Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

Good morning, everybody. I'm very pleased to have with us from Truist, President and COO, Bill Rogers. And as many of you know, he'll be succeeding Kelly King as CEO in September of 2021. And with that, thank you, Bill, so very much for joining us today.

My first question for you is you take over as CEO of Truist in less than a year. You've noted that the core conversion is on track for the first half of 2022. What strategic initiatives are you most excited to implement? And how has the pandemic, if at all, changed these priorities?

Yes. I mean, Erika, the major strategy and the major initiatives are the merger itself. I mean, that's -- and those are underway. I mean the things that were wanted to experience from the merger, the advantages of our teams working together, the 2 plus 2 equals 5, leveraging the capital markets, leveraging of the insurance, best of breed in terms of technology selection, so all those things are sort of a continuum of expectations that are being implemented now. We'll get to implement them more as we finish the conversion. A lot of those things will land. So it's not a power shift. It's just continuing to implement the things that we're doing and accentuate them and leverage them for productivity and more results.

Thank you for that. Bill, I wanted just to take a step back. When you approached Legacy BB&T as the CEO of SunTrust for a partnership, what challenges did you foresee for the industry that could be solved for with by scale?

Yes. Look, in fairness, when Kelly and I first started talking, almost everything was offensive. I mean, what are all the things that we could do? And we saw the world in much the same way. We saw some of the larger banks winning in different ways. We saw marketing prowess. We saw net new accounts. We saw ubiquity. We saw the capacity and the need to continue to invest in the future and making sure that you're creating that. And all those were scale related, in some ways. So it was mostly, how do we do all those things? How do we do it from an offensive standpoint? But what's turned out is it's also been an incredible defensive play. So here we sit in an environment, and I think about all the opportunity costs that would have been sitting on either heritage organization. And we just don't have that burden. We've got a plan. We've got a cost save plan. We've got a revenue synergy plan. And our job is just to go out and execute that rather than create something from whole cloth, which is what we'd be doing otherwise. So great offensive play, but also just a superior defensive play in the environment that we sit in right now.

So let's talk offense first because I think that a lot of investors especially appreciate and believe the revenue synergies that you talked about. So how can outsiders judge if the 2 cultures are integrating well during this process, as that's clearly an important base for business synergies?

Yes, it's a great question. And again, it's harder to see from the outside. But what I can say is, first, from the clients, they're experiencing it. So they're seeing that cooperation. They're -- if you're [Audio Gap] an industry specialist come in, you're feeling the client planning has been at a different level. You're being introduced to products and capabilities like insurance that maybe you didn't know existed before. So I think the client is really feeling that every day. I mean I think they're experiencing that. And then just the momentum that we're building on the revenue synergies, and that will start manifesting itself. Those have long sales cycles. They take longer. But that will start manifesting itself more in the top line. And the momentum that I feel every day, the cultural alignment, the teamwork, the finishing each other's sentences, having the right incentives in place, having the right leadership in place and all that, we did a lot of that pre-merger. So when the proverbial starting gun went off, we were really ready to go.

So you mentioned that some of the synergies have a long sales cycle, but will start showing up in the top line. When do you think investors can start truly seeing it in the numbers?

Yes. Those have some environmental impacts, right? So we've got sort of the interest rate pressure and other things, but you're already starting to see it in some of the things like insurance and some of the capital markets and wealth and look at disproportionate growth on a relative basis. I think that's one of the things we look at sort of not just absolute, but look at relative. And then just over time, will our company have disproportionate revenue growth because the 2 plus 2 equal 5 synergies and the opportunities that we have to work together.

Thank you for that. One of the main reasons underpinning the merger was to enlarge the bank's collective tech budget [Audio Gap] management learned so far from the pandemic with respect to how to prioritize tech investments? And why do you think the bank is in a better position today on this front versus how the legacy banks are set up or heritage banking?

Yes. Great question. If you think about it, I mean, we made a very conscious decision early on is to have this be a merger of equals. So instead of just one system goes on to the other system, we said, we have this opportunity to choose best-of-breed. So let's choose the things that are most relevant to -- by the way, all this makes it a little harder. It takes a little longer to do. But when you come out the other side, you're sort of at a high common denominator strategy with everything, high common denominator strategy with technology, with leadership, with process, with profiles. So all those decisions were made. And if you -- and we've had this -- because we're going through that, the muscle memory that we're creating on prioritization of how you choose, sort of what's the ROI, how do you prioritize, I mean, we're at -- there would be no bigger time in terms of making those decisions. So we're creating great muscle memory for our teams in terms of working together and making those prioritized decisions. We're having to do it under time constraints, so they're feeling the right amount of pressure. We're having to do it in terms of implementation. So they're learning how to implement and how to work well together and how to make all that happen. So the extra benefit of the merger is the muscle memory we're creating and the teamwork we're creating on selecting systems and prioritization, to the point of your question, that I think it's going to have just tremendous benefit for us not only within the merger, but as soon as everything is completed, it will be a [Audio Gap] for us to work from.

So Bill, as a piggyback from that, you and the management team have been asked this question a lot recently. In terms of client-facing, how are the recent uptick in digital adoption have lasting implications for the importance of physical branch presence and the transactions that occur in those physical branches? And I have a follow-up question after that.

Well, and to try to tie the 2 questions together, so if you think about it, I mean environmentally, the choices that clients are making, both on the consumer and the commercial side, have never been more accentuated than they are right now. So the digital adoption, whatever slope we were on, the slope has doubled in some way. So the fact that we're making these system selections, and we're making these marketing selections, and we're making these choices right now in that environment. So think about we have the absolute most amount of client feedback from their actions than we've ever had as an industry, and we're making decisions right in that time line. So that feels really good to us of being able to take advantage and make those decisions. And then in the compare and contrast is, we have a decision to make. And in sort of prior legacies, we'd be much more in a cost-cutting mode. We would be bound by wherever we were. So whatever system we are on or whatever decisions we make, we would be bound by that, and that would have long cycles for changing. Whereas today, we're creating a lot of flexibility. We're creating a platform that's not only durable, but it has much more flexibility than either organization would have had on a stand-alone basis. So it's really a -- it's an incredible time. I mean, obviously, we didn't anticipate we'd be in a pandemic. We didn't anticipate that the digital adoption would increase sort of exponentially from where we were, and being able to make choices and decisions in that environment is just a huge advantage right now.

So as you think about making decisions based on this data, how much of this adoption do you think is permanent? And part of it ties to the question that you're getting from investors. Can you get more out of your physical infrastructure in terms of costs? And could that mean more than the $1.6 billion of savings that you've already identified?

Well, it's a multipronged question. But the point is yes, we're also making the decisions just like we are on the investments. We're also making those same decisions in our physical locations in this environment. So we're able to deal with, again, the most kind of real-time information. It's really interesting. We just looked at a study, and it was sort of a client satisfaction, where are clients happiest and where do they engage most and where the relationship is deepest. And it's at 2 ends of the spectrum. Those who deal almost exclusively in the physical footprint and those who deal almost exclusively in the digital footprint are the most satisfied and the most engaged. And the question is, how do you get them through that gulf? How do you get them from one end to the other? Because those who've not been as digitally savvy and not adopted, they're going to. And our teams can be part of that process. Part of the physical channel is to help educate them, help get them through that gulf. Think of sort of the genius kind of approach to clients, how much do you get them there. I think the adoption, people are testing. You clearly see that. I mean we clearly see in our mobile activity that people are testing. So they're doing a deposit for the first time. They're checking the balance for the first time. They're starting that process. Will some come back to the physical environment? Absolutely. Will they, though, become more of an omnichannel user? I think, absolutely. So there's some element that's permanent. There's some element that's more transitional. But regardless, the slope has changed and the ability and the desire to have multichannel experiences with the same foundational element is there. And our whole approach of this T3 concept of touch and technology equal trust, the timing is just perfect because people actually want to have help getting through that gulf. They want to have help getting to that transition, and we want to provide as much of the touch element of that as [Audio Gap] decision on those investments right now.

Thank you for that. So I wanted to switch topics a little bit. I think we were discussing in the pre-call that one of the big themes emerging from this conference is, a, the strength of the U.S. consumer, really the resilience of U.S. consumer and also the evolution of consumer lending products. To that end, I wanted to ask you about LightStream. And if you could give us an update on the efforts to build this out as a full-scale national digital consumer bank.

Yes. And your point -- your question sort of is exactly why LightStream exists because we wanted to do some experimentation. We wanted to be where our clients are making their decisions. We wanted to be at that forefront. We wanted to have another portal for acquiring new clients and not just making consumer loans, but acquiring clients. And so multipronged strategy on LightStream, one is that -- one we don't talk about as much is that's the experimentation with a modern deposit platform. So think about sort of on-the-edge technology where we've got this core deposit platform, we're in the middle of a merger, it's sort of hard to touch and change and have a lot of agility with that when you're in middle of the merger and even at other times. So we created with LightStream this experimentation around a really modern deposit platform, which has a lot of agility. We can try new things. We can experiment. We can put -- and none of that's impacted by the conversion. So everything we're doing with LightStream, we can do. We don't have to touch the core, and we can continue to experiment with that. And then the other component is we have this great lending platform. We have incredible client feedback, really, really high satisfaction. It works very effectively. It works very efficiently. Branding is really strong. And what we want to add is the deposit component to that and not to create more deposits. We don't need high-priced deposits. I mean that's not the goal. The goal is to create relationships. Can we create more fulsome relationships? We'll do some experimentation with subscription models. We'll do some experimentation with what do clients really want from a deposit product. How do we provide really, really strong advice? How do we give them the right prompts about what's going on with their account? So there's lots of opportunity to create new relationships and to do some experimentation around not only the core, but also how we add to our fulsome relationship strategy.

So you talked about the highly rated consumer lending practice within LightStream. Interestingly, a lot of bank executives are getting questions about traditional payments companies that are going into point-of-sale finance, such as Apple Pay and PayPal. And you've had JPMorgan and Citi both talk about turning some of the credit card balances into that, a similar buy-now-pay-later loan. How does like -- how could LightStream fit into this ecosystem?

Well, I think there are a couple of different points to your question. The first is all predicated on where the clients make decisions. And that's where you want to be. I mean it used to be that everything had to come through the banking system, right? So we were at a point where you had to come to the banking system. That doesn't exist today. So the bank's where the client makes the decision. So we have a lot of businesses that are at point of sale. We have a lot of partnerships with entities that are at a point of sale. We were sort of, I think, one of the really early adopters to say, let's be where they make the decision. And let's be at the front door. Let's not be at the back door or let's not be in the middle because clients have choices. So the whole concept of being at the forefront, I think, we were leaders in, and we expect to be leaders in. And LightStream is another point in that. Whether it's a buy-now-pay-later product or not, I don't know. We'll do some experimentation around that. But we have a lot of other businesses that are at that point of sale. Think about Sheffield, think about some of the partnerships we have with other companies. So that's a concept that's not new to us and I think really, really relevant in terms of where and how client makes decisions and where the financial institutions fit in that.

On the deposit side, one of your peers talked about the -- their Net Promoter Score in expansion markets was much higher than the Net Promoter Score in their legacy markets within the branch. And the question really here is, as you envision what the deposit product looks like under the LightStream banner, how does that differ with the traditional Truist deposit offering?

Yes, it's a great question. And our Net Promoter Scores at LightStream are really, really high. It's a lending product only now, but we think we can translate some of that into the core LightStream consumer. But our Net Promoter Scores at traditional Truist are also very high. So we don't view that as just a dramatic difference in one versus the other. And so the opportunity there is to create a new experience. As I said before, we're going to use LightStream in a way to experiment more, experiment faster, and there'll be things that we learn from that, that we'll want to adopt and adapt and build into the overall core Truist piece. There may be things that we're going to learn. So gosh, that didn't make a lot of sense. Maybe we'll try something else. Let's see what clients want, how they want to interact with us. As I mentioned earlier, we'll experiment with subscription. We'll experiment with how do we partner with some of the existing partnerships and point-of-sale businesses that we have. Can they also be part of this deposit strategy? So it's a really interesting place with a lot of positive momentum, a lot of really good brand equity from our clients that we think we're going to have a really interesting opportunity to be on the forefront of trying things in the deposit formation. And as I said before, more in the client acquisition formation.

Yes. So Bill, you talked about other point-of-sale consumer products. And during the third quarter call, the growth in LightStream, Sheffield, recreational vehicle lending, [indiscernible] all very good momentum. How does that [ fit ] with the higher unemployment rate? In other words, talk a little bit about what those trends tell you about the resilience of the consumer and your footprint.

Yes. The consumer has been amazingly resilient. So we see some of the stimulus check money still sits in the bank in terms of deposits. So their resiliency and their capacity to save and to be set for the next stage. And then you see just it's alternatives. So for example, people aren't going on vacation as much. They may not be going on the cruise, and their disposable income is shifting into things like recreational. So gosh, maybe I'll use that, and I'll buy a Jet Ski or maybe I'll do an RTV -- ATV. So it's just -- it's a shift. It's not so much that one is new and it's dramatically different, but it's a shift. The net shift, in fairness, might be negative, but it's positive to us because it's going into the areas in which we've invested.

Clearly, the dynamics are a little bit different there. As you think about talking to your clients, what do they need to see in the outlook shift to go from defense, hoarding liquidity, trading costs to [indiscernible] and just having some clarity on the election outcome health? Or is it really just the outlook on the pandemic?

I think everything that goes in the category of certainty is what creates more confidence. So the election was one, so now we've got more certainty in that. Pandemic is one. The last few days, we're creating some more certainty around that. We -- interestingly enough, we were just with a lot of clients. And one of the advantages of the pandemic is we can visit with a lot of clients virtually. And we did a little short survey on their optimism and their desire and willingness to invest. And it was really fascinating because most were leaning in. Most said, I do have an opportunity to invest. I do have an opportunity to expand. I do have an opportunity to acquire. I'm generally optimistic. My business is running, exceeded my expectations of where I'd be. Some -- auto and some others are probably well ahead of where they thought they might be. But they were leaning in the optimistic [ capital ]. I think there's sort of one binary impetus that this decision is this and they're ready to go. But I think it's a stack of things that just creates more uncertainty on overall foundation of optimism and capacity [Audio Gap] wasn't created by some big event. So it wasn't like there was significant leverage or a real estate event or a mortgage event. This pandemic was completely different. So the underpinning of the economy, the foundational elements were all strong to start with. And so it wasn't like we have got to go rebuild something. We just have to get it -- get that momentum back. And I think our clients and our markets are leaning on the optimism side. That doesn't mean next month, there's going to be a run. But I think it does mean that we're building capacity and building momentum to be more positive about things like loan growth and revolver utilization, those type of things, long term.

So to your point about the foundation being strong pre-pandemic, I think Kelly in recent public appearances noted that there were no economic bubbles coming after this downturn. Interestingly, a lot of investors had talked about the presence of nonbank lenders and how they actively competed with banks for the on-balance sheet product. Given that the Fed has signaled that they'll be accommodative for as long as it takes, does that preclude a shakeout of nonbank lenders? In other words, as we think about the industry as GDP plus and a recovery, is it going to be tough to take back market share from nonbank financing?