Zero rate cuts could stymie Truist’s effort to hit key goal

UPDATE: This article includes more details from Truist’s earnings report and comments made during the bank’s earnings call.

Truist Financial is standing by its full-year revenue forecast and remains committed to its long-standing but elusive goal of achieving positive operating leverage.

But Truist executives said Friday that if interest rate cuts fail to materialize in the second half of the year, the company may not be able to meet that goal in 2025, as it committed to doing last fall.

The Charlotte, North Carolina-based regional bank expects adjusted full-year revenues to increase 1.5%-2.5% year over year and adjusted full-year expenses to rise by about 1%, executives said. Those projections rest on the assumption that the Federal Reserve will cut interest rates twice between now and the end of December.

The Fed, which began raising rates in 2022 to try to curb inflation, made three cuts last year. But it hasn’t continued reducing rates so far in 2025, despite the Trump administration’s increasingly aggressive demands that it do so. In June, the Federal Open Market Committee voted unanimously to keep rates unchanged, saying in a policy statement that “uncertainty about the economic outlook has diminished, but remains elevated.”

President Trump’s tariff regime has been the major cause of economic uncertainty this year.

During Truist’s second-quarter earnings call on Friday, an analyst asked whether the bank can achieve its goals even if interest rates don’t get cut this year.

“I mean, I think the answer is probably it depends,” Mike Maguire, Truist’s chief financial officer, responded.

“I think if you saw no cuts, and you saw the long end [of the curve] lower, as an example, that would maybe create some risk,” he said. “But … at the end of the day, I don’t think we feel super sensitive to … the rate path [for the] 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?”

Positive operating leverage — when revenues outpace spending — has been central to the story Truist has sold to investors since the company was formed in late 2019 through the blockbuster merger of BB&T Corp. and SunTrust Banks.

Truist hasn’t achieved full-year positive operating leverage since 2022, a fact that has irked some investors, in part because significant cost-cutting was touted as one of the benefits of a merger that combined two of the most dominant banks in the Southeast.

Truist committed last fall to achieving positive operating leverage in 2025. At the time, Truist Chairman and CEO Bill Rogers said it was an attainable goal based on the momentum within the bank’s lines of business and a sense of “confidence” in employees and the firm as a whole.

On Friday, Rogers said the $537.1 billion-asset company is “seeing solid progress” in areas such as wealth management, payments, middle-market lending and its “premier” banking segment, which caters to customers who hold at least $100,000 of assets with Truist.

Read more about Truist here: https://www.americanbanker.com/organization/truist-financial

Still, Truist’s investment banking and trading business slowed down in the first half of the year, reflecting tariff-driven turmoil in the equity and debt markets. Investment banking and trading income for the second quarter totaled $208 million, down 28% year over year, the bank said.

The outlook is brighter for the second half of the year, following a pickup in activity in May and an even bigger increase in June. Rogers said the business is “well-positioned” for a second-half recovery.

“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,” Rogers said. “So there’s … reason to be optimistic.”

For the quarter that ended June 30, Truist reported net income of $1.2 billion, an improvement from the same quarter last year, when net income was $922 million. The results in the year-ago period were impacted by two large one-time items — losses in its securities portfolio and the proceeds of the sale of its insurance subsidiary.

Earnings per share were $0.90, shy of analysts’ consensus $0.92 expectation, according to S&P Capital IQ.

Revenue was about $5 billion — rebounding from a revenue loss of $1.68 billion in the year-ago period, which was due primarily to the losses in the bank’s securities portfolio.

Analysts polled by S&P Capital IQ had predicted revenue of $5.025 billion.

Banks this week have mostly posted strong earnings results despite economic uncertainty.

At Truist, net interest income rose 1.7% year over year. Fee income was $1.4 billion, after the bank recorded a loss of $5.2 billion in the year-ago period. The improvement was largely a result of the securities losses recorded last year and higher “other” income, partially offset by the weaker results in investment banking and trading, Truist said.

Read more about bank earnings here: https://www.americanbanker.com/earnings

Noninterest expenses totaled nearly $3 billion, down about 3.5% from the year-ago quarter. The reduction reflected a charitable contribution of $150 million that was made in the same quarter of last year and a special Federal Deposit Insurance Corp. assessment adjustment of $13 million in the same period.

Average loans and leases were $313.8 billion in the quarter, up from $307.6 billion in the year-ago period. In consumer and small-business banking, Truist reported “strong loan growth across all consumer portfolios,” which was due to new loan production of approximately $13 billion for the quarter, up $5.5 billion on a year-over-year basis, the bank said.

Average deposits were $400.5 billion, compared with $388 billion in the same period a year earlier.

Between April and June, Truist repurchased $750 million of its common shares, and executives said Friday they plan to buy back $500 million more during the third quarter. The company, which has excess capital due to last year’s sale of its insurance unit, bought back a total of $1.25 billion of its common shares during the first half of the year.

Scott Siefers, an analyst at Piper Sandler, was curious about the “step-down” in repurchases from the second quarter to the third quarter. Maguire said it boiled down to market conditions.

“For us, the $750 [million] versus $500 [million] really was opportunistic, as we watched the price simply present itself at a more attractive level,” he said on the call. “I think the return to $500 [million] is probably a reasonable place to expect us to stay for the medium term.”