CEO and Chairman, Bill Rogers. Bill, thanks for joining us again this year.
Great. Great to be here, John.
So Bill, let's start off with the recent events. You recently completed the sale of Truist Insurance and simultaneous securities positioning. Maybe for starters, give us a little background on the thought process that led up to those transactions, and, and then we'll shift to how that positions you for, for the future.
Yeah, John, I mean, this has been a part of a, you know, overall strategic framework. You know, if you think about some of the merger, you know, the first part of the merger was in the, you know, put everything together, do no harm, get our clients through in a really great fashion. You know, reinstates sort of great client experience. Every client had to go through a change, every teammate had to go through a change. And then so for the last, you know, couple of years, we've been in a really good framework with the board on sort of overall, strategically, what do we want Truist to look like? How do we want the company to be capitalized? Where do we wanna invest? And what we saw on the insurance side, great business, by the way, you know, great long history.
Just from the merger, we've invested probably, you know, 90+ sort of basis points of capital in the growth of the insurance business. And what we saw is similar, actually, a lot of industries, banking, similar, is the insurance business was growing really quickly for different reasons, but consolidating really quickly, consolidating a lot with private equity. And what we saw as we look towards the future, is we're gonna have another 100+ basis points of capital invested in the insurance business to keep it strong, keep it growing. The acquisitions were gonna be bigger versus smaller. J-curves were gonna be deeper in terms of- in terms of dilution.
So from a strategic framework, we said, "Okay, we actually have to think about that, and we sort of have to make sure that we position it for the future." The first place we started was doing a minority sale with the concept that we could, you know, continue to build capital from that based upon acquisitions. Basel sort of changed a lot of that view about minority positions in companies. So we moved to more of a strategic decision of, you know, if we wanted to be in the insurance business, it was gonna require a little more capital than we thought was appropriate relative to our total company. So that was sort of the premise of the decision. So we executed a sale of the business.
We knew we would generate, you know, a good amount of capital in doing that, and then sort of how to redeploy and think about that capital. In the first place, to redeploy it from an efficiency standpoint, I mean, that's a big gain, big loss, is to reposition the securities portfolio. We had a couple of objectives in mind, you know, with the sale. One is we wanted to, you know, increase the liquidity of the company, obviously increase the capital of the company, just to be in the most competitive position possible. I mean, we just wanted to be leaders in both of those areas, be leaning forward, front forward, you know, take advantage of opportunities, you know, create a better investment portfolio, sort of, you know, shorter duration, more consistent with the way we wanna be in the future.
And then the other was replace the insurance income.
Mm-hmm.
So those were some of the premises in that. We were able to accomplish all of those. We ended up sort of at the... You know, in the securities reposition, we took a little bit of a bigger position than replaced insurance income. So we did a little more than replaced insurance income, just predicated on some things that we thought we were opportunistic. So I think the, you know, at the end of the day, we feel really good about the positioning. We feel great about the decision that we made. The execution from our team was off the charts. We have just, you know, great teammates that were able to execute all that with incredible precision. And then we sit with a company that's got a lot of capital. We're in a great position to grow.
We're in great markets, and as I said before, we're sort of, you know, athletic position, front forward, ready to move forward.
Great. Well, I think we'll, we'll dive into that a bit.
Yeah.
In terms of where you see these optionalities.
Yeah.
So, just in terms of the environment, you're out in the market, talking to clients a lot. What are you hearing? What's the overall sentiment in terms of the economy, and, and what are clients most focused on right now?
Yeah, you know, sort of an interesting time is that, you know, overall, if you sort of dissect some of our commercial and corporate clients, they're pretty healthy, you know, and their businesses are generally pretty strong. We sort of see that in our credit performance. They entered into this phase with a lot more liquidity, so there are a lot of, you know, leaders of those businesses that were around during the financial crisis, so they understand, you know, the liquidity of the company. Companies are better capitalized. They're cautious right now, though.
While, you know, individual companies, such it's really fascinating. If you visit with an individual company, it's a little bit like: "My business is doing great, but I'm worried about everybody else," or, "My business is doing great, and I'm worried about the market." That cautiousness has sort of, I think, kept them, you know, funding a lot today with a lot of liquidity. Being a little more careful about when and how I'm gonna build that next warehouse, or when and how am I gonna add the data center, or when and how am I gonna add to the fleet? We do see sort of early-stage pipelines starting to build a bit. I don't wanna sort of, like, indicate that that's sort of a next quarter kind of thing, and that may be some capitulation to rates, is that maybe rates are gonna y ou know, we don't wanna be in the rate timing business from our client's perspective, and capitulation of the opportunity.
Mm-hmm
As you know, I don't wanna wait too, too, too long. So I think on the corporate side, credit's good, and although they're cautious, I think they see opportunities to invest longer term in the business. That may be a little bit idiosyncratic to our markets as well.
Okay.
In fairness, because, you know, our markets are growing, you know, and migration is really strong, and, you know, overall, you know, every stat on an employment category are sort of better in our markets relative to, to, to the rest of the country. And then on the consumer side... you know, the consumer has just been more resilient than any of us would have ever thought. You know, I mean, I think you can look at any quarter and say, gosh, you know, this is the quarter, maybe it was going to be the season, the, you know, holiday season, whatever it may be, that, that they're going to start to slow the spending. And, and I think the fact that employment has stayed strong has really contributed to that resilience.
Yeah.
You know, there is a job or two jobs, or sometimes two jobs and a gig job, you know, in a family.
Mm-hmm.
You know, so their ability and confidence in their earning capacity has sort of kept them in the spending mode.
Yeah.
There's a reason to be cautious, you know, sort of in the, you know, lower, you know, income categories. You know, we do start to see, you know, spending sort of being in excess of income. Savings rates are sort of, you know, at pre-COVID levels and coming down a bit. But again, the, you know, loss experience, where we see delinquencies coming up a little bit, the fact that there's employment and income in the household, whereas the highest correlation to losses, I'm not sure it's going to translate so much in the losses, but it possibly would translate into a little bit of a slowing of the economy.
Yeah
In terms of spending.
So understanding demand is not quite there yet.
Yeah.
From your perspective, with the strength in capital position, how much of a strategic shift has there been with your appetite for loan growth? What are the areas where you're willing to lean in a little more now?
Yeah. A couple things, John. One is, you know, we've created an incredible amount of discipline in our process. So I would say we were disciplined pre-merger, but certainly coming out of, you know, last year, the discipline really increased. So in terms of discipline on risk, discipline on diversity, discipline on structure, discipline on return expectations is really, really strong and appropriate. So we're not going to lose that. We're not going to sort of wake up the next day and say, those things aren't critically important. But we can apply more against those disciplines. We can apply more opportunity against those disciplines. So while we were in more of a, you know, capital optimization standpoint, we're now in an opportunity optimization, if that makes sense.
Mm-hmm.
So we're sort of transitioning to say, "Okay, well, in the places where we can be opportunistic, can we lean in and, you know, move to the left lead of a deal? Can we lean in and provide capital that somebody else couldn't provide and elevate our status, win business that we didn't win otherwise?" So that's sort of how we're thinking about it from the corporate standpoint. That's against a backdrop without a lot of growth. And when the economy picks up and when that growth comes, we'll be better positioned to do that against that platform.
Mm-hmm
With higher returns. And you can feel it. I mean, our teammates feel it. You know, I mean, I told someone earlier, I probably underestimated the qualitative, you know, aspect of that swagger, you know, feeling really good, the ability to recruit talent to our platform, sort of on that basis. And from the consumer side, you know, there are places, again, that we've sort of optimized a bit, that returns are, you know, acceptable against that kind of capital. So the places like Indirect Auto that we sort of had, you know, the valve probably at a pretty low level, we can turn that valve up a little bit. We'll still be sensitive to returns and expectations, and the same thing against our other consumer platforms.
Mm-hmm.
You know, Sheffield and Service Finance continue to be, you know, really good opportunities, high performing. We'll leverage those better against our overall platform and give them capacity to grow.
One area it seems like you might have held back on the last few years is new markets expansion.
Yeah.
Is that also kind of more on the table now?
Yeah, it is. I mean, you know, the first goal in the merger was to optimize our business, you know, so to optimize against everything that we had. And I think, you know, that included, you know, branch closures, branch optimization, all the things that go along with that. And today was good to transition with that and say, "Okay, now we've optimized against the franchise. What are the opportunities within the franchise?" Primarily, by the way, not, you know, dramatic, you know, geographic shift, but within our markets, we have specific markets that have more opportunity. Early in that sense is the investment in the commercial and the corporate side. You know, think markets like Texas, where we've sort of expanded our capacity and our ability there.
We'll follow that with some expansion and, you know, branch networks and the things filling out those markets and creating more capacity, getting to, you know, more of the ubiquitous kind of penetration that we have and that we enjoy in a lot of our other markets.
Mm-hmm.
So it's going to be a lot of the, you know, the fill-in existing market opportunities in all of our businesses. And that's another advantage that the, that the, you know, capital gives us, is we can sort of lean with the RWA side in those markets, and then we can follow it with the investment side.
Got it. So how about the other side of the balance sheet? What are your expectations for growth or shrinkage in deposit balances.
Yeah.
In the next couple of quarters? And what are you seeing in terms of momentum there?
Yeah, I think, I think where we are on the deposit side is, we're sort of, like, indexed to QT at this point. I mean, I think, pretty tight, tight correlation. So I think deposits will... You know, whereas they were coming down sort of 1%, it's probably now, like, about 0.5%, so I think sort of continue that trend. On the disintermediation, you know, sort of our, you know, DDA percentage, you know, is probably in the, you know, about 28% or so. You know, I think we'd said earlier that mid-20s could be sort of a landing spot. That's certainly where we've been before as an industry. But that's slowing, you know, so that's sort of more at sort of 1% a quarter kind of basis.
I don't know if we'll, we'll get to that point. I mean, I think, I think, again, a little bit on that consumer side, there's, you know, a landing spot that we're starting to get closer to than we would've said, you know, 6 months ago or 9 months ago, when the slope was probably a little bit higher.
Yeah. And do we know if the kind of higher rate expectations for longer has changed that ability to slow yet or slow itself?
Yeah, and it's interesting because I think, again, those moves are more tectonic. You know, that those kind of environments happen faster on the corporate side and the wealth side, and the things that have a higher betas associated with them. So I don't see, you know, significant change in that. I think consumers are sort of landing, and they were sort of in this place for probably a little bit longer than they expected. They're probably, you know, landing at the spots that they wanted to land in. We're adding a lot more value to the relationship, so that's really important. You know, we're adding more product capability.
We're becoming more important to those clients, so the decisions based upon rates are lessening a little bit as we increase the decisioning based on our, you know, capability to serve them better.
Mm-hmm. Okay, fair enough. So moving over to fees, your first quarter investment banking revenues were much higher than where.
Yeah.
You kind of exited, back half of last year. How much of the investments you made in this business contributed to this? And you talked about this kind of maybe new run rate being sustainable.
Right. Yeah, I mean, certainly markets were better, so we sort of have to, you know, we have done that. But we've been, you know, investing significantly in that business. And we've added, you know, 30+, you know, managing directors in that business. People who have been really attracted to our platform, been really attracted to the opportunity that sits there. By the way, the capital helps there as well, in terms of the capacity to continue to grow. The relationships that we've built in both the industry specialized areas, but also the relationships we've built with our commercial team is part of that. And then our relative prowess, you know. So, you know, if we look over the last 12-18 months, you know, our Active Bookr unner kind of business is almost doubled, you know.
So the economics of each transaction are much higher, you know, in many cases, 10%-15% higher. So it's a combination of all those things, and I think all of those things are more sustainable. You know, all those things are more repeatable. So I think we'll have some market dependency, no doubt about that, but I think we're in a bit of a new, you know, platform that we're operating from.
Okay. What other opportunities do you see for growth on the fee income platform? We're thinking about maybe payments, wealth.
Yeah. Yeah, clearly, both of those. You know, if we think about the, you know, the insurance business was a big part of our, big part of our fee income business. Obviously, that was the one, you know, significant detriment to creating the capital. The opportunities sit in both of those. So we remember we took our wealth business and made it part of our, you know, overall wholesale platform. What we want to do is capture all those assets that come out of our commercial platform, and we've been with clients for, you know, two and three generations, so they've got a lot of confidence in us, and they are transitioning. You know, I was looking at some numbers the other day about what percent of our commercial portfolio or the commercial portfolio is now private equity-owned.
It was sort of a surprising number. You know, so there is this transition that's happening, and we want to be at the forefront of that. We want to be in the advice category. We want to be helping guide clients make that transition. And with that comes managing their assets, and we've been really successful. So our new asset generation, you know, 50% plus, comes from that commercial platform, comes from capturing those business transition opportunities, and we want to continue to invest in that. I think that's a place where we'll, you know, you'll see us adding, you know, people and resources to continue to be on that growth pattern.
On that bill, a lot of banks are trying to do that.
Oh, yeah, absolutely.
You have historically. So I guess, is there a renewed focus or a kind of new product set or new angle that you're taking here, or just opportunities that haven't been tapped?
I think, one, just really great execution. We have teammates that are committed to that as a strategy. We have an organizational alignment against that. We have the incentives aligned against that. And we've got the whole concept of being focused on business transition as a strategy versus business transition as an event.
Mm-hmm.
You know, so if it's event, it's one at a time. If it's a strategy, it's sort of an overall platform. And those things are, you know, take a long time to embed. They take a long time to create that, create that culture. And we have a unique commercial platform.
Yep.
I mean, we have a unique commercial base to operate from, so we're not introducing ourselves to these clients.
Right.
You know, what we're introducing is all this new capability, industry specialization, you know, ability to execute, you know, great private wealth, you know, management capability. So it's all—I think it's a little bit of a different mix.
Sure. Sure. And then, I think you were gonna go on to payments.
Yeah, I was gonna go on, yeah.
Legacy companies were kind of middle of the pack on payments. What are your goals and ambitions here?
Yeah, I think, you know, both companies were competitive, you know, from a payment standpoint, but certainly in terms of, you know, penetration and growth rates, that's where we have a lot of opportunity, you know, if we look at sort of best-in-class relative to that. The first stage we need to do is make sure we were competitive from a product standpoint. So sort of underneath all the, you know, expense efficiency and merger and all the other things that have been on the outskirts, we've been investing significantly in the payments business. So not only from a technology standpoint, you know, from a partner standpoint, but also from a talent standpoint. So we've added a lot of capabilities in all those areas. So I see that as one of the real significant opportunities for us to continue to grow.
All these things are related. You know, as we become the Active Book runner, we have the capacity to ask for more business, ask for more payments business and more deposits business. We now have the capability and tools and, you know, that we would be selected for that. So these things are all part of a, you know, a circle of how we generate more business.
Okay. We've talked a lot about investing and the opportunity to grow. The other side of the coin that investors wanna hear about is efficiency.
No doubt.
Kind of your mindset about efficiency, improving operating leverage, and kind of continuous improvement. So maybe you can talk about how you're driving the team to that mindset.
Yeah. You know, John, in this, you know, about in the fall, you know, we made a significant announcement to say, you know, despite the fact we had a lot of efficiencies in the merger, you know, this is the next phase. You know, how do you create a culture that has a continuous improvement mindset? How do you create a culture that operates on an efficient platform? How do you create a culture that has a, you know, positive operating leverage mindset? We felt we needed to have a little bit of a shock to the system. So, you know, we created a, you know, specific program to, to, you know, reorient ourselves, and that's been really successful.
You know, we went from a, you know, a company that was growing at, you know, sort of mid-single digit kind of expense base to now a flat sort of expense base. That requires a lot of discipline. It required a lot of intensity. Our leaders really embraced the, the mindset, and now we're in that continuous improvement. So we sort of reset the, the expense level. That was a stairstep. That was important. We needed to do that. And now we have this continuous improvement sort of mindset that we wanna, again, have positive operating leverage. We have... You know, the simplification of our business has given the leaders an opportunity to look across wider platforms and see opportunities for efficiency, to say, "Hey, wait, we can expand this. We can do spans and layers. We can do systems that are, that are more consistent across.
We can do credit approval that's more consistent across. We don't have to create all these different silos. And so they've got that mindset. So, you know, every day, you know, they're thinking about, "Okay, if I save a dollar, I can invest a dollar," you know, and be in that kind of mode. And that's an important, you know, catalyst to come out of the merger, where in the merger, you were trying to get things settled and merged, and now you're trying to run on a more efficient platform with this constant improvement mindset. And we've got leaders, systems, and strategies that have really embraced that.
Yeah. You know, you've committed and signed up to kind of flattish expenses.
Yeah.
This year, and it's probably too early to get specific about next year, but that kind of idea of self-funding and then trying to stay close to flattish, is that, that how you'll approach looking into next year?
Yeah. Well, I think we'll approach the next years, and it really goes back to the first question related to growth.
Mm-hmm.
You know, so when we see growth, we're gonna be the, you know, front foot athletic position to take advantage of that. There are variable expenses that come with that growth, all in the, in the spirit of positive operating leverage. So I don't wanna commit to sort of a level until we sort of have a better understanding of where the growth opportunities are gonna be, but they're gonna be in that spirit of positive operating leverage, investing enough on the, certainly the variable side, to make sure that we, that we capture that, and creating that all on an efficient, efficient platform.
Mm-hmm. Okay, fair enough. So on the credit front, what areas of the loan portfolio are you watching from an asset quality perspective, and where do you see the greatest risk, outside of office? Which we'll talk about that separately.
Sure. You know, we've been doing. Because credit overall has been pretty benign. You know, if we look at sort of the overall credit portfolio, certainly across the C&I and then the consumer side, it's been pretty benign. It's been performing. Well, you know, we're bankers, so our job is to find the dark cloud wherever it may be. So we're taking literally, you know, portfolio by portfolio and just taking them through a really intense review. So we'll at any one time, we'll take the multifamily portfolio, take it through an intensive review. We'll take an industry specialty, take it through an intensive review. So what do we see and what are the things on the edges? Looking around the corner, what are the risks that we see? How do we make sure that we keep the diversity in the portfolio?
Is there anything that we're missing in those pieces? So the answer is we're looking at sort of everything. If there are places where maybe sort of go through a couple of cycles. So on the, you know, senior care side, 12 months ago, lots of concern, lots of labor issues, sort of the post-COVID, you know, non-migration to senior care was really acute. Those are starting to change pretty significantly. So, much more adoption and migration to senior care. Labor is starting to get a lot better. So that's a portfolio that went probably from, you know, the yellow zone to the now maybe yellow, orange, green, red zone, to the yellow sort of green zone, you know, in terms of shift. Multifamily, same thing.
Lots of diagnosis, lots of elements in the multifamily. What we're seeing right now, and, you know, hopefully, a lot of good client selection, is our clients are continuing to invest. You know, so where they start to see some of the disparities, they're in markets, like markets with a lot of migrations, in migration. So while they say, "Well, we might, might experience some short-term issues, we're gonna put more capital into this. We're gonna recapitalize this because we see the long term, we see the long-term benefit." So those would be two examples of portfolios that sort of have changed a little bit in terms of, in terms of their, of their component. And then we can talk about office.
Yeah.
All you want, is because
Yeah.
because that's a red zone.
Sure.
There's no doubt about it.
And we did see your loss content increase in the first quarter in office. How much of that is you kind of trying to get in front of things? And I've heard you say in the past, and in this kind of environment, kind of time's not your friend always, and you wanna kind of get to these terms as quickly as possible. Maybe you could talk to that a little bit.
Yeah, I mean, because we have a smaller portfolio, you know, it's relative. I mean, our total office is, you know, about 1%, a little over 1.5%, a little over 2% total office. Some of that portfolio, about $1 billion of that portfolio sits with our private wealth clients, so that's sort of a little different, you know, portfolio. I mean, their income-producing properties have a lot of time, a lot of capital to invest in it. So when you look at sort of what is the balance of this portfolio, a lot of it sits in our markets. So similar to the concept about multifamily, a little more confidence in the migration and over time kind of phase.
And the parts that, you know, aren't in our markets seem more acute to us, and it really started in the second, third quarter of last year. We're just, you know, I mean, to your comment, I've talked about this before, time is, this is an area where time is not your friend. I mean, it's just, it's just not. If we fast forward and look over the next 6-9 months, I don't think this is gonna get better. I think it's gonna get worse. And so we're taking the opportunity. You saw our, you know, loss content go up, but our non-performers go down.
Mm-hmm.
You know, so we're trying to get in front of it and take these opportunities as best as we can.
Yeah.
Prices are not good.
Yeah.
You know, that's... We certainly see that. We're not trying to set a, you know, low watermark, but we're also not gonna wait.
Yeah. And this is all in the troubled office.
100.
That's, we're very concentrated on what we're talking about here.
It's very concentrated, and it's very idiosyncratic. I mean, we have markets where, you know, the lost content is. We'd see it's almost nothing. I mean, the reserves are really low. We're in good selection and good... Other markets that just, you know, the selection is idiosyncratic, not as good.
Mm-hmm.
It's a bit of a musical chairs game, you know, so the music stops in a city, and you don't have a chair.
Yeah.
That non-chair is an empty office building.
Mm-hmm.
What we want to do is not be in that one chair. We wanna make those decisions early.
Sure. So on the consumer side, things are a little different, and you might have seen some earlier seasoning that maybe could lead to some improvement trends, I guess, from here. Maybe just talk about kind of that different trend that, you see in consumer.
Yeah, I think on the, on the wholesale side, we'll see some increase just 'cause it's at, from a really low base. I mean, just there has to be some reversion to the mean over time.
Yeah, historical charge-off.
'Cause there just is, and it's really low right now. So it'll, we don't see that as being a, you know, stairstep.
Mm-hmm.
Very gradual. On the consumer side, you know, there's a lot of, you know, sort of post-COVID hangover in some of the underwriting and some of the, you know, quality side of that portfolio, and that's on the other side of that. So we sort of see that sort of improving a little bit over time. We've, you know, our chances will sort of be in the same, you know, sort of zip code that we've been in, for the balance of the year. But the mix will change sort of slightly on those, on those edges.
Okay. So let's talk about capital management.
Sure.
Obviously, you've got an influx of capital. Your position now is very different. So capital management is something really important as you think about for the next couple of years. And you've talked about restarting share buybacks as obviously a somewhat mechanical way to improve.
Yeah.
The ROTCE. And you've kind of talked about this potential two-step process, and maybe you could elaborate on that a little bit, how you think about that?
Yeah. So you know, obviously, with the, you know, the decision to sell the insurance business, we, you know, effectively, significantly recapitalized the company. So, you know, we went from a position of, you know, capital management, you know, back to, to a position of sort of opportunity management, so pretty, pretty significant, pretty significant shift. What we'll do is continue to be in a position to take advantage of growth when growth happens, so we wanna preserve capital from that standpoint. But by the same token, that's not gonna happen tomorrow. You know, I mean, I think we, we can sort of foresee that's not a, you know, next quarter, next six months, you know, kind of, you know, significant inputs. So in that case, we wanna return a little bit of that to shareholders.
I think Truist is a really good investment, from that standpoint, and be able to return. So the way we've said it is we wanna be a little more meaningful to start with. Again, not a stairstep, sort of a gradual decrease in that excess capacity from a capital standpoint, sort of a gradual increase. We'll meet the other side of the chart from the growth side. We'll get more information from the CCAR, and we'll get more information from the finalization of Basel about sort of where that line ought to meet. But we know we have capacity right now.
Mm-hmm.
We wanna put a little bit of a finger on the scale early on, capital return from share buybacks, and then get into a, you know, very durable, consistent sort of return on capital. I think the real.
I think about from a Truist standpoint, I mean, the real, you know, advantage we have right now is we have this capacity over the next, you know, pick your time period, 3-5 years, to have a really, you know, excess return on capital, and a, you know, sort of a, you know, mid-teens call it kind of return on capital, where you could fast forward and say, "You know, we can return, pick a number, 30%, 40% of, of capital," and you'll be at the end of that period with, you know, you still have Truist, you still have Truist at the exact same opportunity that we've had, much better position to take advantage of it, but it's at sixty cents on the dollar.
Yeah.
You know, from a shareholder perspective, I think that's the real transition that's available.
Yeah. So, it's really interesting, and a couple of follow-up comments on that. When might we get a sense of timing of when you'll kind of finalize this decision and then kind of roll out the buyback.
Yeah, I think.
Plan.
Yeah, it's great, it's great. So we'll, we'll obviously have a lot more information, you know, here in the next several months on the, on the CCAR side. You know, I think we'll communicate much more clearly, you know, here in the, you know, early fall.
Mm-hmm.
As to share buybacks. Probably a little bit later in the year as to overall level, 'cause we still have. There's more information that's got to come out.
Sure.
We really have to understand the Basel piece. So before we set sort of really, you know, more airtight medium-term and longer-term targets, I think we'll be able to give much more directional feedback here in the next quarter or so.
Yeah, 'cause I think everyone's wrestling with what capital definition, meaning you and the rest of the banks.
Right.
In terms of you've got current rules, you've got.
Yeah.
Traditional rules, Basel III. But either way, it feels like we'll have time to phase in, and your starting point's obviously super enhanced.
Well, that, that's the point, John. I mean, so the, you know, before we would've said, "Well, we have a transitional flight path," but we're already there.
Mm-hmm.
We don't need the flight path, you know. So for us, the flight path comes from the top down versus the bottom up.
Yep.
In terms of, in terms of how we meet that and how we think about, capital utilization. Completely different position than where we were before.
Yeah. And just the final comment on this. The dividend payout today is high, it's above 50%.
Right.
Will your thought process maybe grow into that, and you kind of increase the dividend, but maybe at a slower pace than earnings, just to kind of balance that out?
Yeah, the dividend's been a really important part of our investment thesis and, you know, having a consistent dividend. So when we think about how we wanna utilize capital, I mean, the first is to invest in our business, but the second is our dividend. I think what we would expect to see going forward is that the rate of growth in our business will exceed the rate of the growth of the dividend.
Mm-hmm.
Which sort of gets to what, what you've said. That's not to say the dividend might grow, might not grow, but it won't grow at the same pace. So we'll sort of leg into, I think, a dividend payout ratio, combined with a share buyback, buyback. So it has sort of a total return to shareholder, you know, durable platform that I think will be, you know, a really attractive, long-term capacity for our shareholders.
Sure. And you've mentioned bank M&A isn't the priority right now.
Right.
You've talked a lot about organic opportunities.
Yeah.
But how do you think about potential bolt-on acquisitions to accelerate growth in some of these areas that you've talked about?
Yeah, there could be, John, I mean, to your comment earlier, our number one priority—we think the absolute best place for us and best right now is Truist. I mean, we just see tons of opportunity for us to continue to, you know, invest in our business, achieve the potential of the merger. We talked about earlier, you know, expand in markets that we're in and, you know, become more relevant and more competitive in all of those markets. There could be some small bolt-on things that would might make sense, some partnerships that might make sense in the areas that we talked about, payments. But I don't see that as being a big, dramatic, you know, sort of, you know, power shift, you know, buy another insurance equivalent kind of business from a capital utilization.
It would really be more on the strategic, you know, to your, to your comment, bolt-on enhancement opportunities.
Mm-hmm. And are there any significant tech upgrades that you need to make or you are in the process of making right now?
Yeah, I mean, I think we talked about earlier, I mean, the continuous investment on the payment side. The great part about the positioning right now in payments is, it used to be payments was a big core, you know, type investment. And today, you know, it's a much more left lane, you know, faster payments, API. You know, there's just a way to invest in that business at a much more efficient basis. So that's the area that's probably seeing the most investment from us on the, you know, core, you know, systems and capabilities in the company. You know, there are always enhancements, but there's not a stairstep big thing there that we're worried about at this point.
Mm-hmm. I guess putting all this together, if you post the sale an the TIH, the efficiency ratio improves, but ROTCE comes down, as you mentioned.
Right.
Probably starting in the 12.5% range.
Right.
You used to do the high teens. What will be the kind of multi-point plan for Truist to kind of be thought of as an ROTCE improvement story over the next couple of years? And, and what are the levers that you-- across organic and mechanical and.
Yeah. So the, you know, so the, the—take, take as i said a couple of points. One is, we'll do all this on an efficient platform. You know, so what shows up, I got the insurance business was a, you know, great capital, contributor, but it was also a highly, high efficiency ratio business. So when you sort of take that away and you look back and say, "Oh my gosh, this bank works at a pretty, pretty low efficiency ratio." And we want to continue that. We wanna be—we've always said that we wanna be sort of top quartile in terms of how we think about efficiency. I think, the scale, size, and scope of our—in the businesses that we're in, gives us an opportunity to do that. So that's on that front, positive operating leverage to achieve that.
And then as we, you know, transition into ROTCE, as you said, to sort of, we sort of like take a stairstep down, but we have the opportunity to improve that. And we'll be the ones that will be growing our ROTCE. We're not ready to set sort of that medium-term target today, but the things that happen mechanically is, to use your term, that sort of are immediate. One, we have things like the AOCI burns off, so you create earnings capacity from that, so that sort of happens naturally. And the things that we can do in the share buyback component of that, we can bend that curve a little more quickly, and create a little bit of a stairstep in terms of the ROTCE. And then from there, it's all about growth.
From there, it's about the growth, the investment. How do we utilize capital? Are we utilizing it effectively? You know, our shareholders, are they getting the benefit of how we're investing that capital against the opportunities that happen in our business? So, you know, back to the earlier comments, I think we're—we have the opportunity over the next 3-5 years to have a really good return of capital position with our shareholders, and have this core business that's got these growth opportunities to continue to grow from an ROTCE standpoint.
Yeah, great. And along those lines, another question that has come up around the question of stakeholder priorities. You've made it very clear that Truist is a purpose-driven organization.
Right.
That focused on delivering for all stakeholders.
Right.
To be fair, over the last couple of years, shareholders have felt a little left out of the equation. So I guess, what can you offer investors to say that, you know, the purpose-driven model will also deliver for them over the next five years, and, and everyone's aligned?
Yeah, look, there's-- I'm a large shareholder myself. So, you know, we haven't met shareholder expectations during, you know, during the first part of the merger, haven't met our own expectations. And all the things we've talked about are positioned for the future. That hasn't been because of purpose. Purpose is this strong foundation of, of what we want to create as a company, and purpose and performance are inextricably linked. They're not two separate things. And we talk about that all the time within our company, is that, they are linked, they are part of a cycle. Purpose-driven, I believe people want to work for purpose-driven companies. I believe clients want to do business with purpose-driven companies. I believe communities want to support purpose-driven companies.
I have a fundamental belief, and I think that's the right cultural foundation to stand for. But it doesn't matter if you're not performing. You know, we're in the business to perform. So, you know, when I use the word stakeholder, shareholder is, well, a high priority in that stakeholder. It's not meant to exclude shareholders in any way, and it's meant to enhance the capacity to build more shareholder value. And our teammates are focused on that. We just use different words when we think about things. So when we think about, you know, expanding our a business with our consumer clients, we talk about having caring conversations. That's a purposeful word, but it. We also want to have more of them.
Mm-hmm.
And we also want to set goals against having more of them, and we want to increase our promise, and we want to increase our relationships, and we want to increase the velocity. So they are connected, and they are part of this, part of this cycle. And I think, and I get the, you know, "Hey, Bill, you know, are you putting your emphasis in the right place?" Trust me, the emphasis is, is in the right place, but they, they- but they are correlated.
Yeah.
I just have a fundamental belief in that.
Yeah. So at some point, when Truist has an investor day, someday.
Yeah.
It'll lay out an ROTCE improvement story that has multiple levers, I guess.
I'm not committing to the investor day, but let's talk about hypotheticals, you know, in terms of investor presentation. Yeah, when we get a few more, you know, cards laid out, I think that's a reasonable expectation, that we start to set some goals and some parameters. And there'll be, you know, market and environmental dependence.
Yeah.
So you'll have to have a little, "if this, then this" kind of part. But I think it's a, you know, an appropriate response for us to start to set some of those targets, because I think that'll be really exciting. I think when shareholders look and say, well, the opportunity for us to return, you know, capital to shareholders over a period, I think we're just, we're uniquely positioned to do that. So I think we have a fantastic story to talk about, so we're actually anxious and looking forward to talking about that.
Yeah. So a couple other things as we have a couple more minutes left here. Bill, one thing that's come up as we think about the longer term, how does the board and yourself think about succession planning at Truist?
Sure.
How do you guys go through the process there?
Yeah, there isn't a meeting that goes by when succession planning isn't a topic. It may not be the specific topic of the meeting, but the concept of succession planning, bringing people in front of the board, letting them experience that we have a plan, building capacity for teammates, adding people into key roles, making the changes that we need to make, looking at places to give, you know, teammates different experiences, they build their toolkits to move along. So it is a very, you know, rigorous process that has a continuous look. Our board takes it very seriously. I take it very seriously. I think it's one of the most important things that you do as a CEO, you know, in addition to creating great shareholder value for the shareholders, is create great succession.
Mm-hmm.
It's something that we take very seriously and spend a lot of time and energy on.
So, on the regulatory front, besides Basel III, what are the key items on the regulatory agenda that are important for Truist, and how do you feel positioned for those, potential outcomes?
Yeah, I mean, there are, you know, there are a lot of things around the edges, you know, in terms of, you know, late fees and overdraft fee, you know, things that are, that are related to, you know, debit interchange, pick your category. I think we're relatively well-positioned against all of those relative to others. They can say, you know, people will be, you know, impacted, you know, proportionately to their size and scope of those businesses. The fact that I have a really diverse business, so that helps from, from that standpoint. Certainly, the M&A environment will be something that we all are going to keep an eye on, on sort of where is that, what's that capacity, and what does that mean for a competitive position?
So you know, I've said before, our priority is Truist, and I think we have the best company to invest in right now is us, and the opportunities in the markets and the places that we can invest in. But we need to keep an eye on what that means from a competitive position and what's happening in that environment? And then I just think there's an overall, you know, governance, like, you know, accountability, you know, really strong focus on controls and all those things from a regulatory standpoint. And I think we're in a really good position.
You know, we've doubled the size of our company, so we're sort of been on this mindset of we've got to continue to invest in the risk and control environment in our company. We've got to create an environment that's really, you know, sustainable and, you know, sort of ironclad. So, you know, we'll continue to invest proportionally to the expectations, not only of the regulators, but just to create a really good company that's really solid and has a risk and control environment that's sustainable.
Okay. So a few questions here, kind of lightning round from the Pigeonhole.
Okay, great.
Organic growth sounds good, but your main markets are a knife fight between big banks and other regionals trying to grow share. Who do you hope to take share from as you execute on these new strategies?
Yeah, it's never one entity. We don't get up in the day and think that we're gonna single out this. You know, we're a global entity. So, in different markets, we have different opportunities against different competitors. What we look at, I mean, like in the consumer side, one of the big indicators is net new. And, you know, over the last 18 months, we've sort of seen net new growth. First quarter, you know, 30,000 net new. That means we're retaining more, so people aren't taking them from us, and it means we're acquiring more, so we're taking them from somebody else. And that's sort of the barometer that we look at as we are increasing our competitive position.
And then the second is primacy within our own, within our own relationship. So you'll see us much more focused on creating the primacy of the relationship. I mean, one thing we all, you know, learned post-March is, you know, things flow, and they flow less from places that you have primacy.
Mm-hmm.
They flow less from places where you have operating accounts. They flow less from places where you have a deeper penetration. And so that will be a clear focus for us to sort of, you know, not only protect the flank, but to continue to grow the business with our own, with our own client base.
Great. Another one here is about auto and credit quality.
Yeah.
What do you think of the auto losses, particularly in your subprime business, and what's your outlook there?
Yeah, I mean, the subprime normalized, you know, several quarters ago. So while others are normalizing, that normalized, you know, several quarters ago, sort of in that 7%, you know, kind of range. You know, if you looked at our subprime portfolio, you thought over the course of the merger, one, it's a business we decided not to grow. We like the overall return in the business, so we like the return. It's extremely well managed, so we have a great team. They really have all the infrastructure that it takes to do that. You have to have great collections, you have to have great, you know, underwriting, you have to great prowess, you have to great relationships, all that. So I think it's a business that sort of has normalized.
We, over that course of time, have probably migrated more near prime than subprime, just a little bit of client selection along that process. I think it's, if you think about it, for us, don't think about it as a really high-growth business, but think about it as a good return business, that's managed well. And it has, as I said before, and it has normalized.
Yeah.
So we're sort of in that mode.
Okay. And then just a final comment from you to wrap up here. We've talked a couple of times this week about banks where the bone structure is good-
Yeah.
The client size is good. It's hard to see sometimes in the context of macro challenges, in your case, with MOE. What's underappreciated about the kind of bone structure of Truist and gives you optimism about what you can do over the next five years?
Yeah, I think, John, you and I talked about this, but there have been so many, like, outside extraneous factors, but we created some of them. You know, the merger itself and, you know, merger charges. You know, we've had the portfolio that's, you know, that's sort of had to look through. You know, we've had the TIH sale and all the other things come into that. And so I think what's missed is like, go back to why we did this originally, you know, and go back to the original premise, and all that's there. And not only is it there, when we turn the page, it's better than we thought it was.
The opportunities for to expand the relationships, the places where, you know, we created symmetry and we didn't have overlap, all that's there. The prowess in our markets, the significance going from, you know, a 10%-20% market share, and a market is a dramatic difference. So to the, you know, your words, the proverbial knife fight, I mean, we're bringing a knife or a gun to that fight. I mean, so we're extremely competitive from that standpoint. So I think those are the things that are sort of, not only missed, it's sort of like back to what the original promise was, and then the organization around that, the simplified organization.
I think that's also been missed in all this, is that, you know, the transition here over the last, you know, certainly nine months, to create a much more simplified organization that can execute with a lot more alacrity and a lot more effectiveness, you see.
Great. Well, thanks so much for being with that, and appreciate you coming.
Great, John. Thank you.
See you next year again.
Great. Thanks.