Levels are back up because we have Mike Maguire from Truist CFO on stage. How are you?
I'm great. Thank you so much for having us.
Absolutely. So before we talk about how the bank is doing, I just would like to discuss some of the management changes that were announced at the beginning of the year with Beau Cummins stepping down and you and Kristin Lesher splitting his responsibilities. What does this announcement mean practically for how the company is run and managed?
Yeah, no, great. Well, I mean, maybe just to start, I would say hard not to acknowledge the contributions that Beau has made to our company in his 20-plus year career at Truist, leading many of the various aspects of our wholesale business, more recently with an emphasis on some of the strategy work that's been done. So huge fan of Beau's, good friend. Beau leaves a huge fan of Truist. And so excited for him in his sort of next chapter. As it relates to his responsibilities, I'm excited about the opportunity to have our wholesale payments business and really our enterprise payments business more closely aligned to Kristin's work. They were already, she and Chris Ward, working very, very closely together. But you've heard us sort of time and time again talk about the opportunity that we believe we have, especially in treasury and wholesale payments.
And so I think that's going to be just a very sensible way to go to market. And then the rest of Beau's responsibilities, some of the operations and corporate services work. I'm also very excited about getting to work more closely with some of that leadership team. Some of the quick opportunity that I see is just seeing more abilities to connect dots, think about how we run the company more efficiently, more productively, and the like. So that's how we're thinking about it.
So in general, just taking a step back, there's obviously been a significant increase in optimism for the banking industry this year, finally. How do you think Truist is positioned to win in this environment?
Yeah, well, I mean, if you think about the fourth quarter and sort of how we put last year to bed, felt pretty good. Felt like we ended on a nice note and do come into 2025 with some good momentum. In many respects, I guess maybe a couple of factors to think about. The first, I think, and this is more of a Truist comment, and I'll talk a little bit about the backdrop too. But I think our capital position and not just our ability, but our ambition to, again, one, still be able to return capital to shareholders at an elevated level. That's something that we're focused on, committed to. But also just be able to go out and prosecute our growth agenda. Having a real growth mindset across really all of our various lines of business. Kristin's across wealth, across commercial.
We just welcomed a new leader to run corporate and commercial banking for Truist. Our investment banking business has great momentum and our consumer businesses the same, really focusing in this premier segment, trying to go out and drive growth. The whole company is activated right now with a focus on growth, which is a different place than where we were six, 12 months ago when we were quite a bit more cautious, so you've got a good capacity to, again, to return capital, but also to grow. You've got the company activated, the front line. We're adding talent at the front line and I think also just importantly, the backdrop seems good. I mean, we've got a curve that is productive. We still do sense good, I think, a sense of optimism across our client base, both consumers, business owners, larger corporates.
If we can sort of keep on with the momentum that I think we ended last year with, we feel pretty good about the operating environment.
Speaking of momentum, you didn't guide to low single-digit loan growth in 2025. Where are you expecting to see strength this year?
You know, for us, loans, at least our desire is to see loans grow across the board. I mean, I think maybe one exception would be in the commercial real estate space, just given all that's happening there. But we see opportunities in our core commercial business. I mentioned welcoming Kerry to the company. She's very focused on driving our upper middle market corporate business as well as our commercial business. The investment bank has great momentum too. Our specialty lending businesses on the consumer side have good momentum, good defensibility. These are our indirect lending platforms. So we would love to see all of these businesses grow. And that's how we're focusing our investments for 2025 as well.
So, it's a little bit unique to Truist as your consumer lending businesses. For many banks your size, the consumer part of the book is a little bit of a melting ice cube, so to speak, of Resi and home equity, but not for you guys. Can you talk about how those businesses are performing, your appetite for growth in your specialty consumer businesses, and overall consumer health?
Yeah. Well, maybe starting with your last point on the consumer health piece. We see a pretty healthy consumer still. So no real update there to outlook. I mean, you see an employment hanging in there just fine, which is obviously a really important factor as we think about consumer health and sort of the credit environment we're in. So with that backdrop, we're excited about these businesses. So a quick reminder, and we've done, I can't remember, sometime last year, I think we did a deeper dive. I think Dante had an opportunity to talk to investors about this portfolio of businesses. But we've got a personal unsecured lending business, which we go to market as LightStream. We have indirect lending businesses that focus in niches like the home improvement space, so Service Finance, the outdoor power equipment space, and power sports space, which is our Sheffield business.
And we also have a sizable indirect auto business, both prime and kind of non-prime. So each of those businesses has really nice defensibility. Like in the case of the indirect businesses, great relationships with equipment manufacturers or installers of home improvement on the auto space, our dealer network. They're all performing very well. This was a place that in 2023, when capital was more scarce and the environment was less certain, this was a place that we pulled back a touch, primarily because it was a little easier to calibrate production. And at this moment in time, we're going the other way. We really like the businesses. They're performing well. They are, with the exception, we have a couple of businesses that are fuller spectrum credit.
But most of the businesses I just mentioned are really focused on a very high-quality borrower and very profitable businesses where we think we have a right to win and have great shares. So yeah, so optimistic about that portfolio of businesses in 2025.
That's great. I wanted to pivot to the other side of the balance sheet, deposits, so maybe unpack your expectations for us for deposit balances and betas in 2025, and how do you think both will be influenced by the rate environment or loan demand?
Yeah. Well, deposits, funny, again, comparing to even a year ago or even middle of last year, I would say just a more stable overall environment. We saw, I think, just a much more rational view on pricing, on product selection. We haven't seen nearly as much sort of transition and mix in the deposit portfolio. I think you mentioned loan growth. We do have an expectation that you'll begin to see some loan growth that should drive deposit creation. We do have an expectation that the QT is going to play less of a factor this year. And so I think all things equal, I think we have an expectation that we'll see loan growth or, pardon me, deposit growth that's comparable to what we see on the loan side of the business.
On the pricing side, we've been pleased by how we've gotten out of the gate with some of the first couple of cuts that we saw last year. I think we ended the year at around a 40% beta and expressed an expectation that this quarter we'll get to kind of the mid-40s and be sort of on a path to 50 or so. The rate environment, obviously a factor in some of those assumptions. I mean, I don't think there's at this point a lot of risk to kind of how we're thinking about this quarter and the betas. But I think if you saw a situation where the short end just stayed where it was, that might put a little bit of pressure on that outlook. But again, we were able to see such quick progress that we feel pretty good about the outlook there.
So putting it all together in terms of NII or net interest income, as you mentioned, rate expectations are constantly changing. Think about where we were six months ago. Can you discuss how Truist is positioned now and how you would expect to be impacted by changes in both the short end and the long end of the curve?
Sure. Yeah, I mean, I mentioned earlier just on sort of the opportunity coming into 2025 that we have a curve that is productive. We have some positive slope to the curve. I would say to the extent that we see the short end sort of stubborn and taking out the idea of hikes from here, but maybe you don't see any cuts, it's a touch of pressure for us. Similarly, I think if we had two cuts in our sort of baseline view, if you saw those two or even a third, that would be helpful to our outlook. I don't think either, frankly, puts us outside of the confidence of our expectation for the full year. The long end, of course, is something we're watching very carefully too.
And so if you saw a flattening of the curve, especially where you saw the short end where it is and saw the long end a little lower, that would add some pressure to our opportunity on the fixed asset repricing side. So far, so fine, I'd say. It's early days, but that's probably how we're thinking about the curve.
So it looks like you added to the investment portfolio and increased your swap position during the fourth quarter. Can you discuss how we should think about the size of the bond portfolio and cash position going forward and also the overall impact of the swap portfolio?
Yeah. So we did have a more active third and fourth quarter in the investment portfolio. We took it up from, I think, in the $115 billion area up to closer to $125 billion. That's book value. And the way we've thought about sizing the bonds and cash, and this isn't perfect science, but we've sort of talked about a range in the $150-$160 billion area. The $10 billion we added in kind of since July took us up to the high end of that area. So I wouldn't expect us to continue to add to the investment portfolio from here. And some of that was motivated by just an outlook around, at the time, shorter-term loan growth expectations. We obviously have the opportunity to bring the size of the portfolio down a touch if we saw outsized loan growth, which would be great.
The swaps, obviously, as we did add to the securities portfolio, we did add some pay fixed swaps just to manage the risk that long end rates might go higher and just in sort of a world in the future where AOCI could create capital risk. And then more broadly speaking, across our swap portfolio, and we talked a little bit about this on our earnings call, we have continued to be focused on managing the risk to a much lower short end. And so adding some received fixed swaps as well. In many cases, forward starting swaps, thinking about that protection, not just in 2025, but in 2026 and 2027 and beyond.
So switching gears to fees, if I may, investment banking and trading has demonstrated consistent growth over time and had a very strong 2024. Could you discuss the investments that you've made to help drive that growth and where do you expect to see growth in 2025?
Yeah. Our investment banking business we're very fond of, very proud of, and it's been a consistent contributor for us. It's been a high single-digit, in many cases, low double-digit grower for us. It's been sort of on a continuous journey of improved market share and improved market relevance. And so this is something that's important to us. We've had a pretty continuous investment program in place, and that comes in a number of forms. In some cases, it's been, and then it changes year in and year out, but adding banking teams along certain sector themes. We are always very mindful of making sure that our product portfolio is comprehensive. We really do consider ourselves a completely full-service investment banking platform. So we need to have all the solutions to serve our clients, large and small. And so really talent and product.
From time to time, for example, last year, we also made some investments in our electronic trading platform. So this is an important business for us. It's one that we want to be mindful of, continue to invest in. And it's going to be one of the factors that helps us drive, I think, some of the improvement that we've talked about in terms of our profitability and our return profile as a company.
So outside of investment banking, where else in the fee income spectrum are you focused on growing?
Yeah. We're a little simpler story now, ex-insurance. And so probably the area that you hear us talk the most about and where we're most focused is doing a better job in that treasury and kind of wholesale payments ecosystem. And so we believe we're under-earning there. We, I think, have added very good talent, good leadership. I mentioned Chris Ward and his team of lieutenants. I think we're doing an excellent job. Excited about the opportunity for them to work even more closely with Kristin and Kerry and her team. And so that's an area where we just have to go execute. We've made the investments in people. We've been focused on sales culture. We've made the investments in product and the experience. So we think the table's set. But at the same time, these sales cycles for this business, they're a touch more extended.
So not an excuse, more just an acknowledgement that this is an area where we really think we can make a difference longer term to our financial profile. And I'll just tell you that everybody at the company is very, very focused on it. And then the other category would be wealth, of course. Wealth's been a more steady Eddie for us, does a really nice job. We're adding advisors across our platform there. We think we have an opportunity to drive more connectivity across our broader kind of mass and affluent retail business. And so Dante and Kristin are working very closely together to prosecute that opportunity as well.
So just double-clicking on the PM opportunity, you mentioned a long sell cycle. When you're back here next year, are you going to update us on better rate of change in terms of penetration rates, do you think?
No, that's a good push. And we've had a lot of conversations with our investors about the same thing, which is how can we think about the right artifacts to sort of inspect as we go? Because this really is a big opportunity for us, not just in treasury, but some of the other areas where we believe we can really move the needle and edge up our return profile. But yeah, I think that's a reasonable expectation. And look, it goes beyond getting the right people in place and getting the products right. There's also, I mentioned sort of sales culture around TM. And we have so many great relationships in a lot of cases. They're bilateral relationships. There are places where we have quite a bit of importance, mutual relevance in a relationship. And we just have to do a better job of better serving those clients.
I mean, in a lot of cases, they're consuming payment services from another firm. And so as we're thinking about adding new clients and as we're thinking about working with our existing clients, the mindset really is beginning to shift. So I think we are going to see some fast results and challenge accepted.
And just to that end, I just want to reemphasize, you do feel comfortable in the investments you've already made to products. So you don't feel like there's an incremental opportunity to a wholesale investment you need to make to get to that target.
We have a sizable investment portfolio focused on wholesale payments. It's a journey, not a destination. Yeah, we've taken a big swing at it. We will keep swinging at that. I mean, I think like any digital experience, you're only as good as the last interaction. So it's got to be a continuous improvement story. Yeah, I do believe we've made a number of foundational investments that will move the needle.
Speaking of foundational investments, so I wanted to talk a little bit about expenses. You guided to limiting expense growth to 1.5% in 2025. Can you discuss the balance that you have in terms of holding the line of expense growth at this level while also investing in the franchise?
No, that's a good question. I mean, the 1.5% one, I'll just say we feel great about. The work we've done and really the work we started talking about a lot towards the end of 2023 and throughout the course of 2024 around just being a more efficient company, having just a sharper mindset around expense management, those benefits continue or that attitude continues to persist. To be honest, if you go back to the late 2023 work that we did, we talked about a pretty sizable cost savings initiative. A number of those initiatives were sort of fast impact, right? Maybe thinking about headcount or maybe thinking about rationalizing certain spend. But some of that work was going to have a little longer tail. So whether it was sort of parsing through our sourcing portfolio or thinking about automation opportunities and so on and so forth.
So some of the benefits of that work that we started at the end of 2023, and by the way, we never finished this work, but some of the focus that we really added to that effort, some of that fruit is still pulling through into 2024 and into 2025. And so that's what creates the capacity to go make the investments that we think are important. And whether they be in wholesale payments or whether they be hiring bankers, I've mentioned it already, but we really are focused on hiring great frontline talent to go drive our growth agenda.
If there's one word that we're focused on, it's growth. Go to any floor, get off the elevator at any floor in our building. Hopefully the people would say, "Yeah, we're focused on growing our business right now," but it's creating that capacity through focusing on efficiency and being mindful, that lets that all work together.
You've talked a lot about operational risk, compliance, investments, right, and continuing to prioritize those. At which point should we think about BAU, table stakes, investing in those categories versus sort of let's call it catch-up for lack of a better word?
Yeah. I mean, to be fair, I think we are still in a little bit of a catch-up mode just as a company that's still adjusting to our newfound scale and, frankly, expectations that have changed a lot in banking even over the last couple of years, kind of post-SVB and the aftermath of that. You had quite a bit of shift in expectations for firms. And so maybe it's an unknowable question. I mean, I'm optimistic that we are making great progress. And I think as an industry, companies like ours are making good progress. And I do think at some point, I don't know whether it's in 2025 or 2026 or 2027, there'll be some benefit of being able to remix some of that capacity into more discretionary growth-oriented work versus risk culture, risk execution, infrastructure. Both will always be important and they'll always be.
But right now, you're right in your question, which is a little bit more of a statement, which is there's a little bit of catch-up work that's being done right now.
But the primary message really here for 2025 is you're able to achieve the 1.5% while investing in growth.
Yeah, that's right.
Right. So asset quality, which we literally have not talked much about during this conference other than the card companies. In terms of asset quality, could you maybe, you touched on CRE. That's not a growth focus for you. Could you discuss your outlook for CRE, especially office and multifamily? And are there other areas you're watching closely? I mean, we are fielding questions about the impact of tariffs, the impact of the tax cuts sunsetting, extending, the impact of businesses?
So, the end of your question, watch items. We're thinking about the same things right now. I think we're consuming that information as quickly as all of you are in the audience and you and your firm. But as far as the commercial real estate, and we've talked a lot about this really over the last couple of years, it's steady as she goes. I mean, we're doing the work. Our risk there, our exposure there is very manageable. We think we've been very proactive. We feel very well reserved for the losses that we're realizing and expect to realize in that space. So, I'm not sure I have a material update as it relates to office. Multifamily, we're watching. It's funny, a lot of times people put those side by side with an expectation that they're similar.
They're quite different, I think, in terms of how that will play out. I mean, the projects that we're engaged with, and this is a broad statement, are good projects and they have strong sponsors, and is there a touch of stress on how quickly things are running up? Sure, but these are by and large deals that we feel good about, and sort of comparing them in terms of asset value deterioration to what we're experiencing in office, I think is kind of an apple and an orange. Outside of that, we've seen sort of the same normalization that others have seen across our consumer businesses, really not seeing much, not much to report.
Speaking of not much to report, capital, just kidding. A lot to talk about there. Regarding capital levels, how are you thinking about the amount of capital that you will need to operate in the future? Clearly have a lot. And this deregulatory environment seems to imply that the definition of excess could move.
I think you're right. I mean, I think there was a period of time, a number of months where I feel like as an industry, we were beginning to have more confidence in what sort of a normal operating level might be. I'm not sure I have that same level of confidence now. I mean, we've talked about for.
In a good way?
Well, more just we thought we would maybe see a final rule proposed and an implementation schedule around B3, and that seems to have stalled. And I'm not sure it's responsible to speculate on exactly where that goes. So it's just there are fewer cards on the table. And so, I mean, the way I'm thinking about it is from a Truist perspective, we have quite a bit of capital, obviously, and capital flexibility. The way we're thinking about our next couple of years is we want to continue to buy back stock at an elevated level. I think that's important to our client, to our investors. But at the same time, prosecute this growth agenda. And we're fortunate to be in a position where we can do both.
And I think however the cards do turn over as it relates to the new rules or how they'll be implemented and how that'll play out, we have quite a bit of flexibility. And I think so our ability to comply with whatever the expectation evolves to become, we feel pretty good about. But I think it's really hard to draw a line at this point.
The DFAST parameters or stress test parameters recently came out. It seems like it's less onerous than last year. But more importantly is the language that the Fed reiterated about increasing transparency, which they mentioned in a December 23rd press release, very well timed. I'm sure we were all wrapping gifts by that time. So how do you think about that in terms of DFAST and process improvement as it relates to how Truist defines excess capital?
Yeah. Well, look, I mean, for us, our SCB doesn't necessarily sort of dictate sort of the binding constraint on capital. It's a component. The annual stress testing process is a really important part of our capital planning process. I think it's useful to have more transparency and to get a better sense for some of the modeling assumptions that have from time to time frustrated firms that do quite a bit of work and want to better understand their results. But for us, we have our own capital limits framework that's based on our firm's specific risk and concentration and scenario analysis. And so that will really be what drives ultimately our capital planning profile and sort of targeted operating area.
Maybe could you discuss with us then your top capital priorities and what would make you consider increasing the pace of your share buybacks? You mentioned that it's important. And would you consider additional investment securities repositioning?
Well, we've sort of talked about this sort of hierarchy of interest and capital deployment, and I would say it hasn't changed lately, and the first, of course, is growth. We'd love to leverage the capital to grow our franchise across all of our businesses, and so that's still number one. Number two, obviously, our common stock dividend is really important to us and to our investment profile and to our investors, and so maintaining it is probably our second priority. Third is the buyback, I'd say, right now, and not just a buyback, but when we thought about the sort of financial profile change that the divestiture of TIH created, it does give us an ability to buy back stock at an elevated level, and we think on a more durable basis, and so that commitment remains. We will continue to look at the buyback in terms of size.
I mean, we're at $500 million a quarter right now, coupled with our dividend that, again, is approximately 100% of earnings, give or take. That to us feels sort of appropriately elevated. But look, we will continue to do the work. And if opportunities don't arise that allow us to go create more value through leveraging the capital, then we'll give that a look. The repositioning, in May, we took a pretty big swing there, really did transform the position of our securities portfolio. It's not perfect. We're still under earning, especially in our held-to-maturity securities and even portions of our AFS portfolio. But we have shortened it up considerably, really improved the quality of the collateral, the liquidity profile. And so while I think we might incrementally continue to look at opportunities there and we certainly have that muscle, I'm not sure that's our top priority right now.
But never say never. I would say if we acted there, it would be more incremental than sort of.
Wholesale.
Transformational or whatever. Yeah.
So going back to the top priority, which is growth, on your earnings call, you discussed growth opportunities in Texas, Pennsylvania, and New Jersey. Could you maybe unpack the opportunities that you're seeing in these markets?
Yeah. And to be clear, these are existing markets for Truist. So we have a presence in each of the three markets you just noted. And there are others that sort of resemble them as well, which are, but what makes them a little different than some of the markets we most often talk about at Truist is they don't have the same density of share profile that you might see in a Charlotte or an Atlanta or a Fort Lauderdale or Miami. And so our perspective there is, hey, maybe there's an opportunity to surge incremental resource, add talent really across our whole franchise, both the retail and the wholesale side of our business and drive some momentum and share gains there. So we're doing that in those three markets and others and starting to see some good results.
Great. Last fall, you provided a medium-term, mid-teens ROTCE target. Could you give us some background on how this target was developed and what you view as the most significant opportunities to help you get there and maybe give us updates on your progress towards hitting this target?
Yeah. I think with TIH divested, really remixed the business, changed our ROTCE profile, and so I think it felt like an appropriate exercise to basically assess where we were and where we thought we could get, and so out of the gates, we're a low teens, right? ROTCE story, and we felt like based on what we saw in front of us, whether it be the capital that we felt like we could deploy, some of the improvements in profitability, some of the improvement and execution around some of these businesses we've talked about, we saw a path to a mid-term or a mid-teens ROTCE , and so look, I think the expectation investors should have is we will make some progress towards that goal this year, and we should make continuous progress towards that goal.
So I've talked already about a lot of the initiatives that go into that. I won't sort of torture the payments opportunity, but also deepening on the consumer side. We have a lot of assets. Maybe it's investments, maybe it's just liquidity that our clients that we see are off us. And so really doubling down and trying to better serve and more wholly serve those clients, some of the white space that we're trying to penetrate in the corporate banking business and the like. So really thinking about how are we going to drive more capital-efficient revenue through our machine. And then, of course, also you've got the benefits that we should realize just as our fixed loan and securities portfolio do roll up the curve. We should see some benefit on the net interest margin side as well.
Great. Just as a reminder, I have a few more questions for you. But for the audience, if you wanted to ask Mike a question, you could scan the QR code on the tables. You submit it and I get it through the iPad. We also have a mic in case you want to ask the old-fashioned way. So on the outlook, I know we're only six weeks in, but as you think about the guide for 2025, where do you see the biggest risk and where do you see the biggest opportunities?
Biggest risks and opportunities. Well, maybe just kind of coming down the P&L from a net interest income perspective, our baseline outlook is that we will see some balance sheet growth. I don't think it's heroic end-of-period loans in the low single-digit sort of context. And so I think if you didn't see that opportunity reveal itself and in fact, you saw balances decline, that obviously would add pressure to our outlook. Similarly, we've talked already a little bit about the curve. I think a stubborn short end and a lower long end would be suboptimal and would add some pressure for us. Similarly, if we saw maybe at least the cuts that we have in the baseline and maybe a third and you see the five and 10-year part of the curve sort of hang in, that could create some upside and some benefit for us.
I feel pretty good about the betas. I mean, I might have said if you'd asked me that question in Q3 or Q4, like, hey, it depends on how the deposit pricing pulls through, but we're off to such a good start there as a company, and I think even how it just seems to have played out in the industry that I don't have as much concern around execution on the pricing side. On the fees, set aside the payment stuff we've talked a lot about, which is we just need to go and get it done. Our markets businesses seeing just more activity, so I think there's quite a bit of, it seems, optimism out there for 2025 around M&A markets and sponsor-driven transactions and middle market businesses doing transactions and expanding.
And so to the extent that that pulls through, that would be obviously great for our capital markets, investment banking, and sales and trading businesses. And on the wealth side, of course, would benefit from having better overall market performance. And then on expenses, I'll be stubborn about it. I mean, I feel pretty good about how we're positioned there and really confident. So those are probably the puts and the takes.
Stubborn's good when it comes to the expense target, right?
Yeah.
So in conclusion, you guys have made a lot of changes clearly over the last year. How should investors be thinking about the Truist story today?
You know, I mean, I think we're much simplified versus a harder question to answer. A year ago, we were going through a lot of transactions and change. You said it. As I think about our story right now, we've got the capital to grow. We've got the capacity to continue to return capital to shareholders. We're clear-eyed on, I think, a focused area of initiative that will improve profitability and a lot more focus on execution. So I think our job this year is to execute.
Great. Do you have any questions from the audience? Well, I think that's a perfect note to end that with. So thank you, Mike, for joining us today.
Yeah, you got it. Thank you very much.
Thank you.