Truist Financial Corp (TFC) 2025 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation third-quarter 2025 earnings conference call. (Operator Instructions) As a reminder, this event is being recorded.

It is now my pleasure to introduce your host, Mr. Brad Milsaps.

Thank you, Betsy, and good morning, everyone. Welcome to Truist's third-quarter 2025 earnings call. With us today are our Chairman and CEO, Bill Rogers; our CFO, Mike Maguire; our Chief Risk Officer, Brad Bender; as well as other members of Truist senior management team.

During this morning's call, they will discuss Truist's third quarter results, share their perspectives on current business conditions and provide an updated outlook for the remainder of 2025. 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 appropriate reconciliations to GAAP.

With that, I'll turn it over to Bill.

Thanks, Brad, and good morning, everybody, and thank you for joining our call today. Before we discuss our third quarter results, let's begin, as we always do at Truist with purpose on slide 4. At Truist, our purpose to inspire and build better lives and communities, guides every decision. It's the foundation of our strategy and the reason our fantastic teammate show up every day with conviction and care.

We believe purpose drives performance, which is why during the third quarter, we announced a strategic investment designed to accelerate our performance by building better lives, deepening relationships with existing clients and attracting new clients in some of the strongest markets in the country.

We're investing in our communities by building 100 new insight-driven branches in high-growth markets, renovating more than 300 locations, enhancing digital capabilities, elevating marketing and hiring premier advisers to serve clients with more complex financial needs.

These new branches are designed for smarter client engagement with advanced AI-driven technology and dedicated premier adviser spaces all aimed at helping clients achieve financial success and further strengthening our presence in these dynamic communities. These investments are part of our overall strategy to improve our profitability, accelerate growth by deepening relationships and delivering a more personalized technology-enabled experience to new and existing clients, which I'll discuss throughout today's call.

So now let's turn to our results on slide 5. For the third quarter, we reported net income available to common shareholders of $1.3 billion or $1.04 a share which included $0.02 a share of restructuring charges primarily related to severance. At a high level, our strong performance in the third quarter reflects the diversity of our business model and the execution of many of our strategic growth and profitability initiatives that we've been discussing for the last several quarters.

These initiatives include accelerating growth and the addition of new clients and deepening existing relationships in areas like payments, wealth and premier banking. We're executing our plan while maintaining our expense and credit discipline and returning capital to shareholders.

During the third quarter, average loan balances increased 2.5% and as we saw broad-based growth across our wholesale and consumer segments, driven by increased loan production and new client acquisition. Average deposit balances did decline linked quarter due to two large M&A-related client deposits that were withdrawn in mid-July that we've discussed previously. Excluding the impact of these deposits, average client deposits increased during the quarter.

Adjusted noninterest income increased 9.9% linked quarter to more than $1.5 billion due to strong investment banking and trading income and strong wealth management income. The third quarter represented our best noninterest income quarter since the divestiture of TIH. Adjusted expenses remained well controlled and were up just 1% linked quarter, which, along with the strong revenue performance helped drive 270 basis points of linked quarter positive operating leverage.

We also maintained strong asset quality metrics as net charge-offs declined both on a linked quarter and a year-over-year basis. Finally, we remain in a strong capital position, which allowed us to support our balance sheet growth and return capital to shareholders. During the quarter, we returned $1.2 billion of capital to shareholders through our common stock dividend and the repurchase of 500 million shares -- $500 million of our common stock with plan to target approximately $750 million of share repurchases during the fourth quarter.

In summary, our third quarter results were strong as the combination of improved revenue, disciplined expense and credit management, a robust capital return drove 130 basis points sequential improvement and our ROTCE to 13.6%. We do still have a lot of work to do. But our recent performance and the momentum I see across the company every day gives me confidence in our ability to reach a 15% ROTCE in 2027. I'll share more on how we plan to get there later in the call.

Before I hand the call over to Mike to discuss our quarterly results, I want to spend some time discussing the progress we're making on our strategic priorities and the positive momentum we're seeing within our business segments and with our digital strategy on slide 6. Let me first start with Consumer and Small Business Banking. I'm encouraged by another solid quarter of consumer loan and deposit growth, net new checking account growth and progress with our premier banking clients as we deepened relationships and acquired key new clients and households through digital and traditional channels.

Net new checking account growth remained positive in the third quarter with over 20,000 new consumer and small business accounts added, a key metric that reflects both the strength of our brand and the long-term growth potential of our company. We're attracting younger clients with greater median incomes, higher average balances, which aligns directly with our strategy to build enduring profitable relationships early in the client life cycle.

Average consumer and small business deposit balances increased modestly linked quarter and 1.9% versus the third quarter of 2024. Average loan balances increased 2% linked quarter and 7% versus the third quarter of 2024, driven by a significant increase in production. Premier banking continues to be a strategic growth engine. We saw significant increases in loan and deposit production per banker, reflecting deeper client engagement and improved productivity.

Our digital strategy is also delivering results. We continue to accelerate our performance with enhancements, increased production and accelerated client engagement positioning us to scale efficiently and meet evolving client expectations as seen with the success of our AI-enabled chat function Truist Assist.

Digital transactions rose 7% year-over-year and digital channels accounted for 40% of new-to-bank clients. Notably, Gen Z and Millennials represented 63% of this growth, a strong signal that our digital-first approach is resonating with the next generation of Truist clients. In Wholesale, I'm encouraged by this quarter's loan growth, improvement in investment banking and trading revenue and progress in key focus areas like payments and wealth.

Average wholesale loans increased 2.8% linked quarter and 4.8% year-over-year, driven by growth from new and existing clients and increased production. C&I growth was broad-based across industry banking verticals as this strategy continues to gain traction. We've seen consistent quarterly growth in balances fueled by new client acquisition across diverse sectors supported by strategic talent investments.

Year-to-date, we've onboarded twice as many new corporate and commercial clients compared to the same period last year, we're seeing higher revenue per client, a clear sign of deepening relationships. In Wealth, net asset flows remain positive and year-to-date AUM from wholesale and premier clients is up 27% versus the prior year, reflecting strong adviser productivity and overall client trust.

Our payments business continues to scale, launching new solutions that deliver speed, simplicity and security to our clients. These enhancements, along with targeted talent investments drove an 11% year-over-year increase in treasury management revenue.

Now let me turn it over to Mike to discuss our financial results in a little more detail. Mike?

Thank you, Bill, and good morning, everyone. I'm going to start with our performance highlights on slide 7. We reported third quarter 2025 GAAP net income available to common shareholders of $1.3 billion or $1.04 per share. Included in our results are $0.02 per share of restructuring charges, which are primarily related to severance.

Now moving to third quarter results. Adjusted revenue increased 3.7% linked quarter due to 9.9% growth in noninterest income and 1.2% growth in net interest income. Adjusted expenses increased 1% linked quarter, primarily due to higher personnel expenses related to incentives and strategic hiring efforts. Our asset quality metrics remain solid as net charge-offs declined on a linked quarter basis and on a year-over-year basis. Our CET1 capital ratio remained stable at 11% and our CET1 ratio, including AOCI, improved by 10 basis points to 9.4%.

I'll now cover loans and leases on slide 8. Average loans held for investment increased by 2.5% on a linked quarter basis to $320 billion due to growth in both commercial and consumer loans. Average commercial loans increased by $4.8 billion or 2.6% due to $3.7 billion of growth in C&I loans and $1.5 billion of growth in CRE loans, partially offset by lower commercial construction loan balances. In our consumer portfolio, average loans increased $3 billion or 2.5% linked quarter due to growth in other consumer, residential mortgage and indirect auto. The average loan yield remained relatively stable on a linked quarter basis.

Moving now to deposit trends on slide 9. Average deposits decreased $3.9 billion sequentially or 1% due to the mid-July withdrawal of $10.9 billion of short-term M&A-related client deposits that we've discussed previously. These deposits impacted the second quarter average balance by $10.9 billion and the third quarter average balance by $1.7 billion.

As Bill mentioned, many of our top business and growth initiatives are aimed at driving core client deposit growth. As a result, we're seeing accelerating momentum with clients and consumer and wholesale that will drive improved client deposit growth in the fourth quarter and in 2026. As shown in the chart on the bottom right-hand side of the slide, our cumulative interest-bearing deposit beta improved from 37% to 38% on a linked-quarter basis.

Based on our outlook for stronger client deposit growth in the fourth quarter and our expectation for two additional 25 basis points reductions in the Fed funds rate in October and December, we remain on track and confident in our ability to drive our interest-bearing deposit beta to the mid-40% area in the fourth quarter.

Moving to net interest income and net interest margin on slide 10. Taxable equivalent net interest income increased 1.2% linked quarter or $45 million, primarily due to one additional day in the third quarter, loan growth and fixed rate asset repricing. Our net interest margin declined 1 basis point linked quarter to 3.01%.

We expect net interest income to grow approximately 2% on a linked-quarter basis in the fourth quarter due to continued loan growth, growth in client deposits and a reduction in deposit costs following the September reduction in the Fed funds rate and our expectation for the additional two cuts during the fourth quarter.

These positive factors should result in net interest margin expansion in the fourth quarter as well. As you can see on the top right-hand side of the slide, we updated our outlook for the fixed rate asset repricing. We expect to reprice approximately $11 billion of fixed rate loans and approximately $3 billion of investment securities during the fourth quarter.

Based on our view of interest rates for the remainder of 2025, we anticipate that new fixed rate loans will have a run-on rate of around 7% compared with a run-off rate of closer to 6.4%. We may allocate a portion of the cash flows from the investment portfolio to support loan growth in the fourth quarter versus securities.

We also updated our swap portfolio disclosure on the bottom right-hand side of the slide. As of September 30, we had $105 billion of notional received fixed swaps and $28 billion of notional pay-fixed swaps compared with $90 billion and $29 billion, respectively, at June 30. During the quarter, we increased our notional received fixed swap position by adding additional forward starting received fixed swaps as part of our overall strategy to maintain a relatively neutral position to changes in rates relative to our baseline view.

Turning now to noninterest income on slide 11. Adjusted noninterest income increased $140 million or 9.9% versus the second quarter of 2025 due to strong growth in investment banking and trading income and wealth management income, partially offset by lower other income. Investment banking and trading income increased $118 million or 58% linked quarter to $323 million.

We saw improved performance across our platform with strength in debt capital markets and trading revenue. Based on our current pipeline and overall strong market activity, we remain optimistic about investment banking and trading income in the fourth quarter as well.

Wealth management income also experienced a strong quarter with fees up 7.5% linked quarter due to higher market values, positive net asset flows and new client acquisitions. On a like-quarter basis, adjusted noninterest income increased $75 million or 5.1% compared to the third quarter of 2024, primarily due to higher wealth management income and higher service charges on deposits due to greater treasury management revenue.

Next, I'll cover noninterest expense on slide 12. Adjusted noninterest expense, which excludes the impact of restructuring charges, increased 1% linked quarter due primarily to higher personnel expenses related to higher incentives and strategic hiring efforts. On a year-over-year basis, adjusted expenses remained well controlled and were up 2.4% due primarily to higher personnel expense.

Moving now to asset quality on slide 13. Our asset quality metrics remain strong on both the linked and like-quarter basis, reflecting our strong credit risk culture and the proactive approach we've taken to quickly resolve problem loans. Net charge-offs decreased 3 basis points linked quarter to 48 basis points and were down 7 basis points versus the third quarter of 2024 as we benefit from lower CRE losses on both a linked and like-quarter basis.

Our loan loss provision exceeded net charge-offs by $51 million, and our ALLL ratio held steady at 1.54% of total loans. Nonperforming loans held for investment increased 9 basis points linked quarter to 48 basis points of total loans. Second quarter nonperforming loans of 39 basis points benefited from the resolution of several problem loans resulting in NPLs declining to multi-quarter lows.

As you can see on the slide, the third quarter of 2025 level remained stable compared to the third quarter of 2024, which reflects a return to a more recent level. The linked quarter increase was driven by higher nonperforming C&I and construction loans, partially offset by a decline in CRE nonperforming loans.

Over the last week, there have been a number of questions about exposures to certain borrowers, including Tricolor and First Brands. Just to address it, Truist does not have any exposure to Tricolor. However, we do have exposure to First Brands, but this exposure is fully reflected in our loan loss reserve and our updated and improved 2025 net charge-off guidance.

Now I'll provide additional color on our guidance for the fourth quarter of 2025 and for the full year on slide 14. Looking into the fourth quarter of 2025, we expect revenue to increase by approximately 1% to 2% relative to third quarter revenue of $5.2 billion. We expect net interest income to increase approximately 2% in the fourth quarter primarily driven by loan growth and lower deposit costs.

We expect noninterest income to remain relatively stable linked quarter. Adjusted expenses of $3 billion in the third quarter are expected to remain relatively stable on a linked quarter basis. As it relates to buybacks, as Bill mentioned, we plan to target $750 million for the fourth quarter. For full year 2025, our outlook for revenue and expense growth is unchanged. Based on our current outlook for net interest income and noninterest income in the fourth quarter, we would expect annual revenue to come in around the midpoint of our 1.5% to 2.5% range.

In terms of our outlook for adjusted expenses, we continue to expect full year '25 adjusted expenses to increase by approximately 1% in '25 versus '24. On asset quality, we expect net charge-offs of 55 basis points in 2025 compared with our previous guide of 55 to 60 basis points. Finally, we expect our effective tax rate to approximate 17.5% or 20% on a taxable equivalent basis in 2025.

I'll now hand it back to Bill for some final remarks.

Thanks, Mike. As I mentioned earlier in the call, our recent performance, coupled with the strong momentum I see every day inside our company reinforces my confidence in our ability to accelerate growth and profitability over the near term. As you can see on slide 15, we expect to grow revenue in 2026 at a higher rate than we will grow revenue in 2025.

Although it's a little too early to provide specifics on the 2026 outlook, I'll say at this point, we expect the rate of revenue growth in 2026 to more than double versus our growth rate this year. We also expect to generate more operating leverage in 2026 than we'll generate this year. In addition, we plan to increase our share repurchase program in 2026 to $3 billion or $4 billion which is above the 2025 level as will now target a 10% CET1 ratio by the end of 2027.

Finally, these drivers and others should also accelerate our EPS growth rate beyond what we'll achieve in 2025. As I've discussed today, we're seeing solid progress in many of our key strategic focus areas, all of which I expect to accelerate over the near term and help us to achieve our previously stated goal of a mid-teens ROTCE which I'll discuss in more detail on slide 16.

As shown on slide 16, we're targeting a 15% ROTCE in 2027. A goal that reflects our confidence in Truist's long-term earnings power and strategic direction. We see multiple paths to stronger revenue and profitability. With focused execution, we believe these initiatives will deliver meaningful improvement over the next two years.

The key drivers outlined on the right side of the slide, include continuing to execute against our top business growth and profitability initiatives that I discussed on slide 6, continuing to drive positive operating leverage realizing the ongoing benefit from fixed asset repricing and accelerating share buybacks.

Much of our profitability improvement and growth potential is rooted in deepening relationships with existing clients particularly in wealth, payments, premier banking, investment banking and trading and corporate and commercial banking where we're already experiencing strong momentum.

In summary, I'm as optimistic as ever about Truist's future. I'm encouraged by the momentum we're seeing across the businesses and remain focused on executing with discipline, delivering for our clients and creating value for our shareholders. I want to pause and thank all of our teammates for their incredible focus, their productivity and their purpose-driven commitment to move Truist forward. As always, we appreciate your continued interest and support and we look forward to updating you on progress in the quarters ahead.

With that, Brad, let me hand it back over to you for Q&A.

Thank you, Bill. Betsy, at this time, can you please explain how our listeners can participate in the Q&A session. As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one brief follow-up in order to accommodate as many of you as possible today.

(Operator Instructions)

John Pancari, Evercore.

Good morning.

Good morning, John.

Just on your color that you gave around 2026. I appreciate all the detail there, particularly around the revenue expectations and the ROE. On the revenue front for revenue growth to more than double, can you possibly help us break that out a little bit, how you're thinking about the spread revenue component versus the fee revenue side? And then maybe within the spread revenue side, how you would think about the pace of balance sheet growth as you look at 2026 that would underlie that?

Yes, John, I'll start with that. So I mean, clearly, it's a component of all of the cylinders hitting. So NII growth is a key part of our revenue. So we have continued loan growth. We've got really good momentum on that side. I think we'll continue that at a pace that's not too far off from where we are today. As it relates to the deposit side, I think we're in a different part of the J curve there. So that's accelerating.

So you saw some of the activity on the client side and some of the momentum we see heading into the fourth quarter. There's some seasonality in that. So we'll have both loan and deposit growth, deposit growth better than this year and loan growth, probably a little more consistent. And then on the fee income side, I think also just continuing the fee income momentum that we've established in the last couple of quarters.

Okay. Great. And then the -- how you think about the breakout of that revenue growth when you look at overall spread revenue versus the pace of revenue growth you would see on the fee side, how are you thinking about that?

John, we're trying to avoid being -- we're shaping more than guiding, I think, for '26 at this point, obviously, still on the planning sort of cycle. I would say we wouldn't expect to remix, spread versus the income next year. I think with that in mind, it's likely that fees we're going to grow at a faster rate than NII will, but both have strong momentum going into next year.

Okay. Great. Thank you. And then just lastly, I know you had talked about the degree of positive operating leverage, accelerating over this year. Any way to help us frame that as well? I know you don't want to be too specific, but just trying to gauge how much of efficiency improvement is baked in, in terms of thinking about the momentum that you could see as you head into '26?

I'm afraid I'm going to let you down again. We don't want to be too specific, John. But I think the intention of the slide that Bill referenced was that we feel great about, at least twice the revenue growth, operating leverage this year, we expect to be around 100 basis points.

It should be higher than that next year based on what we see right now. Those factors combined should drive EPS growth higher as well and the buyback is obviously helping with the ROTCE journey. So I think that was the intent there. And sorry, not to be more specific at this point.

No. No, that's fine. We can go off the graphic, I guess, on page 15 and make an estimate based on that, but thank you, I appreciate the color.

Yeah, you got it.

Scott Siefers, Piper Sandler.

Good morning, guys, thank you for taking my question. Let's see. So Mike, I was glad to see the interest-bearing deposit costs come down a couple of basis points. That was a nice sort of inflection, sound optimistic on the outlook into the fourth quarter.

And then, Bill, your comments were all very constructive on to overall growth into next year. Just curious if you can expand upon -- so the options you see with deposit pricing now that the Fed is lowering rates again, and that's sort of what gives you confidence on that growth momentum into next year as well?

Mike, why don't you do the pricing, and I'll do the growth? How about that?

Yes. Yes, that's fine. Good morning, Scott. I'd say on the pricing side, we feel pretty good about -- you mentioned, we saw a touch of momentum in the third quarter. We actually -- as you'll recall, back in the second quarter, we were actually hoping and maybe expected to be closer to 40% on the beta in the third quarter versus the 38% we got.

So -- but the good news is we're off to a pretty good start in the fourth quarter as well. I mentioned we thought we could get to sort of the mid-40s and that takes into consideration some of the momentum that we are seeing now based on the September cut as well as the October cut, which is going to be more important, of course, for the year than December. But that should drive some nice benefit for us in terms of both NII and our margin in the fourth quarter.

And we would expect that to continue into 2026. And it's not just -- some of that's taking advantage of some of the psyche and getting some help on rates, but there's also some mix that we're focused on, and maybe that's a good segue to talk to Bill about some of the momentum we're seeing on the balances with core client deposits.

Yes. So Mike, you talked a little bit about the pricing side and increase in betas. And -- but on the momentum side, I mean, we saw some end-of-period growth in client deposits. We see existing momentum in some key markets, think about Miami, D.C. and some others [from us] and then really accelerated growth in markets like Pennsylvania and Texas, where we've -- we're growing at disproportionately faster rates.

And then we look at -- I look at sort of what are the leading indicators of deposit growth. And if you think about for us, leading indicators of things like net new. So we're bringing in a lot of new clients that we have a chance to deepen relationships with. Those balances are higher than they've historically been.

We look at the premier production. We talked about that. Premier production is up almost 30%. So they've got the engine running there. And then look at treasury management pipelines. Their pipelines are up really significantly. Treasury management up double digits, new clients in wholesale, 60% of our new clients have awarded us a payments product, and some of those haven't funded yet.

So I look at all these as sort of the leading indicators of deposits, enhanced marketing, onboarding. And then I talked about the branch commitment long-term. So we're also building not only for the short-term within this cycle but ensuring that we've got really good market presence and capacity to grow over the long-term in the deposit cycle. Hopefully, that's helpful.

Yes. No, that's great. I appreciate all that. Maybe separately, Bill and Mike, I think you both have been pretty clear that you all are focused organically. Just curious for any updated thoughts or your thoughts on M&A changed at all now that the ground is sort of shifting a bit in the large regional space given some of the transactions we've seen over the last 90 days or so.

Yes. I mean, we think the best place for us to focus is Truist. And if we think about the opportunity to increase shareholder value and provide really great returns for us to really stay focused and highlighted on Truist. That being said, I mean, we're just like ultra competitive right now. I mean, we've never been more competitive. And we've got great teammates on the field. We've got product and capability. We've outlined this growth pattern, where we are today to the return. So I am all Truist, all the time.

Perfect. Okay, good. Thank you, guys, very much. I appreciate it.

Erika Najarian, UBS.

Hi, good morning. In terms of the walk, Bill, to 15% ROTCE, what they think is the appropriate efficiency ratio underneath the surface? I'm sure we could all do the math but just wanted to hear from you in terms of where you want this efficiency ratio to go from the 55.7% as you think about the medium-term.

And you mentioned that you're being ultra-competitive. There could be deal making, if you're super focused on Truist could also lead to opportunities for you. So how do you balance optimizing efficiency with potentially being more aggressive at taking advantage of some of the consequences and fall out from the deal making in your footprint?

Yes, Erika, on the efficiency ratio side, I mean, that's not going to be the biggest driver of the walk. I mean the biggest driver -- we'll have some marginal improvement in the efficiency ratio. But quite frankly, we're not going to guide to that or manage to that because to your point, we have a lot of opportunity for growth.

And that's where you're going to see us continuing to invest. We outlined those opportunities in CSBB and Wholesale, and I think they're significant. And we're not investing in response to; we're investing relative to opportunity. So we've got a lot of opportunity. We want to be the most competitive player in our markets.

And that's -- and so we're going to continue to invest in that regard. And then we're going to be driven by growth. We're going to be driven by operating leverage, and we're going to be driven by return.

Got it. And just a follow-up question for Mike. As we think about more than doubling your revenue growth in '26, so that's clearly better than 3% to 5%, which is what -- the double of what the '25 revenue growth is. How should we think about the trajectory of the net interest margin in that context relative to the cuts in the curve?

Yes, Erika, just to clean it up a little. If you look at our outlook, we mentioned in our prepared remarks that we expect revenue to grow in the fourth quarter, 1% to 2%, which puts us at the midpoint of our range, which is 2%. As it relates to the net interest margin, we would expect progress in the fourth quarter with the cuts in October and December that I mentioned to Scott a moment ago, we would expect to see continued progress in '26 and in '27. Again, that's -- there's a lot of assumptions around the backdrop there.

But with the operating environment that we see today and with the curve as we see it today, we'll make progress in '26 towards that kind of three teens number that I've talked about a little bit. And I think we're there in '27. And that will be an important driver, as Bill mentioned, in terms of the business initiatives and the ROA profile that should continue to evolve and improve that net interest margin, which, again, is going to be driven by a number of things.

Erika, it's going to be the sort of structural under-earning on the balance sheet around fixed rate asset repricing. We expect a profitable loan and core client deposit growth to help improve and drive the margin. So we're hiring bankers, expanding businesses. So I think we've got a lot going for us as we think about NII and NIM trajectory over the next couple of years.

And that's going to be a really important part of the ROA improvement story, which, coupled with a touch of improvement on efficiency, as Bill mentioned, plus the fee business momentum we have, plus a little bit of buyback, we think, is what gives us the confidence that 15% is going to be achievable in '27.

And just to clean up the message just because it's a very crowded earnings day, I want to make sure we're taking away the right thing. When Bill said the rate of revenue growth to more than double in '26 versus '25, are we looking at the full year '25 outlook on slide 14?

Yes.

So it's more than double 1.5 to 2.5, not more than double 1 to 2. I know it sounds like teeny tiny, but it's important for investors to clarify.

Yes. I think, Erika, what -- and maybe take us directionally versus literally. I think Bill is looking at 2% for '25 and saying that literally, it will be more than twice that. So call it (inaudible).

Got it. Thank you.

Ken Usdin, Autonomous Research.

Hey, good morning, guys. I wanted to ask, you mentioned that you've got some fixed rate benefits into the medium term. And just wondering if you could kind of flesh that out a little bit. You can see that the loans are getting about 60 basis points in the fourth quarter. But what's the benefit you have as you look further out in terms of the magnitude that you see rolling over the next couple of years that will help that NIM trajectory?

Yeah, good morning, Ken, no, you've got it right. I mean, in the fourth quarter, we gave you sort of the 7% run-on versus the 640 and the bonds may be a little bit better than that in the third -- or pardon me, in the fourth quarter. On the loan side, especially, we would expect for that to begin to diminish.

I mean that's going to be, I think, a nice tailwind for us in '26, but a diminishing tailwind with perhaps a long tail, but the overall magnitude of the improvement will diminish over time. And that's really driven by two factors. One, a lot of the loans that are repricing for us are in that sort of consumer lending platform.

Those are generally pretty short assets with lives in the 2.5 to 3-ish year's range. So you've got some churn that's been happening already over the last couple of years. And so to some extent, that's playing itself out. And then on the other hand, you've also got -- most of our term exposure is in sort of the two- to three-year part of the curve, sort of the shorter end of the belly of the curve.

And with that part lower, you're starting to see -- and we'll begin to see, at least we assume lower run on rates. So, will it continue to be a benefit? It will. It's -- and if you think about it more in terms of like the yield on that portfolio, let's call it $135 million ballpark $1 billion fixed rate loans that we think about.

You're going to get a few -- a couple maybe basis points a quarter of improvement on the yield, and then that will diminish. Same thing on the bonds. It -- and we've got some different vintages based on different maturities and speeds there. But we would expect that benefit to diminish a touch as well throughout the course of next year as you see the belly of the curve and maybe the longer end of the belly lower as well.

The other thing to note, just on the bonds as you're looking at our yields, on the securities. We do also have the phenomena that our payers, which received SOFR are going to feel some pressure as the funds rate gets lower. So you might see the gross yield, which is what we show you on that NII disclosure page. The growth yield should continue to march up, but the yield, including the hedge will actually show some pressure as those payers are less in the money.

Great. That's great color. And just one quick one. It's great to see the IB and trading kind of get back to that level where it had been previously. Just wondering if you could flush out like where the drivers were and just obviously, market dependent, what kind of trajectory could we think about going forward?

Yes. And I think the way you characterized it is right. I mean we're sort of back to that kind of level that we think is sustainable. And the good news, it was on a lot of cylinders. So we hit on a lot of the cylinders of our business. Pipelines, to your other comment, are actually quite strong. We have a lot of awarded business in the M&A side for the fourth quarter.

So we're sort of overall confidence that this trend can continue. This has been a business that has historically grown at low double-digit kind of CAGR over time. And I think over time, that continues to be that opportunity. We have a lot of new teammates that know how to leverage this capability.

And that's what's fun to see. I mean, sort of what gives me more optimism for the future is just see how we're becoming more relevant to clients. In the early part of that, you see that in FX and derivatives. In the longer term, you see it in more of our advisory business and M&A and equity capital markets and other components, debt capital markets or the other components. So good quarter, all cylinders, good pipelines and really good leading indicators in terms of how our team is utilizing these resources that we have.

Okay. Thanks, Bill.

Ebrahim Poonawala, Bank of America.

Hey, good morning.

Good morning.

I just had maybe, Bill, and I think we have, Brad, on the call as well. I would love to get sort of your views on -- from a credit quality perspective, where things stand, both given kind of your businesses in terms of direct consumer lending, even on the subprime side? Just give us a health check on where you see credit quality on the consumer side?

And then when we look at like nonaccrual C&I loans, NDFI or non-NDFI, do you see credit at the precipice of material deterioration, but that's how the market has been trading these stocks over the last couple of days? So I would love your perspective on both those.

Thank you.

Yes. Maybe go -- let me go sort of like really high level. And then I'm staring at Brad, I'll bring it down a little lower level of Brad and try to sort of go around the horn because you asked -- you had a lot in your question. I can say, overall, credit quality is strong. So let me sort of start with that as a premise. We have seen in the market some -- I would say today, sort of idiosyncratic and uncorrelated events.

But that being said, just like remember, I mean, the number one risk for a bank is credit risk. And just like we're vigilant about that. We have been in the past. We're hypervigilant today and will be hypervigilant tomorrow. So, these are important components. You talked a little bit about NDFI and so maybe it's probably worth like diving in there just a little bit. Our largest exposure on the NDFI side is REITs and asset securitization. That's 50% of our NDFI portfolio.

So we know that they're different by institution. And then everything else that's in those categories, capital calls, leasing, BDCs, mortgage warehousing, they're all sort of single-digit part of the overall portfolio. So highly, highly diversified 20-plus asset classes, low interconnectedness, which has sort of been the spirit of that portfolio and Truist overall. Maybe with that, let me turn to you, Brad, and then if there is anything I want to clean up, we can do that.

Yes. Thanks, Bill, and good morning, Ebrahim. So I'd say I'll hit your -- I'll build on the NDFI really quickly. So I think for us, we take a very client-centric approach. It is, to Bill's point, high-quality, diversified collateral with strong structural protections, and we take a dogmatic risk-adjusted return approach across the differentiation of those asset classes.

I think in your consumer questions, particularly around the subprime, as a reminder, the majority of our subprime sits only in our auto portfolio. On the rest of the consumer portfolio, it's a very marginal amount. The majority of our consumer portfolios are high-quality super-prime borrowers.

We derisked in '23 and '24 on the lower end of the consumer spectrum. And so that was an intentional decision that we made. It's also reflective in the results that you see this quarter. And that's really where we're going to continue to focus is how do we drive high-quality assets, both in the wholesale and the consumer space.

Got it. I'll just leave it at that. Thank you both.

Matt O'Connor, Deutsche Bank.

Good morning. Just wanted to come back to the capital levels and buyback commentary and just get a sense of -- if there's flexibility to kind of lean on the buybacks, we're obviously seeing some selloff in the market here. And two days might not be enough to make you want to lean in, but if there's more pressure, broadly speaking, it seems like you've got the capital that you could do more if you wanted to.

Yes. I mean, I think, Matt, we want to be on a steady pattern. We don't sort of want to, I think to your point, reacted two days' worth of market volatility. But that being said, this is a great time. We've got ample capital. I think we've got a really good [slight] path. We do have the flexibility.

I think, think about $750 million sort of think about that as a floor, so to speak. And then we've got capacity to increase that as we go along, all while keeping, we think, an appropriate and conservative capital structure, but we wanted just to define the speed and the slope to get to that 10% CET1.

Okay. That's helpful. And then just a real question here. Just the loan growth, you had a lot in commercial real estate, and we've heard about some refinancings away from the banks there, but just wondering what drove about, again, not huge, but $2 billion increase off of the $20 billion in the quarter?

Yes. A lot of that is sort of we had a decrease to have an increase. So some of that was just an inflection point. And then in that CRE, I think a lot of what we talked about earlier, REITs, think about a lot of the shorter duration, long-term relationships with a lot of capital markets business associated with them. So it's a little more of an inflection than an actual relative long-term increase.

Prepayment slowed.

I'm sorry, yes, prepayment slowed, yes.

Okay, thank you.

Chris McGratty, KBW.

Good morning.

Good morning.

Just a quick clarifying question on the nonaccrual loans in C&I, which went from $520 million to $800 million. In your prepared remarks, you talked about the First Brands exposure. Is that contributing to that? I know you said you had reserved against it. I'm trying to see where this lies, and it's been charged off?

Thank you.

Yes. Chris, it's Brad. So I'll hit that really quickly. So as a reminder, we had outsized resolutions in the second quarter. And so what you're seeing is a return to recent levels. Yes, First Brands is captured within that. It was an appreciable amount of it. It wasn't the whole of the increase. But that $48 million sort of matches what you saw 4Q, 1Q in previous periods.

Okay. And then the message is that increase has been reserved for?

We've got it accounted for in the forward guide.

Perfect. And then just clarifying slide 16, which is again the ROE target. I think it's great to see the formalization of 15%. Is the message you're sending on '27, we're going to get there on the full year or at some point? I know it's a little bit of a nuance.

Yes. I think we're going to get there on a full year basis. So that's the message.

In any one quarter, you're going to have some fluctuation, but yes, for the full year.

Okay, thank you.

Betsy Graseck, Morgan Stanley.

Hi good morning. Can you hear me, okay?

Yes, good morning, Betsy.

Okay. So I just want to make sure I understand what we just said, which is the First Brands estimated credit impact is in the forward guide, meaning it's not embedded in this quarter that just reported?

No. Yes. So Betsy, it's Brad. It is accounted for in the quarter just reported and then the forward guide from an NCO, if there are implications there that play out. But we're early in that process. Yes. So accounting for an NPL and then forward guide on NCO.

Okay. Got it. And then I just also wanted to understand how you're thinking about the underwriting in this environment. Does it change at all? And I'm asking with context to C&I has been doing better, obviously accelerating a little bit.

And can we expect to have that kind of acceleration continue here? Or is there a change in underwriting style path due diligence that would perhaps slow it down a bit as we move into '26?

Yes. I mean I'll start with that. I mean we're vigilant and diligent in our underwriting. And as I said earlier, we have been, are and will be, so maybe that doesn't change from that perspective. Brad highlighted though on the consumer side, I mean, we made some adjustments, quite frankly, in the last 18 months as it relates to that portfolio, just ensuring that our portfolio on the unsecured side particularly stays super prime and allowing for that, and you see that in some of our results.

So that was -- that was a marginal change on that point as it relates to the wholesale side. The key for us is just to have a really diversified portfolio. So we have a lot of discipline around the diversity. So I don't think that changes, but it does accentuate the fact that we just want to have a really diversified portfolio and sort of every way that you can measure and define a diverse portfolio. We think that's inherently the strength of Truist.

If you look at sort of any category, Betsy, that you might say, gosh, this is something I'm worried about or thinking about and we index low on all of those. I mean that was the advantage of creating Truist is creating this highly diversified portfolio. So we're going to -- if we have anything, it's going to be continued discipline around that diversity. And I don't think that lowers our growth opportunity. It actually increases the opportunity because we have so much diversity.

Thank you.

Steven Alexopoulos, TD Cowen.

Morning everyone.

Good morning, Steve.

I wanted to start -- I want to go back to Ebrahim's question on NDFI. So I know this has become the topic [du jour] on these banks' earnings calls. And journalists listening to this conversation are dumping out of regional banks on fears that, that portfolio is loaded with cockroaches.

When you guys look at the totality of your loan exposures, where do you rank the risk of the NDFI portfolio, below average, average or above average? And do you think the market is right at this point in time to be scrutinizing that portfolio?

Yes. Maybe I'll hit it really quickly for you. So today, we sit at about 11% of our total lending portfolio. That ranks us as of [6/30] on the published data that puts us ninth out of 11. So I think back to Bill's point, well diversified, granular and then underweight relative.

And so on how we think about this from a long-term standpoint, I think these are long tenured relationships with global financial institutions across 20 asset classes for us. We have sublimits and top of the house limits in place to ensure we maintain credit discipline, and we will continue that on a forward basis.

Yes. Look, and relative to where it fits, I mean, this is -- if you think about the high percentage of ours being REITs and asset securitization, this is an investment-grade looking portfolio which we have really good returns against so -- and really good risk-adjusted returns. So we have the capacity and capability with our tools and things that we can do from a capital markets perspective, that these are just long-tenured clients.

We've -- we don't think about this as an NDFI strategy. Maybe that's maybe the best framework to start. This is a client strategy that gets counted in an NDFI category. And so these are businesses that we've been in for a long time and have a lot of confidence in going forward.

Okay. But it sounds like because you're pointing out that you have lower exposure versus peers that you do think this is a problematic portfolio for the industry, right? Otherwise, you wouldn't be pointing out it's well below peers in terms of your exposure.

No. I think we're pointing out well below peers, back to my diversity comment. So if you have a lot of diversity, you have a diversity of risk, but you also have diversity from opportunity. So we have an opportunity to grow things that have smaller percentages and it also mitigates our risk. So diversity is a two-edged sword that I think we use wisely.

Got it. And finally, so if we go back to where we were three months ago, we've now had Tricolor, First Brands in this Cantor loan called out by Zions. Do you guys -- I'm curious, the way you look at your loan portfolio, do these represent an inflection point in the credit outlook for the industry compared to where we were three months ago?

I think it's early to call it at that level, I would say this is certainly an opportunity, and we'll go back and look at all as we do with any external events, what occurred, what are the implications. But it would be early to call it an inflection point. Our performance to date isn't demonstrating that across our portfolios, and we're not seeing that on a broad base.

Okay. Perfect. Thanks for taking my questions.

Gerard Cassidy, RBC.

Hi Bill. Hi Mike.

Good morning.

Bill, I'd like to go back to your comments when you opened up about the new branches being AI -- integrating AI into these branches. Can you share with us how are we going to be able to measure the success that this AI infiltration into the banking industry and you guys in particular, as you tap the potential of these investments, how do you think it's going to manifest itself to us outsiders, where we could say, wow, Truist is way ahead of the curve compared to their peers?

Yes. It's a great question. And I think what -- today, we talk about AI like it's something separate. Like we used to talk about the Internet, as something separate. I think AI is just going to be the fuel. So we're not going to talk about it being separate. And the way you're going to see the successful companies implementing AI is -- does it reflect in their business? Does it reflect in more efficient? Does it reflect in that we're growing at a higher level?

And I look at all the use cases that we have across the company and they're all in those categories. I mean, there are places that are going to make us incredibly more efficient. There are places that are going to make us really, really more client-centric, and you noted that as it relates to the branch placed. There are places that are going to help our overall revenue growth and sales productivity. So it's all in those categories.

So I think we're not going to say this AI contributed this amount to the efficiency ratio or this amount to revenue growth. I think that's actually sort of hard to do. But if you're getting disproportional growth and disproportional efficiency as a result of AI, I think that's where we're going to end up talking about this. So I'm really optimistic about what AI can do to help us accelerate everything that we talked about. So our ROTCE walk, I'd say, is fueled by AI is maybe a good way to think about it.

Very good. And then just as a follow-up, I apologize, beating up on credit, but you guys have demonstrated that you're one of the better underwriters out there. So coming back to the First Brands, I'm curious, Brad, the size of that exposure, how big was it? But second, just how did you guys get involved? If you could just give us some color on your thinking of that relationship?

Yes, Gerard, happy to hit it. Look, it's early. As you know, we don't normally talk specifically about clients. So we are in it with a broader base. Overall, the exposure is less than $200 million for us, but it would be early for us to get into the details of that.

Understood. No, I appreciate that, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Milsaps for any closing remarks.

Okay. Thank you. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you may now disconnect the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.