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    Truist Financial Corp (TFC)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$44.53Last close (Oct 16, 2024)
    Post-Earnings Price$44.11Open (Oct 17, 2024)
    Price Change
    $-0.42(-0.94%)

    What went well

    • Truist is growing market share across all business lines, including investment banking where they have increased market share in every discipline and are focusing on net new client growth and increasing primacy with existing clients. Checking primacy and treasury management penetration both increased by 1%.
    • Truist's unique capital advantage allows them to invest in growth opportunities and return significant capital to shareholders, giving them the capacity to grow ROTCE faster than peers. They plan to achieve profitability improvement by deepening existing client relationships without needing to expand into new markets or products.
    • Truist is effectively leveraging both digital and physical channels to enhance customer relationships, employing their "T3" concept (touch and technology equals trust). They have invested in digital capabilities like Truist Assist, allowing clients to interact digitally and transition to human interaction when needed.

    What went wrong

    • Truist Financial has lowered its Return on Tangible Common Equity (ROTCE) targets from the low 20s to mid-teens, which is below some peers aiming for higher ROTCE, raising concerns about profitability and shareholder returns.
    • Management accountability to shareholders is being questioned, especially as executives received special bonus awards despite stock underperformance and lowered ROTCE targets.
    • There is pressure on Net Interest Margin (NIM) and Net Interest Income (NII) due to asset-liability repricing mismatches and hedging activities, potentially leading to NII headwinds in the short term.

    Q&A Summary

    1. Net Interest Margin Outlook
      Q: How will NIM and deposit betas evolve into 2025?
      A: Michael Maguire expects deposit betas to accelerate significantly in the fourth quarter to the mid to high 30%, still lagging asset repricing, leading to some margin compression into the low 305-306 basis points area. He anticipates the margin to stabilize in the first quarter of 2025 and begin improving as further rate cuts occur.

    2. Capital Deployment and Share Buybacks
      Q: Will you increase share buybacks given muted loan growth?
      A: William Rogers stated they plan to maintain elevated share buybacks for some time. While they see opportunities to grow the business and intend to invest capital accordingly, they may recalibrate buybacks if business growth is slower than expected.

    3. Return on Tangible Common Equity (ROTCE) Targets
      Q: Why are ROTCE targets in the mid-teens, below peers?
      A: William Rogers explained that the sale of their insurance business generated significant capital, which initially lowers returns. As they deploy this capital, returns will increase. He believes they have the most ability to grow returns over the medium term, defined as around three years, and expect to improve ROTCE faster than peers.

    4. Positive Operating Leverage into 2025
      Q: What drives positive operating leverage into 2025?
      A: William Rogers highlighted factors like business momentum in investment banking, expected return of loan growth, and controlling expenses. Consumer loan production increased around 3% this quarter. They anticipate deposit betas to transition in the first quarter of next year, contributing to operating leverage.

    5. Management's Commitment to Shareholders
      Q: What key metrics should we monitor for shareholder value?
      A: William Rogers emphasized that everything they do is about shareholders and compensation is based on performance. The primary measures are ROTCE and business growth, looking at total book value per share plus dividends. These metrics are highly correlated to share price return.

    6. Market Share and Wallet Share Growth
      Q: How are you growing market and wallet share?
      A: William Rogers mentioned they have increased market share in investment banking across all disciplines. They focus on net new clients and increasing primacy within existing clients, with checking primacy up 1% and treasury management penetration up 1%. This results in improved returns driven by deeper client relationships.

    7. Interest Rate Swap Position
      Q: Can you provide details on your interest rate swaps?
      A: Michael Maguire stated they added about $15 billion of forward-starting receive-fixed swaps in the quarter, taking the notional up to around $60 billion. They also added about $5 billion of pay-fixed swaps. The receive-fixed swap rate is approximately 3.40% on that notional.

    8. Investments in Risk Infrastructure
      Q: Why increase investments in risk infrastructure now?
      A: William Rogers explained they are continuing investments to build a more enduring and consistent infrastructure. This includes investments in cyber, data management, and elevated expectations in AI. These are continuous improvements reflecting higher industry expectations, not due to merger-related issues.

    9. Digital Strategy and Client Primacy
      Q: How does your digital strategy enhance client relationships?
      A: William Rogers stated that both digital and physical channels are important. They use a concept called T3 (touch and technology equals trust) to provide digital tools like Truist Assist along with opportunities for human interaction. This approach aims to create enduring client relationships by serving clients in the way that suits them best.

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