Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

Good morning, everyone. I'm Ankur Vyas, Head of Investor Relations for Truist, and I'd like to welcome you to Truist Financial Corporation's 2022 Annual Meeting of Shareholders. Thank you to our shareholders for joining us again this year using the virtual meeting platform. To help you follow along with the meeting, we've made the following documents available on the virtual meeting website. There, you can find the 2022 annual meeting proxy statement, the 2021 annual report to shareholders, the 2021 Form 10-K, the annual meeting agenda, rules of conduct for the annual meeting and a list of shareholders. Joining me here today are: our Chairman and CEO, Bill Rogers; our Chief Financial Officer, Daryl Bible; and our Chief Legal Officer, Head of Public Affairs and Corporate Secretary, Ellen Fitzsimmons. At this time, I would like to turn it over to Bill to call the meeting to order.

Good morning, everyone. I'm very pleased to welcome all of you to the 2022 Annual Meeting of Shareholders. I'll begin by calling this meeting to order. We're coming to you from our state-of-the-art innovation and technology center in the heart of our Charlotte headquarters. It's a springboard for and physical manifestation of innovation across our entire company, one that will help us reimagine client experiences. Teammates from business units thereout Truist will partner directly with clients, innovators, designers, engineers, fintech firms and many others to develop new ways to empower our clients. I first want to recognize our Board of Directors and our executive leadership team. Our directors are shown on Slide 5 of our materials, along with a few of the key attributes that help make them a strong and effective governing body, including 43% of our directors being either racially, ethically or gender diverse, women leading 3 of our 7 Board committees and our directors having a collective 217 years of experience with Truist are one of our heritage institutions. The members of our executive leadership team are profiled on Slide 6 of our materials. Also in attendance virtually are Julie Ferguson, Eric Almond and Michael Stork, representatives from PricewaterhouseCoopers, the independent public accounting firm for Truist. I'd like to thank shareholders in attendance today for participating in this annual meeting using the virtual platform provided. To protect the health and well-being of attendees to the ongoing COVID-19 pandemic, we chose to conduct our annual meeting virtually again this year. I also want to thank you for your continued interest and investment in Truist Financial Corporation and hope you and your families are safe and well. We'll now turn to the business of the annual meeting. And after the business of the meeting is concluded, Daryl and I plan to provide some additional remarks, and then I'll respond to questions from shareholders. Please note that Ellen Fitzsimmons has been appointed as secretary, and Georgeson LLC has been appointed as the inspector of election for this annual meeting. Representing Georgeson are Bill Fiske and Jim Gill, attending today's meeting virtually. I now ask Bill Fiske as a representative of Georgeson to report the number of shares represented at the meeting to indicate whether a quorum is present and whether notice of the meeting was properly furnished to the holders of common stock as of the record date of February 17, 2022. Bill?

Mr. Chairman, I can report that of the 1,328,993,308 shares outstanding as of the record date, there are present at this meeting, represented by proxy, 1,171,215,452 shares or 88.12% of the total outstanding shares. Mr. Chairman, I also report that Georgeson has in its possession an affidavit from Broadridge Financial Solutions. This affidavit indicates that the proxy statement or notice of Internet availability of proxy materials was mailed on March 14, 2022, to record holders of common stock as of February 17, 2022.

Great. Thank you, Mr. Fiske. Notice of this annual meeting was properly furnished on March 14, 2022, to each shareholder of record of our common stock as of February 17, 2022. Therefore, proper notice of this meeting has been provided. I declare that the meeting is now properly convened and the polls open. Shareholders who intend to vote shares at this meeting may vote at this time using the virtual meeting platform. I'll now ask Ms. Fitzsimmons to announce the 6 proposals that were submitted for shareholder consideration at today's meeting.

Thank you, Mr. Rogers. Proposal 1, to elect 21 director nominees as identified in the proxy statement for 1-year terms expiring at the 2023 Annual Meeting of Shareholders. Proposal 2, to ratify the appointment of PricewaterhouseCoopers LLP as Truist independent registered public accounting firm for 2022. Proposal 3, to vote on an advisory resolution to approve Truist's overall executive compensation program. Proposal 4, to approve the Truist Financial Corporation 2022 incentive plan. Proposal 5, to approve the Truist Financial Corporation 2022 employee stock purchase plan. And proposal 6, a shareholder proposal regarding an independent Chairman of the Board of Directors. [ Ms. Cam Franklin ], representing Kenneth Steiner, is in attendance on the telephone line to present this proposal this morning, and we ask Ms. Franklin, please to limit your presentation to approximately 3 minutes. Operator, will you please open the line for Ms. Franklin to present the shareholder proposal.

Good morning. Can you hear me okay?

Absolutely. Thank you for joining us.

Okay. Proposal 6, independent Board Chairman sponsored by Kenneth Steiner. Shareholders request that the Board of Directors adopt an enduring policy and amend the governing documents as necessary in order that 2 separate people hold the office of the Chairman and the office of the CEO as follows: wherever possible, the Chairman of the Board shall be an independent director; the Board has the discretion to select a temporary Chairman of the Board, who was not an independent director to serve while the Board is seeking an independent Chairman of the Board. The Chairman shall not be the former CEO of the company. This policy could be phased in when there is a contract renewal for our current CEO or for the next CEO transition. For the good of Truist shareholders, management could waive any agreements that would delay implementation of this proposal. This proposal topic won 52% support at Boeing and 54% support at Baxter International in 2020. Boeing then adopted this proposal topic in 2020. The roles of Chairman and CEO are fundamentally different and should be held by 2 directors and CEO and the Chairman, who is completely independent of the CEO and our company. This proposal topic won our 44% support at our 2020 annual meeting. This 44% support likely equals 51% support from the shares that have access to independent proxy voting advice and are not forced to rely on the biased opinion of management. Truist management should support a proposal that received 51% support from the shares that have access to independent proxy voting advice. It is especially important to have an independent Board chair to manage our unwieldy Board of an astonishing 21 directors. This proposal typically get substantial support at companies with board composed of was much more reasonable 8 to 12 directors. The management statement next to this proposal does not stand for much of anything. It claims that there is a tension between the CEO leadership and oversight of CEO leadership. Then it says that the current lack of an independent Board Chairman did not result from this tension, but is only due to the grandfathering due to a merger. If management was serious with this proposal topic being decided on the merits, management would produce a list of the functions that an independent Board Chairman can do that a lead director cannot do and then let shareholders decide. A lead director is no substitute for an independent Board Chairman. A lead director may be worth 10% of what an independent Board Chairman of the Board, is worth to shareholders. Please vote yes, independent Board Chairman, proposal #6. Thank you.

Thank you, Ms. Franklin, for taking the time to share your proposal and your perspective today. With that, I will turn the chair back -- turn this back over to Chair Rogers.

Thank you, Ms. Fitzsimmons. The polls are now closed, and it's time to proceed with the results of the voting at today's meeting. I call on Bill Fiske of Georgeson to announce the votes on each proposal. Please note that we'll publish the exact vote totals for all items on the agenda within 4 business days after today's meeting.

Mr. Chairman, regarding proposal 1, the election of 21 directors, each director received more than 93.4% of the votes cast.

All director nominees have been elected by the shareholders for the term indicated.

Mr. Chairman, regarding proposal 2, the ratification of the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for 2022, more than 97.37% of the votes cast were voted in favor of the proposal.

Thank you. This proposal has been approved.

Mr. Chairman, regarding proposal 3, an advisory resolution to approve Truist's overall executive compensation program, more than 93.47% of the votes cast were voted in favor of the proposal.

This proposal has also been approved.

And Mr. Chairman, regarding proposal 4, approval of the Truist Financial Corporation 2022 incentive plan, more than 96.43% of the votes cast were voted in favor of the proposal.

This proposal has been approved.

Mr. Chairman, regarding proposal 5, approval of the Truist Financial Corporation 2022 employee stock purchase plan, more than 98.68% of the votes cast were voted in favor of the proposal.

This proposal has also been approved.

Mr. Chairman, regarding proposal 6, a shareholder proposal regarding an independent Chairman of the Board, approximately 33.37% of the votes cast were voted in favor of the proposal.

This proposal has not been approved by the shareholders. Thank you, Mr. Fiske. And this concludes the business proportion of today's meeting, and the Annual Meeting of the Truist shareholders is now officially adjourned. For the remainder of our time this morning, I'll offer some of my perspectives on the company focusing on Truist's investment thesis and examples of how we live our purpose to inspire and build better lives and communities. Daryl will then review Truist financial highlights, and I'll provide an update on merger integration activities. Finally, we'll close by addressing questions from our shareholders. Before we start the presentation, I'd like to remind everyone to please take note of our forward-looking statements and non-GAAP information on Slides 2 and 3. I'd like to begin on Slide 8 with our purpose, which is to inspire and build better lives and communities. We believe our purpose-driven culture is the foundation for our success as a company. Our purpose defines how we do business every day, and serves as a framework for how we make decisions. It's also the foundation for how we attract and retain top talent. People simply want to work for and do business with companies that stand for something meaningful. We believe that our purpose-driven culture, combined with our comprehensive compensation and benefits packages, significant and ongoing training, development and career mobility as well as our flexible approach to work are true advantages in today's tight labor market. Turning to Slide 9. We recently refreshed our investment thesis to articulate why we believe Truist is well positioned for purposeful growth as our focus shifts to executional excellence post integration. As I mentioned, Truist is a purpose-driven company, and our culture is the foundation of our success. Our deep sense of purpose has driven our strong progress on environmental, social and governance matters, which we view more as an opportunity rather than a requirement. On that foundation, we've built an exceptional company with a comprehensive and diverse business mix, and we have strong market share in most of the vibrant U.S. markets. Truist has distinct capabilities in diverse areas such as insurance, investment banking, digital and point-of-sale lending. We also leverage our extensive industry expertise to deliver value-added advice to our clients. We are forward focused. And our best of both integration and targeted investments have positioned us well for the future. The merger of equals provided us unique opportunities to harvest significant cost saves and invest in technology and in teammates and in marketing, which we believe will deliver strong growth and profitability. Combined with our conservative risk profile, we're confident Truist can generate strong earnings growth and profitability with less volatility than our peers over the long run. Turning to the next slide. Our purpose intentionally begins with the word inspire. We decided from the outset that if we wanted to be a leader in the industry, we would need to be bold. We would need to be first and be inspirational. But inspirational and inspiration are defined by action. And I'm very proud of what our teammates are doing to build better lives and communities. Here, we highlight the positive impact Truist is having in our communities, including through our ambitious community benefits plan where we pledge to lend or invest $60 billion to low and moderate income borrowers and communities during the 3-year period from 2020 to 2022. We are well ahead of the schedule against those goals. We're also making a noticeable impact through teammate volunteerism. Last year, our teammates logged more than 46,000 volunteer hours as they participated in 4,200 community development activities and built better lives for countless members of our communities. I'm very proud of them. While this good work contributed to our outstanding CRA rating, what is most fulfilling is being part of an organization that enables each of us to live out our own personal purpose and bring about positive change to those around us. Turning to Slide 11. One of our imperatives as a company is to provide distinctive, secure and successful client experiences through touch and technology. In addition to the core bank conversion, we achieved a significant milestone in the first quarter by completing the migration of our retail business and wealth clients to the new Truist digital experience. As you'll recall, early in the merger, we made a decision to build a completely new digital experience rather than rely on existing systems and third parties, given the increasing importance of digital channels to our clients. We built this new platform based directly on clients' feedback, and we introduced it in waves, learning from each release and continually improving. With a more modern and agile platform and approach, we're able to introduce a number of new features to both sets of heritage clients in advance of the core bank conversion and our speed of client experience improvements will only accelerate in the coming months and quarters as our digital and technology teams shift their efforts from integration. We're also excited about the opportunities this innovation and technology center has to leverage our modern platform and stimulate development by bringing clients and teammates together to find new ways to optimize the client experience. The slide also highlights other ways Truist is positively impacting clients, including our efforts to promote financial inclusion, which I'll discuss momentarily. At Truist, we strive to create an inclusive and energizing environment that empowers our teammates to learn, grow and have meaningful careers. One of the ways we accomplish this is through our unwavering commitment to diversity, equity and inclusion. I'm pleased to report that at year-end, 15.1% of senior leadership roles at Truist were held by ethnically diverse incumbents, surpassing our 15% goal a year ahead of schedule. While we're excited to achieve this milestone, we acknowledge that this is the beginning, not the end. We also recently implemented our Truist work model with a focus on intentional flexibility as our teammates return to on-site work in March. Personally, it was incredibly energizing to have so much in-person engagement over the past 2 months whether with teammates, clients, community members or shareholders. Hybrid and more flexible work is here to stay, and I'm pleased how our teammates have embraced this new model. As a final example, last year, as part of a new approach to harnessing teammates ideas and promoting a culture of continuous improvement, we ask teammates to share their recommendations on how we could work better, smarter and faster. More than 1,000 improvement projects were approved, which will help us cut costs, generate revenue and drive other meaningful change. For me, the quality and thoughtfulness of the recommendations we received is testament to the high level of enthusiasm and engagement and expertise of our teammates. Turning to Slide 13. As a company, we embrace financial inclusion and are working to maximize our positive impact on our clients and communities. One way we're empowering clients today is through our secured card money account and Ready Now Loan, which support clients who may not qualify for mainstream banking or are looking to build or rebuild their credit. We've also enhanced our processes and tools to provide digital financial insights and text alerts, which enable clients to manage their accounts more effectively. We're partnering with a number of organizations to provide access and promote the financial well-being of underserved segments of our communities. But we're capable of more. And guided by our purpose, we are building a new checking account experience that aligns with our clients' needs and will provide them greater flexibility, lower cost and more financial confidence. Our new Truist One checking account experience remains on track to launch this summer. Truist One will have 0 overdraft fees, the capability to provide qualified clients the liquidity they need be a simple $100 negative balance buffer and a deposit-based credit line up to $750. For those who do not qualify for Truist One, we're also launching the Truist confidence account, which prevents the ability to overdraw. And as previously announced, we'll discontinue many overdraft-related fees at the end of this month. Long term, this is a win-win for all of our stakeholders as well as increase client acquisition, particularly next-gen clients, enhanced deposit growth and simply improve the overall client experience. Truist has an unwavering commitment to ESG as evidenced by recently announced plans to achieve net-zero greenhouse gas emissions by 2050, continuing to deliver against our $60 billion community benefits plan and utilizing the proceeds of our $1.25 billion social bond to fund purposeful investments in 267 affordable housing developments across 15 states. The steady progress we have made is reflected in our improved ESG ratings, which compare very well to our peers. While we're pleased our ratings have improved at Truist, we view ESG more as an opportunity than a requirement. We are externalizing our own net-zero aspirations and furthering the transition to a low-carbon economy by adding new teammates and our CIB and Commercial Community Bank who can assist our clients with their own transition to a lower carbon economy in addition to other ESG-related issues. Truist has received a number of accolades, many of which you'll likely recognize. These accolades are simply a recognition of the great work and positive impact our teammates are having by living out our purpose. And now let me turn it over to our CFO, Daryl Bible, for a financial review. Daryl?

Thank you, Bill. Turning to Slide 17. We believe we have one of the best business mixes in banking as our capabilities to serve clients are extremely broad. The merger provided significant diversification benefits, including the ability to grow certain parts of our heritage organization that would have been harder on a stand-alone basis. This enables us to take advantage of operating in the fastest-growing markets relative to peers while having the technology and scale to meet the needs of a broader group of clients. Turning to Slide 18. Looking at the full year 2021, Truist had a productive year across multiple dimensions. From a financial perspective, we generated significant adjusted net income of $7.5 billion or $5.53 per share. Our earnings undoubtedly benefited from a $3 billion lower loan loss provision due to an improving economy. Fee income, excluding security gains, increased very strong 10% as we are firing on multiple cylinders, helping offset a 45% decline in mortgage fee income and a 6% decrease in net interest income. We also continued delivering on our cost saves, evidenced by our adjusted expenses, increasing only 1% during the year that saw large increases in fee income. We experienced a reduction in our risk profile due to the improving economy and significant progress in the merger integration, which enabled us to reduce our capital target slightly and deploy significantly more capital. Overall, we made significant progress on multiple fronts despite continued headwinds from the pandemic while delivering improved financial performance for our shareholders. Turning to Slide 19. Our performance in 2021 gives us confidence that once we eliminate merger costs this year, we will have the potential to deliver strong profitability in the top quartile of our peer group. Adjusted return on tangible common equity, excluding the reserve releases, was a strong 19.4%, and our adjusted efficiency ratio was 56.7%, both of which would have ranked at the top of our peer group. These metrics exclude merger costs, and we acknowledge that these costs have dampened our GAAP profitability relative to our potential. That said, we've been successful in tracking, taking our core costs out and we closed 2021 on target with more than $1 billion in annualized cost savings. By the end of 2022, merger costs will end and our cost saves will be fully realized, resulting in a less complex narrative, improved earnings quality and more capital, music to our ears. We expect to continue making progress on profitability levels as cost saves materialize, and we realize the benefit of higher rates and we deploy additional capital. Finally, on Slide 20. Focusing on the results from the first quarter, adjusted earnings totaled $1.6 billion or $1.23 per share, up 4.5% from a year ago, primarily driven by a lower loan loss provision. Adjusted return on tangible common equity was a strong 22.6%, unchanged from the prior 2 quarters. Even excluding the reserve releases, adjusted return on tangible common equity was still strong at 19.9%. Capital deployment remains healthy as we funded solid organic loan growth and completed the acquisitions of Kensington Vanguard and certain merchant services relationships. Asset quality continues to be excellent and net charge-offs remain low, contributing to another provision benefit during the quarter. As a result of our successful conversion activities in February, we integrated approximately 7 million clients to the Truist ecosystem. We also rebranded more than 6,000 branches in ATMs to the Truist across our markets. Being one Truist allows us to serve our clients more effectively and makes our company simpler to operate. On that note, I'll turn it back to Bill for more on the integration efforts.

Thanks, Daryl. Continuing to Slide 22, we successfully completed our largest conversion event in February. As a result, we are now one Truist, not just culturally, but also in terms of branding, digital and technology. There's also a palpable level of excitement from our teammates who are ready to go to market as one unified company with an expanded toolkit to better fulfill our purpose. And turning to Slide 23. The completion of our core bank conversion positions us to shift our focus from and to executional excellence, transformation and growth, and I'll discuss that on the next slide. As we make that shift, we'll also complete the migration of our teller platform and decommission redundant data centers and applications, most of which will happen in the second half of this year. Our decommissioning activities will result in the elimination of 3 data centers and a 30% reduction in the number of business applications we're running, resulting in significant technology cost savings. While complex and significant, I'm pleased to report that our decommission activities are on track. In closing, I remain highly optimistic about the future and potential of Truist. Our opportunity and priorities are clear: shift from an integration focus to an execution focus and deliver better client experiences, capture the significant revenue synergy potential we have by our businesses working together and shift the millions of hours of development, training and effort from the integration to building better lives for our clients. This shift does not require any incremental risk appetite or capital, it only requires execution and focus. At the same time, while we believe the economy is on sound footing in the near term, the headwinds of geopolitical uncertainty, coupled with the inflationary environment, create a wide range of economic outlooks as we move further into the next few years. Truist is exceptionally well positioned across these environments, given our advice-oriented model for clients, balanced approach to interest rate risk management, conservative credit culture, diverse business mix and strong and improving earnings profile. With that, let me turn it to Ankur Vyas for the Q&A portion of our meeting. Ankur?

[Operator Instructions] We've received many questions in advance of today's meeting via our online voting site, and we've also been monitoring the voting site for questions submitted during the meeting. Many of these questions have common themes, and we've tried to group them together to answer as many as possible. These groupings represent the majority of questions we have received. [Operator Instructions] The first question is, the size of the Board seems very large to what is needed for a large publicly traded bank. Can you please explain the size of your Board of Directors?

That's a great question and one that we've been thinking about. We recognize that our Board, which reflects the spirit of our merger vehicles transaction originally being composed of 11 directors from each heritage company is large on the boards of many of our peers. However, the Board annually evaluates its size and structure. And right now, we believe the Board's current size provides us with certain advantages and appropriately represents the interest of our shareholders. The depth and size of the Truist Board enhanced the breadth and competencies of our Board committees and were key factors in allowing us to create and staff a dedicated technology committee to assist the Board in its oversight of technology strategy, operations and risk. Over the past 2 years since the merger closed, we believe the Board's size had an advantage in properly overseeing the integration of our 2 heritage companies and responding to the issues presented by the COVID-19 pandemic. Financial institutions tend to have larger boards to address the significant regulatory, economic and technology pressures that they face, including the requirement to have a risk committee with extensive oversight responsibilities. Our Board has strong skills across a range of strategies and issues. We think having a diversity of viewpoints and experiences on our Board committees is important so we can ensure that we're looking at our businesses and operations from all angles. That said, as we move to our operating model, we expect the Board size to be in the mid- to high teens in the next couple of years. This is something we'll absolutely continue to evaluate.

The second question is, the systems integration in February appear to create challenges for some clients. Can you comment on why this was the case? And what you are doing to fix these problems?

Sure. We completed one of our final conversion events in February, transitioning nearly 7 million clients to the Truist ecosystem and rebranding more than 6,000 branches and ATMs to Truist. The integration by any measure, was successful. Overall, particularly when you consider the scale and complexity involved. This was the largest bank technology integration in over 15 years. We have millions of Truist clients who are pleased with their experience. At the same time, though, it's impossible to execute an integration of this magnitude perfectly. Some of our clients face challenges with the transition and some experienced longer wait times with our contact centers. That experience doesn't meet our standards, and we're taking steps to fix the issues. Those include increasing the staffing in our contact centers, putting enhanced technology solutions in place and fixing certain processes to enhance the overall client experience. In the past weeks, we've seen significant improvements in our call times, our teams continue to work diligently to help any of our clients who have individual challenges as part of the transition. And my commitment was and is that every client be completely satisfied.

The third question we have is, ESG is becoming increasingly important to many stakeholders, and you proudly discuss your progress in your public reports. At the same time, many industries such as the oil and gas industries are criticized from an ESG perspective, yet their services are critical to the security and the economic growth of the United States. How do you balance providing banking services to these industries while not getting caught up in the shifts in political and social sentiment?

At Truist, we work with clients of every size and in all sectors of the economy to sustain and drive innovation and growth. We support the diverse energy needs of the country, including traditional and renewable energy sources. We also understand the varying views around energy issues. And as a socially responsible company, we recognize the importance of this industry for our country. Energy is a key focus area for us, and we have relationships with a broad scope of energy clients, including traditional and alternative energy companies. We've recently added new specialized talent and investment banking focused on working with clients on energy transition work, renewable energy and ESG advisory services and helping clients think about their long- and short-term goals to transition to a lower carbon economy. I also want to note the other ways we're actively supporting the transition to a lower carbon economy. We announced plans to achieve net-zero greenhouse gas emissions by 2050. We set 2030 goals to reduce Scope 1 and Scope 2 emissions by 35% each and to reduce water consumption by 25%, relative to 2019. Truist has already seen greenhouse gas reduction benefits from spending more than $50 million on LED lighting, HVAC upgrades and energy management systems as well as the reduction of our real estate footprint through office and retail banking consolidations. And finally, we joined the Risk Management Association and 18 peer banks to form the RMA Client Risk Consortium to develop standards for banks to integrate client risk management throughout their operations. This is important work where we're driving solutions and support.

The fourth and final question is, what are you doing to ensure that young families are not overburdened by banking fees?

We absolutely share your concern. We know a lot of families without access to safe and affordable financial services, often turn to high interest rate loans that lock them into a cycle of debt. Some of the ways we're helping build financial resilience include offering free financial education through our complementary HOPE Inside coaching program in over 600 branches. As part of our child tax credit program, we're helping clients understand their options for managing their funds and how to best use the refund to meet their family needs. As I mentioned before, earlier this year, we announced Truist One banking, a set of checking solutions with no overdraft fees that empowers our clients to make the purchases and transactions they need without disrupting their daily lives. We're also discontinuing returned item, negative account balance and overdraft protection transfer fees for all our existing personal accounts over the coming months. And we'll offer alternative checking account created for clients who want simplicity and control without overdraft fees. This new product will help clients access mainstream banking and keep them from incurring high fees to alternative providers. And this, in all cases, we're always guided by our purpose to inspire and build better lives and communities.

We have now concluded the question-and-answer portion of this meeting. [Operator Instructions] At this time, I'll now turn it back over to Bill.

Thank you, Ankur. And this concludes our 2022 Annual Meeting of Shareholders. I'd like to thank our shareholders for their continued investment in and support of Truist. Thank you.