Truist Financial - Earnings Call - Q2 2025

Executive Summary

• Truist delivered GAAP diluted EPS of $0.90 and adjusted diluted EPS of $0.91; TE revenue rose 1.8% QoQ to $5.035B, driven by 2.3% growth in TE NII and stable NIM at 3.02%.
• Results vs S&P Global Wall Street consensus: EPS modestly below $0.93 and revenue below ~$5.03B; adjusted revenue (TE) of $5.053B rose 0.7% QoQ and 0.7% YoY excluding 2Q24 securities losses, but investment banking/trading was softer QoQ (down $68M). Bold miss: EPS slightly below consensus; revenue below consensus (Consensus figures from S&P Global)*.
• Asset quality improved: NCO ratio fell to 0.51% (down 9 bps QoQ; down 7 bps YoY); NPLs/loans dipped to 0.39%; CET1 decreased to 11.0% as Truist repurchased $750M in shares and paid its dividend.
• Guidance: FY25 outlook unchanged (adjusted revenue +1.5–2.5%, adjusted expenses ~+1%, NCO 55–60 bps, tax rate ~17.5% effective/20% FTE); 3Q25 guide implies adjusted revenue +2.5–3.5% QoQ, NII +~2%, noninterest income +~5%, adjusted expenses +~1% and ~$500M buybacks.
• Catalysts: Improved CCAR results and preliminary SCB floored at 2.5% effective 10/1/25; capital return (buybacks/dividend) and expected 2H25 recovery in investment banking/trading.

What Went Well and What Went Wrong

What Went Well

• Linked-quarter growth and margin stability: TE NII rose 2.3% QoQ; NIM ticked up 1 bp to 3.02%; adjusted revenue (TE) up 2.1% QoQ.
• Loan and deposit momentum: Average loans +2.0% QoQ (HFI +$6.2B); EOP loans +3.3% ($318.8B); average deposits +2.1% QoQ ($400.5B).
• Management execution and tone: “We delivered strong second-quarter results,” citing strategic loan growth, higher NII, strong asset quality and capital return, with continued investments in talent and technology (Bill Rogers, CEO).

What Went Wrong

• Capital markets softness: Investment banking & trading income fell $68M QoQ (down ~25%), moderated by improvement late in the quarter; CFO noted April weakness with normalization by May/June.
• Expense pressure: Adjusted noninterest expense rose 3.1% QoQ, driven by personnel; efficiency ratio (adjusted) increased 70 bps QoQ to 57.1%.
• Revenue vs consensus: GAAP revenue of $4.987B below consensus (~$5.03B)*, with adjusted noninterest income down 1.4% YoY excluding prior-year securities losses.

Transcript

Speaker 2

Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Second Quarter 2025 Earnings Conference Call. Currently, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Brad Milsaps.

Speaker 3

Thank you, Betsy, and good morning, everyone. Welcome to Truist's Second Quarter 2025 Earnings Call. With us today are our Chairman and CEO, Bill Rogers, our CFO, Mike Maguire, and Chief Risk Officer, Brad Bender, as well as other members of Truist's Senior Management Team. During this morning's call, they will discuss Truist's Second Quarter results, share their perspectives on current business conditions, and provide an outlook for 2025. The company presentation, as well as our earnings release and supplemental financial information, are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliations to GAAP. With that, I'll turn it over to Bill.

Speaker 0

Great. Thanks, Brad, and good morning, everyone, and thanks for joining our call this morning. Before we discuss the second quarter results, let's begin like we always do at Truist with purpose on slide four. At Truist, our purpose is to inspire and build better lives and communities. It's more than a statement. It's the foundation of our strategy. It's the lens through which we make decisions and the reasons teammates show up every day with conviction and care. In the second quarter, we continue to bring this purpose to life in meaningful ways. We welcome a dynamic slate of new leaders across our company, reinforcing our commitment to attracting top talent to our already highly experienced and very capable teams. These leaders were attracted to our purpose-driven culture and are already making a meaningful impact, strengthening our presence in key growth markets and expanding our capabilities across high-potential verticals.

From sector-specific coverage to commercial and middle-market banking to small business, wealth, premier banking, and payments, our teams are deepening client relationships, driving new business, and positioning Truist for the long-term sustainable growth, all of which were evident in these second-quarter results. On slide five for the second quarter, we reported net income available to common shareholders of $1.2 billion, or $0.90 a share, which included $0.02 of restructuring charges related to severance and $0.01 of losses from the sale of certain investment securities. At a high level, our solid performance in the second quarter reflects the diversity of our business model and the execution of many of our strategic growth initiatives that we've been discussing now for several quarters. These initiatives include accelerating growth through the addition of new clients and deepening existing client relationships in areas like payments, wealth, and premier banking.

We're executing our plan while maintaining our expense and credit discipline and returning capital to shareholders. During the second quarter, average loan balances increased 2%, and end-of-period loans increased 3.3% in the quarter. Growth was broad-based across our consumer and wholesale segments and driven by increased loan production and new client acquisition. Our lending pipelines remain strong, and overall loan production is up significantly year over year. Growth should also benefit from our expansion efforts in markets where we have a smaller but growing share and from many of the new teammates that have joined our company. This quarter's loan growth helped offset the equity and debt market volatility that occurred early in the quarter. This volatility impacted trading, capital markets, and M&A activity for the industry, resulting in lower revenue for investment banking and trading businesses.

As you've heard me discuss previously, I'm confident that our advice-driven business model is well-suited to help our clients navigate current market conditions and continue to grow our share, given the ongoing investments we're making in talent, products, and industry verticals. We believe that our investment banking and trading business is well-positioned for a second-half recovery, as we saw steady improvement in overall investment banking revenue in each month during the quarter. Adjusted expenses did come in at the high end of the expected range, but we remain confident in our ability to deliver our 1% expense growth target and positive operating leverage in this year. That includes the impact of ongoing investments in talent and technology. We also maintain strong asset quality metrics, as both non-performing loans and net charge-offs were down nine basis points late quarter.

In addition, we also received favorable results from the Federal Reserve's annual stress test. We expect that our stress capital buffer will decline and be floored at 2.5% effective October 1st. Finally, we remain in a strong capital position, which allows us to support our balance sheet growth and return capital to shareholders. During the quarter, we returned $1.4 billion of capital to shareholders through our common stock dividend and the repurchase of $750 million of our common stock. Our share repurchase activity in the second quarter included $250 million of repurchases above our recent $500 million quarterly target, as we opportunistically took advantage of market volatility and weakness in our share price early in the quarter. We do plan to target approximately $500 million of share repurchases during the third quarter.

Before I hand the call over to Mike to discuss the quarterly results, I want to spend some time discussing the progress we're already making on our strategic priorities and the positive momentum we're seeing within our business segments and with our digital initiatives on slides six and seven. In consumer and small business banking, I'm encouraged by another solid quarter of consumer loan and deposit growth, net new checking account growth, and progress with our premier banking clients as we deepened relationships and acquired key new clients and households through digital and traditional channels. Net new checking account growth, which is a key measure for the growth potential and health of our company, was once again positive in the second quarter as we added nearly 37,000 new customers, new consumer, and small business accounts.

Importantly, we're attracting younger clients with higher average balances and greater median income, which aligns with our strategy to engage clients early and build enduring relationships over time. Average consumer and small business loan balances increased 2.8% late quarter, and end-of-period balances increased 3.8% due to growth in residential mortgage, indirect auto, and other consumer, with production up significantly year over year. Over the last year, we've added significant numbers of new partners and dealers to our Service Finance and Sheffield platforms, which is helping drive the growth in other consumer loan balances. We also saw a significant increase in loan and deposit production per banker in our premier banking segment, which is a key area of strategic focus. We're growing while also maintaining our credit and pricing discipline.

Consumer net charge-offs of 71 basis points reached their lowest level since the third quarter of 2023, and new production spreads remained accretive to the overall portfolio. In wholesale, I'm encouraged by this quarter's loan growth, improved production, and progress in key focus areas like payments and wealth. During the quarter, we saw 1.5% growth in average wholesale loans and 2.9% growth in end-of-period loans, driven by growth from new and existing clients and increased production. Average C&I growth was driven by all of our industry banking groups, with particular strength in FIG and energy, middle market lending, and structured credit. As I've mentioned previously, we have a specific focus on capturing more of the middle market. We've seen these balances increase in each quarter this year, driven by new clients in a wide variety of industries and in targeted select geographies where we continue to expand.

Year to date, we've attracted twice as many new corporate and commercial clients to our platform compared with the same period a year ago, while we're also seeing a 40% increase in revenue per client. In wealth, net asset flows were positive despite volatile equity and fixed income markets, as we saw a 27% increase in year-to-date AUM from wholesale and premier clients compared with the same period a year ago. Our payments team continues to launch new services that meet our clients' needs for solutions that provide them with speed, simplicity, and safety. During the second quarter, we also experienced more digital innovation. Truist became the first financial institution to approve requests for payment over the RTP network via an alias such as a cell phone or an email address.

This innovation is designed to unlock meaningful value for both commercial and consumer clients, accelerating cash flow, improving reconciliation, and delivering real-time confirmations. These enhancements, along with continued investments in our team, have driven a meaningful increase in treasury management penetration rates with our existing clients and helped drive a 14% increase in treasury management revenue versus the second quarter of last year. Enhancing the client experience and growing our digital capabilities are also important parts of our strategy. Let me discuss that in detail on slide seven. We continue to see strong momentum in our digital strategy with meaningful progress, platform integration, engagement, and production. In the second quarter, digital account production rose 17% year over year, with 43% of new-to-bank clients joining us through digital channels, a 900 basis point increase versus the second quarter of last year.

This momentum reflects investments we've made in our digital platform and improvements we've made to the digital onboarding experience. A key milestone this quarter was fully integrating Lightstream lending products into our digital platform under the new Lightstream by Truist brand. This integration expands access to lending solutions for all Truist clients and further strengthens our digital offering. We're also seeing deeper engagement across our digital platform. More than 1.8 million clients are now using our digital financial management tools, and that's a 40% increase from last year. Together, these results highlight the strength of our digital foundation and our continued focus on delivering value, operating efficiently, and deepening client relationships. We expect to continue growing our digital presence with clients as we further leverage our modern and scalable technology platform. Now, let me turn it over to Mike to discuss our financial results in more detail. Mike.

Speaker 1

Thank you, Bill, and good morning, everyone. I'll start with our financial performance highlights on slide eight. We reported second quarter 2025 GAAP net income available to common shareholders of $1.2 billion, or $0.90 per share. As Bill mentioned, included in our results are $0.02 per share of restructuring charges, which are primarily related to severance. In addition, our results included an $18 million pre-tax loss or $0.01 per share after-tax related to the sale of $398 million of lower-yielding investment securities. We invested the proceeds from the sale into higher-yielding investment securities and anticipate an earnback of approximately two years. Moving now to Q2 2025 results. Adjusted revenue increased 2.1% linked quarter due to 2.3% growth in net interest income and 1.8% growth in non-interest income. Adjusted expenses increased 3.1% linked quarter, primarily due to higher personnel expenses related to annual merit increases and strategic hiring efforts.

As Bill mentioned, our asset quality metrics showed improvements with non-performing loans and net charge-offs declined on a linked quarter basis and year-over-year basis. Next, I'll cover loans and leases on slide nine. Average loans held for investment increased 2% on a linked quarter basis due to growth in both average commercial and average consumer loans. End-of-period loans increased $10.2 billion, or 3.3%, split evenly between commercial and consumer loans. Average commercial loans increased $3 billion, or 1.6%, due to $3.3 billion of growth in C&I loans, partially offset by modest declines in CRE and commercial construction loan balances. In our consumer portfolio, average loans increased $3.2 billion, or 2.7% linked quarter, due to growth in residential mortgage, indirect auto, and other consumer.

Other consumer loans, which primarily include Sheffield and Service Finance, are typically seasonally strongest in the second and third quarters of the year, but are also benefiting from new partners and dealers added to the platforms throughout the course of the year. Moving to deposit trends on slide 10. Average deposits increased $8.3 billion sequentially, or 2.1%, driven by growth in interest checking, time deposits, and non-interest-bearing demand. Average deposit balances were impacted by $10.9 billion of short-term client deposits that we discussed on last quarter's earnings call. These deposits remained on our balance sheet for the entire quarter but have since been withdrawn. Excluding the impact of these deposits, average deposit balances would have been down slightly on a linked quarter basis.

As shown in the chart on the bottom right-hand side of slide 10, our cumulative interest-bearing deposit beta declined from 43% to 37% on a linked quarter basis. If you were to exclude the impact of the two larger short-term deposits, the rate paid on interest-bearing deposits and our cumulative interest-bearing deposit beta would have been relatively stable. Moving to net interest income and net interest margin on slide 11. Taxable equivalent net interest income increased 2.3% linked quarter, or $80 million, primarily due to the impact of loan growth, fixed rate asset repricing, and one additional day in the second quarter. Our net interest income, or margin, increased one basis point on a linked quarter basis to 3.02%. As you can see on the top right-hand side of the slide, we updated our outlook for fixed rate asset repricing.

We expect to reprice approximately $27 billion of fixed rate loans and investment securities over the remainder of 2025. Depending on the level of loan and deposit growth in the second half of 2025, we may opt to use cash flow from the investment portfolio to fund a portion of our loan growth for the remainder of the year. Based on our current view of interest rates for the remainder of 2025, we anticipate that new fixed rate loans will have a run-on rate of around 7% compared with a run-off rate of approximately 6.4%. We also updated our swap portfolio disclosure in the bottom right-hand corner of the slide. This reflects a small increase in our receipt fixed swap program from the prior quarter. Turning to non-interest income on slide 12.

Adjusted non-interest income increased $25 million, or 1.8%, versus the first quarter of 2025, as growth in our other income was partially offset by lower investment banking and trading revenue. The linked quarter increase in non-interest income was primarily attributable to an $83 million increase in other income related to higher NQDCP income, which is offset by personnel expense and income from certain equity investments and other investments that were lower in the first quarter of 2025. Investment banking and trading income declined $68 million, or 25% linked quarter, reflecting weaker trading results, lower capital markets activity, and lower M&A volumes during the first half of the second quarter. Early in the quarter, our trading business, which primarily supports our investment banking franchise, incurred losses driven by market volatility.

The month of May was much improved, and June was more consistent with the performance we have historically experienced in this business and would expect to perform for the remainder of the year. As Bill mentioned, we also saw improvement in investment banking in the second half of the quarter, and we remain optimistic about investment banking and trading revenue improving in the second half of 2025, based on our current pipeline and an improvement in overall activity. On a linked quarter basis, adjusted non-interest income declined $20 million, or 1.4%, compared to the second quarter of 2024, primarily due to lower investment banking and trading income and lower wealth management income due to the sale of Sterling Capital Management in July 2024. Next, I'll cover non-interest expense on slide 13.

Adjusted non-interest expense, which excludes the impact of restructuring charges, increased 3.1% linked quarter, due primarily to higher personnel expenses related to annual merit increases and strategic hiring efforts. On a year-over-year basis, expenses remained well controlled and were up 2.1%, due primarily to higher professional fees and outside processing expense related to ongoing investments in technology and in our risk infrastructure. Moving now to asset quality on slide 14. Our asset quality metrics remained strong on both a linked and year-over-year basis, reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. Net charge-offs decreased 9 basis points to 51 basis points linked quarter, and we're down 7 basis points versus the second quarter of 2024, as we benefited from lower consumer and CRE losses on both a linked and year-over-year basis.

Our loan loss provision exceeded net charge-offs by $92 million, but improved outlook for loss rates in certain portfolios like CRE Office and Multifamily contributed to a 4 basis point decrease in our ALLL ratio to 1.54% of total loans. Our CRE Office portfolio, which represents just above 1% of total loans, declined almost $500 million linked quarter on an end-of-period basis. Non-performing loans held for investment, as a percentage of total loans, decreased 9 basis points linked quarter and 7 basis points on a year-over-year basis to 39 basis points of total loans. We saw linked quarter improvement in several categories, including CRE and C&I non-performing loans, which helped drive our non-performing loan level to multi-quarter lows. Turning to capital on slide 15.

On a linked quarter basis, our CET1 ratio declined 30 basis points to 11%, as balance sheet growth, $750 million of share repurchases, and the payment of our common dividend more than offset current period earnings. Our CET1 capital ratio, including the impact of AOCI, declined 30 basis points linked quarter to 9.3%, reflecting the aforementioned factors. During the quarter, we also received favorable CCAR results, resulting in a 50 basis point decrease in our total loss rate. And a 90 basis point decrease in our CET1 erosion rate. As a result, we anticipate our stress capital buffer to decline 30 basis points and to be floored at 2.5% effective October 1st. At June 30, our CET1 ratio was 400 basis points higher than our new regulatory minimum of 7%, leaving us well positioned to both grow our balance sheet and return capital to shareholders.

Next, I'll provide additional color on our guidance for the third quarter of 2025 and for the full year. That's on slide 16. For full year 2025, our outlook for revenue and expense growth is unchanged. We continue to expect revenue to increase 1.5%-2.5% relative to 2024 adjusted revenue of $20.1 billion. Net interest income remains on track to increase 3% in '25 versus 2024. Our net interest income outlook assumes low single-digit average loan growth and two 25 basis point reductions in the Fed Funds rate in September and December, compared with three previously in June, September, and December. We expect non-interest income to remain relatively flat in '25 versus 2024.

In terms of our outlook for adjusted expenses, we continue to expect full year '25 adjusted expenses to increase by approximately 1% in 2025 versus 2024, which is also unchanged from our previous guidance and continues to imply positive operating leverage of approximately 50-150 basis points. In terms of asset quality, we expect net charge-offs of 55-60 basis points in 2025, compared with 60 basis points previously. Finally, we expect our effective tax rate to approximate 17.5%, or 20% on a taxable equivalent basis in 2025, compared with 17% and 20% previously due to a lower contribution from non-taxable income and certain tax law changes in states in which we operate. Looking into the third quarter of 2025, we expect revenue to increase approximately 2.5%-3.5% relative to second quarter revenue of $5.1 billion.

We expect net interest income to increase approximately 2% in the third quarter, primarily driven by loan growth, the benefit from fixed asset repricing, and an additional day in the third quarter relative to the second quarter. We expect non-interest income to increase by about 5%, driven primarily by higher investment banking and trading income, partially offset by lower other income. Adjusted expenses of $3 billion in the second quarter are expected to increase about 1% late quarter. As it relates to buybacks, as Bill mentioned, we plan to target up to $500 million for the third quarter. With that, I'll hand it back to Bill for some final remarks. Great. Thanks, Mike. At the beginning of the year, we outlined several strategic priorities that would be key to driving our performance this year and beyond.

These top priorities included a keen focus on executing our strategic growth initiatives, driving positive operating leverage, continuing to invest in talent and technology, maintaining our credit and risk discipline, and returning capital to shareholders. Although there's still a significant amount of opportunity that lies in front of us, I'm pleased with both the performance and the momentum at the midpoint of this year. We're seeing solid progress in our key strategic focus areas, including premier banking, wealth payments, and middle market, as production deepening with our existing client base and banker productivity have increased in all areas of our business. We also remain on track to deliver our goal of positive operating leverage in 2025, despite what's turned out to be a more challenging first six months in our investment banking and trading business.

We continue to invest in important areas like talent, technology, and our risk infrastructure to improve the client experience. Our credit and risk discipline has remained strong, as evidenced by our favorable CCAR results and the improvement in asset quality metrics, which currently sit at multi-quarter lows. Finally, our strong capital position continues to afford us the ability to grow our balance sheet while also returning more than $2.6 billion worth of capital to our shareholders through the first half of the year. We will remain focused on these key strategic initiatives as we strive to generate better returns and greater shareholder value over time. I am optimistic as ever about our future, especially in light of the momentum that I see every day inside our company. I want to pause and thank all of our incredible teammates for their purposeful focus and productivity in moving our company forward.

Thank you all for your interest and Truist. With that, let me turn it over to Brad for Q&A. Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q&A session? As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one follow-up in order to accommodate as many of you as possible today. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you limit yourself to one question and one follow-up.

At this time, we will pause momentarily to assemble our roster. The first question today comes from Scott Siefers with Piper Sandler. Please go ahead. Good morning, everyone. Thank you for taking the question. Bill, it was really nice to see the strong loan growth. I was hoping you could spend just a quick second sort of expanding upon your thoughts on sort of overall sentiment among your customer base, I guess, especially on the interested on the commercial side, but maybe kind of across the portfolio given the stronger second quarter. Yeah. Scott, thanks for recognizing that. It's interesting. Let me start with the consumer side first. Our consumer business continues to be really strong. Consumers are staying in the game. The quality of the consumer, particularly as it relates to our portfolio, continues to be strong. We've had really good credit quality as part of this production.

That's been a lot of the initiatives and things that we put forth. It also is a lot of product-specific things, so things we're doing in Service Finance and doing in Sheffield and doing in Lightstream. We're relevant to how consumers want to borrow. I think that's a really important component of our growth story on the consumer side in terms of loans. As it relates to the wholesale side, our clients also came into this with a lot of strength. A lot of liquidity got through sort of the post-COVID supply chain and all those issues. Still some wait and see in fairness. I mean, I think I'm really pleased with our results given the fact that there's still some uncertainty out there. Some certainty was cleared in the last several weeks. Think about the tax bill. Think about some of the other things that have come in place.

A lot of our activity, which I'm really happy about, is with new clients. So these are new to Truist. So clients who are wanting to experience what we have to offer are impressed with our purpose-driven focus, impressed with the products and capabilities. I talked a little bit about treasury management and whatever. So some of it's unique to Truist. Some of it's unique to our markets that are really healthy. I think we have a reason to still feel confident about where both our consumers and our business and wholesale clients are going forward. Terrific. Okay. Thank you. Then, Mike, I was hoping you could apologize if you mentioned this in your prepared remarks, but just given the small step down in the anticipated pace of repurchase in the third quarter, and I understand April in particular might have presented kind of a unique opportunity on pricing.

But maybe just sort of thoughts on why this stepped down in the anticipated pace of repurchase and then just thoughts on sort of broader capital management ambitions, especially given the lower SCB results. Yeah. No problem, Scott. For us, the $750 versus $500 really was opportunistic as we watched the price simply present itself at a more attractive level. At $500, coupled with our dividend, we're at around 100% of total payout. We feel like that's appropriately elevated given our current capital position. If you look at the quarter and sort of year to date, we are seeing the balance sheet growth that we've all been focused on. So we still continue to prioritize our banking franchise first and then capital return second. So I think a return to $500 is probably a reasonable place to expect us to stay for the medium term.

The SCB, we were pleased with the results there. I mean, I would say that our outcome was consistent with our expectations. We expected in a less severe scenario to see improved loss rates. We feel like the balance sheet was in a touch better condition. We appreciated some of the transparency that we saw this year with the process, saw some improvements in PP&R modeling, etc. TIH was, we feel like, appropriately dealt with. So all in all, I felt good about those results. I don't think that has necessarily an impact on how we think about a target operating area for capital. We've been pretty consistent that we think sort of a 10% CET1 ratio area is appropriate. If you look at our result this quarter, we're at 11% stated and 9.3% adjusted for AOCI, and you sort of split the middle is sort of 10.

So I think you'll see us continue to glide towards that 10% area, assuming, by the way, that we see a rule finalized at some point here. Okay. Perfect. All right. Thank you all very much. The next question comes from Ken Upton with Autonomous Research. Please go ahead. Hey, thanks. Good morning, everyone. Good morning. I was wondering if we could start. You talked about the deposit costs and some of those higher costs coming off already in the second quarter. Just talk about underlying deposit competition. Obviously, you're seeing good loan growth and you're funding that incrementally as well. What do you expect to see in terms of deposit costs from here ahead of getting any incremental help from rate cuts? Thanks. Sure. Good morning, Ken. I'll start with that one. Maybe, Bill, you can add.

I'd say, first and foremost, we're pretty pleased by how the deposit franchise is performing. We've seen some real strength, especially on the consumer side of things. It is competitive. We think sort of rationally competitive. Look, we had a little bit of noise in the second quarter with the large sort of temporary M&A-related deposits. Ex those deposits, we would have been down a touch. That would have been consistent with what we would have otherwise expected, just given some seasonal tax outflows and the likes. From a pricing perspective, as we move into sort of the third quarter and the fourth quarter, I think just losing the 10.9 that we footnoted in our disclosure, we would expect to see balances probably a little bit lower in the third quarter, but we would expect to make up, hopefully, some ground on pricing.

Maybe you see the betas move closer to a 40% area or so. By the way, I think that contemplates a cut, even though it's late, we think we might have some ability to get a touch ahead of that. In the fourth quarter, we would expect continued momentum. If we get that second cut in the fourth quarter, maybe you start to see a little bit better rotation into some of the checking products, continued momentum on the production side and consumer. In wholesale, by the way, we've been onboarding a number of bankers in our new sort of corporate and commercial banking hiring. Feel pretty good that we might see a little bit of a bounce in the fourth quarter. We also have public funds coming online in the fourth quarter.

All things equal, in our outlook, we assume getting back to sort of a mid-40s beta by the end of the year. Again, that's with two cuts. Maybe I'd add, Ken, on the competitive side, maybe sort of break it up a little bit on the consumer side. We've sort of got two prongs going really well right now. One is the net new story, which is really important. We're adding relationships. As I mentioned, they're more profitable, younger, higher median income, so really good net new story. Then our deepening story with existing relationships. So that's also a really strong part of our component here in growing not only the net new, but also growing the overall balances. So you saw some pretty good growth on the consumer side. Really good growth in some of our expansion markets, which we've talked about.

And then maybe more importantly, we really had some contraction in fairness in some of our key markets, and those are reversing. So think about markets like Charlotte, Tampa, etc., where we're really pleased with what we're seeing in some of the early share numbers in those markets. So our relative competitiveness has increased significantly. Mike talked a little bit about the wholesale side. I feel like we're building momentum there. So if we think about the new relationships that we're bringing in, much deeper penetration with those relationships. They're now coming with treasury relationships. Deposits tend to follow that. So I think we have some good leading indicators on the wholesale side as we think about the deposit franchise. So I feel good about the momentum. It is competitive, but most importantly, I feel really good about our competitive positioning.

I don't think we've actually been better positioned than we are right now. Got it. Thank you. Just a second question on the fee side. You mentioned the obviously, we knew about the IB softness in April. You also mentioned the trading. Is there a way you can help us understand what that bounce back looks like amidst your commentary about just stronger expectations? Also just do we know how big that DCEP benefit was on the other side as well? Thank you. Yeah. Sure, Ken. On the trading and banking side, what I'd say is we saw weakness in both, especially in the month of April. Then May a little better. Then June almost fully recovered. Actually, if you look even into July, we're seeing more normalized results.

So I think it's been that trend that gives us the confidence that in the third quarter, we'll be back to a normalized level. Again, also in the fourth. Was your second question on the non-qual? Yes. Yeah. So let's see. In the quarter, non-qual was better, I think, $25 million. So where you'll see that from a geography perspective is in other income, you're higher. But from a PP&R perspective, it's neutral because you also would see an increase in personnel expense by a similar amount. Okay. Perfect. Got it. Great. Thank you. Yep. The next question comes from Abraham Kunawala with Bank of America. Please go ahead. Good morning. I guess two questions. Maybe, Mike, for you, as we think about the trajectory of how we get to a 15% ROTC or at some point.

When I look at the operating leverage, and you spelled it out very clearly on slide eight. Just talk to us. There wasn't much this quarter. It was barely anything in the first quarter. As we think about the positive operating leverage kicking in, is it back half loaded? Was that sort of the view, or do we need a meaningful pickup in fee revenue growth to actually drive that in order to sort of narrow that gap to the 15% ROTC? Thanks. Yeah, I think there's a variety of things that are going to contribute to improved profitability and returns. Ibrahim, you hit on one. We do have an expectation. We've talked a lot about the initiatives that we've undertaken, the investments that we're making to improve just our ability to drive more, I'll call it capital-efficient revenue through our existing sort of asset base and client base.

Some of that's product. Some of that's deepening with existing clients. Some of that's continuing to invest in our businesses like Wealth, like our Wealth products, like investment banking. So yes. And then, of course, also, we expect to see some improvements in our margin. We're seeing the fixed rate asset repricing phenomena that should continue for the rest of this year and next year. We're going to continue to drive sort of smart growth. Funding is obviously a really important part of that. We're very, very focused on continuing to drive client deposit growth. That's not always perfectly matched. You're seeing that this quarter where loan growth is perhaps a touch ahead of deposit growth. That doesn't mean that we're not very, very focused on continuing to drive balances and operating accounts and so on and so forth.

So it's not going to be an overnight story, but we should continue to see sort of continuous improvement in that ROTC. Got it. And I guess, Bill, I think you mentioned in your prepared remarks around the RTP capability. I'm just wondering the significance of that in terms of getting more commercial deposits. Is there a case to be made where you could see a much increased wallet share on the commercial clients where you've been making a big push? Just give us a sense of how we should think about that opportunity, particularly as it relates to fee revenue or deposit growth. Thanks. Yeah, thanks. I mean, I highlighted one product, so it's not one product doesn't drive, but I think it's just evidence of our innovation and evidenced by our overall improvement. So treasury management fees being up 14%. Much more deepening with the wholesale relationships.

The new relationships come now with treasury management penetration that more reflects what we think the backbook can get to. So it's a combination of a lot of things and our overall relevance to clients. That specific product is sort of a unique product that allows clients to have faster, safer disbursements with the consumer side. So it's a nice sort of meet of the consumer and the wholesale side in terms of how funds flow. But I think it's a bunch of things. It's a bunch of different investments that we've made. And again, evidenced by the growth that we've seen. I think deposits, as I said, these are leading indicators. I think deposits are a bit of the lagging indicators that come with more treasury business, more operating accounts that drive that. Got it. Thank you. Great. The next question comes from Betsy Graseck with Morgan Stanley.

Please go ahead. Hi. Good morning. Morning. I wanted to turn to expenses for a minute here and understand a little bit more about the restructuring piece of the expenses that you called out because I know you mentioned severance and wanted to understand how much of that is severance. Is that severance related to the merger from years ago or something else? Then also just to understand a little bit more about how you're thinking about the investments needed to continue to build. I mean, you're already building, so I'm assuming it's in run rate, but maybe you could give us a sense as to where the incremental investments you're making today. Are they at pace, or is there an accelerator there? Thanks. Mike, why don't you take the first part of that, and then I'll take the second part if that's okay. Yeah.

I mean, all but I think $2 million of the restructuring charges in the quarter were related to severance. It was not merger related. These were repositioning of different parts of the company. I won't go into any specifics, but that's the answer to your question. Yeah. We're always trying to continue to drive that efficiency as we go through. So I think that's not merger related, but also just restructuring and getting aligned with our strategic priorities of our businesses. Then, Betsy, I think your bigger question is, can you maintain a 1% expense growth and then continue to invest in the company? The answer to that's yes. Because we continue to have—I mean, if you think about sort of end of '23. We put a lot of cost-saving disciplines into our company. They continue to accrue, meaning the discipline continues to accrue. Compliments to Mike.

He's done a really great job of creating a process for us that we've got a lot of discipline. We sort of know what's next up on the expense side, and we know what's next up on the investment side. So we've got a good calibration of thinking through that. Then the top priorities for investing are—I think we talked about all those, and hopefully some of the prepared remarks—enhancing our digital platform. You've seen the results of that. Payments and product capability. I mean, I was intentional in mentioning some of the product capability that we've been investing in and seeing the results of that. Hiring and retaining talent continues to be a big part of what we're doing. You see all those in the results.

The infrastructure part, it's a little harder to see, but investing in the risk platforms, the data platforms, cyber controls, all the things that we need to do to make sure that we're running a great company. So I think we've got the calibration of this right that we can continue to invest in the company. Our teams and our leaders sort of get the save a dollar, invest a dollar kind of mentality. I think we've got good calibration and good understanding of those levers of the company. Yeah. The callout that you gave earlier, Bill, on the payments piece was—what I got from that, tell me what I missed—is that corporate treasurers can now process activity via their cell phones 24/7. Well, it's really disbursements. The disbursements can relate to sort of how consumers want to interact.

So they can have disbursements related to aliases like cell phones, as an example. So that's a really pretty big advancement. So think about how disbursements are made, that this can be done the way the client wants to receive it. It speeds up the interaction with the business and the consumer. So it's sort of a twofer in the sense it's really good for the companies in terms of understanding their cash flow and really helps their businesses. So you think about the best product is we're helping a client achieve their objectives. This is 24/7 real-time, is that right? Yeah. Yeah. Yeah. Okay. Thank you so much. The next question comes from John Pencary with Evercore. Please go ahead. Morning. Hey, John. Morning.

Just on the expense front, I know you had indicated that numbers came in a little bit the higher end of your expectation, and part of that is your investments and your hiring. Can you just talk about the flexibility there? I mean, how can you manage that or what are the areas of managing it if you do see revenue remain stubborn here? Do you have as much flexibility given that you're still hiring in select areas and investing in the businesses and select areas of technology? So can you just talk about the ability to drive the positive operating leverage regardless of the uncertainty on the top line? Yeah. John, Mike, I'll respond to that one.

I mean, certain of our businesses, as an example, if you look at our outlook, you might say, "Well, maybe there's risk in this business." In a lot of cases, if we're doing our jobs, our incentive designs are performance-sensitive, right? So to the extent that revenue doesn't sort of present itself, then we'll obviously take appropriate actions related to incentives. So that's a part of it. I'd say the later you get into the year, just to say it, it does get a little harder to stop and start things. But we've actually been pretty planful as it relates to that. So we generally keep a number of. Levers handy in the top drawer, whatever, such that to the extent that the environment does change, we can be flexible.

I mean, I think we're crystal clear on the importance of generating positive operating leverage this year and into the future. That is a real focus of our planning. I don't know how else to say it, but we just feel really confident in our ability to deliver. There. Got it. Okay, Mike, thank you for that. Just separately, on the loan front, I just wanted to see if I can get a little bit more color on the low single-digit outlook. I know, Bill, you had mentioned on the commercial wholesale side, it's a bit of a wait-and-see still. I guess if you give a little bit more color, where in the back half do you see commercial growth accelerating? Maybe what areas or what would be the drivers? Is it M&A financing, or do you see CapEx actually becoming a greater driver?

Maybe just talk about the line utilization aspect. Thanks. Yeah. Let me start with the back part too because I didn't really talk about that earlier. Line utilization is actually pretty flat. If we think about the components of loan growth, the components are production, paydowns, and utilization. Paydowns have been pretty flat. Utilization has been pretty flat. There are pockets, the asset securitization, some of those others, they have a little bit, which I think is probably maybe tariff-related. Overall, pretty flat. The story for us has been production. Our confidence in sort of maintaining this is that we're producing at a pretty high level. That has tail attached to it. The quality of what we're producing is really, really high. Think about left leads, think about treasury penetration, and then a lot of net new.

These are a lot of new clients that we continue to have an opportunity to expand with. I do think paydowns could increase on the backside, by the way. That is something to actually think about in terms of how do we maintain. They could increase with capital markets opening back up, clients getting more active in that. By the way, we'll benefit from that. Our capture rate on clients that use the capital markets is really high. We've sort of been through those cycles before. Really, it's a production story. We've had consistent now production story, and it's a new client story. It's a new markets story. I think we feel confident. We've got good momentum. I think we just feel confident in where we are in the second half. What we have today is funding a lot of growth. On the consumer side, we talk about the consumer.

Yeah, on the consumer side, similarly, really, really great production stories and consistent production stories. We have a little seasonality. I think I mentioned that earlier. We have a little seasonality. If you think about our businesses like Sheffield and Service Finance, you think about the markets we operate in and HVAC and lake-related activities and mowers and those kind of things. There's a little bit of seasonality in that. Again, the overall production numbers are really strong. And expansion. So I think a lot of new dealers, I mentioned before. To those businesses. So some of it's market, some of it's idiosyncratic to us and our initiatives and focus and relevance and importance with our clients and our markets. Got it. All right. Thank you, Bill. Appreciate the color. Yep. The next question comes from Mike Mayo with Wells Fargo. Please go ahead.

Hey, first, a CFO question and a CEO question. The CFO question is, what do you think about a normalized NIM, or where should NIM be over time, and how long might it take to get there? Then the CEO question is. How much of your time has been spent on the merger and regulation if you go back one to two years ago, and how much time should be freed up given this kind of new world now that you're fighting back and more in offense? Thanks. Hey, Mike, I'm up first, I guess. On the NIM, you saw a basis point better this quarter. We would expect that positive trend to continue into the third and fourth quarter. I think your question was more, what's normalized? Yeah, I'm not sure there's a normalized. I would expect us to continue to.

If the operating environment is relatively normal, to continue to improve. I think last year, at some point, we said we thought maybe a three teens area, maybe even a touch better, is achievable. That contemplates the balance sheet sort of continuing to evolve with kind of rolling up the curve, so to speak. Frankly, in our case, as we think about the second half of this year and next year, getting some of the cuts and being able to drive beta as a touch. I think three teens is a reasonable expectation. It could be a little better, a little worse. Just to say it because I think I mean it, we really do focus on NII growth. Of course, profitability is a really important to us too, but sort of quarter to quarter.

The size of the balance sheet can change, you know this, but over a longer period of time, I'd like to see us more in that neighborhood than where we are today. Right. Then, Mike, I hope you think I can answer a CFO question too, by the way. I think they don't have to be distinguished. To go into the sort of the time span and merger and regulation, I'd say focusing on the merger integration is behind us. I think that's the real pivot that you feel. The regulatory stuff's sort of tectonic. I mean, it doesn't move at really high rates of speed. Mike, you and I have talked about this a lot of times. The J curve, if you think about our merger, was longer and deeper than we anticipated. So we sort of have to own that.

We're at the accelerant part of that J curve. So we don't look back. We're not inhibited by integration issues. All of that's behind us. All the things that we see in terms of growth initiative, client service. Teammates on the ground, those who want to be with us or with us, and those who have joined us are fired up and ready to go. The investments we're making are starting to pay off and create momentum. So I think the large part of what you see here is integration being clearly behind us and everything that goes along with integration. We're on that positive, high part of the slope of the J curve in terms of moving forward. Net new, probably a really good example, net new in terms of consumer and new in terms of wholesale. So clients and markets are attractive.

We're turning the corner on some of the deposit share opportunities in some of our large markets, which has been really, really great. Again, on the regulatory stuff, I think that's more of a go-forward thing. Things don't shift quickly. They don't have stair step. All of a sudden, somebody's new in the office, and we spend a lot of less time. We want to create a really good risk infrastructure for our company. There are things that we're going to do, whether we're asked to do them by a regulator or not, because we want to be sustainable, long-term. Great governance and great risk controls to think about what the future opportunities are in our business. I think the big one for us, Mike, is the integration is fully behind us. We've taken it out back and put it to bed. So just a short follow-up, Bill.

So I mean, I think a lot of your competitors for a few years there, that Truist was the gift that keeps on giving in terms of giving up share. You talked about the J curve being deeper and longer than you expected. My sense is it's a little bit more of a knife fight in the Southeast. I mean, it's just really competitive. It seems like you're really reinvigorated to go at it really hard. Can you just talk about the competitive dynamics? It's the fastest-growing market, but it also seems like some of the most competitive. How do you adjust for that? Mike, it's always been competitive. So I think that's maybe the important part of this. This isn't sort of new to a market. It's always been competitive. Some new entrants, but also really sophisticated large competitors who we've had for a long time.

Maybe I won't get into the knife fight comparison, but I just don't think we've ever been better competitively positioned. So our ability to sort of win every day, win every client. Compete with prowess and advice and capabilities, we've just never been stronger. Our team, they've got a bring-it-on attitude. They've got a champion mindset. I mean chinstraps are buckled. Trust me, we're in the game and competing really, really hard. You see that, start to see that now in our results in a couple of quarters worth that benefit. I think you're going to continue to see it. Just real short follow-up. Just compared to before the global financial crisis, I guess maybe the crazies are off the street. It might be competitive, but is it rational? We just have a lot of sophisticated competitors. I mean, so we compete a lot on product capability and advice.

I mean, that's sort of how we want to lead. Are we giving the best advice? Are we most relevant to our clients? Are we satisfying their needs? Are we introducing relevant opportunities to help them grow and help them achieve shareholder value for their companies and for the individuals to help them grow along their platform and increase their capabilities to satisfy their needs and grow and prosper? So I think it's a sophisticated competitive market, and we're a sophisticated competitive force. Thank you. Yep. Ladies and gentlemen, we ask that you limit yourself to one question going forward to accommodate everyone. The next question comes from Chris Marinetti with KBW. Please go ahead. Oh, great. Good morning. Thanks for the question.

Bill, just going back to the expense comment for a moment in the operating leverage, I think you talked about not only this year but over the next several years generating positive operating leverage. I'm wondering if that narrative gets at all easier given with the progress on deregulation. I guess that's the first point. Then two, I'm interested in whether that might be. Any savings might be used to increase technology to compete more with the Capital Ones. Thanks. Yeah, Chris, I think it's a lot of things. Again, I don't see the stair step on the regulatory and expense side. Over time, yes, but I think that's just a result of us having better infrastructure, better governance, better foundational elements that we can operate on. We have invested a lot in those over the last few years. So that has been a significant part of our investment.

Again, I would say that's more us versus sort of regulatory-driven necessarily. But I think your other point's exactly right. By the way, throw other technologies, throw AI into this, throw other developments and opportunities on the expense savings side. As long as we continue to see ways to invest and grow our markets, I think we do have those kind of trade-offs. The best way to drive operating leverage is to grow the top line. So we want to use some of the expense saves and some of the opportunities to continue to drive revenue and get that mix right. So having positive operating leverage with no growth is not a good outcome. So we want to have positive operating leverage and growth that reflects the markets and opportunities that exist for us. Some of the areas Bill's talking about are they self-fund, right?

So there are investments we can make and things that create efficiency. There are a number of those right now, given the innovation that's happening. That's also a phenomenon that's helping support that positive operating leverage expectation. Exactly. Thanks. The next question comes from Steven Alexopoulos with TD Cowen. Please go ahead. Hey, good morning, everybody. Good morning. Welcome. Thank you. I wanted to try to better understand the sensitivity of the guide to rate cuts. The question is, if we don't see any rate cuts, do you guys think you could still get into that revenue range and the positive operating leverage range for the year? Hey, Steve. Good morning. Yeah, I think we could, right? I mean, I think the answer is probably it depends. I think the shape of the curve matters a lot.

I think to the extent we didn't get the cuts, and we see a pretty stable, call it two-year, or maybe we even stay a touch higher, I think those forces would offset one another. I think if you saw no cuts and you saw the long end lower, as an example, that would maybe create some risk. But I think at the end of the day, I don't think we feel super sensitive to the rate path second half of the year. On our revenue outlook, we're going to be working pretty hard to manage our funding costs and to generate good core funding. It's probably more of a watch item for next year, right? We'd love to get more cuts sooner and keep it going, but yeah, I mean, most of it's embedded for this year.

I mean, our rate cut forecast is towards the end of the year, and you're going to have pretty small impact. It really ends up being a lot more curve shape, I think. Yeah, curve shape. Got it. Okay. I'll limit myself to the one question. Thanks. Thanks, Steve. The next question comes from Matt O'Connor with Deutsche Bank. Please go ahead. Good morning. Just wanted to circle back again on the investment banking, capital market fees. Look, I mean, I know versus the big banks, it's hard to comp you guys versus regionals. Everybody's got a little bit of a different mix. I guess I was surprised how low the number was. Your characterization of June is kind of being more normalized as opposed to maybe kind of strong, as we're hearing elsewhere. So just trying to understand, is it a mixed difference? Is it timing?

Is it we're going to have this massive number in three Q and those questions pretty irrelevant? How should we think about that a little bit more? Yeah, thanks, Matt. I mean, sort of remember, sort of distinguish between the large guys. I mean, we have a trading business that's driven by our client business, right? We don't have sort of a separate trading business. In April some of those markets were substantially disrupted. I mean, think sort of the public finance market as the prime example. We have a good business in public finance. By the way, it's a huge deposit driver for us. So it's an important part of our overall business structure. So that was a case where that was probably as a weighted element, probably a little more idiosyncratic to us in terms of a little overweighting in our treasury, but not overweighted to our business.

I think that's sort of the way to think about it. On the M&A front it's a little bit like which deals are you in? So we had a lot of deals get deferred during the second quarter. By the way, none went away. Many are back in the market already. So there's a little bit of there's reason to be optimistic that didn't really change the trajectory. As Mike mentioned, June's sort of back on track. I mean, sort of May got better. June's back on track. All the elements that you see in loan growth and new clients and building our corporate banking business and all those elements, those are all regular way business that we've been doing for decades. I think we have every reason to be confident that we'll continue to be on that trend.

So a little bit was the client-oriented businesses that we're in and the businesses that we support. But I think that diversity also really benefits us on the other side. Okay. Thank you. Yeah. Thanks, Matt. The last question today comes from Gerard Cassidy with RBC. Please go ahead. Hi. Good morning. This is Thomas Liddy standing in for Gerard. Just a quick high-level question on credit quality. So it was strong in the quarter, and many of your peers also saw pretty healthy metrics. Given all the noise and uncertainty in the macro and geopolitical environments, and I'm not asking you to comment on other banks' credit trends, but what, in your view, is driving the generally strong credit results this quarter? I'm going to let Brad Bender do that, Brad. Yeah. Thanks, Thomas.

As you mentioned, we did see strong performance and continue to see signs of stabilization and resilience. I think in terms of the short run, it really is around we're starting to see some certainty that is helping. There are some macros out there that we're watchful. That is also why you saw us revise the guide into the 55%-60% range. CRE, we see that that sector now is largely behind us. You saw some adjustments there. So the teams really continue to perform really strongly there. We took the right actions several periods back. I'd say areas that we continue to just focus on and watch is around what is consumer confidence, where is spending, what are those cost pressures that are in the system? If all of those continue to hold, we see really strong positive trends to continue. Great. Thank you for taking the question.

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Milsaps for any closing remarks. Thank you, Betsy. 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. Betsy, you may now disconnect the call. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.