Truist Financial Corp
NYSE:TFC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
31.44
47.96
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Truist Financial Corp
Earnings Call Analysis
Q3-2024 Analysis
Truist Financial Corp
In the third quarter of 2024, Truist Financial Corporation faced significant challenges but was pleased with its overall progress. Steered by its purpose-driven mission, the company continues to support communities affected by natural disasters, highlighting its commitment to social responsibility. Despite experiencing a slight decline in average commercial loans due to weakened demand, improvements in consumer loan production signal an optimistic trend.
Truist reported a GAAP net income of $1.3 billion, translating to $0.99 per share. Adjusted earnings per share stood at $0.97, incorporating adjustments for non-recurring items. The company achieved a 2.4% increase in total revenue on a linked-quarter basis, driven by a 2.2% rise in net interest income and a notable 3.1% growth in noninterest income, fueled primarily by investment banking and trading activities.
Adjusted expenses increased by just 0.9% linked quarter but decreased by approximately 2.3% year-over-year, showcasing the success of Truist’s cost management measures. With a focus on maintaining an efficiency ratio that improves operational efficiency, the bank is on track for adjusted expenses to be lower in 2024 compared to 2023, which is a revised stance from previous forecasts projecting flat expenses.
The Common Equity Tier 1 (CET1) capital ratio remained stable at 11.6%. Truist returned $1.2 billion in capital to shareholders through dividends and share repurchases, with plans to enhance its buyback program by targeting another $500 million during the fourth quarter. This commitment underscores the bank’s confidence in its strategic direction and financial health.
Total loans decreased by $3 billion (1%), primarily due to weaker demand, while average consumer loans remained stable. Meanwhile, deposits also saw a 1% sequential decline, with expectations for stability in the upcoming quarters. The management anticipates continuing pressure on average loan balances as production improves but paydowns offset gains, especially in commercial segments.
Looking ahead to the fourth quarter, Truist anticipates a 1.5% decrease in adjusted revenue from third-quarter results, factoring in projected reductions in net interest income due to declining commercial loan balances. The forecast includes expectations for noninterest income to decline by 2%. However, the outlook for cost management remains solid, with adjusted expenses forecasted to rise by 4% owing to strategic investments in talent and digital capabilities.
Truist's asset quality remained stable, with net charge-offs improving to 55 basis points, reflecting effective credit risk management. The bank recorded a $25 million loan loss provision linked to Hurricane Helene, ensuring sufficient reserves amid property sector stress, particularly in office space. The total nonperforming loans ratio held steady, suggesting robust credit quality amidst broader economic uncertainties.
The bank reported a 6% increase in users of its mobile app and a 15% rise in digital transactions year-over-year, enhancing client satisfaction and engagement. Efforts to improve digital account opening processes led to a 49% increase in mobile applications, exemplifying Truist's commitment to modernizing client experiences and increasing operational efficiency.
In conclusion, Truist is demonstrating resilience and strategic focus as it navigates challenges in the current banking environment. The leadership remains confident about long-term profitability improvements, leveraging its strong capital base to support growth while committing to disciplined expense management. Looking forward to 2025, the bank anticipates operating leverage and continued efforts to enhance client relationships will drive sustainable growth, positioning Truist favorably for future performance.
You don't have any saved screeners yet
Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded.
It is now my pleasure to introduce your host Mr. Brad Milsaps.
Thank you, Betsy, and good morning, everyone. Welcome to Truist's Third Quarter 2024 Earnings Call. With us today are our Chairman and CEO, Bill Rogers; our CFO, Mike Maguire, our Vice Chair and Chief Risk Officer, Clarke Starnes, as well as other members of Truist senior management team.
During this morning's call, they will discuss Truist's third quarter results, share their perspectives on current business conditions, and provide an updated outlook for 2024. The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist's Investor Relations website at ir.truist.com.
Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slides 2 and 3 of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP.
With that, I'll turn it over to Bill.
Thanks, Brad, and good morning, everyone. Thanks for joining our call today. Before we discuss the third quarter's results, I'd like to begin with purpose on Slide 4. As you all know, Truist is a purpose-driven company. We're dedicated to inspiring and building better lives and communities. It's the foundation for everything we do, and the belief in this mission has never been more important given the extraordinary start to the fourth quarter with 2 devastating hurricanes.
In the days since these storms cut a path to the Southeast Truist humanitarian aid team and hundreds of teammate volunteers have been out in force to help our communities. I've spent time in recent days with teammates in some of the hardest hit areas. These teammates are doing just incredible heroic work, helping their neighbors distributing critical supplies and making sure Truist facilities were open to serve our clients even as their own lives have been [indiscernible].
In addition to contributions from the foundation, we've set up several sites where we've distributed supplies. We've also deployed mobile services for basic needs like showers and laundry facilities as well as mobile branches, ATMs and generators to serve clients in areas without power. This recovery is going to take time. And we're going to play a significant role in helping these communities recover and rebuild in the days, weeks, months and even years to come, they can count on trust.
Okay. Let's turn to discussing our third quarter results on Slide 5. We've made demonstrable progress on our strategic priorities during the quarter. As I'm proud of the results our teammates delivered, which included solid underlying earnings, improved momentum and sound asset quality metrics.
On a GAAP basis, we reported net income available to common shareholders of $1.3 billion or $0.99 a share. Adjusted EPS was $0.97 per share, which excluded a few small discrete items that Mike will discuss later in the call. As you can see on the slide, our solid performance was defined by several key things.
First, we grew adjusted revenue 2.4% on a linked-quarter basis due to another strong quarter of investment banking and trading income and a full quarter's impact of the balance sheet position we completed during the second quarter.
Second, our results show our continued expense discipline and focus on managing costs. As a result of these efforts, our efficiency ratio improved on both a linked and like-quarter basis. Adjusted expenses increased by less than 1% linked quarter and declined for the third consecutive quarter on a year-over-year basis. Expenses are now projected to decline in 2024 compared to 2023 and which is an improvement from our original commitment to keep expenses flat for the year.
Nonperforming loans remained relatively stable, while net charge-offs were better than our expectations. We did record a $25 million loan loss provision during the quarter, specifically related to Hurricane Helene, which Mike will discuss in more detail later. We also returned $1.2 billion worth of capital to our shareholders through our common dividend and repurchase of $500 million worth of common stock as part of the $5 billion repurchase plan our Board approved in late July -- I mean late June, excuse me. We anticipate repurchasing another $500 million of our common stock in the fourth quarter.
Our CET1 capital ratio remained relatively stable, leaving us well positioned to grow our balance sheet and to continue to return significant amount of capital to shareholders. Finally, we continue to actively pursue growth opportunities in our core consumer and small business and wholesale banking businesses.
Although average loans declined during the quarter, I'm encouraged by the underlying momentum in terms of increased loan production, greater wallet share within certain businesses and the talent we're attracting to our company all while continuing to maintain our expense discipline and investing in important areas like technology and our risk infrastructure. Maintaining this momentum and continuing to execute against our strategic growth priorities will be key to reaching our mid-teens -- medium-term ROTCE target, which we also announced during the quarter.
Before I hand the call over to Mike to discuss the quarterly results, I want to spend a little time reviewing the positive momentum we're seeing within business segments and within our digital initiatives on Slide 6 and 7.
In Consumer and Small Business banking, I'm encouraged by the momentum as we experienced an increase in loan production in key focus areas within our lending portfolio and we continue to acquire new clients and households through both digital and traditional channels.
Average consumer loan balance remained relatively stable linked quarter as growth in other consumer which includes our specialty consumer lending verticals was offset by lower residential mortgage and home equity loans.
We did experience a 3% linked quarter increase in consumer loan production driven by non-real estate lending which drove period in indirect auto and other consumer balances each higher by 2% on a linked quarter basis.
Importantly, we're not sacrificing our credit standards or pricing discipline to drive growth. Credit metrics remained relatively stable and new consumer loan production spreads are accretive to the portfolio. Although overall deposit growth remains muted, we're continuing to add new clients and households.
We opened nearly 200,000 new digital loan and deposit accounts during the quarter, including over 75,000 new-to-bank clients through our digital channels, which represents a 35% increase over the third quarter of last year. Net new checking account growth was once again positive in the third quarter as we grew 40,000 new consumer and business accounts, bringing our total to 108,000 year-to-date.
Not only are we adding new households, but primacy rates and client retention also continued to increase due to improvements to the client experience as we rolled out more than 130 enhancements to our digital experience during the quarter.
In wholesale, I'm encouraged by the underlying momentum in terms of improved production, increased wallet share within certain businesses and the talent we're attracting to our company. During the quarter, we saw 1% growth in commercial deposits and a 4% increase in wholesale lending production, which was offset by lower line utilization and higher paydowns due in part to greater capital markets activity, which is an area where we have invested consistently.
The third quarter represents the strongest capital markets quarter we've reported since 2021 as investment banking revenues increased 79% year-over-year and 43% year-to-date. We experienced record quarterly performance in equity capital markets, investment-grade issuance, public finance and asset securitization. The growth is tied to our focus on gaining greater mind share with our clients across our industry verticals which has led to an increase in the number of lead roles across several product lines.
We're continuing to invest in our wholesale platform as we've made several key new hires this quarter in commercial banking, corporate banking, investment banking, wealth and payments and plan to add additional talent in the fourth quarter and beyond. These new teammates complement our great existing teams and have significant experience in many cases, from larger institutions and are attracted to our results-oriented culture.
As I mentioned last quarter, we have a specific focus on further building out our middle market commercial lending segment, which represents one of the largest growth opportunities within our regional businesses. We're primarily focused on industries that support existing corporate investment banking coverage and expertise where we've gained significant share.
We also continue to enhance our wholesale digital capabilities by improving the client experience. During the quarter, we launched several significant enhancements to the Truist One View platform, including the ability for clients to securely chat directly with treasury management specialists. Enhancing the client experience and growing our digital capabilities are important parts of our strategy, which I'll discuss in more detail on Slide 7.
We continue to show strong and steady growth in our digital capabilities as client mobile app users grew 6% and digital transactions increased 15% compared to the third quarter of 2023. We continue to migrate clients towards self-service capabilities, primarily driven by strong growth in Zelle transactions, which are up 36% year-over-year.
In addition to an increase in account openings, we're also seeing an improvement in the funding of our digital account openings with balances up significantly over the third quarter of last year.
Our recently enhanced digital deposit application experience has helped drive a 49% increase mobile device applications, which now account for 72% of total digital applications. These improvements also drove a 500 basis point link-quarter increase in the conversion rate on new digital applications, driving productivity and leading strong digital client satisfaction scores. We're not only better serving and growing with our clients, but we're also doing that more efficiently.
So now let me turn it over to Mike to discuss the financial results, and I'll come back after that and close this out.
Thank you, Bill, and good morning, everyone. As a high-level summary, we reported third quarter 2024 GAAP net income available to common shareholders of $1.3 billion or $0.99 per share. Our adjusted EPS was $0.97 per share, which included a $36 million pretax or $0.01 per share after-tax increase to the gain on sale of Truist Insurance Holdings and a $16 million pretax or another $0.01 per share after tax reduction on the FDIC Special Assessment.
Total revenue, adjusted for the losses on the available for sale investment securities that were sold in the second quarter, increased by 2.4% linked quarter due to a 2.2% increase in net interest income and 3.1% growth in noninterest income, driven primarily by growth in investment banking and trading revenue. Adjusted expenses increased 0.9% linked quarter but were down approximately 2.3% on a like-quarter basis, reflecting lower personnel costs.
Moving on to capital. Our CET1 ratio remained relatively stable linked quarter at 11.6% as current period earnings and a smaller balance sheet were offset by the payment of our common dividend and share repurchases completed during the quarter.
From a credit perspective, net charge-offs declined by 3 basis points on a linked-quarter basis, and our nonperforming loans remained relatively stable, both on a like and linked quarter basis.
Next, getting into additional detail, I'll cover loans and leases on Slide 9. [indiscernible] loans decreased $3 billion or 1% on a sequential basis, reflecting overall weaker commercial client demand and line utilization partially offset by modest growth in consumer loans. Average commercial loans decreased by $3.2 billion or 1.7% primarily due to a decline in C&I balances driven again by lower line utilization and at least in part by greater capital markets activity.
In our consumer portfolio, average loans remained relatively stable linked quarter as growth in indirect auto and Service Finance was offset with lower residential mortgage loans.
As Bill mentioned, production improved in both consumer and wholesale lending, but paydowns and runoff in certain categories like commercial and residential real estate will likely result in continued pressure on an average balance basis in the fourth quarter likely similar to the rate of decline that we experienced in the third quarter.
Moving to deposit trends on Slide 10. Average deposits decreased 1% sequentially or $3.7 billion with approximately $1.7 billion of the decline due to lower brokered deposits. Average noninterest-bearing deposits decreased 1.4% and represented 28% of total deposits which is unchanged versus the second quarter of 2024. The $1.7 billion decline in average broker deposits reduced our total and interest-bearing deposit cost by 1 basis point sequentially to 2.08% and 2.88%, respectively. Overall, we expect deposit balances to remain relatively stable in the fourth quarter.
Moving to net interest income and net interest margin on Slide 12. Taxable equivalent net interest income increased 2.2% linked quarter or $77 million, primarily due to the strategic balance sheet repositioning we completed during the second quarter a reduction in higher-cost wholesale funding and the impact of one additional day in the third quarter. These tailwinds were set by the impact of additional received fixed interest rate swaps that became effective during the quarter and by lower commercial loan balances.
Reported net interest margin increased 10 basis points on a linked quarter basis of 3.12%, due primarily to the securities repositioning I just mentioned and a reduction in higher cost wholesale funding.
Turning to noninterest income on Slide 12. Adjusted noninterest income increased $45 million or 3.1% relative to the second quarter. The linked quarter increase was primarily attributable to higher other income and higher investment banking and trading income, which improved $46 million due to higher M&A, equity capital markets and investment-grade fees. Adjusted noninterest income increased 11% on a like-quarter basis, due to higher investment banking and trading income and higher service charge on deposit income.
Next, I'll cover noninterest expense on Slide 13. GAAP expenses of $2.9 billion decreased $167 million linked quarter, primarily due to lower other expenses as the second quarter included a $150 million charitable donation. Regulatory costs decreased by $34 million, partially due to a $16 million reduction on the FDIC special assessment, which was recognized in 3Q '24. Adjusted noninterest expense increased 0.9% sequentially due to higher professional fees, other and marketing expense, partially offset by lower person expense. On a like quarter basis, adjusted expenses declined by $67 million or 2.3%, reflecting lower personnel and other expenses.
Now moving to asset quality on Slide 14. Asset quality remained stable on both a like and linked quarter basis, reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. During the quarter, our net charge-off ratio decreased 3 basis points to 55 basis points due primarily to lower losses in our CRE portfolio. Our loan loss provision remained relatively stable linked quarter and includes a $25 million provision related to Hurricane Helene. The provision exceeded net charge-offs for the fourth quarter, which along with lower loan balances resulted in a 3 basis point increase in our ALLL ratio to 1.60%.
Nonperforming loans as a percentage of total loans remained relatively stable for the fourth consecutive quarter, while total delinquencies were also flat on a linked quarter basis. Included in our appendix is updated data on our office portfolio, which is down $232 million linked quarter to 1.5% of total loans.
Our office reserve increased from 9.7% to 10.4%, driven by continued expected stress in the office sector. Approximately 51% of our office portfolio is currently classified as nonperforming compared with 6.3% at June 30. Approximately 90% of these loan balances are paying in accordance with the original terms of the loan.
Notably, approximately 21% of our office portfolio is housed within our Commercial Community Banking and wealth segments, where loan sizes tend to be more granular, guarantor support, more prevalent and overall losses lower. We expect stress to remain in the office sector and believe that the size of our portfolio is manageable and well reserved, but our position is to be very proactive in identifying and resolving issues in this portfolio.
Turning to capital on Slide 15. Truist CET1 ratio remained relatively stable linked quarter at 11.6% as current period earnings were offset by the return of $1.2 billion in capital to shareholders via our common stock dividend and the repurchase of $500 million of our shares. Our CET1 capital ratio, including the impact of AOCI, increased from 9.6% to 9.9%, reflecting a $1.6 billion linked quarter improvement in AOCI due to the decline in longer-term interest rates experienced during the quarter.
Although we await the final proposal for the Basel III end game rules, we believe that our current strong capital position gives us the unique ability to utilize our future earnings and AOCI accretion to fund balance sheet growth and return a significant amount of capital to our shareholders.
I will now review our updated guidance on Slide 16. Looking into the fourth quarter of 2024, we expect revenue to decrease 1.5% from the third quarter 2024 adjusted revenue of $5.1 billion. We expect net interest income to decrease 1.5% in the fourth quarter, primarily driven by lower commercial loan balances and some pressure to our net interest margin due to the temporary lag in our deposit beta.
Our net interest income outlook assumes two 25 basis point reductions in the federal funds rate over the remainder of 2024, one cut in November and another cut in December. We expect noninterest income to decline by 2%, driven primarily by lower investment banking and trading revenue as the third quarter performance helped by some pull forward of capital markets activity from the fourth into the third quarter.
Adjusted expenses of $2.8 billion in the third quarter are expected to increase 4% in the third quarter, driven by investments in areas such as talent, our digital platforms, marketing and risk infrastructure. For the full year 2024, consistent with our previous guidance, we expect revenues to be down 0.5% to down 1%, which reflects our updated outlook for the fourth quarter.
As Bill mentioned, we now expect full year 2024 adjusted expenses to be slightly lower than 2023 adjusted expenses versus our previous expectation for expenses to remain approximately flat.
In terms of asset quality, we previously expected net charge-offs of about 65 basis points for full year 2024, we would now expect net charge-offs to be closer to 60 basis points in 2024. As it relates to buybacks, similar to the third quarter, we are targeting approximately $500 million of share repurchases in the fourth quarter. Finally, we expect our effective tax rate to approximate 17.5% or 20% on a taxable equivalent basis in the fourth quarter of 2024.
I will now hand it back to Bill for some final remarks.
Great. Thank you, Mike. So in conclusion, I'm really pleased with the progress we've made as a company this year, and I'm confident that we've got tremendous momentum within our company, with our clients and with our teammates as our value proposition has never been stronger.
First, we've got an incredible franchise with leading share in high-growth markets. We've got highly motivated and energized teammates. We've a fulsome set of specialized wholesale and consumer capabilities that are loyal clients value. Our relative capital advantage is a differentiating factor that gives us a unique ability to grow our core banking businesses by serving existing and new clients, invest in our infrastructure and return considerable amounts of capital to our shareholders in the form of dividends and share repurchases over the next several years.
As we execute our strategic growth and capital management priorities, we see a significant opportunity to improve our profitability over the medium term. Our path to profitability improvement is multifaceted and a function of client and business growth while maintaining our cost discipline. I can say that I'm encouraged that much of the profitability improvement potential we're working towards is centered on further deepening of existing client relationships in verticals and product lines that already exist at Truist.
The good news is we see multiple paths on initiatives that with proper execution will result in improved performance while we don't have to experiment with new products or expand into new markets to achieve our goals. We plan to accomplish all of this while maintaining our expense discipline and focus on generating positive long-term operating leverage while also continue to invest in talent, technology and our infrastructure.
Although it's too early to provide specific earnings guidance for 2025, based on the current momentum, the confidence in our teams and our franchise where we are in the planning cycle, we do expect to achieve positive operating leverage next year.
Finally, we'll never take for granted our strong track record on asset quality as we continue to focus on maintaining strong risk discipline and controls. I'm as optimistic as ever about Truist's future, especially in light of the success I see every day inside our company.
I'd like to thank all of our teammates and all of our leaders for their incredible purposeful focus and productivity in moving our company forward. Again, thank you for your interest and investment in Truist.
And with that, Brad, let me turn it back over to you for Q&A.
Thank you, Bill. Betsy, at this time, will you please 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 1 primary question and 1 follow-up in order that we may accommodate as many of you on the call today as possible.
[Operator Instructions] The first question today comes from Scott Siefers with Piper Sandler.
Mike, I was hoping you could please maybe unpack the fourth quarter margin guidance a bit more for overall NII, I certainly understand the ongoing pressure on loans. But I was hoping you might be able to sort of walk through thoughts on how quickly deposit betas might be able to catch up to help support or ideally enhance the margin and then just make some top-level thoughts about the company's overall rate sensitivity at this point?
Scott, happy to do that. From a NIM perspective, maybe just to sort of start with the third quarter and give you the trend into the fourth and maybe even give you a sense for kind of where we go from there, and I'll link that to the beta. The bulk of the improvement we saw in the third quarter was really driven by the repositioning. So the 10 basis points from 302 to 312.
As you look into the fourth quarter, we mentioned the temporary beta lag. We do expect 2 cuts in the fourth. We did see some improvement in the third, you'll recall, we were better by a basis point on, call it, an average funds rate that was better by 7 basis points for the quarter. So it started at, call it, a 15% beta.
Our outlook for the fourth quarter is that while we'll accelerate significantly, call it into the mid-, maybe even high 30% from a beta perspective, that will still lag a touch relative to how quickly the assets are repricing. So we see some margin compression there. Maybe it's to the same tune as we guided NII. So call it 1.5% or so of net interest margin down into the sort of low 305, 306 area. We would expect that to catch up very, very early, probably in the first quarter of 2025 and would expect to see the margin stabilize, I'd say, in the first quarter and then begin to improve as we have further cuts as we get into 2025.
All right. Perfect. That's great color. And then I just wanted to ask separately. So you did the really large balance sheet repositioning earlier this year. I've got an impression that was sort of value plan there, but you have so much capital flexibility relative to so many banks out there. Any thoughts on further opportunities to do so? Or is it sort of stand pat on that front?
Yes. Look, I think you're right. We feel like we took a pretty big swing at this in May -- have now fully realized at least the benefit into the run rate in the third quarter. We do think that our capital position is an advantage. We're trying to be patient, very focused on growing the business. Bill has talked a lot about the various initiatives in both of our business segments where we do think we're going to have an opportunity to grow footings and leverage capital.
Obviously, as that's been a little slower to develop, we're buying back shares at an elevated level, I think we would expect to continue buying back shares at an elevated level. I think the repositioning incrementally, I don't think we want to ever put the tool back in the toolbox necessarily, but I think it's a lower priority for us based on what else we see in front of us.
The next question comes from Betsy Graseck with Morgan Stanley.
Bill, you mentioned with proper execution deliver on the goals here or the target that you have. Could you help us understand what do you mean by proper execution? Is that just hitting the goals? Or is there a change in how you're operating that delivers proper execution?
Yes. I mean, Betsy, there's real strong focus on expanding our relationships with our existing clients. I'm really pleased with the momentum we've created in the execution. Coming out of the merger, there was a lot of diversion and a lot of focus on activities of getting clients converted and getting teammates onboarded and all those type things, and that's just way behind us. And now the teams are really focused on executing against our priorities. We've got a really strong focus and clarity about what we want to accomplish.
So when I say proper execution, maybe I should better said, continuation of the execution momentum that we've started, and you see some of that in this quarter. You see increase in primacy rates, you see that continuation of net new. So all these things that are demonstrable evidence of the fact that we're continuing to expand and grow our relationships with our clients. So proper probably ought to be continuation and improved momentum against existing execution.
Okay. And then as we're thinking about the positive operating leverage into 2025, how much of that is being driven by deposit beta lags catching up here with Fed funds. I mean, is that the major driver of how we're thinking about operating leverage as we roll into '25?
Well, you've got all the factors that come into it. So first is the momentum in the business that we have to take investment banking, let's use that as one example. The momentum we have in this quarter continuing that type of momentum into next year as an example. The loan growth activity is going to -- I think we're confident it's going to return. We saw production increases this quarter, particularly on the consumer side, we saw loan production up around 3%.
We saw real increases in the areas that we can lean into, think about the things you know about like Service Finance and Sheffield and -- so we saw really good momentum there, increasing production on the wholesale side, but the utilization was the lowest this quarter in spend in the last 5 quarters. So -- but we expect to see some of that return.
So we've got some loan dependencies. We've got some executional dependencies, some fee dependencies and then as you mentioned, the deposit beta. And I'm really pleased with the team. I mean -- Mike and team have provided really great leadership, working really closely with Krista and Dontay the businesses to really be on top of where we are from deposit betas.
And Mike indicated, we've already had a little bit of movement, I expect a little bit of lag, but sort of see that transitioning in the first quarter of next year and then continuing from there.
And then the final factor is the expense side. So the other side of that is controlling expenses. And hopefully, we're giving good evidence of the fact that we've got a good handle on our expenses. We're going to be down this year versus last year. And I think we've got a really good capacity to correlate our expense growth with our revenue growth opportunities. So it's a lot of things.
Maybe it's a long answer to a short question. But all of those things, I think, have the requisite amount of focus and attention and we don't have a single dependency. We're going to manage them all really tightly and really well with a focus on achieving that positive operating leverage.
The next question comes from Erica Najarian with UBS.
My first question is a follow-up. Mike, you mentioned a little bit of guidance on the fourth quarter. As we think about the trajectory from here and fully appreciate we're not getting specific '25 color today. As we think about the structure of your asset side versus your liability side, should we assume that from the 305 through 306 level that assets can start repricing faster than liabilities in 1Q, but then there's a day count impact on NII that's negative? Or will the asset repricing faster than liabilities come later?
And to that end, you mentioned the swaps. If you could give us a little bit more color on the swap what the notional active is, what the weighted fixed -- received fixed rate is so we can factor that into our modeling?
Yes. Sure. Erika, as it relates to the, I call it, just maybe the NIM trajectory, I think you've got it right. Well, actually, let me say this. So we do expect in the fourth quarter for the beta to accelerate, I mentioned, call it, mid, high 30s, we would expect that to continue and essentially catch up in the first quarter. So at that point, we would expect to actually have the balance sheet behaving a touch liability sensitive, again, after an asset-sensitive fourth quarter.
And so really, as we move deeper into '25, again, a lot of variables here, we would expect the net interest margin to begin to expand a touch. So that's a good guide. And I think you mentioned day count, I'm glad you brought that up. There are 2 fewer days in the first quarter. So as you think about actual NII dollars, while we might see a more stable earning asset base in the first, we might see a more stable net interest margin, you might still feel a touch of pressure from a dollars of NII perspective. I think I got most of your questions 1A and 1B.
On the swaps, let's see, we did -- as you know, well, we have 2 programs that we use to manage our rate position. We've got our receive fixed program, which we primarily rely on to manage our NII sensitivity and risks and opportunities, and we have our pay fix program to manage our asset values, manage our capital volatility risk in the future, AOCI, et cetera.
We did have some activity in the positions during the quarter. We added about 15, give or take, $1 billion of forward starting receivers during the third quarter. That takes notional up into the call it, $60-or-so billion area. We also added about $5 billion of pay-fixed swaps. We added to the investment portfolio during the quarter as well. So we had some accompanied activity there.
In terms of active versus sort of forward starting, we did have, I mentioned in our NII results sort of description we had a touch of a headwind in the third versus the second quarter based on about $12 billion of incremental received fixed swaps becoming active during the quarter, that was a manageable headwind.
As we look at the fourth quarter, we really don't have much else coming on throughout the course of the year. We will have more active in 2025, but that's going to come on, frankly, who knows the curve could change. But based on the curve that we see today, that's going to come on and actually be less of a headwind each quarter into 2025. Our received fixed rate, you asked, Erika, is around 340 on that notional.
Got it. And my follow-up question -- and thanks for all the detail -- for Bill, based on what Mike just said, you should have NII growth next year, if everything is supposed to come true that the market is thinking in terms of capital market strength in '25, you'll benefit from that as you did this quarter. If the market is good, volatile as it could be after an election and a change in administration that could be good for your wealth management business as well.
So as we think about Truist on offense, I fully appreciate that you're aiming for positive operating leverage, are you thinking about your expense base just really just more relative to that revenue -- potential revenue strength in '25? In other words, should we think about Truist on offense rather than, oh, because of this and now we have to think about managing expenses because of all the issues with the merger integration? So I wanted to get your thoughts there.
And additionally, some longer-term investors have asked me, why will Truist operate in the mid-teens in terms of ROTCE if their 2 superregional peers are aiming to earned in the high teens or the mid- to high teens? And I suspect that might be a capital adjustment. I know that's a compound question, but I wanted to get your thoughts on both.
Yes. Thanks for the comprehensive questions. I think you've characterized the first part of that question exactly right, in the sense of that we are on offense. And you can feel it in our company, you can feel in the results. You can see it in the things that we talked about in terms of this third quarter, and you outlined many of those in terms of momentum.
We think about the expense side, and this is the concept that I talked about our commitment to long-term operating leverage is the expenses are correlated to that opportunity. And I think today, we've got the calibration correlated. I think as you noted, it was sort of uncorrelated as we were coming out of the merger. And today, I think we've got a really good handle on the capacity to invest and win and grow and be on offense and have those be correlated. Again, you saw good evidence of that in this quarter.
So there is merger hangover or other activity related to the expenses. We've been investing. We're going to continue to invest, and we see the results of that in our top line revenue growth and opportunity. So again, higher correlated and commitment to have an efficient company. So we're operating today to really much stronger efficiency ratio. So we didn't talk about that. So this commitment to have positive operating leverage on the platform of a really efficient company. So let's put that in one category.
And then on the ROTCE side, I think you highlighted -- so the starting point is a little bit different, right, because of the sale of the insurance business and the creation of a lot of capital so we start sort of from a different framework. I think about it as speed and increase in terms of return. So our speed of increase in return, I think, is unparalleled.
So where we start from our ability to deploy capital both in growing our business and returning capital to our shareholders, I think has us the capacity to grow our ROTCE faster than anybody else. And then once we get to that mid-teen sort of level and our business model starts to reflect more of what we talked about in the first part of my answer, then I think we sort of catapult from there. But the key is we have the most ability to grow our return over the medium term. If that answers it.
The next question comes from Ebrahim Poonawala with Bank of America.
I guess maybe just the first question, and apologies if I missed it. I think you mentioned pace of buybacks relative to the $0.5 billion this quarter. Should we -- is there room or are you thinking about increasing the pace of those buybacks in the near term if loan growth is muted? Or should we assume that, that $500 million is relatively locked in for the next several quarters?
Yes, this is Bill. So I think -- we all think about it as it's going to stay at an elevated level for some period of time. We've been very clear that we see opportunities to grow our business. So we're going to make sure that we've got ample capital to do that and invest in the growth. If we see that as being much longer than sort of our current view, we have the opportunity to recalibrate or to stay at elevated levels longer or to increase those elevated levels. .
But for now, I think, and so we talked about the fourth quarter and how we would enter the first part of next year, we're in that with a lot of confidence in the ability to grow our business.
Understood. And just on that, I think you responded slightly to Betsy's question earlier. If you think -- from an outside standpoint, and you mentioned that Truist is now like done with the overhang with the deal. Just remind us, Bill, when we think about the momentum and growth where across your businesses do you expect to grow market share?
And do you feel like you're at a point where the bank will stop leading market share to smaller or out of market competitors who've been aggressive in terms of hiring across the Southeast?
Yes. I mean let's talk about market share in terms of all of our businesses. So starting with the investment banking side, we've increased market share consistently through this year in virtually every discipline. So on the margin increase share in every discipline. And then when I think about share I think about the things that we talked about in terms of, for example, net new. We've really had a really strong focus on net new growth.
So when I think about share, it's growing share with clients, so increasing the number of net new clients, and that's sort of a incredible hallmark. And then when I think about share, it's primacy within our existing client base. So are we growing our primacy in terms of our share. And this quarter, particularly, both on the wholesale side in terms of treasury penetration and on the consumer side in terms of product penetration, we grew primacy with all of our clients.
So yes, we have a lot of new clients coming into our markets. I mean, a lot of new competitors coming into our markets because we have great markets. But our primacy and our net new and our capacity to serve our clients and grow in our share as we look at the important parts of share, I feel really, really comfortable with. And that's going to continue. So that pace is granted started slower out of the merger, but now it's at a really good pace, and I expect that to continue.
The next question comes from Mike Mayo with Wells Fargo.
Bill, can we get more meat on the bones for the financial expectations in 2025 and beyond such as the definition of long term when you talk about operating leverage in 2025, are you talking about more than $1, give some kind of level, the term -- medium term, when you talk about returns, what are you thinking?
And the reason I ask is I'm trying to better understand the accountability of management to shareholders. And I've written about this, but in the third quarter, you lowered the return targets from 2019 when it was low 20s to mid-teens. At the same time, you granted a special extra leadership bonus award to some executive officers, and that was on type of awards they already get PSUs, RSUs, LTIP, annual incentive awards.
And for what looks like fixing a problem, that Truist call's the asset liability management, pre the current CFO. And then there's a question about [indiscernible] for those who didn't get the award. I mean, -- 2 of the 5 named executive officers, I recognize, Bill, you did not get that award, but there's others in the 24 member operating committee who I assume did not get that.
So aside from the morale, and reconciling pay with performance, I'm just looking at today's slides, and I don't see the word shareholders when you say on the slide that says mission, on the slide that says why Truist. And you have taken some steps, you restructured the Board, the balance sheet, you reordered the company, you sold [indiscernible], you cut expenses, but still shareholders, the stocks underperformed is the bottom line. Stocks underperformed over most time frame since you announced the merger. So again, that's my big key up. Can you give us more detail on financial expectations after the fourth quarter and the key metrics that you think should drive a higher stock price?
Sure. Thanks, Mike, and thanks for acknowledging the efforts that have been underway. Let me first say, as it relates to the deck, every slide is about shareholders. So I just want to be really, really clear about that. Everything we do is about shareholders. So that is all in context. As it relates to the ROTC specifically, I would say what we do -- we did is reset sort of post the sale of TIH. So it was appropriate to sort of reset the return post TIH because we generate a lot of capital, and we've changed the construct of our business in terms of return. We created a significant amount of capital, so that actually lowers the return to create that capital. But as we deploy that capital, we increase that return.
And I think as I said earlier to an answer, I think our capacity to increase that return is we're in the best position of anybody because we've got that capital and that capacity to deploy it quickly both in our business and as a return to our shareholders. So we raised it efficiently, and I think we have a chance to deploy and return it efficiently.
In terms of the elements that are part of that return, hopefully, those are many things that I've talked about and focus on things that are critical to expanding relationships with existing clients in markets and places where we already have committed capital and resources. So these are things that have higher returns and faster paybacks.
So if you think about our strategy, it's not focused on these long-term paybacks and going to markets and trying new things. This is about really executing against the opportunities that we have in our existing franchise and increasing that return faster with higher paybacks.
When I talk about medium term, the definition of that is somewhere in that 3-year kind of range. But that also depends on sort of where the economy is and what we see in terms of growth and what we see in terms of rates. So that could go faster, that could go slower but the key is we'll have momentum against that. And again, I think you see that in this quarter. I think you'll continue to see that.
We'll use the capital, as an answer to the earlier question, we'll use that capital as a lever so we can return that capital in many ways to the shareholders, all of which will increase returns, I think, faster than others are capable of doing. I have tremendous confidence in our team. Again, I think you see evidence of many of that.
And then as it relates to the operating leverage, we said let us get into the year a little bit more, let us sort of see where things are coming in terms of where rates are going and where we see asset growth but that commitment to positive operating leverage is a continuous one. So I think we'll make that transition next year, as I said earlier, and then we'll continue to improve on that transition year-over-year as the returns improved to the earlier part of my answer.
And then just a follow-up to the incentive -- the incentives for management. I think you changed -- I cut it off with the Page 67 of the proxy last night, that's what you do for your bank analyst for a long time. And I'm just trying -- and I also saw the release that you had this quarter -- or the third quarter -- and it looks like there's like 12 financial metrics and then 5 nonfinancial metrics, and there's so many different metrics that driving compensation. If you had to pick 1 or 2 key metrics that we on the outside can monitor and focus on that should drive shareholder value, what should they be?
Yes. I mean I appreciate you diving into the proxy. I think as you dive into that proxy, you'll see compensation based on performance. So I think you'll see that actually quite clearly. So don't assume that we don't have that mentality at this company. And I think the primary measures that we look at are ROTCE and growth in our business. So you have to have really good return and you have to have growth. So we're looking at total book value per share plus dividends plus ROTCE. So total absolute growth and total relative return growth. And I think that in fairness are the highest correlated to share price return.
The next question comes from Matt O'Connor with Deutsche Bank.
In the prepared remarks, you guys mentioned about increasing in the fourth quarter investments related to risk infrastructure. I was just wondering if you could elaborate on what that is and the drivers of, I guess, why now?
Yes. I mean, Matt, that's a continuation of the investments that we have in the risk infrastructure. So that's everything you can think of in terms of how we build a more enduring consistent infrastructure. So think about the investments in cyber, think about the investments in data, all the type things that go along with that investment. They're bumpy by quarter, but they are increasing and part of our overall guidance.
And so in the fourth quarter, we just had some specific items that were more unique to that quarter. But they're also factored into the guidance that we've given on positive operating leverage for next year. We're going to continue to invest in infrastructure. This isn't a onetime unusual thing. This is a continuous investment for a company our size with the responsibilities and the obligations we have to our clients, regulators and our shareholders.
And I know when you combine the 2 companies, you guys made a lot of investments in, call it, the gut to the company, taking the best of both and creating some new platforms. Maybe just give us a quick snapshot of like what is there still to do? Is it catching up on something? Is it just kind of business as usual staying up to date like all the other banks are doing?
Yes. I think in terms of basically the risk on infrastructure, I mean the -- we've seen the elevation of expectations of how we manage data. We've seen elevated expectations in AI and the investments that we want to make that. We've seen elevated expectations in terms of cyber. So they're really more -- not things that were left out of the merger, but things that are just continuous improvement of what we want to do and be responsive to the opportunities and challenges that exist in our -- in financial services.
The next question comes from Gerard Cassidy with RBC.
Can you guys share with us, Bill, in your prepared remarks and you talked about market share in response to a question, but you were talking about wallet share, how in some of your businesses, you're gaining wallet share. Can you share with us how can we, as outsiders, measure that success growing that wallet share?
And second, what are you doing to grow that wallet share that's showing up that maybe you didn't see 3 or 4 years ago?
I mean the best way to see the wallet share gain is seen in the overall returns of our business. So if you think about the return expectations and increasing ROTCE, think about that for us is increasing ROA. Think about that as the focus. So we have assets deployed. We have resources deployed and we increase the penetration.
This time, we talked about checking primacy up 1%. We talked about treasury management, penetration of our commercial base up 1%. So hopefully, we're giving you that kind of information that's consistent to demonstrate that primacy, but you primarily see it in the returns. So that's the focus. I mean that's the big way we drive returns for this business is improving our primacy with our clients.
And following up on that primacy comment, Bill, how do you guys intersect or interlock your pursuit of the digital channel with primacy? It seems like the industry, you guys included the optimal kind of mix is having physical branches as well as the digital channel. Do most of the primacy relationships still come through the brick-and-mortar? Or are you seeing some success in building it through the digital channel?
You're really on it. And the answer is both. We have this concept called T3. So this concept of that touch and technology equals trust. So what we want to do and the capability that we've built for example, our clients in Truist Assist. So our digital clients have a virtual assistant to sort of help them in their transactions. But what we believe is that they also have the opportunity to then transition to a human interaction with that. So you've got to sort of supply both of those opportunities.
When a client is interacting with us digitally, and shows up in our branch, we want to be able to follow up on that transaction and continue that process. So I think they're actually both really important as part of the overall process. It never becomes more clear in something like we've experienced in the last few weeks in the storms. So those economies would go to cash during that particular time. So our branches and our ATMs are the most important thing that those communities need at that time. They don't have access to digital, internet is down, power is down. So being able to toggle between both of those and making sure that we serve our clients in the way that they can be best be served.
And that's why I led with that in this particular commentary is just to show how important both of those things are because the goal is to create an enduring relationship with a community and with a client. And we do that by investing in the channels that are most important to them when they're most important to them.
This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.
Okay. Thank you, Betsy. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you may now disconnect the call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.