Truist Financial Sells $5.5B Auto Loan Portfolio, Reaffirms Outlook

Key Points

• Truist will sell its $5.5 billion near-prime auto loan portfolio and exit its Regional Acceptance Corporation business, which was roughly break-even despite high loan yields. The transaction is expected to modestly improve earnings, tangible book value and credit metrics.
• The bank reaffirmed its financial outlook, including third-quarter net interest income growth of about 1.5%, full-year growth of 1% to 1.5%, and its $5 billion share-repurchase plan. The sale is expected to generate approximately $950 million in capital but reduce net interest margin by 4 to 5 basis points.
• New CEO Mike Lyons is accelerating a broader portfolio and capital-allocation review, with Truist emphasizing relationship banking, deposits, commercial lending, payments, wealth management and potentially credit cards, mortgages and home equity lending.

Truist Financial NYSE: TFC reaffirmed its outlook for the current quarter and full year while announcing plans to sell $5.5 billion of near-prime auto loans and exit its Regional Acceptance Corporation, or RAC, business, Chief Financial Officer Mike Maguire said at an investor conference.

Maguire said the company’s existing outlook does not include the effects of the RAC transaction. The sale is under contract and represents substantially all of the unit’s assets, according to the presentation discussed at the event.

Auto Loan Exit Aims to Improve Credit Profile

Truist characterized RAC as a national, loan-focused business with limited opportunity to build broader client relationships. Maguire said the decision follows prior actions to de-emphasize national prime auto lending and stop new originations in marine and recreational vehicle loans.

“We are under contract to sell the $5.5 billion in near-prime auto loans and essentially exit that business entirely,” Maguire said.

While RAC loans carried yields of roughly 12%, Maguire said those economics were offset by marginal funding costs of about 4% and loss rates in the 7% to 8% range. The business was approximately break-even during the first half of the year, he said.

Truist expects the transaction to be modestly accretive to earnings per share, return on tangible common equity, and tangible book value per share. The company also expects its ratios of charge-offs and non-performing loans to decline by more than 10 basis points, or about 20%, as a result of the sale.

Maguire said the divestiture is not principally a credit-driven move. Rather, it reflects a strategic framework centered on whether a business fits Truist’s core relationship-banking model and whether it can provide sufficient economic contribution over time.

New CEO Adds Urgency to Portfolio Review

Maguire said newly appointed CEO Mike Lyons has brought an outside perspective and greater urgency to the company’s review of businesses, products and capital allocation. Lyons had been in the CEO role for 15 days at the time of the conference, according to Maguire.

The company intends to focus on businesses that support its deposit franchise and wholesale operations, Maguire said. He identified core commercial and middle-market banking, industry-focused lending, selected commercial real estate opportunities, payments, treasury products, wealth management and potentially a larger credit-card offering as areas of opportunity.

Truist also may place greater emphasis on home equity lines of credit and retail mortgages, which Maguire said can help the bank serve its deposit and checking-account customers more fully.

“He did not come to Truist to shrink the greatness,” Maguire said of Lyons, adding that the company expects to recalibrate some activities before returning its focus to growth and profitability.

Maguire said Lyons is not expected to retreat from Truist’s medium-term target of 16% to 18% return on tangible common equity. The bank had previously outlined a path to 15% ROTCE in 2027.

AFS Repositioning, Margin and Capital Plans

Truist plans to pair the RAC sale with an available-for-sale securities portfolio repositioning. Maguire said the loan sale is expected to generate roughly $950 million of capital, which the company plans to offset through a one-time loss associated with repositioning and “recouponing” securities.

The transaction would reduce net interest income and lower net interest margin by an estimated 4 to 5 basis points on a net basis, including the securities repositioning, Maguire said. However, he said lower credit losses should more than offset the lost income, resulting in improved earnings.

Truist expects its net interest margin to improve modestly in the second half of the year excluding RAC. The company maintained its outlook for approximately 1.5% net interest income growth in the third quarter and 1% to 1.5% growth for the full year.

The company’s available-for-sale portfolio had roughly $75 billion in book value, with approximately $30 billion considered legacy, longer-duration securities after prior repositioning efforts, Maguire said. He estimated that the contemplated action could address about one-third of the remaining AFS repositioning opportunity.

Truist also reaffirmed its $5 billion share repurchase plan for the year. Maguire said the bank is targeting a common equity Tier 1 ratio of about 10% by the end of next year and expects to maintain an elevated buyback next year, subject to opportunities for high-quality earning-asset growth.

Deposits, Branches and Credit Remain Areas of Focus

Maguire described the operating backdrop as constructive, saying Truist has not seen broad signs of emerging stress among consumer, commercial or institutional clients. Commercial and investment-banking pipelines, credit performance and consumer savings rates have remained relatively stable, he said, though the bank is monitoring geopolitical developments and interest-rate conditions.

Deposit production has been particularly strong in wholesale banking, Maguire said, although customers have continued rotating into higher-rate products. Truist plans to intensify its focus on growing deposits in its markets.

The company is also evaluating the pace and scale of its branch investments. Truist has a multiyear plan to renovate 300 branches and open new locations, but Maguire said Lyons may accelerate those efforts. Following its merger, the company went from approximately 3,000 branches to 2,000 after closures and has not materially pursued new branch development since then.

“Today we’re winning a lot, but we’re not winning enough,” Maguire said, describing the company’s longer-term objective as gaining more client relationships in its core markets and banking businesses.

About Truist Financial (NYSE:TFC)

Truist Financial Corporation NYSE: TFC is a financial services company formed through the 2019 merger of BB&T Corporation and SunTrust Banks. Headquartered in Charlotte, North Carolina, Truist operates as a major commercial bank serving consumers, businesses, and institutions primarily across the United States.

Through its consumer and business banking operations, Truist provides checking and savings accounts, credit cards, mortgages, home equity lending, personal loans, commercial lending, treasury management, and payment services.

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