Truist Financial Corporation (TFC) — Q4 2020 Earnings Call Transcript

Thank you, Abby, and good morning, everyone. We appreciate you joining our call today where our Chairman and CEO, Kelly King; President and COO, Bill Rogers; and CFO, Daryl Bible will highlight a number of strategic priorities and discuss Truist's fourth quarter 2020 results. Chris Henson, Head of Banking and Insurance, and Clarke Starnes, our Chief Risk Officer, will also participate in the Q&A portion of our call. We are conducting our call today from different locations to help protect our executives and teammates. The accompanying presentation, as well as our earnings release and supplemental financial information, are available on the Truist Investor Relations website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliations to GAAP. With that, I will turn it over to Kelly.

Thank you, Ryan, and good morning, everybody. Thank you very much for joining our call. We really appreciate that. Overall, this quarter and this year are very good given the challenging environment that we faced. We had a continued focus on our strong culture; it's activating very well. We're executing well on our revenue synergies. We had really effective expense focus, and we made appropriate investments for the future and, importantly, supported our teammates in a difficult environment and kept our clients and communities number one. Our purpose is to inspire and build better lives and communities, and we think in the times we live in today, this is more important than ever. We focus on our mission, we focus on our values. I would point out to you that with regard to our values, ultimately we focus most of our attention on the happiness of our teammates. In the challenging environment that we face today, helping people get through the challenges they're living with at home and at work and all of the various difficulties that people are going through, finding happiness in this environment is a very important undertaking, and we work hard to try to help that be possible for our teammates. If you're following along on the slides, let's go to Slide 5. I just wanted to point out that it’s nice to say that you have a culture and it’s nice to say you have an important purpose, but it's more important to live it. So I just want to point out a few of the things that we have done that I'm proud of in terms of living our purpose. You know that during the course of the year, we launched our Seeds of Hope program where we helped our teammates with money to grow and do little projects, little things to help people in need. We launched our Truist One Team theme fund, our Home Page program. Our Truist Cares program was very effective where we invested over $50 million to meet the immediate long-term needs of our communities, our clients, and our teammates. We provided over $100 million in special COVID support for our teammates, and 750,000 client accommodations; $13 billion in PPP loans, which helped more than 80,000 companies and created or protected about 3 million jobs. And we did 355 small to medium sized grants in our communities. I am very proud of our $60 billion three-year community benefits program. I would say to you that we are ahead of the time schedule in terms of making those investments. We supported those who are historically underrepresented through a $780 million commitment, which includes $40 million in helping establish an organization called CornerSquare Community Capital, which is focused specifically on CDFIs in the minority space. And we're proud that we were able to invest $20 million over three years to support HBCUs and their students. On Slide 6, let's talk a little bit about where we are with the merger. I want to make a point of context for you regarding how we think about our merger because this is a bit different than most mergers. It's very different than the many mergers I've been through in my career. We're not just putting two big companies together, cutting expenses and trying to improve profitability in the short term; rather we are building what I call a new bank. We are building a bank based on the best of both organizations and, in some cases, just new systems and processes. For example, in our commercial lending area, we've taken the very new and very best-in-class SunTrust senior loan origination program and the BB&T backend system in terms of commercial loans. So combined, we have the best from both sides, and it's a classic case where two plus two equals five. We certainly could have picked one; it would have been cheaper, it would have been faster, but it would not have been better and it would not have been client-focused. Daryl is going to be talking to you about merger charges and other merger expenses a little later. I want to emphasize that as he does that, remember that you have the normal merger costs that we called out early on in the announcement; that's normal signage and different systems that are just going away. They have no future benefit; they really are just a merger charge. Then we have these other investments, which I call investments, because they are. They are investments in the future. They're making our organization better, it's client-focused, and while they will not be a part of our ongoing long-term run rate, these are expenditures to do little projects, little things that help people in need. We launched our Truist One Team theme fund, our Home Page program, and the Truist Cares program was very effective where we invested over $50 million to meet the immediate long-term needs of our communities, our clients, and our teammates. We provided about $100 million in special COVID support for our teammates and 750,000 client accommodations for $13 billion in PPP loans. We funded help for more than 80,000 companies and created or protected about 3 million jobs. We completed 355 small to medium grants in our communities. I am very proud of our $60 billion three-year community benefits program. I'd say we are ahead of the time schedule in terms of making those investments. We supported our representatives on our $780 million commitment and then it included $40 million in helping our organization help CDFIs for our community capital, focused specifically on CDFIs in the minority space, and we're proud that we were able to invest $20 million over three years to support HBCUs and their students. On Slide six, let's discuss a little bit about where we are with the merger, and I want to make a point of context for you regarding how we think about our merger because it's a bit different than most of our deals, very different than the many, many mergers I've been through in my career. We're not just putting two big companies together, cutting expenses and trying to improve profitability in the short term. Rather, we're building what I call a new bank. We are building a bank based on the best of both organizations and it's just new systems and processes. Like, for example, in our commercial lending area, we've taken a very new and very best-in-class SunTrust single loan origination program and BB&T back-end system in terms of commercial loans. So combined, we have the best from both sides and it's basically the case where two plus two equals five. We saw the results; one would have been cheaper and would have been faster, but it would not have been better and would not have been client-focused. Daryl is going to be talking to you about our merger charges and North American expenses a little later, but this will emphasize that, remember that you have normal charges that we called out early on in the announcement, that's normal signage and different systems that are just going away that have no future benefit. They really are just a merger charge. And then we have investments, which I call investments that make our organization better, it’s client-focused and while they will not be in our ongoing long-term run rate, these are investments that we make today to ensure that we have our agile, very client-focused organization as we go forward.

Great. Thank you, Kelly, and good morning, everybody. As Kelly just noted, Truist is the first large bank merger in the digital age. With that in mind, we determined it was really imperative that our clients began experiencing an enhanced digital platform this year. This is demonstrated on page 9. While our foundation is two leading digital experiences, we're going to accelerate the delivery of features like personalized financial insights, AI-driven chatbots, and other client-centric enhancements. We will pilot this on both platforms in the second quarter and then begin migration in waves in the third quarter and complete full migration to the premier Truist experience for our digital clients by year-end, further emphasizing Kelly's point of how much has been done this year. As you can see on page 10, we are experiencing excellent digital adoption and usage from our clients. For the 12 months through November, we experienced a 26% increase in digital sales, 12% growth in active mobile users, a 22% increase in mobile check deposits, and a 5% increase in statement suppression. I think all would speak to increased digital adoption. This is an area where we're already seeing the benefits from our investment, and on the right side, we show some recent enhancements. For instance, the SunTrust business online and mobile experience incorporates significant updates that were built in-house to give us more control of the app's functionality and performance long-term. The heritage award-winning BB&T U platform now provides insights to help clients better manage new spending and behaviors, including an end of month cash flow analysis and enhanced notifications, just to name a few, and very consistent with our whole Q3 premise. You know, this is a prime example of what Kelly talked about with the best of both. Using the BB&T U client-driven front end with a more flexible agile heritage and SunTrust-driven back-end clearly positions us, I think, really well for the future. We believe initiatives such as these underscore our commitment to improve the lives of our clients and demonstrate our investment effectiveness. So let's turn to page 11. We experienced further decline in balances across most loan categories in the face of continued economic uncertainty and elevated liquidity. Average total loans decreased $7.6 billion, largely attributable to commercial loan balances and ongoing runoff in the residential mortgage portfolio. Commercial average balances declined $5.4 billion, primarily due to line paydowns and lower utilization. Paydowns activity reflected larger client's ability to obtain financing from capital markets, and SunTrust securities is well positioned to assist them, which you'll see later. Commercial balances were also impacted by a $1.4 billion reduction in PPP loans and the transfer of $1 billion in assets to held for sale following our decision to exit a small ticket loan and lease portfolio. We experienced a rebound within our dealer floor plan clients after bottoming in July due to OEM supply chain disruptions. Dealer floor plan balances have steadily improved as new core inventories were replenished. We also saw growth in mortgage warehouse lending and government finance. Commercial activity remains bifurcated, as a whole, with a greater share coming from large and medium-sized companies than from small businesses. Consumer average balances decreased $2.2 billion, this was largely due to seasonality and refinance activity that resulted in lower residential mortgage and home equity and direct loan balances. Average balances in our indirect auto portfolio increased $1.1 billion. Loan production was really strong as vehicle sales rebounded, especially for us in the prime segment. Overall, we've remained cautiously optimistic. We're hopeful that the successful rollout of COVID-19 vaccines together with additional government stimulus will increase visibility, revive confidence, and support the economic recovery, all of which will be essential for loan growth. We are extremely well positioned in businesses and markets that we believe will most benefit from this. So let's continue on page 12 to look at deposits. Deposit trends remain favorable during the quarter. Growth was robust and broad-based, supported by a combination of seasonal inflows and ongoing growth resulting from pandemic-related client behavior. Average non-interest bearing and interest checking balances were each up over $3 billion, while money market and savings were $1.1 billion. Average time deposits decreased $4.3 billion primarily due to the maturity of wholesale negotiable CDs and higher-cost personal and business accounts. Importantly, we're able to achieve a strong level of deposit growth while maximizing value proposition to clients outside of repaying. For instance, the average total deposit costs decreased three basis points to seven basis points, and average interest-bearing deposit costs declined four basis points to 11 basis points. So with that, let me turn it over to Daryl to discuss our financial performance for the quarter.

Thank you, Bill, and good morning, everybody. Turning to Slide 13, in the fourth quarter, reported net interest margin decreased two basis points to 3.08%, reflecting lower purchase accounting accretion. Core net interest margin was unchanged at 2.72%. Core margin benefited from higher yields on PPP payoffs, recognition of deferred interest on loans, and lower funding costs offset by excess liquidity. Earning assets rose $3 billion primarily due to an increase in deposits, resulting in a modest improvement in net interest income. We partially hedged our exposure to rising rates by pay-fixed swaps to offset market risk associated with our investment security. The chart on the bottom left shows the increase in our asset sensitivity due to quarter positive growth, additional pay-fixed swaps, and the residential mortgage runoff, which was partially offset by the growth in the investment portfolio. Turning to Slide 14, our integrated relationship management strategy is helping to improve fee income. The non-interest income increased $179 million through third quarter security gains of $104 million. We had record investment banking and trading income of $308 million due to strong activity in M&A and loan syndications, lower counterparty refers, and improved trading profits. We also generated record commercial real estate income of $123 million driven by structured real estate transactions and strong production and sales activity at Grandbridge. Insurance grew 7% versus the fourth quarter of '19 due to strong production and premium growth as well as acquisitions. Organic growth was 2.9%. If you exclude the Truist policy last year, organic growth was 4.9%. We completed five insurance acquisitions during the fourth quarter, which we expect will add more than $110 million in annual revenue and approximately $7 million in adjusted expenses. Turning to Slide 15, non-interest expense increased $78 million reflecting a $99 million increase in merger costs. Adjusted non-interest expense rose $27 million due to higher professional fees for strategic technology projects and higher personnel expenses. Personnel expenses increased $50 million reflecting higher incentives related to strong revenue production and the impact of our job re-grading process that concluded late last year. Job re-grading resulted in a catch-up in personnel expenses during the fourth quarter. Approximately $50 million of this was related to prior quarters. Through the effort, we were able to honor our commitment to establish jobs and rewards programs and harmonizing all teammates in the combined framework. FTEs decreased 1300 during the quarter and were down 8% since the merger was announced. We closed 104 branches during the quarter, bringing the full-year total to 149. Net occupancy decreased $26 million benefiting from aggressive closures of non-branch facilities. Turning to Slide 16, as we said, we are seeking the opportunity to build the best of both franchises. This approach is harder than a typical acquisition, but we believe the benefit to our clients justifies the effort. Since the merger was announced, we have incurred $1.2 billion of merger-related and restructuring expenses. These expenses have no future benefit and are not part of the post-conversion run rate. We also incurred $725 million of incremental operating expenses related to the merger. These expenses do provide future benefit and are integral to building a best-of-both franchise. The incremental operating expenses are not part of the future run rate and will end after the conversions in 2022. Based on our integration plan, we expect the merger-related and restructuring charges to be approximately $2.1 billion and total incremental operating expenses to be approximately $1.8 billion. This results in a combined total charges of approximately $4 billion. Turning to Slide 17, strong credit performance was characterized by minimal increase in NPAs and an excellent loss experience resulting in lower provision expense. We saw favorable trends in problem loan formation as the criticized and classified loans decreased 8.4%. The provision of $177 million benefited from lower charge-offs and a modest reduction in reserves. Due to the decision to exit the small ticket loan and lease portfolio, the allowance coverage ratio remained strong at 7.15 times net charge-offs and 4.39 times non-performing loans. Active accommodations were down significantly since the second quarter. Approximately 97% of the commercial clients and 91% of the consumer clients who exited the accommodation program are current on their loans. Our exposure to COVID-sensitive industries decreased 2.6% to $27.1 billion, or approximately 9% of outstanding loans. We also had the third-lowest loss rate among peers in the latest CCAR test. We believe this outcome reflects prudent client selection and underwriting as well as diversification from the merger. Turning to Slide 18, the allowance for credit losses decreased $30 million largely due to moving the $1 billion portfolio into held for sale. Our macro assumptions include unemployment remaining fairly stable through mid-2021 and improving thereafter and GDP recovery to pre-COVID levels by late 2021. We also layer in qualitative adjustments for COVID-related uncertainty. Continued improvement in economic activity, less uncertainty, and stabilization of criticized asset may process to release reserves in the coming quarters. Turning to slide 19. Our capital ratios were relatively stable with the CET1 ratio unchanged at 10%. We declared a common dividend of $0.45 per share and a dividend total payout ratio of 49.4%. In December, the board authorized the repurchase of up to $2 billion of the company's common stock starting in the first quarter. Our intention is to maintain an approximate 10% CET1 ratio after taking into account strategic actions, stock repurchases, and changes in risk-weighted assets. For the first quarter, we expect to repurchase approximately $500 million. The board authorized other measures to optimize our capital position, including the redemption of the outstanding Series F and G preferred stock, and liquidity remained strong, and we are prepared to meet the funding needs of our clients. Turning to slide 20, this slide highlights our progress towards achieving the $1.6 billion in net cost savings. Our efforts to reduce third-party spend are ahead of expectations. We're now targeting a 10% reduction in sourceable spend of $4.5 billion. In retail banking, we closed 149 branches in 2020. On a cumulative basis, we expect to close 800 branches by the first of 2022, including more than 400 branches by the end of 2021. We also expect to reduce our non-branch footprint by approximately 4.8 million square feet through the combination of closures and downsizings. Through December 31, we reduced our non-branch footprint by approximately 2.4 million square feet. We're roughly halfway through our goal. The remaining facilities will be rationalized during 2021. Cost savings from technology are highly dependent on core bank conversions because we can't decommission systems or data centers until the conversions are completed. The bottom of the slide less where we are making significant investments; we believe these investments are critical to delivering on our purpose and providing our catch-plus technology equals Truist approach to clients.

Now I will provide guidance for the first quarter expressed in changes from the prior quarter. While the environment remains fluid, we continue to see momentum in our businesses, which may enable us to outperform the guidance. The first quarter had fewer number of days and seasonally higher personnel costs. We expect taxable equivalent revenue to be down 3% to 5% as a result of fewer days and purchase accounting loss. We expect our reported net interest margin to be down two to four basis points based on less purchase accounting accretion and a change in the core margin. We expect core margin to be relatively stable with the exception of increased liquidity coming from the balance sheet that could pressure the margin up to five basis points. Non-interest expense adjusted for merger costs and amortization is expected to be down 2% to 4%. We also anticipate net charge-offs in the range of 30 to 45 basis points. Overall, we had a strong quarter with exceptional revenue growth, good margin performance, and expense management, and strong asset quality. Now let me turn it back to Kelly for closing remarks and Q&A. Kelly, you're on mute.

Just to close, we have very few comments regarding the Truist value proposition, which is to optimize our long-term total shareholder return really through a focus on strong capital, strong liquidity, diversification, and intense client focus. We believe we have an exceptional franchise with diverse products, services, and markets. We are the sixth largest commercial bank in the United States. We have strong market shares in five fast-growing MSAs throughout the Southeast and the Mid Atlantic area. We are uniquely positioned to deliver best-in-class efficiency and returns while we continue to invest in the future. We're very committed, as Daryl said, to reaching our $1.6 billion in net cost savings. We have a great mix of complementary businesses that allows us to expand our client base through our year-old enhancement in revenue synergies. We have a very strong capital and liquidity position in sales, which positions us to be resilient as we go through the very challenging times that we are experiencing. We are, as I said earlier, building a best-in-class new bank designed to be client-purpose driven and resolutely committed to inspiring and building better lives and communities. We believe our best days are ahead for Truist in these States of America.

Thank you, Kelly. Abby, at this time, will you please explain how our listeners can participate in the Q&A session?

Regarding the $1.8 billion in incremental operating expenses, could you just talk about that, like how that number has evolved versus your original expectation? I know it's the first time you're giving us that target. So how does that compare to where you originally expected and how has it evolved over time? And then can you give us a little bit more of your thought process behind it, in terms of, if we can continue to see upward pressure on that amount, or are you pretty confident in the $1.8 billion and that it's going to remain at that target? Thanks.

Yeah, John, thanks for that question. I would tell you when we were putting the transaction together in late '18 and announced it in early '19, we thought $2 billion was the merger and restructuring charges, and we're pretty much on target with that. As we continued to work on all the integrations and we saw the opportunity to really build the best in breed of what we could do with our systems and technologies, we just knew that we would basically be having, I would call it a lot of technology projects on steroids all at once, and that this would be a really unusual time to have all those costs running through our expense structure. So that's really what we came up with. And we've been tracking it to date, so far, and we feel pretty good about the forecast that we have. We're almost at $2 billion in total when you combine both charges of both the merger and restructuring and the incremental. So we have about $2 billion to go over the next year and a half. But we believe it was for the right reasons and makes all the sense that it's going to help our clients and really produce good performance for our company going forward.

So John, a way to think about that conceptually is that $1.8 billion is really, as I think about it, like our capital allocation for future benefits in terms of client focus and better systems and better processes. So it will flow through expenses. We will continue to report it too. Also, you can think about it more in terms of an investment.

Got it. Thank you. That's helpful. And then, separately on the branch and non-branch real estate reduction, I just want to confirm that those reductions that you're targeting and the savings that come from that, that is included in your targeted cost savings tied to the merger?

Absolutely. So, when we discussed the five categories, you mentioned two of them; specifically, we originally estimated the retail branches would amount to between 700 and 800. We're currently at the higher end of that estimate, and we expect to complete this by the first quarter of '22. Regarding corporate real estate, before COVID, combining the two companies exposed significant overlaps in the Mid-Atlantic and Southeast regions. We're actively working on rationalizing that space, and COVID has actually facilitated this process by allowing us to consolidate more swiftly since many buildings are now empty. I anticipate that as we proceed with these integrations, we might even surpass our initial expectations for corporate real estate consolidation due to the effects of COVID and the shift towards remote work.

Yeah. Right, that was exactly what I was getting at, because I am assuming some of the corporate real estate reduction opportunity got bigger. You guys saw greater opportunity as COVID set in. So I was just wondering if that could present upside to your cost-saving expectations if corporate real estate reduction can be more than you thought.

Yeah, so we have a plan for where we are executing now in the $4.8 billion; once we complete that plan, I'm sure Kelly and Bill and Executive Leadership will reevaluate it and see if there is an opportunity to do more in the future.

Hi. All right, sorry about that. Yes, so I had a couple of questions. One, just on the integrated relationship management strategy, I'm wondering how that's progressing. The revenues are strong this quarter, particularly in fees, and so I just wanted to understand how much was the IRM helping to drive that result this quarter?

Well, Betsy, that's a huge part of it, and I'll let Bill give you some deep color regarding that, but this is a concept of really integrating the way we focus on the client. You know, many institutions focus on a siloed way in terms of products and different services; we don't do that. We focus on the whole needs of the client, and so we've developed this IRM process we call it, Integrated Relationship Management, over several decades. It's very, very effective, very efficient because everybody owns a client. Everybody is focused on meeting all the needs of the clients all the time. But we're seeing spectacular early positive feedback in terms of how it's working especially between the community bank and CIG. Bill, you may want to comment on that.

Hey, Betsy. I mean, this is one of the really strong cultural alignments that Kelly and I talked about when we first started talking about this merger; it’s this commitment to put the client first and create a culture and a structure that evolves from that. We're seeing it—meaning the model is working. As Kelly noted, a couple of examples are the investment banking outperformance this quarter, in particular, I mean there was really a strong contribution from our Commercial Community Bank and from our CRE and from our private wealth businesses. So that model of integrated relationship management is working. It's just been great adoption, great participation, and really good cultural alignment. You see it in the insurance numbers, you see it in the Wealth numbers. So it's all part of this structure and focus. And we have a lot of discipline around it. But the key is the cultural side. There are people committed to wanting to work together and work towards a common goal to meet client needs, and I’d say this quarter was probably one of the better examples of how the engine is really firing on all cylinders.

Okay, all right, thanks. I appreciate that. The fee—fees really jumped out on the screen. I guess the follow-up question on the expense line here is around some of the core expense inflation outside of the cost saves; you've got merit increases, bolt-on acquisitions, investments for revenue growth, etc. I'm just wondering how investors should think about where the total expense dollars will likely land post the net cost saves, what kind of guidance can you help us with there? Thanks.

So Betsy, let me just mention in general, we have the itemized areas you've listed, but we are really focusing on expenses on a broader conceptual approach, we do in obvious. I mean, the obvious are, you know, as you got two of these and you only need one and those kinds of things, that's just going to happen. But we are heading into a period now where it's time for us to focus on optimization. It's time for us to focus on transformation or re-centralizing the business. Because so far what we basically have done is think of it as putting two big banks together. Now, what we have—and we get less savings from that, just natural overlap. So now we have the opportunity to re-conceptualize the business as we transform it post-COVID and all this going on with regard to the new digital world, and there are enormous opportunities for us as we go through '21. So '21 is going to be an intense year of focus on expenses from the perspective of transforming our structures so that we are doing the right things in terms of investments and expense allocations to meet the client's needs first, and we believe that will throw off positive benefits in terms of expenses.

Betsy, what I would say in my prepared remarks is I gave for the fourth quarter of this year the $2.940 billion; now that excludes the merger, restructuring charges, incremental MOE expenses, and amortization. And then I gave a call-out on the expenses for the Insurance acquisitions of about $70 million adjusted expenses. So all of that will get carved out of that base. But when you look at the job re-grading marketing, considering that part of the investment, that's something that we’re covering with our net savings.

Good morning. Let me talk about the timing of liquidity deployment this past quarter, obviously, securities went up a lot. It sounds like you had some of that. But what made you decide kinds now's the right time? We've seen the 10-year move up, but actually mortgage rates and I think rates on the types of securities that you would have bought were probably stable or down. And most people, I think, are expecting higher rates later this year. So what kind of drove you to deploy what seems like most of your excess liquidity this past quarter?

So Matt, ideally, we would like to take this excess liquidity that we have and deploy it in loans. What we're seeing is that we just have a fair amount of payoffs in the PPP. But as businesses really come back and have a lot of momentum and start growing as we get into the middle or latter half of ’21, we really want to deploy that excess liquidity in lending. I would say that we decided to put some of that liquidity into the investment portfolio. We did that throughout the third quarter. We did partial heads up our hedges on them to help with a mark-to-market on that. So when we added about $25 billion to $30 billion to the investment portfolio, we did have hedges on there about $20 million that we put on to help with the market risks that we have. So net-net, we feel good with what we've done. The real uncertainty on a go-forward basis with all these new stimulus packages is, we could get potentially another $10 billion or $20 billion more liquidity into the balance sheet. I think we need to evaluate what we do with that excess liquidity whether we keep it at the Fed, invest it, or ideally lend it out, which is the main primary objective.

Okay. That's helpful. And then circling back on the incremental cost related to the deal, obviously, you’ve been incurring these already, and I think the first time which is getting a lot of attention, but how we see these on the other side right? So like you did increase the net cost saves and right size having the synergies even though it really seems like it will become, how will we see the payback of that incremental $1.8 billion if you can break that down somehow?

So these, as I was describing, are really investments. So think about this as we're building a whole new mortgage loan delivery system. You will see the benefit of that in terms of—in some cases just more efficient systems because they're newer, and the other is the effectiveness in terms of meeting client's needs. So we can—for example, in mortgage, you can do more mortgages because you're more efficient. You get more mortgage applications because you have a better client experience. So it's just like, if your car has done a rundown and run out of 200,000 miles, you buy a new car, you make an investment, you see the benefit of that in terms of driving experiences, less breakdowns, etc., etc. So it is an investment; that is the best way I can describe it to you to think about.

Hi, thank you. My first question is on revenues. Kelly, you were very upbeat on the future of this company and your peers were actually quite a bit on the future of economic growth. I'm wondering as we think about going past the first quarter, how should we think about your base case for economic recovery relative to loan growth? Your peers were surprisingly upbeat and also specific to you the insurance outlook?

Yeah, Erika, we are upbeat as well. I would say, and I'll take a second why I'm upbeat regarding the economy. This economic downturn is dramatically different than what we've all experienced in the past. If you take the money crisis, it was about our commercial real estate bubble; 2000 was a technology bubble; 2008 was the residential real estate bubble. There was no bubble here. There was nothing fundamentally wrong with the economy. In fact, we had ten years of robust growth, you know, have very, very low inflation; we just shut it off. That's important because we're not underlying impending issues that caused the economy to sputter. Now, if you kept it shut off for ten years, you have another issue, but given whether we ordered the vaccines, etc., we fully expect that you're most likely would see stronger snap back in the economy than most people expect. When we talk to our clients and prospects, they are really pretty upbeat. They are saying things like it's time to get on with it. We're ready to go; we're making investments and we're seeing that in terms of our robust pipeline of loan reversal activity. And so we are upbeat with regard to the economy. We think it will be slower in the first part, picking up steam as you head through the mid-part; stimulus will have that summed, but mostly businesses and consumers feeling more confident. Look, when the vaccines are out there, I would say all, and as they become more widespread in terms of being injected, fear goes down, confidence goes up. People are ready to live again, people are ready to invest, or ready to run their businesses. So I fully expect by the time we head towards the fall and end of the year, you're going to be really surprised in terms of how robust this economy is. That will show up in terms of our commercial loan activity in a very big way. You're likely to see more residential loan growth than we would have expected in the slower economy, and certainly you'll see in terms of our insurance activity as well. Let me just turn quickly to Chris Henson and let him give you some color regarding insurance that is very important.

Thanks, Kelly, and Erika, thank you for the question. Maybe just to sort of fourth quarter and maybe just the outlook to your point, one of the best quarters that we have had in some time, and with all the drivers of organic growth are really kind of hitting on all cylinders, client retention has stabilized in retail at north of 90% for the last eight months, wholesale really strong at 85%, we're really seeing the cause of the factors in the market. Standard carriers are pushing risk to the wholesale market, and we're benefiting from that. Pricing another element organic growth as strong as we're in the hardest market we've seen in two decades, rates are up in the industry, north of 7%, and it's anticipated that we'll continue to see some hardening and acceleration into ‘21. Our new business, new business in 2019 was up in the 12% to 13%. That was as good as we've seen in terms of COVID. We were negative 4% to 6%, didn't know where the year was going to shake out, but this quarter our new business was up 19.5%, up 8% year-to-date; some of the best numbers I have ever seen. So that all led to an organic growth number that we reported 2.9% to like quarter, 4.3% year-to-date. But just to key in on one point Daryl made, I think it's really important. The 2.9% growth number was significantly impacted by one-time MOE-related piece of insurance that was booked for our MOE deal in Q4 ‘19. So if you exclude that noise, organic growth really would have been on a core basis at 4.9%. In terms of output, we expect first quarter commissions to be up in the 10% range, we're moving from our third-best quarter of the year to our second-best and first, obviously, uncertainties in COVID will impact the economy. But the outlet is really strong given accelerator pricing, exposure units in the business are holding. We're growing excess and surplus lines because of the shift I mentioned in standard carriers supporting retail and pushing it to E&S. We're benefiting from that diversification and the pricing momentum; think about the markets digesting the COVID impacts. CAT losses—we had 30 storms this year, the most in history in any given year. Three of the largest years in history of CAT losses occurred in the last four years, so it's got upward pressure, and lower interest rates also puts pressure on investment income for underwriters. So pricing is up 7%; you're seeing examples of things like in excess of 12.5% D&O up 11.5% property. We had a lot of up 9%; up in all classes and all accounts. So looking forward, what we're expecting in the first quarter is somewhere around the 5% kind of organic growth rate number. We think that elevated catastrophe levels, low interest rates, all that's really going to keep it propped up. And Kelly mentioned acquisitions; we were able to close five in the fourth quarter, and we expect more in 2021, so really bullish about insurance going forward.

Got it. Thank you. That was very helpful. My second question is a two-parter on expenses. Daryl, if you can maybe briefly describe what’s in that $1.8 billion number that would assure your investors, and it just doesn't linger in the run rate? I think everybody gets scared when they see personnel as a descriptor. And going back to Slide 21 as a follow-up question to that and a follow-up question to Betsy's question, what do we do with that 3.037 number that annualizes to 12.16 as we think about your 2023 run rate? Is that a base for the run rates that include the savings plus the growth rate just to help us think about that number for 2023?

Yes, it's the technology projects. And so the expenses that we can carve out, one-time costs like when we decommission something or something is put out of use, from that perspective has no future benefit. That's in the original merger and restructuring charges. But when you have developers going in and you have people going in with systems, and you have architects building out our new platform; they're basically building a whole new Truist environment and technology. All those are real costs; we're doing all these technology costs at once. We just thought it was fair to call out because you would never really think of doing this all at once if it wasn't for the merger. But as Kelly said, at the end of the day, we're going to have a much better client experience; we're going to have much better performance overall. You should see the benefits of all these systems integrated by doing the best between each of the systems that I think you're having a lot of revenue and other synergies going forward.

Erika, keep in mind what Daryl emphasized: when you’re doing these projects, you bring all those consultants in, but you also get them out. So with regard to consultants, we have a narrow front door and a very big back door. I'm going in the back door.

Thank you. Good morning. I had a question on back book repricing dynamics and how to think about that from here for Legacy BB&T and other banks more broadly. We saw downward pressure on loan yields persist throughout the last SERP cycle despite having a steeper curve. Can you discuss whether that downward pressure on yields is a dynamic you'd expect to persist throughout the remainder of this SERP cycle as well?

Bill, I would say in a normal balance sheet structure that would make a fair amount of sense. What we have going on our balance sheet, remember, we have some purchase accounting, we have PPP, and all that, we actually saw our yields—you can see that on our tables; you can see that we actually had loan yields higher for those various reasons. That said, I would tell you the steepening of the curve— we are asset sensitive; we’re asset sensitive across the curve, a little bit more short in the longer end. But as the yield curve shifts, we will benefit from that; 25 basis-point steepening of a curve will basically give us two to three basis points in core margin. So it is a phenomenon, if you look at how things are going on and off on a pure basis, actually look at credit spreads going on, our commercial credit spreads are going on maybe three or four basis points higher than what they’re coming off. And so I think all that is relatively good from that perspective.

Yes, let me just add to Daryl’s point; that's also a business mix and focus issue. So what would be traditionally a different back book look, on a forward basis, as Daryl noted, I mean, we’re seeing improvement in margin that has to do with focus type of relationships value that we're adding—all those types of things. And as he noted, you see that particularly on the commercial side.

Understood. That's really helpful. And just as a quick follow-up on that same question, to the extent that PPP 1.0, and then 2.0 are going to be sort of contributing to the NIM in this SERP cycle, can you discuss how long you'd expect those tailwinds to persist through '21 and then not '22 or would they carry into '22 as well?

You want to call that?

Yes, Chris, you want to start this one? And I'll finish off?

Sure. Yes, we do obviously plan to participate in Round 2, probably in the neighborhood of $3 billion or so. We see most in Round 1 playing out through '21 and Round 2 probably coming in the first half of the year and then rolling out the back half of the year. Really hard to call exactly when what quarter exactly that all is going to flow out. But to answer your question, I would say 90 plus percent of it should be gone by the end of '21.

The thing I would just add to that, Bill, is that it has a huge impact on core margin depending on when the forgiveness happens, and it could be anywhere from three to five basis points depending on the amount that actually happens in any given quarter. One thing to note, Round Two is really focused on more smaller loans. So those actually drive higher fees; but our average fee on round one was about 2.7, our estimate—this is just an estimate because it's just now starting to roll out—you might see north of 5% fees on round two. We'll have less volume, but it will also have a huge impact on those as well.

And just to give you a sense; we've invited 100% of round one through the path of forgiveness, but they submit information at different times. We've received and proposed on the SBA about 40% of that to this point. So some of the timing is really determined by the timing of the client providing the information.

I was wondering, Daryl, you could provide us a little more color on that commentary you gave about the first quarter revenue outlook. I believe you said down 3% to 5% FTE. Can you help us understand just what Chris gave some color on insurance, but kind of bifurcation between what you expect out of NII and fees and what the drivers would be especially in those other fee areas in addition to insurance. Thanks.

Yeah, I'll be happy to do that. So when you look at margin because we have the difference between our reported margin and core margin, we are going to have less over time accretive yield going into our margin. Now that's volatile, I would say that that could be down anywhere from two to four basis points unless accretive yield that impacts reported margin on a quarterly basis. So that trends down; it's just how much is down kind of goes back and forth from that. From a core margin perspective, our core margin is actually holding up really well. We've done really well in the past couple of quarters with that. The uncertainty we have is that how much more liquidity when you get into the balance sheet and liquidity pressure up to core margin. If we decide to invest in equity and securities, it gives us a little bit more NII, we view it fairly basically as a trend; a lot of NII. So we estimate those decisions as we go forward, but depending on how much liquidity we gain with the packages, core margin, could be a little bit volatile. I think you have to move—shift to net interest income and focus on net interest income and what the impacts are. So, I would just tell you, our non-interest income is still strong and all that. I have to tell you, it's meaningful. And we have to carve it out like we did this past quarter that would be actually a great story to tell you. We will continue to try to carve out when we think it makes sense to carve out that variable comp. Obviously, we're a dynamic company and things remain, but just to be sure we're doing, but everybody understands. We're not changing our commitment. We're back on our way from the $1.6 billion that we made in February '19. We're going to get those cost savings.

Just back on the merger savings, $1.6 billion year-over-year, reiterating that net number that's pretty clear; you have 40% of the savings already and only 12% of the branch closures you expect to exceed on the non-branch footprint part. So why not increase that? Actually, what would it take to increase that estimated $1.6 billion net or have you already increased the growth merger saving number what you haven’t given to us and reinvesting some of the proceeds? Does that all add up to part of the operating leverage in 2021 or not? You didn’t quite guide for the year, thanks.

So Mike, you're really right; the immediate parts, we're just trying to anchor on the $1.6 billion. We're not trying to hold out what we think is possible in terms of beating that, but some of the things I talked about in terms of and we can have more branch closures than we've anticipated. We're not predicting that at this moment, but that's certainly a possibility. We certainly are going to be intensely focused on expense optimization, and there are immediate opportunities for duplication across the enterprise areas that we can tend to invest in and reduce ongoing expense run rate. So the $1.6 billion is related to basically putting the two companies together. The other things we do more in terms of transformation and additional opportunities we find, whether through non-branch office space, we see that target, maybe we get a few more branches. We certainly are very optimistic in terms of—and expect to focus on doing that. We just want to be clear about what we've said we can do and then hold out we can probably beat that.

With that using up my second question, in terms of the gross number, I know that you're investing a lot of that. Is your growth number going higher as part of that net?

Go ahead, Daryl.

So I won't tell you we are investing more than what we originally sighted, but we think these are the right investments that we're making in our people, technology, and digital, all for the right reasons. So we are making more investments than what we originally thought. We haven't communicated that number publicly, but just now that we are going to get our net savings maybe more clear at some point, but let us get the $1.6 first. And right now, we are making a lot of investments in the company as we're moving forward, and you're seeing it in the results. Look at our revenues, look at our account growth that we're getting, and we're doing really, really well in the midst of a lot of conversion, which would really distract a lot of businesses. We are performing at a very high level.