Truist Financial Corp at Morgan Stanley US Financials, Payments & CRE Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Betsy Graseck - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>Yeah, pleasure. So I did want to just kick off first with a question on guidance. Is there any change as we round the corner here into the end of Q2? Michael Maguire - Truist Financial Corp - Chief Financial Officer, Senior Executive Vice President No, updates for us. We -- as you know, we guided in April and then actually updated at least our NII outlook or added on in May for the completion of TIH and the bond repositioning, but all is on track.

Question: Betsy Graseck - Morgan Stanley - Analyst : You repositioned your balance sheet. You changed the composition of the securities holding, generating higher yield now, right? Is that correct? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 5:45PM, TFC.N - Truist Financial Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : And I know the goal here is to offset the lost earnings from TIH. Well, one of the goals, there's many goals.

Question: Betsy Graseck - Morgan Stanley - Analyst : Maybe you could walk us through the strategy and talk a little bit about the repositioning and how that repositioning will be replacing the TIH earnings?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. How should we think about your plans to manage that portfolio in particular if rates were to go down?

Question: Betsy Graseck - Morgan Stanley - Analyst : Now as rates -- let's assume the Fed will be cutting rates.

Question: Betsy Graseck - Morgan Stanley - Analyst : I know every day it changes. But in an environment where the Fed is cutting rates, given the cash position and given the shorter duration of the securities book position, a pull down in the front-end rate curve would be offset by the swaps? Or is that just something we'll --

Question: Betsy Graseck - Morgan Stanley - Analyst : And that's driving through the deposit side, liability side?

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. Very good. So we'll look forward to the next Q, I suppose, right?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Very good. So as we are thinking about the funding side of the equation, how are you anticipating deposits finish up this quarter or at least where are we in the deposit cycle Q-to-date? Is the remixing from noninterest bearing to interest-bearing still progressing or slowing down? Any color on that? And how are you thinking about level of competition for deposits?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And on the loan growth side, can we talk a little bit about what's going on there? Loan growth has been muted for the industry. Muted is a nice way of saying flat. But for yourself, there's been periods where you've had a little bit better than H8, periods when it's more in line. Can you give us a sense as to where the drivers are for better loan growth within your book? We could start there.

Question: Betsy Graseck - Morgan Stanley - Analyst : And that's this past quarter or two quarters ago when we --?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And those are conversations, right?

Question: Betsy Graseck - Morgan Stanley - Analyst : Excellent. Well, I'll take that. Very good. Because I think, in particular, in the Southeast, you still have some nice in-migration going on, right? And so is there an opportunity there in the real estate side? Now commercial construction balances are up nicely, right, year on year.

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Okay. Got it, which is good. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 5:45PM, TFC.N - Truist Financial Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So while we're on loans, we'll deal with credit, and then we'll go back to fees. But on the credit side, you've been inching up your reserve ratio over the past several quarters. I think it's sitting at 1.56% right now, which is in line with your day one CECL, seems to me. And I'm just wondering, do you feel like that's in a good spot? Is there any reason to expect that it would inch up from here?

Question: Betsy Graseck - Morgan Stanley - Analyst : And what about the migration into criticized and classified? Is there anything going on there that we should be aware of? Accelerating, decelerating, stabilizing?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Yeah, I've heard that multifamily in the Southeast is being hit more by supply, incoming supply --

Question: Betsy Graseck - Morgan Stanley - Analyst : More competition. right?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Is that fair?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So there will be a tail to that and you'll move on.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Now just turning to net charge-offs. In first quarter, your NCOs in total clocked in at about 64 basis points, right, which was right on with your guidance that you were expecting or guiding us to driven by CRE, card, and indirect auto. Do you feel that your loan categories have now all normalized? Or are there still area of pockets where we're still yet to see normalization?

Question: Betsy Graseck - Morgan Stanley - Analyst : And just to round it out on loans, you mentioned with the TIH behind you and the repositioning completed and opportunity for capital redeployment. How do you think -- well, just to get back to the comment you made earlier around leaning into the commercial. Is there an opportunity there in your credit box?

Question: Betsy Graseck - Morgan Stanley - Analyst : And is this demand really just a function of interest rates? Do we need a lower Fed funds rate --

Question: Betsy Graseck - Morgan Stanley - Analyst : And what about any interest in doing kinds of slightly different structures for your clients, like term loans or more ABL or -- and the part of the reason for asking the question is we've obviously got private credit circling around and looking at these types of structures. So if you can do it yourself, that's seems like an opportunity.

Question: Betsy Graseck - Morgan Stanley - Analyst : Super. Let's turn to fees. And you've got obviously several different businesses that are generating fees for you, one of which is investment banking. First quarter was up significantly. Clearly, the market overall did well. But can you give us a sense as to what you're anticipating from that business as we go through the remainder of the year? And also, where are you leaning in from an investment perspective?

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. And any other fee categories that you want to call out here in terms of where we should be expecting growth to pull through?

Question: Betsy Graseck - Morgan Stanley - Analyst : And when I'm thinking about treasury, there's a couple of different ways that clients can pay either through deposit balances, non-compensated deposit balances so that revenue stream shows up in net interest income or hard dollar fees. So in an environment where interest rates pull down, should we expect to see a migration from that NII to fee line item for you?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So your payments growth really, you're expecting is coming from new account acquisitions?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right, okay. Let's turn to expenses. So post the TIH sale, it's -- with your new disclosure, gives us an opportunity to really see the expense profiling of the bank, which was not as clear before. And I think in 1Q, the expense ratio for Truist ran about 56% for the bank?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And as we look at where you are today, you have the full run rate of the integration in your current expense base, right? So all the cost saves are in the run rate. So how should we think about the expense -- the trajectory of the expense ratio from here?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So as we look, because all of us are modeling to newer years out, you're not done at 56% expense ratio, right? Like that's not the end point here or you --

Question: Betsy Graseck - Morgan Stanley - Analyst : Right, of course. But if you're generating positive operating leverages --

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Very good. So putting it all together here, how do you stack rank the levers that you have to drive EPS over the next two to three years?

Question: Betsy Graseck - Morgan Stanley - Analyst : And you mentioned that you have the excess capital -- you have a significant amount of capital. If loan growth isn't coming through, should we expect that there could be opportunities to upsize the securities portfolio?

Question: Betsy Graseck - Morgan Stanley - Analyst : Super. Mike, thanks so much for your time today. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 5:45PM, TFC.N - Truist Financial Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : All right. Pleasure to have you here.