Truist Financial Corporation ($TFC)

All right. Up next, we have Truist, and we're delighted to have with us today Mike Maguire, CFO of Truist Financial. Mike, thanks so much for joining us.

Yes. Thank you so much for having us. .

All right. So let's start with the environment as we have in several sessions here. I think Bill recently noted that is continue to invest and pursue strategic opportunities despite the uncertainty in the environment. It looks like people are more immune to some of that uncertainty, pipelines are holding up well. Where are you seeing the strongest signs of that resilience across either the consumer or the corporate side.

Yes. Look, I mean I think Bill -- we're unchanged in that outlook since Bill, not that long ago, mentioned, the sort of shrugging off of some of what seemed to be quite a few macro risks out there. We're seeing continued strength in terms of confidence across our commercial and corporate banking business. As you know, I mean, investment banking markets and deal activity continue to remain quite robust. I was actually just out in Philadelphia a week or so ago with a lot of our commercial banking and wealth banking teams. And they seem to say the same. I don't think people have their heads in the sand either. I think there's some degree of caution that people are sort of incorporating into their day-to-day. But in terms of seeing expansionary activity and borrowing and investing, we do still see pretty strong levels of confidence. On the consumer side, I think that's broadly true, too. I mean I think if you dip a little deeper into the data, you do begin to see some small degrees of switching on the spending side, especially maybe in the lower income consumers perhaps feeling a touch more pressure from things like gasoline prices and inflation and the like. But even there, that tends to be more around some of the spend data and choices versus anything that we're seeing show up in terms of credit quality or otherwise.

Okay. So I think that's been a consistent theme so far. People are looking out cautiously, but you're not seeing anything...

Yes, I think that I think that's right.

All right. Perfect. So why don't we bring it a little bit more, [indiscernible], as we think about the broader trends shaping this quarter relative to the first quarter, what are you seeing this quarter?

Yes. Look, I mean, we're off to a -- I guess, not a start at this point in the quarter, but our outlook is unchanged, just to get that out of the way for the quarter and for the year. But we continue to see nice strength in our fee businesses, as we mentioned. We continue to be focused on a lot of the same opportunities and risks out there in the market. We've said coming into this year that our balance sheet growth ambitions are a little bit more modest this year than last year with a little bit more focus on quality, and that's playing through. So yes, look, we feel like things are on track, and I've been pretty vocal about our expectations for improving our ROTCE this year, next year to 14% and 15%. And see a really clear line of sight to both. .

So unchanged outlook for the quarter, unchanged outlook for the year.

That's right.

All right. Perfect. And on the loan growth side, you just spoke about a more disciplined approach to the balance sheet growth. Where are you seeing the most attractive opportunities today? And how is that mix evolving?

Yes. Look, we continue to lean in. Just to remind the audience, we said that we thought loans, total loans this year would grow 3% to 4%. And I think we're on track to achieve that. But that doesn't mean we're growing all loan categories 3% to 4%. So to your point, we are seeing really attractive opportunities. We still think in our C&I business with a focus obviously on total relationship profitability, where we see great opportunities and good demand still. And so we will grow our C&I portfolio faster than the 3% to 4%, especially in industries where we feel like we have insights that our clients most appreciate. And that's become broader based in terms of our corporate, middle market and investment banking platforms. On the consumer side, we're continuing to deemphasize some of the products that we've said have just a less attractive margin potential. So things like prime auto, mortgage, there's less demand in the first place, but still deemphasizing it a touch relative to some of the higher risk-adjusted margin portfolios like our Sheffield business, our Service Finance business, where we think we've got really good sort of defensibility, a good moat and really nice economics. And so we'll continue to grow Service Finance and Sheffield and aspects of our C&I portfolio and then hold constant or even in some cases, shrink some of the other consumer lending portfolios to get you to that aggregate sort of 3% to 4%. So again, just really a focus on profitability and quality. And the same thing goes on the funding side, which I'm sure we'll talk about as well.

Well, so let's dig right into the funding side then. Is your thinking about deposit growth and mix from here? Where are you seeing the most strength across both consumer and wholesale businesses?

We're seeing good strength across both businesses in terms of overall production. I'd say, and we mentioned this a little bit in April, where we're probably spending the most of our time and putting more attention is just around mix. We've said that improving the overall quality of our funding portfolio is an important initiative, not just this year, but as we pursue our 16% to 18% ROTCE journey. And so there's just been a little bit more rotation out of DDA into more either interest checking or higher beta products. And that's okay. That's not necessarily surprising given the higher for longer rate environment that we're in or even some of the competitive dynamics in our marketplace, but it's certainly an area where we're focused. But we're seeing good balances just a touch of unfavorability around mix, at least relative to where we would have thought we would have been back in January. And we took that into consideration in April when we reported and provided our outlook for the year.

So that's a comment has changed since January to April, but not since April?

Yes, not since April.

Got it. All right. Perfect. And then as we talk about competition, just given your markets, right, they are the most attractive markets, they're the fastest-growing markets in the country, but also where you see the most competition. So what are you seeing in your geographies today in terms of deposit competition long competition?

I think it's -- do you say loan as well -- or just period, I'll hit it all. I mean you sort of set it up just right. I mean, we do think that there are a lot of new entrants to the market. That's not a new phenomenon, by the way, one that's perhaps be getting a little bit more attention -- so it's not a new dynamic for us, but it's one that is true nonetheless. And I think on the deposit side, maybe starting first for us. It's different to be the incumbent and one of the leaders in the market as you think about pricing strategy. And how you go to market. And so it's very important to us to be conscious of our back book and defending our overall franchise, but also to be sufficiently agile in terms of making sure that we protect relationships that have -- that are profitable, long-term clients that have great prospects. So we feel like we have the right process and rigor around that process. to continue to compete effectively. But yes, there are a lot of folks that are coming in with no back book and only front book where you're seeing higher rates, but we're managing that. And then I think on the loan side, we we're very focused on where we want to win, and we feel like we have been and will continue to be very successful in winning those spots where we're choosing. So we'll see. Maybe we'll see a slightly different rate environment that will change the sort of overall rate awareness on the funding side. But for now, it's really not very different than even last year where you had higher rates, we've talked about this in one of our meetings earlier. You would expect all things equal with rates a little bit lower now versus, call it, a year ago, that you'd have a slower rotation or rate awareness, but we really haven't seen that abate. And so maybe some of that's competitive dynamics or maybe we just haven't quite hit that threshold to where we're starting to see a little bit of relief there.

And anything you're seeing on the -- in terms of spread compression anywhere?

Spreads have been sort of tight and bouncing along the bottom here. We saw -- it's tough, 1 month or 2 doesn't necessarily tell the story and you get some mix and issues that can change that. But if you look more macro and look at credit markets, spreads are extremely tight. So I think we did have an expectation coming into this year, given where we were in historic context that you'd see some spread widening. That hasn't necessarily played itself out yet, but perhaps could create some upside for us for this year and next year.

So let's dig in a little bit on net interest income and the rate environment has changed since April as well. You've had the belly of the curve move higher. Can you talk about as you wrap up loan spreads, deposit competition, the rate environment, how you're thinking about NII and the potential for NII upside over time?

Sure. Yes. I mean I think if you think about sort of the components for us of some improvement to our margin and NII trajectory, in general, you've got a couple of factors. One, we do expect to continue to drive some, again, incrementally even higher quality, albeit modest growth on the balance sheet. So that should be a contributor to some NII improvement as well as margin. We do still have the benefits of fixed rate asset repricing. So our fixed rate loans, primarily on the consumer side as well as our securities portfolio continues to roll up the curve, which adds some assistance as well. And then again, the quality of the deposit portfolio and funding, I think, is also an important contributor for us, not just necessarily this year, but in '26 -- or pardon me, '27 and beyond improving our overall funding mix. So as it relates to the second half of this year, we're always a second half heavier [ shop ], like we've got the same phenomenon that the rest of the industry has around just day count, but also we have some nice seasonality in the fourth quarter around public funds and funding mix that should help the margin and NII in the fourth. But we do expect to see sort of incremental margin expansion throughout the rest of the year and that NII trajectory that's consistent with the outlook that we expressed back in April.

And I think you've also noted the 3 teens net interest margin over time. So as you think about the thought to that, I think you outlined some of the factors that's going...

Same components, right? I mean again, and perhaps, a, the credit spreads component of that is sort of perhaps unknown, but we are seeing progress in terms of quality on the funding side. We know that the actions that we've taken around quality on the asset side are there, and of course, just the structural underearning that's happening on the balance sheet that will come back into our results should get us there.

And maybe to wrap up the conversation around this longer-term trajectory of NII and NIM. There's been this growing discussion around AI-driven cash optimization for the industry overall. How are you thinking about that in terms of, I guess, risk to deposit cost, risk to deposit growth in the longer term?

Yes, it will be interesting. I mean, we're not seeing -- and obviously, this is very early days and it's more of a sort of conceptual risk than it is an actual risk today. I think one consideration is if you think about the -- of the deposits that you'd probably be thinking about as being most at risk, which would be the retail side, I'm not sure that the demand necessarily is there for sort of a transition into whether it be a stable coin or whether it be sort of cash sorting sort of new technologies that might interrupt these clients. And if you look at our consumer business, as an example, I think the median balance across our consumer deposit portfolio is like $1,500. So we're talking about operational sort of day-to-day primary banking accounts, not necessarily sort of rate seeking, reward-seeking type stuff. I could be wrong, we'll see. But as we sit here today, we're not really seeing a lot of short-term risk on the horizon. On the wholesale side, to the extent that, again, I think you asked really more along the lines of AI and sorting, but if you sort of move into some of the other threats like or that are being discussed, like a stablecoin, I think you've got already a portfolio of deposits that is pretty rate aware in high beta products. And so to the extent that, that moves into a coin, which just moves that cash to yet another, call it, wholesale client, I think we're probably less concerned about that risk. It's really the retail side that we think would be the area where we'd be focused and then also probably the area that just based on its characteristics or maybe less likely to be at risk.

Because your point is on the wholesale side, these deposits are already...

They're already rate seeking, high beta products.

Yes. Right. Got it. And then people talk about, I guess, noninterest-bearing deposits on the wholesale side as well and those being at risk. But those are also soft dollar payment...

Super operational Yes, absolutely right. .

So operational, they're soft dollar payments as well for the services that they get. All right. Perfect. So then let's put it over to the fees. Investment banking has been a standout performer. It's a really strong first quarter as well. What do you see as the key drivers of that performance? And how sustainable is that on time?

It's been a pretty consistent performer for us. As you know, I mean, we've consistently invested in our, I'll call it, broadly corporate investment banking franchise, our trading capabilities as well. And so it's been a story of sort of continuous improvement. So whether that's the build-out of the product platform, the depth and the investment and the capabilities of the products making -- there is a point in our history where we had gaps in products. We believe we've closed most of those gaps and really do present a full service offering at this point. And so building out the industry teams, we're an industry-driven firm, like a lot of the more successful full-service investment banking firm. So just a continuous improvement and addition of talent has driven really strong results for us, whether it be -- which has translated to sort of high single, low double-digit growth year-over-year for -- on a per consistent basis, which we would expect to continue. But it's things like doing each year, slightly larger transactions each year, gaining a more prominent role in syndicate structures and each year gaining slightly better economics on average, so slightly larger fee per transaction. So all those, as you think about like kind of health indicators in a business like that have sort of been improving. And that's not something we take for granted. And so we'll continue to invest in that business to continue to drive it forward. And you're right, in the first quarter, I think, for us was, if not our highest it was one of our top 2 or 3 quarters ever in that business. And hopefully, that will continue to break records in the years ahead as we continue to grow it. And the backdrop right now is quite constructive as you know.

And your point is as you've built up these industry teams, you're already seeing the benefits of some of those larger transactions, [ IP ] transactions come through and there's more room to go...

It's been a better quality game, and we've more fully serve these clients, A good example is we've more recently and continued to invest in our FX platform. A couple of years ago, we made some investments in our electronic trading platform. Every once in a while, like a lot of the successful firms, like we're not just looking at health care or financial services. We're really trying to create even more sort of depth and narrow focus in these practices. And as they sort of season and have good continuity, those practices just build momentum and are contributing to the results that we've enjoyed.

And another stat that you've mentioned before is where you have new commercial client acquisition, about 60% of the relationships come with the treasury management mandate, for instance. So as we look out into the other fee businesses and the integrated relationship-based model, where are you seeing the most opportunities there?

Well, certainly, treasury is one. I mean that's a place where we have sort of been pretty vocal that we feel like we've under-earned as a firm and even our two predecessor firms, there was a journey that we had to undertake in treasury. We had technical debt in terms of our platform. We've remediated that. We needed to place greater importance in the minds of our bankers from a sales culture perspective, on the treasury product as well. And we feel like we've done all the right things there, too. So we have a huge opportunity that we believe, in our back book, so our current installed base, where we are underpenetrated relative to the industry on these like really profitable, highly recurring deposit gathering aligned products. And so that's a huge opportunity for us, that's a slower grind, right, because you've already got -- you've made the loan. You've been serving these clients in a certain way. And so that requires some work. We're seeing good progress there. A lot of the improvement in the pipelines we've seen are coming from the back book. But you said it on the front book that it's a little bit easier because that's where we're entering perhaps on your relationship, and we can be a little bit more clear around our expectations, that's another reason. It isn't that like the loans that we're making are necessarily higher quality, but the approach that we're taking in making the loans is a little bit higher quality. And Kristin Lesher, who runs our wholesale business; and Carrie Jasani, who's got corporate and commercial banking, they were very active last year on the front book in terms of growing C&I loans, and so it's funny -- a question we've gotten a few times today is, hey, you're only expecting to grow loans 3% to 4% this year. That maybe doesn't feel as fast as it could be. The answer is we grew footings quite a bit last year and we're growing again this year, but we're really working on making sure that we're following through on the profitability opportunity across that client set. So treasury is a huge opportunity for us. And again, that's been an investment in product and investment in people, a change in incentives, a change in expectations kind of across the board. So you'll see outsized growth there, I believe. And wealth is another example, right? That's a business for us that has historically been lower single-digit growth. We've struggled through some of the aftermath of the conversion with some talent attrition, our platform needed some work, we feel like we've made those investments in the platform. We feel like we've really sort of stabilized the workforce. We've got the advisers that we feel like we want to be here who want to run our offense, who want to work with our commercial and corporate investment banking teams to better serve some of those wholesale relationships. And we're in a mindset now that we're more growth oriented. So I think you're going to see us be more active in acquiring adviser teams that are a good fit for our platform. So if you think about investment banking, about treasury payments broadly and then wealth, we think we can grow all three of those businesses at a nice clip, which will be a real contributor to some of the profitability improvement that we expect, just given a lot of that stuff is either pretty low -- has low capital intensivity like wealth, especially or in the case of investment banking or payments, there might be -- there's obviously a capital expectation, but a lot of those -- a lot of that capital is already working. So it's a matter of like more deeply serving those clients.

And you're looking at returns by customer by client, right?

100%, Yes.

So the fees drive those higher returns for each of those clients?

Correct.

All right. Perfect. So on the project finance side, I think you've highlighted the impact of project finance activity on your effective tax rate this year. Can you help clarify the client-driven nature of that business and how investors should think about that contribution over time?

Yes, sure. Yes. We changed our outlook in April around our effective tax rate for the quarter and for the year. And the driver of that was this project finance business. So I'd say in short strokes, we have a team of bankers who are deeply specialized when it comes to advising and creating financing solutions for high-quality developers of critical infrastructure projects. And some of those critical infrastructure projects, our finance through traditional debt capital market structures. So in those cases, it's more plain vanilla kind of corporate banking style business where we earn an arranger fee or underwriting economics on bonds, whatever it may be. But in a lot of instances as well, a better financing solution is -- requires sort of an investment in a partnership where we end up with the majority of the economics in tax equity structures. And the way that those economics work through our results is through a direct reduction in our tax liability. So in our case, that's been a business that's had a lot of momentum here in the last few months and the last couple of quarters. And so even really, you think back since January, we saw a few deals get larger, and then we've onboarded a few deals that were going to impact our tax rate. And so we felt like it was important to let investors know. I think the takeaways there are like this is good business, right? This isn't like the typical discretes that you see around like, hey, this is a change from a former audit that sort of has been sort of finalized. This is a team of bankers out calling on clients, providing really strategic advice in a lot of cases, also driving deposits and treasury management, et cetera, that's highly accretive to our earnings and EPS and ROTC and so on and so forth. So we probably went a little bit further in April to let people know that this is, in fact, high-quality business that's going to come through on the bottom line.

Got it. All right. Perfect. Let's pivot over to expenses. So I think you've spoken about an expense growth number of a little under 2% this year, and you just reiterated that. You're also investing in the business while you do that. So can you talk about what the right level of, I guess, operating leverage is for Truist over time as the businesses continue to scale?

Yes. For this year, based on our outlook, we're expecting a little over 200 basis points of positive operating leverage. Last year, it was about 100 basis points plus or minus. And look, I think that's generally pretty sustainable, right? I mean as we think about our investment planning and OpEx and the revenue opportunity that we have, we're mindful of the responsibility that we have to shareholders, to work as efficiently as we can, but we also have an obligation to go realize the opportunity in front of us. And so our investment planning process, I think, finds the right tension there. We have a lot of -- the last 3 years, if you think about expense management results that we put up. I think we were down a touch 3 years ago, up 1% last year. And this year, you said it will be higher by less than 2%, I think, 1.75% or so. And to do that, to deliver those results, but also to make the investments that drive the right amount of business value and growth, it just requires trade-offs. And so I think the culture around our firm has been to really work hard and people know this is how we're going to plan, right? They say, okay, we're going to set a target for OpEx growth next year based on the revenue opportunity. We know there's a long list of things that we want to do to drive long-term and short-term growth. And so people continuously are saying like what are the activities that we're undertaking that are adding the least amount of business value, where is the waste? And that's a whole new day now with some of the new tools and technology that are available, which we can get to maybe in a minute or 2. But that's the test. So each of our business leaders, not just at the segment but line of business level, are constantly saying like, if I can only grow whatever, let's say, 2%, I can actually grow 4% to 5%, if I can reduce 3% up first. And that's how we think about it. So like, take the 2% to 3% of things that are the least valuable, stop doing them, and then now let's gross that back up by 4% to 5%, and be very disciplined around what are the things that will truly add the most business value and be balanced around some of those need to be shorter term investing in the FX platform, that's a faster investment that can drive a faster return on investment versus we need to build more branches and expand our retail physical distribution. That's a slower payback and but ultimately very profitable. So finding the right balance in that. But we've been able to, I think, find that balance and still generate positive operating leverage. I think as I think about our journey to this year, 14% next year, 15% and then to be in that 16% to 18% ROTCE level, generating positive operating leverage is one of the assumptions that we have in sort of driving that improvement.

And AI is going to be a driver of some of that operating leverage is well down the line. So talk about how you're leveraging some of these tools and what productivity benefits you're seeing there?

It's widespread. And I'm sure like a lot of firms who have been asked that question. It's not an easy thing to necessarily estimate or quantify at this point. But I'll tell you a little bit about how we're experiencing it and planning for and incorporating the benefits of AI. I think initially, it started as a little bit more of like creating awareness, right? And so we had a lot of focus on the firm of a bottoms-up application by application, line of business by line of business. To the extent that people could lean in or we're seeing opportunities either vended or otherwise for how we could begin to sort of test and learn. And that's been great, and that's created a great awareness. So simple things like giving -- providing licenses to copilot to a lot of teammates or if the investment banking team showed up and said, hey, we found this really cool application that's AI-enabled that's allowing for deeper, faster research or analytics techniques or client prep work that would really change the game in terms of productivity. Or the call center is kind of saying, hey, here's a really cool tool that would not just summarize the call, but create next best actions and seek other similar examples and provide suggestions. So all those things, not particularly scalable, but creating good awareness and energy around the potential of AI. And that continues, right? And so we've got sort of a fast lane from an investment planning perspective, when good or great ideas are surface, we can move really, really quickly and mobilize. But I think more importantly is the work that we're doing kind of from the center out. So our Chief Technology and Data Officer, Steve Hagerman, very much a forward-thinking guy on AI in general and its potential very focused on investing and garnering the right investment in sort of the foundational kind of systems capabilities to not just sort of say, hey, here's a problem, here's a problem, let's find a solution that's AI-enabled. It's -- let's create the right data architecture, data hygiene systems and architecture to make sure that we're well positioned to at scale, engage with these models and solutions and software to go to solve bigger problems. So to me, that's all the opportunity. I can't tell you exactly how that's going to manifest itself from a dollars-and-cents basis, no. But it is something that we take into consideration in our sort of medium and long-term planning, which is there is going to be greater productivity on the front line, meaning like just sales enablement. There is going to be greater efficiency in the middle and the back office. And so that should hopefully unlock some capacity to grow -- invest even more heavily ideally in some of those higher business value investment projects, which we do have a backlog. We don't get to fund them all.

All right. Perfect. I'm going to turn to the room and just to start to see if there's any questions here. But as we spoke about the environment, you spoke about how you're not really seeing any major signs of stress. So as we think about credit overall, how are we thinking about the credit environment right now?

The credit environment for us has continued to be stable and relatively benign, right, at least in historic context. And so no updates today relative to our outlook for charge-offs this year, perhaps more anecdotally, we do, I mentioned, see a touch of stress, and we've seen the stress already in that sort of lower-income consumer inflation, gas, you name it, it's not employment, but maybe those prior 2 factors driving that. We see a touch of that in our Regional Acceptance auto business, which is a non-prime business. But that's been operating there for some time. But especially on the C&I side, very resilient. And I know there's a lot of focus in the fall and into the spring around the NDFI portfolios and before that, CRE and multifamily, but we really just are not seeing any signal from our portfolios from a monitoring perspective, that give us concern at this point. I do think people are mindful of the world events and rates, there's a lot of uncertainty in the world at the moment. But that today hasn't manifested itself and changes in delinquencies as an example or payment patterns.

Got it. Are there any questions here in the room? So maybe to end, let's talk about capital and returns. As we think about capital and we think about the changes in the Basel end game rules, I think you spoke about that being a 9% to 11% improvement in risk-weighted assets. So how are you thinking about the implications for your CET1 target and the capacity for continued share repurchases?

Yes. Well, so you're right. So as we -- our initial review of the proposal, at least, I know we don't have a final rule yet is that the [indiscernible] approach would be, call it, 11%, the enhanced standardized approach would be closer to 9%. We do believe we'll be operationally ready to the extent that ultimately, we do decide to opt into [indiscernible] as early as, call it, the beginning -- but we'll need to see a final rule and obviously, do the math and get us for what makes sense. I think the -- so what for us on the proposal at least is we will get that day RWA credit benefit. And if you look at our capital policy over the last, call it, year and as we've expressed for the rest of this year, we've essentially said, hey, we're going to maintain an elevated payout ratio, in our case, above 100% until we get to our target operating level, call it, 10%. And I think what this does is potentially expands the horizon for that elevated payout level. At some point, we will normalize to something in the 30% to 40% dividend payout ratio, call it, 30% to 40%, called buyback ratio and then 20% to 40%, just reinvestment in the business. But as we sit here today, we feel like we're in an excess capital position, and we feel like that will, if anything, be extended for some period based on Basel being finalized as proposed. Now of course, you have to incorporate the fact that AOCI will now be incorporated as well, but it's over a horizon and our approach to that will be to always be mindful of the fact that, that's phasing in over time. But obviously, as it phases in, it will also diminish in terms of its overall impact to our capital planning. We're not here today to express a change in our outlook for 10%. It is something that we evaluate continuously. We set an operating target based on our own perspective as a firm of what an appropriate minimum amount of capital is to continue to operate as a financial intermediary we take into consideration severe stress in how our portfolio, we believe, would perform. And then we take into consideration things like forecast in precision and other factors to sort of get us to, hey, here's sort of a reasonable limit framework that, in our case, our Board approves and then we set management level limits as well. So that's what gets you to that 10%. And those factors change over time. So could you see us operating with a slightly more leverage, possibly. But I think we want to see a final rule. I think we want to see what the overall economy had to offer over the next year or so. And give a sense for also how ratings agencies are thinking about RWAs as an example. It's not perfectly clear that they're going to adopt the same approach. So still some cards to turn before we revised that target if we revised it. And at this point, we're operating at a level that's so much in excess of that. Our focus will be to continue to follow through on buy back.

I was just going to say, with the rating agencies as well, I guess it's a little bit more of a wait-and-watch approach on what they're doing. Would TC to TA factor into how you're thinking about things?

Absolutely. Yes. We operate today in sort of the high 7s percent area. We've had a lot of questions from investors about whether [ TCE ], is there sort of a floor. We haven't expressed a public view on that. I'd be feel comfortable saying that a 7 handle for sure, would seem reasonable at this point. I mean, again, for a lot of the reasons factors that I articulated a moment ago, things can change, but we could definitely see ourselves operating below where we are operating today, and I think that's incorporated into that even outlook. If you think about RWA density going forward, but there is some level at which that becomes a constraint.

All right. So to conclude, maybe round out the conversation for us in terms of returns. You have a 15% ROTCE target for '27, 16% to 18% longer-term opportunity? What are the building blocks that get us to that longer-term target?

Yes. I think at the highest level, maybe hit 3 buckets, and I think we've hit on all 3 of those in terms of the path. And we believe, by the way, that our ROTCE improvement opportunity is as good as any firm out there in terms of the improvement that we think we can deliver. But the first is productivity. We talked about quality growth. We talked about quality funding, talked about the fee businesses, more discipline in pricing, you name it. Those are all factors that are going to drive the numerator and our ROA higher. We talked about efficiency and a commitment to cost management. We believe that we'll be a more efficient company over the next 2 to 3 to 4 years. You think about like our efficiency ratio as an example, aided by higher revenue lift also by good cost management, and then some of the balance sheet optimization that we talked about, RWA density and improvement and then operating the company with a little bit more leverage. Those 3 factors are going to be what drive us from where we are today to 14% to 15%, and they're going to continue to drive us into that 16% to 18% corridor over the medium term.

All right. Perfect, so that's very clear. Mike, thanks so much for joining us.

You got it. Thank you.