Truist details how it will finally grow, 5 years post-merger

Scott McIntyre/Bloomberg

UPDATE: This article includes comments made during Truist's earnings call.

Truist Financial plans to invest in talent, technology and certain high-growth-potential locations in 2025, even as the super-regional bank tries to keep expenses in check, executives said Friday.

The Charlotte, North Carolina-based company still expects revenues to outpace spending this year. If it can do so, it would mark the first full year of positive operating leverage since 2022.

In the meantime, however, it plans to spend in a variety of areas. The list includes attracting and retaining employees and growing certain fee-income areas such as wealth and payments, CEO Bill Rogers told analysts during the company's fourth-quarter earnings call. In addition, the $531-asset company plans to build out its middle-market commercial banking segment, keep enhancing its technology platform and its risk management infrastructure, and invest in existing but underpenetrated markets such as New Jersey, Pennsylvania and Texas, Rogers said.

"We see multiple paths and initiatives that, with proper execution, will result in improved performance, which we expect to show you in 2025," Rogers said. "I'm as optimistic as ever about Truist's future, especially in light of the momentum I see every day inside of this company."

It's been five years since Truist was formed by the merger of two dominant Southeast regional banks, BB&T in Raleigh, North Carolina, and SunTrust Banks in Atlanta. There have been challenges, ranging from integration hiccups to elevated spending to missed profitability targets.

Last fall, executives hit the reset button, following the May sale of Truist's insurance brokerage business, which was a major supplier of fee income, and a subsequent increase in capital.

At that point, Truist lowered its expectations for a key profitability metric, return on tangible common equity, which is used to give a picture of a bank's overall financial performance. Instead of aiming for an ROTCE in the low-20s, which was set following the merger, it's now focused on achieving an ROTCE in the mid-teens over the next three years, it said at the time.

For full-year 2024, ROTCE came in at 13.3%, it said Friday. That's down from 18.9% in 2023.

Keeping expense growth low will be part of the calculus in lifting that metric, executives said. 

For the fourth quarter, noninterest expenses on an adjusted basis totaled $3 billion, up 8.4% compared with the prior-year quarter. Adjusted expenses for the quarter exclude several one-time items that appeared in the year-ago period, such as a goodwill impairment charge, a special Federal Deposit Insurance Corp. fee and costs related to organizational restructuring.

This past year, Truist aimed to cap annual noninterest expense growth to no more than 1% in 2024. On an adjusted basis, noninterest expenses declined 0.4% year-over-year, it said Friday.

Expenses in 2025, on an adjusted basis, will likely rise about 1.5% year-over-year, Truist said. 

Adjusted revenues, meanwhile, are forecasted to rise 3% to 3.5% for the year.

Analyst Betsy Graseck of Morgan Stanley asked Rogers and Chief Financial Officer Mike Maguire to explain those numbers in an environment where Truist's capital markets business could boom and therefore impact spending by way of having to pay out more in compensation.

"We think that 1.5% [adjusted expense] level captures … the baseline outlook that we're providing to you," Maguire said. "We'd be delighted to see revenue exceed our expectations based on higher market levels [and] activity levels, and to see our expense outlook drift with it."

During the fourth quarter, the company swung to a profit of $1.28 billion, or 91 cents per share, from a loss of $5.09 billion, or $3.87 per share, during the year-ago period. Analysts polled by S&P Capital IQ predicted earnings per share would be 89 cents per share.

Revenue totaled $5.1 billion, up from $4.9 billion in the same quarter last year.

Rogers spent some time on the call talking about opportunities to do more business in certain states where Truist has been in the marketplace for years, but hasn't played to its full strengths. The company's physical footprint includes 14 mostly Southeastern states and Washington, D.C.

There's momentum underway in places like New Jersey, Pennsylvania and Texas, where it has been making investments, Rogers said. Future growth there is likely to be organic, he said.

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"I like the opportunities that we have there," he said. "The teams on the field are really strong and [they are] areas that we're leaning into."

One question that popped up on Friday's call was about Truist's recent leadership changes. On Monday, Hugh "Beau" Cummins III resigned from his role as chief operating officer, following the "completion of several strategic initiatives" he helped move forward, Truist said in a filing.

His responsibilities were redistributed among other executives. Analyst Erika Najarian of UBS Securities wondered if there was a message that investors should take away from the changes.

"We took the opportunity to take some of those responsibilities and distribute them among some of my existing leaders, so that gives them some more opportunity to grow and some more opportunities to expand their tool kits," Rogers said. "I feel really, really, really good about that."

Cummins' exit is the latest high-ranking personnel change at Truist. In November, the company promoted Brad Bender to the role of chief risk officer following the pending retirement of Clarke Starnes III. Starnes, who was also a vice chair, plans to retire in April of this year, Truist said.