Truist Financial Corp (NYSE: TFC) Q4 2021 earnings call dated Jan. 18, 2022
Corporate Participants:
Ankur Vyas — Head-Investor Relations
William H. Rogers Jr. — Chief Executive Officer
Daryl N. Bible — Chief Financial Officer
John M. Howard — Chief Insurance Officer
Analysts:
Matt O’Connor — Deutsche Bank — Analyst
John Pancari — Evercore ISI — Analyst
Ken Houston — Jefferies — Analyst
Gerard Cassidy — RBC Capital Markets — Analyst
Mike Mayo — Wells Fargo Securities — Analyst
John McDonald — Autonomous Research — Analyst
Ebrahim Poonawala — Bank of America — Analyst
Erika Najarian — UBS — Analyst
Presentation:
Operator
Greetings, ladies and gentlemen, and welcome to the Truist’s Financial Corporation Fourth Quarter 2021 Earnings Conference Call. Currently, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this event is being recorded.
It is now my pleasure to introduce your host, Mr. Ankur Vyas, Head of Investor Relations for Truist Financial Corporation. Please go ahead.
Ankur Vyas — Head-Investor Relations
Thank you, Jake, and good morning, everyone. Welcome to Truist’s fourth quarter 2021 earnings call. With us today are our CEO, Bill Rogers; and our CFO, Daryl Bible. During this morning’s call, they will discuss Truist’s fourth quarter results, and also share perspectives and how we continue to activate Truist purpose, our progress on the merger, and current business conditions.
Clarke Starnes, our 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 the call. The accompanying presentation, as well as our earnings release and supplemental financial information, are available on the Truist IR site, 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 for 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 on our website.
With that, I’ll now turn the call over to Bill.
William H. Rogers Jr. — Chief Executive Officer
Thanks, Ankur. Good morning, everyone, and thanks for joining our call. We hope that your New Year is off to a good start and that you and your families are doing well. I’m very pleased with Truist’s strong fourth quarter results. Fee income was solid, reflecting our diverse business mix and favorable conditions in investment banking and insurance. Net interest income was starting to improve, exceeding expectations. Credit quality was outstanding, resulted in another provision benefit. We delivered on our expense goals as adjusted non-interest expense decreased almost 4% and drove 3% sequential positive operating leverage. Loan growth, excluding PPP, is strengthening and we have momentum going into this year. I’ll share more details on these topics during the presentation.
Now turning to Slide 4. As always, I’m going to begin with purpose, which is to inspire and build better lives and communities. We believe our purpose-driven culture is the foundation for our success as a Company. Our purpose defines how we do business every day and it serves as a framework for how we make decisions. Our purpose-driven culture is also the foundation for how we attract and retain top talent. People simply want to work for and do business with companies that stand for something meaningful. This culture combined with our comprehensive compensation and benefit packages, significant and ongoing training, development and career mobility on our more flexible approach to work will be our formula for attracting and retaining the best talent at Truist and competing and winning in the ongoing war for talent.
Slide 5 highlights some of the ways we’re putting our purpose into action. This slide is organized around the same major themes contained in our CSR and our ESG report since they’re the topics that are most relevant to all of our stakeholders, including our shareholders. I could not be more proud of both the quantity and most importantly, the quality of the work being done across all these dimensions and the tremendous impact we’re having in our communities. While I can’t cover every point on the slide, let me highlight a few.
From the technology front, we were excited to welcome our teammates to the recently completed innovation and technology center in Charlotte. I look forward to an external grand opening in the first half of the year. As you know, Truist has an unwavering commitment to diversity, equity, and inclusion. And I’m very pleased to report that we recently achieved our goal to increase ethnically diverse representation in Senior Leadership roles to at least 15%. This was a year earlier than our original commitment. While we’re proud to achieve this milestone, we acknowledge that this is actually the beginning and not the end.
We’ve also intentionally implemented a flexible work strategy for our teammates, which includes onsite, remote, and hybrid options. Hybrid and more flexible works here to stay, and I’ve learned the meaning and the power of intentional flexibility, the concept of people coming together as a team, whether in the office or not, and intentionally deciding what works best for them, their team, our clients, and the company, while remaining highly engaged and most importantly purposeful.
Finally, we released our inaugural TCFD report in mid-December, which adds further context and disclosures to our previous CSR and ESG reports. At Truist, we review all the elements of ESG as an opportunity to improve our company and operationalize our purpose, including climate change. For instance, we’re adding new teammates within CIB and our commercial community bank. We are going to help our clients transition to a lower carbon economy.
Now turning to Slide 7. This quarter we had $163 million of after-tax merger-related and restructuring charges and $165 million of after-tax incremental operating expenses related to the merger. The total EPS impact of merger-related cost was $0.25 a share. While our decision to create a best of both model of integration has resulted in increased upfront cost, I firmly believe it creates the best platform for future investment and growth. The good news is that total merger cost will be cut approximately in half in 2022 compared to last year and then fall out of our expense base entirely after this year.
Now turning to our fourth quarter performance on Slide 8. As I indicated, the fourth quarter was a strong finish to a solid year as most areas were generally in line or somewhat ahead of our expectations. We are in $1.5 billion or $1.13 earnings per share for the quarter on a reported basis.
Excluding the merger impacts on the prior slide, we earned $1.9 billion or $1.38 per share.
Primary driver of changes in EPS, relative to both the prior quarter and a year ago was a loan loss provision, given a rapidly evolving economic environment over the past two years. We generated strong returns, including 22.6% adjusted ROTCE, which was unchanged from last quarter. Excluding the reserve release, adjusted ROTCE was still a very strong 19.6%. Asset quality continues to be an excellent story and net charge-offs were in line with our guidance. Capital deployment was robust during the fourth quarter, as we funded strong organic loan growth, closed the Service Finance acquisition in early December, and repurchased $500 million worth of common stock. We’ll provide more details about loan growth momentarily.
On the merger integration front, we completed the first part of the core bank conversion in mid-October by migrating our heritage BB&T clients to the Truist ecosystem. As part of the conversion, we launched the newest — the new truist.com as well as our digital commerce account opening platform. Since then, our integration teams have completed two successful dress rehearsals for our final conversion, one in mid-December and one just this past weekend. I want to personally thank our teammates for their hard work and dedication to this effort. Because of them, we’re on track for the final core conversion in February, during which our heritage SunTrust clients will be migrated to the Truist ecosystem.
Looking at full year 2021, Truist had a productive year across multiple dimensions. From a financial perspective, we generated significant adjusted net income of $7.5 billion or $5.53 per share and had an adjusted ROTCE of 22%. While our earnings undoubtedly benefited from a $3 billion lower loan loss provision due to the improving economy, we also demonstrated the strength of our diverse business mix.
Fee income excluding security gains, increased a very strong 10% as we were firing on multiple cylinders. This performance helped offset a 45% decline in mortgage fee income and a 6% decrease in net interest income. We also continue to deliver on our cost save programs evidenced by adjusted expenses increasing only 1% during the year, which saw much larger increases in fee income. We also experienced a reduction in our risk profile, due to the improving economy and merger integration progress, which enabled us to reduce the CET1 target by 25 basis points to 9.75 and deploy significantly more capital. Overall, we were able to make great progress on multiple fronts, despite continued headwinds from the pandemic, while delivering improved financial performance for our shareholders.
Turning to Slide 10. Our new Truist digital experience reflects two of our core digital and technology principles. Co-creation with our clients and moving fast in order to learn fast. Our more modern and agile platform allows us to incorporate this feedback quickly. The results of which can be seen in the significant improvements in our overall client satisfaction scores as well as in our Apple App Store and Google Play Store ratings in just a few short months. We’ve now migrated approximately 9 million retail, wealth, and small business clients to the Truist digital experience through December. More than 85% of active clients have begun to use the new digital platform in lieu of their heritage app.
On Slide 11, you’ll see a visual of our new corporate and commercial digital platform, which we call Truist’s One View. This platform will provide our clients with a comprehensive view of their existing treasury management and lending solutions, we have streamlined and client-specific experience designed to reduce the time required to perform routine financial task, including the launch of Truist’s One View to our commercial clients, Truist has introduced new web and mobile platforms for each of our client segments across retail, wealth, business, and corporate. More than 2,000 features were released across these platforms in 2021 and we’ve done this at a pace that neither heritage company could have achieved on their own.
More broadly, as you can see from the charts on the left, we continue to position ourselves to serve the robust demand for digital services. Digital lending, mobile check deposits, and Zelle transactions, all exhibited double-digit growth during the year. We feel good about our current digital performance and we believe that our progress will accelerate after the final core bank conversion, in part due to the advantages and efficiencies associated with having one website, one search engine optimization process, one brand, one system, and one digital application, but also in part due to the new capabilities that we’ll be able to introduce this year, including our new AI-driven insights tool, our new Truist assist — virtual assistant, and the Truist developer center, which will position us to innovate and collaborate with the developer community. Having our teams focused on the new Truist experience versus managing three separate experiences will provide a significant productivity lift as we move forward.
Lastly, we have plans to make strong digital progress in other areas this year from our new partnership and integration with AutoFi, enhancing our insured tech capabilities via integrating insurance directly into our mortgage process, and launching a new deposit product with LightStream on a real-time cloud-based core.
Now turning to loans and leases on Slide 12. Average loans stabilized after decreasing for five consecutive quarters and peeling back the onion reveals positive and improving underlying trends. Excluding PPP, average loans increased approximately 1% sequentially, and end of period loans grew approximately 2%, reflecting momentum late in the quarter. The most notable improvement was in C&I, where end of period balances, excluding PPP, grew $6.3 billion or 5% reflecting broad based growth across corporate and commercial lines of business. This was the strongest point to point C&I loan growth since the first quarter of 2020. Most CIB industry and product groups demonstrated growth, most notably within our asset finance group, broad based growth was also evident within our commercial community bank where 12 of the 21 regions grew C&I loans, excluding PPP, during the quarter and we continue to see the most growth in markets that are relatively more open.
Every single one of our industry specialty groups within CCB grew. A strong reflection of how our clients value, industry expertise, and advice. Revolver utilization also ticked up after six straight quarters of declines and equally important total revolver exposure continues to grow, evidence of our relevance, and then our clients are building capacity for investments and expansion. Residential mortgage continues to grow, reflecting slower prepayment speeds. Our decision to balance sheet certain correspondent production and increased capacity post conversions and COVID.
Excluding mortgage, consumer balances decreased slightly primarily due to seasonality in our Sheffield business and continued declines in our government guaranteed student loan portfolio. Service Finance closed on December 6 and we feel great about their trajectory heading into 2022. In addition, some of the areas that have been headwinds like dealer floor plan and CRE are beginning to stabilize. Overall, corporate commercial clients remain optimistic despite ongoing labor shortages, supply chain disruptions, and inflationary pressures, we’re encouraged by the momentum we observed in the fourth quarter but also in our pipelines, which are the highest they’ve been in some time.
We continue to believe there is meaningful upside to the C&I growth story as the economy continues to improve, although the timing remains in precise. We also continue to feel confident in our consumer trajectory as we’re well positioned with respect to faster growing segments through our digital and point-of-sale businesses, which will offset headwinds in other areas.
Now turning to deposits on Slide 13. Average deposits increased $8.2 billion or 2% compared to the third quarter, largely due to the continuing effects of recent government stimulus and seasonality related to public funds. We’re also to able to help our clients along their financial journey through our industry-leading child tax credit awareness initiative. Through this initiative, which promotes savings and financial confidence, clients and communities most in need were able to grow their savings and IRA balances by 9% and 15% respectively, from May through December. I think this is a great example of what we call purposeful growth.
While we know we can do more and thus guided by our purpose, we have been reinventing a new checking account experience that aligns with our clients’ needs, which we believe will provide the more flexibility, lower cost, and more financial confidence. Truist One banking will be our new flagship differentiated and disruptive suite of checking solutions that redefine everyday banking and accelerate our journey towards purposeful growth. Truist One will have zero overdraft fees, the capability to provide qualifying clients the liquidity they need via[Phonetic] a simple $100 negative balance buffer, as well as the deposit base credit line limit of up to $750. These features will help clients manage their liquidity needs, far more cost effectively than alternative products. You’re going to learn more about these details right after this call. These solutions will be available to all clients this summer, given our need to first finish the conversion. In addition, Truist will discontinue overdraft protection, negative account balance, and returned item fees in the coming months for all existing accounts.
Long term, this is a win-win for all of our stakeholders, as it will increase client acquisition, particularly next-gen clients, enhanced deposit growth, and simply improve the overall client experience. In the near term, however, there will be a financial cost, both as the result of the introduction of Truist One and the reduction of other fees. We expect these changes collectively to result in an approximately $300 million or almost 60% reduction in overdraft related revenue by 2024. The impact will begin in a few months and build over time as more clients benefit from the Truist One experience.
I’m now going to turn it over to Daryl to review our financial performance in more detail.
Daryl N. Bible — Chief Financial Officer
Thank you, Bill, and good morning, everyone. Turning to Slide 14. Net interest income was up slightly versus the prior quarter and ahead of our guidance of down 1%. The increase was primarily driven by largest securities portfolio, as a result of ongoing deposit growth, which offset the expected decline in purchase accounting accretion. Net interest margin and core net interest margin performed in line with our guidance.
Reported net interest margin declined 5 basis points, 2 basis points due to purchase accounting accretion and 3 basis points from core. The main drivers of the 3 basis points decline in core net interest margin were the impacts of lower PPP revenue and higher levels of liquidity. The PPP continues to wind down and we expect to earn an additional $60 million of PPP revenue over the coming two quarters.
Moving to Slide 15. Overall, Truist intentionally maintained a balanced approach to managing interest rate risk, enhancing current earnings, while being positioned to take advantage of higher rates, both at the short and long ends of the curve. We estimate a 100 basis point ramp increase in rates, would increase NII by 5%, a 100 basis point shock would increase NII by 10%, approximately 75% of this reported asset sensitivity is from the short end of the curve. As a rule of thumb, one 25 basis point fed hike with a 20% beta would increase net interest income by $25 million per month, an increased net interest margin 6 basis points all else being equal.
Moving to Slide 16. Reported fees were down 2% from last quarter, largely due to changes in our non-qualified plan. Absent the impacts of the non-qualified plan, fees performed well and were consistent with our guidance of relatively stable. The driving factors of a stable performance quarter-over-quarter were investment banking and trading increased $61 million versus the prior quarter due to higher syndication fees, structured real estate, and record M&A results.
Insurance income increased $21 million, primarily due to organic growth and seasonal improvement from the third to fourth quarter. These quarterly increases were offset by a decline in other income of $107 million or $70 million, excluding changes in the non-qualified plan, largely driven by the valuation adjustment for the Visa-related derivative and lower revenue from our SBIC funds.
For the full year 2021, excluding security gains, fees were up 10% versus the prior year or more than $800 million, propelled by our diverse business model, favorable market conditions, and Truist’s increasing size, scale, and relevance across multiple businesses, we are also making good progress early in our ERM initiative, particularly between the connectivity between CCB, wealth, and CIB.
Insurance income increased 20% year-over-year primarily driven by a very strong organic growth of 11% and acquisitions. This was our 99th year of insurance business, our best one yet. And we believe that 2022, our 100th year can be even better. Investment banking and trading was also up over $400 million largely due to record performance as a syndicated finance, M&A, equity, structured real estate, and asset securitization.
M&A revenue doubled relative to 2020 and the lead syndication roles in syndicated finance were up 26% year-over-year, both reflecting our strategic relevance to our clients. On the flip side, residential mortgage income was down year-over-year $445 million or 45%, primarily due to the sharp decline on gain on sale margins and lower refinance activity.
Turning to Slide 17. Reported expenses were $3.7 billion for the quarter, including $212 million of merger related costs and $215 million of incremental operating expenses related to the merger. Adjusted expenses decreased 3.9% sequentially at the [Technical Issues] end of our guidance of down 3% to 4%.
Drivers for the decline include decreased personnel costs, which is the result of lower salary expenses, lower incentive costs, lower medical claims, and changes in the non-qualified plan. Average FTEs declined 3% including Service Finance from the prior quarter. Adjusted expenses also declined due to elevated equipment and marketing expenses in the third quarter. Full year adjusted expenses were up only 1% despite the adjusted fee income growing 10% year-over-year. This limited increase demonstrates the cost saving success we have achieved throughout the year and our overall discipline and expense management.
Moving to Slide 18. Asset quality remains excellent, reflecting our prudent risk culture, diverse portfolio, favorable economic conditions, and the
Effects of stimulus. Our net charge-off ratio increased to 25 basis points from 19 basis points in the third quarter due to seasonality and the consumer losses and lesser commercial recoveries. Our ALLL coverage ratio decreased to 1.53%, which is just below our CECL day 1 level, resulting in a provision benefit of $103 million in the fourth quarter as the economic scenarios continue to improve.
Continuing on Slide 19, capital and liquidity levels remained very strong. Our CET1 ratio declined from 10.1% to 9.6% driven by organic loan growth, share repurchases, and the Service Finance acquisition. Our established near-term target for CET1 of 9.75% has not changed, although the ratio declined to 9.6% in the fourth quarter. We anticipate being somewhat below our 9.75% CET1 target in the near term given the improving loan growth outlook and the CET — and the CECL phase-in for the first quarter. We also do not anticipate repurchasing any shares for the first half of 2022.
Moving to Slide 21. We achieved major milestone in October with the successful migration of our BB&T retail and commercial clients to the Truist ecosystem. We have three significant integration milestones remaining, completing the Truist digital first migration, finalizing the remaining branch consolidations in the first quarter, and the migration of our SunTrust retail and commercial clients to the Truist ecosystem, which will occur in February. The visual combination of this process will be 6,000 more Truist signs across our markets, add branches, ATMs, retail and corporate offices, finally allowing us to serve as one brand for our clients. Once the integration is complete and all the systems have been converted, Truist will be a much simpler company to operate, allowing us to provide even better service to our clients.
Turning to Slide 22. We continue to be committed to achieving our $1.6 billion of net cost saves and continue to make progress in each of the five categories. Third party spend is down 11.5% from baseline levels, exceeding our targeted reduction of 10%. Our sourcing team continues to make great strides in achieving savings despite the impacts of inflation and the good news is, there were fewer contracts to renegotiate in 2022, due to the higher volume of contracts renegotiated during Truist first two years.
We are on track to deliver over 800 total branch closures by the first quarter of 2022 and we are about 90% of the way towards our non-branch facility reduction target. Average FTEs are down 11% since the merger, excluding acquisitions. Additionally, technology savings were materialized after redundant systems are decommissioned, the second half of 2022.
Turning to Slide 23. Core non-interest expense was $2.94 billion in the fourth quarter, meeting our target for the quarter. As a reminder, core non-interest expense is more comparable to our baseline expenses at the time the merger closed. Going forward, we will focus primarily on adjusted expenses and not core, as adjusted expenses represent what we believe will be the run rate going forward.
I will now provide guidance for the full year 2022 and for the first quarter. In 2022, we expect total revenue to grow 2% to 4% from 2021, as a result of higher net interest income, combined with solid growth in fees. The lower end of the range reflects two fed hikes with one in June and the second in December while the upper end reflects three to four rate hikes throughout the year. This guidance includes the initial financial impact from the new Truist One account and related fee reductions in 2022.
Adjusted non-interest expense is expected to only increase 1% to 2% in 2022, as a result of inflation, increased investments, and expenses from acquisitions in 2021, partially offset by the ongoing cost savings, including achieving our final cost save target in the fourth quarter of 2022. Merger-related and restructuring costs and incremental operating expenses related to the merger are anticipated to be approximately $800 million in 2022, with these expenses going away in 2023. Given these factors, we anticipate positive operating leverage on both GAAP and adjusted basis in 2022. This is the primary metric, we will hold ourselves accountable to this year.
We also expect net charge-offs ratio to be between 30 and 40 basis points in 2022, given favorable economic conditions and the assumptions for normalization throughout the year with some quarter-to-quarter variability. Excluding discrete items, we expect our effective tax rate to be approximately 20% and 21% if you model us on a taxable equivalent basis.
Looking into the first quarter, we expect total revenues to decline approximately 1% to 2% from fourth quarter levels. Given two fewer days, lower purchase accounting accretion and PPP revenue continued pressures on mortgage and the typical seasonal patterns in certain fee categories like payments and service charges. This will be partially offset by seasonality and insurance.
Reported net interest margin should be down a couple of basis points, due to lower purchase accounting accretion. Although, we expect core to be relatively flat. We expect adjusted expenses to increase 1% to 2% next quarter from the fourth quarter levels. Partially due to the seasonality in personnel expense, given FICA and 401(k) and partially due to higher marketing expense as we continue to rollout the Truist brand post conversions.
Now, I’ll turn it back to Bill to conclude.
William H. Rogers Jr. — Chief Executive Officer
Thank you, Daryl. Slide 24 is our investment thesis, which is built on four pillars or themes that we believe truly differentiate Truist and allow us to inspire and build better lives and communities, as well as deliver purpose for growth for all of our stakeholders. I also think it’s the same reason I’ve got the best job in banking. I shared color on this refresh investment thesis with many of you in December.
So on Slide 25 and in summary and conclusion, Truist had a very good 2021 highlighted by improved financial performance, strong fee income from our diverse business model, significant capital deployment, and strong risk management, as evidenced by our excellent asset quality metrics. We also made substantial integration progress taking many significant steps towards becoming One Truist.
As we look into 2022, our formula is going to be simple. First, we will complete the merger in the first quarter, eliminate merger-related cost by year-end, and achieve our cost saves, all of which will help us produce positive operating leverage. Second, we’ll begin to pivot from an integration focus to an operating focus on executional excellence in growth, the momentum we’ve go — have going into 2022 combined with being One Truist across all dimensions technology, digital, brand, products, process, gives me great confidence in our performance and potential as we make and complete this pivot. Lastly, we will have the capacity to deploy more capital on behalf of our clients and shareholders as integration risk subside and the economy stays on sound footing.
So with that, let me turn it back over to Ankur for Q&A.
Ankur Vyas — Head-Investor Relations
Thanks, Bill. Jake, at this time, if you’ll explain how our listeners can participate in the Q&A session, as you do that, I’d like to ask the participants to please limit yourselves to one primary question and one follow-up so that we can accommodate as many of you as possible today.
Questions and Answers:
Operator
[Operator Instructions] And we will begin with Ken Houston with Jefferies.
Ankur Vyas — Head-Investor Relations
Ken, are you there? [Speech Overlap]
Operator
Ken, you may be muted. We’re not hearing anything from Ken. We’ll move to the next caller in the queue, Matt O’Connor with Deutsche Bank.
Matt O’Connor — Deutsche Bank — Analyst
Hi, good morning. I was hoping to follow up on the expense guidance of 1% to 2% growth on adjusted basis. There’s obviously some puts and takes, with the cost saves in the Service Finance and what are you thinking about underlying expense growth? I think Daryl, you talked about 3% back in November, and is that still true or how do we think about that?
Daryl N. Bible — Chief Financial Officer
Yes, Matt. I think we were at the conference in the fourth quarter. We said we would have around 3% inflation, that’s about $400 million [Indecipherable] ballparking for us for next year. We have the benefit obviously of having our third tranche of cost saves coming through in 2022, which really makes the adjusted expense growth pretty moderate versus not having those cost saves.
Matt O’Connor — Deutsche Bank — Analyst
Okay. And then just remind us the lift from Service Finance on the cost side, starting to 1Q?
William H. Rogers Jr. — Chief Executive Officer
$20 million a quarter.
Daryl N. Bible — Chief Financial Officer
About $20 million a quarter.
Matt O’Connor — Deutsche Bank — Analyst
Okay. All right, thank you.
Operator
John Pancari with Evercore ISI has the next question.
John Pancari — Evercore ISI — Analyst
Good morning. On your revenue guidance 2% to 4%, maybe could you just help us figure out how that would break down if you can unpack that by net interest income versus fees, if you could maybe give us a bit of color how the — how we should think about growth in 2022 on those fronts? Thanks.
Daryl N. Bible — Chief Financial Officer
Yes, John. If you look at my prepared remarks, we talked about in net interest income. We really right now have on our base forecast only two fed increases, one in June and one in December. That’s the lower end of the revenue guide. Obviously, if you look at the forwards markets, where we’re today, it’s — I think 3.8% or 3.8 times to almost four fed moves factored in. That would get us to the higher end of the curve. We gave you a couple of metrics. We’re using a 25% beta in our rate sensitivity and that 25% beta equates to about $25 million per month for every fed increase that we have there. If you look back historically and look back at the recession that had — that we had and when fed started to raise rates in 2015 and 2016, the betas for the first 100 basis points were 15% and we’re modeling 25%. So I think we’re a little bit conservative on that side. We’ll see how things play out. We are modeling a higher beta when you go up over 100 basis points to the next 100, we’re at 35% and then anything over 35%, we’re at a 50% beta, it’s kind of the assumptions we’re using.
On the fee side, we feel pretty good — growth on the fee side we have momentum there. We had a tremendous year in 2021. We still think we’ll continue to have pretty good pull-through of revenue with the exception of mortgage just because of lower spreads and volumes.
William H. Rogers Jr. — Chief Executive Officer
So John, in simplest way to think about it is, the 2% sort of assumes the flattish kind of NII and the upside of the 2% to 4% is in the NII. And then the balance of the growth is expect — is non-interest income.
John Pancari — Evercore ISI — Analyst
Got it. Thanks, Bill. That’s helpful. And Daryl, thanks for that. And then separately, on the loan growth side, wanted to see if you can give us just expectations, how we should think about the pace of growth in 2022? And maybe also for that as well, how that would breakdown, in terms of commercial versus consumer trends? Thanks.
William H. Rogers Jr. — Chief Executive Officer
Yes. John, maybe I’ll do a little sort of where we are and what the jumping-off point is to — put a little context — put a little context around that. We — as you well know, loan growth is a function of production utilization, paydowns, and pipelines is a way that I like to think about the formula and its most simple way. And as we finish the fourth quarter, we really saw the production start to increase. Utilization was up about 2.5 points, which was, that’s the first time we’ve seen a swing in the utilization front. And that was pretty universal. So we felt good about that from a momentum standpoint.
Paydowns were up a little bit, but maybe most importantly is the pipelines were at really, really high level. So our CCB pipeline, our CIB pipeline, and our CRE pipelines, all were at historically sort of high levels compared to the quarter and compared this time last year. Usually, this time of year, you’re starting to clean out pipelines and sort of trying to refresh in the first quarter. So we enter this with a little more confidence and momentum than maybe we have in the past.
On the consumer side, we had some headwinds from student loan, but that was really just less purchase is available. So I mean I think that’s sort of a little bit of a conscious kind of decision and then home equity, which will exist as a symbol of sort of how people want to borrow in the future. But remember, things like Service Finance are coming on. That — we completed that purchase in December — early December, so we will sort of get the benefit of that on the consumer side, as we come through.
So in terms of thinking about the whole year and thinking about puts and takes, I think sort of a mid-single digit from here kind of growth rate based upon everything we know now, nothing else changing so on and so forth. I think it’s sort of eminently achievable and I think, reflective of the momentum we have right now.
John Pancari — Evercore ISI — Analyst
Great, Bill. Thanks for all that color, very helpful.
William H. Rogers Jr. — Chief Executive Officer
Sure.
Operator
And we have Ken Houston with Jefferies, back in the queue. Go ahead, Ken.
Ken Houston — Jefferies — Analyst
Thanks, good morning, guys. Hey, I just wanted to come back on the — that expense trajectory and how you kind of take us from here to there. I heard the points about the 1% to 2% underlying growth off the end of the year. You still said you’re on track to get the full cost saves. Can you kind of talk us through after the conversion, when do you get to that that run rate numbers is still the fourth quarter and any update that you might have in terms of just that gross versus net and if you’re doing any better on either side versus your original expectations? Thanks.
Daryl N. Bible — Chief Financial Officer
Yes. So Ken, as I’ve said before our trajectory on expenses is not just down every quarter. It moves up and down. Obviously, we got some seasonal factors going from fourth to first with FICA and 401(k). And then, we are building our marketing budget and basically rolling out our Truist brand across the whole footprint, a pretty aggressively to build brand awareness. I think as the quarter and years play out, I think you’re going to see expenses maybe take up a little bit. And then as we get through all the technology decommissioning, that’s probably the biggest cost saves to still come through. That’s really backend loaded right now. We still have 400 branches that will go away early in the quarter. But for the most part, other real estate and technology savings are probably the biggest savings, which will be towards the end of the quarter and we feel really good about still hitting our target that we originally said when we announced the merger.
William H. Rogers Jr. — Chief Executive Officer
Yes. And one other point I’d add, I think Daryl was making this earlier. This also covers the investments that we’re making. So we have this unique opportunity and that we’ve got cost saves out of us, but the ability to cover not only the inflation pressures but also our investments and talent, our investment in technology, the ability to grow our businesses. That’s all factored into this guidance.
Daryl N. Bible — Chief Financial Officer
Yes. If you look at the investments we’re making this quarter versus last year, it’s probably double what it was. So we’re actually investing more in the company and still achieving our cost saves.
Ken Houston — Jefferies — Analyst
Understood, thanks. And just a second question, you talked about insurance being better this year, January 1 renewals were 10% or 11%. I’m just wondering if could help us understand what the growth outlook is for the insurance business, given the mid-year acquisitions you had in addition to the organic growth outlook? Thanks.
William H. Rogers Jr. — Chief Executive Officer
Yes. I thought, Ken, if it’s okay, I’ll let John sort of hit that directly.
John M. Howard — Chief Insurance Officer
Thanks, Bill. I’d say that the environment for insurance continues to be favorable. So when you think about it from a pricing standpoint, you mentioned the January 1 renewals, those were largely around reinsurance pricing, and they vary by class of business. But it remains a favorable environment for insurance pricing. We continue to see exposure growth. We continue to see very strong statistics in new business and retention. So, we expect strong performance in insurance in 2022.
Operator
We’ll now hear from Gerard Cassidy with RBC.
Gerard Cassidy — RBC Capital Markets — Analyst
Thank you. Good morning, Bill. Good morning, Daryl.
William H. Rogers Jr. — Chief Executive Officer
Good morning.
Daryl N. Bible — Chief Financial Officer
Good morning.
Gerard Cassidy — RBC Capital Markets — Analyst
Can you guys share with us, you — obviously, your CET1 ratio, you lowered the near-term targeted ratio to 9.75% from 10%. What is the longer term once the deal — the integration is completed, were[Phonetic] in 2023 heading further? What do you guys think is a long-term CET1 ratio for you folks?
William H. Rogers Jr. — Chief Executive Officer
Yes. Gerard, I think as we’ve said before, I mean we’re going to continue to look at sort of where we are in our merger integration where the economy is, the health of our business and make those adjustments on an ongoing basis. So this won’t be a quarterly kind of thing, but just as we see significant shifts and those criteria, evidenced by the fact we went from 10% to 9.75% and also the fact that we’ve got flexibility. I mean the good news was, we had loan growth at the end of the quarter that probably exceeded our expectations and that tick our CET1 a little below that target, which thinks great. By the way, that’s a sort of a high-class way to go below that target. So as we go through the process this year, we go through the CCAR process, look at all the stress testing results. I think sometimes towards the middle or the end part of this year, we’ll take another harder look and be more communicative about where another goal might be.
Gerard Cassidy — RBC Capital Markets — Analyst
Very good. Thank you. And then as a follow-up, I’m trying to figure out on the fourth quarter call for 2022 next January, what’s going to be the real subject of discussions for you folks and maybe your peers? Obviously, we’re not going to be talking about restructuring costs and things like that because it will be finally over for you folks. But credit is something that I’m wondering about because it’s so good today. We all know that and I don’t know if Clarke can comment on this, but I’m curious when you look at your underwriting standards today, I don’t know if you want to use a scale of 1 to 10, 10 being very conservative, one being very aggressive, where is that stand versus, where it was at the start of the pandemic? And then where it was versus ’19? And then second, what’s going on with your competition? Are they being really aggressive? Are you guys seeing really aggressive underwriting from some of your peers? Thank you.
Clarke R. Starnes III — Chief Risk Officer
Hey, Gerard. It’s a great question. I would say, for Truist, we’ve removed all our COVID-related overlays that we added in from our underwriting standpoint as the pandemic hit. So I would say, we are underwriting more or less at a normal through the cycle rates. So right in the middle of the field, we’re not on the aggressive end, we’re not on the conservative end, I think we’re meeting the market through our long-term approach. Obviously, it’s very competitive out there. There are aggressive structures and pricing considerations that we have to deal with every day, but I think our view is that because of our diverse business model and in particularly in our lending segments, we can get responsible growth that through the cycle approach. So I would say for us, we’re in a pretty normal approach albeit watching those areas that might have been impacted structurally by the pandemic, CRE Office, things like that for us is more normal underwriting.
Gerard Cassidy — RBC Capital Markets — Analyst
Great. Thank you.
Operator
Mike Mayo with Wells Fargo Securities has the next question.
Mike Mayo — Wells Fargo Securities — Analyst
Hi.
William H. Rogers Jr. — Chief Executive Officer
Hi, Mike.
Mike Mayo — Wells Fargo Securities — Analyst
Just a specific question as it relates to competition. What’s been the retention rate of your employees, customers’ deposits, when the merger was announced three years ago, there was a lot of talk about competitors’ gaining share. And I’m just wondering what specific metrics you have around that?
William H. Rogers Jr. — Chief Executive Officer
Sure, Mike. I’ll take a crack at that. The — obviously, that’s a extremely high focus area for us. If we start with deposit and client side, I would say, it’s been exceptional and exceeded our expectations, the branch closures retention numbers have been on the real in the high — high-90s. I think it’s just a reflection of clients’ confidence in us, our presence in the market and our ability to handle their needs, whether it’s digital or whether it’s physical. So I think and I thought, so that part has been exceptional, exceeded probably all expectations and the same thing on the — we see it in the deposit growth.
So I mean I think we are — those are hard numbers look at market share, but I feel like we’re taking share in that sense, because in that retention model. As it moves to teammates, I think you and I had talked about this. Right into the first year of the merger, our retention numbers were actually higher for Truist than they were with the — compared to each heritage company. So our teammates had voted for the merger and wanting to be part of that and we look at not only overall retention. We look at for a high performer retention. We divided up a lot of different ways. Obviously, that attrition has picked up and that’s picked up across the industry. I still think on a relative basis we look really strong from that standpoint.
And if you think about what’s going to happen to us, we also changed the denominator that when we close a lot of branches and we’re still consolidating. So our ability, I think to stay ahead of the attrition game. I think we’re really, really well positioned from that standpoint. But also — and maybe equally importantly as our attractiveness to hire talent has never been better, I mean we are bringing in some fantastic people that want to be part of our company. They are bought into our purpose. They love the idea of being on a strong legacy company that feels like a start-up. So it’s got sort of a nice combination to it. Our commitment and capacity to innovate, make investments has been really attractive. So our retention number, I mean, our retention numbers are up. There’s no doubt about that in the last year. Nobody else’s. I think on a relative basis, where we are okay. We manage it to an absolute though that’s the way I think about it. And our ability to attract talents really, really strong — never been stronger.
Mike Mayo — Wells Fargo Securities — Analyst
All right. And as far as a follow-up, I’m going to have a wind up to my second question here. It’s been almost three years since you announced the merger. Your stocks up 39%, the Bank Index up 52%, the S&P is up 71%. So you have woefully underperformed from a stock standpoint and that coincides with the period when you’ve shown some negative operating leverage, especially last year, and you’ve talked about this, the pandemic slowed down the merger convergent, NII has been depressed. You’ve had a cautious approach, you want to best of three. And so we have all that. So really, I’m getting to positive operating leverage this year you’re doubling the investment, but I just want to know if we can have additional reassurance that operating leverage will be more positive than say one basis point because you say 2% to 4% revenue growth, 1% to 2% expense growth, so that could be anywhere from 1 basis point to 300 basis points. And this merger was predicated on overlapping footprint, benefits of technology, and it seems like you’re spending a lot of the savings and investors aren’t seeing that’s the bottom line. So can you just give any assurance or maybe not as far as the positive operating leverage this year, and the payback from these investments, while as you say the hood is open?
William H. Rogers Jr. — Chief Executive Officer
Yes. I mean I think the commitment to positive operating leverage is clear in our guidance, related to how much we achieve. I think given we’ve had a pretty conservative forecast on the rate increases. If we get additional rate increases, this was predicated to 1% and your line up was predicated on two rate increases, if we get more. Those sort of follow straight through to the bottom line. So we create more operating leverage. But also think to your point, the point I made earlier, we’re continuing to invest in this business. I mean, we’re not going to achieve operating leverage, positive operating [Phonetic] leverage in start of our business. I mean, the ability to achieve the cost saves, redeploy them into the appropriate investments for the long term. That was the vision of Truist.
I mean that was the premise upon which we established this merger and I think arguably and be hard to dispute, it’s taken a little bit longer. Some of those were decisions we made the best of both was a little more expensive than we had anticipated at the outset. But I think you’re really starting to see and I can feel — you can feel in the pivot in the fourth quarter, you can feel it in the pivot in our guidance of the promise of Truist is manifesting itself and not only positive operating leverage, but purpose for growth and an ability to invest in the business for the long term. So yes, we’re committed to positive operating leverage underlined exclamation point and all the other comments, but in a way that we’re continued to invest to grow our business for the long term.
Mike Mayo — Wells Fargo Securities — Analyst
Okay.
Daryl N. Bible — Chief Financial Officer
Hey, Mike. The only thing else I would add to that, if you look at our net interest income, just to remind you, we have run off of purchase accounting accretion of about $400 million plan for year-over-year and we have about $325 million run off of PPP plan to be lower year-over-year. So for us, just to be flat and NII is 6.5%. The guidance that we gave for our revenue growth on all that has net interest income being up maybe a little bit, maybe 1% on a GAAP basis, but that’s really 8% if you look at the real true operations of the company and potentially up to maybe 10% if we get rate increases and maybe some more loan growth. So a company is really performing at high levels from a production basis on the amount of volume that we’re putting through on the asset side of the equation.
Mike Mayo — Wells Fargo Securities — Analyst
Thanks for that clarification. Thank you.
Operator
We’ll now hear from John McDonald with Autonomous Research.
John McDonald — Autonomous Research — Analyst
Hi, good morning. Bill, I wanted to ask you a little bit more of industry question. With the loan demand and loan growth number is looking better across the industry, kind of what’s happening in the psychology of the borrower here? It feels like there’s still a lot of liquidity out there, but there is a change going on, is it more confidence about the economy folks just have run into a need to build inventories? Why we’re seeing this increase in loan demand across the industry?
William H. Rogers Jr. — Chief Executive Officer
Yes, I think it’s a combination of things, John. I’m out visiting with clients’, demand is never the issue for business. I mean, they all have demand and that cuts across actually a wide swath of industries and geographic locations, so the ability to do business. I think you’ve seen a couple of things. One is, I think what you’re premise was in your question, people building to — building a little inventory sort of anticipating, trying to get ahead some of the supply chain. I think you see that. Then you just see stuff happening, like in dealer side, cars are showing up a lost, that may be shown up a lost, need in the chip or whatever it may be, but they’re showing up, so the ability to borrow against those capacities.
And then, I think people are just making the decisions to move forward. Deploying capital, they’ve had plans, if they’ve delayed plans, they’re continuing to look at the current Omicron is potentially a short-term situation that reverses itself and they don’t want to get behind. They’re all in competitive situations. So I think they’re deploying capital against the opportunities that they’ve had planned for the several years. So I think it’s a combination of a lot of things. It’s just resiliency of the economy and a little bit of positioning to get one step ahead of both supply chains, wage pressure, whatever it may be, and the competition.
John McDonald — Autonomous Research — Analyst
Okay, got it. And then just a follow-up for Daryl on the revenue outlook for this year. First, how much of that $300 million impact from the Truist One and overdraft, how much of that gets felt in ’22, Daryl? And then also just on the overall revenue guide, could you just give us the base for the ’21 revenues, about 22.5% or something like that for this year that you’re growing to 2% to 4% off of? Thank you.
Daryl N. Bible — Chief Financial Officer
Yes, John. I’ll do your latter question first. So the base for ’21 revenue is 22.3%.
John McDonald — Autonomous Research — Analyst
Okay.
Daryl N. Bible — Chief Financial Officer
It’s kind of the base. But yeah, I would throw off of. And then for the Truist One, recall in Bill’s remarks, it’s probably going to start in the second quarter and it’s probably anywhere from 30% to 40% of the impact in ’22. I probably spread out evenly over the second, third, and fourth quarter and then kind of builds up in ’23 and then the full run rate in ’24 of $300 million.
John McDonald — Autonomous Research — Analyst
Okay, got it. Thank you.
Operator
Next up, we have Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala — Bank of America — Analyst
Good morning.
William H. Rogers Jr. — Chief Executive Officer
Good morning.
Ebrahim Poonawala — Bank of America — Analyst
I guess, I just wanted to follow up, Bill, on your comments around operating leverage, I think the promise of the deal partly was the benefit of scale. As we look beyond this year, just structurally when you look at the efficiency ratio, I think you’re about 55%, 56% right now. Do you see the bank actually being a low 50% efficiency ratio franchise over the next two to four years? Or given the investment spend that you’ve talked about, it’s going to be hard to make that move absent the meaningfully higher interest rate backdrop?
William H. Rogers Jr. — Chief Executive Officer
Yes. It’s a good question. And to the latter part of your question, there is some rate dependency — normalization of rate dependency to get to that lower efficiency ratio. And we won’t make as much move on that in the next year, but our efficiency ratio on a relative basis, I think will continue to be industry-leading. So I think the ability to invest in our business, do it in a way that to your point that the scale achieves a much more efficient company. I think we’ll be able to continue that progress. And then if we get some sort of normalization of rates, I think looking out over two and three year period, I think the low 50%s is a reasonable target in a normalized kind of rate environment.
Daryl N. Bible — Chief Financial Officer
The thing, I would add Ebrahim and what I said on Mike’s call, the run-off of the purchase accounting accretion gets easier the year after year. So the ability to drive positive operating leverage will get easier as we go out to three, four years.
Ebrahim Poonawala — Bank of America — Analyst
Got it. And I guess on the revenue side with the systems conversion done, my sense would be given your scale, given your history in these markets, you should be playing offense where you gain market share? So Bill, you shared some retention numbers but talk to us about your ability to go head to head with regionals, smaller banks and actually gain market share as we think about the next few years and probably outperform on loan growth?
William H. Rogers Jr. — Chief Executive Officer
Yes. I mean, maybe just to clarify the first part of your question. We’ve been on offense. I think it’s just an ability to be further on offense and to accentuate that capability. If you look at virtually all of our categories, if you think about insurance, as an example relative to insurance, if you think about our investment banking relative to investment banking, if you think about deposit growth, loan growth, client acquisition, digital adoption, whatever measures you want to choose on a relative basis. I mean, I feel like we’re already gaining share. And I think to your point, our capacity to gain share, our competitiveness are the breadth and depth of our product capabilities. The talent that we have on the field, the training that they are receiving, the way they work together and integrate it relationship management. The way that they allow all cylinders of the company to benefit the client, we just never been more competitive, but I — against small, against regional, against large, I think all the things that we wanted to see and feel from Truist are absolutely come into bear and on the field every day.
Ebrahim Poonawala — Bank of America — Analyst
Got it. Thank you.
Ankur Vyas — Head-Investor Relations
Jake, we’ve got time for one more question.
Operator
And we will take that last question from Erika Najarian with UBS.
Erika Najarian — UBS — Analyst
Hi, thanks for taking my question. I’ll be quick. Daryl, your outlook for adjusted expenses — adjusted expense growth, I presume that’s from the $12.687 million base. And if so, what is the outlook for amortization expense in 2022, please?
Daryl N. Bible — Chief Financial Officer
Yes. So the base is correct. What you said was right, Erika. And then if you look at our tables in the back in the appendix, we actually gave guidance around that out there. So you’ll be able to easily kind of fill in your models with all that information. So it will make it easy for you.
Erika Najarian — UBS — Analyst
Thank you. And your — the positive operating leverage guide, does that include the amortization?
Daryl N. Bible — Chief Financial Officer
No. We always exclude amortization. It is in the — our definition.
Erika Najarian — UBS — Analyst
Got it. Thank you.
Operator
And ladies and gentlemen, this does conclude your question-and-answer session. I’ll turn the call back over to your host for any additional or closing remarks.
Ankur Vyas — Head-Investor Relations
Jake, that completes our earnings call. We — if you have any additional questions, please feel free to reach out to the IR team. Thank you all for your interest in Truist and attending our call. We hope you have a great day. Jake, you can now disconnect.
Operator
[Operator Closing Remarks]