TRUIST FINANCIAL CORP Q3 2025 earnings call

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's Senior Management Team. During this morning's call, they will discuss Truist Financial Corporation'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 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.

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 four. At Truist, our purpose to inspire and build better lives in communities guides every decision. It's the foundation of our strategy and the reason our fantastic teammates 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 advisors 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 advisor 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. Now let's turn to our results on slide five. 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 through 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%, 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 late 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 non-interest income increased 9.9% late 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 non-interest income quarter since the divestiture of TIH.

Adjusted expenses remain well controlled and were up just 1% late quarter, which, along with a strong revenue performance, helped drive 270 basis points of late quarter positive operating leverage. We also maintained strong asset quality metrics as net charge-offs declined both on a late 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 of our common stock. We 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, discipline expense and credit management, and robust capital return drove 130 basis points sequential improvement in our ROTCE to 13.6%.

We do still have a lot of work to do. Our recent performance and the momentum I see across the company every day give 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 six. 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 and higher average balances, which aligns directly with our strategy to build enduring, profitable relationships early in the client lifecycle. Average consumer and small business deposit balances increased modestly late quarter and 1.9% versus the third quarter of 2024. Average loan balances increased 2% late 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 strategies also deliver 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 trade revenue, and progress in key focus areas like payments and wealth. Average wholesale loans increased 2.8% late quarter and 4.8% year-over-year, driven by growth from new and existing clients and increased production. Seeing that 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, and 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 advisor 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 seven. 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% late quarter due to 9.9% growth in non-interest income and 1.2% growth in net interest income. Adjusted expenses increased 1% late 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 late quarter basis and on a year-over-year basis. Our CET1 capital ratio remains 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 eight.

Average loans held for investment increased by 2.5% on a late 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 CNI 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% late quarter, due to growth in other consumer, residential mortgage, and indirect auto. The average loan yield remained relatively stable on a late quarter basis. Moving now to deposit trends on slide nine. 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 in 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%-38% on a late quarter basis. Based on our outlook for stronger client deposit growth in the fourth quarter and our expectation for two additional 25 basis point 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% late 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 one basis point late quarter to 3.01%. We expect net interest income to grow approximately 2% on a late 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 30th, we had $105 billion of notional received fixed swaps and $28 billion of notional paid 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 non-interest income on slide 11, adjusted non-interest 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% late 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% late quarter due to higher market values, positive net asset flows, and new client acquisitions. On a like quarter basis, adjusted non-interest 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 non-interest expense on slide 12. Adjusted non-interest expense, which excludes the impact of restructuring charges, increased 1% late 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 a late 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 three basis points late quarter to 48 basis points, and were down seven basis points versus the third quarter of 2024, as we benefit from lower CRE losses on both a late 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. Non-performing loans held for investment increased nine basis points late quarter to 48 basis points of total loans. Second quarter non-performing 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 remains stable compared with the third quarter of 2024, which reflects a return to a more recent level. The late quarter increase was driven by higher non-performing CNI and construction loans, partially offset by a decline in CRE non-performing 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%-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 non-interest income to remain relatively stable late quarter. Adjusted expenses of $3 billion in the third quarter are expected to remain relatively stable on a late 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 non-interest income in the fourth quarter, we would expect annual revenue to come in around the midpoint of our 1.5%-2.5% range.

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. On asset quality, we expect net charge-offs of 55 basis points in 2025, compared with our previous guide of 55-60 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 will generate this year.

In addition, we plan to increase our share repurchase program in 2026 to $3 billion-$4 billion, which is above the 2025 level, as we'll 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 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 six, continuing to drive positive operating leverage, realizing the ongoing benefit from fixed-rate 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 management, 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 Financial Corporation'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, 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 brief follow-up in order to accommodate as many of you as possible today.