Truist Financial Corporation Barclays 24th Annual Global Financial Services Conference

Mike, welcome. Yeah. Thank you, Jason, for having me.

Yeah, great. Absolutely right. We did affirm this morning with our slide that we are affirming the quarter and the year, so no outlook changed. That obviously does not take into consideration the transaction impacts related to Regional Acceptance. Just to talk maybe a little bit about RAC. We are under contract to sell the $5.5 billion in near-prime auto loans and essentially exit that business entirely. As we thought about this business, and you think about the year so far and some of the decisions that we have made around stopping originations in marine and rec vehicle lending, de-emphasizing some of our national prime auto lending businesses. This was, in many respects, sort of along those same lines and consistent with that strategy. If you think about the strategic boxes, the financial boxes, we believe all are checked here.

From a strategic perspective, Regional Acceptance is typically a loan-only, loan first national business where our opportunity to really have a meaningful relationship with these clients beyond that single loan product is extremely limited. From a financial perspective, and we did in our slide outline, the concept of pairing the sale with an AFS repositioning to offset the increase in capital that the transaction would create. You see a pretty compelling financial case. You see improvement in EPS, albeit modest, ROTCE, tangible book value per share. Across the board, modestly accretive. The concentration in non-performing loans and charge-offs in this business as well creates an opportunity to really, I think, improve our overall credit profile. You will see that we believe both charge-offs and non-performing loans as a percentage of loans will decline by 10-plus basis points, call it 20%.

With the proceeds that are generated through the transaction, we also have an opportunity to reduce some of our borrowing, improve our funding profile just a little bit. The AFS repositioning we outlined in sort of an illustrative way, essentially takes that full call it $950-ish million of increased capital and offsets it with what will be a one-time loss to reposition and recoupon some of our AFS portfolio. As you know, Jason, in 2024, when we sold TIH, we had an opportunity to take a pretty big swing at the AFS portfolio. But we were not able to address it all, and so we felt like this transaction was a nice opportunity to make a little bit more progress there.

It's interesting. We've operated this business for a long time and through a number of cycles. There's been an evolution in our own credit risk appetite in this business, and you'll notice that we sort of headline the business as near-prime. There was a moment where we operated probably a more true subprime, deeper subprime business, where we would've seen asset yields and spreads wider. That has tightened over time as our credit appetite has changed, and the loss experiences remained somewhat elevated. So, you think about despite the fact that this is a higher yielding asset, maybe call it 12% plus or minus with a funding charge, call it our marginal funding cost 4%. You take into consideration the loss experience in the 7% to 8% area, you just run out of economics. So for us, this was a sort of an easier one, non-regrettable.

We really don't impact any of our, what I consider our sort of true strategic client base. You see the financial benefits across the board, especially with it not being profitable.

Yeah, sure. Here is how I think about it. First, obviously, everybody knows we have our new CEO, Mike Lines, is on the ground. I think it is technically day 15, but it feels like he has been with us for a lot longer. We had a chance to onboard with Mike and get him involved in a meaningful way earlier this summer. It has been great to have the benefit of his perspective. There is a lot of urgency and intensity that has been, I think, added to this evaluation that really started earlier this year. You saw decisions like de-emphasizing originations in Prime Auto, the ceasing originations in Marine RV, and then ultimately, RAC fell out of this process too. Mike is applying a framework that I think everybody can appreciate. Number one is, are these businesses aligned to our strategy?

Look, Mike, in due time, will articulate his vision for our business and how we will become a top-performing bank. I think in the most simplest form, it is going to be focusing on fewer things that frankly leverage our strengths, that are going to go drive a great funding franchise and a great collection of wholesale businesses that will fit hand in glove. As we think through these portfolios, whether they be Prime Auto or other loan-only products or less strategic products, that will be the first question. Does this fit? Will this matter? Will this drive business value in line with our strategy? Then number two, to the extent that it does not fit perfectly, what are its economic contributions? Maybe not immediately, but even potential over time.

To the extent that these businesses or certainly these assets do not fit our eye and do not fit the economics, then we are going to stop doing them. I think it is that simple. That work is happening now, and this is, I think, a good example on the balance sheet and capital side of something that was pretty clearly and obviously does not fit. There may be a few other things, but I think Mike is eager to conduct that review, make those choices, and then get us frankly back into growth mode. He did not come to Truist to shrink the greatness. I think there is going to be some recalibrating, and then it is going to be really more focused on getting back to growth and improving profitability.