Full Transcript: Truist Finl Q2 2026 Earnings Call

On Friday, Truist Finl (NYSE:TFC) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Truist Financial reported a strong quarter with GAAP net income of $1.5 billion, or $1.23 per share, a 37% increase year-over-year.

Revenue grew by 5.5% from the previous year, driven by higher noninterest income from investment banking, trading, and wealth management.

The company is optimizing its loan portfolio, focusing on high-quality commercial loans and reducing less profitable consumer lending, impacting near-term net interest income.

Average wholesale deposits increased by 6%, with significant growth in middle market deposits, particularly in expansion markets.

Truist's CET1 ratio rose to 10.9%, and $1.2 billion of common stock was repurchased in the quarter.

The company is targeting a ROTCE of greater than 14% for 2026, with long-term targets of 16-18%, and remains committed to strategic investments and capital efficiency.

Future guidance includes a revenue growth expectation of 3.5% to 4% for 2026, with continued noninterest income momentum offsetting lower net interest income growth.

Full Transcript

Bill Rogers, Chairman and CEO

Digital client experience. Taken together, these results demonstrate our strategy to improve profitability, strengthen returns, and allocate capital towards the highest value opportunities across consumer and small business banking. Now turning to wholesale on slide 7, in wholesale we also delivered another strong quarter with continued momentum across loans, deposits, and fees while maintaining a disciplined focus on relationship returns and capital efficiency.

Over the past year, we've significantly expanded our client base and strengthened existing relationships across the wholesale franchise, driving broader adoption of our lending, deposit payments, wealth management, and capital markets capabilities. This deeper engagement is translating into higher revenue per client, a more attractive revenue mix, and improved relationship profitability driven by an increasing share of revenue coming from non-credit sources.

Average wholesale deposits increased 6%, excluding the impact of certain large M&A-related deposits in the second quarter of last year, driven by broad-based deposit growth across client segments heavily tied to our focus on driving payments and liquidity solutions. Middle market deposits, an area where we're invested heavily, grew 12% year over year, driven by 9% growth in our legacy markets and 27% growth in expansion markets such as Texas, Pennsylvania, and Ohio.

Average wholesale loans increased 8% compared with the second quarter of 2025, reflecting broad-based momentum across our industry, banking, middle market, and commercial real estate teams. As we continue to prioritize high-quality relationship-driven growth, wholesale fee income continues to outpace balance sheet growth led by investment banking and trading and wealth management, reflecting strong client activity and improved deal economics and continued momentum in our wealth franchise.

Advisory revenue increased 27% year to date, including strong growth across equity, capital markets, M&A advisory, and financial risk management. Overall, we remain encouraged by the breadth of growth across the franchise and the continued progress in building a more profitable and capital-efficient wholesale business. With that, let me turn it over to Mike to discuss our financial results in more detail.

Michael Maguire, Chief Financial Officer

Thank you, Bill, and good morning, everyone. So as Bill mentioned, we reported second quarter 2026 GAAP net income available to common shareholders of $1.5 billion or $1.23 per diluted share. Earnings per share increased 37% versus the second quarter of 2025 and 13% versus the first quarter of 2026. Revenue increased 2.2% linked quarter due primarily to higher noninterest income. Revenue increased by 5.5% versus the second quarter of 2025 due primarily to higher noninterest income led by growth in investment banking and trading and wealth management income.

GAAP noninterest expense increased 2.4% versus the first quarter of 2026 primarily due to higher personnel expense and professional and outside processing expenses. Noninterest expense increased 2.3% versus the second quarter of 2025, which helped drive 320 basis points of year-over-year positive operating leverage. Asset quality metrics remain strong and our CET1 ratio increased by 10 basis points linked quarter to 10.9%. Next, I'll cover loans and leases on slide 9.

Average loans held for investment increased $2.1 billion or 0.7% linked quarter to $329 billion driven by 1.3% growth in average commercial loans partially offset by a decline in average consumer loans. End of period loans increased modestly linked quarter reflecting slight growth in both commercial and consumer. As a reminder, we expected 2026 loan growth to be driven primarily by commercial and other consumer categories, with slower loan growth in residential, mortgage, and indirect auto.

Moving to deposit trends on slide average deposits increased 1.5% linked quarter driven by growth in all deposit categories while year-over-year growth was 1.1% driven primarily by growth in interest checking. We continue to see healthy client deposit activity, however, deposit mix trends are being pressured by elevated rate-seeking behavior and migration into higher rate products. Average interest-bearing deposit costs increased by 1 basis point linked quarter to 2.10% and average total deposit cost increased 1 basis point to 1.56%.

As shown in the chart on the bottom right-hand side of the slide, our cumulative interest-bearing deposit beta decreased from 46% to 45% and our total deposit beta decreased from 31% to 30% on a linked quarter basis. Moving to net interest income and net interest margin on Slide 11. Taxable equivalent net interest income increased 0.6% linked quarter or $23 million primarily due to the impact of one additional day in the second quarter and higher earning assets partially offset by lower loan spreads.

Our net interest margin decreased 4 basis points linked quarter to 2.98%, driven by slightly higher deposit costs, lower loan spreads, and a slightly larger balance sheet as shown on the right-hand side of the slide. We now expect net interest income to increase approximately 1 to 1.5%. Our updated outlook reflects actions we have taken to improve profitability as well as certain market dynamics. First, we are continuing to optimize less strategic and lower return lending portfolios that offer limited relationship potential which has the effect of reducing NII and net interest margin but improves ROTCE.

Second, we now expect lower loan spreads than we anticipated based on two factors. One, we are reallocating capital from higher yielding consumer loans into higher quality but lower yielding commercial loans where we expect to drive attractive relationship returns over time and two, we're seeing continued broad-based market-driven compression of loan spreads. The third headwind is our outlook for a less favorable deposit mix and therefore higher rate paid than we previously expected.

These headwinds are partially offset by the benefits we expect to get from higher medium and long-term interest rates. As Bill discussed earlier, some of the actions that we are taking to improve profitability and returns involve trade-offs across individual metrics. For example, during the second quarter we discontinued the origination of marine and recreational vehicle loans and we significantly reduced originations in several other less strategic and less profitable consumer lending units such as prime and non-prime auto.

These actions are expected to reduce 2026 loan production across these portfolios by approximately 40% relative to 2025 production levels. Many of these portfolios are accretive to net interest income and net interest margin but significantly dilutive to our long-term ROTC objectives and less strategic to our client-focused business model. While these actions may reduce near-term net interest income growth, they improve the overall profitability and the capital efficiency of our balance sheet which was evident in the second quarter.

We'll continue to evaluate similar actions that will enhance returns and improve capital efficiency including further optimization of lower return and less strategic portfolios. Finally, as you can see on the right-hand side of the slide, we did update our fixed asset repricing outlook and our swap disclosure. While expected runoff in our fixed rate loan portfolio remains largely unchanged, we do expect lower replacement volume due to the actions I just described which is reflected in our updated NII outlook.

Turning now to noninterest income on slide 12, noninterest income increased 5.9% compared with the first quarter reflecting strong growth in other income primarily driven by higher income from certain equity investments. Compared with the second quarter of 2025, noninterest income increased 17% driven by strong performance across several of our fee-based businesses. Investment banking and trading revenue increased 72%, benefiting from stronger client activity, improved deal economics, and continued momentum across our capital markets platform.

Wealth management income increased 8% supported by continued growth in client assets, advisor productivity, and financial planning activity, while card and treasury management fees grew only modestly. Underlying business trends remain encouraging as we see healthy client pipelines and we continue to make investments in both products and talent. Consistent with the trends Bill discussed earlier, fee income growth continues to outpace balance sheet growth reflecting deeper client relationships and a more capital-efficient revenue mix across our company.

Next, I'll cover noninterest expense on Slide 13. Expense discipline remained a key focus during the quarter as we continued balancing investment in the business with our commitment to improving profitability on a linked quarter basis. Noninterest expense increased 2.4%, primarily reflecting higher incentive compensation associated with stronger business performance. Compared with the second quarter of 2025, noninterest expense increased 2.3%, driven largely by higher personnel expense partially offset by lower professional fees and outside processing costs.

Importantly, year-over-year expense growth remained well below revenue growth, contributing to our positive operating leverage. We continue to identify efficiencies across the company that can be redeployed into growth initiatives and the highest return opportunities such as growth and revenue-producing teammates, new products, and capabilities that can improve the client experience. In addition, AI is becoming an increasingly important contributor helping improve productivity and enhance client experience and create additional capacity that can be invested in high-value business opportunities across our franchise.

Next, I'll discuss asset quality on slide 14. Asset quality remained a source of strength this quarter with stable credit performance and continued improvement in several key portfolios. Net charge-offs declined 11 basis points linked quarter to 50 basis points, reflecting lower losses across most portfolios compared with the second quarter of 2025. Net charge-offs were relatively stable. Our provision for credit losses totaled $395 million, modestly below net charge-offs of $414 million, resulting in a 2 basis point linked quarter decline in allowance for loan losses to 1.51% of total loans.

The modest reduction in our ALLL was primarily driven by the resolution of several commercial and commercial real estate problems. Credits during the quarter and continued improvement in sectors like office and multifamily non-performing loans held for investment increased 1 basis point linked quarter to 51 basis points of total loans as higher indirect auto problem loans were partially offset by improvement in the commercial portfolio. The increase in indirect auto non-performing loans was primarily due to a change to the non-accrual criteria in our regional acceptance non-prime auto business.

As we discussed last quarter, this does not reflect deterioration in underlying credit trends as lifetime cash flows are not expected to change. However, as these loans move to non-accrual status, subsequent payments are applied to principal and no longer recognized as interest income. Turning to Capital now on slide 15, our CET1 ratio increased 10 basis points linked quarter to 10.9% despite returning more than 100% of earnings to shareholders through share repurchases and through our common dividend.

The increase in our CET1 ratio reflects strong capital generation and the benefits of balance sheet optimization efforts that are improving our RWA density. During the second quarter we repurchased $1.2 billion of common stock compared with $1.1 billion in the prior quarter and $750 million in the second quarter of 2025. We continue to target approximately $5 billion of share buybacks in 2026. I'll now review our guidance for the third quarter and for full year 2026 on the following page.

Looking into the third quarter of 2026, we expect revenue to increase 1% relative to second quarter revenue of $5.3 billion. We expect net interest income to increase by approximately 1.5% in the third quarter, primarily driven by an additional day and higher client deposit balances. We expect noninterest income to remain relatively stable on a linked quarter basis. Noninterest expense of $3.1 billion in the second quarter is expected to increase by about 2% linked quarter in the third quarter.

Turning to our outlook for 2026, we now expect revenue to increase 3.5% to 4% compared with our previous outlook for 4% revenue growth. This change primarily reflects the factors discussed earlier which reduced our expected net interest income growth to 1 to 1.5% from our previous outlook of 2 to 3%. However, we are increasing our outlook for noninterest income growth to approximately 10% versus our previous estimate of high single digits, reflecting continued momentum across our fee businesses.

We continue to expect GAAP noninterest expense growth of 1.75%, net charge-offs of 55 basis points and an effective tax rate of 14.5%, as well as share buybacks of $5 billion for the year. Although we modestly reduced our revenue guidance, we remain confident in the EPS trajectory that we expressed earlier this year and our ability to drive ROTCE for 2026 above 14%. Now I'll hand it back to Bill for some final remarks.

Bill Rogers, Chairman and CEO

Thanks, Mike. As we close, I want to reiterate the message I shared at the beginning of today's call. Across our company, we're making strategic decisions about where we grow, where we invest, and how we allocate capital to improve performance and strengthen returns. The results reported today demonstrate that those decisions are producing the outcomes we intended. We're seeing stronger profitability and continued momentum across many of our key businesses.

Just as importantly, the progress we're making reinforces our confidence in our ability to achieve and sustain the profitability trajectory outlined on slide 17. As Mike mentioned, reflecting on that progress and our confidence in the path ahead, we now expect to deliver ROTCE of greater than 14% in 2026. While we remain focused on delivering the commitments we've made, we believe those objectives represent milestones along a longer-term path of continuously improving our company.

One of the things that gives me confidence in that path is the strong alignment between our board and incoming CEO Mike Lyons about the opportunities ahead. Together we share a common vision of building a company that consistently delivers stronger profitability, improved returns, and long-term value for our shareholders. I want to thank our teammates for their incredible purposeful commitment, focus, and dedication to serving our clients. I want to thank our shareholders for their continued trust and support.

Given this will be my last call as CEO, I want to thank all of you who follow us for your focus and professionalism. So with that, Brad, let me turn it back over to you for Q and A.

OPERATOR

Thank you, Bill. Rocco, at this time will you please explain how our listeners can participate in the Q and A session? As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one short follow-up question in order to accommodate as many of you as possible on today's call. Thank you. To ask a question, please press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then two. And as a reminder, we do ask you please limit yourself to one question and a single short follow-up. Our first question today comes from Ryan Nash at Goldman Sachs. Please go ahead.

Ryan Nash, Analyst at Goldman Sachs

Morning everyone. Morning Bill. Just wanted to say congrats on your retirement. It's been great working with you and learned a ton from you over the years, particularly on our trip. So you will definitely be missed. Maybe to kick it off, Bill, you talked about some of the trade-offs that you're making right now to grow the business and it's clear you could see commercial loan growth end of period balances are down. On the flip side, you added A plus to the return target for the year.

So maybe just expand on what's happening under the hood incrementally. Maybe talk about each loan category and how do you think about the focus of returns versus actually growing the company at this point?

Bill Rogers, Chairman and CEO

Yeah, Ryan, thanks. Also miss working with you. If you think about, let's start. If we break down the loan categories, C and I, if you look sort of year on year on quarter, is up just under 8%. So the places where we've continued to focus and have intentionality have good growth characteristics. And then if you break out consumer and you look at the areas like HELOC and then you look at other consumer areas like Sheffield and like Service Finance, those have also continued to grow and we have good production in those capabilities.

The other places like indirect auto, you know, we're down actually quite significantly and now down differently significantly in production. You know, our focus is on relationship-based things that also clear our profitability hurdles. So establishing these targets has really sort of come all the way through in the company. I mean, I'm really, really proud of the team, you know, that they've embraced where we want to go from a profitability standpoint.

Clarity around strategy, sort of, you know, full, full alignment and the things that, things that are important to us. And then within those categories, you know, within the commercial book, highly diversified, really good focus, really good growth in the middle market area for example, where we've had a focus, good production, good pipelines in those, in those areas. So if we think about just as the loan component of that, I think our team's doing a good job staying focused on the things that are accretive over time.

And you know, to your other question, I mean it's also setting the stage and setting the platform for growth. So you know, every incremental dollar that we add to the company on a growth platform that just has a higher return and higher, you know, earnings efficiency and capital efficiency going forward. So I would say we're not conceding long-term growth in terms of repositioning but I think we're setting the table for the efficient growth that comes forward.

Does that help?

Ryan Nash, Analyst at Goldman Sachs

Yeah, no, that's great. And maybe if I can ask a follow-up from Mike. So Mike, you took down full-year NII expectations. Maybe just unpack a little bit. What's including for loan growth, the exit margin and what are the updated thoughts on deposit costs from here? Thank you.

Michael Maguire, Chief Financial Officer

Sure. Yeah. Good morning, Ryan. Well, I mean maybe just to reiterate some of what we said already in our prepared remarks is the good news is while we do see some pressure on NII for the year, we do feel quite good about fees being in sort of the 10% area year over year. Credit this quarter looked great and we feel good about from an expense perspective feel good too. And so I think from a bottom-line perspective feel like we've got really nice momentum.

And obviously Bill just talked about some of the progress that we're proud of in terms of the ROTCE, the NII piece. You know we mentioned there's, there's sort of three main, main headwinds. You know Bill mentioned, you know and I mentioned the marine and wrecked vehicle, you know, business we actually exited during the quarter, prime autos down. We mentioned, you know, across those portfolios and a few others we're down on a production basis, call it 40% year over year.

That's 7 to 8 billion dollars of annual production that's come out of the business in 2026 versus 2025. And so, and in our, from our perspective, not regrettable, right? I mean those are, those are trade-offs we're making to improve profitability. As you think about the spreads piece, there's sort of two components there as well, right? There's the piece that we're doing that's not necessarily happening to us. So we have been remixing and reallocating capital from, from some of these less strategic, less profitable portfolios into CNI.

That's going to result in a lower yield typically, but we believe a higher return longer term and be the right thing for the company over time. Even within wholesale, we're seeing some remixing into more high-grade sort of investment-grade type credits. And so that's also having an effect. So loan spreads being pressured perhaps by some conscious choices we're making. And then we do see broad-based market compression. We came into the year with an expectation that we might see some kind of a bounce off the bottom on credit spreads maybe to the tune of 10 to 15 basis points, which would have perhaps felt a little bit conservative relative to some of what was being discussed in the industry at the time. If we hold spreads just constant from here, that would result in spreads for us at least year over year being down 5 to 10 versus the upside of 10 to 15. So that's been a pretty important headwind for us and we've incorporated that into our outlook. And we do reprice quite a few loans as you can imagine, it's beyond the fixed-rate loans, but we reprice a pretty sizable portion of our floaters every quarter as well.

So that's been an important factor. And of course, deposits, we've been, you know, we learn a lot about deposits in the second quarter of every year. There's just seasonality around taxes and bonuses. You know, as we, you know, got deeper into the quarter and closed out June and looked forward, it just became clear to us that there is just much more, you know, client preference, you know, inertia around higher rate products. And so we're seeing that remix.

We've seen some of it year to date and we have an expectation that that's going to, that's going to continue. And so we've incorporated that into our outlook as well. And of course, all those three factors are offset in part by a higher belly of the curve which does help us on the fixed-rate asset repricing side. So that's the headwind on NII again. Maybe just to finish where I started. The good news is while the components have moved around a touch, we still feel quite good about the bottom line.

I think you asked about margins, I'll touch that quickly. We did see a touch of pressure on net interest margin linked quarter. About half of that was just the sort of composition of the earning asset growth. We saw bonds and cash maybe 3 billion higher. That's obviously dilutive to our net interest margin. And then on the loan and sort of deposit-funded growth you saw a basis point higher on deposits and 3 basis points worse on loan yields. Some of that's the swaps coming on as well, but impacting loan yields.

But that's what took us down the four basis points. We would expect that to modestly improve throughout the course of the year. Modestly improve as we get the benefit of fixed-rate asset repricing maybe. Again we still actually feel quite good about deposit balances both in wholesale and consumer. We're seeing nice production. It's really just mix. So we actually do think that NIM will improve in the third quarter in part based on higher client deposit balances, but not to the same degree that we would have expected a quarter ago or certainly back in January when we had a different rate environment.

And there's a lot of other factors that go into it. So I think I got your questions there, Ryan.

Ryan Nash, Analyst at Goldman Sachs

Yep, got them all. Thanks, Mike. Appreciate it. Thanks again, Bill.

OPERATOR

Thanks. And our next question today comes from John Pankari at Evercore. Please go ahead.

John Pankari, Analyst at Evercore

Morning. And Bill, it's been a pleasure and all the best in retirement. First on the balance sheet optimization and NII, in your lowered outlook around NII, how much of that loan book rationalization that you cited is reflected in the guidance in that guidance? Is there more of that could impact next year's expectation as this continues to play out? And maybe also what other rationalization is possible? I know you mentioned in your prepared remarks that you're continuing to evaluate the portfolio.

Bill Rogers, Chairman and CEO

Yeah, good morning John. 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. We haven't provided and don't plan to provide guidance for 27 at this point. But in terms of what else, I would just say it's a continuous search and opportunity to make sure that we're allocating capital in the absolute most efficient way. And by the way, it's not entirely in consumer.

There are things that we've done and we'll continue to do in wholesale, around client selection, around pricing, around product design, you know, rebalancing that are all intended to create more profitability and efficiency. So, you know, there's, you know, nothing else to say on that for now other than it's a really important initiative of ours to continue to deliver against this ROTC improvement. And we're going to look, we're going to make smart choices.

We're going to be guided by, hey, a, what fits our strategic eye and our business model and then two, profitability.

John Pankari, Analyst at Evercore

Thanks, Mike. Now I know you talked about the ROTC improvement and you mentioned confidence and above the 14% level for 26. How do these actions and your updated thoughts and updated trends in general impact your 20, 27, 15% expectation and the long term 16 to 18? And then just one other thing, kind of back to Ryan's question. If you could just update us on your loan growth and deposit growth expectations, your balance sheet assumptions underneath the NII outlook for this year, that'd be helpful.

Michael Maguire, Chief Financial Officer

Yeah, Mike, I'll take the first part. Yeah. John, so yeah, on the ROTC expectations for the future, you know, this quarter had some unique characteristics and keep in mind, you know, this track's not linear, right. So you know, quarter to quarter it might change. Obviously we have a lot more confidence in this year as we, you know, as we get to more than half a year through to say we'll be at 14 plus, I just don't think it's the time to change the established targets going forward.

You know, that being said, I think, I think we certainly feel more confident in our path to a higher performing company. So you know, today change the guidance for where we are for this year, but stay on that path to higher performance and want to retain the right level of flexibility to achieve those numbers. And I'll just add to that a little, John. I mean, obviously we were really pleased to be in the 15% area for the quarter. You know, it's not a linear path.

You know, we do have some factors, some, you know, as an example, you know, you guys know this, you model it. Well, we have some performance preferreds that are semi versus quarter quarter payers and so you do have heavier preferred in two of the quarters and lighter in two others. So that's not to say that we don't feel like we're going to be on an upward trajectory, but it's not going to be a linear path and you guys know that in terms of deposits and loans we still expect to see loan growth this year.

Obviously we've delivered or, sorry, pardon me, deposit growth this year. What we're seeing is low single digit deposit growth, call it 3% area and this is an annual view and just mix is what we're keeping a really close eye on. So you've seen DDA for example remix down from maybe call it 27ish percent at the beginning of the year. Maybe that resembles something closer to 25% by the end of the year and hopefully stabilizing from there. You know from a loans perspective I think we said 3 to 4% earlier this year.

We're still on track for that probably high side of that but the bulk of that and Bill mentioned that is going to be on the CNI side whereas consumer will be, you know, closer to flat maybe plus 1%. So that's what's in our outlook, John.

Bill Rogers, Chairman and CEO

And then look, I mean Mike, to add to that, I mean Mike mentioned this, the production engines are working, you know, so the right, you know, the upfront side's working on the consumer side. Our premier production for advisors up 15% on the deposit side. I talked about the loan side on the service finance. The quality of the production is really, really high. So the, you know, the quality of the wholesale deposit production is relationship based, you know, so it's not sort of just rate based.

So these are clients in which we've expanded our relationship with. We have payments related discussions with those in terms of increasing for the future. So you know the, we do have a, you know, mix opportunity. But the good news is the productions engine's working and we're adding high quality, relationship oriented sort of operating type deposits.

John Pankari, Analyst at Evercore

Thanks so much Bill.

OPERATOR

Yep, John, thank you. And our next question today comes from Ken Usden with Autonomous Research. Please go ahead.

Ken Usden, Analyst at Autonomous Research

Hi, good morning and Bill, once again best of luck to you in the future. I'm wondering if you can touch a little bit more on the deposit competition, the rate chasing that you mentioned in your prepared remarks. Just can you, can you talk about just, you know, where that's coming from? Is it any different than what we've seen or is it just the burden of a little bit from the higher, for longer environment? Thanks.

Bill Rogers, Chairman and CEO

Yeah, I mean I think the, you know, what we've seen in the deposit migration to higher yielding is more client behavior than competitive pressure. In fairness, I mean I think this is a trend that we've seen that's continued. You know, we're in a rate cycle where I don't think that's, that's, that's particularly unusual competitive environment still is highly competitive. And we, we're the most competitive we've ever been, you know, in terms of product and capability.

And that was my comment earlier, is the production engines are working well and the client expansion and the opportunities that we see are working well. I think this is just a function of client behavior.

Ken Usden, Analyst at Autonomous Research

Okay. And maybe one for Mike. Mike, would you mind just walking us through just that lingering amount of swaps that has to come on in terms of the book that's not, not active and the timing of kind of when the rest of that should be in the run rate.

Michael Maguire, Chief Financial Officer

Yeah, no problem, Ken. So maybe I'll take you back to the beginning of the year and just walk you through the year because as you know, this can change. In the first quarter we had just. I'll give you the receivers and maybe give you the payers too for the offset. But we were 50 billion effective in Q1 with 24 billion of pairs. So we call it net receive 26 billion. In this most recent quarter, we were 63 billion effective. So call it 13 from Q1 pairs relatively constant. So net effective 40 billion or so. That steps up on an effective basis for Q3 to about 80 billion and then up to 85 billion in Q4. And the payers are pretty much, you know, call it 23 billion for the rest of the year. So as those come on, obviously depending on where we are from a SOFR perspective, you know, that will add, you know, some pressure and that's incorporated.

You'll see that in the loan yields and that the receive rate there, call it 340. And by the end of the year we kind of there. I know you'll continue to work the portfolio just depending on where dates go. But it wasn't a very active quarter for us in terms of any swap activity. We did just like we did in the first quarter. We took a small handful and deferred the effective start dates. I think we peak in Q1 of 27 and that's call it high 90s and then I think from there would begin to decline.

Ken Usden, Analyst at Autonomous Research

Okay, got it. Thanks, Mike.

Michael Maguire, Chief Financial Officer

You got it.

OPERATOR

Thank you. And our next question today comes from Eric Jarien with UBS. Eric, please go ahead.

Eric Jarien, Analyst at UBS

Hi, good morning and congratulations, Bill. I hope you enjoy your retirement. I still remember meeting you at SunTrust and you've been great. So I hope you enjoy your retirement. You're welcome. You were our Chairman of the board. When you decided to name Mike Lyons as your successor, obviously he was inside of PNC for some time and then had a brief stint at Fiserv. You mentioned what you found in him in terms of his focus on growth, but what other characteristics did you, particularly you and the board, like about Mike in terms of taking this company to the future that you see and maybe speak a little bit about how you think he's going to frame the technology investments and potential challenges at the firm?

And does he believe that this is a 16 to 18% ROTC company over the medium term?

Bill Rogers, Chairman and CEO

Yeah. Thanks, Erica. You know, I mean, succession planning is the most important work that a board does. You know, so put that in context. And we've been at this, you know, for well over a year, you know, thinking about, you know, my timeline, but more importantly thinking about, like, what's the right time for the company and are we hitting on cylinders and is this a right time for transition? And then we spent a lot of time thinking about what is the future leader of this not only company, but this industry look like.

And we did a lot of profile work against that. 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 or maybe where the ball's going now that we're at World Cup time. So those were the criteria upon which we evaluated how we wanted to think about things. And I think Mike fits that like perfectly.

Strong commitment to performance, great track record, really strong knowledge of the payments business, probably PhD course in the technology side at Fiserv as well. You know, having a chance to look across a lot of spectrum and see what, see what, see what others are doing, experience as a CEO and then being a purposeful leader. I mean, so remember, that's an important part of our context as well. As someone who, you know, really cares about the communities we serve and cares about the teammates and, you know, focuses on our purpose as it relates to the specific targets.

You know, I can speak for Mike and the board, I think, as I did in my prepared comments. Our goal is to be a high performing company, you know, so. And I think 16 to 18%, you know, reflects, reflects, you know, that journey. So Mike came in here to, you know, go to lead and run a high performing company and I don't think there'll be any doubt about that relative to the investments that need to be made. In the journey and the place that we go, you know, he'll have the requisite flexibility to think about how to achieve efficiencies and how to invest.

I think today we've got a really good platform of discovery. Give a lot of credit to Mike McGuire of Building a platform such that the dashboard will be very clear to Mike. It won't be confusing in terms of where the opportunities are and where to invest for the long term. But look, he's, he's got a lot of incredible strong qualities. But look, also he's got a great team. You can see the results and a team that's deep. So this succession planning is not only at the CEO level but it runs all the way through the company.

So we've got a deep team sort of ready to go fired up and everyone's committed. Running a high performing company and achieving what we all see as not only the potential but the opportunity for Truist.

Eric Jarien, Analyst at UBS

And just as a follow up. I think the other investors would agree with you though that you do have a deep team. What have the conversations been like sort of underneath the surface in terms of, you know, top producers, you know, the producers that we don't meet on the street. You know, obviously having an outsider CEO announcement can be a little bit jarring but you know, has there been sort of outreach? What are those conversations like with a top talent in terms of, you know, like reassuring them that they're going to be part of this deep team going forward?

Bill Rogers, Chairman and CEO

Erica, my philosophy and our leadership team philosophy is we re recruit everyone every day. You know, so that's the mindset that we have in our company. And so we're, you know, we're on that journey. Look, I think they all, they see what we see, they feel the opportunity, they see the future, they see what we're building that allows them to not only be successful in their jobs but to be successful in their careers. Because we're building great opportunities.

That's a key value for our teammates, is build, build, build meaningful careers. So are we re recruiting? Yes, but we recruit every day. Are people excited? Yes. They see the potential of where we're going, where we're going in the future. So I think, I think also like certainty helps and so probably a little uncertainty as to my timeline. And now we have a lot of certainty and people leaning in and leaning forward. And I think the best thing for top performers is an incredible platform, career opportunity and a lot of certainty and I think that's what we're delivering.

Erica

Thank you for your answers and also, just congratulations again. I just want to give you a shout-out, Bill, that not only do you have a good reputation as a leader but a great reputation for being a top-notch human being. So you will be missed.

Bill Rogers, Chairman and CEO

Well, Erica, thank you for that.

OPERATOR

Thank you. And our next question today comes from Manon Ghazalia with Morgan Stanley. Please go ahead.

Manon Ghazalia, Analyst at Morgan Stanley

Hey, good morning. And Bill, I'll echo the best wishes for your retirement. Congratulations. For my question, I apologize if this is a little repetitive, but you spoke about full-year loan spreads down 5 to 10 basis points year on year if you keep spreads where they are. Today you spoke about the mix shift in loans, the mix shift in DDA balances, yield-seeking behavior from deposit holders. Can you put it all together for us and go through the assumptions baked into the new NII guide on the incremental changes to each of these components?

From here, I'm just trying to assess the comfort level on the new guide and what the risk would be.

Michael Maguire, Chief Financial Officer

Yeah, hey, it's Mike. I'll take that one. I think I've given you some of it. I mean, I think on the, I'd say maybe I'll give it to you. In terms of relative proportion, I think the most impactful component of the three headwinds we discussed is the unfavorable deposit mix. Right. So I think that, you know, as we again just to say it, still feel, you know, quite good about, you know, the fact that we're, you know, onboarding a lot of new clients. We're defending the right clients and the right opportunities.

We're going to be growing client deposits this year. But the mix is, is going to be not as favorable as we expected, you know, at the beginning of the year or even last quarter. And so, you know, DDA is a good example. I think I mentioned we remix closer to 25% by the end of the year, you know, loan spreads. Again, you know, I think coming into the year and throughout, you know, a lot of the first half we did have an expectation that we would see some widening.

We did see it bounce around a little bit. But based on what we've seen so far and based on our new outlook, we do expect on a full-year basis to have spreads down. Call it 5 to 10 basis points. We reprice about $30 billion of loans a quarter, you know, 10 of its fixed, 20 floating if that gives you some sense for magnitude. That's probably the second most important factor. The reducing volume on the consumer stuff is important too, but it's not as important as those other two factors.

Manon Ghazalia, Analyst at Morgan Stanley

Thank you. And I guess on the capital side, just given some of the changes in loan mix and moving some loan production away from less profitable loans, I guess why not do more than 5 billion in buybacks in the year? Clearly, you have a lot of excess capital right now.

Michael Maguire, Chief Financial Officer

Yeah, we've talked about this a little bit in the past, because this has been a question. Look, if you look at our buyback, you know, at 5 billion, you know, we're pretty elevated, right? We've got a total like net payout ratio above 100%, by the way. We think that's, that's appropriate, you know, given our capital position. But we think it's a, I think, a prudent approach to be somewhat thoughtful in our glide path. So we've said we want to be at 10% by the end of 27, you know, you know, if you take that literally, that implies that we're going to continue to return a significant amount of capital to shareholders throughout the rest of this year and next year, and that gets us to that 10%. And look, we're conscious always of market factors. We're conscious including, by the way, opportunities to grow. If we see outsized, profitable growth opportunities, that's our first priority when it comes to capital. So we feel good about the 5 billion this year and, you know, really not ready to talk about next year at this point. But, but also, do you feel good about that 10% and that glide path?

Bill Rogers, Chairman and CEO

Yeah, I think, I think, you know, to your point, Mike, this, this just allows us to have a more durable capital plan. And I think that's the, you know, so having really good capital, which has been, you know, a lot of our RWA efforts and things that we've done, I think just gives us a more durable flight path with a lot of flexibility.

Manon Ghazalia, Analyst at Morgan Stanley

Thank you.

OPERATOR

Thank you. And due to time constraints, we do ask that going forward that you please limit yourself to one question. Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Please go ahead.

Mike Mayo, Analyst at Wells Fargo Securities

Hey, Bill, from the other comments, I do think you're a great human being, but as you know, I've been extremely disappointed about the results this decade where the stock has been kind of dead money when the stock banks are up almost half and the S&P is almost double. So I've been very frustrated over time. So we're not here to relitigate what happened the last decade. But as you look going forward, what do you think can be done better? What's your advice?

What have you learned about investing for better growth than you've seen, especially with population growth in your footprint, you know, almost, you know, as you've said, 50% better than average. Thank you.

Bill Rogers, Chairman and CEO

Yeah, Mike, look, we, we also, you know, want to have and are positioned to have a high performing company. So we're aligned in terms of, in turn in terms of that objective. I think all the things that we've talked about here are the things that we're doing to position our company for growth. We've made a lot of significant investments in technology, a lot of significant investments in talent. But I think most importantly, we're strategically aligned, you know, so people have clear goals about what it means to be a high performing company.

We've established those with, with a lot of clarity and quarter by quarter we're making progress against those objectives. So, you know, what my advice would be is to stay on that track. And I think what, what Mike will be able to do is to provide some, you know, acceleration, some assurance, some adverse intensity against that long term objective. And I think, I think we're just really, really extremely well positioned. I feel really good about the, about the baton passing, but also feel really good about, you think about the 400, you know, 4 by 100 relay.

When we're passing the baton with somebody can run the, run the last lap at a lot of speed against a really common objective. So I think we're well positioned. I think the decisions we've made, particularly over the last year, providing a lot of clarity for shareholders about the direction is the exact path and now it's, you know, just more, more foot on the accelerator.

Mike Mayo, Analyst at Wells Fargo Securities

All right, hopefully no one drops the baton.

OPERATOR

Thank you. Thank you. And our next question today comes from Ibrahim Poonawalla with Bank of America. Please go ahead.

Ibrahim Poonawalla, Analyst at Bank of America

Good morning, Bill. Congratulations and all the best in retirement. Just as a follow-up to your response in terms of what my clients would do, the acceleration part, just maybe spend a few minutes talking about that. As shareholders, we all think about, is Mike going to be a change agent, do things differently? Should we expect him to lay out a plan maybe tied to the acceleration you mentioned? Just level set those expectations for us as you've gone about recruiting him and going through that process of what that acceleration means, what's not being done today that Mike will be able to do?

Or is thinking about Mike bringing a meaningful change? Misguided.

Bill Rogers, Chairman and CEO

Yeah. Look, I want to be careful about laying out Mike's plan in today's call, but if you think about the strengths that he brings to our organization, think about, you know, his operating performance, his knowledge of the payments business, you know, places where we're, we're investing and want to, and want to grow our business and a platform from which to operate. I mean we want to set a fantastic table, I mean back to the earlier comments with capital flexibility and capacity, you know, to invest and you know, getting the, getting the platform in such a, at such a place that every incremental dollar has a more, you know, higher return profile from both an income and a capital standpoint. I think that's the, that's the setting the table component of this. But I think let's let Mike come in and talk about what he wants to do. Back to my earlier comment. Mike came here to lead a high performing company. That was the direction from the board and that's the clear mandate. And by the way, that's the mandate all the way through. Every team made it truest in terms of what we're trying to accomplish.

So I don't think from a global, you know, where we're going perspective we're going to have any misalignment how Mike wants to accomplish that at what speed and where he's going to place particular emphasis. I think let's wait for Mike.

Ibrahim Poonawalla, Analyst at Bank of America

All the best again.

Bill Rogers, Chairman and CEO

Thank you, Bill. Yeah, thanks.

OPERATOR

And our next question today comes from Matt o' Connor at Deutsche Bank. Please go ahead.

Matt o' Connor, Analyst at Deutsche Bank

Good morning. I was hoping you could just aggregate how much loan runoff there is from what you mentioned, the RV Marine and then the Prime Auto. You know that going to zero. So I realize it'll be over the course of a couple or a few years but how much loan runoff in aggregate from those areas you've already identified and then I guess why make the decision now to you know, exit or run down those books? Thank you.

Michael Maguire, Chief Financial Officer

I'll start with the last question. Matt, good morning. It's not really a why now. I think it's what we've seen is we've been talking about deemphasizing some of these portfolios for some time now, perhaps to a lesser extent. As we've seen success as we've become more assertive in how we're sort of managing some of that growth, we've simply accelerated it. I gave you a sense for the year over year production change, call it 7, 8 billion across those portfolios.

That's just on a few of those that we identified. Our indirect auto business prime is around a $20 billion business racks another 4 or 5, they'll call it 25 of auto marine. RV was a smaller portfolio call it 4 billion. And so that stuff, A, will be producing less of it and B, it's generally pretty short. Weighted average life stuff, call it two and a half, three years. I think you'll see us remix. You know, again. And Bill mentioned, by the way, there are, there are parts of the consumer lending portfolio that we are quite fond of, you know, that are more profitable and you'll see, and you'll see continued production and growth there.

But, you know, again, relative to the headwinds that we articulated around our updated outlook, you know, this is the smallest component in year, but an important one nonetheless, and one that we, you know, again, no regrets. You know, it just doesn't fit our eyes strategically and doesn't chin the bar from a profitability perspective. And just to clarify, are you right sizing auto or as of now, at least 10 to fully exit it? It sounds like you're exiting all the RV Marines.

I think it's right sizing. And this is a market, you know, this is a, this is a business that does sort of ebb and flow with, you know, with depending on the competitiveness of the market and other factors. Something else that we've done. We didn't talk about it. Bill mentioned it. I mentioned it in prepared remarks. Some of the work we're doing to improve our sort of the capital efficiency in some of these assets, we did complete two CLNs, and those were both in the prime auto portfolio.

So I think we have about an $11 billion reference pool. So about half of those loans have been CLN'd. That significantly improves the ROTCE profile of those assets. Right. Essentially selling some of the unexpected losses at a really low cost of capital. So we've been, you know, it's a long list of things we've been doing to try to improve the, to get some of the drag off the wing, so to speak, and create capital flexibility for ideally, you know, good profitable growth, but also to return capital to shareholders.

So it's a lot of ingredients to the recipe.

Matt o' Connor, Analyst at Deutsche Bank

Okay, that's helpful.

OPERATOR

Thank you. And our next question comes from Gerard Cassidy at RBC. Please go ahead.

Gerard Cassidy, Analyst at RBC

Good morning, Bill. Good morning, Mike. Bill, can you give us, obviously, you and I have been through a few cycles and we remember the dot com boom and the SPACs that we saw during the pandemic. Today with AI, and this is not directed specifically for investment banking, but AI is just so big in this economy today, and it's hard to get our arms around the impact it's having other than it's positive on the economy. What are you guys looking at for the second derivatives that could impact Truist, where at some point I will lose, slow down in growth?

And are you guys already starting to set in motion just protections about the second derivatives that could materialize over the next two, three or four years?

Bill Rogers, Chairman and CEO

Yeah, George, great question. We have been through a lot coming out of the last crisis. I coined an acronym which was DVD, which is diversity, velocity, and discipline. And that's what we're employing. So we want to make sure that our portfolio has a ton of diversity. So don't over concentrate in any one area. That's where we've seen the challenges are. And then velocity, just make sure that we're trading loans and trading activity and know price discovery and know where things are because, you know, it can change fast and on a dime.

And then the final is just have a lot of discipline, you know, so if you establish these targets and these limits, you have to live within them. And you know, right now there's a siren song, you know, of wanting to do more and being able to expand different places. And you know, you could certainly put your foot on the accelerator and probably grow faster. But we're very conscious of the, you know, the disciplined nature of this. And as you point, I mean, we look at, you know, secondary and tertiary impacts in any particular market, particularly related to the investments in AI.

Today, that's been a lot of opportunity, but we want to make sure that that's, you know, back to the DVD is, is very diverse. So I would say, you know, today, as you pointed, probably more in the category of opportunity, but we're eyes wide open in terms of how we want to manage this and portfolio over time and think about the impacts that it can have on our business and be very, very conscious of the risk as well.

Gerard Cassidy, Analyst at RBC

Very good. And like the others, good luck in your future endeavors. Thank you.

Bill Rogers, Chairman and CEO

Thanks so much.

OPERATOR

Thank you. And that concludes the question and answer session. I'd like to turn the conference back over to Brad Millsaps for any closing remarks.

Brad Millsaps

Okay, thank you, Rocco. That completes our earnings call. If you have any additional questions, please feel free to reach out to the investor relations team. Thank you for your interest in Truist and we hope you have a great day. Rocco, you may now disconnect the call.

OPERATOR

Yes, sir. Thank you. And once again, that does conclude our conference call. We thank you all for attending. You may now disconnect your lines and have a wonderful rest of the day.

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