Truist hastens cost-cutting, delays core conversion
The coronavirus pandemic hasn't slowed down Truist Financial’s expense-cutting plans, but it has forced the Charlotte, N.C., company to delay the systems conversion for its bank by six to 12 months.
Executives at the $504 billion-asset company — formed by December’s merger of BB&T and SunTrust Banks — are finding more ways to quickly cut costs, estimating that they will eliminate $640 million in annual expenses by the end of this year.
They had previously vowed to wring out $480 million in operating costs, or 30% of a targeted $1.6 billion in post-merger savings, a year into the deal.
Truist is “frankly getting more aggressive” about expenses, including job cuts, reducing office space and reworking vendor contracts, Kelly King, the company’s chairman and CEO, said during a Thursday conference call to discuss quarterly results.
But King said the company’s core bank integration, which includes rebranding BB&T and SunTrust branches as Truist offices, will be pushed back from the second half of 2021 to the first half of 2022.
Executives said the IT staff and outside vendors responsible for the integration had been preoccupied with accommodating a work-from-home staffing model, clients who were unable to access branches and the Paycheck Protection Program.
“When all of this hit, we had to focus on what was the most important at the moment,” King said.
All other aspects of the conversion remain on track.
“The vendor disruptions that we've had really are on the support and tech side,” Bill Rogers, Truist’s president and chief operating officer, said during the call. “Our core providers that we've selected for … trust and brokerage and deposits are all in great shape, and we're proceeding well.”
Efforts to accelerate cost-cutting come at a time when the pandemic has taken a bite out of Truist’s bottom line.
Net income, taking into account dividends paid on preferred stock, fell by 8.5% from the first quarter to $902 million. The $844 million that Truist set aside to cover potential loans losses, while 5.5% less than its first-quarter provision, was elevated compared to pre-pandemic levels.
Truist formed a task force to evaluate its corporate real estate, with a goal of taking a more tenacious approach to shedding unneeded space, King said. The company has also become “very aggressive” identifying job cuts, he added.
The company eliminated 735 jobs during the quarter, or 1.3% of its workforce, and closed 42 branches in nonoverlapping markets.
Truist must be selective as it closes branches.
To secure regulatory approval, BB&T and SunTrust agreed to wait a year to shutter branches in states where they had overlapping operations. They also agreed to maintain all branches in communities with 2,500 or fewer people for three years.
Executives said they would no longer waive fees for those impacted by the pandemic.
“To be honest, we had a lot of discussion about it and we've concluded that we've got to let our clients ease back into normal life planning and financial planning,” Clarke Starnes, Truist’s chief risk officer, said during Thursday’s call. “So we've terminated that.”
The decision to stop granting waivers makes sense because about 11% of Truist’s loans are already receiving some form of concession, including forbearance, said Christopher Marinac, an analyst at Janney Montgomery Scott. The forbearance rate at Bank of America is about 3%, he added.
“Because they’re offering that much on the loan side, I think the attitude is, ‘We’re not going to do much on the consumer side unless we have to,’ ” Marinac said. “I feel like they’re probably being sticklers here. ‘OK, there’s a shutdown and we will work the customer temporarily.’ But now that the shutdown is over … it’s a lot of money to back off.”
Service charges on deposit accounts at Truist fell by 34% from a quarter earlier to $202 million. Card and payment-related fees decreased by 0.8% to $171 million.
Those types of fees will likely rebound in the third quarter, David Rochester, an analyst at Compass Point Research & Trading, wrote in a Thursday note to clients.
While King expressed some optimism about the economy, he said the smallest businesses are struggling because of a lack of emergency reserves. Truist, meanwhile, made more than 74,000 loans under the Paycheck Protection Program, totaling about $13 billion.
“Most of our small-business clients … have some resiliency,” King said. If the pandemic "hangs on a long time, it will just be hard. But if things recover reasonably quickly, I think we may be pleasantly surprised at how well our business community actually performs.”