Truist Financial (TFC) Q2 FY26 earnings call: guidance and Q&A

Asked about the trade-offs being made in loan growth, specifically the incremental changes under the hood in each loan category, and the balance between focusing on returns versus growing the company.

Management explained that C&I loans are up almost 8% YoY, and other consumer areas like HELOC, Sheffield, and Service Finance continue to grow. Indirect auto production is significantly down. The focus is on relationship-based, profitable growth that clears profitability hurdles, setting the stage for efficient long-term growth with higher returns and capital efficiency.

“I think our team is doing a good job staying focused on the things that are accrete over time. And to your other question, I mean, it's also setting the stage and setting the platform for growth.”

asked by Ryan Nash · answered by William Rogers

Followed up on the lowered full-year NII expectations, asking for a breakdown of assumptions for loan growth, exit margin, and updated thoughts on deposit costs.

Management cited three main headwinds for NII: balance sheet optimization (reducing $7B-$8B in annual production from less profitable portfolios), loan spread compression (5-10 bps down YoY due to remixing into lower-yielding commercial loans and market compression), and unfavorable deposit mix (due to client preference for higher-rate products). These are partially offset by higher medium/long-term interest rates.

“The NII piece, we mentioned there's sort of 3 main headwinds. Bill mentioned when I mentioned the marine and rec vehicle business, we actually exited during the quarter. prime auto is down. We mentioned across those portfolios and a few others were down on a production basis, call it, 40% year-over-year.”

asked by Ryan Nash · answered by Michael Maguire

Asked how much of the loan book rationalization is reflected in the current NII guidance, if more impact is expected next year, and what other rationalization is possible.

The current NII outlook fully reflects the production changes and exit of marine/RV. Management stated that balance sheet optimization is a continuous search across both consumer and wholesale segments to allocate capital most efficiently and improve profitability and ROTCE. They are not providing 2027 guidance yet but emphasized the ongoing nature of these strategic choices.

“The changes, the retrending that we've made around production balances that we mentioned as well as the exit of marine and rec are in our outlook for this year.”

asked by John Pancari · answered by Michael Maguire

Asked for more detail on the deposit competition and rate chasing mentioned, specifically if it's different from past trends or just a burden of the 'higher for longer' environment.

Management clarified that the deposit migration to higher-yielding products is primarily client behavior rather than increased competitive pressure. They noted that this trend is not unusual in the current rate cycle and that the competitive environment remains high, but their production engines are working well to expand client relationships.

“I mean I think what we've seen in deposit migration to higher yielding is more client behavior than competitive pressure in fairness.”

asked by Kenneth Usdin · answered by William Rogers

Asked about the characteristics the Board valued in Mike Lyons for his CEO role, particularly regarding technology investments and his belief in the 16%-18% ROTCE target.

Bill Rogers highlighted Mike Lyons' strong understanding of core businesses, extensive knowledge of technology and payment systems (from Fiserv), and his track record of performance. He emphasized Lyons' commitment to being a purposeful leader and leading a high-performing company, aligning with the 16%-18% ROTCE target. Rogers noted that Lyons will have flexibility to achieve efficiencies and invest, building on the strong platform already in place.

“And I think that future leader not only has a lot of understanding about sort of the core businesses and business that we're in. But even as you noted, much more knowledge about technology and payment systems and where the proverbial puck is going...”

asked by Erika Najarian · answered by William Rogers

Asked for a comprehensive overview of the assumptions baked into the new NII guide, focusing on incremental changes to each component and the comfort level with the new guidance.

Management reiterated that the most impactful component of the NII headwinds is the unfavorable deposit mix, with DDA balances expected to remix from ~27% to ~25% by year-end. Loan spreads are the second most important factor, expected to be down 5-10 bps YoY. The reduction in consumer loan production is also important but smaller. Despite these NII pressures, the company remains confident in its bottom-line performance due to strong fee income and expense discipline.

“I think the most impactful component of the 3 headwinds we discussed is the unfavorable deposit mix, right?”

asked by Manan Gosalia · answered by Michael Maguire

Asked about Truist's perspective on the second derivatives of AI's impact on the economy and if the company is setting in motion protections against potential slowdowns or risks.

Bill Rogers emphasized a 'DVD' framework: Diversity, Velocity, and Discipline. This involves ensuring portfolio diversity to avoid overconcentration, maintaining velocity in trading and activity for price discovery, and adhering to established targets and limits. He acknowledged AI as an opportunity but stressed being 'eyes wide open' to manage its impact on the business and be conscious of associated risks.

“I coined an acronym, which was DVD, which is diversity, velocity and discipline, and that's what we're employing.”

asked by Gerard Cassidy · answered by William Rogers