I think we'll go ahead and get started. So next up we have Mike Maguire, CFO of Truist Financial. I mean, I get Mike's been a busy man over the last couple of days, the last week, so we appreciate you joining us and taking the time.
Yeah, my pleasure. I know that, you know, it was about a year ago today that we had to miss this conference for a similar reason, so glad to be here. Thanks for having us.
Yep, exactly. Thanks for making it. So, I guess we had a meticulously planned list of questions for you, to rip that out last night.
Yeah.
So, let's just talk about maybe to kick it off around the transaction that you announced, with not surprising. I think you talked about TIH and the insurance business and exiting that at some point. Maybe just very quickly, for those everyone that's not in the weeds, remind us the strategic rationale for monetizing TIH, why that structure no longer made sense.
Yeah, no, certainly. You know, it's funny, if you think about the minority stake transaction that we announced actually last February, so before a lot of the turmoil that impacted the industry, you'll recall that we headlined that transaction really, on a number of points. It was initially that, you know, as we thought about, you know, the opportunity to continue to support and grow the insurance business, given its capital demands, given the consolidation that was happening in the industry, you know, you know, creating more flexibility to support that business over time was important to us, as well the opportunity to, you know, at the time, modestly improve our capital position, as well.
And then, you know, just as we thought about, you know, you know, moving into the, you know, March, April sort of time period, you know, I think a lot of change occurred in the industry. Just think about the capital regime, the rules that I recognize are still, are still in flux but seem relatively certain, at least along some lines, that, you know, for us, as we, you know, experienced 2023 and thought about 2024 and beyond, and the flexibility and the opportunity that we have at Truist and our core franchise was to move from a position, to a position of relative, relative financial strength, you know, became more paramount in our minds.
So if you think about how Bill talked about the transaction yesterday morning, you know, it was really, you know, initially, you know, improving and strengthening our financial conditioning broadly, but as you think about going forward, you know, having the capacity to, you know, not just have a stronger balance sheet in terms of capital and liquidity and thinking about the duration of our balance sheet, but also having the opportunity to support the growth of our core banking franchise. That really is the primary thrust of the strategic rationale for the transaction. And if you think about, you know, where were we yesterday versus where are we today, again, you know, we and we talked yesterday about a, you know, an illustrative balance sheet repositioning. We talked about capacity for things like stock buybacks.
We talked about capacity to grow in an environment where all things equal. There's a lot less, you know, supply in the market from financial services providers. So we just think all those factors, you know, are now, you know, options and good opportunities for the company moving forward as a result of this transaction.
Got it. Thanks for that. I guess as, like, we've spent time just talking to investors, I think there were three things that investors were looking for if and when you announced this transaction. One was tangible book growth, CET1 capital build, and earnings accretion.
Right.
Just talk to us in terms of when you think about the use of proceeds, and I know, Bill, and you talked about it during the call, but remind us what the sort of priorities are once this sale is complete.
Yeah, no, you're right. I mean, just to, you know, from a you know, whether you look at the spot capital rules or an estimate of where the Basel III rules will be, you know, this is a transformational sort of capital event for the company, increasing our CET1 ratio from, you know, today, 10.1%, up to, call it, 12.5%, just, you know, you know, if you account for the sale. And then, you know, it's a touch even more accretive to our CET1 if you think about it from a fully phased-in perspective. And I think also the tangible value per share accretion of, you know, 33% is, you know, I think notable. You know, as we think about the proceeds, again, it's a very balanced approach. We've been having some conversations throughout the course of yesterday and today on this topic as well.
You know, our objectives as we move forward are, again, one, to make sure that this capital advantage, at least on a relative basis that we've seized, we maintain, right? And that's on a spot basis. That's on a phased-in basis. You know, as we think about our liquidity profile, that's incredibly important for a company like ours too. We think expectations for liquidity management also, you know, continue to heighten. And so, you know, as we think about, you know, flexibility and liquidity, this transaction affords us, you know, progress there as well. You know, we think about, you know, just the duration of our balance sheet as well. We've thought about, you know, how we're positioned, again, from a flexibility perspective and long-term rate management perspective. You know, this transaction and a possible reposition, we think, affords us an opportunity to improve our profile there as well.
But I think most importantly, you know, as we think about the opportunity for Truist and our core markets and what will now be our wholesale and consumer segments going forward, you know, having that capacity to lean into relationships, better serve, more fully serve clients, invite new clients to Truist, we think, is going to be a real competitive advantage, you know, having access to that capital.
Got it. So maybe, I guess, if you could double-click on some of these things, you outlined about $22 billion or $23 billion in bonds that could be just talk to us in terms of the thought process and how quickly you could move on that. And then how are you thinking about just overall balance sheet positioning in what's still an uncertain rate backdrop here?
Yeah. Well, the 2023, and hopefully this came across in our presentation yesterday and in some of the questions, but, you know, we wanted to give an example and, frankly, more than anything, provide a framework for how we, you know, would think about sizing or repositioning. And, you know, among our objectives, and there are multiple, and I hit on a few of them, but among them would be to replace the lost earnings from TIH. And so just the walk, if you'll recall, one of the slides in our deck yesterday sort of showed the overall, on a full-year impact, that we think TIH would account for about $0.45 per share of EPS in 2024 for Truist.
And so if you took just merely the proceeds, you know, which we gave you a walk to in the appendix of the deck, a little north of $10 billion, reinvested it, call it a forward cash curve of 4.5%, you sort of offset about $0.25 of that $0.45. And so that leaves the $0.20. And so one of our, you know, again, objectives in a possible transaction moving forward would be to replace that full $0.20. And so that's the magic to the 2023. It's simply, you know, based, again, on some underlying assumptions, how much market value security reinvestment might you need to replace the $0.20. And then that's how we sized it.
Got it. And the way you started, and it assumed this happened on January 1st, so there was a full-year effect as opposed to the closing of the transaction's going to mean 2Q . So there's going to be...
Yeah, it was a 1:1 analysis, full year, but we're using, you know, a forward view on the rate assumptions. So on the cash, it's, you know, a June to June. And as we thought about securities that we might, again, you know, might purchase, it was based on a forward view.
Got it. And the other question I got was just in terms of the securities that you identified or have identified in terms. Are these the sort of the longest-duration securities within the book? Just talk to us around why those and what's the complexion of the new securities you might buy.
Yeah. I mean, I think we were intentionally a little roughed out on the math. You know, we haven't sort of selected specific securities per se. But, you know, in an illustrative example, around 2023, yeah, I think we'd look for securities that were heavier from a capital perspective, that, you know, maybe didn't have as favorable liquidity treatment, you know, lower coupon, longer-duration securities was how we thought about it and what was, is what we assumed in the example that we gave yesterday.
From an ALCO perspective, Mike, is the goal you come out of all this with a relatively neutral balance sheet, or what's going to be or is the balance sheet going to become liability-sensitive?
Yeah. Well, you know, adding the cash proceeds from the sale and then reinvesting a portion, you know, we estimated roughly half of the any bond proceeds in cash, you know, does add some asset sensitivity to the balance sheet. One of the assumptions that I maybe didn't mention a moment ago when we were talking about some of the underlying assumptions is that we, you know, would, at the time, you know, look at the NII positioning. And, you know, we've been pretty consistent about this, you know, target a relatively neutral position. So in that case, you know, very likely to add some receive fixed swaps, you know, to manage that asset sensitivity and add a touch more liability sensitivity, even it out.
Got it. And I guess so there were a few other things that emerged in terms of what Truist can do coming out of this. I think Bill was fairly clear, M&A is not a big priority at this point. It's an option, but would love to hear in terms of how we should think about it.
Yeah, I think Bill was pretty clear, right? I mean, I think, you know, one of the mantras at Truist right now, and I think this was true, certainly the second half of last year and coming into this year, is, like, just a, you know, a fanatical focus on execution and winning with what we have. And so the whole company has really done a great job of activating and focusing on, you know, and that goes on both sides of the equation, right? That's on the production side and serving clients, but also on the cost management side. And so very much an execution mindset. And I think that's, you know, and that's appropriate, you know, at this moment in time for Truist.
I mean, I think from an M&A perspective, you know, Bill, you know, we've always said we sort of have a hierarchy of priorities when it comes to capital, you know, first and foremost, you know, investing in our clients and our core business. And second, protecting our, you know, our common stock dividend. Typically, third, we talk about, you know, smart M&A. And then last would be buybacks. You know, again, for where we are and where we're focused right now, I think M&A is just less of a priority. I think we're unavoidably, like, better positioned.
I mean, if you think about, like, the company, you know, throughout the course of 2023 and analyzing our relative capital position, you know, especially, you know, with all the analysis that was being done around unrealized losses and adjustments and future rules, we certainly, you know, didn't feel like we were as well positioned as maybe, you know, others along those lines. And I think, again, Bill's words are the right words, and that's our focus. But it is nice to be in a position of relative strength and just and have that option value.
Got it. And I guess two other areas of capital deployment. One would be buybacks. Meaning your stock, I think, on pro forma basis is going to be trading at 1.2 tangible book. But and correct me if I'm wrong, it feels like you'd rather build more capital, have some dry powder, but how are you thinking about just the urgency of wanting to buy back stock?
Yeah, man, I think the reality is, over the last couple of years, you know, we have not been in the market buying stock. I think absent, you know, this sort of transformative capital event for Truist, we wouldn't have the capacity or, frankly, you know you know, I don't think you would have seen us active on the buyback scene. I think, you know, what Bill said, I think, again, very appropriate, is, like, we've got to get the transaction done. We've got to see how the balance sheet settles out. I think it'd be really useful to get a better sense for the final capital rules, you know, how they'll be proposed and implemented, you know, get through our capital planning, you know, scenarios and work.
You know, I think we'd like for buybacks to be a part of our, you know, regular way capital planning, you know, and be sort of consistent. And I think Bill used the word durable yesterday. I thought that sounded great. I mean, that's how we're thinking about it.
Understood. And I guess the last piece of the puzzle, as you said, investing in the client franchise. Lending, I guess, it gives you a lot more breathing room in terms of lending market share. One, is that the right characterization? And second, is the demand out there?
That's the question, right? I think, you know, we can't just sort of create demand, you know, on the C&I side. There are things we can do on the consumer side. Maybe we can talk a little bit about that. But I think our attitude and our approach to the market will feel different. You know, so for our teammates who, over the last, you know, three, six, nine months, have been, you know, guided to be more cautious, to be more disciplined, you know, to really place emphasis on our core relationships and perhaps to de-emphasize, you know, other opportunities, you know, that, broadly speaking, sort of just impacts sort of the culture of our offense.
I think what we're really excited about is, you know, even in today's market conditions where maybe demand is a little muted, you know, us leaning into that market, we think, hopefully, you know, that's our thesis, is that's going to create more opportunity for us. Especially if you see an improvement in demand, you know, we think, you know, leaning into that demand should give us an outsized opportunity to win. That's that, like, that relative, again, advantage is what we're really trying to create with this transaction. That's on the C&I side. On the consumer side, you know, we've been talking about with many of you, you know, the different tactics that we've leveraged over time to manage RWA and to preserve capital. That's what we would have been doing otherwise for the next, you know, couple of years. You know, that's different now.
You know, we have more capacity. So just because the relationship value of a certain business might be lower, you know, in one of our national consumer lending businesses, it doesn't mean it's not a good business. It doesn't mean it's not a profitable business. But as a result of sort of capital constraints, you know, we've been a little bit more cautious around those businesses. Those are good examples of areas where we should be able to increase some production and manage balances a little bit more proactively. So we're really thinking about it across the whole franchise. You know, obviously, it could use a little help from the market, maybe. Maybe with some rate cuts, we'll see a little bit of improvement in demand. But that's how we're thinking about it.
Got it. I think we covered everything on TIH. So maybe just switching gears to, I think, the other sort of point of conversation with, obviously, longer-term investors has been around the merger and the execution around the merger. Just the prevailing sense, and again, correct me if I'm wrong, has been it's been rocky the last four years. There's been some market share loss. Like, give us a mark-to-market on you announced a big reorg and simplification. Like, where things stand? How should we begin to measure management going forward?
Yeah. Yeah, look, I mean, these large, you know, MOE-style transactions, they're hard. And I think, you know, they always start with a tremendous amount of enthusiasm and optimism and excitement and hard work. The hard work continues. But over time, you just recognize that they're tough, right? Whether it be culturally, whether it be systems conversions, the planning, you know, you name it. You've heard us talk about it for years and years and years. What I'm excited about, and I think what we're in the halls of Truist, what we're excited about is it really does feel like we're coalescing around a more sort of simplified, streamlined, clear-eyed view of where we want to be. Like, back to the basics, core wholesale, core consumer banking.
A lot of the work that Bill has done to streamline the leadership team, to create accountability and the right incentives in a single kind of monolithic offense in both of these, you know, in both of these businesses, both on the consumer and wholesale side, we think is going to translate to productivity. And, by the way, has also been a really nice catalyst around some of the efficiency work that we've been doing. It was important that we, you know, look at our cost structure and efficient company. All of a sudden, we've got, I think, a more productive, more accountability, again, you know, better glued sort of clear offense at the company.
Now, you know, going forward, once we complete our transaction here, we're going to have, you know, a financial profile that across the board, capital, liquidity, you know, ALM and capacity to grow is all significantly improved. So Bill said it yesterday. He's optimistic about the future, and we're ready to get after it.
Got it. And remind us just the timeline of, like, when this reorg simplification process will be done. Is it mostly the heavy lifting behind us, or is there?
Yeah, I mean, we've the bulk of it is done. I mean, you saw a lot of artifacts, you know, along the way. So, you know, we divested or shuttered certain businesses. We combined certain businesses. We moved our wealth unit over to wholesale, where we thought it was better aligned around serving executives and business owners, around sort of a more affluent, high-net-worth customer. You know, the efficiency work, you obviously, you know, it's hard work, but we reduced, you know, headcount. We've, you know, identified a lot of cost avoidance, you know, in our technology investment portfolio. So you've seen a lot of artifacts along the way. I'd say that, you know, where we sit today, kind of Q1, again, we want to get this, the TIH divestiture complete and get the balance sheet settled. But, yeah, I think we're sort of looking forward now and moving ahead.
And also remind us, I guess, the other component of the scale that the deal created from a tech investment standpoint. Just the back-office systems, like, where we are in terms of getting both these banks on the same systems, et cetera. Is it a multi-year process?
Well, I mean, the actual conversion work, like, the sort of foundational requirements to have sort of one version of the truth, that work's done. But it's a journey. You know, as you know, you work for a big company, too. We're constantly, you know, evaluating, you know, infrastructure demand, regulatory demand, business demand. I think our newfound scale certainly creates the capacity to be smart and meet that demand. That's got to collate as well with our, you know, with our investors' expectations around cost management, too. So, you know, and again, that gets back to the sort of simplified business model and more, frankly, sort of a single sort of lens of leadership around these businesses is it helps us also prioritize investment, right? So and you heard me talk a little bit about this maybe late last year when I had the opportunity.
But, you know, as you think about allocating, you know, forget about, you know, capital for a second, but think about maybe more on a just as we manage our expense as well, it, you know, the compromise, the first come, first serve, that is which I think is a necessary compromise that comes with things like the MOE early days planning, that's out of our routine. So we have a great sense now for what the highest priorities are in our consumer business to support the growth, to meet the expectations the supervisors have, that all of our stakeholders have. Same thing on the wholesale side of the business. And so, again, I can feel like we're have a path forward that's much clearer.
Got it. And just in some of the fee revenue, so I think I would imagine the cross-sell opportunities or the scale for the capital markets business provides a lot more new things that you can do at scale that you could not when these are two separate banks. Just talk to us about where the most compelling fee growth opportunities are.
Yeah. You know, obviously, the insurance company was a significant contributor to our fee revenue. But we do have other businesses, as you say, that we're really fond of and that are performing really well. You mentioned the investment banking business for us.
That has been a, you know, sort of a continuously improving business for us in terms of its quality, its size, you know, all of the sort of health indicators that you would evaluate around, you know, whether it be market share in various products or the quality, the dialogue that we're having, you know, in our various industry verticals, whether it be the product expertise or the breadth of products that we can deliver to our clients, you know, the average economics on deals, the average number of lead deals, all those things that you'd be, you know, looking at to understand sort of the trajectory of the business. That's going really great. So we're going to continue to invest in that business and are very pleased with it.
By the way, also make sure that we're doing a good job leveraging those capabilities across the rest of our wholesale businesses. So whether that's in wealth, whether that's in our commercial, you know, corporate businesses, et cetera. Our wealth business as well is a really nice fee business. You know, not, you know, hasn't been historically as high growth as, you know, for example, what the investment bank, you know, has been able to achieve or even the insurance business. But we're, you know, pleased with how it's performing as well. You know, we, you know, we've that asset flows in that business, which is another good indicator of its health, you know, have been positive, I think, nine out of the 10 last quarters or so. Some market dependency on how it performs, of course. But, you know, we're going to continue to hire advisors.
We're going to continue to build out our products. We continue to drive collaboration with the other wholesale businesses there. But I think last, and I saved it for last on purpose, is, you know, we're still, you know, really optimistic about what we can do to improve the penetration rates across our payments businesses, right? So if you think about in wholesale, again, across, you know, whether it be small business up to larger corporates, you know, having that core, you know, money movement payments business is really important to us. And so, you know, we've got a great leader in place who's been adding talent for us in our broader enterprise payments, in our wholesale payments business. So we're really proud of the work that's being done there.
That's a real opportunity for us, just to do a better job, you know, developing the right products and experiences, putting the right sort of offense together to effectively, you know, more broadly serve those clients. That's, to me, one of the biggest opportunities we have at Truist.
Got it. And does the payments business require, I'm assuming, a certain level of tech investments? Like, would you do, like, smaller, like, M&A? Is that required or not?
I don't think it's required. I mean, you know, you know, as we think about that, it really is having the right products that create the right client experiences that are simple, that are easy, that are fast, right? The same things that we like as consumers when we stare at our phones, you know, that's what business owners and finance professionals expect when they're managing the financial priorities of their company. So just having the right and that will require and that's a great example where, you know, our business leaders can come together and say, "Hey, this is a high business priority." So as we think about dollars, which are scarce always, we should consider them scarce and valuable. We are going to, you know, focus more investment in that product portfolio.
Got it. I guess maybe taking a step back, looking at the guidance you provided back in January, and two things. One, the outlook for interest rates keeps changing. Like, if I ask this question to your peers as well, based on the balance sheet today or pro forma for this transaction, what's the best rate outlook for Truist? Is it a few rate cuts, no rate cuts? Like.
Yeah, I mean, like, look, I think we were pretty clear when we released fourth quarter earnings that, you know, our expectations for rates was five cuts, the first in May. And then I think we were going to skip November with the election. So we had five of the last six meetings of the year resulting in a cut. I've said it again today, and we've said it before. You know, we do feel relatively neutral in terms of our positioning. So I think if the rate path was, you know, three cuts or seven cuts, I don't think we, you know, you know, that's going to be a big driver of change in our sort of outlook. I think, you know, scenarios where you significantly delay cuts or you don't get any cut at all, that's going to be would be a headwind for us, you know, so.
Just on that, I would just love to hear the visibility you have on deposit customer behavior.
Sure.
Like, does higher for longer lead to just the mix pricing pressures getting worse?
It's a good question. I mean, that's the key question. You know, the last hike was, right, July. So and we've, you know, quite a bit of distance since the last hike. You know, we have seen some of the remixing slow a touch. But, you know, the betas will keep grinding higher, right? You know, we—you saw that in the fourth quarter. You know, we signaled that we actually thought that betas would actually accelerate a touch for us in the first quarter based on a couple of factors. But that's the question, is, you know, every day, especially on the—I'll call it the retail side of our business, where you've got a lot of interest checking, DDA, you know, people who haven't moved, they will keep moving. And I think that also translates into even when you do see a cut.
You know, I think, you know, our outlook for, you know, how what will be, you know, sort of the reprice trajectory when you start to see cuts. And that depends on a lot of factors. But, I mean, even if you think about the first 25 or 50 or 75, you know, what does that really look like? I think last year, a lot of us in the industry, you know, sort of had an expectation that maybe those betas shorter were going to be a little higher. And I think that, you know, as we stare at, you know, a lot of these clients who haven't repriced, you know, there's sort of a recognition that there is going to be this lag effect. And so I think you probably have sensed that from people's outlook for 2024.
What's the confidence level if we do get rate cuts in terms of the deposit betas on the downside? Do you have an X amount of contractual deposits with index deposits that are going to reprice?
Yeah. We kind of look at it, like, on the stuff that must move, right? And so and that's, you know, that's a reasonable proportion of our deposits. But, look, I mean, one of the benefits of having a really high-quality deposit franchise is you do have a lot that's not must-move money. And so you really are really trying to evaluate, like, the option and the behaviors. And so we'll see. I think, again, the stuff that moves really fast, you know, on the way up is going to move really fast on the way down. We've been trying to position, you know, ourselves ahead of this. You know, we've thought about, you know, how do we think about, you know, mix on money market versus CDs to kind of shorten guys to be able to think about how we manage that on the margin.
I think everybody's doing probably different versions of the same thing. That's how we're thinking about that.
I guess I'm not sure if you've laid out in terms of your outlook on branches and the number of where the but you have a bunch of your competitors opening branches in the Southeast and across these markets. I'm just now you have to imagine those will become even more important in a higher-rate backdrop as retention of deposits, growing deposits.
Yeah. No doubt. I mean, look, the curse of being in, like, the fastest-growing markets in the country is everybody wants to be there. And so we've lived with that. Both of our BB&T and SunTrust have dealt with that for many years, and Truist certainly deals with it now. So, yeah, look, we're fighting the fight every day, right? I mean, we want to better serve clients. We think we've got, you know, teammates that love working for Truist. We've got clients who've been long-time, dutiful clients. We've got all the products we need. So it's about execution. You know, as you think about, you know, and that's on a relative basis, you know, broadly speaking on the deposit side, you know, we still, you know, Fed balances still are declining with QT.
I mean, we do have an expectation that maybe we'll see, you know, some taper and maybe QT, you know, ceasing altogether. But, you know, in the interim and that's one of the factors, frankly, that, you know, I think we're really trying to think hard about in terms of the reprice opportunity is, you know, it's we are in competitive markets. QT is still in the backdrop. And what does that mean in terms of the strategies and tactics people are using to attract, you know, to attract clients?
Got it. Maybe switching gears a little bit and talk to us in terms of the credit outlook, what you're assuming just across your loan portfolios around areas of stress, how that translates into reserves or charge-offs.
I don't think we have new news on credit. You know, it's you know, we've, you know, you know, you saw our expectations for the year from a charge-off perspective, you know, are a little higher than what we experienced, obviously, in 2023. That's driven primarily by, you know, and again, no secret, and a lot of the industry is talking about it, but the losses we would expect in our CRE office portfolio. I think the good news for Truist is that's very limited exposure, right? You know, for us, I think it's, you know, a little more than 1.5%. I think 1.6%-1.7% of our total loans held for investment is office. We think we've done a really good job evaluating, you know, those deals kind of on a deal-by-deal basis. We've got a loan loss reserve against that portfolio that's, you know, almost 9%.
And as we're beginning to work through some of those deals, you know, the loss experience has been comparable to, you know, where we're reserved. So that's the primary driver, I think, the area that has our attention. You know, we've had a lot more questions lately about CRE multifamily. You know, we don't see that as being sort of a similar situation, you know, if you will. I mean, I don't think you have a sort of collateral asset value, you know, issue like you maybe have on the office side. And, you know, on the consumer side, we've seen, you know, you know, you know, that's, you know, trended a touch higher as well. You know, and then I think that's not just that's not a Truist thing. I think that's, you know, more broadly.
You're starting to see a little bit of stress on guys, probably with just higher rates, you know, for longer, but very manageable. For us, the bulk of the I think the focus has been on that CRE office portfolio. C&I has been great. You know, we have just not seen really any negative development there.
When you look at the C&I customers, is it safe to assume at this point they've absorbed the 500 basis points or 550 rate increase and business has moved without any issues?
Yeah. I think that's right. I mean, I think, you know, we sort of get paid to worry. And so you wonder, you know, if it's every day that we stay high, you know, I think that potentially puts a little more stress. But if you look across our portfolio, guys, coverage ratios, and all the sort of health, you know, factors are fine. They're holding in. They're making it.
And you mentioned multifamily. So agree, it's very different than office. But I think what you're hearing increasingly is there is an oversupply in the Sunbelt states that's coming on, be it Austin, Raleigh, et cetera. Like, how do you handicap that? Just, like, do you share that concern as well? Are you seeing that?
Yeah, yeah. I mean, look, I think there's, like, some rent pressure, right? And you've also got, you know, guys probably, you know, could have underwritten some of these deals with a different expectation on rates too. So you've got some stress, like, on cash flow. But, again, I think it's just more moderate, you know, in general and manageable for a lot of these guys. We just don't have an expectation that, you know, the ultimate, like, you know, PD or LGD on these deals, there's going to be anywhere close to what we see in office.
Do you? I'm assuming you expect maybe some of these go into a workout situation. So they show up in NPLs. The losses might still be de minimis. Is that?
I think that's right. Got it. I mean, certainly, that's how we're thinking about it, like, from a reserve perspective. And, you know, it's you know, have spent a lot of time, obviously, with our risk team. And that certainly is how they're approaching it.
Got it. And just maybe taking a step back. So obviously, one of the thesis around Truist is you are in one of the best markets in the country across the Southeast. As you think about the top so we talked about customer sentiment, commercial, consumer. But just talk about, like, the markets where you're really focused on, where you're seeing some momentum that could drive growth in the near term over the next year or two.
I mean, honestly, you know, our geography broadly, you know, has great demographics, right? I mean, you know, and I can just sort of pick markets. But, you know, you think about the D.C. area, Atlanta, you know, some of the Florida markets. You know, I'd hate to list them off. A lot of these markets have been net benefiting, you know, whether it was sort of migratory patterns through COVID or just broadly, you know, just vibrant sort of commercial markets and companies moving into our markets. So I think, you know, just generally, broadly, you know, like, we're seeing would expect to see, you know, a good backdrop in these markets.
You mentioned, right, the curse of being in good markets is these are extremely competitive. Just how rational is competition today, both on the deposit side and lending?
You know, it's rational. It's not a new phenomenon that the Southeast is, you know, a competitive banking market. You know, we a lot of our markets, we're, you know, a top, you know, sometimes one, two, often at least top three player in our markets. Oftentimes, there are other, you know, large banks that are in those markets too. And then they're often also served by a number of community banks and regional banks. And so I think everybody approaches the market a little bit differently. You know, we lean into our value proposition. We're a full-service firm that we think offers all the capabilities that the biggest banks in the world offer. And we do it in a local way. And people appreciate that.
And then I think there are, you know, there's a spectrum of where people sort of land and how they go to market. But, you know, for us, you know, we feel like our message resonates. And, you know, again, Truist's success, generally, our playbook and, again, this was true for both of our predecessor companies too, was, you know, never to be sort of the biggest bank in the country, but it was to be, you know, one of the biggest, if not the biggest bank in our market. So that density of share in the right markets, we think, is a long-term winning combination.
How does the competitive landscape stack up when you translate that into retention of bankers? Like, at this point, are you still seeing, like, smaller banks, others poach talent?
Sure. You know, again, same thing. You know, we're, I think, a great company. We attract great talent. We've got great clients. I think we're a great place to work. But, you know, people, you know, sometimes that fits for people. Sometimes it doesn't. I mean, and I think there's no one reason why somebody might choose Truist or might choose to work on a platform that has a different value proposition. I will say this. I believe that yesterday's announcement is going to be a real shot of adrenaline in the arm for our teammates in terms of our ability to get people excited about coming to work and serving clients and growing their business and also, you know, letting people know who are eager to work for a company that wants to expand and do business and has the financial strength to go win.
So, look, you know, one of the things we really focus on is making our company a great place to work and for people to have meaningful careers. We take that seriously. And so, you know, feel like we're really well-positioned there.
We have a couple of minutes. Just wanted to see if anyone in the room had a question. If you do, raise your hand.
Well, in the beginning, you briefly touched on your liquidity position or the strengthening of your liquidity position. Maybe in the context of QT and further regulation, could you just help us with what the possible outcomes may be of strengthened regulation and how you try to mitigate those?
Was the question about expectations around, like, liquidity and capital, et cetera?
About increased regulation in terms of.
Increased regulation in terms of liquidity. Yeah, I think, you know, to be determined, much like on the capital side. I mean, I think a lot of what we're, you know, something that we've been studying is, you know, historically, and in many cases, I think people think about our LCR as sort of a binding constraint on liquidity. I think increasingly, as we think about, you know, bigger scenarios and different scenarios around internal liquidity stress testing, you know, that's, you know, increasingly a binding constraint. So I think that's one area where you might see, you know, changes, you know, for companies like ours is just thinking about, you know, again, the size and sort of creativity around different scenarios and then thinking about, you know, having a liquidity position that is appropriate, you know, given those standards.
This last question for me. In terms of so obviously, it's been an active few months, weeks, years for you. As you talk to investors, is there an area where it comes your take is that there's aspects about the franchise that's underappreciated as investors think about the investment proposition in Truist?
You know, one thing I'll say: this came out of a meeting yesterday, which I really actually appreciated—the comment. But someone sort of said, "Hey, there's sort of a lot going on." And, you know, it was the MOE. And then there was, you know, "Divest this business, divest that business, reorg, simplify." It's like, it seems like, you know, is there, what's the identity of Truist? And is it complex? And I appreciated the comment because I actually believe the opposite. I believe that we've been, you know, coming to a funnel where our identity is much clearer, right? Much simpler, which is core wholesale banking, core consumer banking, a focus and assertive management of cost, a desire to more fully serve our clients in both towers, and now the financial strength to go execute. So I'd maybe leave people with that idea.
By the way, in the backdrop of, we think, you know, some of the most exciting markets in the country. A simple Truist that's ready to move forward.
Got it. On that note, thank you so much, Mike.
You got it. Thank you.