Truist Financial Corporation (TFC) Earnings

Management highlights

- Leadership Transition - Chairman and CEO Bill Rogers will transition to executive chair on September 1, 2026, and retire in April 2027; Mike Lyons will become President and CEO effective September 1, 2026. - The board selected Mike Lyons for his proven track record of driving growth and performance, deep experience in financial services, technology, and payments, alignment with Truist's purpose-driven culture, and commitment to improving profitability and long-term shareholder value. - The leadership transition is well-planned, with a deep senior management team in place to support a smooth handover. - Overall Financial Performance - Q2 2026 GAAP net income available to common shareholders was $1.5 billion, or $1.23 per diluted share, a 37% increase YoY and 13% increase quarter-over-quarter (QoQ). Revenue grew 5.5% YoY and 2.2% QoQ, driven by strong non-interest income growth. - Return on tangible common equity (ROTCE) improved 310 basis points (bps) YoY to 15.4%, and the firm achieved 320 bps of positive operating leverage YoY as expense growth remained well below revenue growth. - The CET1 ratio increased 10 bps QoQ to 10.9%, driven by strong capital generation and balance sheet optimization; the firm repurchased $1.2 billion of common stock in Q2, maintaining a full-year 2026 target of $5 billion in share buybacks. - Strategic Balance Sheet Optimization - Management is intentionally prioritizing profitability and capital efficiency over near-term growth in lower-return segments. The firm exited origination of marine and recreational vehicle loans, and cut originations by ~40% YoY in other less strategic consumer portfolios including prime and non-prime auto, removing $7-$8 billion of low-return annual production. - The firm is reallocating capital from lower-return consumer portfolios to higher-quality commercial and relationship-driven lending, which delivers stronger long-term returns despite near-term net interest income (NII) tradeoffs. - Asset Quality - Asset quality remains strong: net charge-offs declined 11 bps QoQ to 50 bps, and the allowance for loan losses declined 2 bps QoQ to 1.51% of total loans following resolution of problem commercial and commercial real estate credits. - Non-performing loans increased 1 bp QoQ to 51 bps due to a change in non-accrual criteria for non-prime auto loans, which does not reflect underlying credit deterioration or expected changes to lifetime cash flows. - Digital and Operational Efficiency - AI is increasingly driving productivity improvements, enhancing client experience, and freeing capacity to invest in high-value growth opportunities across the firm.

Guidance

- Full Year 2026 Guidance: - Revenue growth guidance revised to 3.5% to 4% from prior guidance of 4%, primarily due to lower expected NII growth. - NII growth guidance revised to 1% to 1.5% from prior guidance of 2% to 3%, driven by three main headwinds: portfolio rationalization of lower-return consumer lending, broader market-driven loan spread compression, and less favorable deposit mix from ongoing client migration to higher-rate products. The downward revision is partially offset by benefits from higher medium and long-term interest rates. - Non-interest income growth guidance raised to ~10% from prior guidance of high single digits, reflecting sustained strong momentum across fee-based businesses including investment banking, trading, and wealth management. - Retains prior guidance: GAAP non-interest expense growth of 1.75%, net charge-offs of 55 bps, effective tax rate of 14.5%, $5 billion in full-year share repurchases. - Confirms expectation that 2026 full-year ROTCE will be above 14%, maintaining the long-term target range of 16% to 18% and the 2027 target of 15% ROTCE. - Expects full-year 2026 loan growth of 3% to 4% (toward the high end of the range), with almost all growth coming from commercial loans, while consumer loan growth will be close to flat (~1%). Expects low single-digit (around 3%) full-year deposit growth, with DDA mix expected to decline to ~25% by year-end from ~27% at the start of the year. - Q3 2026 Interim Guidance: - Expects total revenue to increase ~1% QoQ, with NII increasing ~1.5% QoQ (driven by an extra calendar day and higher client deposit balances), non-interest income remaining relatively stable QoQ, and non-interest expense increasing ~2% QoQ.

Segment performance

1. Consumer and Small Business Banking (CSBB): Delivered solid results aligned with profitability improvement strategy. Average consumer and small business loans increased 2% year-over-year (YoY), as the firm slowed production in less strategic, lower-profit consumer categories. Average non-maturity consumer and small business deposits increased 2% YoY, driven by a 39% increase in new-to-bank deposit production. Premier Banking (which holds over 50% of CSBB deposits) delivered 20% YoY growth in new deposit production balances, 23% YoY growth in advisor productivity, and 9% YoY growth in financial planning activities, with referrals to Wealth Management up 15% in the first half of 2026. Digital engagement metrics: active mobile users increased 4% YoY to 5.4 million, digital transaction volume increased 7% YoY to 93 million transactions, and Truist Assist self-service usage increased 60% YoY to nearly 2 million engagements. 2. Wholesale Banking: Delivered strong quarter with momentum across loans, deposits, and fees, while maintaining a disciplined focus on returns and capital efficiency. Average wholesale deposits increased 6% YoY (excluding large prior-year M&A-related deposits), with middle market deposits growing 12% YoY (9% in legacy markets, 27% in expansion markets including Texas, Pennsylvania, and Ohio). Average wholesale loans increased 8% YoY, with broad-based growth across industry banking, middle market, and commercial real estate. Wholesale fee income outpaced balance sheet growth: advisory revenue increased 27% year-to-date, with strong growth across equity capital markets, M&A advisory, and financial risk management. Investment banking and trading revenue grew 72% YoY, and wealth management income grew 8% YoY.

Risks & headwinds

- Ongoing client rate-seeking behavior is driving persistent migration to higher-yield deposit products, resulting in a less favorable deposit mix and higher overall deposit costs than previously expected, creating downward pressure on net interest margin and NII. - Broad market-driven loan spread compression has been larger than initially expected, with full-year 2026 loan spreads expected to be 5 to 10 bps lower YoY, compared to an original expectation of 10 to 15 bps of spread widening, creating additional NII headwinds. - The AI investment boom creates near-term growth opportunities, but carries second and third-order risk of overexposure or credit concentration if AI sector growth slows significantly; Truist mitigates this risk through portfolio diversification, active price discovery, and disciplined risk limits. - Portfolio rationalization creates near-term headwinds for NII and top-line growth, even as it improves long-term profitability and ROTCE.

Analyst Q&A

• Q: Management is prioritizing returns over headline loan growth, with commercial end-of-period balances down but ROTCE targets raised. What is driving this dynamic across loan categories, and how do you balance returns and growth? /

  A: CNI (commercial and industrial) loan growth is just under 8% YoY, with strong growth in focused areas like middle market. Higher-growth consumer categories include Heloc, Sheffield, and Service Finance, which all clear the firm's profitability hurdles. Indirect auto production is down significantly, as the firm is only pursuing relationship-based lending that meets return hurdles. This repositioning is not a concession on long-term growth, but sets up a higher quality, more capital-efficient growth profile going forward, with every incremental dollar of growth delivering higher returns.

• Q: How much of the downward NII guidance reflects completed portfolio rationalization, and what additional rationalization should we expect? What are the implications for 2027 ROTCE targets? /

  A: All completed portfolio rationalization (the exit of marine/recreational vehicle lending and 40% production cuts to low-return consumer lending) is already reflected in the 2026 guidance. Portfolio optimization is a continuous process that applies to both consumer and wholesale segments, as management constantly re-evaluates client selection, pricing, and product mix to maximize capital efficiency. Management retains the existing 15% ROTCE target for 2027 and 16-18% long-term target, with confidence maintained in the upward trajectory of returns despite non-linear quarterly performance.

• Q: Can you break down the incremental changes to the NII guidance by component, and what are the key risks to the updated outlook? /

  A: The largest driver of the downward revision is less favorable deposit mix than originally expected, with DDA share falling faster than forecast. The second largest driver is lower-than-expected loan spreads, which are now forecast to be down 5-10 bps YoY instead of rising 10-15 bps as initially expected. The reduction in low-return consumer lending volume is the smallest contributing factor to the NII revision. Management remains comfortable with the updated guidance, and the downward NII revision is fully offset by stronger fee income growth, leaving the full-year EPS and ROTCE trajectory on track.

• Q: Why maintain the full-year 2026 share buyback target at $5 billion, rather than increasing it given excess capital from portfolio rationalization? /

  A: A $5 billion buyback already results in a total net payout ratio above 100%, which is elevated and appropriate for Truist's current capital position. Management plans a gradual glide path to reach a 10% CET1 target by the end of 2027, which implies continued significant capital return beyond 2026. The firm also retains capital flexibility to pursue attractive profitable growth opportunities if they arise, which is the first priority for incremental capital allocation.