Q4 2021 Truist Financial Corp Earnings Call
Ladies and gentlemen, please standby.
Greetings, ladies and gentlemen, and welcome to the Truth Financial Corporation fourth quarter 2021 earnings Conference call. Currently all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded its now my pleasure to introduce your host Mr. Ankur.
As head of Investor Relations for Truth Financial Corporation. Please go ahead.
Thank you Jake and good morning, everyone welcome to Truest fourth quarter 2021 earnings call.
With us today are our CEO Bill Rogers and our CFO Daryl Bible. During this morning's call. They will discuss <unk> fourth quarter results and also share perspective, how we continue to activate truest purpose, our progress on the merger and current business conditions.
Starnes, our chief risk Officer, Beau Cummins, our Vice chair and John Howard Our Chief Insurance Officer are also in attendance and are available to participate in the Q&A portion of the call.
The accompanying presentation as well as our earnings release and supplemental financial information are available on the truest IR site IR Dot truest Dot com.
Our presentation today will include forward looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures as well as in the appendix for the appropriate reconciliations to GAAP.
In addition, truest is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference. Transcripts provided by third parties. The only authorized live and archived webcast are located on our website with that I'll now turn the call over to bill. Thanks.
Thanks, Victor good morning, everyone and thanks for joining our call we hope mature.
New year is off to a good start in that you and your families are doing well.
I'm very pleased with a strong fourth quarter results.
Income was solid reflecting our diverse business mix and favorable conditions in investment banking that insurance.
Net interest income is starting to improve exceeding expectations credit quality was outstanding resulting in another provision benefit we delivered on our expense goals as adjusted noninterest expense decreased almost 4%.
And drove 3% sequential positive operating leverage loan growth, excluding PPP are strengthening and we have momentum going into this year.
Share more details on these topics during the presentation.
Turning to slide four.
As always I am going to begin with purpose, which is to inspire and build better lives and communities. We.
We believe our purpose driven culture is the foundation for our success as a company. Our purpose defines how we do business everyday and it serves as a framework for how we make decisions.
Our purpose driven culture is also the foundation for how we attract and retain top talent people simply want to work for and do business with companies that stand for something meaningful.
This culture combined with our comprehensive compensation and benefit packages is significant.
Ongoing training and development and career mobility on our more flexible approach to work will be our formula for attracting and retaining the best talent Trust and competing and winning in the ongoing war for talent.
Slide five highlights some of the ways, we're putting our purpose into action. This slide is organized around the same major themes contained in our CSR in our ESG report since they are topics that are most relevant to all of our stakeholders, including our shareholders.
Could not be more proud of both the quantity and most importantly, the quality of the work being done across all these dimensions and the tremendous impact we're having in our communities.
While I can't cover every point on the slide let me highlight a few.
On the technology front, we were excited to welcome our teammates to the recently completed innovation and Technology Center in Charlotte I look forward to our external Grand opening in the first half of the year.
As you know truest has an unwavering commitment to diversity equity and inclusion and I'm very pleased to report that we recently achieved our goal to increase ethnically diverse representation in senior leadership roles to at least 15%. This was a year earlier than our original commitment.
While we are proud to achieve this milestone we acknowledge that this is actually the beginning and not yet.
We've also intentionally implemented flexible work strategy for our teammates which includes onsite remote and hybrid options hybrid and more flexible works here to stay and I have learned the meaning and the power of intentional flexibility the concept of people coming together as a team whether in the office or not and essentially deciding what works best.
For them their team our clients on the company, while remaining highly engaged and most importantly purposeful.
Finally, we released our inaugural <unk> report in mid December , which adds further context and disclosures to our previous CSR and ESG reports.
At <unk>, we view all of the elements of ESG as an opportunity to improve our company and operationalize our purpose, including climate change.
For instance, we are adding new teammates within CIB and our commercial community bank are going to help our clients transition to a lower carbon economy.
Now turning to slide seven this quarter, we had $163 million of after tax merger related and restructuring charges and $165 million of after tax incremental operating expenses related to the merger with.
The total EPS impact of merger related costs was 25 cents a share.
While our decision to create a best of both model of integration has resulted in increase upfront cost I firmly believe it creates the best platform for future investment and growth.
The good news is that total merger costs will be cut approximately in half in 2022 compared to last year, and then fall out of our expense base entirely after this year.
Now turning to our fourth quarter performance on slide eight.
As I indicated the fourth quarter was a strong finish to a solid year as most areas were generally in line or somewhat ahead of our expectations.
We earned $1 5 billion or $1 13 earnings per share for the quarter on a reported basis, excluding the merger impacts on the prior slide we earned $1 9 billion or $1 38 per share.
Primary driver changes in EPS relative to both the prior quarter and a year ago was the loan loss provision given the rapidly evolving economic environment over the past two years.
We generated strong returns, including a $22 six adjusted ROE TCE, which was unchanged from last quarter. Excluding the reserve release adjusted our OTC was still a very strong 19, 6%.
Asset quality continues to be an excellent story of net charge offs were in line with our guidance capital deployment was robust during the fourth quarter as we funded strong organic loan growth closed the service finance acquisition in early December and repurchased $500 million worth of common stock.
We will provide more details about loan growth momentarily.
On the merger integration front, we completed the first part of the core bank conversion in mid October by migrating our heritage BB&T clients to the truest ecosystem.
As part of the conversion, we launched the newest the new truest dot com as well as our digital commerce account opening platform.
Since then our integration teams have completed two successful dress rehearsals for final conversion one in mid December and one just this past weekend.
I want to personally thank our teammates for their hard work and dedication to this effort.
Cause of them were on track for the final core conversion in February during which our heritage Suntrust clients will be migrated to the <unk> ecosystem.
Looking at full year 2021, <unk> had a productive year across multiple dimensions from a financial perspective, we generated significant adjusted net income of $7 5 billion or $5 five $3 per share.
And had an adjusted ROE TCE of 22%.
While our earnings undoubtedly benefited from a $3 billion lower loan loss provision due to the improving economy. We also demonstrated the strength of our diverse business mix fee income excluding security gains increased a very strong 10% as we were firing on multiple cylinders. This performance self offset a $45.
Decline in mortgage fee income and a 6% decrease in net interest income.
We also continued to deliver on our cost save programs evidenced by an adjusted expenses, increasing only 1% during the year, which saw much larger increases in fee income.
Also experienced a reduction in our risk profile due to the improving economy and merger integration progress, which enabled us to reduce the CET one target by 25 basis points to nine and three quarters and deploy significantly more capital.
Overall, we were able to make great progress on multiple fronts. Despite continued headwinds from the pandemic, while delivering improved financial performance for our shareholders.
Oh, sorry, turning to slide 10.
Our new <unk> digital experience reflects two of our core digital and technology principles co creation with our clients and moving fast in order to learn fast.
Our more modern and agile platform allows us to incorporate this feedback quickly the results of which can be seen in the significant improvements in our overall client satisfaction scores as well as in our Apple App store and Google play store ratings in just a few short months we've.
We've now migrated approximately 9 million retail wealth and small business clients to the <unk> digital experience through December .
More than 85% of active clients have begun to use the new digital platform in lieu of their heritage App.
On slide 11, Youll see a visual of our new corporate and commercial digital platform, which we'll call. It <unk> one view.
This platform will provide our clients with a comprehensive view of their existing Treasury management and lending solutions, we have streamlined and client specific experience designed to reduce the time required to perform routine financial task, including the launch of tourists one view to our commercial clients choices introduced new wave.
And mobile platforms for each of our client segments across retail wealth business incorporate more than 2000 features were released across these platforms in 2021, and we've done this at a pace that neither heritage company could have achieved on their own.
More broadly as you can see from the charts on the left we continue to position ourselves to serve the robust demand for digital services digital lending mobile check deposits on zelle transactions, all exhibited double digit growth during the year.
We feel good about our current digital performance and we believe that our progress will accelerate after the final core bank conversion and.
In part due to the advantages advantages and efficiencies associated with having one website. One search engine optimization process of one brand one system and one digital application, but also in part due to the new capabilities that we'll be able to introduce this year, including our new AI driven insights tool a new truest.
<unk> virtual assistant in the tourist developers center, which will position us to innovate and collaborate with the developer community.
Kevin and our team's focus on the new truest experience versus managing three separate experiences will provide a significant productivity lift as we move forward.
Lastly, we have plans to make strong digital progress in other areas. This year from our new partnership and integration with <unk> enhancing our insured tech capabilities via integrating insurance directly into our mortgage process and launching a new deposit product with light stream on a real time cloud based core.
Now turning to loans and leases on slide 12.
Average loans stabilized after decreasing for five consecutive quarters and peeling back the onion reveals positive and improving underlying trends exclude.
Excluding PPP average loans increased approximately 1% sequentially and end of period loans loans grew approximately 2% reflecting momentum late in the quarter.
The most notable improvement wasn't C&I were end of period balances, excluding PPP grew $6 3 billion or 5%, reflecting broad based growth across corporate and commercial lines of business.
Was the strongest point to point C&I loan growth since the first quarter of 2020.
Most CIB industry and product groups demonstrated growth, most notably within our asset Finance group.
<unk> growth was also evident within our commercial and community Bank, where 12 of the 21 regions grew C&I loans, excluding PPP during the quarter and we continue to see the most growth in markets that are relatively more open.
Every single one of our industry specialty groups within the <unk> group.
A strong reflection of how our clients value industry expertise and advice.
Revolver utilization also ticked up after six straight quarters of declines and equally important the total revolver exposure continues to grow evidence of our relevance and then our clients are building capacity for investments in expansion.
Residential mortgage continues to grow reflecting slower prepayment speeds, our decision to balance sheet certain correspondent production and increased capacity post conversions and COVID-19 .
Excluding mortgage consumer balances decreased slightly primarily due to seasonality in our Sheffield business and continued declines in our government guaranteed student loan portfolio.
Service Finance closed on December six and we feel great about their trajectory heading into 2022 and.
In addition, some of the areas that have been headwinds like dealer floor plan in CRE are beginning to stabilize.
Overall, corporate and commercial clients remain optimistic despite ongoing labor shortages supply chain disruptions and inflationary pressures were encouraged by the momentum we observed in the fourth quarter, but also on our pipelines, which are the highest they've been in some time. We continue to believe there is meaningful upside to the C&I growth story is the economy.
To improve although the timing remains imprecise.
We also continue to feel confident in our consumer trajectory as we are well positioned with respect to faster growing segments through our digital and point of sale businesses.
Which will offset headwinds in other areas.
Now turning to deposits on slide 13.
Average deposits increased $8 2 billion or 2% compared to the third quarter largely due to the continuing effects of recent government stimulus and seasonality related to public funds.
We're also able to help our clients along their financial journey through our industry leading child.
Tax credit awareness initiative through this initiative, which promotes savings in financial confidence.
Clients and communities most in need we're able to grow their savings and IRA balances by 9% and 15% respectively from May through December I think this is a great example of what we call purposeful growth.
But we know we can do more and thus guided by our purpose. We have been re inventing a new checking account experience that aligns with our clients' needs, which we believe will provide more flexibility lower cost and more financial confidence.
Truest, one banking will be our new flagship differentiated and disruptive suite of checking solutions that redefine everyday banking and accelerate our journey towards purposeful growth.
<unk>, one will have zero overdraft fees.
Our capability to provide qualifying clients the liquidity they need via a simple $100 negative balanced buffer as well as the deposit base credit line limit of up to $750.
These features will help clients manage their liquidity needs far more cost effectively than alternative products.
To learn more about these details right. After this call.
These solutions will be available to all clients. This summer given our need to first finish the conversion.
In addition, <unk> will discontinue overdraft protection negative account balance and returned item fees in the coming months for all existing accounts.
Long term. This is a win win for all of our stakeholders as well increased client acquisition, particularly nextgen clients enhanced deposit growth and simply improved the overall client experience.
In the near term. However, there is will be a financial cost both both as the result of the introduction of <unk>, one and the reduction of other fees.
We expect we expect these changes collectively to result in an approximate approximately $300 million almost 60% reduction in overdraft related revenue by 2024.
Impact will begin in a few months and build over time as more clients benefits from the tourist one experience.
I am now going to turn it over to Daryl to review our financial performance in more detail.
Thank you Bill and good morning, everyone turning to slide 14, noninterest income was up slightly versus the prior quarter and ahead of our guidance of down 1%.
The increase was primarily driven by larger securities portfolio as a result of ongoing deposit growth.
Which offset the expected decline in purchase accounting accretion.
Net interest margin and core net interest margin performed in line with our guidance.
Reported net interest margin declined five basis points two basis points due to purchase accounting accretion three basis points from core.
The main drivers of the three basis point decline in core net interest margin or the impacts of lower PPP revenue and higher levels of liquidity.
<unk> continues to wind down and we expect to earn an additional $60 million of PPP revenue over the coming two quarters.
Moving to slide 15 overall.
Truest inter.
Intentionally maintained a balanced approach to manning managing interest rate risk.
Enhancing current earnings will be in position to take advantage of higher rates, both at the short and long end of the curve we.
We estimate 100 basis point ramp increase in rates would increase NII by 5% 100 basis point shock would increase NII by 10%.
Proximately, 75% of this reported asset sensitivity is from the short end of the curve.
As a rule of thumb.
125 basis point fed hike with a 25% beta would increase noninterest income by $25 million per month.
And increased net interest margin six basis points, all else being equal.
Moving to slide 16.
Reported fees were down 2% from last quarter, largely due to changes in our nonqualified plans.
Absent the impact of the Nonqualified plan fees performed well and were consistent with our guidance.
Relatively stable.
The driving factors of a stable performance quarter over quarter were.
In banking and trading increased $61 million versus the prior quarter due to higher syndication fees structured real estate and record M&A results.
Insurance income increased $21 million, primarily due to organic growth and seasonal improvement from the third to fourth quarter.
These quarterly increases were offset by a decline in other income of $107 million or.
Our $70 million, excluding changes in the nonqualified plan largely driven by the valuation adjustment for the visa related derivative and lower revenue from our Spic's funds.
For the full year 2021, excluding security gains fees were up 10% versus the prior year or more than $800 million.
Propelled by our diverse business model favorable market conditions, and true its increasing size scale and relevance across multiple businesses.
We are also making good progress.
Early in our <unk> initiative, particularly between the connectivity between <unk> <unk> and CIB.
<unk> income increased 20% year over year, primarily driven by a very strong organic growth of 11% and acquisitions.
This was our 99th year of insurance business, our best one yet.
And we believe that 2022, our 100th year can be even better.
Investment banking and trading was also up over 400 million largely due to record performance as a syndicated finance M&A equity structured real estate and asset securitization M&A.
M&A revenue doubled relative to 2020, and the lead syndication rose and syndicated finance are up 26% year over year, both reflecting our strategic relevance to our clients on.
On the flip side residential mortgage income was down year over year $445 million or 45%, primarily due to the sharp decline on gain on sale margins and lower refinance activity.
Turning to slide 17 reported expenses were $3 7 billion for the quarter, including $212 million of merger related costs and $215 million of incremental operating expenses related to the merger adjusted expenses decreased three 9% sequentially at the end of our guidance of down 3%.
4%.
Drivers for the decline include decreased personnel costs, which are a result of lower salary expenses lower incentive costs lower medical claims and changes in the nonqualified plan <unk>.
Average ftes declined 3%, including service finance from the prior quarter. Adjusted expenses also declined due to elevated equipment and marketing expenses in the third quarter.
Full year adjusted expenses were up only 1% despite the adjusted fee income growing 10% year over year.
This limited increase demonstrates the cost savings success, we've achieved throughout the year and our overall discipline on expense management.
Moving to slide 18 asset quality remains excellent excellent, reflecting our prudent risk culture diverse portfolio and favorable economic conditions and the effects of stimulus.
Net charge off ratio increased to 25 basis points from 19 basis points in the third quarter due to seasonality and the consumer losses and lesser commercial recoveries are a triple our coverage ratio decreased to 153%, which is just below our CSO day one levels.
And a provision benefit of $103 million in the fourth quarter as the economic scenarios continue to improve continuing on slide 19.
Capital and liquidity levels remain very strong our CET one ratio declined from 10, 1% to nine 6% driven by organic loan growth share repurchases and the service finance acquisition, our established near term target for CET one of 975%.
Has not changed although the ratio declined to nine 6% in the fourth quarter.
We anticipate being somewhat below our 975% CET one target in the near term given the improving loan growth outlook and the CET and the <unk> phase and for the first quarter.
We also do not anticipate repurchasing any shares for the first half of 2022.
Moving to slide 21.
We achieved a major milestone in October with risk assessment migration of our BB&T retail and commercial clients to the truest ecosystem.
We have three significant integration milestones remaining completing the truest digital first migration finalizing the remaining branch consolidations in the first quarter and the migration of our Suntrust retail and commercial clients to the truest ecosystem, which will occur in February .
The visual culmination of this process will be 6000 more true assigns across our markets had branches Atms retail <unk> corporate offices, finally, allowing us to serve as one brand for our clients. Once the integration is complete and all the systems have been converted to us will be a much simpler come.
<unk> to operate allowing us to provide even better.
Service to our clients turning to slide 22.
We continue.
We committed to achieving our $1 6 billion of net cost saves and continuing to make progress in.
In each of the five categories.
Third party spend is down 11, 5% from baseline levels exceeding our targeted reduction of 10%. Our sourcing team continues to make great strides in achieving savings despite the impacts of inflation and the good news is there are fewer contracts renegotiate in 2022 due to the higher volume of contracts.
Negotiated during truest first two years, we are on track to deliver over 800 total branch closures by the first quarter of 2022, and we are about 90% of the way towards our non branch facility reduction target.
Average ftes are down 11% since the merger excluding acquisitions. Additionally, technology savings will materialize. After redundant systems are decommissioned the second half of 2022.
Turning to slide 23.
Core noninterest expense was $2 $94 billion in the fourth quarter meeting our target for the quarter.
As a reminder, core noninterest expense is more comparable to our baseline expenses at the time the merger closed.
Going forward, we will focus primarily on adjusted expenses and not core as adjusted expenses represent what we believe will be the run rate going forward.
I will now provide guidance.
For the full year 2022 and for the first quarter.
In 2022, we expect total revenue to grow 2% to 4% from 2021 as a result of higher net interest income combined with solid growth in fees.
The lower end of the range reflects two fed hikes with one in June and the second in December or the upper end reflects three to four rate hikes throughout the year.
This guidance includes the initial financial impact from the new <unk> account and related fee reductions in 2022.
Adjusted noninterest expense is expected to only increased 1% to 2% in 2022 as a result.
Inflation increased investments and expenses from acquisitions in 2021, partially offset by the ongoing <unk>.
Cost savings, including <unk>.
<unk>, our final cost save target in the fourth quarter of 2022.
Merger related and restructuring costs and incremental operating expenses related to the merger are anticipated to be approximately $800 million in 2022 with these expenses going away in 2023.
Given these factors, we anticipate positive operating leverage.
Our GAAP and adjusted basis in 2022.
This is the primary metric, we will hold ourselves accountable to this year.
We also expect net net charge offs ratio to be between 30% and 40 basis points in 2022, given favorable economic conditions and the assumptions for normalization throughout the year with some quarter to quarter variability excluding.
Discrete items, we expect our effective tax rate to be approximately 20% and 21% if you model us on a taxable equivalent basis.
Looking into the first quarter, we expect total revenues to decline approximately 1% to 2% from fourth quarter levels.
Given two fewer days.
Purchase accounting accretion and PPP revenue continued pressures on mortgage and the typical seasonal patterns in certain fee categories like famous payments and service charges, yes. It.
Will be partially offset by seasonality in insurance.
Reported net interest margin should be down a couple of basis points due to lower purchase accounting accretion, although expect core to be relatively flat.
We expect adjusted expenses to increase 1% to 2% next quarter from the fourth quarter levels.
Partially due to the seasonality in personnel expense, given FICA and 401, K and partially due to higher marketing expense as we continue to rollout the truest brand post conversions now I will turn it back to bill to conclude thank.
Thank you Darryl.
Slide 24 is our investment thesis, which is built on four pillars are themes that we believe truly differentiate us and allow us to inspire and build better lives and communities as well as deliver a purposeful growth for all of our stakeholders. I also think it's the same reason I've got the best job in banking.
I shared color on this refreshed investment thesis with many of you in December .
So on slide 25 in summary in conclusion <unk> had a very good 2021 highlighted by improved financial performance strong fee income from our diverse business model significant capital deployment and strong risk management as evidenced by our excellent asset quality metrics.
We also made substantial integration progress, taking many significant steps towards becoming one truest as we look into 2022, our formula is going to be simple first we will complete the merger in the first quarter eliminate merger related costs by year end and achieve our cost saves all of which will help us produce.
Positive operating leverage.
Second we will begin to pivot from an integration focus to an operating focus on execution excellence and growth.
Momentum, we have going into 2022 combined with being one true across all dimensions technology digital brand products process gives me great confidence in our performance of potential as we make and complete this pivot.
Lastly, we will have the capacity to deploy more capital on behalf of our clients and shareholders as integration risks subside and the economy stays on sound footing.
So with that let me turn it back over to Ankur for Q&A.
Thanks, Bill Jake at this time, if you'll explain how our listeners can participate in the Q&A session. As you do that I'd like to ask the participants to please limit yourselves to one primary question and one follow up so that we can accommodate as many of you as possible today.
Yes, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is released to allow your signal to reach our equipment.
As a reminder, please limit yourself to one question and one follow up question.
Once again star one for questions, we will pause for a moment to allow everyone an opportunity to signal.
And we will begin with Ken Houston with Jefferies.
Ken are you there I mean Kenny.
Might be muted.
We're not hearing anything from Ken we will move to the next caller in the queue, Matt O'connor with Deutsche Bank.
Hi, good morning.
Hoping to follow up on the expense guidance of 1% to 100% growth kind of got the base.
There's some puts and takes with the cost saves and the service finance.
What are you thinking about underlying expense growth.
I think you had talked about 3% back in November .
And is that still true or how do we think about that.
Yes, Matt I think we were at the conference in the fourth quarter. We said, we would have around 3% inflation thats about $400 million, but were ballpark.
For us for next year, we have the benefit obviously of having our third tranche of cost saves coming through in 2022, which really makes the adjusted expense growth pretty moderate versus not having those cost saves.
Okay, and then just remind us with.
Lift from several finance on the cost side, starting along here.
20, a quarter.
$20 million a quarter.
Okay alright, thank you.
Tom <unk> with Evercore ISI has our next question.
Good morning.
So on the.
What's your revenue guidance.
2% to 4% maybe could you just help us.
Think about how that would breakdown if you can unpack that by net interest income versus fees, maybe give us a little bit of color of how the how the how we should think about growth in 2022 on those fronts.
Okay.
If you look at my prepared remarks, we talk about and net interest income.
We really right now have in our base forecast only two fed increases one in June and one in December that's the lower end of the revenue guide obviously, if you look at the forward markets are where they are today, it's three 8% or 3.8.
Eight times, so almost four fed moves factored in here that would get us to the higher end of the curve.
We gave you a couple of metrics, we're using a 25% beta and our rate sensitivity and that 25% beta equates to about $25 million per month for every fed increase that we have there.
If you look back historically and look back at the recession that had that we had and when fed started to raise rates in 2015 and 16.
Betas for the first 100 basis points were 15% and we're modeling 25%. So I think we're a little bit conservative on that side, we will see how things play out.
We are modeling a higher beta when you go up over 100 basis points to the next hundred were at 35, and then anything over 35, we're at a 50% beta is kind of the assumptions we're using.
On the fee side, we feel pretty useful.
Growth on the fee side, we have momentum there we had a tremendous year in 'twenty. One we still think we will continue to have pretty good pull through of revenue with the exception of mortgage just because of lower spreads and volumes.
So John and the simplest way to think about it is.
The 2% sort of assumes a flattish kind of NII and the upside of the two to four is in is in the NII and then the balance of the growth is.
Noninterest income.
Got it thanks, Paul that's helpful. Daryl Thanks for that and then separately on the <unk>.
Loan growth.
I wanted to see if you can give us just thanks.
Expectations, how we should think about the pace of growth.
2022.
And maybe also for that as well how that would.
Great.
In terms of commercial versus consumer trends.
Okay.
Yes, John maybe I'll do a little sort of where we are and what the jumping off point is to.
Put a little put a little context put a little context around that.
We.
As you will know loan growth is.
Function of production utilization Paydowns and pipelines is a way that I like to think about the about the formula in its most simple way.
And as we finished the fourth quarter, we really saw the production.
Yeah.
I'll start to increase utilization was up about two five points, which was that's the first time, we've seen a swing in the utilization front and that was pretty universal. So we felt good about that from a momentum standpoint, paydowns were up a little bit but maybe most importantly is the pipelines were at really really high levels. So.
Our <unk> pipeline, our CIB pipeline in our CRE pipelines all were at historically high levels compared to the quarter and compared to this time last year, usually this time of year, you're starting to clean out pipelines I'm sort of trying to refresh them in the first quarter.
So we enter this with.
Little more confidence and momentum.
Then maybe we have in the past on.
On the consumer side, we have some headwinds from student loan, but that was really just less purchases available somewhere and I think thats sort of a little bit of a conscious decision and then home equity, which I think just as a symbol of sort of how people want to borrow in the future, but remember things like service finance are coming on so.
<unk> that we completed that purchase and in December early December So, we'll sort of get the benefit of that on the consumer side as we as we as we come through so in terms of.
Thinking about thinking about the whole year and thinking about puts and takes I think sort of a mid single digit from here kind of growth rate.
Upon everything we know now nothing else changing so and so forth I think is sort of imminently achievable and I think reflective of the momentum we have right now.
Great Bill Thanks for all that color very helpful.
Sure.
And we have Ken Houston with Jefferies back in the queue go ahead Ken.
Oh. Thanks, Good morning, guys, Hey, just wanted to come back on that expense trajectory and how you kind of take us from here to there I heard the points about the 1% to 2% underlying growth off the end of the year.
You said you're on track to get the full cost saves can you kind of talk us through.
After the conversion when do you get to that run rate number is that still the fourth quarter and any update that you might have in terms of just that gross versus net and if youre doing any better on either side versus your original expectations. Thanks.
Yes, so Ken as I've said before our trajectory on expenses is not just down every quarter it moves up and down obviously, we got some seasonal factors bone from fourth to first with FICA and 401K and then we are building, our marketing budget and basically rolling out our truest brand across.
The whole footprint pretty aggressively to build brand awareness I think as the quarter in years play out I think youre going to see expenses, maybe tick up a little bit and then as we get through all of the technology decommissioning, that's probably the biggest cost saves to still come through that's really backend loaded right now.
We still have 400 branches that will go away early in the quarter, but for the most part.
Other real estate and.
Technology savings are probably the biggest savings, which will be towards the end of the quarter and we feel really good about hitting our target that we originally said.
When we announced the merger.
One other point I'd add I think Darryl was making this earlier.
Also covers the investments that we're making so we have this unique opportunity that we've got cost saves out of us, but the ability to cover not only the inflation pressures, but also our investments in talent our investment in technology.
The ability to grow our businesses, that's all factored into this into this guidance. If you look at the investments, we're making this quarter versus last year, it's probably double what it was so we're actually investing more in the company and still achieving our cost saves.
Understood. Thanks, and just a second question you talked about insurance being better this year.
Jan one renewals were pen, 11% I'm just wondering if you can help us understand what.
What the growth outlook is for the insurance business given the asset in mid year acquisitions. You had in addition to the organic growth outlook. Thanks.
Yes, I thought benefits, okay, let John sort of hit that hit that directly.
Bill I'd say that the environment for insurance continues to be favorable. So when you think about it from a pricing standpoint, you mentioned the Jan one renewals those were largely around reinsurance pricing and they vary by class of business, but it remains a favorable environment for insurance pricing. We continue to see exposure growth, we continue to see very strong.
<unk> and new business and retention. So we expect strong performance in insurance in 2022.
Yeah.
We will now hear from Gerard Cassidy with RBC.
Thank you good morning, Bill good morning Darryl.
Good morning.
Can you share with us.
Obviously your CET one ratio you lowered the near term targeted ratio of two nine and three quarters percent from 10%.
As the longer term once the deal is the integration is completed in 2023 heading.
Further what do you guys think is a long term CET one ratio for you folks.
Yes, Gerard I think as we've said before I mean, we're going to continue to look at sort of where we are in.
Our merger integration, where the economy is.
Right.
Health of our business and make those adjustments on a on an ongoing basis that this won't be a quarterly kind of thing, but just as we see significant.
Significant shifts in those and those criteria evidenced by the fact, we went from 10 to nine and three quarters and also the fact that we've got flexibility I mean, the good news was we had.
Loan growth at the at the end of the quarter that probably exceeded our expectations in that.
Took our CET, one a little below that target, which we think is great by the way that's a sort of a high class way to go to.
Go go below the go below that target.
So as we go through the process. This year, we go through the CCAR process look at all the stress testing and the results I think sometimes toward the middle or the end part of this year, we'll take another hard look and be more.
Communicative about about where another goal might be.
Very good. Thank you and then as a follow up I'm trying to figure out on the fourth quarter call for 2022 next January what's going to be the real subject of discussions for you folks and maybe your peers, obviously, we're not going to be talking about restructuring costs and things like that because it will be finally over for you folks, but credit is something that.
Im wondering about because its so good today, we all know that and I don't know if car can comment on this but I am curious when you look at your underwriting standards today I don't know if you want to use a scale of one to 10 10 being very conservative one being very aggressive.
Or does it stand versus where it was at the start of the pandemic and then where it was versus 19.
And second what's going on with your competition or are they being really aggressive you guys seem really aggressive underwriting from some of your peers. Thank you.
Hey, Gerard it's great question I would say.
For true as we've.
We removed all our COVID-19 related overlays that we added in them, but from an underwriting standpoint.
As the pandemic hit so I would say, we are underwriting more or less at a normal through the cycle right. So.
Right in the middle of the field, where not only aggressive in were not on the conservative and I think we're meeting the market through our long term.
Broach, obviously, its very competitive out there there are.
<unk> structures and pricing considerations that we have to deal with everyday but I think our view is that because of our diverse business model and in particularly in our lending segments. We can get responsible growth that through the cycle approach. So I would say for us we're in a pretty normal approach, albeit one.
Those areas that might have been impacted structurally by the pandemic.
Sorry office things like that but it doesn't last for us is more normal underwriting.
Great. Thank you.
Mike Mayo with Wells Fargo Securities has the next question.
Hi.
Good morning, Mike.
Just a.
Specific question as it relates to competition, what's been the retention rate of your employees customers deposits.
When the merger was announced three years ago. When there was a lot of talk about.
Competitors gaining share.
And I'm just wondering what specific metrics you have around that.
Sure, Mike I'll take a crack at that.
Obviously, that's extremely high focus area for us if we start with.
Deposit and client side I would say it's been exceptional.
And exceeded our expectations.
Branch closures retention numbers have been.
And the high high <unk> I think.
It's just a reflection of our clients' confidence in us.
Our presence in the market and our ability to handle their needs, whether it's digital or whether it's physical so I think.
So that part has been exceptional exceeded exceeded probably all expectations and the same thing on the we see it in the deposit growth. So I mean, I think we're there.
Those are hard numbers look at market share, but I feel like we're taking share in that sense because in that in that retention on that retention model.
Is it as it moves to teammates.
You and I have talked about this.
Right into the first year of the merger our retention numbers were actually higher for <unk> than they were.
Compared to each heritage company. So R. R.
Our teammates at.
Had voted for the merger.
Wanting to be part of that and we look at not only overall.
Retention, we look at a high performer retention retention, we divided up a lot of different ways, obviously that attrition has picked up.
Its picked up across the across across the industry I still think on all on a relative basis, we look really strong from from that standpoint.
And.
If you think about what's going to happen to US. We also changed the denominator of that when we close a lot of branches and we're still consolidator and so our ability I think to stay ahead of the attrition game I think we're really really well positioned from from from that standpoint.
But also and maybe equally importantly, our attractiveness to hire talent.
Never been better I mean, we are bringing in some fantastic people that want to be part of our company that bought into our purpose led.
Love the idea of being on a strong legacy company that feels like a startup so it's got sort of a nice.
Combination to our.
Our commitment and capacity to innovate make investments has been really attractive. So our retention number I mean, our attrition numbers are up there's no doubt about that in the last year, everybody else's I think on a relative basis, where we are okay. We manage it to an absolute though that's the way I think about it.
And our ability to attract talent is really really strong never been stronger.
Alright.
As a follow up I'm going to have a wind up to my second question here.
It's been almost three years since you announced the merger.
<unk> up 39% the bank index up 52%. The S&P is up 71%. So you have woefully underperformed from a stock standpoint, and that coincides with a period when you've shown some negative operating leverage, especially last year and you've talked about this the pandemic slowed down the merger conversion NII.
Has been depressed you have had a cautious approach you wanted best of breed and so we have all of that so.
Im getting to positive operating leverage this year, you're doubling the investment, but I just wanted to know if we can add additional reassurance.
That operating leverage will be.
More positive than say, one data point, because you say, 2% to 4% revenue growth, 1% to 2% expense growth so that could be anywhere from one basis point to 300 basis points and this.
This merger was predicated on overlapping footprint benefits of technology and it seems like Youre spending a lot of the savings.
And that investors arent seeing that's the bottom line. So can you just give.
Any assurance or maybe not as far as the positive operating leverage this year.
And the payback from these investments while as you say the Hood is open.
Yes, I think the.
Commitment to positive operating Leverages clear in our guidance relate.
Related to how much we achieved I think given we've had a pretty conservative forecast on the rate increases if we get additional rate increases. This was predicated the 1% in your lineup was predicated on two rate increases if we get more those sort of follow a straight through to the bottom line. So we create more operating leverage.
But also think to your point and the point I made earlier, where we're continuing to invest in this business I mean, we're not going to achieve operating leverage positive Appalachia and star of our business I mean, the ability to achieve the cost saves to redeploy them into the appropriate investments for the long term that was the vision of true some of that was the premise.
On which we established this merger and I think arguably.
It would be hard to dispute it's taken a little bit longer some of those were decisions. We made the best of both was a little more expensive than we had anticipated at the at the outset, but I think youre really starting to see and I can feel you can feel it in the pivot in the fourth quarter you can feel it in the pivotal and our guidance.
The promise of true is manifesting itself.
And not only positive operating leverage, but purposeful growth and an ability to invest in the business for the long term.
Yes were committed to positive operating leverage underlined exclamation point and all the other comments, but in a way that will continue to invest to grow our business for the long term.
Hey, Mike the only thing else I would add to that if you look at our net interest income.
To remind you we have run off of purchase accounting accretion of about $400 million plan for a year over year, and we have about $325 million run off of <unk>.
<unk> to be lower year over year, so for us just to be flat in NII of six 5%. The guidance that we gave for revenue growth on all of that has.
Net interest income being up maybe a little bit maybe 1% on a GAAP basis, but thats really 8%. If you look at the real true operations of the company and potentially up to maybe 10%.
If we get rate increases and maybe some more loan growth. So our company is really performing at high levels.
From a production basis on the amount of volume that we're putting through on the on the asset side of the equation.
Thanks for that clarification. Thank you.
We will now hear from John Mcdonald with Autonomous research.
Hi, good morning.
Wanted to ask you.
Little bit more of a industry question with the loan demand and loan growth number is looking better across the industry.
What's happening in the psychology of the borrower here it feels like there's still a lot of liquidity out there, but theres a change going on is it.
More confidence about the economy folks just.
<unk> run into a need to build inventories why are we seeing this increase in loan demand across the industry.
Yes, I think it's a combination of things John .
I'm out visiting with clients demand is never the issue for business I mean, they all have demand and.
That cuts across actually.
Wide swath of industries and geographic location so the.
<unk> to do business I think.
<unk> seen a couple of things one is I think.
What your premise was in your question people building to building a little inventory sort of anticipating trying to get ahead. Some of the supply chain I think youll see that then you just see stuff happening like in the dealer side cars are showing up on lots.
May be showing up on lots needing a chip or whatever it maybe but they're but they're showing up so the ability to borrow against the those capacities and then I think people are just making the decisions to move forward.
Deploying capital they've had plans.
If they've delayed plans there continued to.
Look at the.
Current omicron is potentially a short term situation that reverses itself and they don't want to get behind.
Theyre all in competitive situations. So I think they are deploying capital.
Against the opportunities that they've had plan for the several years. So I think it's a combination of a lot of things that just resiliency of the economy.
And a little bit of pause.
<unk>.
To get one step ahead of both supply chains.
<unk> pressure or whatever it may be in the competition.
Okay got it and then just a follow up for Daryl on the revenue outlook for this year.
First how much of that $300 million impact.
From the truest won an overdraft how much of that gets felt in 'twenty two Darryl and then also just on the overall revenue guide could you just give us the base for the 'twenty one revenues that 'twenty, two five or something like that for this year that you are growing 2% to 4% off of thank you.
Yes.
To your latter question first so the base for 'twenty one revenue is 22 three.
Okay.
But yes, I would grow off of and then further truest, one recall and Bill's remarks, it's probably going to start in the second quarter, and it's probably anywhere from a 3rd% to 40% of the impact would be in 'twenty two.
Probably spread out evenly over the second third and fourth quarter, and then kind of builds up in 'twenty three and then the full run rate in 'twenty, four or $300 million.
Okay got it thank you.
Next up we have Ebrahim <unk> with bank of America.
Good morning, I guess good morning.
I wanted to follow up.
One of your comments around operating leverage I think the promise of the <unk> was the benefit of scheme.
As we look beyond this year just structurally when you look at the efficiency ratio I think of about 50, 556% right now.
Do you see the bank actually being a low <unk> efficiency ratio franchise over the next two to four years or.
Given the investment spend that you've talked about is going to be hard to make that move absent meaningfully higher interest rate backdrop.
Yes, it's a good question.
To the latter part of your question. There is some rate dependency normalization of rate dependency to get to that to that lower efficiency ratio.
We won't make as much move on that in the next year, but our efficiency ratio on a relative basis I think will continue to be industry, leading so I think I think the ability to invest in our business to do it in a way that to your point that the scale achieves a much more efficient company I think we'll be able to continue that progress.
And then if we get some sort of normalization of rates I think looking out over a two and three year period I think the low $50 is.
As a reasonable target.
Normalized kind of rate environment.
The thing I would add Abraham at what I said on Mike's call.
The runoff of the purchase accounting accretion gets easier year after year. So the ability to drive positive operating leverage will get easier as we go out 234 years.
Got it and I guess on the revenue side.
The systems conversion done.
My sense would be given your skiing given you all have seen these markets you should be playing offense there.
Market share also bill you shed some retention numbers, but talk to us about your ability to go head to head with regionals smaller banks and actually gain market share as you think about the next few years and maybe outperform on loan growth.
Yes, maybe just.
Clarify the first part of your question we've been on offense.
Yes.
I think it's just the ability to be further on offense add to accentuate that capability. If you look at.
Virtually all of our categories. If you think about insurance as an example relative to insurance. If you think about our investment banking relative to investment banking. If you think about deposit growth loan growth client acquisition digital adoption.
Whatever measures you want to choose on a on a on a.
<unk> basis, I mean, I feel like we're already gaining share and I think to your point our capacity to gain share.
Our competitiveness of the breadth and depth of our product capability.
<unk> that we have on the field the training that they are receiving the way they work together and integrated relationship management the way that they allow all cylinders of the company to benefit the client.
We're just we just never been more competitive.
Against against small against regional against large I think all the things that we wanted to see and feel from truest are absolutely coming to bear on the field every day.
Got it thank you.
Jake we've got time for one more question.
And we will take that last question from Erika Najarian with UBS.
Hi, Thanks for taking my question I'll be quick.
Daryl your outlook for adjusted expenses adjusted expense growth.
That's from the 12 six seven days.
So what is the outlook for amortization expense in 2022. Please.
Yes.
Basis, correct. What you said was right Erica and then if you look at our.
Tables in the back in the appendix, we actually gave guidance around that out there. So you would be able to easily kind of fill in your models with all of that information.
Make it easy for you. Thank.
Thank you.
Part D.
The positive operating leverage guide does that include.
The amortization.
No we always exclude amortization.
And its in the footnote definition.
Got it thank you.
Wow.
And ladies and gentlemen, this does conclude your question and answer session I will turn the call back over to your host for any additional or closing remarks.
That completes our earnings call.
If you have any additional questions. Please feel free to reach out to the IR team.
Thank you all for your interest in truest and attending our call and we hope you have a great day Jake you can now disconnect.
Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and you may now disconnect.
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