Truist Financial Corporation · NYSE:TFC
Truist Financial — BB&T — Investor Presentation (February 2006)
80 slides from Truist Financial's investor presentation, Feb 15, 2006
Slide 1: BB&T – John Allison, Chairman and CEO
BB&T Since 1872 JOHN ALLISON Chairman and CEO February 14, 2006
Slide 2: Current Situation Analysis
Current Situation Analysis
Slide 3: Background
Background BB&T is a fast growing, highly profitable, regional financial holding company. The core of our business was created by the merger-of- equals between BB&T and Southern National in 1995 and the acquisition of UCB in 1997. All 3 institutions ‘grew up’ as eastern North Carolina farm banks. Th
Slide 4: Primary Market Segments
Primary Market Segments 50% Retail / 50% Commercial Small Business Commercial Middle Market Real Estate Lending Retail Home Equity Sales Finance Home Mortgage Commercial Mortgage Leasing Insurance Treasury Services Payroll Processing Institutional Trust Services Wealth Management / Private Banking I
Slide 5: Subsidiaries
SUBSIDIARIES mj Capital Markets L] Regional Acceptance GS BB&T Factors |) Laureate Sheffield IM BB&T insurance [— Lendmark [J] Scott & Stringfellow Community lM BB&TLeasing | Prime Rate [ll Vine Street @ BST
Slide 6: Deposit Market Share
Deposit Market Share % of BB&T’s Deposits Rank * Virginia / DC 31% and * North Carolina” 27% and * Georgia 8% 6th + Maryland 8% 6th * South Carolina 8% 3rd + West Virginia 6% ips + Kentucky 5% 4th + Florida 5% 41h + Tennessee 2% 7h “Excludes home office deposits
Slide 7: Significant Accomplishments
Significant Accomplishments 2005 Improving Performance Accomplished Key Strategic Objectives Healthy Loan Growth Substantial Improvement in Non-performing Assets and Charge-offs Strong Non-Interest Bearing Deposit Growth (+10.2%) Net New Accounts (89,600) 5 Service Households 27.4% Online Banking 31
Slide 8: Significant Accomplishments
Significant Accomplishments 2005 « Revamped Sales Campaigns * New Marketing Emphasis * Integration of New Executive Management Team « Manage Difficult Regulatory Environment « Embraced “Store Ownership” Model « Integrated Sales, Service and Operations * Directional Refocus of Call Center - Out Bound
Slide 9: Significant Accomplishments
Significant Accomplishments 2005 * Executed Cost Savings Initiative * DeNovo Branch Process * Small Business Reposition * Focus on Payment Business * Restructure Commercial Finance Business « Redirected Focus on Deposit Growth * Better Execution on Market Segmentation
Slide 10: Significant Accomplishments
Significant Accomplishments 2005 * Main Street Bank announced ¢ Windsor Group; Bergen Capital announced (Investment Banking) * Sterling Capital Management (Investment Manager) « R. J. Twitty & Company; Wilson and Nolan Southeast (Commercial Mortgage) + Insurance Acquisitions: Huffaker & Trimble, Ste
Slide 11: Challenges
Challenges + Lack of Revenue Growth — Net Interest Margin Compression (Flat Yield Curve) — Lack of Service Charge Growth (Irrational Price Competition) — Lack of Insurance Revenue Growth (Excess Industry Capacity) + High and Increasing Regulatory Cost Burden * Improving Quality from Primary Competit
Slide 12: 2005 Financial Results
2005 Financial Results! ($ In Thousands) Net Interest Income: Interest Income (T/E) Interest Expense Net Interest Income (T/E) Tax Equivalent Adjustment Net Interest Income Provision for Credit Losses Net Interest Income After Provision Net Interest Margin (T/E) ‘Operating earnings % Inc Exc. 2004 2
Slide 13: 2005 Financial Results
2005 Financial Results ($ In Thousands) % Inc Exe. Noninterest Income: 2004 2005 %lnc Purchases Insurance Commissions $ 619,055 $714,189 154 37 Service Charges on Deposits 523,319 542,655 37 34 Other Nondeposit Fees & Commissions 318,596 369,305 15.9 15.5 Investment Banking & Brokerage 264,789 289,6
Slide 14: 2005 Financial Results
2005 Financial Results (S In Thousands) % Inc Exc. Noninterest Expense: 2004 2005 %lInc Purchases Personnel $1,631,757 $1,785,204 94 49 Net Occupancy 212,346 230,386 85 54 Furniture and Equipment 203,178 197,154 (3.0) (4.4) Amortization of Intangibles 106,348 112,307 5.6 = (10.7) Other Operating Exp
Slide 15: 2005 Financial Results
2005 Financial Results ($n Thousands) 2004 2005 = %Ine Income Before Income Taxes $2,327,880 $2,498,931 73 Income Taxes 766,051 82532077 Net Income $1,561,829 $1,673,611 72 Est. Cost of Equity Compensation $ 29721 $ 34,105 Tax Effect (11,02) (16,744) After Tax Cost of Equity Compensation 18,709 17,3
Slide 16: 2005 Financial Results
2005 Financial Results ($ In Thousands) (Average Balances) Assets: Business Loans Direct Retail Sales Finance Revolving Credit Mortgage Specialized Lending Subsidiaries Total Loans Investment Securities Other Assets Total Assets 2004 2005 % Inc $32,325,087 $35,010,298 = g3, 12,817,087 14,020,908 94
Slide 17: 2005 Financial Results
2005 Financial Results ($ In Thousands) (Average Balances) Liabilities and Shareholders’ Equity: Noninterest Bearing Deposits Other Transaction Accounts Total Transaction Accounts CD’s (Non-Brokered) Other Client Deposits Other Interest Bearing Deposits Total Deposits Fed Funds Purchased, Repos, & O
Slide 18: 2005 Financial Results
2005 Financial Results (Year Ended December 31) Performance Ratios: 2004 2005 ROA 1.62% 1.60% ROE 14.74% 15.12% Efficiency Ratio 51.91% 52.51% Fee Income Ratio 37.84% 39.09% Cash Basis: ROA 119% 171% ROE 27.17% 21.82% Efficiency Ratio 49.74% 50.37%
Slide 19: 2005 Financial Results
2005 Financial Results (Year Ended December 31) Capital Ratios: Equity/Assets (EOP) Total Capital (EOP) Tier 4 Capital (EOP) Leverage Capital Ratio (EOP) BV Per Share (EOP) 2004 10.82% 14.55% 9.21% 7A0% $19.76 2005 10.19% 14.44% 9.27% TAM% $20.49
Slide 20: Summary of Operating Earnings
Summary of Operating Earnings Interest income Interest expense Net interest income Provision for credit losses Noninterest income Noninterest expense Operating earnings before income taxes Provision for income taxes Operating earnings Merger-related & other charges! Net Income ‘Wet of Taxes (Sin Mil
Slide 21: Per Share Based on Net Income
Per Share Based on Net Income Five Year Compound 2001 2002 2003 2004 2005 Growth Rate Basic $215 $275 $209 $282 $3.02 14.3% Diluted $212 $272 $207 $280 $3.00 144% Performance Ratios Based on Cash Basis Operating Earnings 2001 2002 PANIK] 2004 2005 Return on average tangible assets 172% 1.79% 1.78% 1
Slide 22: CB EPS Trend
CB EPS Trend!
Slide 23: Financial Strength
Financial Strength ($ in Billions Except for Per Share Information) (Period-end Balances): 2001 2002 2003 2004 = =.2005 Total Assets $709 $802 $905 $1005 $109.2 Total Shareholders’ Equity $ 62 $ 74 $ 99 $109 $11.1 BV Per Share $13.50 $15.70 $18.33 $19.76 $20.49 Leverage Capital Ratio 72% 6.9% 7.2% T
Slide 24: Generating Fee Income and Operating Efficiency
Generating Fee Income and Operating Efficiency For the Period Ended 2001 2002 2003 2004 2005 Noninterest Income/ Net Revenue (T/E) 32.0% 34.5% 36.0% 37.8% 39.1% Cash Basis Efficiency Ratio 48.4% 49.0% 50.5% 49.7% 50.4%
Slide 25: Credit Quality
Credit Quality As of / For the Period Ended 2001 2002 2003 2004 2005 Industry* Net Charge-offs/ Average Loans 40% 48% A3% 36% 30% 64% Net Charge-offs without Specialized Lending 34% 38% 32% 24% 19% nia Nonperforming Assets/ Total Assets 53% 56% 49% 36% 27% A8% *Source: FDIC Quarterly Banking Profile
Slide 26: Total Assets Growth Trend
Total Assets 10 Year Growth Trend 110 100 90 404 80 1 70 0 5 60 i 50 a < a “a 20 + 29 Be 49 {2021 0 » 2 = 2 2 es = a2 2 = 8 2 8 &@ $8 &8 8 8 § § 8 8 22 22 28 8 §& F& RR As Originally Reported 10-Year Compound Annual Growth Rate 18.2%
Slide 27: Operating Earnings Growth Trend
Operating Earnings As Originally Reported 10 Year Growth Trend 1700 1600 om 1500 : 1400 1282 1300 4424 = Za 1000 400 900 = = 600 500 ‘ad 400 ary 300 4a 200 jg, —05 100 0 $in Millions #83 @ 8 2 8 € 2 RB As Originally Reported 10-Year Compound Annual Growth Rate 20.7%
Slide 28: Long-Term Trends
Long - Term Trends « 24 Consecutive years of record operating earnings * 20 Year compound annual growth in EPS 11.0% « Paid cash dividend every year since 1903 + 34h Consecutive year of dividend increases
Slide 29: Relative Financial Performance
Relative Financial Performance BB&T —_ Industry Tier 1 Capital Ratio 9.27% 9.09%! Nonperforming Assets/Total Assets 0.27% 0.48%! CB ROA 1.77% 1.43%? CB ROE 27.82% 22.31%? “Operating - as offfor the period ended 12/34/05 Source: ‘FDIC as offfor the period ended 9/30/05, SNL Securities and company rep
Slide 30: Recognitions
Recognitions + Fifth Consecutive Year in Forbes Platinum 400 List of America’s “Best Big Companies” + J.D. Power Survey: Best Bank for Mortgage Servicing + J.D. Power Survey: #1 Prime Lender in Auto Dealer Satisfaction + SBA: Ranked BB&T 1% Small Business Friendly Bank « Auto Dealers Survey: Regiona
Slide 31: Recognitions
Recognitions * Greenwich: Six awards in Business Banking — most of any bank + BB&T Capital Markets: Best on Street Analysts + Ranked by Training Magazine in Top 6% in Quality of Employee Training Program * 2005 Mergent Dividend Achiever (only 2% of companies are qualified) + Kiplinger: “Eight Stocks
Slide 32: Total Compound Annual Return to Shareholders
Total Compound Annual Return To Shareholders December 31, 2005 BB&T S&P500 S&P Financials 5 Year 5.7% 6% 3.8% 10 Year 15.6% 9.1% 13.3% 15 Year 18.8% 11.5% 17.0% 20 Year 14.8% 11.9% nla For publicly traded companies over the last 20 years 63%, and over the last 78 years 96%, of the total return to sh
Slide 33: The Future
The Future
Slide 34: Global Economic Context
Global Economic Context Improving Global Productivity: More Global Economic Freedom Cost / Impact of Reregulation (in U.S.) Globally integrated and highly competitive Increased Geopolitical Risk / Cost of Risk Control Volatile / Uncertain Merciless / Tough Survival of Most Competent / Committed
Slide 35: Economy 2006
Economy 2006° Healthy growth: Real GDP 3.0% - 3.5% Low inflation - CPI 2.0% to 2.5% Total growth — 5.0% to 5.5% Rising rates: Prime 7.75%; 10 year Treasury 5.0% (by year end 2006) *Blue Chip Forecast
Slide 36: US Economic Framework Forecast (2006-2010)
US Economic Framework* 5 Year Forecast (2006- 2010) Most Likely Scenario * Healthy growth - real GDP 2.5% to 3.5% (avg.) * Moderate inflation - 2.0% to 3.5% CPI (avg.) * Total annual growth 4.75% to 6.5% (avg.) + Improving global productivity is primary driver of real growth + Prime rate will range
Slide 37: Financial Services Industry
Financial Services Industry
Slide 38: Financial Services Industry Outlook
Financial Services Industry 5 Year Outlook Primary forces impacting the industry: (1) Credit, Interest Rate, and Operational Risk — We are in the risk management business — Executional Excellence — Protect superior reputation (2) Intense Competition / Excess Capacity — Low-cost providers / National
Slide 39: Consolidation / Diversification
(3) Consolidation / Diversification — Rationalization of cost structure — Revenue growth via expanded products — Risk diversification — Rising economies of scale by product line — Bank/ non-bank mergers / globalization — Survival of fittest
Slide 40: Innovation / Productivity Improvement
(4) Innovation / Productivity Improvement — Improve service quality — Increase revenue — Cut cost / Simplify — Potential change in relationship drivers (5) Requlation / Corporate Governance — Regulatory risk at an all time high FINANCIAL SERVICES IS A WORLD-WIDE, GROWTH INDUSTRY, WHERE THE U.S. CURR
Slide 41: BB&T's Long-Term Strategy
BB&T's Long-Term Strategy
Slide 42: Our Goal
Our Goal * Create a high-performance financial services organization that can survive and prosper in a rapidly changing, highly competitive, globally integrated environment * CREATE THE BEST FINANCIAL INSTITUTION POSSIBLE
Slide 43: Achieving Our Goal
Achieving Our Goal The key to maximizing our probability of being both independent and prosperous over the long term is to create a superior Earnings Per Share Growth Rate without sacrificing the fundamental quality and long-term competitiveness of our business, nor taking unreasonable risk.
Slide 44: BB&T Long-Term Strategy
BB&T Long-Term Strategy Superior-Balanced Performance (1) Client-driven - Have a passion for consistently providing the client with better value through rational innovation and productivity improvement (2) Rational risk taking and exceptional risk management (3) Superior earnings growth (4) Targeted
Slide 45: BB&T Long-Term Strategy
BB&T Long-Term Strategy (1) Client-driven — Relationship based Reliable Responsive Personal Attributes Empathetic Competent Right products to meet needs Convenience of location and time (correct distribution channels) “Profound” knowledge of the client
Slide 46: BB&T Long-Term Strategy
BB&T Long-Term Strategy (1) Client-driven (continued) — Transactional excellence — Communicate to the client that: + “There’s opportunity here” — Consistently meet or exceed the client’s reasonable expectations TREAT THE CLIENT AS AN INDIVIDUAL!
Slide 47: BB&T Long-Term Strategy
BB&T Long-Term Strategy Client-Driven “Community Bank” concept is the foundation for local decision- making and the basis for responsive, reliable, and empathetic client service. Our model is to feel like a community bank with local decision making and personal service. However, we are better than a
Slide 48: BB&T Long-Term Strategy
BB&T Long-Term Strategy (2) Rational risk taking and exceptional risk management — Sound risk taking philosophy — Sophisticated risk management systems — Diversification of risk — Objectivity in risk assessment — Maintain excellent standards of corporate governance
Slide 49: BB&T Long-Term Strategy
BB&T Long-Term Strategy Results of Risk Management Strategy * Better than peer risk adjusted returns from lending Solid core funding Excellent liquidity Optimal interest rate risk position Controlled operating risk Strong capital position — Leverage Capital ratio 7.0% to 8.0%
Slide 50: BB&T Long-Term Strategy
BB&T Long-Term Strategy (3) Superior earnings growth — Achieve superior revenue growth * Grow net interest income at 8% to 10% rate * Grow loans (8% to 10%) * Grow “core” deposits (6% to 8%) + Grow noninterest income at 20%+ (with purchase accounting) + Add new clients / optimize cross sell of exist
Slide 51: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Create strong margins + Sell value not price (“our products at our prices”) * Focus on profitable product lines * Develop profitable client relationships + Exercise pricing discipline
Slide 52: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Outstanding efficiency + Build and reinforce aggressive cost management culture * Consistently re-examine systems and processes for improvement + External quality — not internal quality * Control loan losses * Operate with lean but well trained and highly motivated staff Re
Slide 53: BB&T Long-Term Strategy
BB&T Long-Term Strategy Long-Term Financial Goals + Cash Basis earnings per share growth rate 10%+ * Cash Basis return on equity 22%+ + Cash Basis return on assets 1.65%+ + Book value per share growth rate 6%+ + Dividend per share growth rate 10%+ While all goals are significant and interrelated, th
Slide 54: BB&T Long-Term Strategy
BB&T Long-Term Strategy (4) Targeted and consistent investments for the future — Invest in employee education to create a “knowledge- based learning organization” founded on the premise that knowledge properly applied is the source of competitive advantage * Systematized learning based on Aristotle’
Slide 55: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Have a fundamental commitment to innovation: Technological investment is a part of innovation, but process enhancements are often more significant — Create new products/product lines and distribution channels to meet additional needs of existing clients and to develop new c
Slide 56: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Manage information systems and their cost to: Identify revenue enhancement opportunities Improve service quality Reduce cost Manage risk Make managerial decisions — Open new markets through traditional or non-traditional distribution systems where growth rates are superior
Slide 57: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Make acquisitions to achieve business purposes + During the next 3 years we will focus on Bank and Thrift acquisitions to enhance our market share in our existing footprint
Slide 58: BB&T Long-Term Strategy
BB&T Long-Term Strategy — Non-bank acquisitions to grow existing product lines and expand into related financial businesses: + Insurance + Consumer Finance + Mortgage + Commercial Finance + Asset Management + Factoring * Leasing + Venture Capital + Investment Banking/ Brokerage + Processing / Paymen
Slide 59: BB&T Long-Term Strategy
BB&T Long-Term Strategy Primary Focus is on Growing Relationships in Existing Markets: Create Outstanding Value for the Client
Slide 60: BB&T 2006 Financial Goals
BB&T 2006 Financial Goals
Slide 61: 2006 Financial Goals
2006 Financial Goals Maintain a Flat Net Interest Margin 3.85% - 3.90% Grow Net Interest Income 7% - 8% Grow Noninterest Income 14% -16% (11%-13% Excluding Acquisitions) Non-Interest Expense 7% - 8% (5% - 6% Core) Net Loan Losses .28% - .32% (.20% Excluding Specialized Lending)
Slide 62: 2006 Financial Goals
2006 Financial Goals Total Loan Growth 8% - 9% Transaction Deposit Growth 9% -11% Total Deposit Growth 8% - 9%
Slide 63: 2006 Key Strategic Objectives
2006 Key Strategic Objectives 1. Achieve Superior Revenue Growth 2. Provide World Standard Client Service 3. Accomplish Superior Efficiency, Productivity, and Earnings Growth 4. Execute “Value Improvement Agenda”
Slide 64: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (1) Achieve Superior Revenue Growth * Accelerate Organic Growth: — Initiate 60 DeNovo branches — Execute “formula” for successfully opening branches — Increase advertising — Staff up in growth markets (including financial services) — Grow net households (add new / reduc
Slide 65: 2006 Key Strategic Objectives
2006 Key Strategic Objectives Achieve Superior Growth in Growth Markets Execute BB&T Decathlon Execute Payment Services Strategy Significantly Improve Marketing Effectiveness Execute on IRM and Segmentation Strategies Execute Business Banking / Micro Business
Slide 66: 2006 Key Strategic Objectives
2006 Key Strategic Objectives * Target Emerging Markets (Hispanic / Ethnic) + Target Student Market « Execute Financial Services Direct Strategy * Optimize Branch Financial Performance (Store Ownership) + Market Based Price and Product Parity; Deliver Better Value « Maintain or Enhance Market Share
Slide 67: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (2) Provide World Standard Client Service + Sales and Service are inextricably connected + We are a quality differentiated competitor: We sell value not price. While price always matters, we deliver the greatest value to the client. Value is the ratio of quality to pric
Slide 68: 2006 Key Strategic Objectives
2006 Key Strategic Objectives Excellent execution of the Perfect Client Experience Execute on consultative and transactional relationship management Reduce turnover: (Leader ownership) (Reduce from 20% to 18% or less) Execute improved problem resolution process Execute on system-wide Olympian progra
Slide 69: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (3) Accomplish Superior Efficiency, Productivity, and Earnings Growth: « Achieve a superior P/E ratio by superior cash basis earnings per share growth, superior cash basis ROE, superior revenue growth while maintaining a sound financial position as evidenced by leverage
Slide 70: 2006 Key Strategic Objectives
2006 Key Strategic Objectives Reinforce pricing discipline Economic value of capital analysis Control operating risk Execute high potential mentor program Continue to invest in training (Reinvigorate leadership training)
Slide 71: 2006 Key Strategic Objectives
2006 Key Strategic Objectives + Insure excellent asset quality — Instill BB&T values driven credit culture — Reinforce credit skills / training — Continue disciplined underwriting processes — Diversify risk — Execute credit processes with excellence — Increase professionalism of lenders
Slide 72: 2006 Key Strategic Objectives
2006 Key Strategic Objectives + Reduce bureaucracy — Simplify through rational innovation * Chairman’s Innovation Awards — Improve productivity by simplifying systems and processes + Employ Six Sigma concepts + Initiate only cost reducing or revenue enhancing projects + Differentiate between externa
Slide 73: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (4) Execute “Value Improvement Agenda” (1) New banking region performance — Accelerate efficiency improvement and deposit acquisition in new regions (2) Retail deposit-based relationship growth — Renew focus on profitable deposit growth in core retail franchise, includi
Slide 74: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (3) Commercial deposit — based relationship growth — Change the commercial business model to refocus on growth of profitable deposit-based relationships, and improve the productivity of micro business loans (4) Insurance organic growth — Increase the focus on organic re
Slide 75: 2006 Key Strategic Objectives
2006 Key Strategic Objectives (5) Wealth Management / Private Banking — Strengthen the Wealth Management / Private Banking platform (including external acquisitions) and refocus on deposit gathering (6) Profitable M&A growth — Leverage BB&T’s current competitive advantages, and additional advantages
Slide 76: Summary
Summary Special Strengths of BB&T Superior sales / service system Different and better model for community banking Unique and successful acquisition strategy Great markets / Great franchise Philosophy: Rational / Objective
Slide 77: Challenges
Challenges In the System + Flat yield curve + Intense competition (price, product, service convenience) + Dramatically heightened regulatory risk / cost « Increased global event risk (war, energy prices, China devaluation) + Effectively managing in a rapidly changing environment
Slide 78: Challenges
Challenges Ours + Restoring relative superior performance through excellent execution + Having a passion for consistently providing the client with better value through rational innovation and productivity improvement + Building revenue momentum + Improving efficiency + Working together with clarity
Slide 79: Opportunity
Opportunity « To create a high-performance organization that can survive and prosper — The Best Financial Institution Possible « Why we can do it: — Great people! — Excellent markets — Sound financial position — Strong client relations — Rational strategy We Will Be Successful!
Slide 80: Slide 80