Q3 2023 Truist Financial Corp Earnings Call

Greetings, ladies and gentlemen, and welcome to <unk> Financial Corporation third quarter 2023 earnings Conference call.

Currently all participants are in listen only mode.

A brief question and answer session will follow the formal presentation.

As a reminder, this.

Is being recorded.

It is now my pleasure to introduce your host Mr. Brad Millsaps.

Thank you Anthony and good morning, everyone. Welcome to <unk> third quarter 2023 earnings call with US today are our chairman and CEO Bill Rogers, our CFO , Mike Mcguire. During this mornings call ill discuss <unk> third quarter results share their perspectives on current business conditions and provide an updated outlook for 2023 O' clock stop.

<unk>, our vice chair and Chief risk officer, they'll come in as our Vice Chair and John Howard Truth Insurance Holdings', Chairman and CEO are also in attendance and available to participate in the Q&A portion of our call.

The accompanying presentation as well as our earnings release and supplemental financial information are available on the truest Investor Relations website, IR Dot truest dotcom.

Our presentation today will include forward looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements in measures as well as the appendix for appropriate reconciliations to GAAP with that I will turn it over to bill.

Thanks, Brad and good.

And every one and thank you for joining our call today.

So before we.

Get into the third quarter results, let's begin as always with our purpose on slide four.

As we all know truest as a purpose driven company committed to inspiring and building better lives and communities I'd like to take a few minutes just to highlight some of the ways. We demonstrated our purpose last quarter.

Truth is driving positive change by supporting organizations that promote the growth and vibrancy of our communities in August we invested $17 million to support affordable housing in Charlotte and career development and economic mobility programs across the state of North Carolina.

And just last week, we announced our allocation of $65 million and new market tax credits from U S. Treasuries community development financial institution fun. This is the 12th time Truest has received an award which has allowed us to invest $750 million in underserved communities by providing loans with reduced rates of interest.

And or non traditional terms over the years. These loans have helped spark economic development and job growth in communities across the regions we serve.

Really proud of the meaningful work, we're doing as a company to have a positive.

Fact on the lives of our clients, our teammates and our communities and of course, our shareholders as we work to realize our purpose now let's turn to some of the key takeaways on.

Slide six.

Jurors reported solid third quarter earnings that met our guidance, despite certain discrete noninterest income and expense items that negatively impacted our results.

Just trying to cover those later in the call.

As you can see on the slide our solid performance was defined by several underlying key themes.

On our July earnings call, we discussed our intent to significantly reduce the rate of expense growth at our company.

Which was followed up with the introduction of our simplification efforts and $750 million cost saves program in September we're fully committed to delivering all of this work and the reduction in third quarter expenses is evidence of the hard work that's been ongoing throughout the year.

We're also manage our balance sheet more efficiently during the past few earnings calls I've described that we're focusing on core clients, reducing lower yielding portfolios and paying down higher cost borrowings all of which occurred during the third quarter and helped drive our NIM higher by four basis points during the quarter.

Moreover, these efforts have increased our CET one ratio to nearly 10%, which is a level that we believe we can maintain throughout the proposed phase in period under pending Basel III rules based on our current rate of organic capital growth.

Although asset quality is normalizing off historically low levels. We are encouraged that our metrics remained relatively stable during the quarter. While we continue to build our loan loss reserve considering the uncertain economic environment.

Lastly, we're making strong progress on our cost savings program and organizational simplification, which we'll discuss in more detail later in the call.

I'm pleased with our direction, the intensity and focus and I'm confident in our ability to emerge as a stronger company. While the quarter was solid we acknowledge there is more work to do as we strive to produce better and more consistent results in the future. We view. This third quarter performance is a step forward in that direction.

So let's do some more specific work on slide seven.

Net income available to common shareholders was $1 $1 billion or 80 cents per share merger related and restructuring charges, primarily related to severance associated with our cost saves program hurt EPS by four cents total revenue decreased as expected. It was essentially in line with our guidance Despite an 87 million.

Dollar discrete impact of service charges on deposits revenue.

We're also encouraged that our net interest margin improved four basis points, driven by our ongoing balance sheet optimization efforts, including a reduction and as such I'll be borrowings a decline in lower yielding loan balances and improving new and renewed loan spreads.

Adjusted expenses were down 50 basis points within our guidance range would have decreased 250 basis points, excluding $70 million of higher than normal other expense.

Average loans decreased two 5% primarily due to the sale of the student loan portfolio in the second quarter and our continued repositioning towards higher return core assets.

Average deposits increased modestly as we continue to experience a remixing towards higher yielding alternatives.

We added 29 basis points of CET, one capital in the quarter and increased our <unk> ratio by six basis points in light of ongoing economic uncertainty.

Lastly, we maintained our strong quarterly common stock dividend at 52 per share paid on September one.

So let's move to our digital update on slide eight.

Digital engagement transit tourists remained positive as you can see on the left side of the slide.

Mobile app users have grown steadily over the past year and we're currently focused on driving additional growth of our mobile first engagement initiatives.

From an activity standpoint, digital transactions increased 9% relative to the fourth quarter of last year, driven primarily by zelle transactions, which were up 32% over the same period.

Due to the rapid growth we're experienced digital has quickly become a preferred channel for interacting with trust in fact digital transactions now account for more than 60% of total bank transactions. While that's certainly positive curious as a meaningful opportunity to shift the transaction mix, even more towards the digital specifically by leveraging what.

We call it tier three which is this concept that touch and technology work together to create trust and.

And that further enhances the client experience and drives greater digital adoption and efficiency.

As a proof point recent enhancements to the digital Onboarding have helped drive a 19% increase in truest, one funding rates year to date, which may in turn lead to additional balances and transaction activity with those new clients.

And so I'm curious has solid momentum in digital and I'm highly optimistic about the potential we have to leverage tier three so further expands our digital user base and drive transaction volume.

Next I'm going to cover loans and leases on slide nine.

Average loans decreased two 5% sequentially, reflecting our ongoing balance sheet optimization efforts, including the sale of our student loan portfolio last quarter and further reductions in lower return portfolios. Excluding the student loan sale average loans were down 1.1%.

Average commercial loans decreased one 1% primarily due to a one 5% decrease in C&I balances driven by lower revolver utilization and production.

Lower C&I production in our corporate and commercial banking segment reflected a combination of moderately lower demand due to economic uncertainty and greater pricing discipline, which contributed to wider spreads on new production and commercial community Bank.

In our consumer and credit card portfolios average loans decreased four 6% primarily due to the sale of our student loan portfolio and further reductions in indirect auto production.

Sumer and card balances were down 1%, excluding the student loan sale residential mortgage was essentially flat relative to the prior quarter.

We do continue to experience growth on higher yielding portfolios, especially Sheffield and service finance loan production increased 21% year over year at Sheffield and 17% at service Finance.

Overall, we expect average commercial and consumer balances to decline modestly in the fourth quarter, driven by our ongoing mix shift towards deeper client penetration deeper relationships de emphasis of lower return portfolios and the effects of continued economic uncertainty.

So let's move to the deposit trends on slide 10.

Average deposits were flat sequentially, although we continued to experience remixing within the portfolio as clients saw higher rate alternatives noninterest.

Noninterest bearing deposits decreased three 9% and currently represent 30% of total deposits compared to 31% in the second quarter and 34% in the fourth quarter of last year.

Within our segments average deposits were down 1% in corporate and commercial banking are relatively flat in consumer banking and wealth.

<unk> of quantitative tightening and tightening and availability of higher rate alternatives, we continue to deepen our relationships with consumer banking and wealth clients, especially in payments.

New checking account production has been positive for three quarters in a row. We're also seeing solid adoption of our flagship choose one checking product and additional small business deposits were up sequentially. In August was the strongest strongest month for net new small business checking account production in the last three years.

Deposit cost continue to rise during the third quarter, though at a slower pace interest bearing deposit cost increased 38 basis points sequentially down from about 55 basis point increase in the prior quarter, our interest bearing cumulative deposit beta was 49% up from 44% in the second.

Order due to the presence of higher rate alternatives and ongoing mix shift from noninterest bearing accounts into higher yielding products going forward, we'll continue to maintain our balanced approach being attentive to our client need some relationships, while also striving to maximize value for them outside of rate paid.

Now, let me turn it over to Mike to discuss the financial results are a little more detail Mike.

Great. Thank you Bill and good morning, everyone I'm going to begin with net interest income on slide 11.

For the quarter taxable equivalent net interest income decreased one 6% linked quarter, primarily due to lower average, earning assets and higher deposit costs.

Although net interest income was down linked quarter. We are encouraged that the decline was slower than the six 1% decrease observed in the second quarter as deposit betas increased at a more moderate pace.

Reported net interest margin increased four basis points after declining for two consecutive quarters NIM stabilization reflected our ongoing balance sheet optimization initiatives, including focusing on our core clients improving spreads on new and renewed loans, reducing lower yielding loan portfolios and paying down higher cost wholesale borrowings.

FH will be advances, which were down about $20 billion on average compared to the second quarter.

Turning to noninterest income on slide 12.

Fee income decreased $185 million or eight 1% relative to the second quarter. The decline was primarily attributable to lower insurance income, which decreased $142 million sequentially due to seasonality.

Insurance production is typically lowest in the third quarter and highest in the second insurance fundamentals remained strong driven by new business growth improved retention and favorable pricing all of which contributed to six 3% organic revenue growth on a like quarter basis.

Service charges on deposits were down $88 million in the third quarter due primarily to $87 million of client refund accruals that were driven by changes we made to our deposit fee protocols.

Investment banking and trading income was lower by $26 million, while other income increased $38 million, primarily due to higher income from other investments.

Unknown Executive: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation, third quarter 2023 running conference call. Currently, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded.

B income was flat on a like quarter basis, as higher insurance income and higher other income were offset by lower service charges and lower investment banking and trading income.

Bradley Milsaps: It is now my pleasure to introduce your host, Mr. Brad Milsaps. Thank you, Anthony, and good morning, everyone. Welcome to Truist's third quarter 2023 Arnie's call. With us today are our chairman and CEO Bill Rogers and our CFO Mike McGuire. During this morning's call, they will discuss Truist's third quarter results, share their perspectives on current business conditions, and provide an updated outlook for 2023. Clarke Starnes, our vice chair and chief risk officer, Vogue Cummins, our vice chair, and John Howard, Truist Insurance Holdings Chairman and CEO are also in attendance and available to participate in the Q&A portion of our call.

Next I'll cover noninterest expense on slide 13.

Reported noninterest expense was flat sequentially as lower adjusted expense was offset by a $21 million increase in merger related and restructuring expense driven mostly by severance and facilities rationalization.

Adjusted noninterest expense decreased 50 basis points sequentially in line with our July guidance range of flat to down 1%.

The decrease in adjusted expenses was driven by lower personnel expense and reduced professional fees and outside processing expense, partially offset by higher other expense.

Bradley Milsaps: The accompanying presentation, as well as our injury lease and supplemental financial information, are available on the Truist Investor Relations website, ir.truest.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliation to GAAP.

The increase in other expense included $70 million of costs arising from the previously mentioned client deposits or service charge refund accruals as well as the settlement of certain litigation matters, including a settlement and patent licensing agreement, which resolved the USA a patent infringement lawsuit.

If you exclude these items adjusted expenses declined by two 5% linked quarter.

William Rogers: With that, I will turn it over to Bill. Thanks, Brad, and good morning, everyone, and thank you for joining our call today. Before we get into the third quarter results, let's begin, as always, with our purpose on slide four. As we all know, Truist is a purpose-driven company committed to inspiring and building better lives and communities. I'd like to take a few minutes just to highlight some of the ways we demonstrated our purpose last quarter.

The work associated with our gross cost saves program is well underway as we will discuss on slide 14.

In September we announced a $750 million gross cost savings plan that will be achieved over the next 12 to 18 months.

Cost saves will include $300 million from reductions in force $250 million from organizational realignment and simplification and $200 million from technology expense reductions since.

William Rogers: Truist is driving positive change by supporting organizations that promote the growth and vibrancy of our communities. In August, we invested $17 million to support affordable housing in Charlotte and career development and economic mobility programs across the state of North Carolina. And just last week, we announced our allocation of $65 million in new market tax credits from US Treasuries Community Development Financial Institution Fund. This is the 12th time Truist has received an award, which has allowed us to invest $750 million in underserved communities by providing loans with reduced rates of interest and or non-traditional terms.

Since these initiatives were announced in mid September we have already realized significant elements of our organizational and operational structure to improve efficiency and to drive revenue opportunities.

The work, we're doing includes optimizing spans and layers to improve organizational design health consolidating redundant functions restructuring select businesses and geographic simplification all of which will result in reductions in force over the next couple of quarters.

William Rogers: Over the years, these loans have helped spark economic development and job growth and communities across the regions we serve. I'm really proud of the meaningful work we're doing as a company to have the positive effect on the lives of our clients, our teammates, and our communities, and of course our shareholders as we work to realize our purpose.

Introduction. In addition, we are aggressively managing third party spend reducing our corporate real estate footprint and rationalizing technology spend based on the latest information available. We still expect one time costs associated with the cost saves program to range from 25% to 30% of gross cost saves.

We also continue to project the cost saves program will help us manage adjusted expense growth to zero to 1% in 2024, which is net of natural expense growth driven by inflation and other factors.

William Rogers: Now let's turn to some of the key takeaways on live six. Truist reported solid third quarter earnings that met our guidance despite certain discrete non-interest income and expense items that negatively impacted our results. Mike's going to cover those later in the call. As you can see on the slide, our solid performance was defined by several underlying key themes. On our July earnings call, we discussed our intent to significantly reduce the rate of expense growth at our company, which was followed up with the introduction of our simplification efforts and $750 million cost sales program in September.

Moving to asset quality on slide 15.

Asset quality metrics continued to normalize in the third quarter, but overall remain manageable nonperforming assets were unchanged linked quarter, while early stage delinquencies increased four basis points sequentially as increases in our consumer portfolios were partially offset by declines in commercial.

Included in our appendix is updated data on our office portfolio, which represents one 7% of total loans were pleased that nonperforming and criticized and classified office loans increased only modestly linked quarter. While we increased the reserve on this portfolio from six 2% at June 30 up to eight 3%.

William Rogers: We're fully committed to delivering on this work. And the reduction in third quarter expenses is evidence of a hard work that's been ongoing throughout the year. We're also managing our balance sheet more efficiently. During the past few earnings calls I've described that we're focusing on core clients, reducing lower yielding portfolios, and paying down higher cost borrowings, all of which occur during the third quarter and help drive our NEM higher by four basis points during the quarter.

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Our net charge off ratio decreased three basis points to 51 basis points, reflecting the prior quarter impacted the student loan sale, partially offset by increases in our CRE and consumer lending portfolios.

We continue to build reserves as provision expense exceeded net charge offs by $92 million or a triple our ratio increased to 1.49% up six basis points sequentially and 15 basis points year over year due to ongoing credit normalization in greater economic uncertainty.

William Rogers: Moreover, these efforts have increased our CET-1 ratio to nearly 10%, which is a level that we believe we can maintain throughout the proposed phase-in period under pending Basel III rules based on our current rate of organic capital growth. Although asset quality is normalizing off historically low levels, we are encouraged that our metrics remain relatively stable during the quarter, while we continue to build our loan loss reserve considering the uncertain economic environment.

Consistent with our commentary last quarter, we have tightened our risk appetite in select areas that we maintain our through the cycle supportive approach for high quality long term clients.

Turning to capital now on slide 16.

William Rogers: Lastly, we're making strong progress on our cost sales program, an organizational simplification and which we'll discuss in more detail later in the call. I'm pleased with our direction, the intensity and focus, and I'm confident in our ability to emerge as a stronger company. While the quarter was solid, we acknowledge there's more work to do as we strive to produce better and more consistent results in the future. We view this third quarter performance as a step forward in that direction.

Based on our assessment of the proposed capital rules, we feel confident in our ability to meet the requirements under the proposed phase in periods.

<unk> added 29 basis points of CET, one capital in the third quarter through a combination of organic capital generation and disciplined <unk> management.

With a CET one ratio of nine 9% <unk> remains well capitalized relative to our new minimum regulatory requirement of seven points, 4%, which took place on October one.

William Rogers: So let's do some more specific work on slide seven. Then it come available to common shareholders. It was $1.1 billion or 80 cents per share, merger related and restructuring charges primarily related to severance associated with our cost sales program, hurt EPS by four cents. Total revenue decreased as expected, it was essentially in line with our guidance, despite an $87 million discrete impact of service charges on deposits revenue. We're also encouraged that our net interest margin improve for basis points driven by our ongoing balance sheet optimization efforts, including a reduction and FFLB borrowings decline in lower yielding loan balances and improving new and renewed loan spreads.

As a company we are strongly committed to building capital and achieving our seats CET one ratio of approximately 10% by the end of the year the projected trajectory for our CET one ratio does incorporate headwinds from the pending FDIC assessment, which is now expected to be recognized in the fourth quarter.

Our primary capital priorities are supporting the organic growth needs of new and existing core clients and the payment of our 52 cents per share common dividend, we have no plans to repurchase shares over the near term and we will continue do a lot of previous acquisitions to mature.

Our W. A management continues to be disciplined as we allocate less capital to certain businesses that we have been very clear that our balance sheet has opened a core clients.

In addition, we continue to believe that truth capital flexibility with truth insurance Holdings is a distinctive advantage.

William Rogers: Adjustment expenses were down 50 basis points and within our guidance range, it would have decreased 250 basis points, excluding $70 million of higher than normal other expense. Average loans decreased to and a half percent, primarily due to the sale of the student loan portfolio in the second quarter, and our continued repositioning towards higher return core assets. Average deposits increased modestly as we continued to experience a remixing towards higher yielding alternatives. We added 29 basis points of C-T-1 capital in the quarter and increased our A-T-L ratio by six basis points in light of ongoing economic uncertainty. Lastly, we maintained our strong quarterly common stock dividend at 52 cents per share paid on September 1st.

We estimate that our residual 80% ownership stake provides greater than 200 basis points of additional capital flexibility.

The table in the center of this slide provides an updated analysis of our OCI.

An estimated cash flows in today's forward curve, we would expect the component of OCI attributable to securities declined from $13.5 billion at the end of the third quarter to $9 $7 billion by the end of 2026 or a decline of 28%.

Finally, as it relates to the proposed rules for our long term debt requirement. We estimate the truth binding constraint is at the bank level and that the shortfall is approximately $13 billion. We are confident that we will meet the proposed requirements at both the bank and holding company level through normal debt issuance during the phase in period.

William Rogers: So let's move to our digital update on slide 8. Digital engagement transit through us remain positive as you can see on the left side of the slide. Mobile app users have grown steadily over the past year and we're currently focused on driving additional growth through our mobile first engagement initiative. From an activity standpoint, digital transactions increased 9% relative to the fourth quarter last year, driven primarily by zel transactions, which were up 32% over the same period.

Now I will review our updated guidance on slide 17.

Looking into the fourth quarter of 2023, we expect revenues to be flat or to decline, 1% from three Q twenty-three GAAP revenue of $5 $7 billion.

William Rogers: Due to the rapid growth we're experienced, digital has quickly become a preferred channel for interacting with truest. In fact, digital transactions now account for more than 60% of total bank transactions. A while that's certainly positive, truest has a meaningful opportunity to shift the transaction mix even more towards digital, specifically by leveraging what we call T3, which is this concept that touch and technology work together to create trust. House, and that further enhances the client experience and drives greater digital adoption and efficiency.

We expect linked quarter improvement in noninterest income due to higher insurance service charges on deposit income and investment banking and trading income, partially offset by lower mortgage and other income.

Net interest income is likely to remain under some pressure due to our smaller balance sheet and modest NIM compression.

Adjusted expenses of $3 5 billion are expected to decline three 5% due to lower personnel and other expenses.

In April we stated that our 2023 expense guidance excluded expenses associated with T. I H independents readiness previously we've not called out these costs because they totaled only $20 million through the first nine months of 2023, including $9 million in the second quarter and $11 million in the third quarter.

William Rogers: As a proof point, recent enhancements to the digital onboarding have helped drive a 19% increase in Truist 1 funding rates year to date, which may internally lead to additional balances and transactant activity with those new clients. In some Truist has solid momentum in digital, and I'm highly optimistic about the potential we have to leverage T3 to further expand our digital user base and drive transaction bond.

<unk> in the fourth quarter, we expect these expenses to approximate $35 million, which are excluded from our <unk> twenty-three expense guidance.

William Rogers: Next, I'm going to cover loans and leases on slide 9. Average loans decrease 2.5% sequentially, reflecting our ongoing balance sheet optimization efforts, including the sale of our student loan portfolio last quarter, and further reductions in lower return portfolios, excluding the student loan sale average loans were down 1.1%. Average commercial loans decrease 1.1% primarily due to a 1.5% decrease in CNI balances driven by lower revolver utilization and production. Lower CNI production are corporate and commercial banking segment reflected a combination of moderately lowered demand due to economic uncertainty and greater pricing discipline, which contributed to wider spreads on new production and commercial community bank.

For the full year 2023, we expect revenues to increase by approximately one 5%, which is at the midpoint of our previous revenue guidance of up 1% to 2%. Our guidance includes the $87 million client refund accrual that negatively impacted fees in the third quarter.

Full year 2023, adjusted expenses are still on track to increase 7%. This includes $70 million related to the legal settlements and client deposit service charge refunds, but excludes the $55 million of T. I H independence readiness costs for 2023.

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In terms of asset quality, we have tightened our guidance from a range of 40 to 50 basis points to approximately 50 basis points for the full year, which includes the impact of the student loan sale.

William Rogers: And our consumer and credit card portfolios average loans decrease 4.6%, primarily due to the sale of our student loan portfolio and further reductions in indirect auto production. Consumer and card balances were down 1%, excluding the student loan sale. Residential mortgage was essentially flat relative to the prior quarter. We do continue to experience growth and higher yielding portfolios, especially shift field and service finance. Loan production increased 21% year of year shift field and 17% at service finance.

Finally, we expect our tax rate effective tax rate to approximate 18% or 20% on a taxable equivalent basis compared to 19% and 21% previously.

Now I'll hand, it back to bill for some final remarks.

Great. Thanks, Mike and I'll conclude on slide 18.

But looking beyond the third quarter, our transformation into a simpler more profitable company is underway.

Driving swift and meaningful actions to simplify our organization, which include key organizational changes.

William Rogers: Overall, we expect average commercial and consumer balances to decline modestly in the fourth quarter driven by our ongoing mix shift towards deeper client penetrations, deeper relationships, the emphasis of lower return portfolios and the effects of continued economic uncertainty.

So for example in the recent weeks, we've streamlined our commercial and community banking regions from 'twenty, one to 14 realized several overlapping units into a unified commercial real estate business. We've merged our consumer payments on wholesale payments businesses into a single enterprise payments organization, which will help us to accelerate payments.

William Rogers: So let's move to the deposit trends on slide 10. Average deposits were flat sequentially, although we continued experience remixing within the portfolio as clients saw higher rate alternatives. Non-interest buried deposits decreased 3.9% and currently represent 30% of total deposits compared to 31% in the second quarter and 34% in the fourth quarter of last year. Within our segments average deposits were down 1% and corporate commercial banking and relatively flat and consumer banking and wealth due to the effects of quantitative tightening and availability of higher rate alternatives.

Activity more effectively across truest.

There've been a number of team consolidations within our consumer and small business banking lines of businesses. We've also realized nine teams under our enterprise operational services to drive efficiencies across our support teams serving the whole organization.

All of these changes are part of our $750 million cost savings program, which is well underway and designed to drive better service for our clients and limit adjusted expense growth to flat to up 1% in 2024.

William Rogers: We continue to deepen our relationships with consumer banking and wealth clients, especially in payments. Net new checking account production has been positive for three quarters in a row. We're also seeing solid adoption of our flagship to his one checking product. In addition, small business deposits were up sequentially and August was the strongest strongest month for net new small business checking account production in the last three years. Deposit costs continued to rise during the third quarter, though to slower pace.

Although we're focused on reducing the rate of expense growth. We will continue to invest in our risk management organization and ability to maintain strong asset quality metrics.

While there are many changes happening inside true us we've not lost focus on our core consumer and commercial businesses, which is an area that will continue to see significant investment net new checking account production has been positive for the first three quarters of this year and we're on track to continued positive net news for the whole year.

William Rogers: Interest bearing deposit costs increased 38 basis points sequentially down from a 55 basis point increase in the prior quarter. Our interest bearing cumulative deposit beta was 49% up from 44% in the second quarter due to the presence of higher rate alternatives and ongoing mixed shift from non interest bearing accounts into higher yielding products. Box. Going forward, we'll continue to maintain our balance to approach. Being attentive to our client needs and relationships while also striving to maximize value for them outside of rate paid.

During the quarter, we acquired more than 39000 households through our digital channel. We're also maintaining momentum in wealth, where net organic asset flows have been positive in nine of the past 10 quarters client satisfaction scores were stable or increased across most rspb channels during the third quarter.

In our corporate and commercial new left lead transactions were up 45% year over year Lastly, our wholesale payments pipeline is up 10% year over year. We're also seeing strong improvement in client sentiment amongst commercial clients, reflecting product and digital investments that we've already met.

Michael Maguire: Now let me turn over to Mike to discuss the financial results in a little more detail. Mike. Great.

Michael Maguire: Thank you Bill and good morning everyone. I'm going to begin with net interest income on slide 11. For the quarter taxable equivalent, net interest income decreased 1.6% linked quarter. We are primarily due to lower average earning assets and higher deposit costs. All the net interest income was down linked quarter. We are encouraged that the client was slower than the 6.1% decrease observed in the second quarter as deposit rate increased at a more moderate pace.

As a company. We're also operating our balance sheet more efficiently. Thanks to our focus on core clients de emphasizing lower return portfolios and paying down higher cost debt, we're building capital and we feel confident in our ability to satisfy the requirements proposed under Basel III and game rules with the proposed phase in periods while.

Serving our strategic flexibility with Ti H.

In conclusion, we're making progress and we're doing what's necessary to improve our financial performance to meet your high expectations and of course ours I am truly optimistic about true ups and I know, we're well positioned for the future.

Michael Maguire: Reported net interest margin increased four basis points after declining for two consecutive quarters. NIM stabilization reflected our ongoing balance sheet optimization initiatives, including focusing on our core clients, improving spreads on new and renewed loans, reducing lower yielding loan portfolios, and paying down higher cost wholesale borrowings, including FHLB advances, which were down about $20 billion on average compared to the second quarter.

Our teammates are really performing at a high level and they are committed to serving our clients caring for each other and capitalizing on our great growth markets I am really proud of our teammates.

Before we move to Q&A I also want to publicly thank the eight members of our board of directors, who plan to retire at the end of this year.

Michael Maguire: Turning the non-interest income on slide 12. The income decreased $185 million or 8.1% relative to the second quarter. The decline was primarily attributable to lower insurance income, which decreased $142 million sequentially due to seasonality.

I'm deeply grateful for their years of service and meaningful contributions to our company.

It was literally exists due to their leadership and confidence. Following these retirements. Our board will consist of 13 members, including 12 independent directors, who are well positioned to oversee and advance our strategic plans. During this period of rapid industry transformation.

Michael Maguire: Insurance production is typically lowest in the third quarter and highest in the second. Insurance fundamentals remain strong, driven by new business growth, improved retention and favorable pricing, all of which contributed to 6.3% organic revenue growth on a life quarter basis.

With that Brad Let me turn it back over to you and we'll look forward to the Q&A.

Thank you Bill Anthony at this time, we please explain how our listeners can participate in the Q&A session. As you do that I'd like to ask the participants to please limit yourselves to one primary question and one follow up.

Michael Maguire: Service charges on deposits were down $88 million in the third quarter due primarily to $87 million of client refund accruals that were driven by changes we made to our deposit fee protocols. Investment banking and trading income was lower by $26 million while other income increased $38 million primarily due to higher income from other investments. The income was flat on a life quarter basis as higher insurance income and higher other income were offset by lower service charges and lower investment banking and trading income.

Order that we may accommodate as many of you as possible on the call today.

Ladies and gentlemen, if you'd like to ask a question. Please signal Star then one on your telephone keypad.

If you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.

We ask that you limit yourself to one question and one follow up question again. Please press Star then one to signal for questions.

Michael Maguire: Next, I'll cover non-interest expense on slide 13. Before the non-interest expense was flat sequentially as lower adjusted expense with offset by a $21 million increase in merger related and restructuring expense, driven mostly by severance and facilities rationalization. Adjusted non-interest expense decreased 50 basis points sequentially in line with our July guidance range of flat to down 1%. The decrease in adjusted expenses was driven by lower personnel expense and reduced professional fees and outside processing expense, partially offset by higher other expense.

Our first question will come from Ken <unk> with Jefferies.

You May now go ahead.

Hi, good morning, guys. Thanks.

Thanks for all the color on the updates I, just you know bill just coming back to.

The independents preparation for TIAA and articles that were in the paper and I know Youre still and Mike talking about the Optionality can you just give us an updated sense of just how youre looking at the value of the business versus financially versus strategically.

Michael Maguire: The increase in other expense included $70 million of costs arising from the previously mentioned client deposit service charge refund accruals as well as the settlement of certain litigation matters including a settlement and patent licensing agreement which resolved the U.S.A, patent infringement lawsuit. If you excluded these items, adjusted expenses declined by 2.5% linked quarter. Network.

And what would that change here too to make you guys move forward with some you know some type of transaction you have to move it to move it forward.

Yeah, Ken good morning, and thanks for that.

As you can imagine I don't want to comment on that a sort of rumor or speculation but to your question.

Think about the reason we did the.

The opportunity was standpoint, I mean, what we wanted to do is exactly what you highlighted in your question is to create this financial and strategic flexibility.

Michael Maguire: The work associated with our Gross Cost Saves program is well underway, as we will discuss on slide 14.

For both <unk> and for PIH.

Michael Maguire: In September we announced a $750 million gross cost saves plan that will be achieved over the next 12 to 18 months. The cost saves will include $300 million from reductions in force, $250 million from organizational realignment and simplification, and $200 million from technology expense reductions. Since these initiatives were announced in mid-September, we have already realigned significant elements of our organizational and operational structure to improve efficiency and to drive revenue opportunities. The work we're doing includes optimizing spans and layers to improve organizational design health, consolidating redundant functions, restructuring select businesses, and geographic simplification, all of which will result in reductions in force over the next couple of quarters.

We wanted to establish a value in the business and the business is growing I mean, we've been able to hire and retain talent. So we feel really good about what's happening in the in the core insurance business.

We wanted to make sure that the insurance business had flexibility to continue to grow and then the truest had an opportunity to respond to whatever may happen I mean, we're obviously in a market. That's got a lot of uncertainty to it and we just want to retain that strategic and financial flexibility. So theres not one thing theres not like a Q.

If something happens we do this.

But we want to just continue to reserve. This this flexibility and continue to apply it to both the bank and the insurance business.

Michael Maguire: In addition, we are aggressively managing third-party spend, reducing our corporate real estate footprint and rationalizing technology spend. Based on the latest information available, we still expect one-time costs associated with the Cost Saves program to range from 25 to 30% of gross cost saves. We also continue to project the Cost Saves program will help us manage adjusted expense growth to 0 to 1% in 2024, which is net of natural expense growth driven by inflation and other factors.

And I guess I'll, just follow up on as well.

At what point does financial benefit become strategic because a lot of the questions. We get are the tradeoff between the two you know an obvious ability to improve capital versus a delta in terms of like fee contribution row et cetera. So yeah, it's hard for the investor community to kind of just understand what that incremental switching.

It is I guess, maybe how do you how do you think about that that notion of like when financial become strategic.

Michael Maguire: Moving to asset quality on slide 15. Asset quality metrics continue to normalize in the third quarter, but overall remain manageable. Non-performing assets run changed linked quarter while early-stage delinquencies increased four basis points sequentially as increases in our consumer portfolios were partially offset by declines in commercial.

Yeah as I said, there isn't there isn't a particular trigger point you know, we just want to make sure that we retain that flexibility and we're <unk>.

Constantly looking at everything that you just that you just talked about.

And factoring that into the into the decision, making this is something that we sort of continually keep in front of ourselves we keep in front of the board.

Michael Maguire: Included in our appendix is updated data on our office portfolio, which represents 1.7% of total loans. We're pleased that non-performing and criticizing classified office loans increased only modestly linked quarter, while we increase the reserve on this portfolio from 6.2% at June 30, up to 8.3% at September 30. Our net charge-off ratio decreased three basis points to 51 basis points, reflecting the prior quarter impact of the student loan sale, partially offset by increases in our CRE and consumer lending portfolios. We continue to build reserves as provision expense exceeded net charge-offs by 92 million dollars. Our A triple L ratio increased to 1.49%, up six basis points sequentially and 15 basis points year-over-year.

But I think the intentionality I mean, the reason we did this as we're allowed to have this conversation around flexibility.

Right. Okay. Thank you bill Okay. Thanks, Ken.

Our next question will come from John Mcdonald with Autonomous research.

Oh go ahead.

Good morning, guys.

Wanted to ask you about net interest income a number of banks have said that they see NII dollars potentially bottoming in the fourth quarter, Mike mentioned, you see a little bit of slippage into the fourth quarter, but do you have any visibility on whether that could stabilize in the fourth quarter and what factors should we think about for you as well.

Think about the NII path heading into next year.

Yes, good morning, John .

We obviously did see some pressure this quarter actually probably a little bit better than we expected and that we talked about during the second quarter.

Clarke Starnes: Due to ongoing credit normalization and greater economic uncertainty. Consistent with our commentary last quarter, we have tightened our risk appetite and select areas, though we maintain our through-the-cycle supportive approach for high-quality long-term clients.

We do expect to continue to see some pressure in the fourth and frankly, even into the first half of 2024 and I think that just has to do with you know.

On the right path, we have an expectation that that we've we think we've seen our last hike and we don't have a cut in the forecast until July of next year. We have two cuts in the second half and so you know as betas sort of again the good news is our slowing down and we feel like grinding.

Michael Maguire: Turning to capital now on slide 16. Based on our assessment of the proposed capital rules, we feel confident in our ability to meet the requirements under the proposed phase and periods. Truth added, 29 basis points to CET1 capital in the third quarter, your combination of organic capital generation and disciplined RWA management. With a CET1 ratio of 9.9%, truth remains well-capitalized relative to our new minimum regulatory requirement of 7.4%, which took place on October 1st.

Bit lower we should still feel a little bit of pressure you know there you know we're trying to combat some of that pressure we've been very intense.

Intentional around how we're managing rate paid across our across our client base, we're beginning to see some nice progress as it relates to new and renewed.

Michael Maguire: As a company, we are strongly committed to building capital and achieving a C-T1 ratio of approximately 10% by the end of the year. The projected trajectory for our C-T1 ratio does incorporate headwinds from the pending FDIC assessment, which is now expected to be recognized in the fourth quarter. Our primary capital priorities are supporting the organic growth needs of new and existing core clients in the payment of our $0.52 per share, common dividend.

Credit spreads were repricing some of the fixed rate loans. So you know the good news is is is while there's pressure, it's moderating, but we still do see that pressure or into early next year.

Gotcha, Thanks, Mike and in terms of the expenses when you talk about the goal for next year to be flat to up 1%.

Could you remind us how much of the 750 gross you're expecting get next year.

Michael Maguire: We have no plans to repurchase shares over the near term, and we will continue to allow previous acquisitions to mature. Our WA Management continues to be disciplined as we allocate less capital to certain businesses, though we have been very clear that our balance sheet is open to core clients. In addition, we continue to believe that Truist's capital flexibility with Truist insurance holdings is a distinctive advantage. We estimate that our residual 80% ownership stake provides greater than 200 basis points of additional capital flexibility.

And whether you might also have TIAA <unk> readiness costs go into next year or two.

Yeah, I can start there Jonathan Bill may want to wait into.

Hard to say I mean, we said on the 750, it's kind of 12 to 18 months I mean, I think if you. If you think about two thirds plus or minus being recognized next year, maybe it's a little more than that.

That's how we're thinking about about the math, there and that would.

You know John give us the confidence that we have to to make sure we manage expense growth to less than 1%.

Michael Maguire: The table in the center of the slide provides an updated analysis of our AOCI. Based on estimated cash flows in today's forward curve, we would expect the component of AOCI attributable to securities to decline from $13.5 billion at the end of the third quarter to $9.7 billion by the end of 2026, or a decline of 28%. Finally, as it relates to proposed rules for a long-term debt requirement, we estimate that Truist's binding constraint is at the bank level and that the shortfall is approximately $13 billion. We are confident that we will meet the proposed requirements at both the bank and holding company level through normal debt issuance during the phase in period.

You asked about th readiness cost as well you know we're not we're not ready to talk about 'twenty four yet there are we are we will give you more visibility to that when we guide for the full year in January .

Okay fair enough. Thanks.

Our next question will come from Ebrahim <unk> with Bank of America you.

You May now go ahead.

Thank you good morning.

But I guess, maybe Mike just following up on the expense.

Things one just trying to think through when we look at them.

Zero to 1% growth next year.

When do these get realized.

Michael Maguire: Now, I will review our updated guidance on slide 17. Looking into the fourth quarter of 2023, we expect revenues to be flat or to decline 1% from 3Q23 gap revenue of $5.7 billion. We expect linked quarter improvement in non-interest income due to higher insurance, service charges on deposit income, and investment banking and trading income, partially offset by lower mortgage and other income. Net-net-interest income is likely to remain under some pressure due to our smaller balance sheet and modest, nim compression.

Should we assume.

The expense run rate to 2024 continues to decline from India thinking about exit 'twenty 'twenty four second half 'twenty for the expenses will be lower than first half 'twenty four is.

Yes from a contract standpoint, the right way to think about how these lewisville than offsetting investments.

Yes ebrahim.

I think the way I would answer that question is as you know were a lot of the action, we're taking actually right now and in the rest of the fourth quarter and early next year round. For example, some of the some of the organizational design and health and some of the reductions enforce you'll see that come into the run rate relatively quickly same goes for some of the realignment of businesses those have different flavor.

Michael Maguire: Adjusted expenses of $3.5 billion are expected to decline $3.5% due to lower personnel and other expenses. In April, we stated that our 2023 expense guidance excluded expenses associated with TIH independence readiness. Previously, we have not called out these costs because they totaled only $20 million through the first nine months of 2023, including $9 million in the second quarter and $11 million in the third quarter. In the fourth quarter, we expect these expenses to approximate $35 million, which are excluded from our 4Q23 expense guidance.

<unk> in certain cases, if we.

If we've significantly restructure our business like as a good example, we discontinued our middle market agency trading business earlier. This year that was a pretty quick adjustment to run rate. Other adjustments, we're making may be take place throughout the course of the course of next year, and then technology spend which as you recall is a pretty significant component of our of our cost savings.

Plan that has a you know a variety of flavors as well so I'd say for the most part you're going to see pretty good progress on run rate adjustment.

Sort of as we exit as we exit 'twenty three and enter 'twenty four and you'll see I think just sort of continuous improvement throughout the course of the year.

Michael Maguire: For the full year 2023, we expect revenues to increase by approximately 1.5%, which is at the midpoint of our previous revenue guidance of up 1 to 2%. Our guidance includes the $87 million client refund accrual that negatively impacted fees in the third quarter. Full-year 2023 adjusted expenses are still on track to increase 7%. This includes $70 million related to the legal settlement and client deposit service charge refunds, but excludes the $55 million of T.I.H, independence readiness costs for 2023.

That's helpful. Thanks, Mike and I guess the specific question. So you talked about exiting certain businesses in our student loan portfolio. Another one how much more does data do you think about just making the balance sheet more definition optimizing capital you've got a lot more to go on the asset side that you could look to exit those sale and it is.

Is there any way to quantify that.

You know I think we we we got after the lowest hanging fruit pretty quickly.

You know the student portfolio was.

It was not a strategic asset for us it was less profitable there've been other.

Michael Maguire: In terms of asset quality, we have tightened our guidance from a range of 40 to 50 basis points to approximately 50 basis points for the full year, which includes the impact of the student loan sale.

<unk> is within even our C&I business for example that we didn't feel like we're as highly as as strategic we've talked a lot about correspondent mortgage in and some of our national indirect lending businesses. So I think that we are we have a pretty good line of sight to it I think going forward, it's just much more around optimization right.

Michael Maguire: Finally, we expect our tax rate, effective tax rate, to approximate 18% or 20% on a taxable equivalent basis compared to 19% and 21% previously.

And being more disciplined in how we select.

William Rogers: Now I'll hand it back to Bill for some final remarks. Great, thanks Mike and I'll conclude on slide 18.

You know opportunities, how we price opportunities, we're seeing that come through in our results as well, but there's not a I don't think a significant shoe to drop on portfolio sales and those types of those types of things and maybe the only thing to add to that Mike is there just.

William Rogers: But looking beyond the third quarter, our transformation into a simpler, more profitable company is underway, we're driving swift and meaningful actions to simplify our organization, which include key organizational changes. So, for example, in the recent weeks, we've streamlined our commercial community banking regions from 21 to 14, realigned several overlapping units into a unified commercial real estate business. We've merged our consumer payments and wholesale payments businesses into a single enterprise payments organization, which will help us to accelerate payments activity more effectively across Truist.

Particularly in the areas that we've seen really good growth thing Sheffield and service finance will do will be more securitization. So it will create more velocity around those things on our balance sheet, which I think are great. So.

Continue the production continue to acquire new clients, but increase the velocity and we'll look at that with other parts of our other parts of our portfolio I think Mike said it right I mean, there's not a.

In a major power shift, but this optimization strategy. Our team has really embraced and I think we just continue to have more opportunities.

William Rogers: There have been a number of team consolidations within our consumer and small business banking lines of businesses. We've also realized nine teams under our enterprise operational services to drive efficiencies across our support teams serving the whole organization.

I'm going to say around the edges, but maybe more significant that as we move forward and you saw that reflected in the NIM this quarter.

That's helpful. Thank you both.

William Rogers: All of these changes are part of our $750 million call sales program, which is well underway and designed to drive better service for our clients and limit adjusted expense growth to flat top 1% in 2024. Although we're focused on reducing the rate of expense growth, we will continue to invest in our risk management organization and ability to maintain strong asset quality metrics.

Our next question will come from Erika Najarian with UBS.

You May now go ahead.

Hi, good morning, good morning.

This question. This is the first question is for you Bill I think.

Just taking a step back and thinking about slide 16.

I think you know a handful of your investors.

Did you think that once he struck the deal with stone point that it was a sort of a one way exec.

William Rogers: While there are many changes happening inside Truist, we've not lost focus on our core consumer and commercial businesses, which is an area that will continue to see significant investment. Net new checking account production has been positive for the first three quarters of this year, and we're on track to continue positive net news for the whole year. And during the quarter, we acquired more than 39,000 households through a digital channel. We're also maintaining momentum and wealth, where net organic asset flows have been positive in nine of the past ten quarters.

That being said that deal was struck with February and February right. The world didn't change and have had until March and so.

My question for you is is that you have this monetization opportunity for tourist insurance holdings now and as you think about the proceeds.

Again, clearly the world has changed so how how do you balance essentially you know the push that some investors are calling for in terms of restructuring your portfolio very meaningfully.

William Rogers: Client satisfaction scores were stable or increased across most RSBD channels during the third quarter. And incorporating commercial, new, left-lead transactions were up 45% year-over-year. Lastly, our wholesale payments pipeline is up 10% year-over-year. We're also seeing strong improvement in client sentiment amongst commercial clients reflecting product and digital investments that we've already made.

And I can see in that Middle chart in slide 16 that that portfolio. This is a very very slow bleed versus if you do that you're essentially.

Making the same call you did in <unk> 'twenty riches assume that rates are going to stay where they are.

Versus maybe doing.

More on the Ardebili mitigation side, which will cost you more in NII over the near term, but won't drop you into making a write back.

William Rogers: As a company, we're also operating our balance sheet more efficiently. Thanks to our focus on core clients, de-emphasizing lower return portfolios, and paying down higher cost debt. We're building capital, and we feel confident our ability to satisfy the requirements proposed in the Basel 3 end-game rules with the proposed phase end periods, while preserving our strategic flexibility with TIH.

So Erika I think you've been in all of our meetings. These are these are all of these are all the things that we're evaluating.

No everything's in a bucket to discuss.

William Rogers: In conclusion, we're making progress and we're doing what's necessary to improve our financial performance to meet your expectations and of course ours. I am truly optimistic about Truist and I know we're well positioned for the future. Our teammates are really performing at a high level and they are committed to serving our clients, caring for each other and capitalizing on our great growth markets. I am really proud of our teammates.

The you know and as you.

As you noted I mean, the you know the world changed pretty substantially from for March but it just reaffirmed.

Our desire to have this flexibility.

And you know going back a little bit to the to the independents question. You know the remember we sort of got this large capital benefit, but we always had this you know part of getting that capital benefit was the expense of creating the independents over the long term as you just highlighted that so that to us that was always a really good trade off in terms of in terms.

William Rogers: Before we move to Q&A, I also want to publicly thank the eight members of our Board of Directors who planned a retire at the end of this year. I'm deeply grateful for their years of service and meaningful contributions to our company. Truist literally exists due to their leadership and confidence. Following these retirements, our board will consist of 13 members, including 12 independent directors who are well positioned to oversee and advance our strategic plans during this period of rapid industry transformation.

Are creating that flexibility so I don't want to speculate today as to you know we're going to go after we're gonna go right other than to say I think you've you've encapsulated almost perfectly in your question all the alternatives, we would consider and there are tradeoffs to every single one theres not one perfect path.

There are tradeoffs to all of them and we're going to we're going to make the decisions that are in.

In the best long term interest of our shareholders that is going to be that's going to be our north star and the guiding post as we think through this and factor in all the environment that we exist today and that will exist tomorrow with everything that you put into your question.

Bradley Milsaps: So with that, Brad, let me turn it back over to you and we'll look forward to the Q&A.

Unknown Executive: Thank you, Bill.

Unknown Executive: Anthony, at this time, we 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 lend them yourselves to one primary question and one follow up in order that we may accommodate as many of you as possible on the call today. Ladies and gentlemen, if you'd like to ask a question, please signal star than one on your telephone keypad. If using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask you to lend yourself to one question and one follow up question. Again, please press star than one to signal for a question.

Thank you and my second question is far more boring on the on the service charges, Mike. It went down to 150 from like a 240 handle and 249% previous quarter.

Previous March quarter was that a onetime reversal of ours isn't a new run rate I know that there was some offset in other income, but just trying to think about the moving pieces for fees from here.

During the quarter the accrual that we referenced was.

Was $87 million and that's not something that we would expect to continue.

Kenneth Usdin: Our first question will come from Ken Uzden with Jeffries. You may now go ahead. Hi, good morning, guys. Thanks for all the color and the updates. I just, you know, Bill, just coming back to the independence preparation for TIH and articles that were in the paper. And I know you're still am I talking about the optionality. Can you just give us an updated sense of just how you're looking at, you know, the value of the business versus, you know, financially versus strategically.

Perfect. Thank you.

Yeah.

Okay.

Our next question will come from John <unk> with Evercore ISI.

You May now go ahead.

Good morning.

Good morning, John .

The on the the commentary you gave to John Mcdonald's question regarding some incremental pressure in margin and NII in the fourth quarter and into the first half.

Kenneth Usdin: And what would change here to, you know, to make you guys move forward with some, you know, some type of transaction to move it to move it forward. Yeah, I can't good morning and thanks for that. You know, as you can imagine, I don't want to comment on any sort of rumors, speculation, but, but to your question, you know, think about the reason we did the, the opportunity was important. I mean, what we wanted to do is exactly what you highlighted in your question is to create, you know, this financial and strategic flexibility for both true and for P.I.H.

Can you maybe help quantify that magnitude of the pressure that you would expect based upon your rate outlook in the balance sheet dynamics, and then and then secondly could you, possibly unpack the <unk>.

Positive growth assumption and deposit beta assumption, that's baked into that.

John I'll, just maybe give you a sense for the outlook on NIM for the fourth quarter.

I think were you know again as I mentioned with the deposit betas creeping were at 49% as you know as of as of the third quarter. We were at 44 in the second and we would expect that to continue to up to worsen a bit and I'm just as customers continue to reprice a bit that's obviously slowing in and for the most part.

Kenneth Usdin: You know, we wanted to establish value in the business and the business is growing. I mean, we've been able to hire and retain talent. So we feel really good about what's happening in the core insurance business. You know, we wanted to make sure that the insurance business had flexibility to continue to grow. And then the truth is, had an opportunity to respond to whatever may happen. I mean, we're obviously in a market that's got a lot of uncertainty to it, and we just want to retain that strategic and financial flexibility.

Across six vote, three or four of our segments as sort of you know.

All the way, where we think terminal betas might be but we're still seeing some movement on the on the on the consumer side of things. So I think a little bit of pressure from the betas again, offset perhaps a bit by.

Kenneth Usdin: So there's not one thing. There's not like a queue. You know, if something happens, we do this. But we want to just continue to reserve this, this flexibility and continue to apply it to both the bank and the insurance. Business. Yeah, and I guess I'll just follow up on it as well, like at what point does, you know, financial benefit become strategic because a lot of the questions we get are the trade off between the two, you know, in obvious ability to improve capital versus a delta in terms of like fee contribution, ROE, etc.

Some of the some of the credit spread widening that we're seeing and so from a NIM perspective, maybe it's a few basis points as far as our revenue outlook for the quarter. You know we are we we we have a sense that it's you know probably worse, 1% perhaps flat.

Kenneth Usdin: So, yeah, it's hard for the investor community to kind of just understand what that incremental, you know, switches. I guess maybe how do you think about that notion of like when financial becomes strategic? Yeah, as I said, there isn't a particular trigger point, you know, we just want to make sure that we retain that flexibility and we're constantly looking at everything that you just that you just talked about and factoring that into the decision making.

NII is going to be down a touch and fees will be up a touch so I'd just sort of maybe maybe leave it at that and as far as the balance sheet. Our sizing you know we had a much more significant decline in earning assets. During the third quarter, you know around $18 billion, we would expect that to be much much smaller in the fourth quarter. So you know maybe.

Closer to the tune of.

5 billion or so you've got the securities portfolio. That's that's cash flowing at about $3 billion and may be just a little bit of pressure on.

On loans. So I think that's that's probably the math you need.

Okay, great. Thank you that's helpful and then.

<unk> got a pretty solid remix in the funding base.

Kenneth Usdin: This is something that we sort of continually keep in front of ourselves, we keep in front of the board. But I think the intentionality, I mean the reason we did this is we're allowed to have this conversation around flexibility. Right, okay, thank you, Bill. Okay, thanks, yeah.

Discuss a bit on client 11.

In third quarter given the.

I'm going to pay down or reduction in the club advances et cetera.

How much more do you think.

Of rationalization of the funding mix do you think there is in coming quarters as you look at the setup now thanks.

John Mcdonald: Our next question will come from John McDonald with eponymous research. You may not go ahead.

Yes, I think into the third quarter was unique and the amount of Remixing that was accomplished I mean, you saw that the student loan portfolio was a big component of that and that's a pretty low net interest margin contributor same thing the investment portfolio at $3 billion, we took cash down by close to $5 billion. So if you think about that.

John Mcdonald: Good morning, guys. I wanted to ask you about an interesting common number of banks have said that they see NII dollars potentially bottoming in the fourth quarter. Mike mentioned, you see a little bit of slippage into the fourth quarter. But do you have any visibility on whether that could stabilize, you know, fourth quarter and what factors should we think about for you as we think about the NII path heading into next year?

<unk> is sort of right at so for really really thin spreads and then at the same time, taking off the FHA advances.

That was the that was really the driver of that mixing that's all some of the benefit on the NIM and that sort of eight of the NII in the quarter I think in the fourth quarter Youre going to see a more sort of traditional March of again I'd hate. It you know deposit cost creeping up a little bit higher hopefully again, we'll continue to.

John Mcdonald: Yeah, good morning, John. You know, we obviously did see some pressure this quarter actually probably a little bit better than we expected and that we talked about during the second quarter. You know, we do expect to continue to see some pressure in the fourth and frankly, even into the first half of 2024 and I think that just has to do with, you know, the rate path. You know, we have an expectation that we've, you know, we think we've seen our last pike and we don't have a cut in the forecast until July of next year.

To be successful as we have been around you know thinking about rate paid I mean, I'm really pleased by how the businesses has been performing I mean, we've been testing different rate strategies. We've been looking at promo rates. You know we've looked at exception based pricing and structure and so that will continue and so we're going to try to do the best we.

John Mcdonald: We have two cuts in the second half. And so, you know, as beta is sort of again, the good news is are slowing down and we feel like grinding a bit lower. We should still feel a little bit of pressure, you know, there. You know, we're trying to combat some of that pressure. We've been very intentional around how we're managing rate paid across our, across our client base. We're beginning to see some nice progress as it relates to new and renewed credit spreads. We're reprising some of the fixed rate loans. So, you know, the good news is is while there's pressure, it's, it's moderating, but we still do see that pressure into early next year. Gotcha. Thanks, Mike.

Canada to manage that but I think the mix.

You know driver that we saw in Q3 is really a Q3 only opportunity.

Got it alright, thanks, Mike.

Okay.

Our next question will come from Mike Mayo with Wells Fargo Securities you.

You May now go ahead.

Hi.

I hear you.

Pat.

<unk> guide for next year zero to 1%, so that would be better and I hear you about taking the tough actions, but then I look at the core efficiency ratio of around 60% and it's it's not what investors signed up for when you announced the merger even recognizing that the rate headwinds and other things.

John Mcdonald: And in terms of the expenses, when you talk about the goal for next year to be flat to up 1%, you remind us how much of the 750 gross you're expecting it next year. And whether you might also have T.I.H, readiness, it costs going to next year or two. Yeah, I can start there, John. I feel maybe won't wait into. You know, hard to say. I mean, we said on the 750, it's kind of 12, 18 months.

Don't think it's where you wanted to be so you know as you embark on what maybe you could call. It true as to why now as compared to <unk> One point now Hal.

Is management changing in terms of the time to make decisions no truth. One point out was like selecting best of breed. It seemed to take a long time, maybe that was slowed down by such a large board, which now is getting reduced how is true as to point out better on intensity how is it true to pointed out better and.

John Mcdonald: I mean, I think if you, if you think about, you know, two thirds plus or minus being recognized next year, maybe it's a little more than that. That's how we're thinking about about the math there. And that would, you know, again, you know, John, give us the confidence that we have to make sure we manage expense growth to less than 1%. You know, you asked about T.I.H, readiness costs as well. You know, we're not, we're not ready to talk about 24 yet there. We, we will give you more visibility to that when we guide for the full year in January.

John Mcdonald: Okay, fair enough, thanks.

In terms of moving shareholders up the pecking order and I guess generally with all your optimism bill that certainly it is not reflected in the share price and there's a lot of frustrated and disgruntled shareholders out there. So how can trust to point out with the $750 million of savings maybe strategic actions with insurer.

Ebrahim Poonawala: Our next question will come from Ebrahim Poonawala with Bank of America. You may now go ahead. Thank you, good morning. Good morning. I guess maybe my just falling up on the expense savings. One, just like to think through, when we look at the 0-1% growth next year, when do these get realized and we assume that the expense run rate to 2024 continues to decline. So when we are thinking about exit 2024, second half 24 expenses will be lower than first half 24 is that just from a construct standpoint, the right way to think about how these flows through, they are led to your offsetting investments.

<unk> intensity and the way you manage help shareholders more.

Yeah, Mike Thanks.

No.

The intensity is I.

I don't know how to utter whatsapp relative to us other than high so.

The intensity is really good and what's happened with the cost save program or we talk about the $750 million in cost saves.

But I don't want to diminish the simplification of our business so creating these.

Consumer and.

Wholesale towers, and creating the simplification of our business that really has allowed us to move a lot faster. So I've been really pleased with how the team has embraced this whole process I made leaders are stepping up and really demonstrable ways.

Ebrahim Poonawala: I think the way I'd answer that question is a lot of the action we're taking right now and in the rest of the fourth quarter and early next year around, for example, some of the organizational design and health and some of the reductions in force, you'll see that come into the run rate relatively quickly. Same goes for some of the realignment of businesses, those have different flavors. In certain cases, if we significantly restructure a business, like as a good example, we discontinued our middle market agency trading business earlier this year, that was a pretty quick adjustment to run rate.

Getting in front of it and they're making decisions at a much much faster pace. So I outlined a bunch of the different consolidations and those type things those those would've been more sequential in the past you know you sort of do what you do another one you sort of go through the process and today. They are all on these great parallel paths.

And I think that's gonna have a you know faster longer longer term impact and look I mean to your point I mean, we're not happy with where the efficiency is now at one of the state that as publicly as possible.

Ebrahim Poonawala: Other adjustments we're making may be take place throughout the course of next year and then technology spend, which as you recall, is a pretty significant component of our cost savings plan. That has a variety of flavors as well. So I'd say for the most part, you're going to see pretty good progress on run rate adjustment, sort of as we exit as we exit 23 and enter 24 and you'll see I think just sort of continuous improvement throughout the course of the year.

And we have you know demonstrable plants, you know we talked about the the the overall play on the cost saves, but long term that also has to result in better revenue growth and all the things that we do together, bringing these businesses together optimizing the balance sheet, creating capacity, creating product and capability.

Training, our teammates having them leaned out of.

Demonstrated net new all the things that are building in terms of the momentum those are those are key and I can assure you for our board we have.

Ebrahim Poonawala: That's helpful. Thanks, Mike.

Ebrahim Poonawala: And I guess it's a separate question. So you talked about exiting certain businesses, the student loan portfolio, another one. How much more is there as you think about just making the balance sheet more efficient, optimizing capital? Is there a lot more to go on the asset side that you could look to exit or fail? And if there's any way to quantify that? I think we got after the lowest hanging fruit pretty quickly.

Presented.

Improvement plan on the efficiency ratio long term improvement plan it will be on that track we share your frustration Trust me.

But I think we've got now the structure in place.

The leadership in place the commitment the intensity the support.

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

And we're moving and we're moving fast.

And our team can feel it and they've embraced it.

And just as a follow up since you did present a plan to the board for the efficiency ratio I don't think consensus and expect much improvement next year. I guess next year is going to be tough to have positive operating leverage, but if you can comment on that and maybe just a little bit more meat on the bonds. You gave a lot you know one third less bank reach.

And one payment business.

Any other color you can give on the efficiency and and when you say simplification I mean, you guys arent Citigroup right. It sounds like in 100 countries you're in adjacent regional markets, where you should be able to be a lot more simple than what happened after the merger so a positive operating leverage improvement.

William Rogers: Maybe the only thing to add to that, Mike, is just particularly in the areas that we've seen really good growth. Thanks, Chef the Old and Service Finance. We'll do more securitization. So we'll create more velocity around those things on our balance sheet, which I think are great. So continue the production, continue the acquired new clients, but increase the velocity. And we'll look at that with other parts of our portfolios. I think Mike said it right.

Efficiency next year or is this really as you say a long term plan.

Yeah, you know on the they're just as with efficiency there is a positive operating.

Leverage long term plan and all of our businesses and a part of the simplification allows them to.

William Rogers: I mean, it's not a, you know, major power shift, but this optimization strategy, our team's really embraced and I think we just continue to have more opportunities. I'm going to say around the edges, but maybe more significant that is we move forward. And you saw that reflected in the NEMLIS quarter. Thank you.

Control that destiny and make decisions about that on a on a faster basis it'll be harder in the first part of next year I mean, as you know I mean, you're sort of running off on NII comparison. So that that's just a tougher that stuff's, just a tougher hurdle, but as we get into the latter part of next year I mean, we're going to see continuous improvement.

Erika Najarian: Our next question will come from Erika Najarian with UBS. You may not go ahead. Hi, good morning. Good morning.

Our commitment to that on a long term basis. So I can't I can't you know without sort of a rate forecast and all of that particular can't come out exactly but I can come at that.

Erika Najarian: This first question is for you, Bill. I think just taking a step back and thinking about slide 16, I think a handful of your investors did think that once you struck the deal with Stone Point that it was a sort of a one-way exit, that being said, that deal was struck with February and February, right? The world didn't change until March. And so my question for you is is that, you know, you have this monetization opportunity for tourist insurance holdings.

During the second half of that next year, you're going to start seeing a lot of improvement on the operating leverage in going into 25 will be firmly committed to be on a really good flight path and then as you then to the simplification things you know we'll continue to it's a really good question will continue to outline some of those I mean, just think about.

For example care centers I mean, we have a lot of care centers, serving a lot of different businesses.

And the merger we needed to.

Bring those all over the transom and have them perform well we've invested in a lot of technology and we can consolidate our care centers, just think about that as one of dozens and dozens of examples of this component of simplification. So while I agree with you. We're not sort of you know globally in 100 countries or whatever that parallel may have been.

Erika Najarian: You know, and as you think about the proceeds, you know, again, clearly the world has changed. So how do you balance essentially, you know, the push that some investors are calling for in terms of restructuring your portfolio very meaningfully, you know, and I can see in that middle chart in slide 16 that that portfolio just is a very, very slow bleed versus if you do that, you're essentially, you know, making the same call you did in 4Q20, which is assumed that rates are going to stay where they are.

We still have a lot of opportunity to make this company.

Simpler faster leaner and more responsive to clients and as you noted more responsive to shareholders.

Alright, thank you.

Our next question will come from Matt O'connor with Deutsche Bank.

Erika Najarian: Versus maybe doing more on the RWA mitigation side, which will cost you more an NII over the near term, but won't trap you into making a rate bet. Eric, I think you've been in all our meetings. These are all the things that were evaluating, you know, everything in a bucket to discuss. And as you noted, I mean, the world changed pretty substantially from March, but it just reaffirmed, you know, our desire to have this flexibility.

Now go ahead.

Good morning.

Can you guys elaborate on the service charge <unk> was that something that was self identified was it driven by the CFPB or.

We haven't seen that.

It appears at least not yet can you elaborate what happened there. Please.

Yeah.

Yeah, Matt the spill, yeah, we did that on our on our own volition.

Yeah, we've looked at.

You know all of our products and offerings, we've listened to a lot of a lot of client feedback, we reviewed and changed our protocols with respect to deposit related fees.

And that resulted in refunds that did impact revenue and other expense.

Erika Najarian: And, you know, going back a little bit to the independence question, you know, remember, we sort of got this large capital benefit, but we always had this, you know, part of getting that capital benefit was the expense of creating the independence over the long term. As you just highlighted that. So that to us, that was always a really good trade off in terms of in terms of creating that flexibility. So I don't want to speculate, you know, today as to, you know, we're going to go left or we're going to go right other than to say, I think you've encapsulated almost perfectly in your question.

I think I think we're taking it just a more contemporary view of sort of where the world is where the puck is going in.

And making sure that we get ahead of that we're staying in front and you know.

Creating this a clearer path as possible for our for next year on the continuous improvement we want to make in our business.

And then how do we think about the run rate of the service charges. Given these changes obviously, we're not gonna have a run rate of 152, but I guess I was just so much lower than previous quarters. If you implemented changes going forward.

Erika Najarian: And all the alternatives we would consider, and they're trade offs to every single one, you know, there's there's not one perfect path. They're trade offs to all of them. And we're going to, you know, we're going to make the decisions that are, you know, in the best long term interest of our shareholders, that's going to be, that's going to be our north star and the guiding post as we think through this. And factor in all the environment that we exist today, and that will exist tomorrow with everything that you put into your question.

Erika Najarian: Thank you.

Yeah look I mean, I think there has been pressure on this item in general just given the evolution of our of the service charges on deposits, but I think you can you can safely assume that the the $87 million that we that we that we that we've noted here during the third quarter was was you know was the third quarter.

Event. So again I think you should expect it to be.

Erika Najarian: And my second question is far more boring. On the service charges, Mike, you know, it went down to 150 from like a 240 handle and 249, the previous quarter and the previous March quarter.

The same style of pressure you've seen on this line item sort of trending in the industry and for truest.

But this but this particular event it wasn't sort of a step functional.

Driver.

Erika Najarian: Without one time reversal, or is it a new run rate? I know that there is some offset and other income, but just trying to think about the move. Living pieces for fees from here. Yeah, during the quarter, the accrual that we referenced was with $87 million, and that's not something that we would expect to continue. Perfect, thank you. Yeah.

Okay, and then just to summarize I guess at this point.

Changes you made in the refunds like.

How would you frame.

Our approach to service charges are you kind of in the middle in terms of being conservative or are more.

More on the conservative side, how would you frame.

The overdraft and Cds overall approach.

Yeah, I think we've got a great product and truest, one and that really reflects where we're going and so.

We're adding.

Almost all of our new clients to choose one I highlighted some of the benefit of some of the things that we're doing that and then we're migrating some of our back book to tourists. One so I don't know how to I don't know how to characterize conservative where but I do know this is purposeful and I think I think we've got an incredibly competitive product.

John Mcdonald: On the commentary you gave to a Dejama McDonald's question regarding some incremental pressure in margin and NII in fourth quarter and into the first half, can you maybe help quantify that magnitude of the pressure that you would expect based upon your rate outlook and the balance sheet dynamics, and then secondly, could you possibly unpack the positive growth assumption and the positive beta assumption that's baked into that? Thank you. John, I'll just maybe give you a sense for the outlook on them for the fourth quarter.

Product that that has all the right mixes in that it's really really quiet <unk>.

Responsive, but it's also contributed to our growth.

So while you know service charges as an overall as Mike talked for contingent collect down we're balancing that with growth, adding new clients expanding relationships and I think that's sort of the right mix as we think going forward those things wont align perfectly quarter to quarter, but long term I think we're on a really really good.

John Mcdonald: You know, I think we're, you know, again, as I mentioned, you know, with the deposit betas, you know, creeping word, 49% as, you know, as of the third quarter, we were at 44 in the second. We would expect that to continue to worsen a bit, and just as, you know, customers, you know, continue to reprise a bit, that's obviously slowing, and for the most part, you know, across, you know, the sixth quarter, three or four of our segments is sort of, you know, all the way where we think terminal betas might be, but we're still seeing some movement on the on the consumer side of things.

Long term shareholder value building path.

Yeah.

Okay. Thank you thanks.

Thanks, Matt.

Our next question will come from Gerard Cassidy with RBC capital markets you may not thank you.

Good morning, Bill Good morning, Mike Hey, Gerard.

Can you share with US you think about the game plan that you and your peers have had to use post financial crisis. In this low interest rate environment of zero to 25 basis points. So there was a blip in 2018 of course, but now we're in this new rate environment that was really pre financial crisis.

John Mcdonald: So, you know, I think a little bit of pressure from the betas, again, offset perhaps a bit by some of the some of the credit spread winding that we're seeing. So from a nymph perspective, maybe it's a few basis points. You know, as far as our revenue outlook for the quarter, you know, we, you know, we have a sense that it's, you know, probably, you know, worse, one percent, perhaps flat. You know, NII is going to be, you know, down a touch and fees will be up a touch, so I just sort of maybe, maybe leave it at that.

One is what one or two what changes are you. If you are having some changes what changes are you implementing to win new business in this new rate environment since it's quite a bit different than it was three or four years ago with both commercial and consumer customers loans deposits et cetera.

John Mcdonald: You know, as far as the balance sheet sizing, you know, we had a much more significant decline in earning assets during the third quarter, you know, around $18 billion. We would expect that to be much, much smaller in the fourth quarter. So, you know, maybe, you know, closer to the tune of, you know, five billion or so, you know, you've got the securities portfolio that's cash flowing at about three billion dollars. And maybe just a little bit of pressure on, on loans. So I think that's, that's probably the math you need. Okay, great. Thank you. That's helpful.

Yeah, Gerard as you know.

You know I'm, a I'm I'm you know unfortunately, maybe of the age to have operated in this room.

Fast though.

Yeah, exactly so I have some familiarity this is not unprecedented or or new territory.

I think sort of a couple of things you know it first starts with it and you highlighted I mean, you know the cost of funding does not for us.

The first part starts with all of the things we've been talking about about.

Michael Maguire: And then, um, technically, you had a pretty solid remix of the funding base that you discuss a bit on Friday 11. You know, in third quarter, given the some of the paydown or reduction in the flood advances, et cetera. How much more do you think of rationalization of the funding mix? Do you think there is, you know, incoming quarters as you look at the setup now? Thanks. Yeah, I think you know, the third quarter was unique in the amount of remixing that was accomplished.

Optimization and demanding more full relationships from our clients and all the things that go along with that but you have to offer competitive products and capabilities and be leading and so for US you know a highlighted a lot of the metrics things like net new on the consumer side. So we've got a product like <unk>, one that's really responsive.

We're winning the battle with.

Michael Maguire: I mean, you saw the student loan portfolio was a big component of that. And that's a pretty low net interest margin contributor or same thing, the investment portfolio at three billion, you know, we took cash down by close to five billion dollars. So if you think about that stuff as sort of, you know, write at so for really, really thin spreads and then at the same time taking off the FHLB advances, you know, that was the, that was really the driver that mixing.

With.

The competitive environment that clients want more than rate paid you've got your rate paid is not the only option you got to offer more product and more capability and so I think we're winning on that front and then on the commercial and corporate side same thing where in the advice business and if we start that we're in the advice business versus where in the right business, we start with a really good framework.

So this whole concept of business lifecycle advisory, where we are you know I.

Highlighted the fact that we're winning our left lead relationships. So we're becoming more important to our clients we're becoming the.

Michael Maguire: It's all some of the benefit on the NIM and that sort of, you know, aided the NII on the quarter. I think in the fourth quarter, you're going to see a more sort of traditional march of, again, I've hit it, you know, deposit costs, you know, creeping up a little bit higher. You know, hopefully again, we'll continue to be successful as we have been around, you know, thinking about rate paid. I mean, I'm really pleased by how the businesses has been performing.

Go to with our clients were in the you know the first call perspective, where you want to be so I think the I think the changes are you. Just this relevance is so much more important.

I'll start with the market share that we enjoy in our you know in our core markets of 20%.

All the ubiquity of inefficiency that comes with that so this is not this is not new work, but it's a double down on you know you have to be really good at the job you have to be really good at advice you have to really be good in product and capability.

Michael Maguire: I mean, we've been, you know, testing different rate strategies. We've been looking at promo rates. You know, we've looked at exception-based pricing and structure and so that will continue. And so we're going to try to do the best we can to manage that.

And the you know the.

Michael Maguire: But I think the mix, you know, driver that we saw on Q3 is really a Q3 only opportunity. Thank you. All right, thanks, Mike.

Which by the way I think that's going to really work well for true ups as the you know the.

The new definition of winning I think fits perfectly into our strategy going forward.

I appreciate the insights and then on.

Michael Mayo: Our next question will come from Mike Mayo with Wells Fargo Securities. You may not go ahead. Hi, I hear you about the expense guide for next year is 0 to 1% so that would be better and I hear you about taking the tough actions, but then I look at the the core efficiency ratio of around 60% and it's not what investors side up for when you announce the merger, even recognizing the rate headwinds and other things.

On credit maybe this is best answered by Clark.

You guys talked about.

Tightening up and I think the credit standards, a bit but I'm more interested when I'm worried about you folks you you guys have a good track record of credit underwriting, but can you make any comments about what others might have been doing over the last two or three years, whether it's non depositaries or depositors in.

Lending and those maybe aggressive actions if there were any hum.

William Rogers: I don't think it's where you wanted to be. So, you know, as you embark on what maybe you could call Truist 2.0 as compared to Truist 1.0, you know, how is management changing in terms of the time to make decisions, you know, Truist 1.0 was like selecting best to breed. It seemed to take a long time. Maybe that was slow. So down by such a large board, which now is getting reduced, how is Truist 2.0 better on intensity?

How that can impact your customers, who again, you've underwritten fine, but maybe they've done something crazy with somebody else, which then the second derivative you guys get impacted but clarke any color on that especially compared to prior cycles.

Yeah, Gerard it's a great question and I know my peers and I have talked about this but I'd say in general, particularly since the great recession I think the discipline in the industry overall has been really good and I think the fundamental.

William Rogers: How is Truist 2.0 better in terms of moving shareholders up the pecking order? And I guess generally, with all your optimism bill, that certainly is not reflecting the share price and there's a lot of frustrated and this rental shareholders out there. So how can Truist 2.0 with the 750 million of savings, maybe strategic actions with insurance, intensity, and the way you manage help shareholders more? Yeah, Mike, thanks. The, you know, the intensity is, I don't know how to, I don't know what's the proletive to use other than high.

Approach, despite the low rate environment.

I think the industry in general is in a much better place than we were pre pre financial crisis and even the non bank players generally have done a good job. There. So I don't think there's this we don't necessarily see a big shoe to drop I think the biggest impact we're trying to evaluate through as you shift from a long secular low rate.

<unk> to where we are now as you know.

Hell health economic some of those deals where even if you felt your underwriting well how sustainable will all of that the you know we feel really good about where we are and I'd say generally the industry as well.

William Rogers: So the intensity is really good. And what's happened with the cost-save program, and we talk about the $750 million cost-saves, but I don't want to diminish the simplification of our business. So creating these, you know, consumer and wholesale powers and creating the simplification of our business, that really has allowed us to move a lot faster. So I've been really pleased with how the team has embraced this whole process. I mean, leaders are stepping up in really demonstrable ways, you know, getting in front of it and they're making decisions at a much, much faster pace.

Thank you.

We will now take our final question from Brian <unk> with Morgan Stanley you.

You May now go ahead.

Hi, good morning.

So just want to clarify something on the earlier question on the NII path when we heard the comment around not expecting any significant loan portfolio sales from here, but can you give us an update on your current approach to managing the securities portfolio and specifically what are your views on potentially repositioning parts of the securities portfolio, especially are more.

Capital freed up from potential future exits our optionality.

William Rogers: So I outlined a bunch of the different consolidations and those type things. Those, those would have been more sequential in the past, you know, you sort of do one, you do another one, you sort of go through the process and today they're all on these great parallel paths. And I think that's going to have a, you know, faster, longer, longer term impact. And look, I mean, to your point, I mean, we're not happy with where the efficiency is now.

Yeah. Good morning, Ryan on the security side we've.

On average we see you know two and a half to $3 billion of just cash flow and maturities from the portfolio.

I think you should expect that to continue in terms of sort of just some of the some of the drag on the earning asset base as far as the repositioning I don't think Theres any new news news here I mean, obviously.

William Rogers: One of them state that as publicly as possible. And we have, you know, demonstrable plans, you know, we talked about the overall play on the cost saves, but long term that also has to result in better revenue growth. And all the things that we do together, bringing these business together, optimizing the balance sheet, creating capacity, creating product and capability. Training our teammates, having them lean in, you know, demonstrated net new, all the things that are building in terms of the momentum, those are, those are key.

You know long rates have sort of been on the rise here and so we've been tracking the unrealized losses and we have some incremental disclosure you know kind of on our current position in the burn down.

You know in our on our capital Slide you know I think we were constantly evaluating potential strategies and and the likes as it relates to the to the bond portfolio, but nothing nothing new we did I'd just say as we think about this new world we're living in where.

William Rogers: And I can assure you, you know, for our board, we have presented, you know, a improvement plan on the efficiency ratio, long term improvement plan. And we'll be on that track. I mean, we share your frustration, trust me. But I think we've got now the structure in place, the leadership in place, the commitment, the intensity, the support, and we're moving, and we're moving fast. And our team can feel it and they've embraced.

Where were these unrealized losses the at least the securities OCI is a is a factor in terms of capital you know.

In an effort to manage that.

Potential volatility in the future we did add some some pay fixed hedges during the third quarter.

You know, which which which we'll see some benefit from to the extent that kind of rates hang where they are or worsen a bit. So we've got about a third a little less than a third of the of the <unk> securities.

Hedged.

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

William Rogers: Just as a follow-up, since you did present a plan to the board for the efficiency ratio, I don't think consensus expects much improvement next year. I guess next year is going to be tough to have positive offering leverage, but if you could comment on that and maybe just a little bit more meat on the bone, you gave a lot, you know, one third less bank region, one payment business, any other color you can give on the efficiency.

Yeah, Ryan it's a good question first I'd tell you we have established our 24 guidance, yet, but I believe the things that will drive where we go for it are the same considerations.

William Rogers: And when you say simplification, I mean, you guys aren't city group, right? It's not like in a hundred countries, you're in adjacent regional markets where you should be able to be a lot more simple than what happened after the merger. So positive opportunity improvement efficiency next year is this really, as you say, a long term plan. Yeah, you know, on the just as with efficiency, there is a positive operating leverage long term plan in all of our businesses and part of the simplification allows them to control that destiny and make decisions about that on a faster basis.

Youre seeing now and coming out of Q3 and going into Q4, and so I would say for US we are seeing.

Normalization in our consumer area, particularly in the low end consumer so think of our regional acceptance subprime Aldo and then you've also got some defined seasonality in the second half of the year, that's impacting Q4 outlook. The other piece would be.

Earlier in Mikes were remixing, our balance sheet to be more optimal and so you're seeing more growth in our higher margin businesses like Sheffield in service finance, but they carry higher normal losses, and then I think most importantly, something that we control is our efforts to get ahead of the CRE office risks.

William Rogers: It will be harder in the first part of next year, I mean, as you know, I mean, you're sort of running off an NII comparison. So that's just a tougher, that's just a tougher hurdle. But as we get into the latter part of next year, I mean, we're going to see continuous improvement and commitment to that on a long term basis. So I can't, you know, without sort of a rate for task and all that particular can't comment exactly, but I can comment that, you know, during the second half of that next year, you're going to start seeing a lot of improvement on the operating leverage and going into 25 will be firmly committed to be on a really good flight path.

Q3, we were very intentional about working through moving from just identifying the risks there to actually resolving several of the problem credits.

Some losses, there to do that and we are anticipating maybe opportunities to do more in Q4. So I think those are the three factors that will impact where losses go.

Okay.

Great. Thank you.

William Rogers: And then, you know, to the simplification things, you know, we'll continue to it's a really good question. We'll continue to outline some of those. I mean, just think about, for example, care centers. I mean, we have a lot of care centers serving a lot of different businesses in the merger. We needed to, you know, bring those all over the transom and have them perform well. We've invested in a lot of technology and we can consolidate care centers.

Okay.

I'm sorry. This concludes our question and answer session I would like to turn the conference back over to Mr. Brad Millsaps for any closing remarks.

Okay. Thanks, Anthony that completes earnings call do you have any additional questions. Please feel free to reach out to the Investor Relations team. Thank you for your interest interest and we hope you have a great day Anthony you can now disconnect the call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

William Rogers: Just think about that as one of dozens and dozens of examples of this component of simplification. So while I agree with you, we're not some of, you know, globally in 100 countries or whatever that parallel may have been, but we still have a lot of opportunity to make this company simpler, faster, leaner, and more responsive to clients. And as you noted, more responsive to shareholders.

Gerard Cassidy: All right. Thank you.

Ryan Kenny: Our next question will come from Matt O'Connor with Deutsche Bank. You may now go ahead. Good morning. Can you guys elaborate on the service charge issue without something that was kind of self identified, was it driven by the CFDB or we haven't seen that. That appears at least not yet. Can you elaborate what happened there, please? Yeah, I'm at the spell. Yeah, we did that on our on our own volition. I mean, we've, you know, we've looked at, you know, all of our products and offerings.

Ryan Kenny: We've listened to a lot of a lot of client feedback. We reviewed and changed our protocols with respect to deposit related fees. And that resulted in refunds that that did impact revenue and other expanse. You know, I think I think we're taking it just a more contemporary view of sort of where the world is, where the puck is going and making sure that we get ahead of that. We're staying in front and, you know, creating this, you know, clear path as possible for for next year and the continuous improvement we want to make on our business.

Ryan Kenny: Service. And then, how do we think about the one rate of the service charges given these changes? Obviously, we're not going to run rate the 152, but I guess I would assume it's lower than through this quarters, if you implement changes going forward. Yeah, look, I mean, I think there's been pressure on this item, you know, in general, just given the evolution of the service charges on deposits, but I think you can, you can safely assume that the $87 million that we, that we, that we've noted here during the third quarter was, was, you know, was a third quarter event.

Ryan Kenny: So, again, I think you should expect there to be, you know, the same style of pressure you've seen on this line item, sort of entwending in the industry and for Truist, but this, but this particular event wasn't sort of a step functional, you know, driver. Okay, and then just to summarize, I guess at this point, with the change that you made and the refunds, like, how would you frame, you know, your approach to service charges, are you kind of in the middle in terms of being conservative or more of the conservative side, how would you frame, you know, overdraft and the fees overall the approach.

Ryan Kenny: Yeah, I think we've got a great product and Truist one, and that really reflects where we're going. And so, you know, we're, we're adding, you know, almost all of our new clients to Truist one highlighted some of the benefits, some of the things we're doing that, and then we're migrating some of our backbook to Truist one. So, I don't know how to, I don't know how to characterize conservative, but I do know this is purposeful.

Ryan Kenny: And I think, I think we've got an incredibly competitive product that has all the right mixes and that it's really, really client responsive, but it's also contributed to our growth. So, you know, while, you know, service charges as an overall, as Mike talked, will, you know, continue to collect down, we're balancing that with growth, adding new clients, expanding relationships. And I think that's sort of the right mix as we think going forward. Those things won't align perfectly quarter to quarter, but long term, I think we're on a really, really good long term shareholder value building path. Okay, thank you. Thanks, Mike.

Ryan Kenny: Our next question will come from Gerard Cassidy with RBC capital markets. He may not like you. Thank you.

Ryan Kenny: Good morning, Bill. Good morning, Mike. Hey, Gerard. Bill, can you share with us, you know, you think about the game plan that you and your peers have had to use post financial crisis in this low interest rate environment of zero to 25 basis points. There was a bloop in 2018, of course, but now we're in this new rate environment that was really pre-financial crisis. What changes are you, if you are having some changes, what changes are you implementing to win new business in this new rate environment since it's quite a bit different than it was three or four years ago with both commercial and consumer customers loans, deposits, etc.

Ryan Kenny: Yeah, Gerard, you know, the, you know, I'm, I'm, you know, unfortunately, maybe of the age to have operated in this environment in the past. I hear. Yeah, exactly. So I have some familiarity. This is not, you know, unprecedented or new territory. And I think, I think sort of a couple things, you know, it first starts with and you highlight it. I mean, you know, the cost of funding is not free. So the first part starts with all the things we've been talking about about, you know, optimization and demanding more full relationships from our clients and, you know, all the things that go along with that.

Ryan Kenny: But you have to offer competitive products and capabilities and be leading. And, you know, so for us, you know, I highlighted a lot of the metrics, things like net new on the consumer side. So we've got a product like truest one that's really responsive. We're, we're winning the battle with, you know, with, with, you know, the competitive environment that clients want more than rate paid. You've got your rate paid is not the only option you got to offer more product and more capability.

Ryan Kenny: So I think we're winning on that front. And then on the commercial and corporate side, same thing. We're in the advice business. And if we start that we're in the advice business versus we're in the rate business, we start with a really good framework. So this whole concept of business life cycle advisory where we are. You know, I highlighted, you know, the fact that, you know, we're winning on left lead relationships.

Ryan Kenny: So we're becoming more important to our clients. We're becoming, you know, the go to with our clients. We're in the, you know, the first call perspective where you want to be. So I, I think the, I think the changes are you just, this relevance is so much more important. You know, start with the market share that we enjoy. And our, you know, in our core markets of 20%. You know, all the ubiquity and efficiency that comes with that.

Ryan Kenny: So this is not, this is not new work. But it's a double down on, you know, you have to be really good at the job. You have to be really good at advice. You have to really be good at product and capability. And, and the, you know, the, which by the way, I think that's going to really work well for true us. The, you know, the new definition of winning, I think fits perfectly into our strategy going forward.

Clarke Starnes: I appreciate that there's insights built and then on credit, maybe this is best answered by Clarke, you guys talked about painting up I think the credit standards a bit but I'm more interested, yeah well not worried about you folks, you guys have a good track record of credit underwriting but can you make any comments about what others might have been doing over the last two or three years, whether it's non-depositories or depositories in lending, and those maybe aggressive actions if there were any, how that can impact your customers who again you've underwritten fine but maybe they've done something crazy with somebody else which then the second derivative you guys get impacted, but Clarke, any color on that, especially compared to prior cycles? Yeah Gerard, this is a great question, I know my peers and I've talked about this but I'd say in general particularly since the great recession I think the discipline in the industry overall has been really good and I think the fundamental credit approach despite the low rate environment I think the industry in general is in a much better place and we were a pre-financial crisis and even the non-bank players generally have done a good job there so I don't think there's, we don't necessarily see a big shoe to drop, I think the biggest impact, we're trying to evaluate through as you shift from a long secular low rate environment to where we are now is how economic some of those deals were, even if you thought you were underwriting well how sustainable, you know, we'll all that be, you know, we feel really good about where we are and I'd say generally the industry as well.

Clarke Starnes: Thank you.

Ryan Kenny: We'll now take our final question from Ryan Kenny with Morgan Stanley. You may not go ahead.

Ryan Kenny: Hey, good morning. So just want to clarify something on the earlier questions on the NII path. So we heard the comment around not expecting any significant loan portfolio sales from here but can you give us an update on your current approach to managing the security portfolio and specifically what are your views on potentially repositioning parts of the security portfolio, especially a more capital freed up from potential future exits or optionality. Yeah, good morning, Ryan.

Ryan Kenny: On the security side, you know, we've, you know, on average, we see, you know, $2.5 to $3 billion of just cash flow and maturity is from the portfolio. I think you should expect that to continue in terms of sort of just some of the some of the drag on the earning asset base. As far as the repositioning, I don't think there's any new news here. I mean, obviously, you know, long rates have sort of been on the rise here.

Ryan Kenny: And so we've been tracking the unrealized losses and we have some incremental disclosure, you know, kind of on our current position and the burn down. You know, in our capital slide, you know, I think we're constantly evaluating, you know, potential strategies and and the likes as it relates to the bond portfolio, but nothing, nothing new. You know, we did, I just say, you know, as we think about this new world, we're living in where, where, where these unrealized losses, the at least the securities OCI is a factor in terms of capital, you know, in an effort to manage that, you know, potential, you know, volatility in the future.

Ryan Kenny: We did add some some pay fixed hedges during the third quarter, you know, which which which will see some benefit from to the extent that kind of rates hang where they are or worse in a bit. So we've got about a third, a little less than a third of the of the AFS securities, you know, page. Thanks.

Clarke Starnes: And then just as a follow-up on the credit side, just give a little bit more color on what you're seeing in terms of credit quality. And I'm asking because it does look like you increased your 2023 NCO guide lightly to the higher end of the prior range. Just wondering if you can share what you're seeing under the surface. Yeah, Ryan, this is a good question. No first I'd say we haven't established our 24 guidance yet.

Clarke Starnes: But I believe the things that will drive where we go forward are the same considerations. We we're seeing now in coming out of Q3 and going into Q4. And so I would say for us we are seeing normalization in our consumer area, particularly in the low end consumer. So think of our regional acceptance subprime all though. And then you've also got some define seasonality in the second half of the year that's impacting Q4 outlook.

Clarke Starnes: The other piece would be clear and mics were remixing our balance sheet to be more optimal. And so you're seeing more growth in our higher margin businesses like chef field and service finance, but they carry higher normal losses. And then I think most importantly, something that we control is our efforts to get ahead of the CRE office risk. So in Q3 we were very intentional about working through moving from just identifying the risk there to actually resolve.

Clarke Starnes: We're evolving several of the problem credits and we we took some losses there to do that in anticipating maybe opportunities to do more in Q4. So I think those are the three factors that will impact where losses go.

Clarke Starnes: Great. Thank you. Okay.

Unknown Executive: I'm sorry, this concludes our question.

Bradley Milsaps: I would like to turn the conference back over to Mr. Brad Mills. That's for any closing remarks. Okay. Thanks, Anthony.

Unknown Executive: That completes our underneath call. If you have any additional questions, please feel free to reach out to the investor relations team. Thank you for your interest and we hope you have a great day.

Unknown Executive: Anthony, you can now disconnect the call.

Unknown Executive: The conference is not included. Thank you for today's presentation.

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