Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

All right. Great. Up next, we're excited to have Truist joining us once again. They've had a busy year exiting their Truist Insurance Holding business, restructuring its securities portfolio and rolling out medium-term targets as well as beginning to return capital to shareholders. Here to tell us more about the road ahead is Chairman and CEO, Bill Rogers. Today's presentation is going to be a fireside chat. Welcome, Bill.

Great. Thanks. Good to be here.

So Bill, there's been a lot of change since the last time we heard from you since the election, another fed cut. As you think about next year, maybe start off with how you think the bank is positioned to win as we enter 2025.

Yes. So I think you outlined a lot of the changes that we've been making and we've been underway. And we've just never been better positioned. So I'm going to be a little bit optimistic. And I think some of the animal spirits and some of that is real. We're starting to see some really good dialogue with our clients, and we've just never been better positioned for that. That starts with the sale we made with TIH and creating capital for our company. So we're in a great position to afford capital to our clients, create really good growth from that perspective. We've simplified our business pretty substantially. So creating a wholesale unit and a consumer and small business unit has really created the focus that we need from our teams. We've been through a really good 18-month sort of strategic focus, so the timing is really good in terms of positioning. And we've invested a lot in our business. So we invest a lot in talent. We've invested a lot in technology, invest a lot in capabilities. So the ability to sort of launch and take advantage and be proactively front-foot, leaning forward, athletic position for an improvement in the economy, I just don't think we could -- timing couldn't be any better than for Truist.

So a lot of strategic things to get into. But before we do, maybe, Bill, just get the near term out of the way. I know you gave fourth quarter guidance of revenues down 1.5%, expenses up 4% and some color on fees and NI. Maybe just talk about how the quarter is progressing and any update you wanted to give before we move on to the next topic.

Yes. Just sort of where we are in the quarter, I feel good about that guidance, both for the quarter and for the year. So there will always be small puts and takes, but feel really solid about where we are right now. And again, back to the earlier question, and momentum platform for growth.

Easy enough. So Bill, we were talking at dinner last night, I know that you've been out in the markets talking to a lot of commercial clients. Maybe just talk about how they're thinking about their businesses post election, what's changing on their end.

Yes. I think the clients don't - I don't think they arbitrage elections as much as arbitrage uncertainty, is the way I think about it. So a lot of uncertainty was removed. Just the fact that we had an election, we had an outcome. It has been interesting because I have been out a lot postelection and actually even preelection, and that conversation, those dialogues are really happening. I mean clients are interested. They're bringing things sort of back off the shelf, putting them on the front of the desk in terms of things that they're contemplating going forward. And back to your earlier question is the conversation with us is also really strong about how well we're positioned, so the advice that we've been offering, the places that we're engaging with them, the capacity sort of lead their transactions versus participating in their transactions, again, the great advice that we're bringing on the specialization in their business. So not only are they feeling better about things, they're also feeling better about their relationship with Truist. And then also the fact that our Voice of the Client scores, I mean, our performance is higher, so they've got more confidence in us and ability to transfer and move more business to our company. So I mean they're feeling better, but also really importantly, they're feeling better about Truist and how well we're positioned. I look at a couple of them. If you look at sort of what are the early indicators and early signs that you see, so pipelines are growing. So we see that in terms of activity. But a couple of really good early signs: construction loans have increased. So people are requesting -- having a dialogue about construction loans, so building that warehouse or the things they may have considered; and then the other is increase in revolvers. So even though the activity hasn't sort of shown up yet, they want to increase their revolver and increase their capacity. So I think those are 2 pretty good sort of early signals from clients that they're ready to sort of roll their sleeves and get back in it.

Maybe to dig in on a couple of things as it pertains to loan growth. I guess the first question is, how long do you think it's going to take for -- until loan demand returns? What are your broad commercial expectations? And then more importantly, if you think back over the past few years, Truist has been underperforming, given all the transformation that it's gone through, but we've seen that gap narrow over the past few quarters. What do you think that means in terms of your ability to perform relative to the industry?

Yes. Maybe let me dissect loan growth in a couple of different categories. So generally, sort of what we've seen on loan growth side is utilization has been pretty low. So if you look at sort of the 2 things that impair loan growth: one is paydowns, primarily in CRE, but also paydowns for refinance, so excess in capital markets; and then the other is this lower utilization. Clients got really smart. One thing sort of post-COVID, when supply chains were disrupted, clients really understood their working capital. If you think about the things they've been investing in over the last several years, they're efficiency things. So they're not in the building the warehouse, but it's making the warehouse more efficient and keeping less cars on the lot, less fewer days on hand, more just-in-time inventory. So they've been investing in things to make them more efficient. I think that's sort of troughing. So one of the components is I think utilization will start to come -- and we look at a lot of different businesses, and we're starting to see that sort of hitting a low point and will come back from a certain standpoint. And then we've seen paydowns in capital markets. I mean in the last third quarter, $7 billion of the paydowns going to capital markets. Now the good news is we captured it on the fee side. So that was the good news. We were advising them, and we were helping them do that. And then a lot of a CRE paydown. And for our portfolio, we led a lot of that. We've significantly reduced our CRE sort of office-specific portfolio. But then that creates capacity to participate in what would be the next-gen sort of CRE business and data centers and other things that I think we can play a more relevant role in. So I think things are troughing. Loan growth is tectonic. It doesn't move month-to-month and quarter-to-quarter on the C&I side. But I do feel that it's troughing, and we're seeing some positive sides. On the consumer side, compare and contrast, we were in a capital conservation mode in 2022 and part of 2023. And so we saw the momentum from that capital, right? But we were able to turn that dial on the consumer side. So you've seen the last couple of quarters, particularly for us in indirect auto as part of our overall auto portfolio, margins are better. We can lean into that business a little bit. On the things that we have really unique capability, in sort of Sheffield, Service Finance and LightStream, we've leaned into those consumer businesses, really, really high credit quality. We've created better partnerships, better capital, and you've seen some growth in that. So the consumer side, leaning in, we've got a little bit of momentum. C&I side, I think, troughing, but that'll take a little bit longer to sort of get the organic growth that comes from that.

Bill, one thing that you've talked about is there's been the transformation of the commercial business and how, given the decisions that you've made, you're well-positioned to do more business from your clients. Can you maybe just spend a minute talking about that, why you think you're so well positioned relative to the competition? And what do you think that means for the growth of the company over a medium-term time frame?

Yes. It's really fascinating. We were talking a little bit about this. I mean the core commercial business today looks dramatically different than it did 5 years ago, and that dramatic difference is the advent and investment of private equity. So all of our commercial clients are in some sort of discussion. We were in a group like this, panel, about this number of people in the room, and asked clients, "How many have you been approached by private equity in the last month?" Literally, every single hand went up. So the consolidation that's happening in that business, the investments that's happening in the core commercial business, I think we're really well positioned for that. So that's that transition. That's the talent transition. We've been investing a lot with our team. We've been adding a lot of talent. But most importantly, we've been developing a lot of talent and retaining a lot of talent. And teammates that understand that transition in the commercial market and are accessing all the capabilities we have, so accessing the leverage finance capabilities we have, accessing the industry specialization we have, the corporate finance specialization we have. So they're sitting at the front end of that client. They're in the advice side of that client, and we see that show up for us in left-lead deals and transactions and activities. So I think the melding of the commercial and the melding of the investment banking capability and building out this middle market capability, I think it's exactly sort of at the forefront of the transition that's happening in the commercial market. I think we're just really, really well positioned for that, both in terms of assets we have and talent, but also in terms of culture. I mean our team is one team united. That was part of putting all out of the wholesale umbrella, under one leader, to say -- no, we actually all have the same mission, and we're going to work together towards these objectives.

You rolled out some targets, which we'll get to shortly. But one of the components of it was being more relevant with your customers from a deposit perspective. You've obviously seen deposits have been running off over the past few quarters. Maybe just talk about your outlook for deposits in terms of both balance and mix. And where do you think we go from in terms of your relative performance versus the industry?

Yes. I think similarly, I think deposits are troughing out. I think we should see deposit growth next year. So I think that would be part of our plan in terms of expectation, in terms of opportunities. A lot of different components in your question there. So you start with maybe deposit betas. So we sort of said we saw in the fourth quarter deposit betas being sort of in the mid- to high 30s. And I think that's pretty consistent with what we've talked about before. So our ability to manage rate paid is much more enhanced from where it was before. Our capabilities, the tools and the modeling we use, the way to be really client-specific versus product versus really wide, be really narrow, client-specific, be able to reprice and make that based on relationships. We've laddered sort of the CD portfolio. So we don't have all these big cliffs. We have individual decisions that we're making along the way. So I think we've got some opportunities in that regard. And then the strategic shift for us is severalfold. On the wholesale side, we're seeing really interesting deposit growth in terms of our capability on treasury management and being more relevant to our clients so we can see some deposit growth from that. And then on the consumer side, we're growing. So the most important thing to have more deposits is to have more clients. So you have to start with that framework. And we're able to attract clients with our digital platform. We're able to retain clients with better client service, and then we're able to grow those clients. So they start sort of smaller. We transition the business. And then being able to focus on our premier clients. So clients have got $100,000 to $1 million in deposits for us. We're consolidating all the offerings that we have for those clients to be more relevant, to be more reward-oriented for those clients. They have a lot of off-us deposits as well. So they have a positive propensity to do business with Truist. They like the experience. Their client engagement scores are higher. Our Voice of Client scores are higher. Net Promoter Scores are higher. So they have a positive propensity to do business with us. And then what we want to do is get those off-us deposits and be able to do that with credit card products, mortgage products, things that are bundled for them that have an advantage.

So a couple of months ago, back in September, you rolled out a medium-term mid-teens ROTCE target. Maybe just give the audience a little bit of background how you came up with this target. What do you view as the most significant opportunities and over what time frame?

Yes. So I think it was really important sort of post the TIH sale that we sort of reset. Said, okay, we've raised a lot of capital in our company. We have a different business mix in terms of the insurance business no longer being part of that. And so how do we reset the return profile? What's the starting point, which is interesting? But the more important part is, where do we go from that starting point? And how can we accelerate from that position? So we set a medium-term target and sort of in the 15% range. We didn't define specifically what medium target is because it's dependent upon rates and other things that factor into that. But there's some foundational things that we think make that approach arguably reachable and achievable in a very confident manner. And the first and foremost is we have a lot of fixed asset repricing. So that's sort of a natural, right? So it sort of creates some opportunity there. We have a pretty good-sized opportunity in fixed asset repricing. Some of the curve benefits right now sort of help some of that. So that's -- we see that as sort of positive in terms of return. We have some smaller things in sort of RWA maximization tools that you use for that. We've invested in that. So those will be things that sort of happen inorganically in terms of how we create that. And then as you talked about in your question, building the high-return components of our business. So focus on payments, focus on the middle market, focus on the premier segment. These are high-return objectives where we've already invested capital, so the ability to build that waterfall on those projections. So these aren't things that are -- have 10-year paybacks that we're going to -- we're investing in long for the future. These are things that are right in front of us, that are part of those short-term and medium-term building blocks. And as we talked about last night, it's a trajectory. We picked 15% along the trajectory, just because you don't want to set something that's so out there and it's ethereal it's hard to see, but just trying to say, here's what's in front of us, here are the building blocks, hold us accountable as we create that momentum. And I think we've got arguably the highest return opportunity in that medium term.

And just as a -- to follow up on that. Do you expect to make progression on an annual basis? And how important is growth to achieving these objectives?

Yes. 100%, we expect to make progress on -- I'm going to say on a daily basis. But yes, on an annual basis. All the things that we're going to do, we're going to continue to invest and improve. And growth is an accelerant. Growth is an enhancement. We don't have to have a lot of growth to achieve those objectives because a lot of it, as I talked about before, it's penetrating and expanding relationships that we already have. But growth will be an accelerant on the time line and the slope of that curve.

So let's dig into some of these. When I think about the key initiatives you outlined, they're all generally centered of doing more with your existing clients.

Right.

Maybe just talk about what were some of the drivers of underperformance historically, and what gives you the confidence that you can now get a greater share of wallet from your customers?

Well, a couple of things. One is, coming out, you -- much better performance on the Voice of Client, client service. Remember, in a merger of equals, every single client went through a transition. Every single client went through a transition. So we're through that. That's sort of in the rearview mirror. In the windshield, what we're seeing and feeling from clients is, "Hey, we had a really good experience. We're through that. We've got confidence in you. You're giving us good advice. You're giving us good service. You've got products and capabilities. You've invested in your digital platform." So the propensity to want to do more business with us is significantly elevated. So that sort of is the overall framework of our confidence in that.

And when you think about some of the initiatives, you said middle market, premier banking and payments. Obviously, commercial payments is -- since I've known you, has been a big focus of the company. Maybe just talk about how you're positioned in this business, and can it be an area of outsized growth for the bank over time?

I do think it can be an area of outsized growth because it's been an area of undersized growth in the past, and so we're underpenetrated relative to that opportunity. And we've done some charts and graphs and demonstration. That's about 50% underpenetrated relative to the opportunity. So that's on the corpus. What I look at is what are we doing on the new side. So new clients that we're acquiring, our penetration rates are really high. So what that says to me is we're relevant, we've got really good products, we've got really good capabilities, where we've committed capital, we've given those clients advice. And they've returned and giving us penetration in the treasury management business. So on the new side, that dial takes a long time to turn. So now we go back to the existing platform, those who have now been through the conversion with us on the positive side -- and we start converting those. So those RFPs, we're winning more RFPs. We're winning more opportunities from those. And so that dial shift starts to turn on that as well. But the leading indicator for me is new, and our penetration on new is really good. So that means that we are relevant. We have product capabilities that clients care about, and they're willing to give us that business. And then turning the overall part of that over time.

So there's a lot of good initiatives going on, on the revenue side. And on the other side, there's been a lot of simplification that's happened over the -- across the organization. Can you maybe just talk about how you've simplified the structure over the last year and what these changes mean for your -- both growing your business and also achieving your long-term objectives?

Yes. I mean we were -- flashback to September of last year, we said we've got to take a lot of costs out of the company. And so -- and I think it's sort of a natural outgrowth. And the way to take the cost out was to simplify the business, and we took about $750 million worth of costs out of the company, which we felt really good about. It was the areas of spans and layers, simplification, consolidation of operating units, support units, operations, all those things that go along with that. And now we operate on a much more efficient platform. We also operate on a much more effective platform, see that show up in the scores that we talked about. So where we go from here? Because we're able to grow on a more efficient platform, we have more confidence in how the revenue and the expenses align with each other and how we can support the -- continue to invest in the business, continue to save. We still have efficiency opportunities. But all of those are redeployed into the opportunities to invest in the business, so a little bit of save the dollar, spend the dollar kind of approach that we have in the business. And we have a very good understanding of sort of what's the next saving opportunity and what's the next spend opportunity, how do they align and what are the returns or what are the timing about all of those.

So maybe switching to fees. So investment banking has had a strong year in 2024. 3Q was seasonally very strong. What are your general expectations for this business in 2025? And how are you positioning yourself to continue to gain share in capital markets?

Yes. I mean, remember, capital markets for us has been a decades journey, and it's all been organic. And that's been really, really important. So it's all been organic, and the organic component of that is we've built a great culture. We've built a great culture that the investment bank is part of the franchise. It's not a separate thing. It's part of the franchise. It's there to support the franchise. Going back to earlier question on the dramatic change in commercial clients and expectations around advice, and all that's driven from the industry expertise and advice that we've created in the investment bank. We've been able to grow that business in terms of share, I mean, arguably off a small share. But across virtually every product line in the last several quarters, we've continued to increase share. And I would see that continuing. We've been able to attract, retain and develop really good talent. The franchise is feeding that business. So that connectivity is really strong. So high single, low double-digit kind of CAGRs, I think, should be an expectation for that kind of business. Of course, it gets harder as it gets bigger. We want the rest of the franchise to grow in concert with that. But it's a part of our business that we've built over decades. We've got a really good, consistent, great leadership and a model that, quite frankly, works.

So you've stated an expectation for positive operating leverage in 2025. In achieving that goal, I guess, after having costs slightly down in '24, how are you thinking about expense growth? And how are you also thinking about balancing expense discipline while ensuring that you're making the right investments for the long-term success of the company?

Yes. I mean I said in the third quarter, and it's been more actualized since then, I'm staring right now and the Board's staring at plans that have positive operating leverage for our 2 businesses. And so that's the expectation. They do have growth embedded in them, not a lot of growth necessarily, but they do have growth embedded in them. So part of the positive operating leverage is achieving some level of growth. As I mentioned earlier, I think we've got a really good understanding of the expense and the revenue correlations and sort of how we can invest and how we can create those opportunities. We've got a really good understanding of the timing and the paybacks. So the things that we have a really good understanding of were the investment and the payback part of that formula. So we can stack them on top of each other, create the small J curves as you go through that process. So expenses will be more correlated to where we are on the revenue side. Positive operating leverage will have a growth component to it. There's just no doubt about that. We'll have some expense growth next year, but that expense growth will be relative to the opportunities that we see on the revenue side. And then the opportunity to continue to invest and the importance, that's part of that -- the system of creating the efficiency and then invest in the opportunity. And as I said earlier, I think we've got a really good format and strategy to understand sort of the next up on savings and the next up on spending, such that we can get those correlated to maximize client impact and shareholder return.

So you've made a lot of -- you made a handful of new leadership hires and changes over the course of this year. Maybe just talk about some of the new leaders you've added and how you think their expertise will help drive your business going forward.

One of the foundational elements of our strategy is to attract, develop and retain great teammates. So there are all sort of parts of that. So the attract is really part of that. That's what we're talking about. We've brought a lot of really great talent into our company. They've got fantastic perspective. They wanted to come work for a purpose-led company. They wanted to work for a company that -- the pitch is Truist is a lot like a startup. You get to be part of the growth of this company. You get to put your fingerprints on it. So that's a great way to attract teammates, but also developing our existing teammates. So we've invested a lot in their personal development. So not only are we bringing new people onto our company, we're also developing and then retaining and then creating an environment where people want to work, where people want to grow their careers and want to have meaningful careers. So it's all 3 parts of that stool are really important, and we're creating together a culture of high performance, a culture of growth, all embedded and all foundation of purpose.

So maybe shifting gears a little bit to credit. Both your NPLs and charge-offs have stabilized over the past few quarters. Maybe just talk about what are your expectations of the trajectory of both charge-offs and the allowance over the next few quarters? Do you think we've kind of seen the peak in charge-offs and we could start to see some improvement? How are you thinking about that?

Credit has been very resilient. I mean I think most of us see credit being incredibly resilient and has held up really well. If we sort of look through the spectrum on the commercial side, our clients are relatively well positioned, less leverage, more liquidity, higher margins. Our consumers still have a bunch of liquidity. We see different strains along the spectrum of the consumer, and so we understand that. But overall, the consumer is really healthy. So I don't think we see sort of a dramatic change. We'll have some seasonality. Fourth quarter has some seasonality into it, particularly in some of the consumer businesses. But I think in terms of sort of relative charge-offs and NPLs, I think we see some stability in that range. But now we're also at lower levels, right? So we're -- over time, those things change. But if I look sort of in the near and medium term, I see a lot of good stability on the credit side. I don't see a lot of cracks on the credit risk side of the company.

So maybe to shift gears a little bit to talk about capital, right? So you mentioned earlier that you made the strategic sale of TIH to really shore up the capital. You now have capital well in excess of 11.5%, on an adjusted basis, it's approaching 10%. Maybe just talk a little bit about what you're most focused on from a capital ratio perspective when you're determining your capital deployment strategy and maybe just outline for us what are your capital priorities at this point.

Yes. The capital priority is one, two and three are investing in our company and growing our company. So that ends up being the top priority for our company, continuing to pay a really good, strong dividend, which we've consistently done. So those are the top 2 priorities. And then share buybacks, we've incorporated that as part of our strategy sort of post-TIH. I think they'll sort of stay in the same kind of range they are now, because we want to ensure that we've got capital to invest in the business. I mean I think the work that we did to raise capital incredibly efficiently through the sale of TIH, we want to deploy that back into the business. So if we have a bit more capital today, that's good. We want to be in that position. We want to be in that athletic position. We want to respond. Our teammates are really confident. They're really confident that they've got the company behind them. They're not under a capital constraint. We'll have a diversified business model. We'll have great risk controls, all the things that we need to do. But our strategy today is deploy that capital against our franchise and against our opportunity, and we see lots of those, lots of places to do that.

So Bill, it's clear that the hope, as you articulated, that you'll be able to deploy it in the business as we start to see some pickup in growth. However, the environment is still somewhat uncertain. And if we don't actually see loan demand return, how do you think about just other uses of capital, whether it's higher share repurchases, purchasing loan portfolios, maybe even in other securities restructuring? How do all of these types of things fit into the overall use of capital for Truist?

Yes. If I went through those securities reposition, we'd be pretty low on the spectrum. I think we did arguably one of the largest securities repositioning. I think we did it with the right return characteristics. And if you start evaluating that portfolio differently, that becomes a little more challenging. And we have a lot of that fixed asset repricing happening naturally. So we're going to get the benefit of that, and we'd rather sort of get that over the longer term in a consistent way. We'll consistently evaluate share repurchase, but it would take a lot to make us blink at this particular juncture to say, "Oh, gosh, we don't see the opportunities for additional growth." I mean I think we want to be long-term players. We want to be focused on the perspective that's a little less than a quarter or a year. So I think we'll still be in the mode of wanting to invest. And we'll -- it would take sort of a dramatic event to say we don't see loan growth for an extended period of time and to reevaluate the priorities of how we use capital.

So in terms of using capital, one of the things that we've seen a handful of banks of similar sizes, a move to really expand their branch network, right, across various geographies. How are you thinking about your branch network and your footprint from a growth perspective? Do you see opportunities to grow either inside the footprint or outside the footprint? How are you thinking about that as an organic investment?

Yes, it's a great question. Of course, we did the most consolidation of the branch network to sort of get the maximum efficiency. And that's -- we're now entering into a new phase in terms of how we think about branches. And maybe I'll expand this a little bit because you sort of asked about it in terms of growth markets. Not branching outside of our markets, but if you take markets like, for us, take Texas and Philadelphia and New Jersey as an example, so those will be markets we've been in about a decade. There's -- we have smaller shares related to those markets, really good growth dynamics. So they've been growing. We've been investing in those markets. We've been hiring talent. We've been creating capacity. They've been growing loans and deposits in sort of double-digit kind of basis. We're really winning. We're adding a lot of talent in those markets. We're winning a lot of left-lead transactions sort of new to Truist. So those are places where we've seen really, really good growth. I think those are places where you'll see the branch networks expand. So that would sort of be within the franchise, but within growth opportunities where we see an opportunity to be in the take-share mode.

So 2 more questions for you, Bill, before we wrap it up. There's obviously been a lot of enthusiasm in the market for bank stocks post the election. While we don't know what the final outcome would be, what changes we're going to see, I guess, what, from a regulatory perspective, are you most focused on that you think will have an impact whether on just your ability to allocate or invest in the business?

Yes. I don't think things changed dramatically from a regulatory standpoint. I mean we're building a great risk infrastructure that reflects the size and scope of our company. So I think we have sort of a clear objective of things that we want to build in terms of capabilities that will allow us to do all the things that we need to do for our business. So I don't see sort of this dramatic change. Things that sit out there like Basel and TLAC and all those things, Basel, I think, sort of has a small impact on our company from an RWA standpoint. So I think that gets -- wherever that gets resolved. TLAC has sort of taken a different view, sort of a 6%, I think, gets leveraged differently. We get to use liquidity differently, maybe capital differently. So I don't see those as particular impediments to achieving our objectives, and we are going to continue to invest in the risk infrastructure that reflects the opportunity and the ability to create a great platform to grow from.

And we've talked a lot, in conclusion here, over the last few years that undertaking the merger was a bigger ordeal than you thought, and that's resulted in underperformance in the stock over a handful of years. You've obviously made a ton of changes in recent times to position the bank to succeed. Maybe just in closing, tell us about why you think investors should be investing in Truist and what is different about the story today relative to the last few years.

Yes. I mean I think we're on the proverbial launching pad. I mean I think we're extremely well positioned. We have very, very strong client penetration. We're in great markets. We've added super talent. We've got great product and capability. If you look at all the incremental early signs, we sort of see those in terms of net new growth in terms of client acquisition, in terms of left-lead deals, all the things that we see that are early markers that we're making a difference and we're on a growth trajectory and we're positioned in a different place, I think, are all there. So I mean I literally think I'm as confident as I can possibly express about the positioning of our company, and we just need a little bit of growth to take advantage of it. And I think we're in the best markets and have the best opportunity to do that.

Well, the shot clock has expired, so we're out of time. So please join me in thanking Bill.

Okay. Thanks, Ryan.