Truist Financial Corporation (NYSE:TFC) Bernstein's 40th Annual Strategic Decisions Conference May 30, 2024 10:00 AM ET
Company Participants
Bill Rogers - Chairman and CEO
Conference Call Participants
John McDonald - Bernstein
John McDonald
[abrupt start]
CEO and Chairman, Bill Rogers. Bill, thanks for joining us again this year.
Bill Rogers
Great to be here, John.
Question-and-Answer Session
Q - John McDonald
So Bill, I'll start off with the recent events. You recently completed the sale of Truist Insurance, simultaneous securities positioning. Maybe for starters, give us a little background on the thought process that led up to those transactions. And then we'll shift to how that positions you for the future.
Bill Rogers
Yes, John, this has been a part of a overall strategic framework. If you think about some of the merger, the first part of the merger was to put everything together, do no harm, get our clients through in a really great fashion. Reinstate sort of great client experience. Every client had to go through a change. Every teammate had to go through a change.
And then so for the last couple of years, we've been on a really good framework with the Board on sort of overall strategically, what do we want Truist to look like. How do we want the company to be capitalized. Where do we want to invest.
And what we saw on the insurance side, great business, by the way, a great long history. Just from the merger, we've invested probably 90-plus basis points of capital in the growth in the insurance business.
And what we saw is similar, actually, a lot of industries, banking, similar is insurance business was growing really quickly for different reasons, but consolidating different -- really quickly, consolidate a lot with private equity. And what we saw is as we look towards the future is we're going to have another 100-plus basis points of capital investment in insurance business to keep it strong, keep it growing.
The acquisitions were going to be bigger versus smaller. J curves are going to be deeper in terms of dilution. So from a strategic framework, we said, okay, we actually have to think about that, and we sort of have to make sure that we position it for the future. The first place we started was doing a minority sale with a concept that we could continue to build capital from that based upon acquisitions. I also changed a lot of that view about minority positions in companies.
So we moved to more of a strategic decision of if we want to be in the insurance business, it was going to require a little more capital than we thought was appropriate relative to our total company. So that was sort of the premise of the decision.
So we executed a sale of the business. We knew we would generate good amount of capital in doing that and then sort of how to redeploy and think about that capital. In the first place to redeploy it from an efficiency standpoint, a big game, big losses to reposition the securities portfolio.
We have a couple of objectives in mind with the sale. One is we wanted to increase the liquidity of the company, obviously increase the capital of the company just to be in the most competitive position possible. I mean we just wanted to be leaders in both of those areas, be leaning forward, front forward, take advantage of opportunities. Create a better portfolio, sort of shorter duration, more consistent with the way we want to be in the future. And then the other was replace the insurance income.
So those were some of the premises on that. We were able to accomplish all of those. We ended up sort of at the -- in the securities reposition. We took a little bit of a bigger position than replacement insurance income. So we did a little more than replacement insurance income, just predicated on some things that we thought we were opportunistic.
So I think the end of the day, we feel really good about the positioning. We feel great about the decision that we made. The execution from our team was off the charts. We have just great teammates that we're able to execute all of that with incredible precision. And we sit with a company that's got a lot of capital.
We're in a great position to grow. We're in great markets. And as I said before, we're sort of athletic position, front forward, ready move forward.
John McDonald
Great. Well, I think we'll dive into that a bit in terms of where you see these optionalities.
Bill Rogers
Yes.
John McDonald
So just in terms of the environment, you're out in the market talking to clients a lot. What are you hearing? What's the overall sentiment in terms of the economy and what are clients most focused on right now?
Bill Rogers
Yes. It's sort of an interesting time is that overall, if you sort of dissect some of our commercial and corporate clients, they're pretty healthy when they -- their businesses are generally pretty strong. We sort of see that in our credit performance. They entered into this phase with a lot more liquidity. So there are a lot of leaders of those businesses that were under the financial crisis, so they understand the liquidity of the company.
Companies are better capitalized. They're cautious right now, though. And while individual companies, that's really fascinating. If you visit with an individual company, it's a little bit like my business is doing great, but I'm worried about everybody else. Or my business is doing great and I'm worried about the market.
And that cautiousness is what, I think, kept them funding a lot today with a lot of liquidity. Be a little more careful about when and how I'm going to build that next warehouse or wonder how am I going to add the data center or wonder how am I going to add to the fleet.
We do see sort of early-stage pipeline starting to build a bit. I don't want to sort of like indicate that that's all the next quarter kind of thing. And that may be some capitulation to rates is that maybe rates are going to -- we don't want to be in the rate timing business from our clients' perspective and capitulation of the opportunity.
As you know, I don't wait too long. So I think on the corporate side, credit is good. And although they're cautious, I think they see opportunities to invest longer term on the business. That may be a little bit idiosyncratic to our markets as well in fairness because our markets are growing, and migration is really strong.
And overall, every stat on unemployed picker category or so, better in our markets relative to the rest of the country. And then on the consumer side, the consumer has just been resilient than any of us would have ever thought.
I mean I think you can look at any quarter and say, gosh, this is the quarter, maybe it was going to be the season -- the holiday season, whatever it may be that are going to start slow spending. And I think the fact that employment has stayed strong, has really contributed to that resilience. So there is a job or two jobs or sometimes two jobs and a good job in a family.
So their ability to -- and confidence in their earning capacity is that kept them in the spending mode. There's a reason to be cautious sort of in the lower income categories. We do start to see spending sort of being in excess of income. Savings rates are sort of at pre-COVID levels and coming down a bit.
But again, the loss experience, we see delinquencies coming up a little bit. The fact that there's employment and income in the household, where is the highest correlation to losses. I'm not sure it's going to translate so much into losses. But it possibly would translate into a little bit of a slowing of company in terms of spending.
John McDonald
So understanding demand is not quite there yet, from your perspective, with the strength in capital position, how much of a strategic shift has there been with your appetite for loan growth? What are the areas that you're willing to lean in a little more now?
Bill Rogers
Yes. A couple of things, John. One is we've created an incredible amount of discipline in our process. So I would say we were disciplined on a premerger but certainly coming out of last year, the discipline really increased. So in terms of discipline on risk, discipline on diversity, discipline on structure, discipline on return expectations is really, really strong and appropriate.
So we're not going to lose that. We're not going to sort of wake up the next day and say those things aren't critical important. But we can apply more against those disciplines. We can apply more opportunity against those disciplines. So while we were in more of a capital optimization standpoint, we're now in an opportunity optimization, if that makes sense.
So we're sort of transitioning to say, okay, well, in the places where we can be opportunistic, can we lean in and move to the left lead of a deal. Can we lean in and promote capital that somebody else couldn't provide and elevate our status, win business that we didn't win otherwise. So that's sort of how we're thinking about it from the corporate standpoint.
That's against the backdrop with a lot of growth. And when the economy picks up and when that growth comes, we'll be better positioned to do that against that platform with higher returns. And you can feel it. I mean our teammates feel it. I mean I've told someone I probably underestimated the qualitative aspect of that swagger, feeling really good, the ability to recruit talent to our platform sort of on that basis.
And the consumer saw it in other places, again, that we sort of optimized a bit that returns are acceptable against that kind of capital. So the places like indirect auto that we sort of had the valve probably at a pretty low level, we can turn that valve up a little bit. We'll still be sensitive to returns and expectations and the same thing against our other consumer platforms. Sheffield and Service Finance continue to be really good opportunities, high performing. We'll leverage
those better against our overall platform and give them capacity to grow.
John McDonald
And one area, it seems like you might have held back on the last few years is new markets expansion. Is that also kind of more on the table now?
Bill Rogers
Yes. I mean the first goal in the merger was to optimize our business, sort of optimize against everything that we have. And I think that included branch closures, branch optimization, all the things that go along with that. And today was good to transition to that and say, okay, now we've optimized against the franchise, what are the opportunities within the franchise, primarily, by the way, not a dramatic geographic shift. But within our markets, we have specific markets that have more opportunity early in that sense as the investment in the commercial and the corporate side.
I think markets like Texas, where we've sort of expanded our capacity and our ability there, we'll follow that with some expansion in branch networks and the things that filling out those markets and creating more capacity, getting to more of the ubiquitous kind of penetration that we have -- that we enjoy in a lot of our other markets.
So it's going to be a lot of the fill-in existing market opportunities in all of our businesses. And that's another advantage that the capital gives us is we can sort of lean with the RWA side in those markets, and then we can follow it with the investment side.
John McDonald
Got it. How about the other side of the balance sheet, what are your expectations for growth or shrinkage in deposit balances in the next couple of quarters? And what are you seeing in terms of momentum there?
Bill Rogers
Yes. I think where we are on the deposit side is we're sort of like indexed to QT at this point. I mean I think a pretty tight correlation. So I think deposits will -- whereas they were coming down sort of 1%, it's probably now like about 0.5%. So I think sort of continue that trend.
On the disintermediation, sort of our DDA percentage is probably about 28% or so. I think we'd said earlier that mid-20s could be sort of a landing spot. That's certainly where we've been before as an industry. But that's slowing. So that's sort of more a sort of a percent a quarter kind of basis.
And I don't know if we'll get to that point. I mean I think, again, a little bit on the consumer side, there's a landing spot that we're starting to get closer to than we would have said six months ago or nine months ago when the slope was probably a little bit higher.
John McDonald
Yes. And do we know if the kind of higher rate expectations for longer has changed that ability to slow yet or...
Bill Rogers
Yes. And it's interesting because I think, again, those moves are more tectonic. Those kind of environments happen faster on the corporate side and the wealth side and the things that have higher betas associated with them. So I don't see the significant change in that. I think consumers are sort of landing and that was sort of in this place for probably a little bit longer than they expected.
They are probably landing at the spots that they want to land, and we're adding a lot more value to the relationship. So that's really important. We're adding more product capability. We're becoming more important to those clients. So the decision is based upon rates are lessening a little bit as we increase the decision based on our capability to serve them better.
John McDonald
Okay. Fair enough. So moving over to fees, your first quarter investment banking revenue is much higher than where you kind of exited the back half of last year. How much of the investments you made in this business contributed to this? And you've talked about this kind of maybe new run rate things sustainable.
Bill Rogers
Yes. I mean, certainly, markets were better. So we have done that, but we've been investing significantly in that business than we've had in 30-plus managing directors. In that business, people have been really attracted to our platform and really attracted to the opportunity that sits there. By the way, the capital helps there as well in terms of the capacity to continue to grow.
The relationships that we've built in both the industry specialized areas, but also the relationships we've built with our commercial team is part of that. And then a relative prowess. So if we look over the last 12 to 18 months, our active book runner kind of business is almost doubled. So the economics of each transaction are much higher, in many cases, 10% to 15% higher. So it's a combination of all those things.
And I think all of those things are more sustainable. All those things are more repeatable. So I think we're in a pretty -- we'll have some market dependency, no doubt about that. But I think we're in a bit of a new platform that we're operating from.
John McDonald
Okay. What other opportunities do you see for growth in the fee income platform? Are you thinking about maybe payments, wealth?
Bill Rogers
Yes. Clearly, both of those, if we think about the insurance business was a big part of our fee income business. Obviously, that was the one significant detriment to creating the capital. The opportunities sit in both. So we -- remember, we took our wealth business and made it part of our overall wholesale platform.
What we want to do is capture all those assets that come out of our commercial platform. And we've been with clients for two and three generations. So they've got a lot of confidence in us, and they are transitioning. I was looking at some numbers the other day about what percent of our commercial portfolio or the commercial portfolio is now private equity owned. It was a surprising number.
So there is this transition that's happening, and we want to be at the forefront of that. We want to be in the advice category. We want to be helping guide clients in that transition. And with that, comes managing their assets. And we've been really successful.
So our new asset generation, 50% plus comes from that commercial platform. It comes from capturing those business transition opportunities, and we want to continue to invest in that. I think that's a place where we'll -- you'll see us adding people and resources to continue to be on that growth pattern.
John McDonald
On that, Bill, a lot of banks are trying to do that.
Bill Rogers
Yes, absolutely.
John McDonald
You have historically. So I guess, is there a renewed focus or a kind of a new product set or new angle that you're taking here? Or just opportunities that haven't been tapped?
Bill Rogers
I think one just really great execution. We have teammates that are committed to that as a strategy. We have an organizational alignment against that. We have the incentives aligned against that. And we've got the whole concept of being focused on business transition as a strategy versus business transition as an event.
So if it's event, it's one at a time. If it's a strategy, it's sort of an overall platform. And those things are -- take a long time to embed. They take a long time to create that culture. And we have a unique commercial platform.
I mean we have a unique commercial base to operate from. So we're not introducing ourselves to these clients. What we're introducing is all this new capability, industry specialization, ability to execute great private wealth management capability. So I think it's a little bit of a different mix.
John McDonald
Sure. Sure. And then I think you're going to go on to payment. Legacy companies were kind of middle of the pack on payments. And what are your goals and ambitions here?
Bill Rogers
Yes. I think both companies were competitive from a payment standpoint, but it's certainly in terms of penetration and growth rates, those where we have a lot of opportunity, if we look at sort of best-in-class relative to that. The first stage we need to do is make sure we were competitive from a product standpoint. So sort of underneath all the expense efficiency and merger and all the other things that have been on the outskirts, we've been investing significantly in the payments business. So not only from a technology standpoint, from a partner standpoint, but also from a talent standpoint.
So we've added a lot of capabilities in all those areas. So I see that as one of the real significant opportunities for us to continue to grow. And all these things are related. As we become the active book runner, we have the capacity to ask for more business, ask for more payments business and more deposits business. We now have the capability and tools and -- that we would be selected for that. So these things are all part of a circle of how we generate more business.
John McDonald
Okay. You've talked a lot about investing and the opportunity to grow. The other side of the coin that investors want to hear about is efficiency, kind of your mindset about efficiency, improving operating leverage and kind of continuous improvement. So maybe you can talk about how you're driving the team to that mindset.
Bill Rogers
Yes. John, in this -- in the fall, we made a significant announcement to say despite the fact we have a lot of efficiencies in the merger, this is the next phase. How do you create a culture that has a continuous improvement mindset. How do you create a culture that operates on an efficient platform. How do you create a culture that has a positive operating leverage mindset.
And we felt we needed to have a little bit of a shock to the system. So we created a specific program to reorient ourselves, and that's been really successful. We went from a company that was growing at sort of mid-single digit kind of expense base to now a flat sort of expense base, that requires a lot of discipline. It required a lot of intensity. Our leaders really embrace the mindset.
And now we're in that continuous improvement. So we sort of reset the expense level. That was a
stair step. That was important. We needed to do that.
And now we have this continuous improvement on the mindset that we want to, again, have positive operating leverage. We have -- the simplification of our business has given the leaders an opportunity to look across wider platforms and see opportunities for efficiency. Just say, hey, we can expand this. We can do spans and layers. We can do systems that are more consistent across.
We can do credit approval. It's more consistent across. We don't have to create all these different silos. And so they've got that mindset. So every day, they're thinking about, okay, if I save $1, I can invest $1 and be in that kind of mode.
And that's an important catalyst to come out of the merger where in the merger you were trying to get things settled and merged. And now you're trying to run on a more efficient platform with this constant improvement mindset. And we've got leaders, systems and strategies that have really embraced that.
John McDonald
Yes. You've committed and signed up to kind of flattish expenses this year. And it's probably too early to get specific about next year. But that kind of idea of self-funding and then trying to stay close to flattish, is that how you'll approach looking into next year?
Bill Rogers
Yes. Well, I think we'll approach the next year's -- and it really goes back to the first question related to growth. So when we see growth, we're going to be the front foot athletic position to take advantage of that. There are variable expenses that come with that growth all in the spirit of positive operating leverage.
So we don't want to commit to sort of a level until we sort of have a better understanding of where the growth opportunities are going to be, but they're going to be in that spirit of positive operating leverage, investing enough on the, certainly, the variable side to make sure that we capture that and creating that on an efficient platform.
John McDonald
Okay. Fair enough. So on the credit front, what areas of the loan portfolio are you watching from an asset quality perspective? And where do you see the greatest risk outside of office, but we'll talk about that separately.
Bill Rogers
Sure. We've been doing because overall has been pretty benign. If we look at sort of the overall credit portfolio, certainly across the C&I and then the consumer side, it's been pretty benign. It's been performing. Well, we're bankers.
So our job is to find the number of costs on whoever it may be. So we're taking literally portfolio by portfolio and just taking them through a really intense review. So we'll, at any one time, we'll take the multifamily portfolio, take it through an intensive review. We'll take an industry specialty, take it through an intensive review. So when we see what are the things on the edge is looking around the corner, what are the risks that we see.
How do we make sure that we keep the diversity in the portfolio. Is there anything that we're missing in those pieces? So the answer is we're looking at sort of everything if there are places where maybe sort of go through a couple of cycles.
So on the senior care side, 12 months ago, lots of concerns, lots of labor issues, sort of the post-COVID, non-migration to senior care was really acute, those are starting to change pretty significantly. So much more adoption and migration to senior care. Labor is starting to get a lot better. So that's a portfolio that went probably from the yellow zone to the now or -- maybe yellow, orange, green, red zone to the yellow sort of green zone in terms of shift. Multifamily, same thing.
Lots of diagnosis, lots of elements in the multifamily. What we're seeing right now, and hopefully a lot of good client selection is our clients are continuing to invest. So where they start to see some of the disparities, they're in markets like our markets with a lot of migrations in migration. So while they say, we might experience some short-term issues, we've put more capital into this. We're going to recapitalize this because we see the long-term benefit.
So those would be two examples of portfolios that sort of have changed a little bit in terms of their component. And then we can talk about office all you want is because that's a red zone, that's how to go about it.
John McDonald
And we did see your loss content in the first quarter in office. How much of that is you kind of trying to get in front of things? And I've heard you say in the past in this kind of environment, kind of time is not your friend always. And you want to kind of get to these things as quickly as possible. Maybe you can talk that a little bit.
Bill Rogers
Yes. I mean, because we have a smaller portfolio, it's relative, I mean, our total office is about 1% -- a little over 1.5%, a little over 2% total office. Some of that portfolio, about $1 billion of that portfolio sits with our private wealth clients. So that's sort of a little different portfolio. I mean, they're income-producing, patient, have a lot of time, a lot of capital to invest in it.
So sort of what is the balance of this portfolio. A lot of it sits in our markets. So similar to the concept about multifamily, a little more confidence in the migration and over time, kind of -- and the parts that are in our markets seem more acute to us, and really started in the second, third quarter of last year. We're just -- I mean, to your comment, I have talking about this before time is this is an area where time is not your friend. I mean it's just not.
I mean if we fast forward and look over the next six to nine months, I don't think this is going to get better. I think it's going to get worse. And so we're taking the opportunity. You saw our loss content go up, but our nonperformers go down. So we're trying to get in front of it and take these opportunities as best as we can. Prices are not good. We certainly see that. We're not trying to send a low watermark, but we're also not going to wait.
John McDonald
And this is all in the troubled office. We're very conscious of what we're talking about here.
Bill Rogers
It's very concentrated and it's very idiosyncratic. I mean, we have markets where the loss content is -- we see is almost nothing. I mean, the reserves are really low. We're in good selection. And other markets that just the selection is idiosyncratic not as good.
And it's a bit of a musical chairs game, so the music stops and some of us end up sitting and you don't have a chair and that non-chair is an empty office building. And what we want to do is not be in that one chair. We want to make those decisions early.
John McDonald
Sure. So on the consumer side, things are a little different. And you might have seen some earlier seasoning that maybe could lead to some improvement trends, I guess, from here. Maybe just talk about kind of that different trend that you see in consumer.
Bill Rogers
Yes. I think on the wholesale side, we'll see some increase just because it sat from a really low base. Just there has to be some reversion to the mean over time.
John McDonald
Yes, historical charge off.
Bill Rogers
And it's really low right now. So we don't see that as being a stair step. Very gradual. On the consumer side, there's a lot of sort of post=COVID hangover in some of the underwriting and some quality side of that portfolio. And that's on the other side of that. So we sort of see that sort of improving a little bit over time. We've -- our guidance says we'll sort of be in the same sort of ZIP code that we've been in for the balance of the year. But the shift -- but the mix will change sort of slightly on those edges.
John McDonald
Okay. So let's talk about capital management. Obviously, you've got an influx of capital. Your position now is very different. So capital management is something really important as you think about for the next couple of years. You've talked about restarting share buybacks is obviously somewhat mechanical way to improve the ROTCE. And you've kind of talked about this potential 2-step process. And maybe you could elaborate on that a little bit, how you think about that.
Bill Rogers
Yes. So obviously, with the decision to -- I'll sell the insurance business, we effectively significantly recapitalize the company. So we went from a position of capital management back to a position of sort of opportunity management, so pretty significant, pretty significant shift. What we do is continue to be in a position to take advantage of growth when growth happens. So we want to preserve capital from that standpoint.
But by the same token, that's not going to happen tomorrow. I think we can sort of foresee that's not next quarter, next six months kind of significant inputs. So that means we want to return a little bit of that to shareholders. I think it's -- I think Truist is a really good investment from that standpoint, and be able to return. So the way we've said it is we want to be a little more meaningful to start with.
Again, not a stair step, sort of a gradual decrease in that excess capacity from a capital standpoint, sort of a gradual increase. We'll meet the other side of the chart from the growth side. We'll get more information from the CCAR, and we'll get more information from the finalization of Basel that sort of where that line ought to meet. But we know we have capacity right now. We want to put a little bit of a finger on the scale early on capital return from share buybacks and then get into a very durable, consistent sort of return of capital.
I mean I think the real -- if I think about from a Truist standpoint, I mean, the real advantage we have right now is we have this capacity over the next, pick your time period, three to five years to have a really excess return on capital and sort of mid-teens, call it kind of return on capital, where you could fast forward going to say, we can return like a number, 30%, 40% of capital, and you'll be at the end of that period with -- you still have Truist, just like Truist, the exact same opportunity that we've had and much better positioned to take advantage of it, but it's a $0.60 on the dollar. So I think that's the -- from a shareholder perspective, I think that's the real transition that's available.
John McDonald
Yes. So it's really interesting and a couple of follow-up comments on that. When might we get a sense of timing of when you kind of finalize this decision and kind of roll out the buyback plan?
Bill Rogers
Yes, it's a -- we'll obviously have a lot more information in the next several months on the CCAR side. I think we'll communicate much more clearly here in the early fall as to share buybacks, probably a little bit later in the year as to overall level because we sort of have -- there's more information that's got to come out. We really have to understand the Basel piece before we set some really more airtight, medium-term and longer-term targets, I think we'll be able to get much more directional feedback here in the next quarter or so.
John McDonald
Yes, I think everyone's wrestling with what capital definition, meaning you and the rest of the banks in terms of you got current rules, you've got traditional rules, Basel III. But either way, it feels like we'll have time to phase and your starting point, obviously, is to enhance?
Bill Rogers
Well, that's the point, John. I mean so -- before we would have said, well, we have a transitional flight path. We're already there. We don't need the flight path. For us, the flight that comes from the top down versus the bottom up in terms of how we meet that and how we think about capital utilization. Completely different position than where we were before.
John McDonald
Yes. And just a final comment on this. The dividend payout today is high, it's above 50%. So will your thought process maybe grow into that and kind of increase the dividend but maybe at a slower pace in the earnings just to kind of balance that out?
Bill Rogers
Yes. The dividend has been a really important part of our investment thesis and having a consistent dividend. So when we think about how we want to utilize capital, I mean, the first is to invest in our business. But the second is our dividend. I think what we would expect to see going forward is that the rate of growth in our business will exceed the rate of growth in the dividend, which sort of gets to what you said.
That's not to say the dividend might grow, might not grow but it won't grow at the same pace. So we'll sort of leg into, I think, a dividend payout ratio combined with a share buyback, so has sort of a total return to shareholder, durable platform that I think will be a really attractive long-term capacity for our shareholders.
John McDonald
Sure. And you've mentioned bank M&A isn't a priority right now. We talk a lot about organic opportunities. But how do you think about potential bolt-on acquisitions to accelerate growth in some of these areas that you've talked about?
Bill Rogers
Yes, there could be, John, I'm going to your comment earlier, our number one priority, we think the absolute best place for us to invest right now is Truist. And then we just see tons of opportunity for us to continue to invest in our business, achieve the potential of the merger we talked about earlier. Expand in markets that we're in and become more relevant and more competitive in all of those markets. There could be some small bolt-on things that might make sense, some partnerships that might make sense in the areas that we talked about, payment. But I don't see that as being a big dramatic sort of power shift, buy another insurance equivalent kind of business from a capital utilization. It would really be more on the strategic, to your comment, bolt-on enhancement opportunities.
John McDonald
And are there any significant tech upgrades that you need to make or you are in process or making right now?
Bill Rogers
Yes. I mean I think we've talked about earlier. I mean, the continuous investment on the payment side, the great part about the positioning right now in payments is it used to be payments was a big core type investment. And today, it's a much more left lane, faster payments, API, there's just a way to invest in that business at a much more efficient basis.
So that's the area that's probably seeing the most investment from us on the core systems and capabilities in the company, they're always enhancements. But there's not a stair step thing though that we're worried about at this point.
John McDonald
So I guess, putting all of this together, if you post this down in the TIH, the efficiency ratio increase, but ROTCE comes down, as you mentioned, probably starting in the 12.5% range to the high teens. What would be the kind of multi-point plan for Truist? You'll kind of be thought of as an ROTCE improvement story over the next couple of years. And what are the levers across organic and mechanical?
Bill Rogers
Yes. So take then I said a couple of points. One is, we'll do all this on an efficient platform. So one shows up, and the insurance business was a great capital contributor, but it was also a highly -- high efficiency ratio business, so where you sort of take that away and you look back and say, oh, my gosh, this bank works at a pretty low efficiency ratio. And we want to compete in that.
We want to be -- we've always said that we want to be sort of top quartile in terms of how we think about efficiency. I think the scale, size and scope of our -- in the business that we're in gives us an opportunity to do that. So that's on that front, positive operating leverage to achieve that.
And then as we transition into ROTCE, as you said, we sort of like take a stair step down, but we have the opportunity to improve that, and we will be the ones that will be growing our ROTCE. We're not ready to set sort of that medium-term target today. But the things that happen mechanically is, to use your terms, that sort of are immediate. One, we have things like the AOCI burns off. So do you create earnings capacity from that.
So that sort of happens naturally. And the things that we can do in the share buyback component of that, we can bend that curve a little more quickly, and create a little bit of a stair step in terms of the ROTCE.
And then from there, it's all about growth. And there, it's about the growth, the investment, how do we utilize capital. Are we utilizing it effectively. Our shareholders, are they getting the benefit of how we're investing in that capital and get the opportunity, does that happen in our business. So back to the earlier comments, I think when we have the opportunity over the next three to five years to have a really good return of capital position with our shareholders and have this core business has got the growth opportunity to continue to grow from an ROTCE standpoint.
John McDonald
Great. And along those lines, another question that has come up around the question of stakeholder priorities. You've made it very clear that Truist is a purpose-driven organization that focused on delivering for all stakeholders. And to be fair, over the last couple of years, shareholders have felt a little left out of the equation. So I guess, what can you offer investors to say that the purpose-driven model will also deliver for them over the next five years and then [indiscernible]?
Bill Rogers
Yes. Look, I'm a large shareholder myself. So we haven't met shareholder expectations during the first part of the merger, haven't met our own expectations. And we're -- all the things we're talking about, our position for the future, that hasn't been because of purpose. Purpose is this strong foundation of what we want to create as a company and purpose and performance are inexplicably linked.
They're not two separate things. And we talk about that all the time within our company is that they are linked, they are part of a cycle, purpose driven. I believe people want to work for purpose-driven companies. I believe clients want to do business with purpose-driven companies. I believe communities want to support purpose-driven companies to have a fundamental belief, and I think that's the right cultural foundation to stand for, but it doesn't matter if you're not performing.
We're in the business to perform. So when I use the word stakeholder, shareholder is a high priority in that stakeholder. It's not meant to exclude shareholders in any way. And it's meant to enhance the capacity to build more shareholder value, and our teammates are focused on that. We just use different words when we think about things.
So when we think about expanding our business with our consumer clients, we talk about having carrying conversations. It's a purposeful word. We also want to have more of them. It was someone set goals against having more of them, and we want to increase our promising. We want to increase our relationships. We want to increase the velocity.
So they are connected and they are part of the cycle. And I think -- and I get the, hey, Bill, are you putting your emphasis in the right place? Trust me, the emphasis is in the right place, but they are correlated. And I just have a fundamental belief on that.
John McDonald
Yes. So at some point, when Truist has an Investor Day, some days, it will lay out an RHD improvement story that has multiple levers, I guess?
Bill Rogers
I'm not committing to the Investor Day, but let's talk about hypothetical in terms of investor presentation yet. When we get a few more cards laid out, I think that's a reasonable expectation that we start to set some goals and some parameters. And there'll be marketing a fundamental dependence so you'll have to have a little if this, then this kind of part.
But I think it's an appropriate response for us to set some of those targets because I think that will be really exciting. I think when shareholders look at some of the opportunity for us to return capital to shareholders over a period, I think we're just -- we're uniquely positioned to do that. So I think we have a fantastic story to talk about. So we're anxious and looking forward to talking about that.
John McDonald
Yes. So a couple of other things as we have a more minutes left here. Bill, one thing that's come up as we think about the longer term, how does the Board and yourself think about succession planning at Truist? And how do you guys go through the process there?
Bill Rogers
There isn't a meeting that goes by when succession and planning isn't a topic. It may not be the specific topic of the meeting, but the concept of succession planning bring in people in front of the whole boat or letting them experience that we have a plan building capacity for teammates, adding people into key roles, making the changes that we need to make, looking at places to give -- makes different experiences. They build their toolkits to move along. So we did a very rigorous process that has a continuous look. Our Board takes it very seriously.
I take it very seriously. I think it's one of the most important things that you do as a CEO in addition to -- and creating great shareholder value for shareholders is create great succession. So it's something that we take very seriously and spend a lot of time and energy on.
John McDonald
So on the regulatory front, besides powerful three, what are the key items on the regulatory antenna that are important for Truist? And how do you feel positioned for those potential outcomes?
Bill Rogers
Yes. I mean there are a lot of things around the edges in terms of late fees and overdraft, things that are related to an [indiscernible] category. I think we're relatively well positioned against all of those relative to others. People will be impacted proportionately to their size and scope of their businesses. The fact that we have a really diverse business helps from that standpoint.
Certainly, the M&A environment will be something that we all are going to keep an eye on, on sort of where is that, what's that capacity, what does that mean for a competitive position. So I've said before, our priority is Truist. I mean, I think we have best company to invest in right now is us and the opportunities in the markets and the places that we can invest in.
But we need to keep an eye on what does that mean from a competitive position than what's happening in that environment. And then I just think there's an overall governance accountability, a really strong focus on controls and all those things from the regulatory standpoint, I think we're in a really good position.
And we've doubled the size of our company. So we've sort of been on this mindset. We've got to continue to invest in the risk and control environment in our company. We've got a great environment that's really sustainable and sort of ironclad. So we'll continue to invest proportionately to the expectations, not only the regulators, but just to create a really good company that's really solid and has a risk and control environment that's sustainable.
John McDonald
Okay. So a few questions here, kind of lightning around from the pigeonhole. So organic growth sounds good, but your main markets are a knife fight between big banks and other regionals
trying to grow share. Who do you hope to take share from on these new strategies?
Bill Rogers
Yes. It's never one entity. We don't get up from the day and say we're going to single out this. We're -- It's a global entity. So in different markets, we have different opportunities against different competitors.
What we look at, I mean, like in the consumer side, one of the big indicators, net new. And over the last 18 months, we're sort of seeing net new growth first quarter, 30,000 net news. That means we're retaining some people aren't taking them from us. And that means we're acquiring more, so we're taking it from somebody else. And that's some of that barometer that we look at is that we are increasing our competitive position.
And then the second is primacy with our own relationships. So you'll see us much more focused on creating the primacy of the relationship. I mean one thing we all learn post-March is things slow and they flow less from places that you have primacy. It's less from places where you have operating accounts that flow less from places where you have a deeper penetration. And so that will be a clear focus for us just to not only protect the flank, but to continue to grow the business with their own client base.
John McDonald
Another one here is about auto and credit quality. What are you seeing from the auto losses, particularly in your sub-prime business and your outlook there?
Bill Rogers
Yes. I mean the sub-prime normalized several quarters ago. So while others are normalizing and that normalized several quarters ago, sort of a net 7% kind of rate. If you looked at our subprime portfolio, you thought over the course of the merger, one, it's a business we decided not to grow. We like the overall return in the business.
So we like the return. It's extremely well managed. So we have a great team, they really have all the infrastructure that it takes to do that job. They have great collections, they have great underwriting have great prowess, great relationships, all that. So I think it's a business that sort of has normalized over that course of time, and probably migrated more near prime than subprimed, just a little bit of client selection along that process.
I think if you think about it for us, I don't think about it as a really high-growth business, but think about it as a good return business that's managed well. And it has -- as I said before, and it has normalized. So we're sort of in that not moat.
John McDonald
Okay. And then just a final comment from you to wrap up here. We talked a couple of times this week about banks where the bone structure is good. It's hard to see it for times in the context of macro challenges, in your case, MOE. What's underappreciated about the kind of the bone structure of Truist and gives you optimism about what you can do over the next five years?
Bill Rogers
Yes, I think, John, you have talked about this. There have been so many like outside extraneous factors. We create it. So the merger itself and merger charges. We've had the portfolio that's sort of have to look through.
We've had the TIA sale and all the other things come into that. And so I think what's missed us go back to why we did this originally. I go back to the original premise, all that's there. And not only is it there when we turn the pages, it's better than we thought it was. The opportunities for -- to expand the relationships, the places where we created symmetry and we didn't have overlap, all that is there.
The prowess in our markets, the significance going from a 10% to a 20% market share and a market is a dramatic difference. So to the -- your words of the curb your knife fight, I mean, we're bringing a knife -- a gun to that flight. I mean, so we're extremely competitive from that standpoint.
So I think those are things that are sort of not only mess, its sort of like back to what the original premise was. And then the organization around that, the simplified organization. I think that's also been missed in all of this is that the transition here over the last certainly nine months to create a much more simplified organization that can execute with a lot more alacrity and a lot more effectiveness you see.
John McDonald
Great. Bill, thanks so much for that, and appreciate you coming.
Bill Rogers
Great, John. Thank you.
John McDonald
We'll see you next year again.
