Truist vows to keep its expense growth low in 2024

Scott McIntyre/Bloomberg

Truist Financial reported a sharp increase in expenses in the fourth quarter, but executives say they remain confident they will be able to rein in spending this year.

Noninterest expenses totaled $10.3 billion for the period — nearly three times higher than they were in the year-earlier quarter, the Charlotte, North Carolina, company announced Thursday. The biggest driver was a noncash goodwill impairment charge of $6.1 billion, but Truist also incurred a special Federal Deposit Insurance Corp. fee and racked up $183 million of restructuring costs.

As a result of the surge in expenses, the company's quarterly earnings took a hit. Truist reported a net loss of $5.2 billion, or $3.85 per share, compared with the average estimate of 68 cents per share from analysts surveyed by FactSet Research Systems.

And while it expects adjusted expenses to be 4% higher in the first quarter, largely because of seasonal increases in payroll taxes and merit awards, Truist is still aiming to cap full-year expense growth to no more than 1% in 2024, CEO Bill Rogers reaffirmed during Truist's fourth-quarter earnings call. 

Moving along with a previously announced $750 million cost-cutting program will help, he said. Truist recently cut its workforce by 4%, and it will trim its branch network by the same figure.

"We're committed to what we talked about in September," Rogers told analysts. "The intensity in this company right now about being more efficient, I feel is demonstrably better, and being able to apply that over this more simplified organizational structure is where we see the benefits."

Just how hard it may be to hit the expense growth target, however, remains to be seen.

Excluding items such as the goodwill impairment charge, the FDIC special deposit insurance assessment for larger banks and restructuring costs, expenses totaled $3.4 billion for the quarter. That's about flat year-over-year and down 4.5% compared with the third quarter, company officials said.

Truist said the goodwill impairment charge was mostly due to the impact of higher interest rates and discount rates, as well as the "sustained decline in banking industry share prices," including its own. In the past 12 months, its stock price has fallen more than 25%.

On Thursday, shares had fallen 1.8% around midday Eastern time before moving slightly into positive territory late in the trading day.

Last year, the uptick in Truist's noninterest expenses became the focal point of growing investor angst. The $540 billion-asset company — which was formed by a merger that was largely rationalized by the promise of substantial cost savings — revised its 2023 adjusted-expense guidance at least twice during the year, including in July when it projected a year-over-year increase of 7%. 

Amid shareholder pressure, Truist in September announced plans to lower expenses by $750 million over a 12- to 18-month period. Head-count reduction is the largest component of that plan, with an estimated $300 million impact, followed by business consolidations and organizational simplification worth $250 million and cuts of $200 million from technology spending.

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Suffice it to say, investors will be closely watching Truist's expenses this year and waiting to see if the guidance holds up, Terry McEvoy, an analyst at Stephen Research, said in an interview.

The company has spent "a considerable amount of time" looking for ways to lower costs, and the outlook for spending in 2024 "very much reflects the internal work they've done," McEvoy said.

"Given the expense challenges since closing the merger, achieving the expense guidance in 2024 is very important from a shareholder perspective, and that was very much part of their message today, in terms of branch rationalization and other ways to control costs," he added.

One other area that investors are watching: whether the company sells its remaining 80% stake in its highly profitable insurance brokerage, Truist Insurance Holdings. Truist sold 20% of the business to Stone Point Capital, a private equity firm in Greenwich, Connecticut, for $1.95 billion.

That sale was intended to create "strategic and financial flexibility," Rogers has said. Truist estimates that its remaining 80% stake offers more than 200 basis points of capital flexibility.

Rogers didn't announce a decision about the business Thursday. But his comments in response to an analyst question gave an air of "when, not if" when it comes to an eventual divestiture.

"We've said clearly that we're always evaluating alternatives, and we're going to do the best thing for the insurance business and the best thing for Truist going forward," Rogers said on the call. "As it relates to any specific timing. … I don't think I should really comment beyond that."

Terms of the sale to Stone Point permit Truist to sell another part of the business at any time.