Truist Financial Corporation (TFC) Earnings Call Transcript & Summary

Okay. Thanks, everybody, for joining us this morning. I have to read a disclosure. For important disclosures, please see Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your sales representative. We are so delighted to have with us today, Bill Rogers, Chairman and CEO of Truist. Thank you, Bill, so much for joining us today.

Great to be here.

And I see you are in Truist colors as well.

I'm always branded.

That's fantastic. Love it. So let's start off with the macro. And Bill, you started off this year with momentum in loans and deposit increasing in the fourth quarter, and that continued into 1Q. Given some of the obvious market volatility that we've been experiencing since April, can you tell us what you're hearing, seeing from clients? And how are they dealing with the uncertainties out there?

Yes. So just think about it in the last -- since that first question, how much that's changed in the last couple of months. I think most clients are -- have still a little bit of wait and see, sort of plans to expand, see opportunities to expand, want a little more clarity. But in fairness, probably there's a little more clarity every day. So that bridge seems to be closing. The consumer is still in the game. The consumer's confidence is as exhibited by spending continues to be strong. And then what we're seeing the things that we're investing are working. So we have continued to see some continued loan growth. We continue to see a little bit of deposit growth. The consumer side for us has been really strong. The areas that we've invested in, particularly the areas like our specialty consumer businesses have been really strong, really relative in responding to consumer needs. The C&I side, particularly in areas where we've invested like middle market, we continue to see really, really good growth. So the overall macro environment still has a little more uncertainty to it. Micro as it relates to Truist specifically, the things that we're investing in are working, and we're continuing to see success.

And we see in the H8 data, roughly 3% loan growth, 3% deposit growth. Is that -- that's on a year-on-year basis? How is it trajecting? Does that seem high to you or...

I think the H8 data can be spot confusing in terms of where it is at one time. So we are seeing good loan growth. Deposit growth, again, a little more on the consumer side, probably a little lag on the wholesale side. I don't think that's sort of unnatural in terms of how you see things. So I think the H8 data can sometimes be a little bit confusing.

Okay. So your outlook for loan growth for the full year is low single-digit end of period in 2025 is...

We continue to be on that track. I feel confident about that.

Okay. And the areas where you're most optimistic for loan growth?

Yes. The areas where we're most optimistic for loan growth, again, those where we've emphasized consumer side, we've seen really good loan growth in the middle market side, particularly of our C&I side.

That's interesting on the middle market side. I know you've been putting a little more feet on the street there. Can you talk through that strategy? And what is coming through so far?

Yes. I mean if we looked at sort of post-merger, what are the areas that we have the biggest opportunity for growth. And we looked at some of the commercial side, large corporate side, probably weighted pretty appropriately to our business. So sort of saw normal kind of growth and investment on that side. And the big area of opportunity was for us in middle market. So we've -- as much as a 50% kind of opportunity in terms of growth relative to relative share relative to our opportunity. So to your point, we've invested a lot. We've invested a lot in talent. We've invested a lot in capabilities. We've invested a lot in the industry specialties that are most relevant to the markets that we serve and then creating that continuum of effectiveness in terms of execution. So I think that's why we're seeing the momentum on that side. And we're seeing the momentum like we wanted. I mean we're seeing that we're winning in terms of -- in relevance, so less leads as a percent of the business that we're doing. And also the payments penetration of that business is really high relative to where we want to go. Our payments penetration relative to our overall portfolio is an opportunity. But where we see it on the new side, we're sort of seeing that gap to goal being filled pretty quickly.

So new clients coming in with a fuller suite.

Much fuller suite, much better penetrated, and we see that as an opportunity for the entire book.

Okay. Can you speak a little bit to how you are set up for servicing private credit ecosystem?

Yes. I think we think of private credit, I think of it sort of in the coopetition kind of model. .

Coopetition?

Yes, exactly. So there are places where we're competing really hard against private credit, sort of a day-to-day opportunities client to client, but there are also opportunities where we're partnering with private credit. There are opportunities that we see where, in some cases, we can be the payment side. In some cases, clients are transitioning. In some cases, we can help private credit with some of their ABS capabilities and the things that they want to do to securitize it. So I think the private credit market is competitive every day on the street against client to client, but also opportunities to work together.

Okay. And is this something that falls into your nondepository financial institution category?

Yes. But we don't really think about -- we don't think about it that way. I mean we don't have an [ NDFI ] department. We don't have a head of [ NDFI ]. So all of the things that I'm talking about would be related to business strategy. So is this related to an industry specialty? Is it related to geography? Is it related to a middle market strategy? And then sort of where it lays out from an [ NDFI ] is just sort of where it lays out. We don't really manage to that number and we don't have an [ NDFI ] department head.

Got it. Okay. But in middle market, is there more to do in terms of investing to get to where you want to be? Your footprint is really robust for middle market. Wondering how much share you think you can take?

Yes. We think about our market is not only our geographic market but also industry specialties and other places that we're investing. So we do see the continued upside on the middle market. As I said, relative to the penetration of our total portfolio, middle market is probably the most underpenetrated, but it's also the place where we have the most skill and capability. So all the work that we've invested in investment banking and serving that market is just bringing that down to the middle market and being effective. So -- and we've been really successful in attracting talent to the platform. So people get the growth story, they get the fact that we have a lot of capital to deploy, they see the product and capability that we have for our clients.

And what about pricing? Is pricing a lever that you can use to gain share?

Yes. I mean we look at return. I mean, we're really focused on total return. I mean we want everything to be accretive to our overall ROTCE mid-teens kind of strategy. So that's -- everything has got to be deployed against that. So I would say pricing as it relates to total return always is a tool, but pricing as a stand-alone tool is not something that we really want to deploy to get that growth.

But maybe you can be more price efficient given the fee-related services that you deliver to these clients?

I think, again, total return, as I said before, so what we're seeing is sort of [ left lead ], so you're sort of giving the better return from that standpoint and then better penetration from the payment side. So if we look at sort of the overall return of that portfolio and that investment, it's highly accretive to where we want to go from our overall company return.

And we talked a little bit about the capital markets investment banking and trading as a way of helping get in these middle market clients. But let's talk about it as the business itself. You've been investing for the past several years. Can you tell us where you are relative to target goals? And what specific verticals and industries you're focused on there?

I mean, in fairness, we've been investing for over 20 years. So that business for us has been a high single-digit CAGR kind of business consistently. When we merged, it was underpenetrated by 50% just by definition. So we continue to see that we can grow at that kind of long-term CAGR basis over time. Again, our ability to attract talent into industry specialties. So we've got specialties in the consumer and retail and TMT and FIG and in energy. And those are places that -- in health care, and those are places where we continue to grow and also fit really nicely into our overall platform in terms of bringing that down to the middle market and bringing that down in fairness all the way down to commercial. So that's the real beauty is to be able to bring that specialty all the way down to the smallest commercial client that's in that business that's going to grow maybe as an acquisition candidate for a middle market company or a larger company, maybe it fits a profile of their expansion. So that's a business we continue to feel really good about and continue to invest in.

And how has that been trending in this volatile...

Yes. So I think we've been trending consistent. Now our trading business is client-centric. So our trading business would follow the investment banking patterns. It's not going to sort of have an opposite hedge against that. It's going to follow that pattern. So investment banking business, as we indicated, was lower coming out of the first quarter. We've seen that momentum start to shift. I looked at pretty significantly sort of what do our pipelines look like. Our M&A pipeline looks -- our M&A pitch pipeline is probably the strongest it's been in the last several years. The other pipelines are starting to increase. They've got to materialize. So I think we, again, feel confident about where we are in investment banking. It feels like a bit of a pivot point. Last 4 weeks feel a lot better than the 4 weeks before that. And we're seeing that in the pipeline in the pitch activity.

Okay. Great. And then on payments, any work to do there in terms of expanding or getting ready for digital, GENIUS Act, crypto, stablecoin.

Yes, I'd say a couple of different things. So as it relates to the second part of the question as it relates to getting ready for all the other pieces, I call us in the athletic position, meaning that we're spending a lot of time with our clients, understanding how do they want to interact, what do they want, what role do they want us to play? What role does this play in the payment system? Where do we fit in the payment system ecosystem? Where does the industry fit? So again, I'd say we're in the athletic position. We're spending a lot of time with clients understanding where we want to be in part of that. Overall payments, so the overall payments business, we feel really, really good about. We've been investing significantly. Again, that was another area where I think we were relatively underpenetrated and saw an opportunity. I mentioned that we're seeing it some on the new side. So what clients are voting with and telling us that our products are really good, that our capabilities are really strong. It's relevant to what they want to do. And now we've got to create that same momentum for the whole back book as it relates to payments. And the things that we've been able to introduce some new product capabilities. I mean, the whole advent of APIs and technology and leveraging the core and all that, it just allowed us to move -- get in that left lane and move a lot faster. So the shoulder against the wheel on payments for us is like really good timing. And then similar to the middle market discussion, investment banking discussion, we've also added a lot of really good talent. So -- and look, people vote where they want to come work for companies that have growth dynamics, have the products and capabilities and where they can be really successful and where they can deploy in an environment that they feel comfortable with. So our ability to attract talent, there is also, I think, a good validation of the capabilities that we're building.

Yes. Your digital infrastructure for your consumer and corporate payments fleet is at where you need and want it to be.

We're always wanting to invest and improve. Again, back to the things that we look in terms of relevance. So on the consumer side, our net new client acquisition is really strong and it's really strong in the digital channel. So that says to us, again, clients vote in terms of -- by coming to your company and staying with your company and expanding. So we feel good about the capabilities that we have in that. Are there always areas that we want to expand? Are there particular enhancements that they want to make? That's always got to be part of the process. But our overall relevance in the digital side for both the consumer and the wholesale side, we feel really good about the investments that we've been making, and we're seeing that in the results.

Okay. Great. And let's talk a little bit about wealth, an area that should present some nice opportunities for you. Could you talk through what you're doing in wealth?

Yes, similarly to the other parts of the business we've been talking about on the wealth side, good investment in product capability. It's been a really strong business for us, but it's tied to our business. So we're not trying to create a separate wealth business. We're trying to create a wealth business that supports our consumer business, supports our investment in the premier part of what we're doing in the consumer business, the investments and the momentum that we're building on the premier side in our consumer channel and how that relates to the wealth channel, really, really good pipelines along with that. And then centered back on the franchise. So all the commercial wealth that sits in our business that's going to transition over the next 5 to 10 years, we want to be in a position to capture that. We don't have to go build a new wealth business. We don't have to go start a new RIA. It's all sitting -- those assets, those opportunities sit within our franchise. So our wealth business is very much a Truist inward business of capturing accentuated and growing the assets that sit within our company or sit within our clients.

And your client-facing, clearly, digital is one, face-to-face is one. Is there a utilization of the branch network in this or not?

The whole ecosystem is really, really important for us. I mean we have this concept called T3. And for us, it's that touch and technology equals trust. We think you actually have to have both of those working together synonymously. And we have great examples across the company of where we have this working together. Our Truist Assist, we have 3.5 million interactions with our clients digitally through Truist Assist. Our retention rate solution rate is really high. But we always give the client a chance to opt into having a human contact. And that's where that touch and technology sort of always work together. And I think that's the same thing with the branch network. Those pieces have to work together. Someone who comes to us digitally has got to feel like they're with the same company when they are doing with us physically. They might want to start a transaction with us digitally, show up in a branch to complete that transaction. They might want to start in a branch and then go to the digital channel. We want all of those to work synonymously. And I think for us, the branch network, we have a strong branch network that represents the complement of what we did through the merger. But I also think that's an area you're going to see us lean into a little bit more as we go forward as we think about it, what are the opportunities now from a go-forward basis.

And is this increasing branches in new locations?

I think in markets where we see particular opportunity in markets that have really good growth dynamics or markets where we're just underpenetrated relative to our branch network. And we've got sort of an equilibrium, a place where you think you have to sort of hit a certain market share to sort of be relevant from your branch network.

And then just thinking about consumer small business, which are the main users of branch. Any incremental products that you're thinking about for them. I know in the consumer lending space, you've got many unique product offerings. Can you walk us through what you're doing there?

Yes, I think the way to think about it, Betsy, is to think about those unique consumer products. What we try to think about is from the consumer backwards. So what does the consumer want versus what do we have to give to them? And when the consumer wants to put a pool in the backyard, to buy a jet ski, to buy a new car, they don't think about channels. They don't -- they just think about what's available to me, what's the best alternative to me with I have a really high credit score, I don't want to borrow an unsecured basis, I want to do that quickly. So one example of the things that you -- in your question is we've taken our LightStream products. Our LightStream product was a digital sort of only offering. And in our term, you referenced my tie, we turned it purple. So we brought it into our ecosystem. So we say we have this great product, it's great capability. It's really client friendly. The Net Promoter Scores are sort of off the charts in terms of the client experience. But why just offer it in that channel? So now we're bringing it into the physical channel as well. So someone who interacts with us physically and has a need that we can represent through this unsecured LightStream product, we now can do that sort of seamlessly. And that's how we take these consumer products, really respond to consumer needs and build them across all of our channels.

Okay. Great. So there's opportunity there, I would say.

There's a really significant opportunity.

Let's talk a little bit about the expenses and operating leverage, pulling it to that level. Can you talk a bit about how you found the cost saves to help offset some of the investments that we just discussed? And yes, let's start there.

Yes. Back in '23, we were coming out of the merger and we really had sort of an unsustainable sort of expense level. So that really forced us to have done the merger, brought things together. We took some opportunity to really significantly simplify our business. So we went into sort of an overall consumer business, overall wholesale business. Give those leaders, and we've just talked about a couple of examples, give those leaders a chance to look at the total portfolio. How do I create the most efficiency within this portfolio versus my slice or my business? And that created a lot of opportunity, a lot of momentum for us in terms of the cost saves. So we started that momentum in 2023. We took a lot of cost out sort of immediately, sort of that stair step down. But a lot of those had inertia and momentum with them. So they had longer lives in terms of the expense optimization. And what we're doing now is taking that expense optimization and just redeploying it, to redeploy it in the company. So all the things I talked about earlier in terms of payments infrastructure, hiring and talent and investment bank and all those pieces, all that's funded and fueled by this momentum of expense savings that we created sort of in 2023 and continue to enjoy the momentum for that. And they can be accelerated now by the advent of AI, the advent of other technologies that will help improve that going forward. So ours is sort of like save a dollar, invest a dollar kind of philosophy.

So that expense ratio over the past 5 years has been running in the 57% to 59% range. How do you see that trajecting? Where do you think that can go?

It's interesting because I don't -- we don't really think about it in terms of like efficiency ratio. I think about it, but we have a top -- whatever it is, quartile efficiency ratio. So I think we're an efficient company. Now we think about it in terms of operating leverage. So how do we create the top side of that growth. So how do we create the revenue side, achieve the growth side and do that in a way that's effective from an operating leverage standpoint. So the mindset is a little bit shifted to we have an efficient company, let's create positive operating leverage, which has to be created from the growth part of that pulling in. Even the most efficient company that doesn't grow isn't really highly shareholder accretive. So the philosophy is to really grow, grow an efficient platform and create operating leverage.

With the top line?

Yes. You got -- the top line has got to be the pull.

Right. And drivers of top line growth, I know we spoke about many of them. But when you think about biggest drivers for that top line growth over the medium term, what's top of the list for you?

Yes. I mean it's the areas that we talked about and the areas that we're going to focus in and the areas that we think are uniquely advantaged for Truist. Starting with our overall diversified platform, overall diversified business in really great markets. So we don't have a limit in terms of the areas and the ways that we can grow because the business is really diversified, and we're in really great markets, and we're expanding into markets that can deploy our efficiency and our effectiveness and those tools and skills and things that we built. The particular areas of focus that we've talked about is our premier side of our consumer business. We made a really conscious decision 12 months ago to say, okay, let's really focus in this area. It's 20% of our business, 80% of our deposits. So this is an area of real strength for us. And we've seen really good deployment against deposit generation, against loan generation, against investments, as I mentioned on the wealth side. So really accentuating that premier side, under-penetrated and really significant opportunity for us. And then we talked about the middle market side in terms of that growth potential. And then payments as sort of the other component of that, too. So we have this really good combination of asset growth and fee growth, all positive contributor to not only the top line growth, but the improved return profile. So this mid-teen return target, ROTCE target, all these things accretive to that target. So they have higher paybacks because they're concentrated on our existing businesses, higher ROA. So these are not long-term dilutive investments that we're going to make with long-term paybacks. These are things that have sort of immediate accretive paybacks to that journey.

And AI as it relates to this theme?

Yes. I mean I think AI is to every theme. So it's related to the efficiency theme. It's related to the growth theme. It's a significant area of opportunity. I mean, we've got 100-plus patents in AI areas that we've invested in. We created, I think, wisely and appropriately a really good risk framework. So I think we spent a lot of time creating the rails, so to speak, and now we're putting more things over the rails that can go at speed. So we've got a really good internal mechanism to approve AI projects for return profile, quite frankly, for purpose. Do they make a difference to the world? Are they important? We use the word augmented intelligence in our company. Words are really important to us. The way we refer to things are really important to us. So thinking about augmenting. So you augment the teammate experience and you're augmenting the client experience and augmenting the shareholder return. So AI, I think, is going to be really important for all of these components, and we have projects underway in virtually every element. Think about making our analysts more efficient in investment banking, big projects underway there. Think about our Truist Assist, which we talked about, so a way that our clients can interact with us on a digital basis. Then think about all the efficiencies in terms of fraud, think about efficiencies in the care center and all the things that we can deploy get. So we have AI deployed against every element of the discussion we've been having.

Okay, great. And we are beginning to see that show up in the efficiencies already?

I think you see it show up as we talked about before, it's showing up in the ways that we create efficiencies to invest. So it's one more of those, how do we create the dollar to invest the dollar and how do we use the tools and areas to do that. So you might not say, well, gosh, I haven't said, well, AI is going to contribute 72 basis points to our efficiency ratio. But I will say that AI will be a really significant contributor to our growth story and our return story of what we're doing. It might be hard to pull it out to that specificity, but it will be a really important part of what we're doing.

Super. As we -- as you've hit on the ROTCE target in the mid-teens, right? We've talked a lot about the numerator. Let's talk a little bit about the denominator. Your balance sheet clearly is in great shape from a capital perspective with the gain that you generated from the TIH sale and your CET1 of 11.3%, well above your minimums here. How does the backup in the long end of the curve impact you [ Q ] to date? Is there anything there we should be thinking about?

Yes. I mean, I think overall, we try to create sort of a neutral position relative to rates. So if we think about the back of long end of the curve, some of the positives and negatives of that. So the positives as we have a lot of fixed asset repricing. So 6 months ago, that really looks really strong. 2 months ago, didn't look as good. Today, it looks pretty strong again. So there's a lot of positive on that side. Probably the negative side of the long end, it just takes -- the deposit repricing takes a little bit longer, right? So that deployment, you can see sort of being over the long term. So there are positive and negatives and offset, and that's the beauty of having a really diversified business strategy and business model as you're trying to understand and take advantage of differences in where the curve goes.

Okay. And with this very robust capital positioning ahead of what looks like is going to be a reframing of regulation with [ Michelle Bauman ] in the seat. How are you thinking about ways to utilize this significant amount of capital that you have?

Yes. The significant amount of capital we have is number 1, 2 and 3 against Truist. I mean it's against the opportunity that we have with our existing client base, the markets that we're in, the ways to expand our existing client base, the ways to grow from a capital perspective. It's a great tool to attract talent, in fairness, we want to work for a company that's going to grow and can deploy capital against that. So that deployment is going to be against the opportunity that we have within our existing client base. I mean that's 1, 2 and 3. Then we're going to have -- we always have a great dividend. We've got a great dividend strategy. Quite frankly, we need to grow into our dividend percent. We're sort of a little high on the dividend side. And then in the interim, we'll use share buyback to be the toggle. We'll use share buyback to be the toggle, but that we won't be in a position having to raise that capital efficiently as you just noted, to deploy -- to not be able to deploy it against the growth opportunity that we see in the company. So that will be 1, 2 and 3.

And for the follow-up question to that is the time frame to be optimized than is a function of [indiscernible].

Yes, exactly. How much growth opportunity sits there? What is the macro opportunity. The great advantage we have is we can optimize and we can optimize against the growth dynamic. I think we'll be in a -- I think if you sort of put that scenario together, we'll be in a relative capital advantaged position for the medium term. But all that's also factored into the ROTCE targets. So that's just another toggle in terms of how we think about things.

Okay. And medium term means what to you in terms of number of years?

I don't know, 2 to 3 years, maybe in that kind of. But medium term can change. If markets sort of really, really take off or if we see a market environment that might be slower for a longer period of time.

So I understand it gives you significant optionality, and I do think investors are looking forward to you utilizing that optionality and...

And the best way to utilize it is the strategies that I've just talked about. Again, that are highly accretive. They have really good ROA impacts and deploy that capital in the most efficient way with highest paybacks, not only for our clients, but most importantly also here for our shareholders.

Well, with that, Bill, thank you so much for joining us this morning.

Thanks.1