Truist Financial Corporation (NYSE:TFC) Q4 2022 Earnings Conference Call January 19, 2023 8:00 AM ET
Company Participants
Ankur Vyas – Head, Investor Relations
Bill Rogers – Chairman and Chief Executive Officer
Mike Maguire – Chief Financial Officer
Clarke Starnes – Vice Chair and Chief Risk Officer
Beau Cummins – Vice Chair
John Howard – Chief Insurance Officer
Conference Call Participants
Mike Mayo – Wells Fargo Securities
Ken Usdin – Jefferies
Matt O’Connor – Deutsche Bank
John McDonald – Autonomous Research
Ebrahim Poonawala – Bank of America
Gerard Cassidy – RBC
Betsy Graseck – Morgan Stanley
Operator
Greetings, ladies and gentlemen and welcome to the Truist Financial Corporation’s Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Ankur Vyas, Head of Investor Relations, Truist Financial Corporation. Please go ahead, sir.
Ankur Vyas
Thank you, Jess and good morning everyone. Welcome to Truist’s fourth quarter 2022 earnings call. With us today are our Chairman and CEO, Bill Rogers, and our CFO, Mike Maguire. During this morning’s call, they will discuss Truist’s fourth quarter results and share their perspectives on our continued activation of Truist’s purpose, current business conditions and our outlook for 2023. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau Cummins, our Vice Chair; and John Howard, our Chief Insurance Officer, are also in attendance and are available to participate in the Q&A portion of our call.
The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website, 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 the appropriate reconciliations to GAAP. In addition, Truist is not responsible and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third-parties. The only authorized live and archived webcast are located on our website.
With that, let me now turn it over to Bill.
Bill Rogers
Thanks, Ankur. Good morning, everybody and Happy New Year. Thank you for joining our call today. Truist delivered a strong finish to a pivotal and purposeful year. We completed our final integration and decommissioning activities and incurred the final set of merger-related costs. Adjusted PPNR grew a strong 12% sequentially, ahead of our guidance and helped us deliver on our commitment for positive operating leverage for the full year. We will cover the details on the quarter’s results throughout the presentation and we will start with our purpose, the foundation of our company on Slide 4. Truist is a purpose-driven company dedicated to inspiring and building better lives and communities. Our purpose is the foundation for our success as a company that drives performance and defines how we do business everyday.
Slide 5 highlights many examples of how we activated our purpose in 2022. For our clients, our measurement is to provide distinctive, secure and successful experiences through touch and technology. We achieved a major milestone along that journey with the launch of Truist One Banking, our differentiated product suite that reimagines everyday banking and includes two new accounts that eliminate overdraft fees and provide greater access to credit. These accounts meaningfully advance financial inclusion in our communities and we are very encouraged by the positive reception they have received from new and existing clients alike.
Based on August through December data, which reflects Truist One, branch checking production increased 10% from a year ago period and we achieved this result despite having around 400 fewer branches. The Truist One suite now also includes our new cash reserve deposit base credit line up to $750, which launched in mid-December and expands our commitment to our clients and communities. Our ability to innovate at the intersection of touch and technology was greatly enhanced by the opening of our new innovation and technology center, which brings our cross-functional teams together with clients and large tech companies to reimagine banking experiences for everyone. We have already realized the benefits of the ITC as Truist One Banking and the new digital and hybrid investment capabilities launched throughout the year were all co-created client with clients and our client journey rooms.
We also continued to deliver on our mission for our teammates. In October, we took a bold step to improve the lives of our teammates by raising our minimum wage to $22 an hour. In the 3 months since this took effect, we have experienced improved teammate recruitment, retention, lower turnover expenses, better execution and an all-around better client experience. We also enhanced our total rewards program to include an employee stock purchase program to further align our teammates’ interest with those of our shareholders. As a company that champions diversity, equity and inclusion, we achieved our goal to increase ethnically diverse representation in senior leadership roles a year early with aspirations for further progress.
Finally, Truist has made a significant impact on the communities we serve by meeting and in some categories, exceeding our $60 billion community benefits plan. Our first inspirational commitment is Truist and one that has served as a framework for similar plans across the industry. The execution of this plan was a testament to our purpose of building better lives and communities by elevating low and moderate income and minority communities through material support for affordable housing, non-profit, small business and community development lending.
In summary, we are delivering on our purpose and the significance of what our teammates have accomplished is just outstanding. We will continue to raise the bar and I look forward to the year ahead as we actualize our purpose, advance integrated relationship management, positively impact clients and communities through continued investment in touch and technology and make Truist an even better place to work.
Now turning to Slide 7, selected items for the quarter totaled $170 million pre-tax and included our final charges related to the MOE. Now that our integration activities are complete, MOE costs will exit our run-rate going forward. This is a positive development for shareholders that underscores our pivot to execution and will simplify our narrative, enhance earnings quality and improve capital generation.
Turning to our fourth quarter performance highlights on Slide 8. Truist delivered strong fourth quarter earnings of $1.6 billion or $1.20 per share on a reported basis. Adjusted earnings totaled $1.7 billion or $1.30 per share, up 5% sequentially as strong PPNR growth was partially offset by higher provision expense. Adjusted ROTCE was 30% and even excluding AOCI, was 20%. Both data points are very strong.
Net interest income grew 7% to $4 billion, a new high for Truist, supported by strong loan growth and significant margin expansion resulted from higher short-term rates and well-controlled deposit costs. Fee income rebounded 6%, primarily due to insurance seasonality of full quarter of benefit mall results and investment banking. Adjusted expenses increased sequentially, mostly as expected as the impacts of higher minimum wage, acquisitions and targeted investments were partially offset by the final leg of some of our cost saving efforts. Together, these factors drove a 12% increase in adjusted PPNR exceeding our guidance. This performance also resulted in 370 basis points of adjusted operating leverage relative to the fourth quarter of 2021, our strongest operating leverage results for the year. Our adjusted efficiency ratio was 54.2%, our best quarterly performance at Truist thus far.
Asset quality remains strong and the sequential increase in provision expense primarily reflects moderately slower economic assumptions. We also deployed 10 basis points of capital as a result of strong organic loan growth and the BankDirect acquisition. Our capital position remains strong relative to our risk and profitability profile and we remain confident in our ability to withstand and outperform in a range of economic scenarios.
Turning to our full year highlights on Slide 9. GAAP EPS was relatively stable year-over-year as significantly lower merger-related costs were offset by higher and more normal provision levels. Adjusted EPS declined 10% year-over-year, a solid 4.4% adjusted PPNR growth, was more than offset by the $1.6 billion increase in the loan loss provision expense. Importantly, however, we delivered 60 basis points of adjusted and 680 basis points of GAAP operating leverage for the full year, which was a primary metric to which we hold ourselves accountable to in 2022. This was our first year of operating leverage as Truist and it establishes a firm foundation, from which we can accelerate as we head into 2023.
Turning to Slide 10, digital engagement rose steadily through 2022 as a result of changing client preferences and our improved agility as Truist. We experienced strong growth in digital transactions and Zelle, in particular, as transaction volume increased 42% since the beginning of the year. Zelle continues to represent an increasing percentage of our overall transaction mix and highlights the importance of continuing to invest in money movement capabilities.
Our agility and responsiveness have improved tremendously since we have migrated to one digital platform built in the cloud, resulting in better client experiences. We delivered 3x as many production releases across retail, business and wealth in 2022 as we did in 2021. And as a result, our mobile app was rated at an average of 4.7 stars on Android and iOS at year end, up materially from a year ago. We introduced many new digital capabilities and solutions to clients in 2022 from Truist One Banking, Truist Assist and expanded digital investment capabilities, some of which are highlighted on the right side of the slide. In 2023, our goal is to more fully activate those capabilities with our clients to improve acquisition, retention and reduce cost.
In addition to enhance digital capabilities for our clients, our digital and technology team successfully completed the largest bank merger in 15 years, decommissioned three data centers, successfully piloted a new deposit product on a next-gen real-time cloud-based core, enhanced credit decisioning and underwriting across certain consumer lending platforms and upgraded our contact center technology stack and completed a 5G network and branch WiFi pilot program. We have a great digital and technology team and they have been battle tested and have demonstrated incredible agility in responding to client needs during the integration period while also keeping their eyes on the future.
Turning to loans and leases on Slide 11, average loan balances increased a strong $11.3 billion or 3.6% sequentially, approximately 20% of which came from the BankDirect acquisition. The improved loan growth we have experienced in recent quarters reflects our shift to execution and Truist’s greater competitiveness for clients due to our size and capabilities as well as broader industry trends. C&I grew $7.2 billion or 4.7% overall and increased 3.2%, excluding BankDirect, as balances increased across most CIB industry verticals and product groups and CCB.
As in recent quarters, growth continues to be strong within our Asset Finance Group as we continue to build that business with more talent, product capabilities and larger balance sheet. Macro trends such as supply chain management, infrastructure spending, inflation and choppy capital markets are also supporting growth here. CIB delivered growth across most industry verticals due to a combination of new client acquisition, uptiering our position with existing clients, acquisition activity and business-as-usual liquidity management.
Commercial Community Bank C&I balances grew 3.7%, reflecting the strength of our markets and our team’s focus on execution. Residential mortgage balances increased $3 billion or 5% sequentially due to previous correspondent channel production and lower prepayments. Excluding mortgage, consumer and card balances decreased on an end-of-period basis, primarily reflecting continued runoff in our student loan portfolio as well as our decision to pivot away from lower return portfolios such as prime auto. At the same time, we continue to invest in higher return consumer finance businesses, such as Service Finance, LightStream and Sheffield. Service Finance continues to grow and ended the year with over $3 billion worth of loans, ahead of high expectations at the time of the acquisition.
Going forward, loan growth will moderate from the robust levels in 2022 as clients respond to the impact of higher rates, high inflation and a slowing economy. In addition, we also expect growth in residential mortgage and prime auto to continue to slow as we focus our capital on higher return opportunities. Truist remains well positioned to advise clients across a range of economic scenarios given our broad capability, talented teammates and increased capacity post-integration.
Now turning to deposits on Slide 12. Average deposit balances decreased 1.6% sequentially as effects of tighter monetary policy, inflation and higher rate alternatives continue to weigh on balances. Deposit costs remained well controlled, reflecting the strength of our deposit franchise and our strategy to be attentive to client needs and relationships while maximizing value outside of rate paid. During the fourth quarter, interest-bearing deposit costs increased 52 basis points, contributing to a cumulative interest-bearing deposit beta of 27%, thus far.
As the interest rate environment evolves, we will continue to take a balanced approach to maintaining and managing deposit growth and rate paid giving our broad access to alternative forms of funding. Our continued rollout of Truist One and ongoing investments in treasury and payments will be key areas of focus going forward as we look to acquire new and deepen existing relationships and maximize high-quality deposit growth.
Now with that, let me turn it over to Mike.
Mike Maguire
Great. Thank you, Bill and good morning everyone. I am going to begin on Slide 13. For the quarter, taxable equivalent net interest income rose a very strong 7% to $4 billion, primarily due to ongoing margin expansion and strong loan growth. Deposit costs were well controlled and reflect the strength of our deposit franchise. Purchase accounting accretion decreased $19 million and is expected to continue to gradually diminish. Reported net interest margin increased 13 basis points and core net interest margin improved 15 basis points as a result of higher short-term interest rates alongside well-controlled deposit costs. Overall, we maintain a balanced approach to managing interest rate risk, maintaining modest upside to higher short-term interest rates while having some downside protection when and if interest rates begin to decline.
Looking to Slide 14, fee income rebounded during the quarter, increasing $125 million or 6% sequentially. The improvement was largely attributable to seasonality and insurance and the BenefitMall acquisition as well as higher investment banking and lending-related fee income. Insurance income increased $41 million, largely due to seasonality and a full quarter of BenefitMall results. Organic revenue for the full year grew 7% driven by a firm pricing environment, new business and strong retention.
Investment banking and trading income increased $35 million as higher investment banking fees and strong core trading results in the quarter were partially offset by negative impacts from CVA/DVA. For the full year, investment banking income declined 37%, which we believe compares favorably to overall industry fee performance as the partnership between CIB and other lines of business continues to grow and earn momentum builds. Strategic hiring within CIB over the past 2 years has also led to improved lead table standards.
Fee income declined 4% compared to a year ago, primarily driven by declines in market-sensitive businesses such as investment banking, wealth and mortgage and partially offset by organic and inorganic growth in insurance. Overdraft fees also declined from approximately $150 million in 4Q ‘21 to approximately $120 million in 4Q ‘22 as a result of the actions we took last year to eliminate a host of overdraft-related fees and the continued introduction of Truist One Banking to new existing clients. We expect overdraft fees to decline another 40% as we move from year end 2022 to year end 2024. While fee income remains below its potential, we are optimistic that our investments in key areas such as insurance, investment banking and wealth will payoff as markets normalize and our IRM execution continues to progress.
Turning to Slide 15, reported non-interest expense increased $109 million or 3% sequentially. Merger and restructuring costs rose $18 million linked quarter and exceeded our October guide by $70 million due to higher-than-expected restructuring charges related to planned facility and branch reductions that will occur in 2023. These were business-as-usual decisions unrelated to the MOE and have solid financial returns.
As Bill indicated, we will have no more restructuring charges or incremental operating expenses related to the MOE going forward. We would anticipate restructuring costs related to prior acquisition activity and other BAU expense normal rationalization efforts. It is difficult to forecast these with accuracy, but we would anticipate approximately $100 million to $125 million for 2023.
Adjusted non-interest expense increased $68 million or 2% primarily due to the effects of our non-qualified plan. Excluding changes associated with the non-qualified plan, adjusted expense rose 0.6% sequentially, fairly consistent with our outlook from October. Personnel expense increased $84 million, half of which was from changes in the non-qualified plan and half of which was from the recent increase in our minimum wage. These increases were partially offset by a $35 million decrease in marketing expense and a $28 million reduction in other expense. The decline in other expense was driven by lower operational losses, which have decreased for two consecutive quarters, as recent investments in talent, technology, and process have begun to mitigate our fraud-related costs.
Compared to the fourth quarter of 2021, adjusted non-interest expense grew by 8% as a result of the increase in minimum wage, investments in revenue-generating businesses, technology and acquisitions, higher call center staffing to support our clients post merger and a normalizing T&E spend. For the full year, adjusted expenses were $13.1 billion, up modestly from the $12.8 billion baseline in 2019. This performance is strong, reflecting the achievement of the $1.6 billion net cost save target.
Overall, we continue to focus on generating expense reductions in certain areas to fund longer-term investments in talent and technology and to generate ongoing operating leverage. Below the line, our fourth quarter results also reflected an effective tax rate of 16.7%, down from 18.2% in the third quarter, primarily due to annual true-ups for state income tax returns.
Moving to Slide 16. Asset quality is strong, reflecting our prudent risk culture and diverse loan portfolio. Net charge-offs increased 7 basis points to 34 basis points largely due to seasonality in indirect auto and lower recoveries. The allowance increased $172 million, reflecting strong loan growth and the ALLL ratio was stable at 1.34% as the effects of a moderately slower economic outlook were offset by high quality organic loan growth and the BankDirect acquisition. Excluding the BankDirect portfolio, which has extremely low losses through cycles, the ALLL ratio would have increased approximately 2 basis points.
Continuing to Slide 17. Our CET1 ratio decreased from 9.1% to 9.0% as we deployed capital to support strong organic loan growth and close the BankDirect acquisition. We also continue to pay a strong dividend at $0.52 per share. Overall, our capital position remains strong relative to our risk and profitability profile. We expect organic capital generation to improve in 2023 due to the elimination of MOE-related costs and more focused loan growth, all of which will provide additional flexibility and opportunities for Truist.
Finally, our liquidity position remains strong with an average LCR of 112% and access to multiple funding sources. Our securities portfolio remains high quality at 97% government guaranteed and continues to produce approximately $3 billion of cash flow per quarter, which has supported our loan growth.
Turning to Slide 18 where I’ll provide guidance for the first quarter and full year 2023. Looking into 1Q ‘23, we expect revenues to decline 2% to 3% relative to 4Q 2022, primarily driven by 2 fewer days impacting net interest income in addition to typical seasonal patterns in investment banking, card and payments and service charges, amongst other factors. Adjusted expenses are anticipated to increase 1% to 2% as higher pension expense and FDIC premiums, along with seasonally higher personnel expenses are partially offset by ongoing cost discipline.
For the full year 2023, we expect revenues to increase 7% to 9%, driven largely by strong net interest income growth and modestly improving fees. Adjusted expenses are anticipated to increase 5% to 7% as a result of higher pension expense, higher FDIC premiums, the full annual impact of our minimum wage increase and acquisitions that closed throughout 2022. These four factors drive about 4% of our year-over-year increase.
Given these factors, we are targeting adjusted operating leverage to be 200 basis points or greater, which would be more than 3x our pace in 2022. We also expect the net charge-off ratio to be between 35 and 50 basis points in 2023, given our expectations for continued normalization across the loan portfolio. Lastly, excluding discrete items, we expect our effective tax rate will be approximately 19%, which translates to approximately 21% if you model it on a taxable equivalent basis.
Now I’ll hand it back to Bill for some final remarks.
Bill Rogers
Great. Thanks Mike. Continuing on Slide 19, the fourth quarter was a strong finish to a year that was strategic and financial turning point for Truist. The pivot from integrating to operating is real, it’s palpable and it can be evidenced across a number of dimensions. Loan production in the fourth quarter was near the highest it’s been at Truist. This is despite some intentional reductions in certain consumer categories. Commercial Community Bank loan and deposit production in both the fourth quarter and full year was the strongest we’ve had at Truist. Importantly, left lead relationships within CCB were up 36% in 2022, reflecting our increased strategic relevance and advisory capabilities with clients.
Branch deposit and checking unit production in the fourth quarter increased 24% and 8%, respectively, compared to the year-ago quarter as teammates became more confident with processes and systems, but also improved solutions and capabilities. Our wealth line of business has had three consecutive quarters of adding net new advisers, and organic asset flows continue to be positive. Integrated relationship management activity across the company gained momentum throughout the year as a result of more focus, increased alignment and improved reporting as we ended the year with a 16% increase in qualified referral activity, excluding mortgage relative to 2021.
Average client satisfaction scores for retail and small business banking are ascending and in the fourth quarter reached their highest levels of for the year in key areas that include our branches, call centers, retail digital experiences and small business. Our digital app ratings ended the year as one of the leaders in our peer group after starting near the bottom. The financial benefits of this momentum can be seen with the fourth quarter operating leverage being the strongest of the year and adjusted PPNR building each quarter.
So to conclude on Slide 20, our fourth quarter results reaffirm that Truist is on the right path, and I’m highly optimistic about our ability to realize our significant post-integration potential to summarize our investment thesis. Our goal financially has produced strong growth and profitability and to do so with less volatility than our peers. 2023 will be our first full year as Truist with zero integration activity, and our priorities are very clear: Core execution to actualize Truist and our purpose, harvesting IRM opportunities, continuing to digitize and automate our processes and operations and maintaining a strong profitability profile. We will also raise the bar on ourselves, focusing on the KPIs that drive total shareholder return and ensuring executive compensation targets reflects our potential, not just our business mix.
While economic uncertainty remains high, Truist is in a position of strength across a broad range of outcomes because of our diverse business mix, conservative credit culture, balanced approach to interest rate risk management, strong profitability profile and our strong risk-adjusted capital position and most notably, our significant performance momentum as we continue to shift from integration to executional excellence and purposeful growth.
Ankur, let me turn it back over to you and begin the Q&A.
Ankur Vyas
Thanks, Bill. Jess, at this time, if you would explain how our listeners can participate in the Q&A session. [Operator Instructions]
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Mike Mayo with Wells Fargo Securities. Your line is open. Please go ahead.
Mike Mayo
Hi. Can you hear me?
Bill Rogers
Yes, we got you.
Mike Mayo
Okay. Great. So it looks like – I’m going to push the Corvette analogy. It looks like you’re guiding for your Corvette of a franchise to go from first to second gear or maybe second or third, but you’re guiding for twice as much revenue growth. You’re guiding for 3x more operating leverage. But I and others are going to be unsure if you’re going to be able to get that given your headcount’s up 3% quarter-over-quarter in the fourth quarter, you have NII pressures from deposits, and you have capital market headwinds. So I guess the question is, what’s your degree of confidence with this 2023 guidance given some of the pressures and the internal expenses? And along with that, your merger saves, are they all in now? Or do you still get some payout effect that you benefit in the first quarter? I know you disconnected three data centers. Thanks.
Bill Rogers
Yes. Yes, Mike, let me start with the last one first. Yes, they are all done. So we’re – excuse me, entering the year with positive aspect of not sort of having those adjustments every quarter to talk about. And then as it relates to the confidence in our guidance, there is a lot of market uncertainty. So we have to accept that. I mean there is – things could change the inflation, what are clients going to be doing, but we know a lot of our own internal momentum. We talked about – I mean, your analogy of first, second or third or fourth. I don’t know how any gears a Corvette has, but we continue to grind through that. So we have our own momentum that we’re creating. And you saw that in some of the production numbers. I think you see that in some of the deposit betas. You see that in terms of our ability to, I think, outperform both in the asset and liability performance of our company as well as in the stability of some of the fee businesses. We’ve got a great insurance business. We’ve got great momentum within our investment banking business. It isn’t just market-driven. I mean these are also relationships that we’re developing with our commercial core businesses. So we’re expanding our capabilities and our prowess. So while there are headwinds and we accept those and understand those, we have enough of our own tailwinds. I sort of call it, the Truist tailwind. That’s just our increased performance, our increased capacity. And when offset those Mike, that’s what gives me the confidence in the guidance is I can feel enough tailwinds to know that we can offset some of the headwinds that we may be facing.
Mike Mayo
And then a follow-up, you mentioned good insurance, maybe this is for you, Bill and Mike. You have an insurance operation where publicly comparable peers trade at like 3x the valuation of Truist. So lot of press, no comment from you guys. All you did present involving about this business. How do you think about monetizing some of that unrealized value that tracks value so that shareholders might benefit more? Or is this just part of your firm forever and you would never consider a move like that?
Bill Rogers
Yes, Mike, I mean, I think, one, I respect the question, but I think you’ve got to respect that as it relates to specific market rumors or speculation, I just can’t comment on that. But I can comment on the fact that we really like the insurance business. And we’ve been in the insurance business for a long time. Just celebrated its 100th year anniversary. So that was sort of cool. We’ve been supporting the insurance business from acquisitions. So they have been able to grow both, I think, very competitively from organic and inorganic basis, but it’s also a consolidating business. We want to make sure that we’re always providing the right level of support for that insurance business to continue to grow and continue to be really valuable contribution for our shareholders.
Mike Mayo
Alright. Thank you.
Operator
We will go next to Ken Usdin with Jefferies. Your line is open.
Ken Usdin
Thanks. Good morning. Just wondering if you can provide us a little breakdown detail between – inside your revenue growth guide for the year, just generally speaking, what are you expecting for NII versus fees? And what rate curve are you using in your NII forecast?
Mike Maguire
Ken, it’s Mike. I’ll take that one. I guess starting with the last question on the rate curve. Our outlook is that we will see two rate hikes in the first quarter, 25 a piece in February and March and see a policy rate stable until November, where we would expect a cut, which obviously, at the end of the year, probably doesn’t have much of an impact on our NII perspective. Breaking revenue for the year into two components. From an NII perspective, the way I’d think about it is we obviously had really strong growth in 2022. The second half, in particular, also had very nice margin expansion. So we have a really nice exit velocity from an NII perspective. We believe we have a little bit of asset sensitivity left. So we do have the opportunity to realize some of the upside of the hikes in the first quarter and we will have, as Bill mentioned, slowing loan growth. But those two factors combined, we think, give us a stable outlook for Q1 NII. And then for the rest of the year, that we believe we will stay relatively stable, some pressure on the NIMs offset by some modest amount of loan growth. On a year-over-year basis, just given the average loan growth that we would expect that will be, we think, a very nice growth. And frankly, we will drive the majority of the growth potential in the revenue guide. From a fee perspective, I think a couple of puts and a few takes. We expect to continue to have good performance from the insurance business, which is growing nicely on an organic basis as well as realizing the full benefit of the acquisitions that we completed in 2022. Our investment banking business, we believe, has some potential to benefit from improvements in market conditions, probably more likely in the second half than the first half. And then I think we will have a little bit of pressure. We would expect there to be pressure on the on the residential mortgage business as well as the service charges and overdraft fees on deposits.
Ken Usdin
Okay. Great. And then a follow-up on deposits, 27% cumulative interest-bearing deposit beta through the fourth quarter. You guys were in the mid-30s last time. I don’t think yet you’ve given us an idea of what you think the cumulative could be this cycle, any views on that at this point in terms of the direction and the endpoint? Thank you.
Mike Maguire
Yes, Ken. I’ll take that one again. Look, I’ve been very pleased by how the betas have performed so far. They have outperformed our expectations on a pretty consistent basis. We obviously are seeing some acceleration of rate pursuing behaviors and seeing pressures on balances as well, uncharted territory in many respects. We think we will get through the last cycle, perhaps even high 30s, approaching and even hitting 40% by the time we’re to the last hike.
Bill Rogers
And again, it’s Bill. The only thing I’d add is just the strength of our deposit franchise. So you said I asked about our relative deposit beta performance. But we’re really experiencing what we hope we would experience as Truist. We’re sitting in great markets. We’ve got a 21% average share, our competitors’ mainly large banks. We’ve introduced some great new product capability in Truist One. Our branch production’s up. Our teammates are really doing a great job, the ubiquity of presence, the ability to amortize your marketing and be more effective. So our just strength of our overall deposit franchise is starting to manifest itself and show itself of what we thought we could create and create at Truist.
Ken Usdin
Okay. Thank you, guys.
Operator
Our next question comes from Matt O’Connor with Deutsche Bank. Your line is open. Please go ahead.
Matt O’Connor
Good morning. Can you talk about your capital priorities and remind us what your near-term capital targets, please?
Bill Rogers
Yes. Matt, our priorities remain the same in terms of the top four priorities. The first is to continue to invest in our business. And we’ve seen a lot of opportunity to do that. I mean you’ve seen the asset growth in our business and RWA growth, and we feel really good about the opportunities to invest in that. The second is to have a secure and growing dividend base. That’s important to our – both our institutional and our retail shareholders. So that’s a critical. And then the third is M&A opportunities, inorganic opportunities. And you’ve seen we’ve been active. They have been – some have been smaller by nature, but we’ve seen opportunities to enhance our businesses mostly in the insurance business, but also on the technology side and some capability side and some talent side that we’ve added in those areas. And then the fourth is the – is share repurchase. And for us, that just hasn’t been as big a priority because we’ve done a lot in the first three of those priorities. And as it relates to target, I mean, we’ve been sort of careful to say we really – we like where we’re operating right now. So we think we have got the capacity to do the things we need to do. We think given our risk profile, given our stress adjusted risk profile, we think we’re in a really strong position from a capital perspective. But also, as Mike noted in his comments, we accrete. If you think about our earnings profile, but also the fact that our MOE expenses come off, we are sort of in a unique position to accrete capital. So, we will accrete about 25 basis points worth of capital. We have been using some of that for those first two, three priorities that we talked about. So, I think on balance, we will probably see capital increase, but we are comfortable that we have got enough capital to execute our strategies and support our businesses.
Matt O’Connor
Okay. And then so hypothetically, if you say won the lottery for $5 billion, what would you do with that capital? I don’t think you are going to change the organic growth. The dividend is kind of tapped by regulation, roughly, the last two buckets of M&A and buybacks. And if you walk into that $5 billion, what would you do with it?
Bill Rogers
I don’t want to answer a hypothetical lottery question because we are not lottery ticket buyers. That’s not part of our strategy. I think we have got that’s really based on, can we support our businesses long-term. And can we provide the capital they need to grow. And we are going to use all of our strategies and all of our capabilities to ensure that we are supporting businesses and their growth.
Matt O’Connor
Okay. Thank you.
Bill Rogers
Thanks Matt.
Operator
Our next question comes from John McDonald at Autonomous Research. Your line is open. Please go ahead.
John McDonald
Yes. Hi. Good morning. I was wondering if you could give us some color on how you see credit unfolding for Truist this year and what you have baked into the charge-off guidance that you gave for this year?
Bill Rogers
Yes. Clarke, will you take that?
Clarke Starnes
John, this is Clarke. I will take that one. As you saw, we had 34 basis points in losses in Q4. That reflected primarily seasonality – normal seasonality in our consumer segments and a little bit of normalization. And as Mike mentioned, we had lower recoveries in our wholesale areas. So, that’s what the delta was from Q3 to Q4. And then what we are seeing is the consumer segments are normalizing. And also just to remind you all that the whole industry has had anemic wholesale and CRE losses over the last couple of years. So, we are pretty similar to that. So therefore, we would expect losses to return towards the lower range of our long-term loss range of 40 basis points to 60 basis points as we go through ‘23, and it just depends upon how the economy performs. And that’s why you see that reflected in our guidance of 35 bps to 50 bps.
John McDonald
Okay. Thanks Clarke and then for Mike. Mike, on the expense outlook for adjusted expense growth, mid-single digits, how much of that is kind of pulling through acquisitions you added at the end of last year? And how much of that is kind of core expense growth and investments? Thanks.
Mike Maguire
Sure. In ‘23, I believe the annualized M&A impact is $127-or-so million. So, that’s about 1% of that growth. You recall in the guide, we talked about these four components that were – where we have quite a bit of visibility into and frankly, not much flexibility, and that’s the pension, the M&A impact, the annualized impact of minimum wage and the FDIC expense. And those components in the aggregate are about 4%. Hope that helps.
John McDonald
Okay. Got it. Yes. That’s great. Thank you.
Operator
Our next question comes from Ebrahim Poonawala at Bank of America. Your line is open. Please go ahead.
Ebrahim Poonawala
Good morning.
Bill Rogers
Good morning.
Ebrahim Poonawala
I guess just one follow-up, Bill, on the capital allocation question. One, just given – I mean there is obviously a lot of speculation when you talk to investors around the insurance business. Like if you can talk to, given the multiple difference between insurance companies trading at 20x PE, do you still think it makes sense in terms of deploying capital to do more acquisitions on the insurance front as opposed to buying back stock? And on the other hand, I would love to hear how you would think about maybe moving away from that business, but giving up a very defensible revenue stream?
Bill Rogers
Yes. Ebrahim, again, I am not going to comment on sort of where we are from a speculative standpoint, other than to say, we love the insurance business. We want the insurance business to grow. We have done, I am staring at John, probably 100 acquisitions over time. So, we have got a really good framework in assisting that business to grow. But as I mentioned in my earlier comments, it is a consolidated business. So, we want to make sure that we have got all the flexibility and capability to create capital and support all of our businesses and their growth.
Ebrahim Poonawala
Got it. And I guess just taking a step back with the merger integration done, the cost behind you. Remind us in terms of like what we have not heard so far on the call is the scale benefits as we think about go forward in terms of picking up bigger deals on the lending side, on the fee revenue side? Just remind us some of the revenue synergies we should expect from the Truist franchise on a go-forward basis and why you can outperform just the peers within the market or within your asset size set?
Bill Rogers
Yes. Great question. And one of them I talked about just a minute ago was the deposit franchise. So, the scale, and the ubiquity, and the size, and the prowess that we have in our markets, I think is a distinct advantage and you see that. The other component of that is the markets that we are in. So, not only is it scale, but at scale in the right places. So, we have markets that I think will sustain sort of any economic environment with higher beta to the upside and a lower beta to the downside, so, in markets where we have a lot of in-migration versus out-migration and business development and growth. So, that’s one component. You mentioned the capital markets side, and I have talked about the community bank, the prowess that we have seen there, 36% increase in left leads and those type things. That comes from scale. That comes from an ability to be more relevant to our clients, to have discussions with them that we weren’t having before, to be more strategic and to be in that left lead spot versus that right lead spot. And we all know the economics of that. I mean the economics are multiples of where you are in the spectrum. So, our relevance is not only related to our scale, but also related to our product and capabilities. We have tried to sort of put a number on that. And I would say sort of back-of-the-envelope kind of math, I mean it’s at least 10% of some of the growth that we have seen in our investment banking business, we could attribute to being more scale-oriented, again, not taking outsized positions, but taking positions that are on the left versus the right and the economics that come along with that. And then everything to do with all the operations and efficiency, so, everything to do with the base that we operate from. We just had more opportunity to create more efficiency. So, when we do something that has previously had tens of millions of dollars of impact. Today, it can have $50 million and $60 million of impact because you are doing it across a bigger base and a bigger capability. The ability to negotiate better contracts with our providers and our partners and we saw a lot of that in the merger. Our ability to go in and be more relevant and more important to them, get terms that we think better reflect that. Mike, what else am I forgetting in that list because it’s a long list, I mean it’s a great question and one we probably ought to talk more about.
Mike Maguire
Yes. I think it’s been moving more relevant on capabilities, more relevant on size. You are seeing it in the results, whether it would be the ability to manage expenses.
Bill Rogers
The financial markets, our pricing on debt deals.
Mike Maguire
Yes, exactly right.
Bill Rogers
So, the list is pretty long.
Ebrahim Poonawala
Alright. Thank you.
Operator
Our next question comes from Stephen Scouten at Piper Stanley. Your line is open. Please go ahead.
Ankur Vyas
Stephen, are you there. Maybe, Jess, we go to the next person. See if Stephen can get back in after.
Operator
Absolutely. We will do that. We will go back to Gerard Cassidy with RBC. Your line is open. Please go ahead.
Gerard Cassidy
Thank you. Good morning Bill and good morning Mike. Can you guys share with us, you have got some good guidance on the operating leverage for 2023 being, I think Mike, you said about 3x the level of what you achieved in 2022. But I noticed that in the third quarter and fourth quarters, the operating leverage was higher than what you are hoping to achieve in ‘23. Can you share with us why there seems to be some slowdown in that operating leverage relative to the fourth quarter or third quarters of 2022?
Mike Maguire
Yes. Sure, Gerard. As we look into ‘23, I think a couple of factors. One, we – obviously, 2022 was a year where we had outsized, particularly in the second half, loan growth and net interest margin expansion, which obviously was a great tailwind on the revenue side. As we look into ‘23, we expect to continue to have nice growth from a year-over-year perspective, but we are expecting that NII trend to really stabilize. And frankly, we are going to begin to experience some pressure on the NIM side probably in the second quarter. From an expense perspective, we also mentioned, there are a few just structural expenses that are in the plan for ‘23 that when combined, add up to about 4% year-over-year change. We obviously intend to make investments beyond those four categories in our clients and our teammates and in other strategic investment priorities. But that structural expense growth is there. So, again, we feel good about that sort of 2% with upside operating leverage guide and feel good about our – frankly, our revenue guide as well. So, hopefully, that’s helpful to you.
Gerard Cassidy
Good. No, I appreciate that. And then as a follow-up, many of you – or many of your peers and yourselves are obviously building up loan loss reserves. The outlooks that people are using, are calling for a weaker economy, but we don’t seem to be seeing that yet in any of the numbers. And if you look at the spreads in the high-yield market, they haven’t blown out. One of your competitors or peers, as they pointed out that the spreads in commercial loans still are pretty tight. So, I don’t know, Bill, when you talk to your customers, what are they seeing that maybe we might not see as much of a downturn as everybody is kind of forecasting right now later this year?
Bill Rogers
Yes. I mean I think you pointed out, I mean the data are confusing. There is just no doubt about that. I mean you see some positives and you see some negatives. If you look at – just think about the last few days, retail sales were not really very strong, sort of a poor Christmas selling season. You have seen inflation being a bigger part of what people do, and supply chain seems to sort of be reconciling itself. So, I think it’s more of a perspective, just – there has to be a higher impact from higher inflation. And whether that’s reduced hiring from our clients, whether that’s reduced capital investment, and all those type things. And in fairness, it’s a little more prospective. So, when we talk to our clients and we look at our portfolios today, things are great. I mean as Clarke mentioned, our commercial portfolio looks fantastic. Our clients are in really good shape. But rents will come due, things will – payments will come due, things will change over time. So, I think it’s just a little more of trying to understand where the economy is puck’s going versus where it is today, because I think today, it actually looks pretty strong. Clarke, what would you add to that?
Clarke Starnes
Well, I would just say, to your point, Bill, clients’ balance sheets, their liquidity, their financial positions are very good going into this. Obviously, depending on what happens in the economy, the impact of the higher rates, input costs, all of these things, we are monitoring very closely with our clients. Gerard, we are looking at things like CRE and the term risk and things like office. So, I think we are just looking out what could be some of those impacts from the – if the economy does slow and obviously, that’s reflected in everyone’s provisioning models. But to your point, the actual performance to-date and the near-term outlook is still strong.
Bill Rogers
Consumer side, I mean on the consumer side, it is normalizing and in some cases, normalized to where we are right now. So, you do start to see some of that. We have done a lot of work looking at sort of our lower-income borrowers and some of the challenges that they may be facing from inflation. Maybe they are not facing it today, but that’s starting to build as they start to withdraw a little more deposits. So, it is more of a prospective thing than a current thing and we are all trying to find the right calibration of where things might land. And we don’t want to undershoot that runway. I mean we want to be conservative. We want to be appropriate and think through all the risk that could exist in the portfolio.
Gerard Cassidy
Thank you. Appreciate the color.
Bill Rogers
Great.
Operator
Your next question comes from Betsy Graseck with Morgan Stanley. Your line is open. Please go ahead.
Betsy Graseck
Hi. Good morning.
Bill Rogers
Hi Betsy.
Betsy Graseck
Hi. I just want to understand a little bit more. I know we touched in a couple of different ways, but you have got the revenue outlook for 2023, up 7% to 9%. And what I am hearing is loan growth slowing slightly from the 11% level you have now, but really not that much and that the fees – fee growth will be lower due to some of the things you have mentioned around mortgage. But that loan growth is likely to be a little bit above that adjusted revenue number with the pressure coming a little bit in fees and then also NIM pulling back in the back half of the year. Is that a fair summary?
Bill Rogers
Yes. Betsy, I think I would say it maybe a little bit differently. And I think Mike was trying to make this point. I mean we are sort of – if you look at sort of NII for the fourth quarter, and we are assuming that sort of stable through the year. So, that’s the big driver. I mean if you think about what’s the big bus and the revenue guidance, it’s NII being stable. And that’s not loan growth at the kind of revenue numbers. I mean the loan growth is going to pull back a little bit. Some of that’s going to be intentional on our part. A lot of it’s going to be return-oriented, just making sure that we have got really, really great relevance with our clients. And in some cases, the fee business is we expect to be up. We expect insurance to be up. We expect it to continue in its sort of high-single digit organic growth. We still have some inorganic momentum from some of the acquisitions we have gotten. We expect investment banking to actually return and increase its revenue growth. That will probably be a little more back-end weighted in fairness, but as we see where markets come out. But the big driver is sort of the NII fourth quarter where we are and that moving forward on a stabilized basis. That’s the biggest driver.
Betsy Graseck
And I know in the press release, you talked a bit about having – managing your deposit costs well and tightly, etcetera. Can you give us a sense as to how you think about the trajectory of that line item as we go through ‘23?
Bill Rogers
Yes. I will do it at a high level. I mean it will be – continue to be slightly down. So, I mean I think that’s – that trend will continue. I think on a relative basis, we are showing deposit betas that are more reflective of our opportunity. And as the costs continue to grow, I mean deposit betas will increase. Mike, I don’t know if you want to comment sort of specifically how we are thinking about that.
Mike Maguire
Yes. We mentioned in an earlier question that we see betas increasing. Whether they reach the 40% level or not, we will see. I would say the other trend, Betsy, which is consistent with what others are expecting and what’s consistent with our expectation is we are still seeing a remixing from DDA and interest-bearing so that makes sense. And we are still well above where we were sort of pre-stimulus. We were in the high-20s, 28%, 29%. We peaked during the sort of height of stimulus in the 35.5%, 36%. We are back at like 34% right now and going to 33% and probably approaching 30% over time. And I think, Bill, you hit it right. I mean I think we are seeing some deposit balance pressure in the aggregate and we would expect that to continue in 2023, perhaps moderate a bit.
Betsy Graseck
Okay. Got it.
Mike Maguire
That’s great.
Ankur Vyas
Alright. Thanks Betsy. Jess, it looks like there is not anyone left in the queue, so that completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you all for your interest in Truist. We hope you have a great day. Jess, you can now disconnect the call.
Operator
Thank you. Ladies and gentlemen that will conclude today’s call. We thank you for your participation. You may disconnect your line at this time.
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