Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Truist Financial Corp (TFC, Financial) reported adjusted net income available to common shareholders of $1.2 billion, or $0.91 per share, excluding several discrete items.
- Adjusted revenue grew by 3% on a linked quarter basis, driven by a 4.5% increase in net interest income.
- Non-performing loans remained relatively stable for the fifth consecutive quarter, and net charge-offs were within expectations.
- The sale of Truist Insurance Holdings significantly strengthened the company's capital position, creating substantial capacity for growth in core banking businesses.
- Digital engagement showed strong growth, with client mobile app users up 7% and digital transactions increasing by 13% year-over-year.
Negative Points
- Overall loan demand remained slow during the quarter, with average loans decreasing by 0.7% sequentially.
- Average deposits decreased by 0.3% sequentially, with non-interest-bearing deposits declining by 1.2%.
- Investment banking and trading income decreased by $37 million from the first quarter due to lower M&A fees, equity originations, and trading income.
- Adjusted non-interest expenses increased by 2.6% sequentially, driven by higher personnel expenses and professional fees.
- The company expects continued pressure on client deposit balances and loan balances in the third quarter.
Q & A Highlights
Q: Can you discuss the drivers of sequential NII growth over the next few quarters? Do you expect margin improvement?
A: We expect NII to improve next quarter by 2% to 3%, driven by the full-quarter impact of the repositioning completed in May. We anticipate some pressure on client deposit balances and loan balances. For Q4, we expect more of the same, with modest expectations around the impact of a potential rate cut in November. The key to further improvement will be increased client loan demand and deposit growth.
Q: When do you expect loan balances to turn positive, and what will drive this growth?
A: Clients are currently on the sidelines, but our production was up, especially in consumer segments. Utilization is flat, and paydowns were up as clients accessed capital markets. Despite increased pipelines and production, we remain cautious about predicting when growth will return. However, we are well-positioned to grow faster than peers once demand picks up.
Q: How are you prioritizing capital deployment, especially with the new buyback program?
A: Our primary focus is on growing our business. We raised capital efficiently and aim to deploy it effectively for long-term shareholder benefit. We plan to repurchase approximately $500 million of shares per quarter for the next few quarters, while maintaining a strong dividend. This balanced approach allows us to invest in growth opportunities while returning capital to shareholders.
Q: How are you managing expenses given the expected increase in the second half of the year?
A: We expect expenses to grow in the third quarter due to higher professional fees, software costs, and marketing expenses. However, we remain committed to keeping full-year expenses flat compared to 2023. Investments in areas like middle market lending and payments are driving some of this increase, but we are maintaining strong expense discipline.
Q: Can you provide more details on the outlook for investment banking revenues?
A: Investment banking revenues were strong, with some quarter-to-quarter variation. We are gaining market share and increasing our relevance in key areas like ECM and DCM. Our focus is on sustainable, profitable growth, and we expect to continue this momentum for the remainder of the year.
Q: How are you addressing credit quality, particularly in the office sector?
A: Overall asset quality remained stable, with flat non-performing loans and lower net charge-offs. We are closely monitoring areas like CRE office exposure and have increased reserves accordingly. We expect our reserve levels to remain stable unless there is a significant change in the economic outlook or stress in specific sectors.
Q: What are your thoughts on the potential impact of additional rate cuts on NII?
A: We have factored in one rate cut in November. An earlier or additional cut would be beneficial, but we are cautious about the immediate impact. The more significant catalyst for NII improvement will be increased client activity and balance growth.
Q: How are you planning to leverage your capital and improve returns post-TIH divestiture?
A: We are focused on growing our core banking business and returning capital to shareholders through dividends and share repurchases. While the divestiture of TIH will result in near-term dilution to our return-on-average tangible common equity ratio, we are confident in our ability to improve returns by deepening client relationships and expanding in key areas.
Q: How are you addressing operational risk and regulatory requirements?
A: We have consistently focused on maintaining a strong risk framework to stay competitive and compliant with regulatory expectations. This includes ongoing investments in risk management and operational resilience. We believe we are well-positioned to manage these requirements efficiently.
Q: What are your plans for technology investments and platform upgrades?
A: We have made significant investments in our technology platforms, particularly in payments and lending. These investments are continuous and aimed at enhancing client experience and operational efficiency. We believe our current tech platform is competitive and well-regarded by our clients.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
