TRUIST FINANCIAL CORP Q1 2026 earnings call

Thank you, Betsy, and good morning, everyone. Welcome to Truist First Quarter 2026 Earnings Call. With us today are Chairman and CEO, Bill Rogers, our CFO, Mike Maguire, and 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 First Quarter 2026 results, share their perspectives on current business conditions, and provide an updated outlook for 2026. 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 will turn it over to Bill.

Thanks, Brad, and good morning, everyone, and thanks for joining our call today. Before we discuss our first quarter of 2026 results, let's begin, as we always do, with purpose on slide four. At Truist, our purpose is to inspire and build better lives and communities, and one way we bring that to life is through the work we do every day for our clients. One example of this is our project finance business, which is a client-focused platform that provides financial advice and capital to help develop essential infrastructure that drives long-term economic growth, job creation, and stronger and better communities throughout our footprint in the United States. Our relationships with these clients have led to broad-based franchise engagement, which includes deposits, payments, and lead roles in capital market transactions. From a financial perspective, there are aspects of this business that generate returns somewhat differently than our other businesses.

A meaningful portion of this benefit is realized through reductions to our tax provision rather than reported revenue. Mike's going to walk you through the impact of that later in the call, but this dynamic contributed to our lower tax provision in the first quarter and is a factor in our expected lower tax rate for 2026 compared to 2025. This, though, is a great example of how serving our clients and communities is true to our purpose and also drives strong financial outcomes for our shareholders. Now turning to our results on slide five. Before I get into the details of our first quarter, I want to spend a moment on the quality of what we're delivering across the company and how we're executing against our strategic priorities. What I'm most excited about this quarter is the underlying momentum we're seeing. New client pipelines are growing.

Activity levels remain healthy, and we're continuing to add talent and execute in the areas that matter most to our strategy of driving improvement in our profitability. During the quarter, we once again added new clients, deepened existing relationships, and grew profitably in the business and products where we're chosen to focus with loan growth coming from priority segments, fee growth driven by core client activity, and stronger referrals and connectivity across the company. I can clearly say that we're focused, we're aligned, and we're executing well, which is evident in our first quarter results. As you can see on slide five, we delivered net income available to common shareholders of $1.4 billion or $1.09 per diluted share for the first quarter, which represents a 25% increase over the first quarter of last year, earnings of $0.87 per share.

Our performance was driven by continued execution against strategic priorities, including growth in both consumer and wholesale loans, along with strong non-interest income growth led by our investment banking and wealth management businesses. Together, those factors, along with our expense and credit discipline, contributed to 250 basis points of year-over-year positive operating leverage in the quarter. As a result of this execution in managing our capital through share repurchases, return on tangible common equity improved by 150 basis points to 13.8% compared to the first quarter of 2025, representing meaningful progress towards our full year 2027 ROTCE target of 15%. While we remain firmly on track to achieve this target, as I've said before, it's not a ceiling for our company.

The progress we're seeing today across our company gives us confidence in our ability to drive profitability higher over time. With continued execution against our strategic priorities, continued capital return, and the benefit of expected changes to the capital framework, we're establishing a long-term ROTCE target of 16%-18%. Before I hand the call over to Mike to discuss quarterly results, I want to spend some time discussing the positive momentum we're seeing within our business segments and with our digital strategy on slides six and seven. First, let me start with Consumer and Small Business Banking. CSBB delivered another solid quarter that was consistent with our expectations and strategy to drive profitability improvement across the enterprise. Average consumer and small business deposits and loans were up 1% and 4% respectively versus the first quarter of last year, 2025.

Average loans declined modestly for the fourth quarter, which is consistent with normal seasonality and our goal of emphasizing growth in categories offering the most attractive risk-adjusted returns. As you can see on the slide, Premier Banking was again a source of strength with both deposit and lending production up significantly, driven by deeper client engagement, advisor productivity, and continued momentum in financial planning activity. Digital continues to be a key growth engine for CSBB. Digital share of new-to-bank clients increased to 45%, with Gen Z and Millennials representing more than half of the growth. Active digital users grew year-over-year and digital transaction volumes remained strong, reflecting sustained client engagement with our platforms. Building on that digital progress, we're increasingly focused on how AI can further enhance productivity, decision making, and client engagement across the company.

We see AI as a real operating lever, one that improves the client experience while also creating productivity and operating leverage across our businesses without compromising control, safety, and reliability. Our focus is on using AI to strengthen relationships, giving clients faster, more personalized service, and enabling our teammates to spend more time advising and problem-solving, not navigating processes. We're already deploying AI across Consumer and Small Business Banking in practical client-facing ways. Truist Insights delivers personalized financial guidance at scale. Truist Assist handles most routine service requests digitally and around the clock, improving consistency and reducing call volumes. AI-enabled call summarization is live for care center agents, lowering after-call work and enhancing insight capture. Overall, our disciplined focus on capital allocation, pricing, productivity, and digital execution is translating into strong underlying performance and positions Consumer and Small Business Banking well as we progress through the year.

Now turning to wholesale on slide seven. In wholesale, we delivered a strong start to 2026 with continued momentum across loans, deposits, and fees while maintaining a disciplined focus on relationship returns and capital efficiency. Average wholesale loans and deposits increased 9% and 2% respectively versus the first quarter of 2025, reflecting diversified growth across our industry banking, middle market, and CRE teams as we continue to prioritize high quality, relationship-driven loan growth. Middle market deposits in particular, an area where we've invested heavily, grew 11% year-over-year, driven by 7% growth in our legacy markets and 30% growth in expansion markets such as Texas, Ohio, and Pennsylvania. Wholesale fee performance was also a standout this quarter with strong results in wealth management and investment banking and trading. Investment banking and trading delivered its highest quarterly revenue since 2021, driven by strength across a broad set of product areas.

Importantly, we're also seeing even stronger connectivity among our commercial, corporate, and investment banking platforms. This is driving higher quality fee growth with an increase in the number of lead roles and meaningful contributions from existing commercial and wealth clients. We're also leveraging AI across wholesale to enhance productivity, underwriting, and client engagement using predictive analytics to improve advisor effectiveness, accelerate underwriting speed and precision, and scale lead generation and conversion among payments and wealth. These capabilities are helping us serve clients more efficiently while improving returns and speed to market. Overall, we see clear evidence that our strategy is working. We are pairing high-quality balance sheet growth with improving fee mix, stronger client engagement, and enhanced operating efficiency, which gives us confidence in wholesale's outlook for the remainder of this year. Now let me turn it over to Mike to discuss our financial results in a little more detail.

Thanks, Bill, and good morning, everybody. We reported first quarter 2026 GAAP net income available to common shareholders of $1.4 billion, or $1.9 per diluted share. Earnings per share increased 25% versus the first quarter of 2025, and were up 9% versus the fourth quarter of 2025. Revenue decreased 1.9% linked-quarter due to lower net interest income, primarily related to day count. Revenue increased 5.1% versus the first quarter of 2025 due to higher net interest income driven by strong loan growth and higher non-interest income, primarily due to growth in investment banking and trading and wealth management income. GAAP non-interest expense decreased 5.9% versus the fourth quarter of 2025, primarily due to lower other expense. Non-interest expense increased 2.6% versus the first quarter of 2025, which helped drive the 250 basis points of year-over-year positive operating leverage.

Our effective tax rate in the first quarter was 12.4% versus 17.9% in the first quarter of 2025. Approximately half of the year-over-year decline was due to increased client transaction activity in our project finance business that Bill mentioned earlier in the call. Next, I'll cover loans and leases on slide nine. Average loans held for investment increased $2.3 billion, or 0.7%, on a linked quarter basis to $327 billion, driven by 1.8% growth in commercial loans, partially offset by a 0.9% decline in consumer loans. End-of-period loans increased modestly linked quarter as 1% growth in commercial loans was offset by a 1.1% decline in consumer loan balances. Both average and end-of-period loan trends are consistent with the expectations for loan growth and mix that we outlined in January.

As a reminder, our expectations for 2026 were that average loan growth would be driven primarily by commercial and other consumer categories with relatively slower growth in residential mortgage and indirect auto. This outlook reflected our focus on profitability and being selective in where we deploy capital. Within consumer, average other consumer loans, which include our specialty lending businesses like Sheffield, Service Finance, and LightStream, were relatively stable on a linked-quarter basis, consistent with normal seasonal patterns. We continue to expect these portfolios to grow at a mid- to high-single-digit pace in 2026 given their attractive risk-adjusted returns. Based on our current pipeline and economic outlook, we continue to expect average loan growth of approximately 3%-4% in 2026.

Moving now to deposits on slide 10. Driving client deposit growth is a key priority across many of our top businesses and growth initiatives. I'm encouraged that we saw growth in client deposits in what is typically a seasonally weak quarter for client deposit growth. Average deposits increased 0.7% linked quarter, driven by growth in interest checking, partially offset by declines in all other deposit categories. Average interest-bearing deposit costs declined 14 basis points linked quarter to 2.09%, and average total deposit costs declined nine basis points to 1.55%. As shown in the chart on the bottom right of the slide, our cumulative interest-bearing deposit beta increased from 45%-46%, and our total deposit beta increased from 30%-31% on a linked quarter basis.

Moving now to net interest income and net interest margin on slide 11. Taxable equivalent net interest income decreased 2.8% linked quarter, or $105 million, primarily due to two fewer days in the quarter compared with the fourth quarter and seasonal changes in our deposit mix.

Our net interest margin decreased by five basis points linked-quarter to 3.02%, driven primarily by that same seasonal change in deposit mix. For full year 2026, we now expect net interest income to increase 2%-3%, compared with our prior expectation of 3%-4% growth. The change in our outlook is primarily driven by our expectation that the federal funds rate will remain unchanged throughout 2026, compared with our previous expectation for two 25-basis-point reductions, one in April and one in July. Our net interest income outlook still assumes 3%-4% average loan growth and the continued benefit from fixed rate asset repricing. Although we expect the net interest margin to remain relatively stable in the second quarter, we do anticipate the full year 2026 average net interest margin will exceed the 2025 average of 3.03%.

As you can see on the right-hand side of the slide, we also updated our fixed rate asset repricing outlook and our swap disclosure. Turning now to non-interest income on slide 12. Non-interest income increased $7 million, or 0.5%, versus the fourth quarter of 2025, reflecting strong growth in investment banking and trading income and lending related fees, largely offset by a decline in other income due to lower investment income. Investment banking and trading income increased $37 million, or 11%, linked quarter to $372 million, reflecting stronger trading income and capital markets activity, partially offset by lower M&A fees. Non-interest income increased 11.6% versus the first quarter of 2025, due primarily to the 36% growth in investment banking and trading and 7.6% growth in wealth management income. Next, I'll cover non-interest expense on slide 13.

On a linked-quarter basis, non-interest expense declined 5.9%, driven by lower other expense and lower personnel expense. Other expense in the fourth quarter of 2025 included an accrual related to a legal matter, while the decline in personnel expense was driven primarily by lower incentive compensation. These benefits were partially offset by higher regulatory costs as the fourth quarter of 2025 benefited from an FDIC special assessment credit. On a year-over-year basis, expense growth remains well controlled. Non-interest expense increased 2.6% versus the first quarter of 2025, reflecting higher personnel expense, partially offset by lower professional fees and outside processing costs. Moving now to asset quality on slide 14. Our asset quality metrics remained strong on both a linked-quarter and year-over-year basis. Net charge-offs increased four basis points linked quarter to 61 basis points and were up one basis point versus the first quarter of 2025.

Non-performing loans held for investment increased two basis points linked quarter to 50 basis points of total loans, driven by higher consumer non-performing loans, partially offset by improvement in C&I and CRE. The increase in consumer non-performing loans was primarily due to a change in the non-approval criteria for certain indirect auto loans, which we disclosed in our 10-K, rather than any deterioration in underlying credit trends. While this enhancement will result in higher reported non-performing indirect auto loans over time, there's no impact to the cash flows or loss expectations over the lifetime earnings of these loans. Before I move on to discuss our capital position on slide 16, I do want to spend a few moments on our non-depository financial institution, or NDFI exposure, and how we think about the risk profile of that portfolio.

To support that discussion, we've included expanded detail on our NDFI loan portfolio on slide 15. As of March 31st, loans classified as NDFI represented 12% of total loans. This is a well-diversified portfolio across 35 different asset classes, and it's structured with protections that have held up well historically in stress environments. Our largest NDFI exposure is to diversified equity REITs. This is a client-driven business that we've been active in for more than 20 years, and it's an area where we have deep experience. These loans are secured by income-producing real estate, underwritten with conservative leverage and supported by strong covenant packages, which helps mitigate downside risk. With respect to private credit, our exposure is primarily through lending relationships with business development companies, or BDCs, and middle market loan funds. In total, these exposures represent about 1% of our loan portfolio.

From a risk standpoint, these facilities are underwritten with advanced rate limits, borrowing base mechanics, and meaningful equity positions beneath us, all of which are designed to provide significant loss protection in more stressed scenarios. Moving now to capital on slide 16. Our 10.8% CET1 ratio was stable with the fourth quarter. During the first quarter, we repurchased $1.1 billion of common stock, compared with $750 million in the fourth quarter. We are targeting repurchases of $1.2 billion in the second quarter and approximately $5 billion in 2026, compared with our previous expectation for $4 billion of repurchases for full year 2026. Overall, our capital allocation priorities remain unchanged. These priorities include supporting the organic growth needs of our clients, paying our common stock dividend, and returning excess capital to shareholders through share repurchases.

M&A is not a priority for Truist as we remain focused on improving our own profitability and returning capital to our shareholders. Finally, we are well-positioned for the recently issued Basel III proposal. Under the newly proposed capital rules, we estimate that risk-weighted assets could decline by 9% under the revised standardized approach and by 11% under IRBA. We believe the proposed changes align well with our lending strategies and support continued elevated capital return to our shareholders. Now I'll review our guidance for 2026, and the second quarter on slide 17. As I previously mentioned, given the shift in market expectations for interest rates this year, we now expect 2026 net interest income growth of 2%-3% compared with our prior expectation of 3%-4%.

Thanks, Mike. As we close, I want to reinforce the confidence I have in Truist's direction and earnings trajectory we're building. As shown on slide 18, we continue to have clear line of sight to a 14% return on tangible common equity in 2026 and 15% in 2027, driven by improving profitability, continued execution across the franchise and strong capital return. As I mentioned earlier, our 15% ROTCE target in 2027 remains a firm and achievable target. However, we view it as an important milestone, not the endpoint. With continued execution and discipline, we have the ability and clear line of sight to drive returns to 16%-18% over the next three to five years as earnings power continues to strengthen and capital is deployed. Achieving these returns will be driven by the same core factors we've discussed today and on previous calls.

These factors include sustained growth in our key businesses, positive operating leverage, disciplined expense and risk management, and elevated capital return to shareholders. Overall, we're encouraged by the progress we're making, and we remain focused on executing with discipline, delivering for our clients, and creating long-term value for our shareholders. I want to thank our teammates for their commitment, focus, and their purposeful work, and thank our shareholders for your continued trust and support. Well, Brad, let me turn that back over to you.

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 yourself to one primary question and one short follow-up in order to accommodate as many of you as possible today.