Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

Hello, and welcome to the 2020 Annual Meeting of Shareholders of Truist Financial Corporation. Please note this meeting is being recorded. It is now my pleasure to turn today's meeting over to Kelly King, Chairman and CEO of Truist Financial Corporation. Mr. King, the floor is yours.

Thank you, Rory. Much good morning, everybody. I hope you're having a good day. I want to call to order this first Annual Meeting of the Shareholders of Truist Financial Corporation. As the operator indicated, I am the Chairman and CEO of Truist Corporation. Along with me at our new corporate headquarters in Charlotte is Ellen Fitzsimmons. She's our Chief Legal Officer, Head of Enterprise, Diversity and Human Resources and Corporate Sector. I want to thank all of you for participating. We really appreciate this. We realize these are very unusual times. We are doing this shareholder meeting virtually in order to try to protect everyone as best we can. We wish you all well and hope you are doing well during this very difficult time in the history of our country and of the world. As we begin the meeting, I would mention to you now is a good time to submit your questions that we will entertain in due course in the meeting. I want to recognize that, by phone, we have on the call today our Board of Directors and our executive leadership team. I particularly would like to call out and recognize Bill Rogers, who is our President and Chief Operating Officer, who, as many of you know, was the former Chairman and Chief Executive Officer of SunTrust, who has done a fantastic job in leading, along with myself, this transition from BB&T and SunTrust into now Truist. Also, I'd like to recognize representatives from PricewaterhouseCoopers, Todd Eldredge and Julie Ferguson, who are on the call and will be available for questions as appropriate. At this time, I'd like to appoint Ellen Fitzsimmons as the secretary of the annual meeting of the shareholders. I also like to appoint Georgeson as the inspector of election for the annual meeting, and Bill Fiske and Jim Gill, representing Georgeson, will be in attendance by phone. I'll now ask Mr. Fiske to report the number of shares represented at the meeting, indicate whether a quorum is present and whether a notice of the meeting was properly furnished to record holders as of February 21, 2020. Mr. Fiske.

Mr. Chairman, I can report that of the 1,345,001,536 shares outstanding that are present at this meeting, represented by proxy, 1,203,837,790 shares or 89.5% of the outstanding. Mr. Chairman, Georgeson has also provided the company an affidavit indicating that the proxy statement and accompanying materials were mailed on March 17, 2020, to record holders of common stock as of February 21, 2020.

So the notice of this annual meeting was properly furnished on March 17, 2020, as -- those as of record of February 21, 2020, so proper notice of this meeting has been provided. I would point out to you that we do have a list of shareholders that are available to shareholders, and you can contact our Investor Relations team at [email protected] and coordinate making the schedule available to you. The meeting is now properly in order and convened, and the polls are open. We will now ask for those of you that intend to vote at this meeting to vote at this time by using the voting buttons available online while the Corporate Secretary calls out each of the proposals. I will now call on the Secretary to call out proposal 1.

Proposal 1: to elect 22 director nominees as identified in the proxy statement for a 1-year term expiring at the 2021 annual meeting.

Now if you would, please, proposal 2.

Proposal 2: to ratify the reappointment of PricewaterhouseCoopers LLP as Truist's independent registered public accounting firm for 2020.

And proposal 3.

To vote on an advisory resolution to approve Truist's overall executive compensation program.

And proposal 4.

Proposal 4: a shareholder proposal regarding an independent Chairman of the Board of Directors. Mr. John Chevedden, representing Kenneth Steiner, is in attendance on the telephone line to present this proposal. The presentation of the proposal is limited to 3 minutes, and I now ask the operator to open the telephone line for Mr. Chevedden to present the shareholder proposal.

Hello. This is proposal 4, independent Board Chairman. Can you hear me okay?

Yes, sir.

Sponsored by Kenneth Steiner, shareholders request that the Board of Directors adopt a policy and amend the governing documents as necessary to require that the Chairman of the Board be an independent member of the Board whenever possible. This proposal topic won 52% support at the Boeing Annual Meeting yesterday. This proposal topic won 50-plus support at 5 major U.S. companies in 1 year, including 73% support at Netflix. These majority votes would have been still higher if all shareholders had access to independent proxy voting advice. It is more important to have an independent Chairman of the Board since our Lead Director, Jennifer Banner, has 17 years long tenure. Long tenure in a director is the opposite of independence, and independence is the most important attribute for a director, especially a lead director. Plus, Ms. Banner received the second highest negative votes of any director at the 2019 annual meeting. In another matter regarding our directors, the Delaware Court of Chancery issued a decision in Re VAALCO Energy in December 2015 in which the court interpreted a section of the Corporation Law of the State of Delaware and held that many companies may improperly state in their certificate of incorporation that directors may be removed only for cause. If a director can be removed only for cause, it means that it is almost impossible to remove a director. Although Truist is incorporated in North Carolina, instead of Delaware, the Delaware ruling would suggest that review of the organizational and governing documents of Truist on this point is prudent. The roles of Chairman and CEO are fundamentally different and should be held by 2 directors, a CEO and a Chairman who is completely independent of the CEO and the company. Please vote yes, independent Board Chairman, proposal 4.

Thank you for your comments, Mr. Chevedden, and we'll -- I'll turn it back to Chairman King.

Thank you very much, Madam Secretary. The polls are now closed. I would call on Bill Fiske of Georgeson to report the votes.

Mr. Chairman, regarding proposal 1, the election of 22 directors, each director received more than 96% of the votes cast in favor.

All director nominees have been elected by the shareholders. Item 2.

Mr. Chairman, regarding proposal 2, the ratification of PwC as the company's independent public accounting firm for 2020, more than 98% of the votes cast were voted favorably.

Proposal is approved.

Mr. Chairman, regarding proposal 3, an advisory resolution to approve Truist's overall executive compensation program, more than 93% of the votes cast were voted favorably.

Proposal is approved.

Mr. Chairman, regarding proposal 4, a shareholder proposal requiring an independent Chairman for the Board of Directors, approximately 44.87% of the votes cast were voted favorably.

Proposal is approved.

Not approved, not approved.

I'm sorry, proposal is not approved. Thank you. Okay. And I want to mention to our shareholders that because of the significant feedback with regard to this proposal, Lead Director Ratcliffe and I have discussed this, and we will be deliberating the feedback in this meeting. We will have discussions with our Board, and if appropriate, make any adjustments that are appropriate with regard to our current process. Okay. Now the voting has been closed and reported. I would now like to report to our shareholders just a quick review in terms of how our company is doing. I hope you will be able to follow along in the slide deck, and if you will, start by going to the first couple of slides, which are just disclaimer slides, showing that there may be forward-looking statements made during the process of this presentation. And then I'll go to Slide 4. This is a very important slide. It is a slide relating to our culture, our purpose, our mission and our values. Culture is always important, but it is really important in times like these because your culture is what provides constancy of purpose, your deep values. And in a period of dramatic change and risk and uncertainty, having constancy of purpose and deep values to drive the organization are very, very important. So at Truist, our purpose is to inspire and build better lives and communities, and we're very excited about that. Our mission is about helping our clients, focusing on supporting our teammates and ultimately serving all of our stakeholders. Our values, which we hold very deeply, are to be trustworthy, be a caring organization, operate as one team, focus on success for our clients and for our teammates and ultimately achieve a level of happiness, recognizing that happiness creates positive energy and changes lives. If you go to Slide 5, just a couple of things in case you are relatively new to Truist Corporation, and really, we all are. This is a new corporation formed in December of 2019, but it does have a combined 275 years of the heritage companies of BB&T and SunTrust. We are the sixth largest U.S. commercial bank. We have about 12 million household clients. We have the second weighted average deposit rank in our top 20 MSAs, and we have about 58,000 teammates. If you join me on Slide 6, you'll see that we are generally #6 in market value, assets and deposits, although we are #5 in loans. On Slide 7, this is just to show you that we are very well positioned in our marketplace. You can see there the color coding in the map where we have top 3 market share in most of our states and good market share in all of the other states. We are the fifth largest insurance broker in the United States. We have the #1 position as a regional bank in terms of investment banking. We are the #2 regional bank mortgage originator and servicer. And as you can see, we are in 17 states, plus D.C. On Slide 8, you'll see, and this is very important, that we have a very diverse business mix. We are focused on consumer banking and wealth, corporate and commercial banking, and as I've said, insurance. Diversification is a really big deal in the kind of environment we're facing today. I still remember, having gone through the Great Recession, the great lesson at least that I took away from that is the companies that survive and thrive for the long haul are ones that have good capital, good liquidity and good diversification, and I'm happy to tell you that Truist has all of that. On Slide 9, you can see the diversified balance sheet depicted there, and we're basically kind of balanced between consumer and commercial. We do have a strong deposit mix with 28% being noninterest-bearing, a very, very good, solid and resilient deposit mix. On Slide 10, I'm most happy to tell you that we have a very complementary and experienced executive team. Our team is very experienced with a weighted average of 28 years of experience in industry and 23 years with our legacy or heritage banks. You can see the representation there in terms of the various parts of the business. I can tell you that our team is working together extraordinarily well. Even though we've been a team only about 4 months, we are handling the crisis, I think, very well because the team has come together very seamlessly and is doing a fantastic job. On Slide 11, I just want to give you a few numbers to show you how your company is doing. This is looking at 2019 performance. And you can see there, we're showing Truist's performance in adjusted returns and in GAAP against our peer median. And you could see, on an adjusted basis -- and this is adjusting for unusual items that do not affect ongoing operations of the company, and so those are both presented for you. But you could see our adjusted return on average assets, return on average common equity, our efficiency ratio, net interest margin and nonperforming assets are very, very favorable when compared to our peers. To give you a current look on the first quarter on Page 12, you can see that we had $5.6 billion in tax-equivalent revenue. We had net income adjusted to common shareholders of almost $1.2 billion. We had adjusted earnings per share of $0.87. Return on average common equity was 15.5%, and return on average tangible common, as you saw on the previous page, is 53%. You can see interestingly there that our credit metrics are very, very good for the first quarter, but I would hasten to tell you that we do expect substantial increase in credit costs as we go into the next several quarters as the COVID panic and epidemic continues to play out. We believe we're in a very strong position to handle that in terms of our reserving but also in terms of our very strong common equity Tier 1 capital, which is a strong 9.3%. If you go to Page 13, you could see how the first quarter performed well compared again to our peers in the various categories that I mentioned before. We do expect that, as I said, things will change, and it really depends on whether or not we have, as they said, a V-shaped recovery or U-shaped recovery. Either way, we believe Truist will be in good shape given the strength of our balance sheet and our income statement. We have very strong earnings power, very strong capital and very strong liquidity. So we feel really good about where we are, but we're not tone-deaf to the reality of what's going on in the world around us, and we stand ready to work hard and be prepared to be resilient through that process. On Slide 14, I would just mention a couple of things to update you with regard to where we are on the merger. I'm very excited that we spent a lot of time early on before the pandemic really set in, in establishing our culture at Truist. We did complete 36 town halls that were well attended and were well received by our teammates. We did introduce our visual identity and logo. We launched the Truist Foundation, and we've already been able to begin to consolidate real estate portfolios where it has been appropriate. We continue to execute on systems integration, and we're working on teammate readiness to take on the various communication aspects of the merger as we go forward. And we did announce that our branch divestitures will now occur in the third quarter of this year. If you can see on the right side of that slide, you'll see that our medium-term targets are very good, and we stand to affirm those with our medium term of return on tangible common equity at the low 20% range, adjusted efficiency ratio at the low 50% range. We have affirmed to the market that our cost saves of a net $1.6 billion, we still believe, are realistic. On Page 15, just a few things with regard to what we're doing with regard to the crisis. And as you would expect, this is an extraordinarily unusual time. None of us have been through anything like this in our experiences, but we have been focusing really hard on helping our clients. We've been providing payment relief, forbearances, deferrals, extensions. We've already done in excess of 300,000 accommodations for consumers and over 16,000 for wholesale clients. We've been temporarily waiving ATM service charges. We did a unique 5% cash back return of funds for our clients on their card purchases for important basic needs. We're very happy that 90% of our branches have drive-through windows. And so while our lobbies are closed and are open for appointments, our branches are able to serve our clients through our drive-throughs which has worked out very, very well. We've been very active with regard to the Payroll Protection Program. We've been one of the most successful in helping our clients with regard to that. We have now funded -- or close to funding certainly approved applications for about $10 billion in loans. This represents about 32,000 companies. Average loan size is about $320,000, so it's been very, very successful. We expect to participate in Phase 2, which really just started yesterday, and we're very happy to be able to support our clients in this very, very important way. And we have many other financial relief programs in place for our small businesses and others as they continue to adapt to this changing world. We focus, number one, on supporting our teammates. We were very pleased early on to support our teammates financially. We awarded a $1,200 coronavirus relief bonus to about 78% of our workforce that made less than $100,000 a year. We moved quickly to be able to allow our teammates to work from home or in alternative locations to be able to manage the spread of the disease. We were able to marshal the resources to gather thousands and thousands of devices to allow our teammates to be able to work and be effective in their home environment. We did -- for those teammates who are having to be on-site, we did approve a special pay level for them at $6.25 per hour for those hourly workers and $50 a day for those that are non-hourly, and we think that has been very, very well received. Our Truist Foundation is contributing $4 for every $1 that our Truist teammates are supporting for our One Team relief fund, and that has been very, very well supported, and it's very helpful to the teammates that are in real need. We've been very focused on helping our communities. We announced our first phase of our, what we call Truist Cares with a $25 million pledge for philanthropic causes. And I can tell you that, that was taken up very quickly, which indicates how great the need is out there. We are now in the process of thinking about a second round of supporting those philanthropic needs through Truist Cares which we think will be effective as well. We did donate $1 million each to the CDC Foundation and Johns Hopkins who's there on the forefront of national and international treatment of this very deadly disease. We did provide $3 million to support our local United Way agencies, and that has been extremely effective all around the country. So if you look at Slide 16, I would just say again that Truist is a special kind of organization. We are really focused on our culture, our purpose, our mission and our values. We really get excited every day about our purpose of inspiring and building better lives and communities. And I will tell you that in these difficult times, it is more important than ever to focus on supporting our communities in terms of building better lives and communities in many of the ways that we talked about and in other ways as well. Our teammates are at the heart of our distinctive client experience. And I can tell you that this merger of equals has been very, very fortuitous, I believe, for all of our constituents. There is no question that we are better together. I want to mention again just how important culture is to our organization. Culture really will determine our long-term success. It is the primary reason we have had success in the past. If you look at Slide 18, I would point out to you that the cultures of SunTrust and BB&T were already very closely aligned. We did a lot of studies, got a lot of research feedback, and we found that we were very, very closely aligned. Bill Rogers and I knew that from having worked together for so many years. But we found that statistically to be true as we talked to our teammates and got feedback from them. We have shared very common beliefs of honesty, trust, caring, one-team mentality. We are really inspired by our purpose or our why. On Page 19, we just point out to you that in these town halls I mentioned, 97% of the attendees indicated that the Truist purpose is very inspirational to them, and that's because our culture, our purpose, our mission and our values are guiding lights, our North Star, if you will. This is very, very important. We point out to our teammates that while the purpose, the mission and the values do not change, everything else about our company is really strategic or tactical, and they change from time to time, and we sure are seeing changes during this difficult period of time. So it's important to recognize that while the strategies are changing, whether it's work from home or work on-site, that does not change our culture, does not change our purpose, does not change our mission, does not change our values. And so we execute on our culture through leadership. And we talk about how leadership is really about being honest about where you are, being clear about where you want to go and having the courage to go there. We execute on our leadership through our teammates, through our Truist leadership model that you'll see on Slide 22. It's a simple model but a powerful model that shows that if you're going to change results in any organization, you really have to change behaviors. And if you're going to change behaviors, you have to change beliefs, and the reason because people behave in a manner that is consistent with their beliefs. So what leaders really do is, on the long haul, they teach beliefs so that the teammates will know what we are focused on, what we believe in, and that will drive the behaviors and the results. Strong leadership is a critical part of our culture. On Slide 23. I just mentioned 1 of my actual 5 great books called Man's Search for Meaning which was written by Viktor Frankl. Mr. Frankl survived the holocaust, spent 3 years at Auschwitz which was a horrific experience. And in that book, he says something that is very important. He says, when you know your why, you can endure anyhow. Well, that is really, really clear in the environment we're living in today. If you are clear about your why, if you're clear about your purpose, if you're clear about what you're trying to accomplish while you're here on this Earth, then it makes it easier to withstand difficult times. It doesn't make it go away. It doesn't make it so it's not very, very difficult, but it does give you the reason to get up every morning and keep trying, keep moving forward. In today's environment, people are scared. They're anxious. They're confused. They're disoriented, and we believe the answer is to focus on what is your why, what is your purpose, which is why, at Truist, we are still laser-focused on inspiring and building better lives and communities. On Slide 24, I'll just mention this for your own personal reference. One of the greatest challenges in life is to overcome obstacles. Most of the times, when people hear obstacles, they've become the victim, and they allow the obstacles to overcome them. We believe that if you're focused on your purpose and your why, we believe you can, in fact, overcome obstacles. There's some very good examples of that. We talked about here the story of Steve Genter. You may have never heard of Steve Genter. Most people haven't, but they mostly have heard of Mark Spitz. So in 1972, in the Olympics, Steve Genter was right up there at the top, along with Mark Spitz, as one of the best swimmers, especially in the 200-meter freestyle. Going into the Olympic Games, he was expected to actually win the 200-meter freestyle because he clearly had the best trial results of anybody out there. But something bad happened about 2 weeks before he entered into the race. He was practicing one day, and his lungs collapsed. They rushed him in for emergency surgery. And after the surgery, the doctor said, "Steve, your swimming career is over." Steve would not accept that obstacle. He did, in fact, continue to practice. In the next 2 weeks, he did enter the Olympic race, the 200-meter freestyle. They were at the race, he, more experienced than others. The gunfire, they're in the pool. And the first half of the race, as expected, Steve Genter was way out in front. But as he pushed off for the second half of the swim, his stitches broke. He started to bleed. He still did not give up. He swam right through his own blood all the way to the end. And when the buzzer sounded, Steve Genter did not win. Mark Spitz won. He beat him by less than 0.5 second. So the world says that Mark Spitz won, but I say Steve Genter won because he overcome extraordinary obstacles and accomplished something great in his life. Just like on Page 25, I won't give you all the details, but I'll point out some other inspirational stories. So Isaac Lidsky, who, when he was about 7 or 8 years old, was told by the time he was a teenager he would be fully blind, which he was. Yet he still went on to the Harvard Law School, graduated and was the only blind person to serve as a law clerk for the Supreme Court. With Jen Bricker, who was born with no legs, first disabled high school tumbling champion in the state of Illinois, went on to become a national and international acclaimed gymnast and the sister of Olympic gymnast Dominique Moceanu. And Ron Clark, who started the Ron Clark Academy, coming from meager beginnings has now formed an academy that is out facing highs schools every day and teaching teachers how to be better teachers. And finally, on Page 26, or Slide 26, I would point out that we, at Truist, believe in looking to the future and planning what we call seeds of hope. We believe that every one of us has an important opportunity in life to make a difference in the lives of others. We believe that every single day, we have the chance to touch people with a little smile, a little pat on the back, a little, hey, how are you and really mean it. We challenge our teammates. I would challenge you that as you get up in the morning, imagine somebody hands you an imaginary handful of seeds, these are seeds of hope. And as you go out, starting with your own family, try to do something a little special each day, a little special pat on the back. I hope you have a great day, a little special smile, just a little something extra because people need hope. And as you do that, you take in your imaginary hand one of those little seeds and throw it down on the ground, you just planted a seed of hope. And that is what we need in this country, in this world today. We need hope, and I believe that Truist offers hope to all of our shareholders, to all of our constituencies, and we'll continue to be a shining star as we go forward to work hard for our teammates, for our clients and our communities. We are working hard for our shareholders, and we hope to make you proud in the future. We will stop now and go to our questions.

All right. Mr. King, I will read the first question. Increasingly, public companies are being rewarded by investors if they are perceived as a leader in environmental issues. With the merger, what is Truist planning to make the merged corporation a leader in environmental stewardship?

We are very focused on the environment. We are very focused on having really good dialogue with all of the parties that are involved along with us in the environment. We believe in listening to our constituencies in terms of deciding what our actions should be. There are certain things we can do very directly as Truist with regard to improving our environment, and we do that. There are others that we have to focus on more indirectly, but we want you to know we are tightly focused on that. We believe we should do all we can to leave the future for our kids and our grandkids on this planet in as good a shape as we can.

Thank you, Chair King. And with that, we'll turn to the next question. It seems that we have no other questions in the queue. And so that will conclude this portion of the shareholder meeting.

Okay. So I'd like to thank our shareholders for their questions. I'd like to thank all of you for attending. Thank you for your support of our organization. As I've said, these are challenging times. I encourage you all to please be safe. We are all trying at Truist to be safe and help everyone around us be safe. I would say to you that even though these are really challenging times, I believe America is still the best country in the world. It is resilient. And in my view, we'll outperform the worst expectations that we seem to hear every day. At Truist, I believe our best days are ahead. Our agenda is now complete. The meeting is adjourned. Have a great day.

This concludes the meeting. You may now disconnect.