Truist Financial Corporation (TFC) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Digital Engagement and Client Growth: Truist reported a 7% increase in mobile app users and a 13% increase in digital transactions year-over-year. Notably, Zelle transactions surged by 39%. The bank also added over 180,000 new accounts in the quarter, including nearly 70,000 new to bank clients through digital channels, marking a 17% increase over the second quarter of 2023.

• Solid Underlying Earnings and Revenue Growth: Truist reported adjusted net income available to common shareholders of $1.2 billion or $0.91 per share. Adjusted revenue grew by 3% on a linked quarter basis, driven by a 4.5% growth in net interest income due to balance sheet repositioning.

• Expense Discipline and Cost Management: Adjusted expenses increased by 2.6% linked quarter but decreased by 3% year-over-year. Truist remains committed to keeping expenses flat in 2024 versus the previous year.

• Stable Asset Quality: Non-performing loans remained stable for the fifth consecutive quarter, and net charge-offs were within expectations.

• Capital Strength and Shareholder Returns: Following the sale of Truist Insurance Holdings, the bank's capital position strengthened significantly, allowing for a $5 billion common stock repurchase authorization through the end of 2026.

Pessimistic Highlights

• Muted Loan Demand: Overall loan demand remained slow during the quarter, impacting growth opportunities in the core consumer and wholesale banking businesses.

• Pressure on Deposit and Loan Balances: Truist expects client loan demand to remain relatively muted in the third quarter, with average loans and deposits anticipated to decrease slightly.

Company Outlook

• Revenue and Net Interest Income Growth: For the third quarter of 2024, revenue is expected to increase 1% to 2% from the second quarter, with net interest income projected to grow 2% to 3%, primarily due to the full quarter impact of balance sheet repositioning.

• Expense Increase: Adjusted expenses are expected to rise by 3% in the third quarter due to higher professional fees, software costs, and marketing expenses. Full-year 2024 adjusted expenses are anticipated to remain approximately flat over 2023.

• Asset Quality Expectations: Net charge-offs are expected to be about 65 basis points in 2024, with asset quality metrics anticipated to remain stable.

Q & A Highlights

• Q: Can you discuss the drivers of sequential NII growth over the next few quarters? (Ryan Nash, Goldman Sachs)

  A: NII is expected to improve by 2% to 3% next quarter, primarily due to the full quarter impact of the balance sheet repositioning. Client loan demand and deposit balances are expected to remain under pressure. (Mike Maguire)

• Q: When do you expect loan growth to turn positive, and do you expect Truist to outperform peers on growth? (Ryan Nash, Goldman Sachs)

  A: While overall loan demand remained slow, production was up, and pipelines increased. The timing for positive loan growth is uncertain due to current market conditions. Truist is positioned for growth in its markets and expects to grow faster once demand returns. (William Rogers)

• Q: Can you discuss prioritization between growth and returning capital to shareholders? (Ken Usdin, Jefferies)

  A: Priority is on growing the business, with a focus on core banking. Capital raised efficiently will be deployed in a manner that benefits shareholders long-term, balancing growth opportunities with shareholder returns through dividends and share repurchases. (William Rogers)

• Q: How do rate cuts affect NII guidance, and what's the outlook for non-interest income in the fourth quarter and into 2025? (Scott Siefers, Piper Sandler; Erika Najarian, UBS)

  A: Rate cuts would be beneficial, but the impact of the first cut is expected to be modest. Non-interest income is expected to remain relatively stable in the third quarter, with investment banking and trading income being key variables. (Mike Maguire, William Rogers)

• Q: Can you provide insights into the efficiency ratio and expense guidance, especially in light of potential operational risk concerns? (Mike Mayo, Wells Fargo)

  A: Truist is focused on maintaining expense discipline while investing in a durable risk framework appropriate for its size and complexity. The bank is committed to positive operating leverage and efficient operations, balancing investments in risk management with expense control. (William Rogers)