TRUIST FINANCIAL CORP Q2 2025 earnings call

Thank you, Betsy, and good morning, everyone. Welcome to Truist's Second Quarter 2025 Earnings Call. With us today are our Chairman and CEO, Bill Rogers, our CFO, Mike Maguire, and Chief Risk Officer, Brad Bender, as well as other members of Truist's Senior Management Team. During this morning's call, they will discuss Truist's Second Quarter results, share their perspectives on current business conditions, and provide an outlook for 2025. The company 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 two and three 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.

Great. Thanks, Brad, and good morning, everyone, and thanks for joining our call this morning. Before we discuss the second quarter results, let's begin like we always do at Truist with purpose on slide four. At Truist, our purpose is to inspire and build better lives and communities. It's more than a statement. It's the foundation of our strategy. It's the lens through which we make decisions and the reasons teammates show up every day with conviction and care. In the second quarter, we continue to bring this purpose to life in meaningful ways. We welcome a dynamic slate of new leaders across our company, reinforcing our commitment to attracting top talent to our already highly experienced and very capable teams. These leaders were attracted to our purpose-driven culture and are already making a meaningful impact, strengthening our presence in key growth markets and expanding our capabilities across high-potential verticals.

From sector-specific coverage to commercial and middle-market banking to small business, wealth, premier banking, and payments, our teams are deepening client relationships, driving new business, and positioning Truist for the long-term sustainable growth, all of which were evident in these second-quarter results. On slide five for the second quarter, we reported net income available to common shareholders of $1.2 billion, or $0.90 a share, which included $0.02 of restructuring charges related to severance and $0.01 of losses from the sale of certain investment securities. At a high level, our solid performance in the second quarter reflects the diversity of our business model and the execution of many of our strategic growth initiatives that we've been discussing now for several quarters. These initiatives include accelerating growth through the addition of new clients and deepening existing client 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 second quarter, average loan balances increased 2%, and end-of-period loans increased 3.3% in the quarter. Growth was broad-based across our consumer and wholesale segments and driven by increased loan production and new client acquisition. Our lending pipelines remain strong, and overall loan production is up significantly year over year. Growth should also benefit from our expansion efforts in markets where we have a smaller but growing share and from many of the new teammates that have joined our company. This quarter's loan growth helped offset the equity and debt market volatility that occurred early in the quarter. This volatility impacted trading, capital markets, and M&A activity for the industry, resulting in lower revenue for investment banking and trading businesses.

As you've heard me discuss previously, I'm confident that our advice-driven business model is well-suited to help our clients navigate current market conditions and continue to grow our share, given the ongoing investments we're making in talent, products, and industry verticals. We believe that our investment banking and trading business is well-positioned for a second-half recovery, as we saw steady improvement in overall investment banking revenue in each month during the quarter. Adjusted expenses did come in at the high end of the expected range, but we remain confident in our ability to deliver our 1% expense growth target and positive operating leverage in this year. That includes the impact of ongoing investments in talent and technology. We also maintain strong asset quality metrics, as both non-performing loans and net charge-offs were down nine basis points late quarter.

In addition, we also received favorable results from the Federal Reserve's annual stress test. We expect that our stress capital buffer will decline and be floored at 2.5% effective October 1st. Finally, we remain in a strong capital position, which allows us to support our balance sheet growth and return capital to shareholders. During the quarter, we returned $1.4 billion of capital to shareholders through our common stock dividend and the repurchase of $750 million of our common stock. Our share repurchase activity in the second quarter included $250 million of repurchases above our recent $500 million quarterly target, as we opportunistically took advantage of market volatility and weakness in our share price early in the quarter. We do plan to target approximately $500 million of share repurchases during the third quarter.

Before I hand the call over to Mike to discuss the quarterly results, I want to spend some time discussing the progress we're already making on our strategic priorities and the positive momentum we're seeing within our business segments and with our digital initiatives on slides six and seven. In 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, which is a key measure for the growth potential and health of our company, was once again positive in the second quarter as we added nearly 37,000 new customers, new consumer, and small business accounts.

Importantly, we're attracting younger clients with higher average balances and greater median income, which aligns with our strategy to engage clients early and build enduring relationships over time. Average consumer and small business loan balances increased 2.8% late quarter, and end-of-period balances increased 3.8% due to growth in residential mortgage, indirect auto, and other consumer, with production up significantly year over year. Over the last year, we've added significant numbers of new partners and dealers to our Service Finance and Sheffield platforms, which is helping drive the growth in other consumer loan balances. We also saw a significant increase in loan and deposit production per banker in our premier banking segment, which is a key area of strategic focus. We're growing while also maintaining our credit and pricing discipline.

Consumer net charge-offs of 71 basis points reached their lowest level since the third quarter of 2023, and new production spreads remained accretive to the overall portfolio. In wholesale, I'm encouraged by this quarter's loan growth, improved production, and progress in key focus areas like payments and wealth. During the quarter, we saw 1.5% growth in average wholesale loans and 2.9% growth in end-of-period loans, driven by growth from new and existing clients and increased production. Average C&I growth was driven by all of our industry banking groups, with particular strength in FIG and energy, middle market lending, and structured credit. As I've mentioned previously, we have a specific focus on capturing more of the middle market. We've seen these balances increase in each quarter this year, driven by new clients in a wide variety of industries and in targeted select geographies where we continue to expand.

Year to date, we've attracted twice as many new corporate and commercial clients to our platform compared with the same period a year ago, while we're also seeing a 40% increase in revenue per client. In wealth, net asset flows were positive despite volatile equity and fixed income markets, as we saw a 27% increase in year-to-date AUM from wholesale and premier clients compared with the same period a year ago. Our payments team continues to launch new services that meet our clients' needs for solutions that provide them with speed, simplicity, and safety. During the second quarter, we also experienced more digital innovation. Truist became the first financial institution to approve requests for payment over the RTP network via an alias such as a cell phone or an email address.

This innovation is designed to unlock meaningful value for both commercial and consumer clients, accelerating cash flow, improving reconciliation, and delivering real-time confirmations. These enhancements, along with continued investments in our team, have driven a meaningful increase in treasury management penetration rates with our existing clients and helped drive a 14% increase in treasury management revenue versus the second quarter of last year. Enhancing the client experience and growing our digital capabilities are also important parts of our strategy. Let me discuss that in detail on slide seven. We continue to see strong momentum in our digital strategy with meaningful progress, platform integration, engagement, and production. In the second quarter, digital account production rose 17% year over year, with 43% of new-to-bank clients joining us through digital channels, a 900 basis point increase versus the second quarter of last year.

This momentum reflects investments we've made in our digital platform and improvements we've made to the digital onboarding experience. A key milestone this quarter was fully integrating Lightstream lending products into our digital platform under the new Lightstream by Truist brand. This integration expands access to lending solutions for all Truist clients and further strengthens our digital offering. We're also seeing deeper engagement across our digital platform. More than 1.8 million clients are now using our digital financial management tools, and that's a 40% increase from last year. Together, these results highlight the strength of our digital foundation and our continued focus on delivering value, operating efficiently, and deepening client relationships. We expect to continue growing our digital presence with clients as we further leverage our modern and scalable technology platform. Now, let me turn it over to Mike to discuss our financial results in more detail. Mike.

Thank you, Bill, and good morning, everyone. I'll start with our financial performance highlights on slide eight. We reported second quarter 2025 GAAP net income available to common shareholders of $1.2 billion, or $0.90 per share. As Bill mentioned, included in our results are $0.02 per share of restructuring charges, which are primarily related to severance. In addition, our results included an $18 million pre-tax loss or $0.01 per share after-tax related to the sale of $398 million of lower-yielding investment securities. We invested the proceeds from the sale into higher-yielding investment securities and anticipate an Earnback of approximately two years. Moving now to Q2 2025 results. Adjusted revenue increased 2.1% linked quarter due to 2.3% growth in net interest income and 1.8% growth in non-interest income. Adjusted expenses increased 3.1% linked quarter, primarily due to higher personnel expenses related to annual merit increases and strategic hiring efforts.

As Bill mentioned, our asset quality metrics showed improvements with non-performing loans and net charge-offs declined on a linked quarter basis and year-over-year basis. Next, I'll cover loans and leases on slide nine. Average loans held for investment increased 2% on a linked quarter basis due to growth in both average commercial and average consumer loans. End-of-period loans increased $10.2 billion, or 3.3%, split evenly between commercial and consumer loans. Average commercial loans increased $3 billion, or 1.6%, due to $3.3 billion of growth in C&I loans, partially offset by modest declines in CRE and commercial construction loan balances. In our consumer portfolio, average loans increased $3.2 billion, or 2.7% linked quarter, due to growth in residential mortgage, indirect auto, and other consumer.

Other consumer loans, which primarily include Sheffield and Service Finance, are typically seasonally strongest in the second and third quarters of the year, but are also benefiting from new partners and dealers added to the platforms throughout the course of the year. Moving to deposit trends on slide 10. Average deposits increased $8.3 billion sequentially, or 2.1%, driven by growth in interest checking, time deposits, and non-interest-bearing demand. Average deposit balances were impacted by $10.9 billion of short-term client deposits that we discussed on last Quarter's Earnings Call. These deposits remained on our balance sheet for the entire quarter but have since been withdrawn. Excluding the impact of these deposits, average deposit balances would have been down slightly on a linked quarter basis.

As shown in the chart on the bottom right-hand side of slide 10, our cumulative interest-bearing deposit beta declined from 43% to 37% on a linked quarter basis. If you were to exclude the impact of the two larger short-term deposits, the rate paid on interest-bearing deposits and our cumulative interest-bearing deposit beta would have been relatively stable. Moving to net interest income and net interest margin on slide 11. Taxable equivalent net interest income increased 2.3% linked quarter, or $80 million, primarily due to the impact of loan growth, fixed rate asset repricing, and one additional day in the second quarter. Our net interest income, or margin, increased one basis point on a linked quarter basis to 3.02%. As you can see on the top right-hand side of the slide, we updated our outlook for fixed rate asset repricing.

We expect to reprice approximately $27 billion of fixed rate loans and investment securities over the remainder of 2025. Depending on the level of loan and deposit growth in the second half of 2025, we may opt to use cash flow from the investment portfolio to fund a portion of our loan growth for the remainder of the year. Based on our current 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 approximately 6.4%. We also updated our swap portfolio disclosure in the bottom right-hand corner of the slide. This reflects a small increase in our receipt fixed swap program from the prior quarter. Turning to non-interest income on slide 12.

Adjusted non-interest income increased $25 million, or 1.8%, versus the first quarter of 2025, as growth in our other income was partially offset by lower investment banking and trading revenue. The linked quarter increase in non-interest income was primarily attributable to an $83 million increase in other income related to higher NQDCP income, which is offset by personnel expense and income from certain equity investments and other investments that were lower in the first quarter of 2025. Investment banking and trading income declined $68 million, or 25% linked quarter, reflecting weaker trading results, lower capital markets activity, and lower M&A volumes during the first half of the second quarter. Early in the quarter, our trading business, which primarily supports our investment banking franchise, incurred losses driven by market volatility.

The month of May was much improved, and June was more consistent with the performance we have historically experienced in this business and would expect to perform for the remainder of the year. As Bill mentioned, we also saw improvement in investment banking in the second half of the quarter, and we remain optimistic about investment banking and trading revenue improving in the second half of 2025, based on our current pipeline and an improvement in overall activity. On a linked quarter basis, adjusted non-interest income declined $20 million, or 1.4%, compared to the second quarter of 2024, primarily due to lower investment banking and trading income and lower wealth management income due to the sale of Sterling Capital Management in July 2024. Next, I'll cover non-interest expense on slide 13.

Adjusted non-interest expense, which excludes the impact of restructuring charges, increased 3.1% linked quarter, due primarily to higher personnel expenses related to annual merit increases and strategic hiring efforts. On a year-over-year basis, expenses remained well controlled and were up 2.1%, due primarily to higher professional fees and outside processing expense related to ongoing investments in technology and in our risk infrastructure. Moving now to asset quality on slide 14. Our asset quality metrics remained strong on both a linked and year-over-year basis, reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. Net charge-offs decreased 9 basis points to 51 basis points linked quarter, and we're down 7 basis points versus the second quarter of 2024, as we benefited from lower consumer and CRE losses on both a linked and year-over-year basis.

Our loan loss provision exceeded net charge-offs by $92 million, but improved outlook for loss rates in certain portfolios like CRE Office and Multifamily contributed to a 4 basis point decrease in our ALLL ratio to 1.54% of total loans. Our CRE Office portfolio, which represents just above 1% of total loans, declined almost $500 million linked quarter on an end-of-period basis. Non-performing loans held for investment, as a percentage of total loans, decreased 9 basis points linked quarter and 7 basis points on a year-over-year basis to 39 basis points of total loans. We saw linked quarter improvement in several categories, including CRE and C&I non-performing loans, which helped drive our non-performing loan level to multi-quarter lows. Turning to capital on slide 15.

On a linked quarter basis, our CET1 ratio declined 30 basis points to 11%, as balance sheet growth, $750 million of share repurchases, and the payment of our common dividend more than offset current period earnings. Our CET1 capital ratio, including the impact of AOCI, declined 30 basis points linked quarter to 9.3%, reflecting the aforementioned factors. During the quarter, we also received favorable CCAR results, resulting in a 50 basis point decrease in our total loss rate. And a 90 basis point decrease in our CET1 erosion rate. As a result, we anticipate our stress capital buffer to decline 30 basis points and to be floored at 2.5% effective October 1st. At June 30, our CET1 ratio was 400 basis points higher than our new regulatory minimum of 7%, leaving us well positioned to both grow our balance sheet and return capital to shareholders.

Next, I'll provide additional color on our guidance for the third quarter of 2025 and for the full year. That's on slide 16. For full year 2025, our outlook for revenue and expense growth is unchanged. We continue to expect revenue to increase 1.5%-2.5% relative to 2024 adjusted revenue of $20.1 billion. Net interest income remains on track to increase 3% in 2025 versus 2024. Our net interest income outlook assumes low single-digit average loan growth and two 25 basis point reductions in the Fed Funds rate in September and December, compared with three previously in June, September, and December. We expect non-interest income to remain relatively flat in 2025 versus 2024.

In terms of our outlook for adjusted expenses, we continue to expect full year 2025 adjusted expenses to increase by approximately 1% in 2025 versus 2024, which is also unchanged from our previous guidance and continues to imply positive operating leverage of approximately 50-150 basis points. In terms of asset quality, we expect net charge-offs of 55-60 basis points in 2025, compared with 60 basis points previously. Finally, we expect our effective tax rate to approximate 17.5%, or 20% on a taxable equivalent basis in 2025, compared with 17% and 20% previously due to a lower contribution from non-taxable income and certain tax law changes in states in which we operate. Looking into the third quarter of 2025, we expect revenue to increase approximately 2.5%-3.5% relative to second quarter revenue of $5.1 billion.

Great. Thanks, Mike. At the beginning of the year, we outlined several strategic priorities that would be key to driving our performance this year and beyond.

These top priorities included a keen focus on executing our strategic growth initiatives, driving positive operating leverage, continuing to invest in talent and technology, maintaining our credit and risk discipline, and returning capital to shareholders. Although there's still a significant amount of opportunity that lies in front of us, I'm pleased with both the performance and the momentum at the midpoint of this year. We're seeing solid progress in our key strategic focus areas, including premier banking, wealth payments, and middle market, as production deepening with our existing client base and banker productivity have increased in all areas of our business. We also remain on track to deliver our goal of positive operating leverage in 2025, despite what's turned out to be a more challenging first six months in our investment banking and trading business.

We continue to invest in important areas like talent, technology, and our risk infrastructure to improve the client experience. Our credit and risk discipline has remained strong, as evidenced by our favorable CCAR results and the improvement in asset quality metrics, which currently sit at multi-quarter lows. Finally, our strong capital position continues to afford us the ability to grow our balance sheet while also returning more than $2.6 billion worth of capital to our shareholders through the first half of the year. We will remain focused on these key strategic initiatives as we strive to generate better returns and greater shareholder value over time. I am optimistic as ever about our future, especially in light of the momentum that I see every day inside our company. I want to pause and thank all of our incredible teammates for their purposeful focus and productivity in moving our company forward.

Thank you all for your interest and Truist. With that, let me turn it over to Brad for Q&A.

Thank you, Bill. Betsy, at this time, will 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 follow-up in order to accommodate as many of you as possible today.