TRUIST FINANCIAL CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Progress: Made demonstrable progress on strategic priorities with solid underlying earnings, improved momentum, and sound asset quality. Adjusted revenue grew 2.4% linked-quarter due to strong investment banking/trading income and balance sheet repositioning.
• Expense Discipline: Adjusted expenses increased less than 1% linked-quarter and declined year-over-year for the third consecutive quarter. Efficiency ratio improved, with expenses projected to decline in 2024 vs. 2023.
• Capital Return: Returned $1.2 billion to shareholders via common dividend and $500 million share repurchases, with another $500 million planned for Q4. CET1 capital ratio remained stable.
• Business Segments: Active in core segments with increased loan production in consumer and wholesale, focus on digital initiatives (e.g., 6% growth in client mobile app users, 15% growth in digital transactions), and client experience enhancements (over 130 digital experience enhancements in Q3).

Segment Performance

• Consumer and Small Business Banking: Experienced a 3% linked-quarter increase in consumer loan production driven by non-real estate lending, with indirect auto and other consumer balances up 2% linked-quarter. Opened nearly 200,000 new digital loan and deposit accounts, including over 75,000 new-to-bank clients through digital channels. Net new checking account growth was positive, with 40,000 new consumer and business accounts added in Q3.
• Wholesale Banking: Saw 1% growth in commercial deposits and 4% increase in wholesale lending production. Investment banking revenues increased 79% year-over-year and 43% year-to-date, with record performance in equity capital markets, investment-grade issuance, etc.

Guidance

• Fourth Quarter 2024: Revenue expected to decrease 1.5% from Q3 adjusted revenue of $5.1 billion. Net interest income to decrease 1.5% due to lower commercial loan balances and deposit beta lag. Non-interest income to decline 2% driven by lower investment banking/trading revenue. Adjusted expenses expected to increase 4% due to investments in talent, digital platforms, etc.
• Full-Year 2024: Revenues expected to be down 0.5%-1% vs. prior guidance. Adjusted expenses to be slightly lower than 2023. Net charge-offs expected to be closer to 60 basis points vs. prior expectation of ~65 basis points. Targeting $500 million share repurchases in Q4. Effective tax rate to approximate 17.5% or 20% taxable equivalent.

Risks

• Hurricane Impact: Ongoing recovery from hurricanes requiring significant humanitarian and operational efforts.
• Deposit Beta Lag: Temporary lag in deposit beta affecting net interest margin.
• Macroeconomic Factors: Uncertainty in loan demand, asset quality, and overall economic conditions impacting financial performance.

Question and Answer

• Q: Unpack fourth quarter margin guidance, deposit beta, rate sensitivity A: Mike Maguire discussed NIM trends, noting the third quarter margin improvement from securities repositioning, expected deposit beta lag in Q4, and rate expectations with two Fed rate cuts expected in 2024.
• Q: Thoughts on further balance repositioning A: Mike Maguire indicated repositioning is a lower priority currently, with focus on other growth opportunities and share repurchases.
• Q: Meaning of proper execution A: Bill Rogers emphasized focus on expanding relationships with existing clients, leveraging momentum in client acquisition, primacy rates, and net new account growth.
• Q: Operating leverage and ROTCE A: Bill Rogers discussed correlated expenses with revenue growth, commitment to positive operating leverage, and ROTCE potential through efficient operations and capital deployment.
• Q: Buybacks and market share growth A: Bill Rogers stated buyback pace will remain elevated, with focus on growing market share in investment banking, net new clients, and primacy within existing client base.
• Q: Management incentives and key metrics A: Bill Rogers highlighted alignment of compensation with ROCTE and growth metrics, focusing on ROTCE and business growth as key drivers of shareholder value.
• Q: Risk infrastructure investments A: Bill Rogers discussed ongoing investments in risk infrastructure (cyber, data, AI) as continuous enhancements to support client and regulatory obligations.
• Q: Wallet share and digital vs. brick-and-mortar A: Bill Rogers discussed T3 concept (touch and technology equals trust), importance of both digital and physical channels in serving clients, especially during crises like hurricanes.