Truist Financial (NYSE:) Corporation reported stronger-than-expected earnings for Q3 2024, surpassing analysts’ forecasts with an EPS of $0.91 against a forecast of $0.88. The company’s revenue also exceeded expectations, reaching $5.11 billion compared to the anticipated $5.04 billion. Following the earnings announcement, Truist’s stock climbed in pre-market trading, reflecting investor optimism.
Key Takeaways
- Truist Financial’s Q3 EPS of $0.91 exceeded the forecast of $0.88.
- Revenue reached $5.11 billion, surpassing the expected $5.04 billion.
- Stock price increased by 2.96% in pre-market trading.
- Strong performance in investment banking with a 79% YoY revenue increase.
- Continued focus on digital growth and infrastructure investment.
Company Performance
Truist Financial demonstrated robust performance in Q3 2024, driven by significant gains in its investment banking division, which saw a 79% year-over-year increase in revenue. The company also experienced growth in digital transactions and mobile app usage, indicating successful digital transformation efforts. Despite muted overall deposit growth, Truist maintained a stable CET1 capital ratio of 11.6%, reflecting strong financial health.
Financial Highlights
- Revenue: $5.11 billion, up from the forecasted $5.04 billion.
- Earnings per share: $0.91, compared to the forecast of $0.88.
- Adjusted EPS: $0.97.
- GAAP net income: $1.3 billion ($0.99/share).
- Returned $1.2 billion to shareholders through dividends and stock repurchases.
Earnings vs. Forecast
Truist Financial’s EPS of $0.91 outperformed the forecast of $0.88, marking a positive surprise of approximately 3.4%. Revenue also exceeded expectations by $70 million, highlighting the company’s strong operational performance. This beat contrasts with previous quarters where results were more aligned with forecasts, suggesting improved strategic execution.
Market Reaction
In response to the earnings beat, Truist’s stock price rose by 2.96% in pre-market trading, reaching $46.31. This movement reflects positive investor sentiment, especially considering the stock’s recent close at $44.98. The increase positions the stock closer to its 52-week high of $49.06, indicating renewed market confidence.
Outlook & Guidance
Truist Financial remains optimistic about its future, targeting positive operating leverage in 2025. The company anticipates a 1.5% decrease in net interest income for Q4 and expects two 25 basis point Federal Funds rate cuts. The medium-term ROTCE target is set in the mid-teens, with continued emphasis on capital deployment and shareholder returns.
Executive Commentary
CEO Bill Rogers (NYSE:) emphasized the company’s commitment to growth and community impact, stating, “We’re dedicated to inspiring and building better lives and communities.” He also highlighted Truist’s strategic advantage, noting, “Our relative capital advantage is a differentiating factor.”
Q&A
During the earnings call, analysts inquired about Truist’s deposit beta expectations and interest rate sensitivity. The company clarified its strategy for capital allocation and share buybacks, emphasizing the expansion of existing client relationships and performance metrics.
Risks and Challenges
- Potential macroeconomic pressures, including interest rate fluctuations.
- Challenges in maintaining deposit growth amidst competitive market conditions.
- Cybersecurity threats as digital transactions continue to rise.
- Regulatory changes impacting the financial services sector.
- Market volatility affecting investment banking revenues.
Full transcript – Truist Financial Corp (TFC) Q3 2024:
Conference Operator: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Third Quarter 2024 Earnings Conference Call. Currently, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr.
Brad Milsack.
Brad Milsack, Investor Relations, Truist Financial: Thank you, Betsy, and good morning, everyone. Welcome to Truist’s Q3 2024 Earnings Call. With us today are our Chairman and CEO, Bill Rogers our CFO, Mike McGuire our Vice Chair and Chief Risk Officer, Clark Starnes as well as other members of Truist’s senior management team. During this morning’s call, they will discuss Truist’s 3rd quarter results, share their perspectives on current business conditions and provide an updated outlook for 2024. The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website at ir.
Truist.com. Our presentation today will include forward looking statements and certain non GAAP financial measures. Please review the disclosures on Slides 23 of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. With that, I will turn it over to Bill.
Bill Rogers, Chairman and CEO, Truist Financial: Thanks, Brad, and good morning, everyone, and thanks for joining our call today. Before we discuss the Q3’s results, I’d like to begin with purpose on Slide 4. As you all know, Truist is a purpose driven company. We’re dedicated to inspiring and building better lives and communities. It’s the foundation for everything we do and the belief in this mission has never been more important given the extraordinary start to the Q4 with 2 devastating hurricanes.
In the days since these storms cut a path to the Southeast, Truist humanitarian aid team and hundreds of teammate volunteers have been out and forced to help our communities. I’ve spent time in recent days with teammates in some of the hardest hit areas. These teammates are doing just incredible heroic work helping their neighbors, distributing critical supplies and making sure Truist facilities were open to serve our clients even as their own lives have been upended. In addition to contributions from the foundation, we’ve set up several sites where we’ve distributed supplies. We’ve also deployed mobile services for basic needs like showers and laundry facilities as well as mobile branches, ATMs and generators to serve clients in areas without power.
This recovery is going to take time, and we’re going to play a significant role in helping these communities recover and rebuild in in the days, weeks, months and even years to come, they can count on Truist. Okay, let’s turn to discussing our Q3 results on Slide 5. We’ve made demonstrable progress on our strategic priorities during the quarter. As I’m proud of the results our teammates delivered, which included solid underlying earnings, improved momentum and sound asset quality metrics. On a GAAP basis, we reported net income available to common shareholders of $1,300,000,000 or $0.99 a share.
Adjusted EPS was $0.97 per share, which excluded a few small discrete items that Mike will discuss later in the call. As you can see on the slide, our solid performance was defined by several key themes. First, we grew adjusted revenue 2.4 percent on a linked quarter basis due to another strong quarter of investment banking and trading income and a full quarter’s impact to the balance sheet repositioning we completed during the 2nd quarter. 2nd, our results show our continued expense discipline and focus on managing cost. As a result of these efforts, our efficiency ratio improved on both a linked and like quarter basis.
Adjusted expenses increased by less than 1% linked quarter and declined for the 3rd consecutive quarter on a year over year basis. Expenses are now projected to decline in 2024 compared to 2023, which is an improvement from our original commitment to keep expenses flat for the year. Non performing loans remained relatively stable, while net charge offs were better than our expectations. We did record a
: $25,000,000 loan loss provision during the quarter specifically related to Hurricane Helene, which Mike will discuss in more detail later. We also returned $1,200,000,000
Bill Rogers, Chairman and CEO, Truist Financial: worth of capital to our shareholders through our common dividend and repurchase of $500,000,000 worth of common stock as part of the $5,000,000,000 repurchase plan our Board approved in late July I mean late June, excuse me. We anticipate repurchasing another $500,000,000 of our common stock in the 4th quarter. Our CET1 capital ratio remained relatively stable leaving us well positioned to grow our balance sheet and to continue to return significant amount of capital to shareholders. Finally, we continue to actively pursue growth opportunities in our core consumer and small business and wholesale banking businesses. Although average loans declined during the quarter, I’m encouraged by the underlying momentum in terms of increased loan production, greater wallet share within certain businesses and the talent we’re attracting to our company, all while continuing to maintain our expense discipline and investing in important areas like technology and our risk infrastructure.
Maintaining this momentum and continuing execute against our strategic growth priorities will be key to reaching our mid teens medium term ROATCE target, which we also announced during the quarter. Before I hand the call over to Mike to discuss the quarterly results, I want to spend a little time reviewing the positive momentum we’re seeing within business segments and within our digital initiatives on Slide 6 and 7. In Consumer and Small Business Banking, I’m encouraged by the momentum as we experienced an increase in loan production key focus areas within our lending portfolio and we continue to acquire new clients and households through both digital and traditional channels. Average consumer loan balance remained relatively stable linked quarter as growth in other consumer, which includes our specialty consumer lending verticals was offset by lower residential mortgage and home equity loans. We did experience a 3% linked quarter increase in consumer loan production driven by non real estate lending, which drove period in indirect auto and other consumer balances each higher by 2% on a linked quarter basis.
Importantly, we’re not sacrificing our credit standards or pricing discipline to drive growth. Credit metrics remain relatively stable and new consumer loan production spreads are accretive to
: the
Bill Rogers, Chairman and CEO, Truist Financial: portfolio. Although overall deposit growth remains muted, we’re continuing to add new clients and households. We opened nearly 200,000 new digital loan and deposit accounts during the quarter, including over 75,000 new to bank clients through our digital channels, which represents a 35% increase over the Q3 of last year. Net new checking account growth was once again positive in the 3rd quarter as we grew 40,000 new consumer and business accounts bringing our total to 108,000 year to date. Not only are we adding new households, but primacy rates and client retention also continue to increase due to improvements to the client experience as we rolled out more than 130 enhancements to our digital experience during the quarter.
In wholesale, I’m encouraged by the underlying momentum in terms of improved production, increased wallet share within certain businesses and the talent we’re attracting to our company. During the quarter, we saw 1% growth in commercial deposits and a 4% increase in wholesale lending production, which was offset by lower line utilization and higher pay downs due in part to greater capital markets activity, which is an area where we have invested consistently. The 3rd quarter represents the strongest capital markets quarter we’ve reported since 2021 as investment banking revenues increased 79% year over year and 43% year to date. We experienced record quarterly performance in equity capital markets, investment grade issuance, public finance and asset securitization. The growth is tied to our focus on gaining greater mind share with our clients across our industry verticals, which has led to an increase in the number of lead roles across several product lines.
We’re continuing to invest in our wholesale platform as we’ve made several key new hires this quarter in commercial banking, corporate banking, investment banking, wealth and Payments and plan to add additional talent in the Q4 and beyond. These new teammates complement our great existing teams and have significant experience in many cases from larger institutions and are attracted to our results oriented culture. As I mentioned last quarter, we have a specific focus on further building out our middle market commercial lending segment, which represents one of the largest growth opportunities within our regional businesses. We’ll primarily focus on industries that support existing corporate investment banking coverage and expertise where we’ve gained significant share. We also continue to enhance our wholesale digital capabilities by improving the client experience.
During the quarter, we launched several significant enhancements to the Truist OneView platform, including the ability for clients to securely chat directly with treasury management specialists. Enhancing the client experience and growing digital capabilities are important parts of our strategy, which I’ll discuss in more detail on Slide 7. We continue to show strong and steady growth in our digital capabilities as client mobile app users grew 6% and digital transactions increased 15% compared to the Q3 of 2023. We continue to migrate clients towards self-service capabilities, primarily driven by strong growth in Zelle transactions, which are up 36% year over year. In addition to an increase in account openings, we’re also seeing an improvement in the funding of our digital account openings with balances up significantly over the Q3 of last year.
Our recently enhanced digital deposit application experience has helped drive a 49% increase mobile device applications, which now account for 72% of total digital applications. These improvements also drove a 5 100 basis point link quarter increase in the conversion rate on new digital applications, driving productivity and leading strong digital client satisfaction scores. We’re not only better serving and growing with our clients, but we’re also doing that more efficiently. So now let me turn it over to Mike to discuss the financial results and I’ll come back after that and close us out.
Mike McGuire, CFO, Truist Financial: Thank you, Bill, and good morning, everyone. As a high level summary, we reported 3rd quarter 2024 GAAP net income available to common shareholders of $1,300,000,000 or $0.99 per share. Our adjusted EPS was $0.97 per share, which included a $36,000,000 pre tax or $0.01 per share after tax increase to the gain on sale of Juris Insurance Holdings and a $16,000,000 pre tax or another $0.01 per share after tax reduction on the FDIC special assessment. Total (EPA:) revenue adjusted for the losses on the available for sale investment securities that were sold in the Q2 increased by 2.4% linked quarter due to a 2.2% increase in net interest income and 3.1% growth in non interest income driven primarily by growth in investment banking and trading revenue. Adjusted expenses increased to 0.9% linked quarter, but were down approximately 2.3% on a like quarter basis, reflecting lower personnel costs.
Moving on to capital, our CET1 ratio remained relatively stable linked quarter at 11.6% percent as current period earnings and a smaller balance sheet were offset by the payment of our common dividend and share repurchases completed during the quarter. From a credit perspective, net charge offs declined by 3 basis points on a linked quarter basis and our non performing loans remained relatively stable both on a like and linked quarter basis. Next (LON:), getting into additional detail, I’ll cover loans and leases on Slide 9. Average loans decreased $3,000,000,000 or 1% on a sequential basis, reflecting overall weaker commercial client demand and line utilization, partially offset by modest growth in consumer loans. Average commercial loans decreased by $3,200,000,000 or 1.7 percent, primarily due to a decline in C and I balances driven again by lower line utilization and at least in part by greater capital markets activity.
In our consumer portfolio, average loans remained relatively stable linked quarter as growth in indirect auto and service finance was offset with lower residential mortgage loans. As Phil mentioned, production improved in both consumer and wholesale lending, but pay downs and runoff in certain categories like commercial and residential real estate will likely result in continued pressure on an average balance basis in the Q4, likely similar to the rate of decline that we experienced in the Q3. Moving to deposit trends on Slide 10. Average deposits decreased 1% sequentially or $3,700,000,000 with approximately $1,700,000,000 of the decline due to lowered brokered deposits. Average non interest bearing deposits decreased 1.4% and represented 28% of total deposits, which is unchanged versus the Q2 of 2024.
The $1,700,000,000 decline in average brokered deposits reduced our total and interest bearing deposit costs by a basis point sequentially to 2.08% and 2.88% respectively. Overall, we expect deposit balances to remain relatively stable in the 4th quarter. Moving to net interest income and net interest margin on Slide 12. Taxable equivalent net interest income increased 2.2 percent linked quarter or $77,000,000 primarily due to the strategic balance sheet repositioning we completed during the 2nd quarter, a reduction in higher cost wholesale funding and the impact of 1 additional day in the Q3. These tailwinds were partially offset by the impact of additional received fixed interest rate swaps that became effective during the quarter and by lower commercial loan balances.
Reported net interest margin increased 10 basis points on a linked quarter basis to 3.12%, due primarily to the securities repositioning I just mentioned and a reduction in higher cost wholesale funding. Returning to non interest income on Slide 12. Adjusted non interest income increased $45,000,000 or 3.1 percent relative to the 2nd quarter. The linked quarter increase was primarily attributable to higher other income and higher investment banking and trading income, which improved $46,000,000 due to higher M and A, Equity Capital Markets and investment grade fees. Adjusted non interest income increased 11% on a light quarter basis due to higher investment banking and trading income and higher service charge on deposit income.
Next, I’ll cover non interest expense on Slide 13. GAAP expenses of $2,900,000,000 decreased $167,000,000 linked quarter primarily due to lower other expenses as the Q2 included a $150,000,000 charitable donation. Regulatory costs decreased by $34,000,000 partially due to a $16,000,000 reduction on the FDIC special assessment, which was recognized in 3Q 2024. Adjusted non interest expense increased 0.9% sequentially due to higher professional fees, other and marketing expense, partially offset by lower personnel expense. On a light quarter basis, adjusted expenses declined by $67,000,000 or 2.3 percent, reflecting lower personnel and other expenses.
Now moving to asset quality on Slide 14. Asset quality remained stable on both alike and linked quarter basis reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. During the quarter, our net charge off ratio decreased 3 basis points to 55 basis points due primarily to lower losses in our CRE portfolio. Our loan loss provision remained relatively stable, linked quarter and includes a $25,000,000 provision related to Hurricane Helene. The provision exceeded net charge offs for the 4th quarter, which along with lower loan balances resulted in a 3 basis point increase in our ALLL ratio to 1.60%.
Non performing loans as a percentage of total loans remained relatively stable for the 4th consecutive quarter, while total delinquencies were also flat on a linked quarter basis. Included in our appendix is updated data on our office portfolio, which is down $232,000,000 linked quarter to 1.5 percent of total loans. Our office reserve increased from 9.7% to 10.4% driven by continued expected stress in the office sector. Approximately 5.1% of our office portfolio is currently classified as non performing compared with 6.3% at June 30. Approximately 90% of these loan balances are paying in accordance with the original terms of the loan.
Notably, approximately 21% of our office portfolio is housed within our commercial community banking and wealth segments, where loan sizes tend to be more granular, guarantor support more prevalent and overall losses lower. We expect stress to remain in the office sector and believe that the size of our portfolio is manageable and well reserved, but our position is to be very proactive in identifying and resolving issues in this portfolio. Turning to capital on Slide 15. TURRA CET1 ratio remained relatively stable linked quarter at 11.6 percent as current period earnings were offset by the return of $1,200,000,000 in capital to shareholders via our common stock dividend and the repurchase of $500,000,000 of our shares. Our CET1 capital ratio including the impact of AOCI increased from 9.6% to 9.9%, reflecting a $1,600,000,000 linked quarter improvement in AOCI due to the decline in longer term interest rates experienced during the quarter.
Although we await the final proposal for the Basel III endgame rules, we believe that our current strong capital position gives us the unique ability to utilize our future earnings and AOCI accretion to fund balance sheet growth and return a significant amount of capital to our shareholders. I will now review our updated guidance on Slide 16. Looking into the Q4 of 2024, we expect revenue to decrease 1.5% from the Q3 of 2024 adjusted revenue of $5,100,000,000 We expect net interest income to decrease 1.5% in the 4th quarter, primarily driven by lower commercial loan balances and some pressure to our net interest margin due to the temporary lag in our deposit beta. Our net interest income outlook assumes 2 25 basis point reductions in the federal funds rate over the remainder of 2024, one cut in November and another cut in December. We expect non interest income to decline by 2% driven primarily by lower investment banking and trading revenue as the 3rd quarter performance was helped by some pull forward of capital markets activity from the 4th into the 3rd quarter.
Adjusted expenses of $2,800,000,000 in the 3rd quarter are expected to increase 4% in the 3rd quarter, driven by investments in areas such as talent, our digital platforms, marketing and risk infrastructure. For the full year 2024, consistent with our previous guidance, we expect revenues to be down 0.5% to down 1%, which reflects our updated outlook for the Q4. As Bill mentioned, we now expect full year 2024 adjusted expenses to be slightly lower than 2023 adjusted expenses versus our previous expectation for expenses to remain approximately flat. In terms of asset quality, we previously expected net charge offs of about 65 basis points for full year 2024. We would now expect net charge offs to be closer to 60 basis points in 2024.
As it relates to buybacks, similar to the Q3, we are targeting approximately $500,000,000 of share repurchases in the Q4. Finally, we expect our effective tax rate to approximate 17.5% or 20% on a taxable equivalent basis the Q4 of 2024. I will now hand it back to Bill for some final remarks.
Bill Rogers, Chairman and CEO, Truist Financial: Great. Thank you, Mike. So in conclusion, I’m really pleased with the progress we’ve made as a company this year and I’m confident that we’ve got tremendous momentum within our company with our clients and with our teammates as our value proposition has never been stronger. First, we’ve got an incredible franchise with leading 1st, we’ve got an incredible franchise with leading share in high growth markets. We’ve got highly motivated and energized teammates.
We have a fulsome set of specialized wholesale and consumer capabilities that our loyal clients value. Our relative capital advantage is a differentiating factor that gives us a unique ability to grow our core banking businesses by serving existing and new clients, invest in our infrastructure and return considerable amounts of capital to our shareholders in the form of dividends and share repurchases over the next several years. As we execute our strategic growth and capital management priorities, we see a significant opportunity to improve our profitability over the medium term. Our path to profitability improvement is multifaceted and a function of client and business growth, while maintaining our cost discipline. I can say that I’m encouraged that much of the profitability improvement potential we’re working towards is centered on further deepening of existing client relationships in verticals and product lines that already exist at Truist.
The good news is we see multiple paths and initiatives that with proper execution will result in improved performance, while we don’t have to experiment with new products or expand into new markets to achieve our goals. We plan to accomplish all of this while maintaining our expense discipline and focus on generating positive long term operating leverage, while also continue to invest in talent, technology and our infrastructure. Although it’s too early to provide specific earnings guidance for 2025 based on the current momentum, the confidence in our teams and our franchise, where we are in the planning cycle, we do expect to achieve positive operating leverage next year. Finally, we’ll never take for granted our strong track record on asset quality as we continue to focus on maintaining strong risk discipline and controls. I’m as optimistic as ever about Truist’s future, especially in light of the success I see every day inside our company.
I’d like to thank all of our teammates and all of our leaders for their incredible purposeful focus and productivity and moving our company forward. Again, thank you for your interest and investment in Truist. And with that, Brad, let me turn it back over to you for Q and A.
Brad Milsack, Investor Relations, Truist Financial: Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q and A session. As you do that, I’d like to ask the participants to please limit yourselves to one primary question and one follow-up in order that we may accommodate as many of you on the call today as possible.
Conference Operator: Thank you. We will now begin the question and answer session. The first question today comes from Scott Siefer with Piper Sandler. Please go ahead.
Scott Siefer, Analyst, Piper Sandler: Good morning, everyone. Thank you for taking the question. Mike, I was hoping you could please maybe unpack the Q4 margin guidance a bit more for overall NII. Certainly, I understand the ongoing pressure on loans, but I was hoping you might be able to sort of walk through thoughts on how quickly deposit betas might be able to catch up to help support or ideally enhance the margin and then just make some top level thoughts about the company’s overall rate sensitivity at this point?
Mike McGuire, CFO, Truist Financial: Yes. Good morning, Scott. Happy to do that. From a NIM perspective, maybe just to sort of start with the Q3 and give you the trend into the 4th and maybe even give you a sense for kind of where we go from there and I’ll link that to the beta. The bulk of the improvement that we saw in the Q3 was really driven by the repositioning.
So the 10 basis points from 302 to 312. As you look into the Q4, we mentioned the temporary beta lag. We do expect 2 cuts in the 4th. We did see some improvement in the 3rd. You’ll recall, we were better by a basis point on call it an average funds rate that was better by 7 basis points for the quarter.
So started at call it a 15% beta. Our outlook for the Q4 is that while we’ll accelerate significantly, call it into the mid maybe even high 30 percent from a beta perspective, that will still lag a touch relative to how quickly the assets are repricing. So we see some margin compression there, maybe it’s to the same tune as we guided NII, so call it up 1.5 percent or so of net interest margin down into that sort of low $305,000,000 $306,000,000 area. We would expect that to catch up very, very early probably in the Q1 of 2025 and would expect to see the margin stabilize I’d say in the Q1 and then begin to improve as we have further cuts as we get into 2025.
: All
Scott Siefer, Analyst, Piper Sandler: right. Perfect. That’s great color. Thank you. And then just wanted to ask separately, so you did the really large balance sheet repositioning earlier this year.
I’ve gotten the impression that, that was sort of volume plan there, but you have so much capital flexibility relative to so many banks out there. Would any thoughts on further opportunities to do so? Or is it sort of stand pat on that front?
Mike McGuire, CFO, Truist Financial: Yes. I mean, look, I think you’re right. We feel like we took a pretty big swing at this in May, have now fully realized at least the benefit into the run rate in the Q3. We do think that our capital position is an advantage. We’re trying to be patient, very focused on growing the business.
Bill’s talked a lot about the various initiatives in both of our business segments where we do think we’re going to have an opportunity to grow footings and leverage capital. Obviously, as that’s been a little slower to develop, we’re buying back shares at an elevated level. I think we would expect to continue buying back shares at an elevated level. I think the repositioning incrementally, I don’t think we want to ever put the tool back in the toolbox necessarily, but I think it’s a lower priority for us based on what else we see in front of us.
Scott Siefer, Analyst, Piper Sandler: Yes, got it. All right, thank you very much. Appreciate it.
Conference Operator: The next question comes from Betsy Graseck with Morgan Stanley (NYSE:). Please go ahead.
Betsy Graseck, Analyst, Morgan Stanley: Hi, good morning.
Bill Rogers, Chairman and CEO, Truist Financial: Good morning, Betsy.
Betsy Graseck, Analyst, Morgan Stanley: Bill, you mentioned with proper execution deliver on the goals here, the targets that you have. Could you help us understand what do you mean by proper execution? Is that just hitting the goals? Or is there a change in how you’re operating that delivers proper execution?
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I mean, Betsy, there’s a real strong focus on expanding our relationships with our existing clients. I’m really pleased with the momentum we’ve created in the execution. Coming out of the merger, there was a lot of diversion and a lot of focus on activities of getting clients converted and getting teammates on boarded and all those type of things. And that’s just way behind us.
And now the team is really focused on executing against our priorities. We’ve got a really strong focus and clarity about what we want to accomplish. So when I say proper execution, maybe I should better said continuation of the execution momentum that we’ve started and you see some of that in quarter. You see increase in primacy rates, you see that continuation of net new. So all these things that are demonstrable evidence of the fact that we’re continuing to expand and grow our relationships with our clients.
So proper probably ought to be continuation and improved momentum against existing execution.
Betsy Graseck, Analyst, Morgan Stanley: Okay. And then as we’re thinking about the positive operating leverage into 2025, how much of that is being driven by deposit beta lags catching up here with Fed funds? I mean, is that the major driver of how we’re thinking about operating leverage as we roll into 2025?
Bill Rogers, Chairman and CEO, Truist Financial: Well, you’ve got all the factors that come into it. So, first, the momentum in the business that we have. So, take Investment Banking, let’s use that as one example. The momentum we have in this quarter, continuing that type of momentum into next year as an example. The loan growth activity is going to I think we’re confident it’s going to return.
We saw production increases this quarter, particularly on the consumer side. We saw loan production up around 3%. We saw real increases in the areas that we can lean into, think about the things you know about like service finance at Sheffield. And so we saw really good momentum there, increase in production on the wholesale side, but the utilization was the lowest this quarter it’s been in the last 5 quarters. So but we expect to see some of that return.
So we’ve got some loan dependencies. We’ve got some executional dependencies, some fee dependencies. And then as you mentioned, the deposit beta. And I’m really pleased with the team. I mean, Mike and team have provided really great leadership working really closely with Christa and Dante on the businesses to really be on top of where we are from deposit betas.
And Mike indicated we’ve already had a little bit of movement, expect a little bit of lag, but sort of see that transitioning in the Q1 of next year and then continuing from there. And then the final factor is the expense side. So the other side of that is controlling expenses. And hopefully, we’re giving good evidence of the fact that we’ve got a good handle on our expenses. We’re going to be down this year versus last year.
And I think we’ve got a really good capacity to correlate our expense growth with our revenue growth opportunity. So it’s a lot of things, maybe it’s a long answer to a short question, but all of those things I think have the requisite amount of focus and attention and we don’t have a single dependency. We’re going to manage them all really tightly and really well with a focus on achieving that positive operating leverage.
Betsy Graseck, Analyst, Morgan Stanley: Thanks so much.
Conference Operator: The next question comes from Erika Najarian with UBS. Please go ahead.
Erika Najarian, Analyst, UBS: Hi, good morning.
Brad Milsack, Investor Relations, Truist Financial: Good morning.
Erika Najarian, Analyst, UBS: Good morning. My first question is a follow-up, Mike. You mentioned a little bit of guidance on the Q4. As we think about the trajectory from here and fully appreciate we’re not getting specific 25 color today. As we think about the structure of your asset side versus your liability side, should we assume that from that 305, 306 level that assets can start repricing faster than liabilities in 1Q, but then there’s a day count impact on NII that’s negative?
Or will the assets repricing faster than liabilities go come later. And to that end, you mentioned the swaps. If you could
Conference Operator: give us a little
Erika Najarian, Analyst, UBS: bit more color on the swaps, what the notional active is, what the weighted fixed received fixed rate is, so we can factor that into our modeling?
Mike McGuire, CFO, Truist Financial: Yes, sure. Good morning, Erica. As it relates to the I call it just maybe the NIM trajectory, I think you’ve got it right. Well, actually let me say this. So we do expect in the Q4 for the beta to accelerate, I mentioned, you’ll call it mid high-30s.
We would expect that to continue and essentially catch up in the Q1. So at that point, we would expect to actually have the balance sheet behaving a touch liability sensitive again after an asset sensitive Q4. And so really as we move deeper into 2025, again a lot of variables here, we would expect the net interest margin to begin to expand a touch. So that’s a good guide. And I think you mentioned day count, I’m glad you brought that up.
There are 2 fewer days in the Q1. So as you think about actual NII dollars, while we might see a more stable earning asset base in the first, we might see a more stable net interest margin, you might still feel a touch of pressure from a dollars of NII perspective. I think I got most of your questions 1A and 1B. On the swaps, let’s see, we did as you know well, we have 2 programs that we use to manage our rate position. We’ve got our receive fixed program which we primarily rely on to manage our NII sensitivity and risks and opportunities and we have our pay fixed program to manage our asset values, manage our capital volatility risk in the future AOCI etcetera.
We did have some activity in the positions during the quarter. We added about 15, give or take, dollars 1,000,000,000 of forward starting receivers during the Q3. That takes notional up into the call it $60,000,000 or so $1,000,000,000 area. We also added about $5,000,000,000 of pay fixed swaps. We added to the investment portfolio during the quarter as well.
So had some accompanied activity there. In terms of active versus sort of forward starting, we did have I mentioned in our NII results sort of description, we had a touch of a headwind in the 3rd versus the 2nd quarter based on about $12,000,000,000 of incremental received fixed swaps becoming active during the quarter. That was a manageable headwind. As we look at the Q4, we really don’t have much else coming on throughout the course of the year. We will have more active in 2025, but that’s going to come on frankly, who knows the curve could change.
But based on the curve that we see today, that’s going to come on and actually be less of a headwind each quarter into 2025. Our received fixed rate you asked Erica is around 3.40 on that notional.
Erika Najarian, Analyst, UBS: Got it. And my follow-up question, and thanks for all the detail is for Bill. Based on what Mike just said, you should have NII growth next year. If everything is supposed to come true that the market’s thinking in terms of capital market strength in 2025, you’ll benefit from that as you did this quarter. If the market is good volatile as it could be after an election and a change in administration, that could be good for your wealth management business as well.
So as we think about Truist on offense and fully appreciate that you’re aiming for positive operating leverage. Are you thinking about your expense base just really just more relative to that revenue potential revenue strength in 2025? In other words, should we think about Truist as Truist on offense rather than, oh, because of this and that, we have to think about managing expenses because of all the issues with the merger integration. So I wanted to get your thoughts there. And additionally, some longer term investors have asked me, why will Truist operate in the mid teens in terms of ROTCE if their 2 super regional peers are aiming to earn in the high teens or the mid to high teens?
And I suspect that might be a capital adjustment. I know that’s a compound question, but I wanted to get your thoughts on both. Thank you so much.
Bill Rogers, Chairman and CEO, Truist Financial: Yes. Thanks for the comprehensive questions. I think you characterized the first part of that question exactly right in the sense of that we are on offense. And you can feel it in our company, you can feel it in the results, you can see it in the things that we talked about in terms of this Q3 and you outlined many of those in terms of momentum. We think about the expense side and this is the concept of I talked about about our commitment to long term operating leverage is the expenses are correlate to that opportunity.
And I think today we’ve got the calibration correlated. I think as you noted it was sort of uncorrelated as we were coming out of the merger. And today I think we’ve got a really good handle on the capacity to invest and win and grow and be on offense and have those be correlated. Again, you saw good evidence of that in this quarter. So there isn’t a merger hangover or other activity related to the expenses we’ve been investing, we’re going to continue to invest and we see the results of that in our top line revenue growth and opportunity.
So again, higher correlated and commitment to have an efficient company. So we’re operating today at a really much stronger efficiency ratio. So we didn’t talk about that. So this commitment to have positive operating leverage on the platform of a really efficient company. So let’s put that in one category.
And then on the ROTC side, I think you highlighted sort of the starting point is a little bit different, right, because of the sale of the insurance business and the creation of a lot of capital. So we start sort of from a different framework. I think about it as the speed and increase in terms of return. So our speed of increase in return, I think is unparalleled. So where we start from our ability to deploy capital both in growing our business and returning capital to our shareholders, I think has us the capacity to grow our RRTC faster than anybody else.
And then once we get to that mid teens sort of level, then our business model starts to reflect more of what we talked about in the first part of my answer, then I think we sort of catapult from there. But the key is we have the most ability to grow our return over the medium term.
: Helpful. Hope that answers it. Yes.
Erika Najarian, Analyst, UBS: Yes. Perfect.
Conference Operator: The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
: Hey, good morning. I guess maybe just the first question and apologies if I missed it. I think you mentioned pace of buybacks relative to the $500,000,000 in this quarter. Should we is there room or are you thinking about increasing the pace of those buybacks in the near term if loan growth is muted or should we assume that that $500,000,000 is relatively locked in for the next several quarters?
Bill Rogers, Chairman and CEO, Truist Financial: Yes, this is Bill. So I think we ought to think about it as it’s going to stay at an elevated level for some period of time. We’ve been very clear that we see opportunities to grow our business. So we want to make sure that we’ve got ample capital to do that and invest in the growth. If we see that as being much longer than sort of our current view, we have the opportunity or to stay at elevated levels
: longer or to increase those elevated levels. But for now,
Bill Rogers, Chairman and CEO, Truist Financial: I think, and so we talked about the Q4 and how we would enter the 1st part of next year, we’re entering that with a lot of confidence and the ability to grow our business.
: Understood. And just on that, I think you responded slightly to Betsy’s question earlier. If you think from an outside standpoint, and you mentioned that Truist is now off like done with the overhang with the deal. Just remind us Bill, when we think about the momentum and growth, where across your businesses do you expect to grow market share? And do you feel like you’re at a point where the bank will stop leading market share to smaller or out of market competitors who’ve been aggressive in terms of hiring across the Southeast?
Thanks.
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I mean, let’s talk about market share in terms of all of our businesses. So starting with the Investment Banking side, we’ve increased market share consistently through this year in virtually every discipline. So on the margin increase share in every discipline. And then when I think about share, I think about the things that we talked about in terms of, for example, net new.
We’ve really had a really strong focus on net new growth. So when I think about share, it’s growing share with clients. So increasing the number of net new clients and that’s sort of an incredible hallmark. And then when I think about share, it’s primacy within our existing client base. So are we growing our primacy in terms of our share?
And this quarter particularly both on the wholesale side in terms of treasury penetration and on the consumer side in terms of product penetration, we grew primacy with all of our clients. So yes, we have a lot of new clients coming into our markets, I mean, a lot of new competitors coming into our markets because we have great markets. But our primacy and our net new and our capacity to serve our clients and grow in our share as we look at the important parts of share, I feel really, really comfortable with. And that’s going to continue. So that pace is granted started slower out of the merger, but now is at a really good pace and I expect that to continue.
Conference Operator: The next question comes from Mike Mayo with Wells Fargo (NYSE:). Please go ahead.
Mike Mayo, Analyst, Wells Fargo: Hi, good morning.
Bill Rogers, Chairman and CEO, Truist Financial: Hi, Mike.
Mike Mayo, Analyst, Wells Fargo: Bill, can we get more meat on the bones for the financial expectations in 25 beyond, such as the definition of long term when you talk about operating leverage in 2025? Are you talking about more than $1 Give some kind of level with the term medium term when you talk about returns, what year are you thinking? And the reason I ask is I’m trying to better understand the accountability of management to shareholders. And I’ve written about this, but in the Q3, you lowered the return targets from 2019 when it was low 20s to mid teens. At the same time, you granted a special extra leadership bonus award to some executive officers and that was on top of awards they already get, PSUs, RSUs, LTIP, annual incentive awards.
And for what looks like fixing a problem, that truest calls the asset liability management pre the current CFO. And then there’s the question about morale for those who didn’t get the award. I mean, 2 of the 5 named executive officers, I recognize, Bill, you did not get that award, but there’s others in the 24 member operating committee who I assume did not get that. So aside from the morale and reconciling pay with performance, I’m just looking at today’s slides and I don’t see the word shareholders when you say on the slide that says Mission, on the slide that says Y Truist. And you have taken some steps, you restructured the Board, the balance sheet, you reorder the company, you sold to TIH, you cut expenses, but still shareholders, the stocks underperformed is the bottom line.
Stocks underperformed over most time frames since you announced the merger. So again, that’s my big tee up. Can you give us more detail on financial expectations after the Q4 and the key metrics that you think should drive a higher stock price? Thanks.
Bill Rogers, Chairman and CEO, Truist Financial: Sure. Thanks, Mike. And thanks for acknowledging the efforts that have been underway. Let me first say as it relates to the deck, every slide is about shareholders. So I just want to be really, really clear about that.
Everything we do is about shareholders. So that is all in context. As it relates to the ROTCE specifically, I would say what we do we did is reset sort of post sale of TIH. So, it was appropriate to sort of reset the return post TIH because we generate a lot of capital and we change the construct of our business in terms of return. We created a significant amount of capital, so that actually lowers the return to create that capital.
But as we deploy that capital, we increase that return. And I think as I said earlier to an answer, I think our capacity to increase that return is we’re in the best position of anybody because we’ve got that capital and that capacity to deploy it quickly both in our business and as a return to our shareholders. So we raised it efficiently and I think we have a chance to deploy it and return it efficiently. In terms of the elements that are part of that return, hopefully those are many things that I’ve talked about and focus on things that are critical to expanding relationships with existing clients in markets and places where we already have committed capital and resources. So these are things that have higher returns and faster paybacks.
So if you think about our strategy, it’s not focused on these long term paybacks and going to markets and trying new things. This is about really executing against the opportunities that we have in our existing franchise and increasing that return faster with higher paybacks. When I talk about medium term, the definition of that is somewhere in that 3 year kind of range, but that also depends on sort of where the economy is and what we see in terms of growth and what we see in terms of rates. So that could go faster, that could go slower, but the key is we’ll have momentum against that. And again, I think you see that in this quarter.
I think you’ll continue to see that. We’ll use the capital as an answer to the earlier question. We’ll use that capital as a lever. So we can return that capital in many ways to the shareholders, all of which will increase returns, I think faster than others are capable of doing. I have tremendous confidence in our team.
Again, I think you see evidence of many of that. And then as it relates to the operating leverage, we just have to let us get into the year a little bit more. Let us sort of see where things are coming in terms of where rates are going and where we see asset growth. But that commitment to positive operating leverage is a continuous one. So I think we’ll make that transition next year as I said earlier, and then we’ll continue to improve on that transition year over year as the returns improve to the earlier part of my answer.
Mike Mayo, Analyst, Wells Fargo: And then just a follow-up to the incentives for management. I think you changed I cut off with the Page 67 of the proxy last night. That’s what you do for your bank analyst for a long time. And I’m just trying and I also saw the release that you had this quarter or then Q3. And it looks like there’s like 12 financial metrics and then 5 non financial metrics and there’s so many different metrics that driving compensation.
If you had to pick 1 or 2 key metrics that we on the outside can monitor and focus on that should drive shareholder value, what should they be?
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I mean, appreciate you diving into the proxy. I think as you dive into that proxy, you’ll see compensation based on performance. So I think you’ll see that actually quite clearly. So don’t assume that we don’t have that mentality at this company.
And I think the primary measures that we look at are ROTCE and growth in our business. So you have to have really good return and you have to have growth. So we’re looking at total book value per share plus dividends plus ROTCE. So total absolute growth and total relative return growth.
: All right. Thank you.
Bill Rogers, Chairman and CEO, Truist Financial: And I think those in fairness are the highest correlated to share price return.
Mike Mayo, Analyst, Wells Fargo: All right. Thank you.
Conference Operator: The next question comes from Matt O’Connor with Deutsche Bank (ETR:). Please go ahead.
Matt O’Connor, Analyst, Deutsche Bank: Good morning. In the prepared remarks, you guys mentioned about increasing in the 4th quarter investments related to risk infrastructure. I was just wondering if you could elaborate on what that is and the drivers of, I guess, why now?
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I mean, Matt, that’s a continuation of the investments that we have in the risk infrastructure. So, that’s everything you can think of in terms of how we build a more enduring, consistent infrastructure. So think about the investments in cyber, think about the investments in data, all the type things that go along with that go along with that investment. They’re bumpy by quarter, but they are increasing and part of our overall guidance.
And so in the Q4, we just had some specific items that were more unique to that quarter, but they’re also factored into the guidance that we’ve given on positive operating leverage for next year. We’re going to continue to invest in infrastructure. This isn’t a one time unusual thing. This is a continuous investment for a company our size with the responsibilities and the obligations we have to our clients, regulators and our shareholders.
Matt O’Connor, Analyst, Deutsche Bank: And I know when you combine the 2 companies, you guys made a lot of investments in, call it, the gut to the company, taking the best of both and creating some new platforms. Maybe just like give us a quick snapshot of like what is there still to do? Like is it catching up on something? Is it just kind of business as usual, staying up to date like all the other banks are doing?
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I think in terms of basically the risk infrastructure, I mean, we’ve seen the elevation of expectations of how we manage data. We’ve seen elevated expectations in AI and the investments that we want to make that. We’ve seen elevated expectations in terms of cyber. So they’re really more not things that were left out of the merger, but things that are just continuous improvement of what we want to do and be responsive to the opportunities and challenges that exist in our in Financial Services.
Matt O’Connor, Analyst, Deutsche Bank: Okay. Thank you.
Conference Operator: The next question comes from Gerard Cassidy with RBC. Please go ahead.
Brad Milsack, Investor Relations, Truist Financial0: Hi, Bill. Hi, Mike.
Bill Rogers, Chairman and CEO, Truist Financial: Hi, Gerard.
Mike Mayo, Analyst, Wells Fargo: Can you guys
Brad Milsack, Investor Relations, Truist Financial0: share with us, Bill in your prepared remarks and you talked about market share in response to a question, but were talking about wallet share, how in some of your businesses you’re gaining wallet share. Can you share with us how can we as outsiders measure that success growing that wallet share? And second, what are you doing to grow that wallet share that’s showing up that maybe you didn’t see 3 or 4 years ago?
Bill Rogers, Chairman and CEO, Truist Financial: Yes. I mean, the best way to see the wallet share gain is see it in the overall returns of our business. So, if you think about the return expectations and increasing ROTCE, think about that for us as increasing ROA. Think about that as the focus. So, we have assets deployed, we have resources deployed, and we increase the penetration.
This time we talked about checking primacy up 1%. We talked about treasury management, penetration of our commercial base up 1%. So hopefully we’re giving you that kind of information that’s consistent to demonstrate that primacy, but you primarily see it in the returns. So that’s the focus. I mean that’s the big way we drive returns for this business is improving our primacy with our clients.
Brad Milsack, Investor Relations, Truist Financial0: And following up on that primacy comment, Bill, how do you guys intersect or interlock your pursuit of the digital channel with Primacy? It seems like the industry you guys included, there’s the optimal kind of mixes having physical branches as well as the digital channel. Do most of the primacy relationships still come through the brick and mortar or are you seeing some success in building it through the digital channel?
Bill Rogers, Chairman and CEO, Truist Financial: Well, you’re really on it and the answer is both. We have this concept called T3. So this concept of that touch and technology equals trust. So what we want to do and the capability that we’ve built, for example, our clients in Truist Assist, so our digital clients can have a virtual assistant to sort of help them in their transactions. But what we believe is that they also have the opportunity to then transition to a human interaction with that.
So you’ve got to sort of supply both of those opportunities. When a client is interacting with us digitally and shows up in our branch, we want to be able to follow-up on that transaction and continue that process. So I think they’re actually both really important as part of the overall process. It never becomes more clear in something like we’ve experienced in the last few weeks in the storms. So those economies would go to cash during that particular time.
So our branches and our ATMs are the most important thing that those communities need at that time. They don’t have access to digital, Internet’s down, power’s down. So being able to toggle between both of those and making sure that we serve our clients in the way that they can be best be served. And that’s why I led with that in this particular commentary is just to show how important both of those things are because the goal is to create an enduring relationship with a community and with a client. And we do that by investing in the channels that are most important to them when they’re most important to them.
Brad Milsack, Investor Relations, Truist Financial0: Appreciate that. Thank you, Bill.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.
Brad Milsack, Investor Relations, Truist Financial: Okay. Thank you, Betsy. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day.
Betsy, you may now disconnect the call.
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