstrate our strong capital relative to the risk and profitability profile, the latter of which should improve over time.

Speaker 5: We are now more comfortable operating below our previously announced CET-1 ratio target of 9.75%. Given our continued strong stress test results.

Speaker 5: and significantly reduced integration risk.

Speaker 5: Overall, the economic outlook will influence how much we operate below the fire target. How much we operate below the fire target?

Speaker 5: From a funding perspective, end of Piri Long Growth exceeded deposit growth.

Speaker 5: True as has multiple sources available to fund and criminal long growth, as seen in this quarter with the use of broker deposits and federal home-owned bank advances and our securities portfolio. And our securities portfolio.

Speaker 5: I will now provide guidance for four year 2022 and new guidance for the third quarter. I will provide guidance for the third quarter.

Speaker 5: In 2022, we now expect adjusted revenue to grow up to 3.5 to 4.5 from 2021. In 2021, we now expect adjusted income to 3.5 to 4.5 from 2021.

Speaker 5: The mixture of revenue continues to tell more towards net interest income given the outlook for higher short-term interest rates. Always remember the

Speaker 5: partially offset by lower fees, primarily in market sensitive businesses such as investment banking, mortgage and wealth. narrow yet no McDonald state

Speaker 5: We now expect adjusted non-interior expense to increase to the 3% from 2021. The increase to the 3% from 2021.

Speaker 5: 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.

Speaker 5: hiring teammates to support client experience and growth and ongoing investments in technology. and ongoing investments in technology.

Speaker 5: Net net, this is slightly higher VP and R outlook versus R previously for your guide.

Speaker 5: 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 PP&R to grow high single digits from the second quarter level, primarily as a result of higher net interest income partially offset by higher non-interest expense.

Speaker 5: We expect mid-20 basis point increase in our core nannetress margin due to the benefits from recent rate and a projected 75 basis point hike in July .

Speaker 5: We also expect low 20 basis point increase in gap net interest margin as a result of core net interest margin expansion offset by continued declines in purchase accounting and increase in gap net interest margin expansion offset by continued declines in purchase

Speaker 5: Now I'll turn it back to build a conclued.

Speaker 4: Thanks, Darrell, and moving to slide 17.

Speaker 4: On our previous earnings call in April , I express my belief that the first quarter marked a strategic and financial turning point percent for truest. Our second quarter results are bearing out this thesis and we're beginning to deliver on the potential of truest.

Speaker 4: For businesses that finished conversions in 2021, the increased momentum is palpable.

Speaker 4: Walt continues to build momentum and hiring advisors who were attracted to the truest purpose and broad set of capabilities, both within Walt across the company to earn. Mark

Speaker 4: Walthon that advisor count grew in the second quarter for the first time in 10 quarters. With our recent entry into the Chicago market, Truist Walth now serves nine of the 10 largest metropolitan areas in the United States. In addition, that organic asset flows have been positive for five straight quarters.

Speaker 4: In our mortgage business, client satisfaction scores for origination have improved every month since their conversion in August of 2021.

Speaker 4: The percentage of retail client applications completed digitally is now 97%.

Speaker 4: For the rest of the company, where core bank conversions were completed in the first quarter of 2022, the Benham's also built it. The Benham's also built it.

Speaker 4: Loan production in the second quarter was the highest it's been at truest and up 41 percent compared to the first quarter.

Speaker 4: Pipelines also ended the quarter, the highest we've seen. Branch loan production, which is primarily home equity, was up 24 percent relative to the first quarter and the highest it's been at truest.

Speaker 4: Consumer deposit production both in the branches and within digital was up 29% sequentially in 20% year-to-year.

Speaker 4: Retailed banking net promoter and client satisfaction scores have rebounded nicely from their march lows and still have more opportunity to improve.

Speaker 4: Depositive production within our commercial community bank is up 8% relative to the first quarter.

Speaker 4: PCB-related ERM revenue was up 21% sequentially with increased activity across all products, with significant momentum highlighting the power of our advice-driven model.

Speaker 4: Financially, net interest income and margin rebounded from the first quarter low point as expected. While fee income did not improve to the extent we had hoped, our second quarter results underscore the importance of our diverse business mix, and we believe fees will improve as market conditions normalize and we capitalize on our significant ERM and revenue synergy opportunities.

Speaker 4: In addition, merger costs are declining rapidly, and we're making good progress towards realizing our remaining cost saves as we decommission data centers and systems in the back half of the year, all of which will help drive positive operating leverage for the full year of 2022. For the full year of 2022.

Speaker 4: So to conclude on slide 18, truth is on the right path. And I'm highly optimistic about our potential, all of which is clearly summarized in our investment thesis.

Speaker 4: So, particularly our focus has clearly shifted to execution excellence, transformation, and growth. We're shifting millions of hours of integration related activity to improving our client experience, through investments in digital and technology.

Speaker 4: simplification of our processes and operations and of course by continuing to activate our purpose each and every day

Speaker 4: We're also focused on capturing the significant erm and revenue synergy potential we have, as this is squarely in the center of building better lives for our clients.

Speaker 4: These shifts and activities do not require incremental risk appetite or capital. It only requires execution and focus.

Speaker 4: At the same time, while we believe the economy is currently healthy, the effects of ongoing geopolitical uncertainty coupled with still too high inflation and an aggressive forecast for tightening the monetary policy have somewhat diminished the economic outlook as we move further into this year and into next.

Speaker 4: Truth is, never the last well positioned across a broad range of economic outcomes, given our advice oriented model for clients.

Speaker 4: Strong absolute and relative markets.

Speaker 4: conservative credit culture, diverse business mix, our strong capital position relative to our risk profile, and most importantly, our power shift from a focus on integration to executional excellence and growth. And with that, let me turn it back over to you, Arthur.

Speaker 3: Thank you, 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 yourselves to one primary question or one follow-up so that we can accommodate as many of you as possible today.

Speaker 2: Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is released to allow your signal treature equipment. Please limit yourself to one question and one follow-up question. As a reminder, if star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for a question. Hello everyone, and opportunity to signal for a question.

Speaker 2: We'll go first to Betsy Graystack with Morgan Stanley .

Speaker 6: Hi, good morning.

Speaker 7: Morning. Good morning.

Speaker 6: A couple of questions just on how you're thinking about the funding mix. I know you had several comments in your prepared remarks around accessing some of the pools you have.

Speaker 6: Could you talk a little bit about what you're doing with deposit pricing for your core deposits, how you're thinking about utilizing brokerage from here, and then if you could speak a little bit about the hedge that you put on for protecting earnings against future volatility and where we should expect that to show up in the NIM and how that's going to factor into your outlook for your rate sensitivity. Thanks.

Speaker 5: Yeah, Bethy. So I would first start with, we were really excited to have really strong broad-based law and growth this quarter, and we expect that to continue, as Bill said, and his prepared remarks. To fund that, we're gonna start with the runoff of our investment portfolio. We built the investment portfolio when we had all that accessible liquidity. We're very comfortable letting that runoff and had that had a positive mixed change on the balance sheet. And had that had a positive mixed change on the balance sheet.

Speaker 5: As far as broker deposits, we did add some broker deposits of the last several months. I would say we're probably at where we wanna be from that perspective, knowing that we still have a lot of capacity and other funding sources available in the marketplace. You look at several home-owned 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. We have much amount of capacity there.

Speaker 5: 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 to 25 billion easily and still stay within our liquidity and LCR guidelines that we have to for regulatory purposes. And LCR guidelines that we have to for regulatory purposes.

Speaker 5: As far as our strategies for pricing, we were really pleased as Bill and talked about across our company, our deposit paid has came in much better than modeled. We modeled 25 for the first 100. If you look in the second quarter, we came in 15, and that includes broker. When you back out the broker, we were only at 8%, which is really, really low. I would say we will continue to.

Speaker 5: 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. We will continue to hopefully continue to outperform our model expectations.

Speaker 4: Next, you'll be going to have to state your work.

Speaker 4: I think we will be somewhat stable for deposits for the balance of the year. But remember as

Speaker 4: Darrell pointed out we had just under 2% growth in DDA. I mean we're adding net new clients and expanding those relationships. We're adding net new clients and expanding those relationships.

Speaker 4: And I think the beta really just reflects the...

Speaker 4: Benefits of the merger, you know, we're sitting down with a just under 20% market share and most of our markets. We've got a Business that's highly diversified Somewhere around 40 plus percent of our deposits are less than two hundred fifty thousand dollars. So we've got a unique Franchise here, which I think on the DDA side continues to benefit and overall stable deposits for the balance of the year.

Speaker 5: And the long go to your head, your head's question. Oh yeah, yeah, good show.

Speaker 5: I just, you know, we are just gradually starting to add some receivers out in the forward markets for the most part, out one to two years. You know, and since we are, Cindy, on the way up on deposit rates, you won't have as much capacity on the way down, so we're just putting in these forward hedges that protect net interest income as rates might potentially fall overall. But we still are asset sensitive, low decreasing as rates continue to go up.

Speaker 6: 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,

Speaker 6: 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 sense and color for how we should be thinking about that. Thanks so much. F Was a rain ago, nor did I realize till the lips.

Speaker 4: Yeah, that's the, you know, the question of...

Speaker 4: you know, long-term sustainability, but on the short-term basis and through the balance of this year, if we sort of look on a year-over-year basis, we were sort of in the, you know, mid-single figures. I think we'll be in the higher end of the single figures in terms of loan growth. Our teams are, you know, excited. Our production numbers, which I highlighted, are up significantly. Our pipelines are up. So …

Speaker 4: You know, I think we're seeing a little bit of maybe idiosyncratic to us and our shift to integration in terms of prowess on the loan side. And the great news is that it is extremely broad-based. So not only is it in the C&I side, but our core branch network, I mean, their applications are up, personal loans are up, PLOCs are up. So similarly, they're starting to execute at a

Speaker 8: 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, you know, inside that third quarter PPR outlook that you gave because I think you talk mostly just about higher NII and higher expenses. So can you, any granular on the fee side would be great. Thank you.

Speaker 4: Yeah, hey, Ken, let me maybe just do a walkthrough of the broad categories.

Speaker 4: And I think sort of overall I'd say the income's stable relative to the first half and maybe let me give you some puts and takes against that insurance as you noted. You know solid organic growth that'll offset some of that seasonality so feel really good about the momentum that we have there and as we mentioned earlier we're continuing investing the insurance business so feel good about the growth there. Mortgage you know some puts and takes origination probably a little bit offset by.

Speaker 4: servicing, gain of sales, probably a little bit of a wildcard there in terms of whether we see some rebound on that side as some of the capacity comes out, but mortgage probably a little flat second half of the year to the first half of the year. Wealth probably be a little bit down in the third quarter just sort of where markets are right now, but as I highlighted earlier, our really solid production and asset flows and hiring net advisors. So if we get a little market.

Speaker 4: Tailwind, that could change. Investment banking, I think we expect the second half to be better than the first. Pipelines continue to be really solid. And then we've got a bit of things that are unique to us. We've got this really good erm momentum from our...

Speaker 4: commercial community bank. That's probably a little bit less market dependent. I'd sort of call that more sort of bread and butter, kind of investment banking business. And then we've added bankers there, also we're continuing to invest. So we're leaning in there. And then on the service charge side, with the......with the......with the...

Speaker 4: Decisions we may with truest one and overdraft decisions that will be down. So if you sort of sort of net net, I think I could walk through on the fee income side.

Speaker 8: Great. Okay. And then, second question, just you had talked about operating lower CUT-1 than your 975. We saw a 9-2 this quarter. And just what you're thinking, we saw you did a little buyback just in terms of capital allocation decisions and potential for more of those insurance deals that you guys have been biased towards over time. Thanks, Bill. Great.

Speaker 4: Yeah, so I mean the really great news is we're using capital exactly where we want to right now, so we're using it with growth. So we've been funding the loan growth. As we've talked about, our capital levels were...

Speaker 4: By merger risk, CCAR results and economic uncertainty, I think merger risk is largely behind us.

Speaker 4: Very pleased with the, you know, C car results, our low risk profile, you know, better people in our profile. Economic uncertainty, you know, it was really high during the pandemic, moderated and maybe increasing a little bit. So we've got to balance all of those. But, you know, we're comfortable where we are. We've had more organic growth. We do see more opportunity in some of the non-bank M&A as you noted. So, you know, we're gonna allow capacity and be opportunistic.

Speaker 4: Fund the growth that we anticipate. Be flexible, as you noted, for potential non-bank M&A, particularly on the insurance side. And so, if you add all that, share repurchase probably is not our top priority at this particular juncture. Korean Aug FIN

Speaker 9: Thanks for all that bill.

Speaker 10: All right, sure.

Speaker 2: Go to the next two Gerard Cassidy with RBC.

Speaker 11: Morning building morning girl

Speaker 12: Morning. Bill, can you share with us? You obviously put together a very good quarter of this quarter and you put some very strong numbers in your comments at the very end of the prepared remarks about growth, but then you've cautioned it, of course, with what's going on at the macro scene with monetary policy and such. Can you share with us what you're seeing from your customers because there seems to be a disconnect. A lot of investors are very concerned about credit deterioration. You certainly do.

Speaker 4: In fact, the last two markets I was in were South Florida and Nashville. They are blowing and going in virtually every direction. Our clients continue to see good demand. I think it's appropriate to put a cautious note just because I think you have to. If we look at what are the canaries in the coal mines, so to speak, what are the things that we're trying to look at. While we don't see a deterioration, I think the things you look at are things like...

Speaker 4: You know, what's happening in the broadly syndicated sponsored back leverage deals? So we sort of look at that market spreads gapped out pretty significantly. Are things happening in the CRA? We've seen some non-recourse construction loans and some things that you sort of, you know. You know, some things that you sort of, you know.

Speaker 4: I'll pause a little bit on.

Speaker 4: You know, some potential FICO drift and willingness to repay given some of the stimulus.

Speaker 4: Will things happen in mortgage as some of the Kiraq relief comes off? Now all those things that are there, we're not seeing in our results right now, but there are things that we're looking at and then we're stressing and trying to pay attention to. So I think just, we're bankers, so we should be conservative. That's the world we live in, and we try to manage for all outcomes. But sitting here today, looking at the hood of the car, the demand looks pretty good and our business.

Speaker 12: goes another 75 assuming they do in July and then obviously further rate increases later this year. Could the modeling work against you, meaning could the betas actually go faster later in the year because rates are moving up so quickly?

Speaker 5: Yeah, so, Dara, I would just tell you that I think it was a lot of great work with all our teammates, working with clients and giving what we thought was appropriate. Most of our clients aren't there just for rate because we have other products and services. We really like to bank with us for those reasons. So they aren't as rate sensitive as other clients might be at other places. So I think that that's really the benefit of our franchise. I do agree with you though, as interest rates go up or deposit betas.

Speaker 5: will continue to climb just because more and more people will get a little bit more asset sensitive. In the prepare of remarks, I did say that our cumulative beta would move from 15% to 25% in second to third quarter on a cumulative basis. We would still expect it to go on if the fate continues to raise interest rates that you continue to see that cumulative beta increasing. And probably, if you look at from second quarter to fourth quarter, maybe in the low 30s, give her 10.

Speaker 13: Good morning.

Speaker 13: I just want to follow up on the expense guide. Obviously, overall, the PUPINAR guide is higher. But the expenses have been in area-focused, I think, for the company since the merger. And I did just want to follow up on what's driving the tweak up by roughly 1% on expenses, especially since the fees are coming in a little bit weaker. And I just think I'm 10s not to have a lot of fees.

Speaker 13: or a lot of expenses related to it. And then just as we think about the fall-up or day, the confidence that you can control expenses kind of next year without the benefit of these kind of merger and other merger-lay costs that we'll be doing this year. So, let's take a look at the COVID-19.

Speaker 4: Yeah, Matt, this bill goes, no, I off the ball on expenses, I can assure you of that. So the competencies that we've built through the merger to manage expenses, understand expenses, create continued improvements are all still there and will be a big part of our expense story for this year and for the years going forward. And a big part of our capability to deliver positive operating leverage.

Speaker 4: first quarter into this quarter, we don't want to miss those opportunities. And those opportunities don't line up quarter to quarter. I think they line up well. We have confidence in the investments we've made in talent and insurance, wealth, investment banking, care centers, as an example, improve revenue potential, improve the client experience. And we have a pretty good formula for long-term paybacks on those investments. We've been at this and have a pretty good understanding of that.

Also, the investments in our teammates from the minimum wage. So that's a clear step up. I think in fairness, that over time, mothers will be in that same position. But we just felt like, as I mentioned earlier, it was important for us to lead. This is a time when those teammates need us most. I think it will really help us long-term in terms of retention and acquisition of key talent. So it also has a immediate bump up and a longer term payback, which I feel really good about.

And then the one that's just trickier and a little more, you know, quarter and year end specific is just the increase in operating losses. And they are up, they're up higher than we think they should be. We have a lot of things in place to do that. We made some decisions related to the client experience that I think increased some of those operating losses, but I'm confident that they'll normalize over time given the investments we're making.

in that part, but that's the only part that I would say is the you know, non-investment part of the increase in the expense side and I think we'll be more positive about that long term and normalizing those expenses.

What exactly are those operating washers? Maybe you can give an example or two, and is any of that related to the deal conversion? And...

is operating walkers. Now you can give an example or two and any of that related to the deal conversion and you can do that. Now you can give an example or two and any of that related to the deal conversion and you can do that. Now you can give an example or two and any of that related to the deal conversion and

Yeah, follow up from that to the blue one. Thank you.

Yeah, I mean, they're decisions we made relative to client experience. I'll give you an example of, you know, on the fraud side is giving the client the benefit of the doubt up front. So if a client has an experience, we're going to get the money back from another bank and what we're doing is go ahead and funding that client now. That is a one-time, you know, increase, but over time that normalizes just as an example. We think that's a good.

That's a good client experience and something again that will normalize over time is just one example.

You also ask for containment of expenses on a go-forward basis. As we look to rationalize and get back to business as usual, I think there's still opportunities in our corporate real estate portfolio. I think as we continue to rationalize our branch network closure or some branches over time, this is behavior exchange with our clients.

I think we've talked about this before, but we still have a lot of initiatives that our teammates came up with that would help us from both a cost savings, as well as revenue and client experience perspective, and we're in the midst of implementing those over the next 12 to 18 months. The next 12 to 18 months.

We also are moving towards a new card platform over the next year or two, which would generate some savings once we both combine to that. From a technology perspective, we are starting to put more applications up into the cloud, which over time are also a generate of some savings. We are also a generate of some savings.

And the last thing I just want to mention is, as you look at our operations, both front and back office, the digitization and artificial intelligence projects that are roaming out all part and very important to how the company runs and operates, they give us comfort that our expenses will be contained over next year or two.

Thank you.

We'll go next to Mike Mayo with Wells Fargo Securities.

Hi, well, Bill, you gave me the opening. You talked about the hood of the car. So I'll go with the Corvette analogy again. And it looks like on the positive is, it looks like you're going from first to second year, right? You said end of period loans are up 5%. That's accelerating. You're beating on deposit data. You're nims up. You expect it to be up maybe in the range of 25 basis points next quarter. NII is going higher. And you still have the decommissioning of the data centers and all the apps.

you know, later this year, so that should help. So, you know, next second year, fantastic. But then I look at the speed that you're going and it doesn't seem to be a lot faster. You know, you have PPR guidance a little bit higher, but you're guiding for 50 basis points plus offering leverage for this year. If you took, you know, the menero part of your bands and, you know, some of your peers are 200, 300, 400 basis points. I think last quarter that difference was 100 basis points. So, I'm going away.

the operating leverage to a little bit less than I think what you were guiding in the first quarter. And I hear you, you're not taking your eye off the ball on expenses, you're investing in minimum wage, you have some operating losses, but still it just seems like the power of the Corvette is still not being fully realized. So where are you in that progression of translating the power of the engine to the power of the growth and

the power of the operating leverage because you're efficient to your issues, not really in the zip code of the initial figures you gave when you announced the merger three and a half years ago. Thank you.

Yeah, couple of things Mike. So, appreciate the acknowledgement of second gear at least. So I don't know how many gears your Corvette has, but at least there's a acknowledgement of the second gear. And I think we are seeing that growth and I feel really good about the migration from the first to the second quarter. If long growth is one of those indicators, but I don't think it's always the indicator. But if I look at production and pipelines and just the things that we're doing, and it's broad base, so it's not one... And it's broad base, so it's not one...

from the first guidance. I mean, remember that was in an interest rate environment that was pretty different than where we are now. I still believe and we're delivering and prospectively will deliver industry leading efficiency ratio with growth. Whether it's at 55 or low 50s, I don't know, but I am confident that it'll be industry leading in any different and any rate environments. I feel good about that. I hope you enjoyed this video. Thank you.

And then we've got market sensitive businesses that are, you know, sitting on the launching pad and really good capability to grow significantly if we get a little bit of tailwind. And that tailwind could come, you know, in the fourth quarter could come next year, but it's gonna come and we're... But it's gonna come and we're...

better position than we've ever been to capitalize on those opportunities.

I guess what my question is getting to, perhaps some of the other questions, I know I'm not going to get an answer, but you can get it qualitatively, is looking out at 2023. When you finally have all the murder savings. When you finally have all the murder savings.

in your numbers and when you finally have realized some of the noisy financial items such as the operating losses and you finally are done with these one-off charges which are going down. punish the

What sort of offering leverage we can expect next year, at least you can answer that qualitatively or... at least you can answer that qualitatively or...

If you want to put numbers around it, we'd love it.

Yeah, qualitatively it's gotta be qualitatively, we just don't know what the rate environment's gonna be. So qualitatively it'll be positive. That's the angle that we're gaining towards and committed to. But similarly, and I think again, you're seeing at this quarter with revenue growth that reflects the power of this franchise. And an efficient expense model that supports that.

All right, thank you. We'll go next to Erica Najarian with UBS.

Yes, hi. Just to follow up on the Corvette analogy, you are driving this car and in theory the roads are getting worse, right?

So maybe the first question I have is, you know, in the last crisis, you know, both companies did fairly well, relatively well, from a credit perspective. And Darrell, as you think about the different scenarios for ACL build up in a downturn, you know, a lot of investors are comfortable thinking about where the banking industry could be in a charge-off scenario, but none of us can mimic the Cecil process, right? So I guess the question is, is...

In a mild recession scenario, how much more ACL build do you think would be ahead of you for what the charge off that you think your portfolio would produce?

Yeah, Erica, I'll start and Clark can help finish me off on this. But when we set the allowance, obviously, you know it's a scenario based. It's always forward looking from that perspective. In the prepared remarks, we did say that there is potential that the scenarios can continue to deteriorate. If that is the case, then you would expect us to continue to add to our allowance and continue on by downgrading all the importance in selecting the examination data that will end up within the

That would add to our provision costs as that moves up from that perspective. But right now, you know, we aren't seeing a whole lot. And there could be some deterioration from that perspective. But let me kick it back over to Clark. Yeah, Erica. I would just say this and Bill mentioned in Darryl earlier, you know, as we came through the quarter, you know, we refreshed all of our scenarios. So our baseline, which is 40% of our estimate is a more pessimistic outlook, slower economy. Okay?

And then we have a 30% weight on a recession area, more pessimistic scenario. So we feel like we've been pretty conservative in our estimate this quarter. And also this quarter, we had really good loan growth and very highly rated credits. So those carry a lower relative reserve rate. So that's why you didn't see a big build this quarter. You saw six basis points to climb in our allowance. That was because of the growth. So we believe we've accounted for some, the recessionary risk right now. And so. And so. And so. And so. And so. And so.

As we look forward, the main driver of changing the allowance would be growth, unless the scenarios get more severe, and then obviously our reserve rate would have to change.

Got it. Thank you for taking my question.

Jennifer, we've got time for one more question.

We'll take our last question from John Picari with Evercore ISI.

Good morning.

Just also on the credit front. Are you, you can just talk about, are you seeing any emerging signs of stress within the portfolio, particularly as you look at some of the lower-end consumer, maybe in your regional acceptance business on the non-prime side or the Sheppield business. If you can just talk about where, if any, that you're seeing some of the cracks form. Next.

This is Clark. We are monitoring that very carefully. I think what we're seeing, probably a little bit of indication, would be the low to moderate income consumer think cohorts, $50,000 incomes and below. We're seeing higher delinquency, early delinquency in those areas, but it's not translated yet into the higher late stage delinquencies or losses. For example, in our subprime auto business, we're seeing a little bit of a decrease in

You know, we had one of our lower law rates this quarter seasonally and we're seeing things like because of the main time being up. The main time being up.

consumers higher redemption rates even on repo so it's not yet translated into any losses. We've also looked at our deposit levels or our consumer borrowers and they're not coming down rapidly particularly for the moderate income and above so while there's early signs we're watching it's not translated into any significant concerns and our outlook right now for the rest of the year does not assume any significant deterioration. Got it okay thanks Clark and then just separately on the long growth side you know I know you indicated that

You did see some pressure there this quarter on commercial real estate, but you seem a bit more optimistic there in stabilization. How should we think about the growth in that portfolio? Is there the potential for incremental declines there, or do you think stabilization will happen beginning next quarter? Thanks.

Yeah, I mean, I'm sure it's quarter to quarter, but I think we're stabilizing as the way I would say it and into more of a growth mode. And by the way, we feel really comfortable about it. I think we've made decisions through the cycle that create a really good portfolio. We've done a lot of things internally strategically to get really, really strong alignment around the type of CRE portfolio we want, the diversity that we want.

So probably somewhere in the next couple of quarters, stabilize Zine with the event for growth over time. Stabilizing with the event for growth over time.

Got it. All right, thanks Bill. Thanks John and thanks everybody. That completes our earnings call. If you have any additional questions, please feel free to reach out to the IR team. Thank you for your interest and interest. We hope you have a great day. Jennifer, you can now disconnect the call.

This does conclude today's conference. We thank you for your participation.

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