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    TFC
    Earnings call· Dec 2024(Q4 FY24)

    TRUIST FINANCIAL CORP TFC

    Jan 17, 2025 Source

    Executive summary

    Truist Q4 FY24 — Strong Capital Position and Positive Operating Leverage Outlook

    Truist concluded FY24 with strong capital and operational momentum, driven by strategic initiatives in digital banking, middle market expansion, and targeted geographic growth. The company is focused on deepening client relationships and maintaining expense discipline to achieve positive operating leverage and progress towards its mid-teens ROATCE target in 2025. A robust capital position supports both balance sheet growth and significant shareholder returns.

    Highlights

    5

    • Annual adjusted revenue finished at the high end of expectations, with annual expenses declining 40 basis points.

    • Average deposit balances increased 1.5% linked quarter, or $5.7 billion.

    • Investment banking and trading revenue increased 46% for the year versus 2023.

    • CET1 capital ratio finished the year at 11.5%, up 140 basis points versus 2023.

    • Returned $3.8 billion of capital to shareholders in 2024 through common dividends and $1 billion in share repurchases.

    Concerns

    5

    • Adjusted expenses increased 4% linked quarter due to higher professional fees and outside processing expenses.

    • Net interest income decreased 0.4% linked quarter, or $16 million.

    • Net interest margin decreased 5 basis points linked quarter to 3.07%.

    • Investment banking and trading income declined $70 million linked quarter due to lower activity.

    • Average deposit balances are expected to decrease by about 1% in Q1 2025 due to seasonally higher municipal deposits.

    Guidance & targets

    14
    CategoryTargetConfidence
    Q1 2025 Revenue
    decrease 2%
    high materiality
    High
    Q1 2025 Net Interest Income
    decrease 2%
    high materiality
    High
    Q1 2025 Noninterest Income
    decrease 2.5%
    medium materiality
    High
    Q1 2025 Adjusted Expenses (incl. CDI amortization)
    decline by 3%
    medium materiality
    High
    Q1 2025 Share Repurchases
    approximately $500 million
    medium materiality
    High
    Full Year 2025 Revenue Growth
    increase by 3% to 3.5%
    high materiality
    High
    Full Year 2025 Net Interest Income
    growth
    high materiality
    Medium
    Full Year 2025 Noninterest Income Growth
    low single-digit rate
    medium materiality
    Medium
    Full Year 2025 Adjusted Expenses (incl. CDI amortization) Growth
    increase approximately 1.5%
    high materiality
    High
    Full Year 2025 Operating Leverage
    150 to 200 basis points positive
    high materiality
    High
    Full Year 2025 Net Charge-Offs
    about 60 basis points
    medium materiality
    High
    Full Year 2025 Effective Tax Rate
    approximate 17% (20% taxable equivalent)
    low materiality
    High
    Medium-Term ROATCE Target
    mid-teens
    high materiality
    Medium
    CET1 Capital Ratio Target
    10% area
    high materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Consumer and Small Business Banking
    Experienced increased loan production in key focus areas like residential mortgage, indirect auto, Sheffield, and Service Finance. Added 104,000 new consumer and business checking accounts in 2024. Primacy rates and client retention increased due to client experience and digital enhancements.
    Average consumer loan balances growth linked quarter: 1.2%Consumer loan production increase linked quarter: 5%Net new checking account growth (FY24): 104,000 new consumer and business accounts
    		————
    Wholesale
    Saw growth in average wholesale deposits, including noninterest-bearing demand. End-of-period wholesale loan balances increased, indicating increased production and higher commitments. Achieved record performance in several investment banking areas and gained market share in verticals like financial institutions, consumer retail, and healthcare.
    Average wholesale deposits growth linked quarter: 3%End-of-period wholesale loans increase linked quarter: 50 bpsInvestment banking and trading performance: Record performance in investment-grade issuance, equity capital markets, asset securitization, and project finance
    		————

    Operational metrics

    31
    Adjusted Net Income
    $5 billion
    FY24

    Reported for the full year 2024.

    Adjusted EPS
    $3.69
    FY24

    Reported for the full year 2024.

    Adjusted Efficiency Ratio
    56.3%relatively stable on an annual basis
    FY24

    Reflecting ongoing expense discipline and cost management.

    Average Deposit Balances Growth
    1.5%linked quarter
    Q4 FY24

    Driven by growth in all deposit categories except time deposits.

    End-of-Period Loans Growth
    1.1%linked quarter
    Q4 FY24

    Primarily due to higher residential mortgages, C&I, and indirect auto.

    Total Deposit Costs
    1.89%decreased 19 bps sequentially
    Q4 FY24

    Resulted from active management of rate paid.

    Cumulative Total Deposit Beta
    29%
    Q4 FY24

    Implied by total deposit costs.

    Interest-Bearing Deposit Costs
    2.62%decreased 26 bps sequentially
    Q4 FY24

    Resulted from active management of rate paid.

    Cumulative Interest-Bearing Deposit Beta
    40%
    Q4 FY24

    Expected to reach mid-40s+ in Q1 2025 and 50% next year.

    Average Investment Securities Portfolio
    $125 billion
    Q4 FY24

    Weighted average yield excludes the impact of pay-fixed swaps.

    Investment Securities Portfolio Cash Flows
    $13 billion
    FY25

    Expected cash flows from the investment portfolio in 2025, anticipated to be reinvested at higher yields.

    Average Fixed Rate Loan Portfolio
    $135 billion
    Q4 FY24

    Reported for Q4 2024.

    Fixed Rate Loan Repricing Opportunity
    $42 billion
    FY25

    Anticipated opportunity to reprice loans at higher yields during 2025 based on current maturity schedules.

    Received Fixed Swaps Notional
    $84 billion
    Q4 FY24

    Swaps designated against commercial loan portfolio and long-term debt, designed to protect NII from lower short-end rates.

    Pay Fixed Swaps Notional
    $30 billion
    Q4 FY24

    Swaps designed to protect economic value of the balance sheet and manage future capital volatility through AOCI.

    Adjusted Noninterest Expense Growth
    -0.4%vs FY23
    FY24

    Decline in adjusted noninterest expense for the full year 2024 versus 2023.

    Office Portfolio Decrease
    $235 millionlinked quarter
    Q4 FY24

    Decrease in the office portfolio balance.

    Office Portfolio as % of Total Loans
    1.5%
    Q4 FY24

    Reported for Q4 2024.

    Office Portfolio Reserve
    11.1%up from 10.4%
    Q4 FY24

    Increase in the reserve for the office portfolio.

    Office Portfolio Nonperforming %
    5.3%up from 5.1% at Sep 30
    Q4 FY24

    Percentage of the office portfolio currently classified as nonperforming.

    CET1 Ratio including AOCI
    9.6%decreased from 9.9%
    Q4 FY24

    Reflecting balance sheet growth, common dividend, share repurchases, and an increase in AOCI due to higher longer-term interest rates.

    Capital Returned to Shareholders
    $3.8 billion
    FY24

    Total capital returned in 2024.

    Share Repurchases
    $1 billion
    FY24

    Total share repurchases in 2024.

    New Digital Loan and Deposit Accounts
    730,000+
    FY24

    Total new digital accounts opened during the year.

    New-to-Bank Clients via Digital Channels
    275,00031% increase over previous year
    FY24

    New clients acquired through digital channels.

    Active Digital Users
    7.1 million+
    Q4 FY24

    Total active digital users on the platform.

    Mobile App Users Growth
    7%YoY
    FY24

    Year-over-year growth in mobile app users.

    Digital Transactions Growth
    13%YoY
    FY24

    Year-over-year growth in digital transactions.

    Bankers Added in Growth Markets
    25
    Q4 FY24

    New bankers added to existing platforms in targeted growth markets.

    Loan Production in Philadelphia and Texas
    $3.5 billion
    Q4 FY24

    New incremental loan production in these markets.

    Net New Clients in Texas
    5,000
    Q4 FY24

    Net new clients added in Texas.

    Industry KPIs

    13
    MetricValueDetails
    Loans$304.5 billionUSD
    Deposits$386.7 billionUSD
    Rotce ROEmid-teens%
    Cet1 ratio11.5%%
    Capital returns$3.8 billionUSD
    Fee income lines46%%
    Allowance reserves1.59%%
    Net interest income$3.98 billionUSD
    Net interest margin3.07%%
    Net charge offs npls59 bpsbps
    Total operating expenses$3 billionUSD
    Provision for credit losses—
    Efficiency ratio operating leverage56.3%%

    Product announcements

    1
    ProductTypeDetails
    Electronic Bill Presentmentlaunch

    Risks & headwinds

    6
    Increased professional fees and outside processing expensesQ4 FY24

    Adjusted expenses increased 4% linked quarter

    Mitigation: Expected to decline by 3% in Q1 2025 as these expenses normalize.

    Seasonally lower average deposit balancesQ1 FY25

    Average deposit balances to decrease by about 1%

    Mitigation: Due in part to the outflow of seasonally higher municipal deposits.

    Impact of fewer days on Net Interest IncomeQ1 FY25

    NII to decrease 2%

    Mitigation: Primarily driven by 2 fewer days in Q1 relative to Q4, with NII expected to be relatively stable linked quarter excluding day count.

    Non-recurring fee revenues impacting FY25 noninterest income growthFY25

    Low single-digit noninterest income growth (core mid-single-digit ex-non-recurring fees)

    Mitigation: Certain fee revenues recognized in 2024 (related to TIH shared services agreement and Sterling Capital Management sale) will not reoccur in 2025.

    Continued stress in the office sectorOngoing

    Office portfolio nonperforming % at 5.3% (up from 5.1% at Sep 30)

    Mitigation: Management believes the size of the portfolio is manageable and well reserved (11.1% reserve), with a proactive approach to identifying and resolving issues.

    Potential for fewer/later Fed rate cutsFY25

    directional: touch of a headwind

    Mitigation: The NII guide assumes 2 rate cuts (March and September); fewer/later cuts would be manageable within the guide, while more/sooner cuts would be a slight tailwind.

    What to watch in Q1 FY25

    5

    Net Interest Income Trajectory

    Q2 FY25
    CurrentExpected to decrease 2% in Q1 FY25
    TargetTrend higher in Q2 FY25 and throughout the year

    Why it matters

    NII is a primary driver of bank profitability, and its recovery post-Q1 is key to the full-year outlook.

    Based on our current outlook, we believe that the net interest income will decline by 2% linked quarter due primarily to the impact of 2 fewer days in the first quarter relative to the fourth quarter, and then we would expect it to trend higher in the second quarter of 2025 and throughout the course of the year.

    Q&A highlights

    7

    How much of the NII momentum is programmatic versus dependent on the external rate environment, and how would changes in Fed cuts impact the guidance?

    NII is expected to step back in Q1 due to day count, then trend higher. This is driven by modest loan/deposit growth and deposit betas catching up (40% in Q4, mid-40s+ in Q1, targeting 50% next year). Fewer/later Fed cuts would be a manageable headwind, while more/sooner cuts would be a slight tailwind. The shape of the curve is also a key factor for fixed loan and securities repricing.

    “I think if we were to see later cuts, fewer cuts, even no cuts, that would present a touch of a headwind, but I think manageable, frankly, inside of our guide.”

    asked by Scott Siefers · answered by Michael Maguire

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Priorities for 2025

    Truist is focusing on five key areas in 2025 to drive growth, positive operating leverage, and improved profitability. These include attracting and retaining top talent, deepening existing client relationships in premier banking, wealth, and payments, and expanding market share in states like New Jersey, Pennsylvania, and Texas, as well as the middle market segment. The company will also continue investing in its technology platform and maintaining expense discipline, particularly in risk infrastructure and cybersecurity.

    02

    Digital Transformation and Client Engagement

    Significant investments in digital platforms in 2024 led to strong growth in digital capabilities. Truist opened over 730,000 new digital loan and deposit accounts, including nearly 275,000 new-to-bank clients, representing a 31% increase year-over-year. The platform now boasts over 7.1 million active digital users, with mobile app users growing 7% and digital transactions increasing 13% year-over-year. The company also noted improved funding of digital account openings, with higher balances from millennial and Gen Z clients.

    03

    NII Trajectory and Rate Sensitivity

    Net interest income is expected to decline 2% in Q1 2025, primarily due to fewer days and seasonal deposit outflows, but is projected to trend higher throughout the year. This growth is anticipated from modest end-of-period loan growth and the repricing of fixed-rate assets. Deposit betas are catching up, with cumulative interest-bearing deposit beta at 40% in Q4, expected to reach mid-40s+ in Q1, and targeting 50% next year. The NII outlook assumes two Fed rate cuts in March and September.

    04

    Capital Allocation and Shareholder Returns

    Truist's CET1 ratio increased by 140 basis points in 2024 to 11.5%, driven by the sale of Truist Insurance Holdings and retained earnings, partially offset by a balance sheet repositioning and $3.8 billion in capital returned to shareholders. The company plans to continue its share repurchase program, targeting approximately $500 million in Q1 2025, leveraging its strong capital position to fund balance sheet growth and return capital.

    05

    Asset Quality and Office Portfolio Management

    Asset quality remained relatively stable, with net charge-offs increasing 4 basis points to 59 basis points in Q4, in line with the full-year expectation of 60 basis points. Nonperforming loans held for investment decreased 1 basis point linked quarter to 47 basis points. The office portfolio, representing 1.5% of total loans, decreased by $235 million linked quarter, with its reserve increasing from 10.4% to 11.1%. Management remains proactive in resolving issues within this portfolio, expecting continued stress in the sector.

    06

    Investment Banking Performance and Growth

    Investment banking and trading revenue increased 46% in 2024 versus 2023, marking the highest level since 2021, driven by higher transaction activity and market share gains. The company experienced record performance in investment-grade issuance, equity capital markets, asset securitization, and project finance. Management sees continued opportunity for organic growth in this segment, particularly within its middle market focus and existing client base, contributing to overall fee income diversity.

    AI-generated summary of the company’s earnings call. Not investment advice.