Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

Great. Thanks, everyone, for joining us today. We're happy to have Bill Rogers, the CEO of Truist joining us today for the discussion. Bill, thanks for coming back. It's great to see you in person.

Great to be here, John, and great to be here in person.

So to set the table for folks here, you've just completed a very complex 3-year merger integration between 2 large super regional banks, SunTrust and BB&T to form new Truist. So maybe you could just give people a perspective how much employee management time and energy has been focused internally that's now going to shift towards growing the franchise, better serving customers and give us a little bit of color of what you learned along the way, what was better, what was worse than expectations when you announced the deal?

Yes. So -- and it obviously depends on the strata and where you are in the company in terms of how much time you spent. So from our leadership time and we've been very dedicated to the merger. Not losing sight of the current clients and opportunities, but very dedicated to the merger, obviously, getting that across the goal line for our teammates. We had 0.5 million hours' worth of training, 12 million different development hours that went into those type of things. So lots of focus on getting the merger done. And then through President's weekend, that was sort of our major last hurdle, sort of getting that last 7 million clients into the Truist platform. So coming off of that, you have some individual client issues you want to make sure you're dealing with, changes hard, changes hard for everybody, sort of dealing with that. I think we're sort of getting through that cycle. And I feel like we're at a really good pivot point where the conversation with clients has been pretty defensive of making sure we get through the transition together, let's make sure we understand, make sure you've got all the codes, make sure we've done all the work to much more offensive. How do we help you, how we help you grow? How do we -- let's bring now our industry specialist in versus our treasury management team to help you transition? So the shift in terms of the kind of conversations we're having with clients, I think it's actually quite dramatic at this point. And then the learnings, you learn a lot. So we do a practice of before and after action reviews on virtually everything we do at scale, so we make sure that we actually learn from everything and incorporate it into what we do. Probably one of the biggest learnings is we can do a lot. The fact that we accomplished this at a scale that's never been done, a merger of equals of this size, certainly within the last couple of decades in the digital age. So the confidence of our team of, hey, we can do this. I mean we can do lots of things. We can accomplish great things together. And we don't have to look far back to see how we did it, and that's a great confidence builder for the team going forward. And then I think we learned within that, this agility. And I think we're going to incorporate that. We've really tried to say, let's take all of the learnings and some of the infrastructure from the merger and put it into how we operate the company going forward, how do we create and maintain those disciplines, deadlines, specific things that we have to do, agility, moving fast within things that used to take months and weeks, take minutes and hours in terms of reaction time. So I think that's been a real positive. And then just the foundational element of how we started this merger is building a merger predicated on purpose. It's never been more important. We were really fortunate to be able to start the merger, start the conversations, pre-pandemic. We got in front of a lot of people and talked about purpose and why inspiring and building better lives and communities is critical to what we do. So even with all the noise and all the things that we were doing, the team never lost focus on the North Star and that's purpose. So that was really, really important. And I think that will be really foundational to where we go forward.

In terms of one of the challenges perhaps that Truist has underperformed on loan growth over the past 1 to 2 years versus the peers in the industry. Has the integration driven that? And what should we expect going forward from Truist on loan growth, both absolutely and kind of relative?

Yes. And John, you have talked a lot about this. I think loan growth is a proxy, not the proxy for growth. I think revenue really should be the proxy, and we're really focused on not only loan growth, but what is the return of that loan growth and how do we maximize return not only for our clients but also for our stakeholders. So we did underperform, and I think that's a relative value, if you consider loan growth to be the proxy. Some of those were decisions that we made that we're conscious as it relates to the merger, probably the most of work for us was CRE. As we were sort of going into the merger, we see it was probably the most businesses that we did similarly. And we said, "Okay, let's actually pull back." Most of those were highly diversified. We said, let's actually pull back and understand where we want to be in the CRE. Let's develop the strategy a little bit better. Let's make sure that we're not leaning in, in places that we don't want to lean in right in the middle of merger. And our other businesses, think about Investment Banking, think about Insurance, think about -- there wasn't much overlap. So we just said, let's just keep going. Let's just keep doing this. So some of those decisions were conscious. And then others, I mean, were merger-related. Are we spending more time on defense versus offense? I think that's probably sort of inescapable. But I think as you're going to see going forward, and I think that will be more consistent in terms of performance. And then I think long term, what we should expect is we should have disproportionate revenue growth. So we should have not only loan growth that's consistent, but the return on that loan growth, the ability to apply the tools and capabilities that we've expanded significantly for being Truist against those opportunities.

And it's reasonable for that expectation to kind of start now, both in terms of kind of...

Yes. Yes. I think it's probably time for sort of that reset to say not that this is a starting date because we started in December '19. But in many ways, I think that's a legitimate way to think about this as sort of a jumping off point.

And we've got a bit of a journalist audience here. So maybe just let folks know what aspects of your franchise differentiate Truist that shareholders be aware of, particularly as we head into a potentially more challenging macro environment?

Yes. I think there are several. One is the markets that we serve. So if we think about the markets that we serve in our primary retail and commercial businesses, think about that East Coast market and the migration that's happening to our markets, the growth in those markets, think about key cities from Charlotte to Nashville, to Austin, the list goes on of really, really good high-growth core markets then the diversity of our business mix. I mean the real incredible advantages and we sort of feel it every day from the merger of 2 great companies is we just have a really diverse business mix. So we don't have any governors on those businesses, one, because they're -- the denominator impact thereby, they're half the size because we were sort of equal in terms of merger of equals. So they don't have governors on their growth. So that makes a big difference. . And then there -- the diversity is a revenue play, we have more opportunities, but it's also a defensive play. So if things change and turn in a different way, we have a much more diverse business model things that are and aren't correlated, insurance would be a great example. Insurance has no correlation to credit markets. So we have businesses that have different correlations that I think provide us not only a better growth opportunity but a more stable and a more lower beta in terms of income generation.

So in terms of financial targets, the earnings power or the combined franchise, when you set out some targets at the beginning of the merger on the announcement, that was a few years ago, obviously, rates were higher then. But you talked about an efficiency ratio in the low 50s, ROTCE in low 20s. As we get the rates that we expect to come, are those targets still on the table? How are you feeling about those?

Yes. I mean remember, we set those targets in 2018, which just seems like now millennial ago, and they were simply merging the 2 companies together and then looking at the significant cost saves that come, about $1.6 billion of cost saves that come on top of that, and that's sort of how you derive those ratios from that formula. So I think 2 things. One is I think we are in a rate environment that's more consistent with where we were. So if we think about 2023 or sort of going into that, I think those are legitimate kind of hard targets. I think we should be ROTCE in the low 20s. We should be in the low 50s in terms of efficiency ratio. But going forward, I mean, we think about those ratios, I think we're in a more variable world. So rather than sort of saying it's a hard number I think what we'd rather say is hold us accountable to being in a top quartile in terms of our peer groups, in terms of performance against those numbers. But on the absolute basis, I think they're attainable, but long term, I think they're -- and they continue to be today to be in the top quartile.

And more broadly beyond those 2 particular metrics, now that the integration is done, how will you judge success? What are you going to look at internally and externally, how should we gauge the success of the company and the teams?

Yes. We're going to start from a couple of things. For ourselves, we're going to hold ourselves accountable to our purpose. Are we inspiring and building better lives? So does the fact that we exist and the fact that we operate in our communities, are we impacting better lives? Are we able to measure that? Are we able to understand? Are the communities better because we were there? So we sort of start with this core foundational element of that. And if we do that really well and if we're in the markets that have the growth dynamics and where businesses that have growth dynamics and we're leveraging all those businesses with an integrated relationship management, we're bringing all those tools available to our clients and unique and distinctive ways for Truist, then we should have disproportionate revenue growth and PPNR growth so -- and do that in an efficient model, both from an efficiency standpoint but also an efficient model in terms of a capital utilization standpoint. So our capital planning as we have a model that has higher PPNR and lower risk. So our capital should reflect that and our utilization of our capital should reflect that.

Yes. Yes. And when you think about the density of your footprint, the markets that you're in, you should grow faster than the peers and kind of hold your team to that kind of...

I think we're in these unique markets, and we need to make sure that we're taking advantage of those.

So let's talk a little bit about some of the specific businesses, especially the ones that differentiate Truist. Insurance is clearly a differentiator from the banks. Insurance is about 12% of the bank's revenue mix. You've highlighted it as a strong performer. What is it that makes it so important through a cycle, you kind of touched on it before.

Well, a couple of things. One is, it's uncorrelated. So insurance runs is just uncorrelated to credit markets, it's correlated to different things that are unique to the insurance business. But if you think about it, John, I mean, the real beauty of the insurance business is -- and we're celebrating this year 100 years in the insurance business. And I think it's actually really important because it's hard -- it would be hard to get in the insurance business at scale today. So the fact we operate as the seventh largest insurance broker, we have a business that's diversified within insurance, but now is it diversified within the Truist, this is -- it's diversified within itself from the wholesale and the retail side and the kinds of businesses and the coverages that we do within the insurance side. And then it's just an integral part of how we run the business. So as part of integrated relationship management, be able to talk to clients across a broad risk spectrum, including insurance in that discussion, we're uniquely capable of doing that. I mean, others don't have that capability. So when we talk to clients about how we use capital, but we can also talk to them about how we help mitigate their risk through their insurance needs. And it's had a really, really stable, strong leadership team. Over those 100 years, we've made 100-or-so acquisitions. So it's a very disciplined model. Things that we do are accretive to the insurance returns. They -- we improve margins, and we're also aligning much of what we do with the insurance specialties with some of the things we do in our investment banking specialty. So think about sort of that power of those Venn diagrams coming on top of each other. So the way we're building the businesses now, we're building the businesses with a lot of consistency in terms of specialization, which sort of adds a whole another dimension of growth to those specific clients.

And I know you appreciate this question because you kind of got into this business through the acquisition, which BB&T built up over 100 years. If it's so good, why can other banks do it, it's really that scale, right? And how long...

Well, yes, I think it's just -- it would be hard to do at scale having been on the other side of it, we just couldn't create that business at scale in the former SunTrust. So I think the fact that we've been in a long time, the multiple differentiation is pretty significant. So to be able to do it at scale, the dilution that would be required to do that would be sort of overwhelming. So having the existing business and be able to grow and develop it in a long term is just a huge advantage. I mean it's been one of the real fun parts of -- for me as to be able to invest and roll my sleeves and understand the insurance side a little bit better and every day I look under the 10, I like it better.

How about investment banking? If we look at Truist Securities formerly known as SunTrust Robinson Humphrey, how has the merger affected that business and what you can do and diversity and how you're investing in it?

Yes. I think it's been -- and we probably haven't talked about this enough, but I think it's been one of the businesses that's probably had the biggest disproportionate positive impact from the merger. If we look at sort of the premerger and post-merger, it's about a 40% difference in that business. And we benefited from just the scale, so the ability to operate differently, the ability to commit capital at different levels. We want to continue to prudently. We want to continue to do it against the right philosophy, but also the scales afford us an opportunity to bring in a lot of talent. I mean this is a business maybe to compare and contrast a little bit with the insurance side, we've done almost exclusively organically. So it's really been important to do it organically as one culture. It's been a really important fundamental component of what we want to do. It is integrated into the overall bank. It's not a separate business, integrated very significantly into our commercial community bank and the things that we do and the requirements, the way we want people to work together, all the cultural side. But on that point, we've been able to add 25-plus MDs into the business that are attracted to the scale and the opportunity that exists with Truist. So I think we sort of have a whole different value proposition for people to come and work in an environment that they see as being purposeful. They see us being team oriented. And also, they see there is a huge opportunity within the Truist client base.

So there's still a lot of penetration opportunities into the BB&T base?

Huge. Yes. I mean the -- I would say, we're just scratching the surface. Those are long sales cycles. They are long conversations, but the adoption from our community banking leaders has been tremendous. They really love having the scale and the capabilities and the specialization, both in terms of industry and then tools and capabilities, working with clients through their life cycle. Both companies have these long-term, really deep, important relationships with these commercial clients. And these are businesses that we put in business, made the first loan, where we're working with the second and third generations of those families. So these relationships are embedded and they're really tight. And now to be able to talk to them about how do they build value for their businesses? And is it a dividend recap? Is it may be bringing in a partner? Is it merging their business and maybe it's even selling their businesses? But being able to have those conversations and bring the tools and capabilities to that. So you have this loyal grounding base. And now you bring these tools and capabilities, I think we just have this inherent competitive advantage and it literally, if you like, we've just scratched the surface and it got tremendous running room. And I think that's what's attracted people to say, "Hey, wait, I want to come work on that platform." I have tens of thousands of clients who are predisposed to want to do business with the company. And they just haven't heard from me yet in terms of my skill sets and capabilities and industry knowledge.

Got it. And maybe you could talk a little bit about current activity and what you're seeing in capital markets. Obviously, we saw in the first quarter a drying up of activity. And you look at that as a postponement. Are you seeing any pickup in the second quarter?

Yes. I mean we're seeing the return in the second quarter as things are coming back. I think the second quarter will be better than the first quarter, but not appreciably and down from the second quarter of last year. But I think it's a little more of a postponement than sort of the world has changed and it's over some of the capital markets are starting to open back up. Some of the equity markets are starting to open back up. And most importantly, our pipelines are continuing to -- are really strong. So the pipeline hasn't dried up. Somebody might say, well, gosh, let's delay this. Let's put this on hold. Let's come back and talk about this versus wait a minute, let's close this off and let's not put that aside. And then the conversations are changing. So somebody may have thought about 1 component of a capital markets experience, and they may say, gosh, we were going to raise capital, but maybe actually we want to sell the company. Maybe -- so the conversations are still strong. They just may change in terms of the particular relationship and particular outcome we may have with the client.

Okay. So let's shift gears, talk a little bit on another business. Consumer finance is also about 12% of revenues. You're a little bit more overweight on some of the more nuanced consumer lending, point-of-sale lending, digital. How do you view your positioning in consumer lending, consumer finance and why you like these businesses structurally?

Yes. And we don't think of them as nuanced. So the -- we pulled back and started looking at our consumer businesses and looking at them together and say, okay, we -- where does the consumer actually want to interact. I mean I think the real strength is trying to build businesses from clients backwards rather than from us forward. And so we spent a lot of time thinking where the consumers want to interact, where is their point of first activity with the company. And where we saw is a lot of that coming in the point of sale. So when a client does whatever they're going to do, when they put a roof on their house or when they add a deck or all the things that they're doing or when they buy a jet ski or whatever it may be is that they actually want to do the financing right then. They want to consider that option, right? Then it usually is optional. It's not -- in most cases, we've got a real high credit score business. That's not something they have to do. They're just choosing to say, I want to use this as an alternative. Well, I want to keep my powder dry for whatever it may be for something else. But they want to make that decision right then and there. And so the capability to do that and expand in areas like service financing and own it from beginning to end is really important. So one, the margins are better there, but we also own the client experience from there all the way through. So the point of creating this business is really sort of go where the consumer is making the decisions. And that's different from HELOC as an example, which just hasn't grown in the same capacity. So I think we'll see some normalization of that, but consumers are just making a choice that we want to be where they make that choice.

And then more near term, it could potentially become a tricky environment for consumer lending, unsecured consumer lending? Are you doing anything differently to prepare yet?

Well, we're at the high end of that and sort of back to my earlier comment. So these are decisions that people are making on a choice basis. So it's a purpose loan. They're doing it as an alternative.

They're now pushing it out to that, right?

It's now -- and it's really high FICO scores and actually the credit quality of those businesses has actually gone up as some of the subprime components of that have been pushed out. LightStream, for example, has always been a high-end part of our business as the debt consolidation part of that diminished. The other parts of that increased and they are higher credit score. So we sort of enter into this period of potentially a little more uncertainty with actually a portfolio that's improved through the cycle.

You're also one of the few banks with a presence in subprime auto, which came to you through BB&T as well, how do you look at that business in terms of its attractiveness through the cycle? And what are you thinking about as we go into this environment?

Yes. And I think very similarly to the comment about insurance, have been in the business for 100 years. We've been in this business for about 25 years. So we've seen a lot of different cycles through this and very similar to also insurance, really good consistency in leadership. We've made a lot of the requisite investments that you have to make in data and analytics and collections and all the components of building an infrastructure that's important and it's purposeful for us. So the -- helping someone finance their first car to drive to their first job, think about that, that's really important. So we think about this business a little bit differently. We think about it from a personal and purposeful perspective. And very similarly to the comment about LightStream, we enter into this because some of the subprime stuff has been sort of moved out of the system. So the quality of that portfolio looks a little more near prime than it does subprime today.

Is auto prices yet?

Yes, exactly. We'll see some normalization in that we're starting to see the Manheim Used Car Index will start to normalize, and we'll start to see some normalizing in the credit part of that portfolio. But we enter into this, again, with a portfolio that's probably a higher performing, more sub near prime than it would have been at a different point in the cycle.

And then just to kind of round out the business mix, what would you highlight in terms of the traditional retail banking and commercial banking kind of differentiating aspects of the new Truist?

Yes. Well one of the big different factors of the new Truist is our market share. So we entered into this now with most of our markets sort of a primary market share, both in commercial and in the retail small business part of what we do. So that ubiquity and that density that really makes a difference. So the ability to amortize marketing, the ability to be constantly available to clients, have the locations and the places that they want to do business, to be sort of neighbor to neighbor in terms of what we do. And then in the uniqueness and really goes back to the discussion really to the investment bank, I think about our core commercial business, just the amount of capability we can offer to clients has increased exponentially. So now think about insurance for the SunTrust clients, think about investment banking and capabilities and specialization for the BB&T clients. So just think about that as just 2 examples of just exponentially increasing the capacity and the dialogue that we can have with clients about their unique needs and the advice business that we can offer. And then on the retail side, the consolidation of the retail side in creating a much more efficient branch system, much more significant investment in the digital side. So think about -- we converted clients digitally before we converted them physically. So the -- and we own the part of the digital business. So we incorporated something called a digital straddle to allow that to happen. So we now have this highly efficient physical structure but also the investments that we've made as part of the conversion to have a very, very high-performing extremely relevant digital business and relationship with our clients with this concept of what we call T3. So having touch and technology, equal trust with our clients.

On that note, you highlighted that you've announced you doubled your kind of transformation spend and you call it an impact into your guidance. How would you describe the ambitions and scope of that? And how do you know you're doing the right amount?

Well, it goes to our earlier discussion, too, that you asked about sort of what's the transition and time people are spending on merger, but that same discussion goes on investment. If you think about sort of last couple of years, if you looked at that proverbial pie, the largest share, largest piece of that pie, dominant piece of that pie was merger-related. All those are also growth-related investments because they're creating a platform for the future. So they're labeled merger, but I also consider them sort of growth oriented. But the other part of the pie sort of on the growth and innovation and the future banking components just in the time -- in the last year, we've doubled the share of that pie. And that will probably double again in terms of share of pie as the merger-related comes down. So the aspiration of Truist was to create the scale and capacity and opportunity to increase that level of investment. And that was one of the cornerstones -- key cornerstones of the merger, and we're now starting to see that come into play. You never know whether you have enough so -- and there's an insatiable appetite and there should be. But we have a really, really good system and back again to the earlier conversation of creating these competencies of how and when we make investments, the returns we have and expectations that we have, the monitoring of those, the ability now to distribute that investment over a larger scale, the requirements, the expectations that we have, the discipline around that is just significantly higher. And it was really the benefit of the merger, things that we learn on how to do that. So not only are we investing a lot more disproportionately, the quality and the expectation and the return on that investment, I think, is increasing significantly from the learnings that we've had and the discipline that we've created.

On the broader question of cost and efficiency, investors are hungry to see the benefits of the merger, I think, in a clear demonstration of that, and you've talked about that emerging this year, merger costs falling out and you getting a realization. So how is that -- is that going to enable you to kind of absorb inflation this year and keep things flattish? And how are you thinking about that setting up into next year as well?

Yes. John, you and I talked about this earlier. It would be nice to not have to say adjusted. I want to get sort of adjusted out of my vernacular, and it will really sort of start at the beginning of next year. So this year, we've gotten a major merger activity, we've got sort of the last remaining and significant cost saves related to the consolidation of data centers and applications of those. And all that's on track. I feel really good about that. And it has -- and it's binary. You finish it and you get the expense. It's not a long-term trail. It's not a really follow-on. And so by the end of this year, we'll be confident that we'll sort of be through that cycle, and then we'll be off and running next year without sort of the level of adjustments that we see from the merger side. And then you asked about sort of what are the inflationary pressures and the thing that we're feeling, one of the other real benefits, and of course, we didn't know where the world would be at this time. If you think about what you do in a merger, we've spent the last part of 2020 and '21, renegotiating every contract that we have. So we did 2 things. One is we had with scale. So you get to do it from a scale perspective, that operates as benefits and then you have a lot of fixed costs that are part of that contractual. So we did all this right before the inflationary part came. We don't have a lot of inflationary built-in part of that component. So in the -- a little bit of serendipity and luck and all those other categories, a lot of that cost has already been sort of negotiated pre inflationary pressure. And then the other side of that on the ability to now have this newer platform, the next iteration is things that we do in digitalization, things we do in AI, things that we create a more efficient operations. So we've put all these things together. We did them all in the period of time, and now we get to pull back and say, okay, now let's look at how do we make them more efficient? How do we make these things more efficient at scale? We created a competency within our team. We've got literally thousands of ideas that came through our teammates. I mean they're brilliant. They're fantastic. They know exactly how to make process more efficient, where they see the opportunities for savings, and we have all those cataloged and sort of in prioritization back to this investment process, running those through a really good disciplined investment process to say, okay, what are the things that have the highest return, the most payback and how do we prioritize those and move those forward. So we're clearly feeling the inflationary pressure, but I think sort of unique to Truist, we've catalogued some of that before. So we've sort of banked some of that before. And we still have a lot of running revs in terms of efficiency to obtain.

Kind of like the next level cost savings?

It is the next level of cost saves, and they're more -- it's more incremental work. It's more cultural work of embedding this constant improvement kind of mentality, and we put up shock wave through the system with the merger to do that. So I think we come out of this with a really strong mindset in terms of constant improvement and doing that in a much more disciplined high-return type of mindset.

Yes. So let's talk a little bit about capital. Some of the bolt-on acquisitions that you've done as well as the environment is putting some pressure on capital ratio. So from a regulatory perspective, how do you think about capital? You traditionally kept it pretty high relative to the regulatory minimum sort of conservative in the 10% ballpark. Some of the peers operate lower than that, more in the 8s. I know you've said you've kind of come to reconsider this as the merger is done when you get through CCAR. So maybe just kind of remind people how you're thinking about it and what you're balancing?

Yes, sure. As we entered into the merger, we very consciously said, look, we -- there is merger risk. We don't know how to quantify all of those, but they're clear merger risk. And so we're going to go into this with a higher capital level. And then there's always economic risk -- a merger risk and economic risk. And what's happened clearly over the last couple of years is the merger risk has gone down significantly. And I actually say now that's sort of not part of the discussion. We've sort of mitigated that, we're through the big higher-risk components of the merger. The rest of the part is, again, less than the risk category. So I think we've sort of eliminated the merger risk component of the merger. There's still economic risk, but in part that economic risk is embedded into the CCAR process. I mean you do these severely adverse modeling components. So we built economic risk into that. The diversity of our business model, I think, is just going to show up again. It showed up appreciably last time, but the diversity of our business model and our capability to generate PPNR in businesses like insurance that are not correlated, don't have a lot of capital, and our ability of our diverse business model to have a lower loss profile, our capital needs to reflect that. So we'll -- and as we've said before, we'll continue to evaluate this on a basis. We'll have some of the stress test results out, and we'll evaluate that relative and be -- I think it would be likely that we would see an ability to use a little more capital as we go forward.

So that's on the regulatory side. The AOCI hits that bank stocks have taken -- the banks have taken in the first quarter. It's kind of stimulated this debate of, do we care about tangible common equity and maybe you could weigh in on that debate?

Yes. I think you never want to say I don't care about tangible common equity. So I don't want to say that. So -- but I would say, in fairness, it's in the peripheral vision versus sort of front and center. So front and center is CET1. I means that's the guiding North Star. And TCE, if you think about sort of the major driver of TCE concern in the last cycle was due to losses. So actual materialized losses, that's what drove TCE down and you worry about TCE as if you have an inability to create liquidity. So is that your canary in the coal mine for liquidity. The reason TCE is down now is completely uncorrelated to that. So the reason it's down now is because of the AOCI, which is uncorrelated to liquidity. Actually, that portfolio is just liquid as it could be, you have to do it in a loss, but it's highly liquid. So I think it's different in terms of how you think about it. Rating agencies and regulators are not focused on TCE. So they also are focused on CET1. They're focused on the stress testing process. So I think that's important. So I think we don't want to be an ostrich with the head in the sand on TCE. But by the same time, it's in the peripheral vision, it's not the primary driver of how we think about capital utilization.

So how will you think about capital return? What's the company's philosophy on dividends and buybacks and...

Yes. Yes. I mean I think if we think about sort of how we want to use capital. I mean we're going to sort of go through a normal hierarchy chart and the first will be organic growth. We want to use our capital primarily to fund our growth and whether that's asset growth or the other components that come as part of the organic piece. And then for us, being a consistent earner and a consistent dividend payer, we have a good retail share base is really important to us. So dividends are important, and we want to be consistent. We want to have an operating model that has low volatility and consistency in terms of earnings, and that's an ability to consistently pay dividends. Then M&A and share repurchase are then sort of straddle in there in the third and fourth categories in terms of how we think about utilizing capital. But organic is going to be first. Dividends are going to be second and then we're going to think about the other components as it relates to those opportunities. And in fairness, I mean, in today's environment, share repurchase is interesting. I mean, we're trading at levels we think are not consistent with where our company should be valued. And we have capital and we have capacity, and so we're going to have to make sure that we evaluate all that.

They haven't been part of the mix recently on the buyback front but you said you'll reconsider that as you think about your capital target...

Exactly. Yes, exactly. So as we sort of head into the next -- in the latter part of this year, all those things will go into the mix in a different basis.

Okay. Maybe talk a little bit about the current environment. What are you hearing from customers? Are they starting to get nervous? We've heard different economic forecast this week from folks.

Yes. And I think the way that I like to think about it is sort of near term, what are we seeing? What are we feeling, then think about sort of medium term, what are the risks out there? And then think about the third as just being cautious. I mean there are reasons to be cautious and there are things that geopolitically and otherwise, that might have a binary impact to them, and we don't want to be not thinking about those things. But if we look at near term, near term is pretty strong. I mean if we look at some of our, again, the markets that we operate in, some of this may be a little idiosyncratic to Truist, but we look at the markets we operate in. We look at the diversity of our business mix as we look at the things that aren't correlated to sort of credit cycles, we look at pipelines, we look at production, we look at -- I talked about earlier loans and revolver utilization, those type of things. And if you look at sort of the near term, things look pretty strong. Our clients are in really good shape. Our consumer clients are in really good shape. Our business clients are in really good shape. They're coming into this with a lot of liquidity and a lot of capacity. If we look at the medium term, there's caution lights out there. There are some clients that are -- and we see it, and we talked about this in capital markets. There's some risk off things that are existing out there. We have to be conscious of those and where those are. So I'm in the near term sort of cautiously optimistic, but also have a -- because that's what we should do as bank CEOs. We need to also just be conscious of the longer-term and more binary implications of where markets can go and where the economy can go.

Okay. And just in terms of near-term outlook, do you have any updates to the guidance you gave in the second quarter? I guess that was the core NIM, you expected that to be up 7 to 10 basis points. The GAAP NIM, 3% to 6%, and I think PPNR growth high single digits first quarter to second was...

Yes. Yes, there are some offsets John so on the NIM and margin part will probably be -- rates are better, deposit betas are a little lower. So we'll probably be at the higher end of those in fairness in terms of where we are right now. The fee income businesses, think about mortgage and investment banking a little off from where we went. So the PPNR is probably pretty consistent. So those things will have some offsets to each other. So I think we'd sort of say at the high end of one, low end or the other. But overall, in terms of the net of PPNR growth would be pretty consistent in our current guidance.

Yes. Does that pull through to any change to your outlook for the year, 3% to 4% revenue growth?

Not right now. I mean, we want to be careful about changing that dramatically. So -- and we don't want to take our personal commitment and focus internally on what we want to do and sort of start creating reasons to not be forward leaning on some of those opportunities. So I don't think we're going to change that as we sit here currently and they're offsets, as we mentioned. So the construct of that will probably change a little bit. It's a little bit of a different mix. But again, going back to what we talked about before, this is the value of having a highly diversified model is while the mix can change a little bit for unique different things, we have other cylinders that are firing at quite good paces.

Yes. One of the things that's been remarkable is the resilience of consumer deposit balances and cash balances that we thought after stimulus faded, we'd see that fade. Maybe talk a little bit about that? How much Truist has grown deposits over the last 2 years? And how much you're thinking this might be sticky or not as we start to get tighter financial conditions?

Yes. I think we have a lot of different variables that are impacting where we are and thinking about traditional models about what's sticky and what's not. And what action the Fed is going to take? And how much of the deposit growth is surge and how much is not? So there are a lot of sort of new variables. You've got this Fed stimulus. You've got the balance sheet sort of counteracting each other. And then you have another factor, which I think is playing in. And I think as -- and I would say this for consumers and businesses. Coming through the financial crisis and coming through the pandemic, my personal speculation is that people are going to keep a higher level of liquidity. So that proverbial insurance for a rainy day, and I've been here before and whatever maybe my rent is going up or things are changing, I just want to keep a little more liquidity. So I think we're going to have a little more stickiness just in sort of a reset of how people think about it. I used to think about the proverbial small business, shoebox. You use up all your deposits and then you start borrowing. I think it's going to change. I think that deposit level is not going to end at the bottom of the shoebox. I think it's going to sort of stay at a certain level, and so that will change the dynamic of that a little bit. So I think we're going to learn. And for us, back to the earlier conversation, having a larger market share or having a lot more to offer our clients other than just rate paid, having density, having ubiquity, being purposeful, being advice-driven with our clients, I think, has the capacity for us to -- we have a different deposit mindset and a different reaction, I think, given sort of the size and scope and capability that we have now as Truist.

Maybe give you a little more pricing power?

I think, well, not just pricing power, but more sticky power and an ability to offer clients more than just rate pay. And then think about our deposit base as really also highly, highly diversified. I mean 43% or 44% of our deposits are under 250,000. So we didn't really benefit from the corporate trust and some of these other type of growth in deposits. So our beta on that component will be a little bit lower because we just have sort of a more core retail base component of our deposit base.

Maybe the last question, just thinking ahead to potential credits like how well prepared you are. BB&T traditionally did very well throughout credit cycles. SunTrust a little bit more mix, got a little overconstrained in the real estate in the last crisis. So how is the combined company looking in for a tough environment from a credit perspective?

Yes. I think if you looked at sort of premerger, the stress test results from both companies that were sort of at the low end of that cycle and think about that, we just took that and diversified it. So take that existing already model that had a lower credit experience, and we diversified that. So I call it the denominator impact. All of those things were...

All those concentrations were...

All those concentrations were cut in half. And then to the point we discussed earlier on loan growth and things like real estate, we actually made just conscious decisions early in the cycle and say that we're actually just going to pull that lever back a minute. We're going to sort of -- we've learned hard lessons before. We just didn't want to make some of the same mistakes of the past and wanted to make sure that we're focused on real estate portfolio that's more driven by larger clients, more driven by lots of capital, more sophistication, better selection, better diversity. So I think this diversity of the business model has got a lever on the revenue side because there's more opportunities. But just as important, it has a diversity impact on the credit side as we -- as if we go into a different credit cycle, I don't think we go in -- I think we go in better prepared than we've ever been because of the diversity of the model and the discipline that goes along with it. Also going through a merger, I mean you look under everything. So the intensity of the reviews of the portfolios, as I mentioned earlier on the investment side, the discipline that we put in the company from a merger, all that has positive implications and ripples as you think about your total portfolio.

Well, it sounds like you're excited about the opportunity to be looking forward now, but also being -- eyes wide open about the environment.

I am eyes wide open. But again, again, some of this may be unique to Truist. We have some unique tailwinds. I recognize the headwinds and I'm conscious of the headwinds, but we have some unique tailwinds in terms of our ability to run faster and do more and expand our relationships with our clients. And so I'm -- I was really excited the day we announced this and every day and minute I get more excited and today I feel really really confident about our positioning quite frankly for any environment and I think we have unique advantages at Truist.

Bill, thanks for your time today. Appreciate it.

John, thank you.