Truist Financial Q2 2022 Earnings Results & Report

Truist Financial EPS Results

• Actual EPS: $1.20
• Consensus EPS: $1.17
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $1.55
• EPS Beat Rate: 4 of last 8 quarters

Truist Financial Revenue Results

• Actual Revenue: $5.66 billion
• Expected Revenue: $5.65 billion
• Beat/Miss: Beat by +$4.83 million
• YoY Revenue Growth: +0.10%

Truist Financial (NYSE:TFC) is a financial services company headquartered in Charlotte, North Carolina, operating through its principal subsidiary, Truist Bank. The company provides banking, lending, investment, insurance and wealth management services to consumers, small businesses, commercial clients and institutional customers.

Its offerings include checking and savings accounts, mortgages, consumer loans, credit cards, commercial and industrial lending, treasury and payment services, investment banking, brokerage, asset management and insurance products. Truist also serves high-net-worth individuals, businesses and institutions through its wealth management and capital markets operations.

Truist was formed through the merger of BB&T Corporation and SunTrust Banks, which was completed in 2019. The company primarily serves clients across the United States, with a significant presence in the Southeast, Mid-Atlantic and other markets through branches, digital platforms and specialized financial services teams.

Truist Financial Q2 2022 Earnings Call Transcript

Key Takeaways

• Strong Q2 results: Truist modestly beat its April guidance with robust loan growth, a significant net interest margin expansion, and credit quality that remains excellent, prompting the board to consider an 8% dividend increase.
• Merger integration costs halved sequentially to $238 million as the company transitions from integration to operations, expects positive operating leverage for full-year 2022, and completed all remaining merger oversight and data center decommissioning.
• Net interest income grew 7% quarter-over-quarter as higher short-term rates and low deposit betas drove margin expansion, while fee-based businesses like investment banking, wealth, and mortgage experienced continued softness.
• Asset quality remains strong with a 0.36% nonperforming loan ratio, further reserve build in line with CECL scenarios, and top-tier stress-test results showing the second-lowest CET1 capital erosion among peers.
• Full-year 2022 guidance calls for 3.5%–4.5% adjusted revenue growth, net charge-off ratio of 25–35 bps, and third-quarter core net interest margin expansion of roughly 25 bps alongside high-single-digit PPNR growth.

Presentation

[Operator]

We're about to begin. Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation's second quarter 2022 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. Ankur Vyas, Head of Investor Relations, Truist Financial Corporation.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Thank you, Jennifer, and good morning, everyone. Welcome to Truist's second quarter 2022 earnings call. With us today are our Chairman and CEO, Bill Rogers, and our CFO, Daryl Bible. During this morning's call, they will discuss Truist's second quarter results and share their perspectives on our efforts to transition from an integration focus to an operating focus, current business conditions, and our continued activation of Truist's purpose. Clarke Starnes, our Chief Risk Officer, Beau Cummins, our Vice Chair, and John Howard, our Chief Insurance Officer, are also in attendance and are available to participate in the Q&A portion of the call. The accompanying presentation, as well as our earnings release and supplemental financial information, are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Please review the disclosures on slide 2 and 3 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. In addition, Truist is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized live and archived webcasts are located on our website. With that, I'll now turn it over to Bill.

[Bill Rogers, Chairman and CEO at Truist Financial]

Thanks, Ankur. Good morning, everyone, and thank you for joining our call this morning. Truist delivered a good second quarter, reflecting our improving momentum after the integration and the resiliency of our diverse business mix in a volatile market environment. Our financial results modestly exceeded the guidance we provided in April with several puts and takes. Loan growth was strong and broad-based. Net interest margin expanded significantly due to higher interest rates and our strong deposit franchise. Credit quality remains excellent, and we are pleased by our relative and absolute performance in the recent stress test. In light of these results, our board will consider a resolution to increase the common dividend by 8% at its July meeting. This quarter's performance, combined with improving client experience trends and dramatically lower merger costs, reflect the initial benefits of our shift from integrating to operating.

[Bill Rogers, Chairman and CEO at Truist Financial]

While there's still work to do, such as stemming elevated operational losses, closing out residual integration issues, and completing our decommissioning process, I am very confident in Truist's trajectory and reaffirm our commitment to delivering positive operating leverage for the full year of 2022. I'm going to share some more details on those topics in a moment. Going to slide 4. As you all know, Truist is fundamentally a deep purpose-led company dedicated to inspire and build better lives and communities. We know that our purpose-driven culture is the foundation for our success as a company. Our purpose drives performance and defines how we do business every day. It very intentionally begins with the word inspire, and to be inspirational, it's often necessary to be bold and to be first. I'll highlight four examples that I think reflect that purpose on the next slide.

[Bill Rogers, Chairman and CEO at Truist Financial]

First and foremost, we recently announced that we're making a significant investment in our teammates by raising our minimum wage to $22 an hour, effective October first. This increase will benefit approximately 14,000 teammates, about 80% of whom have client-facing roles in a retail and small business banking business. Purposeful growth is dependent on attracting and retaining the best talent. In addition to our industry-leading benefits, we desire a compensation program that also helps teammates who need it most to blunt the impact of inflation in their daily lives. Second, we had a historic launch of Truist One Banking yesterday. This is our new differentiated suite of checking solutions that reimagine everyday banking, including two new accounts that eliminate overdraft fees and provide greater access to credit.

[Bill Rogers, Chairman and CEO at Truist Financial]

The flagship Truist One Checking account has zero overdraft fees and the capability to provide qualifying clients the liquidity they need through a simple $100 negative balance buffer. We also introduced the Truist Confidence Account, which provides consumers with access to mainstream banking services and no overdraft fees. We're mindful of the impacts that inflation and reduced stimulus may have on some of our clients, and Truist One is one of many examples of how we're advancing financial inclusion across our communities. Third, Truist committed $120 million to strengthen and support diverse-owned small businesses. This commitment exemplifies our purpose by supporting small businesses which are so vital to the health and vibrancy of our communities. Fourth, we released our 2021 ESG and CSR report in early June.

[Bill Rogers, Chairman and CEO at Truist Financial]

At Truist, we view all the elements of ESG as an opportunity to improve our company and to put our purpose into action, and that includes climate change. As we look to externalize our own net zero aspirations and further the transition to a lower carbon economy, we recently created new advisory practices within our CIB and commercial community bank to help our clients make their own transition. We're pleased with how our clients have welcomed and embraced our advice and expertise around ESG as it underscores the possibilities in viewing ESG as an opportunity for growth. Turning to slide 7. Consistent with our previous guidance, merger-related costs totaled $238 million, roughly half of what they were in the first quarter. We expect merger costs to decrease significantly in the back half of 2022 before going away entirely in 2023.

[Bill Rogers, Chairman and CEO at Truist Financial]

This trajectory should be welcome news to shareholders as diminishing merger costs correspond to a less complex narrative, improving earnings quality, more capital, and ultimately industry-leading returns. We incurred a $39 million pre-tax gain related to the early extinguishment of $800 million in FHLB debt. Turning to our second quarter performance highlights on the next slide. We earned $1.5 billion or $1.09 a share on a reported basis. Excluding the selected items on slide seven, adjusted earnings totaled $1.6 billion or $1.20 a share, down 23% compared to a year ago, primarily due to a sizable reserve release in the prior quarter. Relative to the first quarter, adjusted EPS decreased 2% as higher loan loss provision offset a 10% increase in adjusted PPNR.

[Bill Rogers, Chairman and CEO at Truist Financial]

Adjusted revenue benefited from higher short-term rates alongside well-controlled deposit costs, strong loan growth, consumer seasonality, and strong insurance results, partially offset by continued softness in markets, and market-sensitive fee businesses such as investment banking, wealth, and mortgage. Adjusted ROTCE was 25%, up from 23% in the prior three quarters. Even when normalizing things like AOCI to zero and assuming a flat ALL ratio, adjusted ROTCE was a strong 17%. Adjusted expenses increased 3.8%, reflecting higher insurance-related incentive compensation and intentional investments in talent and technology to support our shift from integrating to operating. Other expenses also increased due to normalization of teammate travel and elevated operational losses. We have planned products, processes, and technology enhancements underway to reduce these losses and enhance the overall client experience, including the launch of innovative authentication approaches later this quarter.

[Bill Rogers, Chairman and CEO at Truist Financial]

While operating leverage was a negative 200 basis points year to date, this primarily reflects the $435 million year to date headwind we have from PPP and PAA revenue. Despite these headwinds, we're still targeting positive operating leverage on both a GAAP and adjusted basis for the full year. Asset quality remains excellent and net charge-offs decreased relative to the first quarter. Capital deployment was healthy in the second quarter as we funded strong loan growth and completed $250 million worth of share repurchases. Capital levels remain strong in light of our risk and profitability profile demonstrated by our continued strong performance in the 2022 CCAR process. Overall, the second quarter begins to reflect the power of Truist post-integration. Now turning to slide nine.

[Bill Rogers, Chairman and CEO at Truist Financial]

Digital activity increased in the second quarter attributable to seasonality and nearly 200 enhancements we implemented across the platform, representing a significantly higher pace of value delivery for our clients. Our ability to rapidly incorporate client feedback reflects the capabilities of a more modern and agile digital platform and has resulted in improved client satisfaction scores which have risen consistently since our initial introduction of Truist Digital in waves in 2021. In June, we announced the grand opening of our state-of-the-art innovation and technology center. Located within our headquarters, the ITC provides an environment conducive to reimagining the client experience, such as by facilitating new ways of working with agile teams to better collaborate with clients to co-create dynamic and marketable cross-channel services.

[Bill Rogers, Chairman and CEO at Truist Financial]

The new space features client journey rooms, a maker space for building, testing, and refining new products and services, a reality lab where we can utilize virtual and augmented reality technology, and a contact center incubator where we can collect and respond to real-time feedback directly from our clients. I'm personally excited about our improved ability to aid our teammates as they reimagine how we serve clients. We also acquired San Francisco-based Long Game, the award-winning gamification app that utilizes behavioral economics, prize-linked savings, and mobile gaming to motivate positive financial behaviors and drive new account growth and client retention. By leveraging Long Game's innovative technology, Truist can empower our clients to build long-term financial wellness. I'm also pleased to report that our merger integration activities are now complete. Our final merger release is rolled out in May, and we recently held our last merger oversight committee meeting.

[Bill Rogers, Chairman and CEO at Truist Financial]

As we shift to BAU, our digital and technology teams are looking forward to accelerating our pace of innovation and client experience improvements. Yesterday, as I mentioned, we introduced Truist One. As I referenced earlier, we'll soon expand LightStream to include a new deposit product on a real-time cloud-based core, enhance the sophistication of our underwriting models through our partnership with Zest, roll out Truist Assist, our virtual assistant, to millions of clients, just to name a few examples. Overall, we're increasingly optimistic about the performance and the potential of our increased investments and focus on digital and technology. Now turning to loans and leases on slide ten. Average loan balances increased a very robust $8.1 billion or 2.8% sequentially, with gross growth across most businesses.

[Bill Rogers, Chairman and CEO at Truist Financial]

The pace of growth accelerated during the quarter with end of period loans of 4.7%. Growth was primarily driven by C&I, where average balances increased $6.7 billion or 4.8% overall. We delivered broad-based loan growth across most CIB industry verticals, notably energy, consumer and retail, financial institutions, TMT. Due to M&A activity, the current shift to banks from the bond market increased relevance with new and existing clients and higher revolver usage for CapEx inventories and inflation. As in recent quarters, growth continues to be strong within our asset finance group as we continue to build out that business with more talent, product capabilities, and a larger balance sheet.

[Bill Rogers, Chairman and CEO at Truist Financial]

Commercial community bank C&I balances increased 2%, excluding PPP and dealer floor plan, reflecting growth across all our geographic regions, and it was the second strongest end of period growth since 2019. Revolver utilization increased 300 basis points to just over 30%, the highest level since mid-2020. CRE remains a headwind, reflecting both a highly competitive market and our disciplined approach. At the same time, though, I continue to be optimistic about the future of our CRE business as we create more strategic clarity internally and non-bank competition rationalizes somewhat with rising rates. Wealth lending was up $600 million sequentially as our advisors and clients continue to benefit from the combined capabilities of both heritage firms. Residential mortgage increased 2.6%, reflecting ongoing correspondent purchases and slower prepayment speeds.

[Bill Rogers, Chairman and CEO at Truist Financial]

Excluding mortgage, consumer and card balances increased $1 billion or 1.3% as strong growth in Service Finance, prime auto, Sheffield Financial and LightStream more than offset runoff in our partnership and student portfolios. Service Finance is performing in line with our high expectations and experiencing good business development momentum given the alignment with Truist. Second quarter production by Service Finance was about double the volume loss and double the profitability from our terminated partnerships. Our prime auto business is also back on its front foot after regaining some momentum it lost following its own fourth quarter conversion. In addition, our consumer finance businesses continue to advance their automated decision capabilities, which ultimately improves consistency, efficiency, and creates better client experiences. Overall, clients are generally positive on current economic conditions and demand in their businesses.

[Bill Rogers, Chairman and CEO at Truist Financial]

At the same time, concerns about labor shortages and margin pressure, given rising rates and higher input costs, are growing, creating the potential for more defensive postures. Truist is well positioned to advise clients across a range of scenarios, given our broad capabilities and talented teammates. Given all of this, we remain generally positive about our prospects for continued loan growth, particularly taking into account our post-integration momentum. At the same time, we have to acknowledge the increased uncertainty associated with a softening economic environment, which may cause loan growth to deviate from this outlook. Turning to deposits on slide 11. Average deposit balances increased $8.5 billion or 2% during the second quarter, largely attributable to an increase in brokered deposits in mid-March. Excluding brokered deposits, average deposits decreased $2.9 billion or 0.7%.

[Bill Rogers, Chairman and CEO at Truist Financial]

Deposit costs were very well controlled, reflecting Truist's strong retail and commercial-oriented franchise and our enviable market share position. In addition, our lines of business and corporate treasury teams delivered excellent execution against a thoughtful strategy to be attentive to client needs and client relationships while maximizing value outside of rate paid. As a result, interest-bearing client deposit betas were 8%, well below our modeled assumptions. As the interest rate environment evolves, we'll continue to take a balanced approach to managing deposit growth and rate paid, particularly given our broad access to other forms of funding. Now let me turn it over to Daryl to review our financial performance in greater detail.

[Daryl Bible, CFO at Truist Financial]

Morning, everyone. Turning to slide 12. Net interest income increased 7% sequentially, driven by higher short-term interest rates alongside limited deposit betas in addition to strong loan growth. We also saw a positive asset mix shift with the investment portfolio shrinking and funding strong loan growth. As Bill indicated, the strong quality of our deposit franchise also limited deposit rate repricing. Reported net interest margin increased 13 basis points and core net interest margin increased 15 basis points. Net interest margin and net interest income increased for similar reasons and exceeded the high end of our April guidance, primarily due to our teammates delivering lower than modeled deposit betas. Overall, we continue to take a balanced approach to managing interest rate risk. We continue to be asset sensitive and that will decrease over time with the diminishing benefit associated with future rate increases and the disintermediation of funding sources.

[Daryl Bible, CFO at Truist Financial]

We forecasted an approximate 25% cumulative interest-bearing deposit beta through the second and third quarters. To protect against any potential downside in rates, we also added $16 billion of swaps, which are primarily forward starting. These swaps begin in 2023 and 2024 and will have laddered maturities that range from 3-5 years to minimize earnings volatility. Moving to slide 13. Fee income increased to $106 million or 4.9% sequentially. Insurance income increased $98 million due to seasonality, strong organic growth, and the full quarter of Kensington Vanguard acquisition. Card and payment-related fees increased $34 million, reflecting the prior quarter acquisition of merchant relationships and the increased activity. Residential mortgage income decreased $15 million or 17% as higher interest rates pressured volumes and gain on sale margins.

[Daryl Bible, CFO at Truist Financial]

Servicing income was essentially flat from the prior quarter as slower prepays were offset by increasing hedging costs. While this is a very challenging environment for mortgage, our mortgage team is playing some offense by leveraging Truist's strong purpose and balance sheet to hire select well-regarded loan officers as well as acquire certain servicing portfolios. Investment banking and trading income was relatively flat sequentially and declined 37% year-over-year as market volatility continues to negatively impact most products. Investment banking pipelines remain full across all products, but the realization of these pipelines will continue to remain subject to more stable market conditions. Service charges on deposits were relatively flat sequentially as favorable seasonal trends were offset by the elimination of certain overdraft fees in April, resulting in client savings of approximately $20 million during the quarter.

[Daryl Bible, CFO at Truist Financial]

We included a table at the bottom of slide 13 to make other income trends more clear. Other income excluding changes in our non-qualified plan and last quarter's merchant gain decreased $25 million, primarily due to a loss on a certain sale of SBIC funds to diversify our private equity investment portfolio. Turning to slide 14. Reported expenses decreased $94 million sequentially to $3.6 billion. The lower expenses were driven by $180 million or 43% reduction in merger costs due to diminishing integration activity. Adjusted expenses increased $119 million. Personnel expenses increased $64 million due to seasonally higher insurance-related incentive compensation, the full impact of normal first quarter compensation increases, and ongoing investments in talent across our lines of business and technology teams.

[Daryl Bible, CFO at Truist Financial]

In addition, other expense increased $19 million due to higher operational losses and ongoing normalization of teammate travel. Professional fees and outside processing costs increased $16 million, primarily due to the increase in call center staffing. As Bill mentioned, our minimum wage will increase to $22 per hour effective October 1. This represents a significant investment in our teammates and is expected to increase our personnel expense by $200 million annually, offset by lower turnover expense and improved execution and client experience. Moving to slide 15. Asset quality remains excellent, reflecting our prudent risk culture, diverse portfolio, and solid economic conditions. Leading credit indicators remain benign. Criticized and classified commercial loans decreased 6% sequentially and are 37% lower than a year ago.

[Daryl Bible, CFO at Truist Financial]

Our NPR ratio was flat at 36 basis points and loans 30-89 days past due decreased 3 basis points to 69 basis points. Our net charge-off ratio also decreased 3 basis points to 22 basis points. We experienced a slight build in the allowance due to loan growth. Although the allowance coverage ratio decreased 6 basis points to 138 basis points, given our strong portfolio performance tempered somewhat by our moderately slower economic outlook. While the weightings of our pessimistic baseline and optimistic scenarios were unchanged from the first quarter, each scenario is moderately worse, a trend that may continue. Moving on slide 16. Our CET1 ratio declined 20 basis points to 9.2%. Strong loan growth and a $250 million share repurchase during the second quarter.

[Daryl Bible, CFO at Truist Financial]

As previously announced, our board will consider an 8% increase in the quarterly common dividend at its July meeting. If approved, the increase will take effect in the third quarter and will continue to position Truist as one of the dividend leaders in our peer group. We were also pleased with the performance during the 2022 stress test. Truist had the second lowest CET1 erosion and a loan loss reserve rate in the peer group under severely adverse scenario. Our preliminary stress test capital buffer remained flat at 250 basis points. We believe these results demonstrate our strong capital relative to the risk and profitability profile, the latter of which should improve over time. We are now more comfortable operating below our previously announced CET1 ratio target of 9.75%. Given our continued strong stress test results and significantly reduced integration risk.

[Daryl Bible, CFO at Truist Financial]

Overall, the economic outlook will influence how much we operate below the prior target. From a funding perspective, end of period loan growth exceeded deposit growth. Truist has multiple sources available to fund incremental loan growth, as seen this quarter with the use of broker deposits and Federal Home Loan Bank advances and our securities portfolio. I will now provide guidance for full year 2022 and new guidance for the third quarter. In 2022, we now expect adjusted revenue to grow 3.5%-4.5% from 2021. The mixture of revenue continues to tilt more towards net interest income given the outlook for higher short-term interest rates, partially offset by lower fees, primarily in market sensitive businesses such as investment banking, mortgage, and wealth. We now expect adjusted non-interest expense to increase 2%-3% from 2021.

[Daryl Bible, CFO at Truist Financial]

This increase in expense outlook largely reflects higher operating losses and intentional investments to support our shift from integrating to operating, including increasing our minimum wage, hiring teammates to support client experience and growth, and ongoing investments in technology. Net net, this is slightly higher PPNR outlook versus our previous full year guide. In light of our performance during the first half of the year and the benign credit environment, we expect net charge-off ratio to be in a 25-35 basis points for the full year. Looking into the third quarter, we expect adjusted PPNR to grow high single digits from the second quarter level, primarily as a result of higher net interest income, partially offset by higher non-interest expense.

[Daryl Bible, CFO at Truist Financial]

We expect mid-20 basis point increase in our core net interest margin due to the benefits from recent rate hikes and a projected 75 basis point hike in July. We also expect low 20 basis point increase in GAAP net interest margin as a result of core net interest margin expansion, offset by continued declines in purchase accounting accretion. Now I'll turn it back to Bill to conclude.

[Bill Rogers, Chairman and CEO at Truist Financial]

Thanks, Daryl. Moving to slide 17. On our previous earnings call in April, I expressed my belief that the first quarter marked a strategic and financial turning point for Truist. Our second quarter results are bearing out this thesis, and we're beginning to deliver on the potential of Truist. For businesses that finished conversions in 2021, the increased momentum is palpable. Wealth continues to build momentum in hiring advisors who are attracted to Truist purpose and broad set of capabilities both within Wealth and across the company through ERM. Wealth net advisor count grew in the second quarter for the first time in 10 quarters. With our recent entry into the Chicago market, Truist Wealth now serves 9 of the 10 largest metropolitan areas in the United States. In addition, net organic asset flows have been positive for 5 straight quarters.

[Bill Rogers, Chairman and CEO at Truist Financial]

In our mortgage business, client satisfaction scores for origination have improved every month since their conversion in August of 2021. The percentage of retail client applications completed digitally is now 97%. For the rest of the company where core bank conversions were completed in the first quarter of 2022, momentum's also building. Loan production in the second quarter was the highest it's been at Truist and up 41% compared to the first quarter. Pipelines also ended the quarter at the highest we've seen. Branch loan production, which is primarily home equity, was up 24% relative to the first quarter and the highest it's been at Truist. Consumer deposit production, both in the branches and within digital, was up 29% sequentially and 20% year over year.

[Bill Rogers, Chairman and CEO at Truist Financial]

Retail banking net promoter and client satisfaction scores have rebounded nicely from their March lows and still have more opportunity to improve. Deposit production within our commercial community bank is up 8% relative to the first quarter. BCB-related ERM revenue was up 21% sequentially with increased activity across all products, with significant momentum highlighting the power of our advice-driven model. Financially, net interest income and margin rebounded from the first quarter low point as expected. While fee income did not improve to the extent we had hoped, our second quarter results underscore the importance of our diverse business mix, and we believe fees will improve as market conditions normalize, and we capitalize on our significant ERM and revenue synergy opportunities.

[Bill Rogers, Chairman and CEO at Truist Financial]

In addition, merger costs are declining rapidly, and we're making good progress towards realizing our remaining cost saves as we decommission data centers and systems in the back half of the year, all of which will help drive positive operating leverage for the full year of 2022. To conclude on slide 18, Truist is on the right path, and I'm highly optimistic about our potential, all of which is clearly summarized in our investment thesis. Strategically, our focus has clearly shifted to executional excellence, transformation, and growth. We're shifting millions of hours of integration-related activity to improving our client experience through investments in digital and technology, simplification of our processes and operations, and of course, by continuing to activate our purpose each and every day.

[Bill Rogers, Chairman and CEO at Truist Financial]

We're also focused on capturing the significant ERM and revenue synergy potential we have as this is squarely in the center of building better lives for our clients. These shifts and activities do not require incremental risk appetite or capital. It only requires execution and focus. At the same time, while we believe the economy is currently healthy, the effects of ongoing geopolitical uncertainty coupled with still too high inflation and an aggressive forecast for a tightening of monetary policy have somewhat diminished the economic outlook as we move further into this year and into next. Truist is nevertheless well positioned across a broad range of economic outcomes given our advice-oriented model for clients, strong absolute and relative markets, conservative credit culture, diverse business mix, our strong capital position relative to our risk profile, and most importantly, our power shift from a focus on integration to executional excellence and growth.

[Bill Rogers, Chairman and CEO at Truist Financial]

With that, let me turn it back over to you, Ankur Vyas.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Thanks, Bill. Jennifer, 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 so that we can accommodate as many of you as possible today.

[Operator]

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is released to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. As a reminder, it is star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for a question. We'll go first to Betsy Graseck with Morgan Stanley.

[Betsy Graseck, Global Head of Banks and Diversified Finance Research at Morgan Stanley]

Hi. Good morning.

[Bill Rogers, Chairman and CEO at Truist Financial]

Morning.

[Daryl Bible, CFO at Truist Financial]

Morning.

[Betsy Graseck, Global Head of Banks and Diversified Finance Research at Morgan Stanley]

A couple of questions just on how you're thinking about the funding mix. I know you had several comments in your prepared remarks around, you know, accessing some of the pools you have. Could you talk a little bit about what you're doing with deposit pricing for your core deposits, how you're thinking about utilizing brokered from here? And then if you could speak a little bit about the hedge that you put on for protecting earnings against future volatility and where we should expect that to show up in the NIM and how that's going to factor into your outlook for your rate sensitivity. Thanks.

[Daryl Bible, CFO at Truist Financial]

Yeah, Betsy. I would first start with we were really excited to have really strong broad-based loan growth this quarter, and we expect that to continue, as Bill said in his prepared remarks. To fund that, you know, we're going to start with the runoff of our investment portfolio. We built the investment portfolio when we had all that excess liquidity. We're very comfortable letting that run off and have a positive mix change on the balance sheet. As far as broker deposits, we did add some broker deposits over the last several months. I would say we're probably at where we want to be from that perspective, knowing that we still have a lot of capacity and other funding sources available in the marketplace.

[Daryl Bible, CFO at Truist Financial]

You look at federal home loan bank advances and, negotiable CDs and other amounts. We paid all that off during COVID in 2020, and we have much, amount of capacity there. The other thing from an investment portfolio perspective we're about $145 billion, give or take. We feel comfortable we could shrink that portfolio probably $20-$25 billion easily and still stay within our liquidity and LCR guidelines that we have to for regulatory purposes. As far as our strategies for pricing I, we were really pleased, as Bill talked about, across our company, our deposit betas came in much better than modeled. You know, we modeled 25% for the first 100. If you look in the second quarter, we came in at 15%, and that includes brokered.

[Daryl Bible, CFO at Truist Financial]

When you back out the brokered we were only at 8%, which is really, really low. I would say we will continue to use that strategy. We're going to make sure that we take care of our clients, and use the ability to do exception pricing. But I think overall, you know, I think we will continue to hopefully continue to outperform our model expectations.

[Bill Rogers, Chairman and CEO at Truist Financial]

Betsy, the only thing I'd add is that it will be somewhat stable for deposits for the balance of the year. Remember, as Daryl pointed out, we had just under 2% growth in DDA. I mean, we're adding net new clients and expanding those relationships. I think the beta really just reflects the benefits of the merger. We're sitting now with a just under 20% market share in most of our markets. We've got a business that's highly diversified. Somewhere around 40+% of our deposits are less than $250,000. We've got a unique franchise here, which I think on the DDA side continues to benefit an overall stable deposits for the balance of the year.

[Betsy Graseck, Global Head of Banks and Diversified Finance Research at Morgan Stanley]

The loan growth.

[Daryl Bible, CFO at Truist Financial]

Sorry, Betsy. Did I answer your hedge question?

[Bill Rogers, Chairman and CEO at Truist Financial]

Oh, yeah. Yeah. Please. Yeah.

[Daryl Bible, CFO at Truist Financial]

We are just gradually starting to add some receivers out in the forward markets for the most part, out 1-2 years. You know, since we are stingy on the way up on deposit rates, you won't have as much capacity on the way down. We're just putting in these forward hedges that protect net interest income as rates might potentially fall overall. We still are asset sensitive, loan decreasing as rates continue to go up.

[Betsy Graseck, Global Head of Banks and Diversified Finance Research at Morgan Stanley]

Got it. Okay. No, that's helpful. Then on your point on loan growth, yeah, loan growth was very strong. The follow-up question here is, what are you hearing from the field with regard to the pace of that loan growth? Is it poised to accelerate, continue at this pace for the foreseeable future? Just a little bit of a sense and color for how we should be thinking about that. Thanks so much.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah, Betsy. That's the question of long-term sustainability. On the short-term basis and through the balance of this year, if we sort of look on a year-over-year basis, we were sort of in the mid-single figures. I think we'll be in the higher end of the single figures in terms of loan growth. Our teams are excited. Our production numbers, which I highlighted, are up significantly. Our pipelines are up. I think we're seeing a little bit of maybe idiosyncratic to us and our shift to integration in terms of progress on the loan side. The great news is, it is extremely broad-based. Not only is it in the C&I side, but our core branch network.

[Bill Rogers, Chairman and CEO at Truist Financial]

Their applications are up, personal loans are up, PLOCs are up. Similarly, they're starting to execute at a much higher level.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Yeah.

[Operator]

We'll go next to Ken Usdin with Jefferies.

[Ken Usdin, Managing Director and Head of the Equity Research Bank Team at Jefferies]

Yes. Good morning. Sorry about that. Yeah, as a follow-up on the fee side. You had great insurance revenue this quarter, up 13%. We heard your comments about some of the challenges looking out on some of the other lines. Can you just kind of help us walk through just what you're expecting on the fee income side, inside that third quarter PPNR outlook that you gave? Because I think you talked mostly just about higher NII and higher expenses. Can you any granularity on the fee side would be great. Thank you.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. Hey, Ken, let me maybe just do a walk-through of the broad categories. I think sort of overall, I'd say fee income stable relative to the first half. Maybe let me give you some puts and takes against that. Insurance, as you noted solid organic growth. That'll offset some of that seasonality, so feel really good about the momentum that we have there. As we mentioned earlier, we're continuing to invest in the insurance business. Feel good about the growth there. Mortgage, you know, some puts and takes. Origination probably a little bit offset by servicing. Gain on sales probably a little bit of a wild card there in terms of whether we see some rebound on that side as some of the capacity comes out.

[Bill Rogers, Chairman and CEO at Truist Financial]

Mortgage probably a little flat second half of the year to the first half of the year. Wealth probably be a little bit down in the third quarter, just sort of where markets are right now. As I highlighted earlier, our really solid production and asset flows and hiring net advisors. If we get a little market tailwind, that could change. Investment banking, I think we expect the second half to be better than the first. Pipelines continue to be really solid. We've got a bit of things that are unique to us. We've got this really good earn momentum from our commercial community bank. That's probably a little bit less market dependent. I'd sort of call that more sort of bread and butter kind of investment banking business.

[Bill Rogers, Chairman and CEO at Truist Financial]

We've added bankers there also, and we're continuing to invest. We're leaning in there. On the service charge side, you know, with the decisions we've made with Truist One and overdraft decisions, that'll be down. If you sort of net, that's, I think, a good walk-through on the fee income side.

[Ken Usdin, Managing Director and Head of the Equity Research Bank Team at Jefferies]

Great. Okay. Second question, just, you had talked about operating lower CET1 than your 9.75%. We saw a 9.2% this quarter. Just what you're thinking. We saw you did a little buyback and, just in terms of, you know, capital allocation decisions and potential for more of those insurance deals that you guys have been biased towards over time. Thanks, Bill.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. The really great news is we're using capital exactly where we want to right now, is we're using it with growth. We've been funding the loan growth. As we've talked about our capital levels were driven by merger risk, CCAR results, and economic uncertainty. I think merger risk is, you know, largely behind us. Very pleased with the, you know, CCAR results, our low risk profile better PPNR profile. Economic uncertainty was really high during the pandemic, moderated, and may be increasing a little bit. We've got to balance all of those. You know, we're comfortable where we are. We've had more organic growth. We do see more opportunity in some of the non-bank M&A, as you noted.

[Bill Rogers, Chairman and CEO at Truist Financial]

We're gonna allow capacity and be opportunistic there as well. Post-merger, we'll generate somewhere around 25 basis points of capital a quarter organically. If you sort of say, okay, we've used about 15 basis points of that to fund the current growth that we have and anticipate, then we've got about 10 basis points net. I think that gives us the requisite flexibility to fund the growth that we anticipate, be flexible, as you noted, for potential non-bank M&A, particularly in the insurance side. If you add all that, share repurchase probably is not our top priority at this particular juncture.

[Ken Usdin, Managing Director and Head of the Equity Research Bank Team at Jefferies]

Thanks for all that, Bill.

[Bill Rogers, Chairman and CEO at Truist Financial]

All right. Sure.

[Operator]

The next to Gerard Cassidy with RBC.

[Gerard Cassidy, Managing Director and Co-Head of Global Financials Research at RBC Capital Markets]

Good morning, Bill. Good morning, Daryl.

[Bill Rogers, Chairman and CEO at Truist Financial]

Morning.

[Gerard Cassidy, Managing Director and Co-Head of Global Financials Research at RBC Capital Markets]

Bill, can you share with us, you obviously put together a very good quarter this quarter, and you put some very strong numbers in your comments. At the very end of the prepared remarks about growth, but then you've cautioned it, of course, with what's going on at the macro scene with monetary policy and such. Can you share with us what you're seeing from your customers? Because there seems to be a disconnect. A lot of investors are very concerned about credit deterioration. You certainly don't see it, nor do your peers. But is there something on the horizon other than the macro that you guys are seeing? Or what are your early indicators you're looking at to see if there will be a crack in credit maybe in 6 or 12 months?

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah, sort of going down the categories of that question our clients still see a lot of good demand. I may be a little bit clouded by the fact the last two markets I was in were South Florida and Nashville, they're blowing and going in virtually every direction. But our clients continue to see good demand. It's appropriate to put a cautious note just because you have to. If we look at sort of a, you know, what are the canaries in the coal mine, so to speak, what are the things that we're trying to look at.

[Bill Rogers, Chairman and CEO at Truist Financial]

While we don't see a deterioration, I think the things you look at are things like, you know, what's happening in the broadly syndicated, sponsor-backed leverage deals. We sort of look at that market. Spreads gapped out pretty significantly. Are things happening in CRE? We've seen some non-recourse construction loans and some things that you sort of, you know, pause a little bit on. Some potential FICO drift, a willingness to repay given some of the stimulus. Will things happen in mortgages? Some of the CARES Act relief comes off. Now, all those things that are there, we're not seeing in our results right now. But they are things that we're looking at and that we're stressing and trying to pay attention to.

[Bill Rogers, Chairman and CEO at Truist Financial]

I think just we're bankers, so we should be conservative. That's the world we live in, and we try to manage for all outcomes. Sitting here today looking at the hood of the car, demand looks pretty good and our business looks pretty good and our clients are extremely healthy.

[Gerard Cassidy, Managing Director and Co-Head of Global Financials Research at RBC Capital Markets]

Oh, that's very good. Thank you. As a follow-up, but Daryl, you mentioned the deposit beta came in better than expected. I think you said without the broker deposits, it came in around 8 basis points. I think you guys were modeling for something closer to 25. Can you share with us what drove the better than expected number? Second, as the Fed goes another 75, assuming they do in July and then obviously further rate increases later this year, could the modeling work against you? Meaning could the betas actually go faster later in the year because rates are moving up so quickly?

[Daryl Bible, CFO at Truist Financial]

Yeah. Gerard, I would just tell you that it was a lot of great work with our teammates and working with clients and, giving what we thought was appropriate. Most of our clients aren't there just for rate because we have other products and services. They really like to bank with us for those reasons. They aren't as rate sensitive as other clients might be at other places. I think that's really the benefit of our franchise. I do agree with you, though. As interest rates go up, our deposit betas will continue to climb just because more and more people will get a little bit more asset sensitive.

[Daryl Bible, CFO at Truist Financial]

In the prepared remarks, I did say that our cumulative beta, you know, would move from 15%-25%, in the second to third quarter on a cumulative basis. You know, we would still expect it to go on if the Fed continues to raise interest rates, that you continue to see that cumulative beta increasing. Probably if you look at from second quarter to Q4, maybe in the low 30s%, give or take a couple percentage points there. Still overall, if you go back to where we were during the Great Recession, much better overall performance than what we had a few of our banks were combined back then. I think right now we feel very good. I think that you're going to see really positive growth in our net interest income because of that.

[Gerard Cassidy, Managing Director and Co-Head of Global Financials Research at RBC Capital Markets]

Thank you, gentlemen. Appreciate it.

[Operator]

We'll go next to Matt O'Connor with Deutsche Bank.

[Matt O'Connor, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

Good morning.

[Bill Rogers, Chairman and CEO at Truist Financial]

Hey, Matt.

[Matt O'Connor, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

I just wanted to follow up on the expense guide. Obviously overall the PPNR guide is higher, the expenses have been an area of focusfor the company since the merger. I did just want to kind of follow up on what's driving the tweak up by roughly 1% on expenses, especially since the fees are coming in a little bit weaker and net interest income tends not to have a lot of fees or a lot of expenses related to it. Then just as we think about the follow-up would be the confidence that you can control expenses kind of next year without the benefit of these kind of merger and other merger-related costs that will be done this year.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. Matt, this is Bill. There's no eye off the ball on expenses. I can assure you of that. The competencies that we've built through the merger to manage expenses, understand expenses, create continued improvements are all still there and will be a big part of our expense story for this year and for the years going forward. A big part of our capability to deliver positive operating leverage. Industry-leading efficiency ratio. No lack of focus on the expense side. We have lots of things underway in terms of how we would achieve those additional opportunities. But on the same side we're investing in our business.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yust like we've seen some of this momentum we've talked about, particularly coming from the first quarter into this quarter, we don't want to miss those opportunities. Those opportunities don't line up quarter to quarter. I think they line up well. We have confidence in the investments we've made in talent and insurance, wealth, investment banking, care centers as an example, improve revenue potential, improve the client experience, and we have a pretty good formula for long-term paybacks on those investments. We've been at this and have a pretty good understanding of that. The investments in our teammates from the minimum wage. That's a clear, you know, step up.

[Bill Rogers, Chairman and CEO at Truist Financial]

In fairness that over time, others will be in that same position, but we just felt like, as I mentioned earlier, it was important for us to lead. This is a time when those teammates need us most. I think it'll really help us long-term in terms of retention, and acquisition of key talent. It also has an immediate bump up and a longer-term payback, which I feel really good about. Then the one that's just trickier and a little more quarter and year-end specific is just the increase in operating losses. They are up. They're up higher than we think they should be. We have a lot of things in place to do that.

[Bill Rogers, Chairman and CEO at Truist Financial]

We made some decisions related to the client experience that I think increased some of those operating losses. I'm confident that they'll normalize over time given the investments we're making in that part. That's the only part that I would say is the non-investment part of the increase in the expense side. I think we'll be more positive about that long term and normalizing those expenses.

[Matt O'Connor, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

What exactly are those operating losses? Maybe you can give an example or two. Is any of that related to the deal conversion and any, you know, fallout from that, to be blunt? Thank you.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. I mean, they're decisions we made relative to client experience. I'll give you an example of, you know, on the fraud side is giving the client the benefit of the doubt up front. If a client has an experience, we're going to get the money back from another bank, and what we're doing is go ahead and fund that client now. That is a one-time, you know, increase, but over time, that normalizes, just as an example. We think that's a good client experience, and something, again, that'll normalize over time is just one example.

[Daryl Bible, CFO at Truist Financial]

Matt, you also asked for containment of expenses on a go-forward basis. As we look to rationalize and get back to business as usual, I think there's still opportunities in our corporate real estate portfolio. I think as we continue to rationalize our branch network, closure of some branches over time, just as behaviors change with our clients. I think we've talked about this before, but we still have a lot of initiatives that our teammates came up with that would help us from both a cost savings as well as revenue and client experience perspective. We're in the midst of implementing those over the next 12-18 months. We also are moving towards a new card platform over the next year or 2, which should generate some savings once we both combine to that.

[Daryl Bible, CFO at Truist Financial]

From a technology perspective, we are starting to put more applications up into the cloud, which over time will also generate some savings. Last thing I just want to mention is as you look at our operations, both front and back office, the digitization and artificial intelligence projects that are rolling out all part and very important to how the company runs and operates. It gives us comfort that our expenses will be contained over the next year or two.

[Matt O'Connor, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

Thank you.

[Operator]

The next to Mike Mayo with Wells Fargo Securities.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

Hi. Well, Bill, you gave me the opening. You talked about the hood of the car, so I'll go with the Corvette analogy again.

[Bill Rogers, Chairman and CEO at Truist Financial]

All right.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

Yeah, it looks like you're going from first to second gear, right? You said end-of-period loans are up 5%. That's accelerating. You're beating on deposit beta. Your NIM's up. You expect it to be up maybe in the range of 25 basis points next quarter. NII is going higher, and you still have the decommissioning of the data centers and all the apps, you know, later this year, so that should help. Next second gear, fantastic. But then I look at the speed that you're going, and it doesn't seem to be a lot faster.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

You have PPNR guidance a little bit higher, but you're guiding for 50 basis points plus operating leverage for this year, if you took the midpoint part of your bands. Some of your peers are 200, 300, 400 basis points. Last quarter that difference was 100 basis points. In a way, the operating leverage is a little bit less than I think what you were guiding in the first quarter. I hear you. You're not taking your eye off the ball on expenses. You're investing in minimum wage. You have some operating losses. Still, it just seems like the power of the Corvette is still not being fully realized.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

Where are you in that progression of, you know, translating the power of the engine to the power of the growth and the power of the operating leverage? Because your efficiency ratio is, you know, not really in the zip code of the initial figures you gave when you announced the merger three and a half years ago. Thank you.

[Bill Rogers, Chairman and CEO at Truist Financial]

A couple of things, Mike. Appreciate the acknowledgment of second gear at least. I don't know how many gears your Corvette has, but at least there's an acknowledgment of the second gear. I think we are seeing that. We are seeing that growth. I feel really good about the migration from the first to the second quarter. If loan growth is one of those indicators, though I don't think it's always the indicator. If I look at production and pipelines and just the things that we're doing, and it's broad-based, so it's not one thing. It's the whole engine operating at a faster pace, you know. If we're gonna continue to just grind on the Corvette, you know, then you got to put gas in it.

[Bill Rogers, Chairman and CEO at Truist Financial]

You got to put in, and gas is more expensive. We wanna drive it faster. We're really confident in the things that we're investing in and the capability of the company long term. As it relates to the efficiency ratio from the first guidance remember that was in an interest rate environment that was pretty different than where we are now. I still believe we're delivering and prospectively will deliver industry-leading efficiency ratio with growth. Whether it's at 55 or low 50s, I don't know, but I am confident that it'll be industry-leading in any rate environment. I feel good about that.

[Bill Rogers, Chairman and CEO at Truist Financial]

We've got market-sensitive businesses that are sitting on the, you know, launching pad, and really good capability to grow significantly if we get a little bit of tailwind. That tailwind could come in the Q4, could come next year, but it's gonna come, and we're better positioned than we've ever been to capitalize on those opportunities.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

What my question is getting to, and perhaps some of the other questions, and I know I'm not going to get an answer, but you can give it qualitatively, is looking out at 2023 when you finally have all the merger savings in your numbers and when you finally have, you know, realized some of these noisy financial items, such as the operating losses, and you finally are done with these one-off charges, which are going down, what sort of operating leverage we can expect next year? At least if you can answer that qualitatively or if you want to put numbers around it, we'd love it.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. Qualitatively, it's got to be qualitatively because we just don't know what the rate environment's going to be. Qualitatively it'll be positive. That's the angle that we're gaining towards and committed to. But similarly, I think again, you're seeing it this quarter with revenue growth that reflects the power of this franchise and an efficient expense model that supports that.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

All right. Thank you.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

We'll go next to Erika Najarian with UBS.

[Erika Najarian, Managing Director, Head of Americas Financial Sector Research at UBS]

Yes. Hi. Just to follow up on the Corvette analogy. You are driving this car, and in theory, the roads are getting worse, right? Maybe the first question I have is in the last crisis both companies did fairly well, relatively well, from a credit perspective. And Daryl, as you think about the different scenarios for ACL buildup in a downturn a lot of investors are comfortable thinking about where the banking industry could be in a charge-off scenario, but none of us can mimic the CECL process, right? I guess the question is, you know, in a mild recession scenario, how much more ACL build do you think would be ahead of you for what the charge-offs that you think your portfolio would produce?

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. Erika, I'll start, and Clarke can help finish me off on this. When we set the allowance, obviously it's scenario-based. It's always forward-looking from that perspective. In the prepared remarks, we did say that there is potential that the scenarios can continue to deteriorate. If that is the case, then you would expect us to continue to add to our allowance and that would add to our provision costs as that moves up from that perspective. Right now we aren't seeing a whole lot. And there could be some deterioration from that perspective. Let me kind of kick it back over to Clarke.

[Clarke Starnes, Chief Risk Officer at Truist Financial]

Yeah, Erika, I would just say this, and Bill mentioned it and Daryl earlier. As we came through the quarter, you know, we refreshed all of our scenarios. Our baseline, which is 40% of our estimate, is a more pessimistic outlook, slower economy. We have a 30% weight on a recessionary, more pessimistic scenario. We feel like we've been pretty conservative in our estimate this quarter. Also this quarter, we had really good loan growth and very highly rated credits, so those carry a lower relative reserve rate. That's why you didn't see a big build this quarter. You saw six basis points decline in our allowance. That was because of the growth. We believe we've accounted for the recessionary risk right now.

[Clarke Starnes, Chief Risk Officer at Truist Financial]

As we look forward, the main driver of changing the allowance would be growth unless the scenarios get more severe, and then obviously our reserve rate would have to change.

[Erika Najarian, Managing Director, Head of Americas Financial Sector Research at UBS]

Got it. Thank you for taking my question.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Jennifer, we've got time for one more question.

[Operator]

We'll take our last question from John Pancari with Evercore ISI.

[Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities]

Good morning. Also on the credit front, if you could just talk about, are you seeing any emerging signs of stress within the portfolio, particularly as you look at some of the lower end consumer, maybe in your Regional Acceptance business on the non-prime side or the

[John Pancari, Senior Managing Director at Evercore ISI]

Sheffield business. If you could just talk about where, if any, that you're seeing some of the cracks form? Thanks.

[Clarke Starnes, Chief Risk Officer at Truist Financial]

Are coming. We are monitoring that very carefully. I think what we're seeing, probably a little bit of indication would be the low- to moderate-income consumer. Think cohorts $50,000 incomes and below. We're seeing higher delinquencies, early delinquency in those areas, but it's not translated yet into higher late-stage delinquencies or losses. For example, in our subprime auto business that, we had one of our lower loss rates this quarter seasonally, and we're seeing things like because of the Manheim being up, consumers higher redemption rates even on repos. It's not yet translated into any losses. We've also looked at our deposit levels for our consumer borrowers, and they're not coming down rapidly, particularly for the moderate-income and above. While there's early signs we're watching, it's not translated into any significant concerns.

[Clarke Starnes, Chief Risk Officer at Truist Financial]

Our outlook right now for the rest of the year does not assume any significant deterioration.

[John Pancari, Senior Managing Director at Evercore ISI]

Got it. Okay, thanks, Clarke. Just separately on the loan growth side I know you indicated that you did see some pressure there this quarter on commercial real estate, but you seem a bit more optimistic there in stabilization. How should we think about the growth in that portfolio? Is there the potential for incremental declines there, or do you think stabilization will happen beginning next quarter? Thanks.

[Bill Rogers, Chairman and CEO at Truist Financial]

Yeah. I'm not sure it's quarter to quarter, but I think we're stabilizing is the way I would say it and into more of a growth mode. By the way, we feel really comfortable about it. I think we've made decisions through the cycle that create a really good portfolio. We've done a lot of things internally, strategically, to get really strong alignment around the type of CRE portfolio we want, the diversity that we want. Probably somewhere in the next couple of quarters, stabilizing with the bent for, you know, growth over time.

[John Pancari, Senior Managing Director at Evercore ISI]

Got it. All right. Thanks, Bill.

[Ankur Vyas, Head of Investor Relations at Truist Financial]

Thanks, John. Thanks, everybody. That completes our earnings call. If you have any additional questions, please feel free to reach out to the IR team. Thank you for your interest in Truist. We hope you have a great day. Jennifer, you can now disconnect the call.

[Operator]

Thank you. This does conclude today's conference. We thank you for your participation.

Participants

Executives

• Ankur Vyas, Head of Investor Relations
• Bill Rogers, Chairman and CEO
• Clarke Starnes, Chief Risk Officer
• Daryl Bible, CFO

Analysts

• Betsy Graseck, Global Head of Banks and Diversified Finance Research at Morgan Stanley
• Erika Najarian, Managing Director, Head of Americas Financial Sector Research at UBS
• Gerard Cassidy, Managing Director and Co-Head of Global Financials Research at RBC Capital Markets
• John Pancari, Senior Managing Director at Evercore ISI
• Ken Usdin, Managing Director and Head of the Equity Research Bank Team at Jefferies
• Matt O'Connor, Managing Director and Senior Equity Research Analyst at Deutsche Bank
• Mike Mayo, Managing Director, Head of U.S. Large-Cap Bank Research at Wells Fargo Securities