Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation third quarter 2026 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.
Thank you, Betsy, and good morning, everyone. Welcome to Truist third quarter 2026 earnings call. With us today are our CEO, Mike Lyons, and our CFO, Mike Maguire. During this morning's call, they will discuss Truist third quarter 2026 results, share their perspectives on current business conditions, and provide an updated outlook for 2026. 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. Please review the disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for required reconciliations to GAAP. With that, I'll turn it over to Mike Lyons.
Thanks, Brad, and good morning, everyone. It's good to be with you on my first earnings call. I've long admired Truist and its predecessor companies, and I'm excited about the opportunity to build on the company's tremendous assets and attributes to drive better operating performance, faster growth, higher profitability, and greater shareholder value. Before we dig in, and on behalf of everyone at Truist, I want to recognize Bill Rogers and thank him for his leadership and many contributions to the company over his 46-year career. I'm especially grateful for the warm welcome he has shown me since the announcement in June. Turning to the quarter, we grew earnings per share 12% year-on-year, excluding the impact of the previously announced RAC sale and the associated capital neutral AFS repositioning that we completed during the quarter. These results were broadly in line with our expectations.
Wealth management performed ahead of plan. Client deposit growth and asset quality were both better than expected, and we maintained expense discipline, with costs coming in below plan. On the flip side, amid broader market volatility, we had some investment banking revenue get pushed out late in the quarter. Our revenues also reflect lower loan balances as our sharper focus on risk-adjusted returns and wholesale impacted volumes, and we saw higher than expected paydown. Mike will walk you through the quarter in detail in a moment, but first, I wanted to share some of my early observations and how I'm thinking about the opportunity ahead. As I've said to many of you, I came to Truist because of its exceptionally strong foundation and my belief in what this company can become. In my first six weeks, I spent a lot of time meeting with teammates, clients, and investors.
These conversations have only strengthened my conviction in Truist. We have all the raw materials to become one of the country's top-performing banks, and this is our overwhelming number 1 objective. That said, it is no secret that we have not performed up to our potential over the last several years, including falling short of the financial goals set forth at the time of the merger. While I believe that that history and context are important and we have learned from it, we are where we are today, and we know we can perform better. We're now squarely focused on the future and are fortunate to move forward with some tremendous assets. Importantly, we do not need to reinvent Truist to win from here.
From a strategic perspective, while Truist's purpose has always been clear and at the forefront, we have fallen short in translating that purpose into a focused set of strategic priorities and consistently aligning our investment decisions to support them. As a result, some important initiatives have not received the level of investment or attention required, which inevitably makes execution more challenging. Going forward, we are clear on and committed to a strategy which narrows our focus to relationship-based businesses where we are competitively advantaged and can earn attractive returns by becoming the most important financial partner to our clients. We will invest deliberately and consistently to support that strategy. Of course, the path to becoming this most important financial partner requires time and investment and differs across our two businesses. In our CSBB segment, it means striving to win the DDA of every client across our branch footprint.
We'll do this by increasing investment in the capabilities that matter most to our clients: great service, value-based products, multi-channel access, speed and safety of payments, durable technology, and trusted personalized advice. As part of this, we are shifting our consumer lending focus to areas that support a strong in-footprint DDA relationship like credit cards, home lending, and unsecured loans. Contrast this approach to today, where we have operated too many nationally focused standalone single product businesses like Marine and RV, RAC, and LightStream, which have diverted attention and resources from growing our core deposit franchise. In wholesale, it means delivering capital and ultimately a broad array of value-added solutions that allow our clients to run their businesses better.
We have an exceptional full-service franchise that offers Wall Street capabilities, industry vertical expertise, and a top 10 balance sheet, which is uniquely combined and delivered through a relationship and community-based model rooted in 150 years plus of history. While wholesale has performed well, we see meaningful opportunity to invest for growth. We're continuing to build a full-service treasury management platform. We have the opportunity to meaningfully expand our sales teams in middle market banking, rates and FX, brokerage, and wealth advisory. There are still a number of attractive lending businesses where we don't yet participate, either at all or at the scale that we should. Put simply, wholesale, including wealth management, has a strong foundation and solid momentum, but there is considerable runway for investment-led growth, and we're already moving on some of this, recently adding over 40 bankers to our commercial middle market business.
From an operational perspective, we need to get back to basics, simplify how we work, remove unnecessary complexity, and eliminate low-priority activities. This is the straightforward operational framework that will support our strategy: simplify, focus, execute, and grow. We start with a great foundation. We have now established a clear strategy and the operational framework to support it. From here, we have some important capital and resource allocation work to do to position ourselves to execute on this strategy successfully. This starts with reconfiguring and improving our balance sheet composition and reallocating parts of our expense base to drive growth through key investments.
With respect to the balance sheet, we plan to remix our securities away from long-dated MBS into a greater mix of U.S. Treasuries, limit the use of our deposits to core strategic lending areas where we can build deep, long-standing relationships, reduce wholesale borrowings, and maintain a strong through-the-cycle capital position. In terms of required investments, we are focused on closing key gaps and strengthening our branch and ATM networks, modernizing our technology, including more AI capabilities, adding client-facing talent, and building digital and payments capabilities, including mobile banking, treasury management, and credit cards. Our goal is to make our branches more inviting, service more consistent, technology more resilient, our product set broader, operations simpler, and ensure our teammates are better supported. To fund these investments, we are systematically reviewing all businesses, operations, and processes through a straightforward lens that asks three questions: Is it core to our strategy?
Is it generating targeted returns? Is it protecting the bank or helping our clients? If something does not pass these tests, we are redirecting resources and capital to fund strategic growth investments while maintaining expense discipline. Our sale of RAC, and the associated repositioning of the balance sheet, and today's announcement with LightStream come directly from this process and reflect our new framework, accelerated pace, and enhanced shareholder focus. We are aiming to finish this evaluation by the end of the year. In early 2027, we will provide more details on our outlook for the year and our path to becoming a top-performing bank as the investments we are making take shape over time. Of course, making the right strategic and resource allocation decisions is only the first part of the equation. From there, we have to execute sharply on our day-to-day operations and a significant investment agenda.
To that end, we have made some important leadership changes in CSBB designed to ensure that we have the right breadth and depth of leadership to execute and achieve our ambitions. As part of this, Steve Boland will join Truist as Vice Chair, bringing more than three decades of consumer banking experience, including as the former President of Retail Banking at Bank of America. Shim Sameer, who we announced this summer as the Head of Truist Wealth Management after a 20+ year career at Bank of America, will move over to become Chief Consumer Banking Officer. Shim has extensive experience leading large-scale consumer and branch businesses and operations and will play a critical role as we focus on growing deposits. Jeff Warner will join Truist to lead small business banking, a highly attractive segment where we are well-positioned with significant upside.
Jeff brings over 25 years of business and corporate banking experience to us. In short, we've sharpened CSBB's focus, added highly experienced leaders to complement our existing talent, and flattened the organization, all designed to drive the execution of our growth plan. Going forward across Truist, we will bring disciplined management and deliver crisp execution and operational excellence, and we will hold ourselves accountable for outcomes measured against the industry's top performers. By doing so, we will become a consistently high performer ourselves, making our existing profitability targets look more like table stakes. We remain committed to delivering on our ROTCE targets, which includes 15% in 2027 and 16%-18% over the long term.
Regarding returns, I should note that while some of the actions we're taking in the near term, like RAC and LightStream, will necessarily reduce the balance sheet, our strategy is not about shrinking to achieve higher returns. It's about creating a stronger foundation for both sustainable growth and higher returns over time. We appreciate your support and feedback as we execute this strategic review and position Truist to achieve its full potential. With that, I'll turn it over to Mike to discuss the quarter.
Thank you, Mike. As Mike discussed, we've been reviewing our businesses and lending portfolios with a focus on strategic fit, capital efficiency, and risk-adjusted returns. As you can see on slide five, we completed the previously announced sale of our $5.5 billion RAC auto loan portfolio at the end of the third quarter and have exited that business. We received net proceeds of $5.2 billion from the sale, which we used to reduce borrowings. Of note, the sale meaningfully improved our credit risk profile, reducing consolidated non-performing loans by 28% and expected annualized net charge-offs by 10 basis points. The sale also generated approximately $1 billion, or 23 basis points of CET1 capital, which we utilized to reposition a portion of our AFS securities portfolio.
As we detail on the left-hand side of the slide, we sold $8.6 billion of book value, lower yielding agency MBS securities with a 2.67% book yield and a duration of 5.8 years, and then purchased $7.2 billion of investment securities effectively yielding approximately 5.6% with a duration of 2.3 years, adjusted for the new pay-fix swaps that were added at the time of the purchases. Taken together, these actions were immediately accretive to tangible book value per share and are expected to provide benefits to earnings per share and ROTCE beginning in the fourth quarter. As mentioned, in addition to these completed actions, we continue to evaluate other businesses based on strategic and financial potential.
As part of this work, we are pleased to announce this morning that we have signed an agreement to sell $7.7 billion of loans representing substantially all of the assets of LightStream, a national provider of direct unsecured personal loans. Similar to our decision to sell RAC, the sale of LightStream represents an exit from a non-core loan-only business that is generating returns well below our targets. Exiting LightStream will also improve our credit risk, liquidity, and funding profiles. The transaction, which we expect to close during the fourth quarter, is estimated to generate net proceeds of $7.2 billion, create $850 million or 20 basis points of CET1 capital, and reduce consolidated annual net charge-offs by approximately 7 basis points.
We will use the sale proceeds to repay wholesale funding, and based on market conditions at closing, we will evaluate potential uses of the incremental capital generated, including repositioning additional AFS securities. To the extent that we do reposition AFS securities, we will invest in securities that shorten the duration of the AFS portfolio and increase the proportion of the portfolio that is invested in U.S. Treasuries. Now turning to third quarter results on slide six. We reported GAAP net income available to common shareholders of $684 million or $0.56 per diluted share. As shown on the slide, the strategic actions we just discussed reduced reported EPS by a net $0.60 per share, reflecting $0.90 per share of losses from the AFS securities repositioning and $0.06 per share of RAC-related costs and losses.
These were partially offset by a $0.36 per share benefit from the RAC-related reserve release. Excluding these items, adjusted EPS was $1.16 per share, which is up 12% versus the third quarter of 2025. Adjusted ROTCE was 14.6%, a 100 basis point improvement from the third quarter of 2025, driven by higher earnings and continued capital return. Next, I'll cover our balance sheet on slide seven. As Mike highlighted, we are intensely focused on enhancing the composition of our balance sheet and maintaining a strong through the cycle capital position. The strategic actions we took in Q3 positively impacted our balance sheet composition and reduced our risk profile. As you can see on the slide, average loans declined $3.6 billion or 1.1%, largely reflecting the impact of the RAC loan sale and reduced originations in Prime Auto and Marine and RV.
While average investment securities at amortized costs were up modestly linked quarter, they were down $2.8 billion on a period end basis. Deposit trends remained strong, with average deposits increasing 1.4% linked quarter and 3.6% versus a year ago, driven primarily by higher client deposit balances. This deposit growth, along with proceeds created from the RAC sale, allowed us to reduce broker deposits and other short-term borrowings during the quarter. During the quarter, we returned $1.8 billion of capital to shareholders through our $632 million common dividend and share repurchases of $1.2 billion. Our CET1 ratio declined 20 basis points linked quarter to 10.7%, driven by capital return to shareholders and the AFS securities repositioning, partially offset by earnings and the RAC loan sale. Now turning to average loans and leases on slide eight.
Average loans held for investment declined $3.6 billion or 1.1% linked quarter to $326 billion, with the decline largely reflecting the strategic portfolio actions we have taken. As shown on the right-hand side of the slide, approximately $2.7 billion of the decline was the result of strategic runoff in our consumer and commercial loan portfolios. That runoff reflects actions we began taking in the second quarter, including discontinuing Marine and RV loan originations and significantly reducing production in other less strategic, low return consumer and commercial lending businesses. In addition, we transferred the $5.5 billion RAC portfolio to held for sale in September, reducing average loan balances by another $1.7 billion. The RAC portfolio was sold at the end of the quarter, so we will see the full impact on average loan balances in the fourth quarter.
Outside of these actions, core loan balances increased $0.8 billion linked quarter due to growth in consumer loans, including Service Finance, Sheffield, and residential mortgage, partially offset by lower C&I balances. Decline in C&I reflected both our focus on reducing exposure to lending segments that do not meet our ROTCE objectives and elevated pay-downs experienced during the quarter in certain industry portfolios. Based on our current commercial loan pipeline, we would expect average commercial loan balances to increase in the fourth quarter, supporting mid-single-digit growth in commercial loan balances for the full year. As a result, we remain confident in our ability to deliver average loan growth of 3%- 4% in 2026, excluding the impact of the sales of RAC and LightStream. Moving to deposit trends on slide nine. Average deposits increased 1.4% linked quarter and 3.6% year over year, driven primarily by growth in interest checking.
The growth continues to reflect stronger client deposit balances, primarily in our wholesale segment. Compared with the third quarter of last year, average client deposits increased $16 billion, while other treasury and corporate managed deposits declined $2 billion, which is aligned with the goal Mike discussed earlier to change the composition of our balance sheet to more profitably fund and support long-term growth. We generated positive net new checking account growth in the quarter and year to date, and will look to accelerate that growth with the investments Mike discussed. The growth in client deposits, combined with the liquidity generated by the RAC sale, allowed us to meaningfully reduce non-core funding. Average total borrowings declined $4.5 billion or 6.6% year over year, including a significant reduction in short-term borrowings. Deposit costs remained relatively stable on a linked-quarter basis.
Average interest-bearing deposit costs increased 2 basis points linked quarter to 2.12%, while total deposit costs increased 3 basis points to 1.59%. Moving to net interest income and net interest margin on Slide 10. Taxable equivalent net interest income increased $40 million or 1.1% linked quarter to $3.7 billion, primarily reflecting the benefit of fixed rate asset repricing and one additional day in the quarter, partially offset by lower loan balances. Net interest margin increased 2 basis points to 3%, driven by fixed rate asset repricing and a slightly smaller balance sheet. Looking ahead, we expect fourth quarter net interest income of $3.65 billion- $3.7 billion. That outlook reflects an approximately $125 million reduction in net interest income from the RAC loan sale, partially offset by an approximately $40 million increase due to the AFS securities repositioning completed at the end of the third quarter.
As a reminder, RAC was a roughly break-even business. While the sale reduces net interest income, we also expect lower associated non-interest expense and credit costs to provide an offset to lower net interest income. The combination of the RAC loan sale and the AFS securities repositioning are modestly accretive to EPS and ROTCE. Finally, as shown on the lower right-hand side of the slide, our swap portfolio was largely unchanged from the second quarter, while our interest rate sensitivity remains relatively neutral. Turning to non-interest income now on Slide 11. Non-interest income declined to $84 million in the third quarter of 2026 due to $1.4 billion of losses on the AFS securities sold during the quarter and $66 million of losses associated with the RAC sale recorded in other income.
Excluding these items, adjusted non-interest income declined $47 million or 2.9% linked quarter to $1.6 billion, driven by $47 million of lower adjusted other income due primarily to a $30 million decline in NQDCP income, which is offset in personnel expense. $28 million of lower investment banking and trading income due to lower trading and M&A activity, partially offset by stronger equity and debt capital markets activity. These declines were partially offset by $32 million of higher wealth management income driven by favorable equity market performance. Third quarter wealth management income of $407 million represents our best quarter ever in wealth. Overall, card and treasury management fees declined modestly linked quarter, primarily reflecting weakness in merchant, where we recently launched a new partnership aimed at improving performance. Treasury management continues to be an important area of focus and investment, with fees continuing to grow, healthy pipelines, and continued product adoption.
Compared with the third quarter of 2025, adjusted non-interest income increased 2.5%, driven by higher wealth management income, partially offset by lower other income. Excluding the impact of the investment securities losses and the RAC loan sale, we expect adjusted non-interest income to increase about 5% in the fourth quarter versus the third quarter of 2026, resulting in about 10% growth in adjusted non-interest income for the full year. Next, I'll cover non-interest expense on Slide 12. Expense growth remained well controlled in the third quarter. Non-interest expense increased $50 million or 1.6% linked quarter to $3.1 billion. The increase was driven by $40 million of costs primarily related to severance associated with the RAC sale. Excluding those costs, adjusted non-interest expense increased just 0.3% linked quarter.
Compared to the third quarter of last year, non-interest expense increased 3%, also reflecting the RAC-related severance costs as well as higher salaries and incentives tied to performance in wealth and investment banking and trading. Excluding the RAC-related costs, adjusted expenses increased 1.7% versus the third quarter of 2025. For the fourth quarter, we expect non-interest expense to increase 2.5% versus the third quarter reported non-interest expense of $3.1 billion. Fourth quarter expenses will still include approximately $25 million of RAC loan servicing costs, which are expected to be eliminated from the expense run rate in the first quarter. Next, I'll discuss asset quality on Slide 13. Overall credit this quarter remains strong, and the RAC loan sale meaningfully improves our credit risk profile going forward. Our reported credit metrics this quarter do reflect the impact of completing the sale.
Net charge-offs were $629 million or 77 basis points versus 50 basis points in the second quarter of 2026 and 48 basis points in the third quarter of 2025. However, adjusting for $317 million of RAC loan losses during the quarter, adjusted net charge-offs were $312 million or 38 basis points of average loans held for investment. Our provision for credit losses was a benefit of $253 million, reflecting a $581 million loan loss reserve recapture related to the RAC loan sale. Excluding RAC, our provision for credit losses was $328 million. The allowance for loan losses declined 26 basis points linked to 1.25%, but ALL coverage of NPLs improved from 2.9 times to 3.1x on a linked quarter basis.
Non-performing loans held for investment decreased 11 basis points linked quarter to 40 basis points of total loans due primarily to the RAC loan sale, partially offset by an increase in C&I problem loans. Now I'll review our guidance for the fourth quarter of 2026. For the fourth quarter, we expect revenue of approximately $5.35 billion, which reflects the outlook for net interest income I discussed earlier and 5% linked quarter growth in adjusted non-interest income. We expect reported non-interest expense to increase approximately 2.5% linked quarter. On asset quality, we expect net charge-offs of 45 basis points reflecting normal fourth quarter seasonality. We expect an effective tax rate of 13.5% and an FTE tax rate of 15.5%. As it relates to buybacks, our outlook assumes share repurchases of approximately $1 billion during the fourth quarter, which is a modest reduction from the third quarter repurchases of $1.2 billion.
This reflects recent changes in the interest rate environment, the ongoing strategic review, and our goal to maintain a strong through-the-cycle capital position. For the avoidance of doubt, our outlook excludes the impact of any potential additional strategic actions in the fourth quarter, including the sale of LightStream. Overall, we enter the fourth quarter with a clear strategy, solid underlying financial performance, higher quality balance sheet composition, a reduced credit risk profile, and in a strong capital position. As Mike discussed, we'll continue to evaluate opportunities to simplify the company and direct capital and resources to our businesses where we see the best opportunities for growth and attractive returns, and we look forward to providing you with a fulsome strategic and financial outlook in early 2027. With that, I'll turn it back to Brad for Q&A.
Thank you, Mike. 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 yourself to one primary question and one related 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 please 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 Ryan Nash with Goldman Sachs. Please go ahead.
Hey, good morning, guys. Welcome to the call, Mike.
Thank you.
You gave a lot of details on your view of the company and shared the lens that you are going to be looking at things through, which was very helpful. Just as you think about the broader strategic review that is underway, what are some of the other areas that might not meet your criteria? As you think about investing, where is the most increased investment needed? Maybe just expand a little bit on the strategy to grow DDA and where are you expecting to find areas to remix costs from? Thank you.
Sure. Thank you for the question. Six weeks in, had a chance to spend a lot of time with the team over the summer, so hit the ground running. As I said in the prepared comments, excited about the opportunity in front of us, and importantly, we're moving with focus and urgency, but clear-eyed about the work that needs to be done to make us a top performer. No major surprises so far, positive or negative. On the positive side, the great foundation that everybody knows about Truist and all the positive attributes have been confirmed. The branch footprint is unquestionably strong. Size and density would be hard, if not impossible, to replicate in these markets. We have some very high-quality businesses as I've gone through the reviews, small business, DCM, commercial real estate, ABS, wealth, corporate banking.
It's just a long list, all of which, as I'll talk about in a second, could perform better with even more incremental investment. Importantly, deep spent a lot of time in the markets, deep client relationships, and it's interesting, a lot of them really want a true Southeastern Sun Belt winning bank, and we want to obviously deliver that for them. As recognized earlier, despite the positive attributes, we haven't performed up to the potential or expectations. I think going through the review, and I said it in the comments, we don't need to reinvent Truist to win. It's an important point. The biggest opportunity I've seen is just be clear on the strategy and then align our capital and resources against it.
We found capital spread to a lot of areas that don't either support our core strategy or areas where we have a clear right to win. The strategic review exercise that we're going through is trying to get after all of that, and it's simply every, it's not just businesses, it's every process, every operation, every committee, every decision we make.
Everything goes in, no sacred cows. We have a clear lens that I talked about. Is it strategic? Does it clear financial returns or does it separately do something to protect the bank, which we obviously need to do or enhance client service? If it doesn't, we're moving it out. If it does, we're assessing what does it need, and that's really the essence of the sources, and we call it the sources and uses exercise. The goals are really twofold: to enhance the balance sheet, which Mike talked about a lot, and we're happy with the progress we made this quarter. Then really take our current expense base and create incremental capacity within it by stopping doing non-core, non-strategic things and funding strategic investments where we have the right to win and can grow.
And some of those decisions are easy and some of those decisions are harder because you may pass one or two of the tests. You saw, as Mike talked about, with RAC and LightStream, earlier examples where not very profitable or unprofitable and not strategic to what we are trying to do, easy to do, and we move those and it is accretive to earnings, ROTCE, tangible book value, and allows us to focus on the core. That work is ongoing, as I said. That will run up. We have it scheduled to run up near the end of the year and then early in the year as part of our fourth quarter earnings. We will explain, I will align to you all what came out of that and the path to the longer-term ROTCE targets. Hopefully you are able to capture from the comments. The exercise is twofold.
It is identifying the sources and uses, and we are encouraged by what we are seeing there. Then you have to go execute and make the investments, and I think that goes to the second part of your question. You saw some of the changes we made today to the management team to better position us with increased experience and depth to execute on those who are thinking about both angles of that. When you go through on the investment side, on the retail side we have got this great footprint and we have got a great branch franchise, but we have not invested appropriately in it.
So a big part, as I said, with the CSBB focus is into the branch network, into the ATM network, our technology in the branches, mobile digital, more performance-based marketing, an enhanced client-focused credit card platform. There are lots of different things that work, a rewards platform in there.
On the wholesale side, we are continuing our build-out in treasury management, which we are pleased with the progress there. It is a great business where our penetration of clients is still very small relative to peers. So we obviously want to stay focused on that. Then the bigger piece in wholesale is just adding more people. We have got a great platform. It is a unique platform that, as we said, combines capital markets capabilities and core balance sheet lending and more people selling more stuff across the country and taking care of our clients. So those are the big highlights in a review of the process we are going through.
Awesome. As my follow-up, you reiterated the return targets, which I think was great to hear, just given some of the skepticism in the market. I guess, just in order to achieve these, well, I know there is a lot of uncertainty because you are still going through the review. Just any broad strokes how long and far do you expect the balance sheet to shrink? As you sell these businesses, how do you think about the ability to do it without meaningfully eroding tangible book value? Thank you.
Sure. I'll start with the last piece is the decisions we made so far. When you certainly with RAC, when you combine it with the AFS repositioning, it's accretive to tangible book value. I think we have that lens when we consider any of these. I think what's really important to consider, what we did with RAC and LightStream is we have meaningfully changed the stressed credit loss profile of the company. In addition to other changes on the balance sheet that Mike talked about, reduced wholesale borrowings, reduced duration of securities portfolio. I think it's really important. We're growing tangible book value as part of these transactions. Obviously, you got some movement in AOCI this quarter that shows up in the reported numbers. The transactions themselves are accretive to tangible book value, and we'll keep that lens as we go through all of the actions.
This isn't about going through. We may find some opportunities to spend a little to save perpetually, but this isn't about taking a big charge and destroying tangible book value and rebuilding over time. It's creating capacity within our own financial wherewithal. On the reiteration of the financial targets, we're on track to do what we said we would do in 2026. In January, we'll give you obviously a very specific outline for the 15% target next year. The whole strategic review will build that bridge for you to the 16%-18% over time. Comfortable reiterating it because we believe, and it is over time, it's a long-term target, that the company has every right to be one of the top performers. If you look at the best performers in our industry, they're all at or above that range.
We believe we can do there. If you go through, again, what are the drivers on that bridge, clear strategy, focused investments, better and world-class execution, reduced bureaucracy and distractions, much crisper and more urgent and speed in the company. Obviously have some key financial levers like the HTM book pulling back par. As I said earlier, there are incredible opportunities to go throughout the bank. Low penetration in treasury management, lending areas that we aren't fully scaled in or don't even participate in today. Also FX and rates, huge opportunity. Those are some of the stuff we'll take you through, but we need some time to finish the review.
Awesome. Thanks for all the call, Mike.
The next question comes from Scott Siefers with TD Cowen. Please go ahead.
Morning, guys. Thanks for taking the question, and Mike, congratulations. I guess a little bit of a follow-up on what you do with the proceeds from some of these decisions like the loan sales, et cetera. It certainly feels like you're moving with pace to position the company where you want it to be. When you think about what you have done, what you might do with capital created by things like the loan and business line sales, I guess one of the things that comes up quite a bit in investor conversations is just this tension in that there are obvious places to clean up and reposition theoretically, like the securities portfolio. But it is a kind of steep cost to doing so, like long earn backs on security sales, for instance.
Maybe just at a very top level, if you could speak to the balance between near-term costs and long-term benefits as you look for where to reallocate the capital, whether it's financial engineering, long-term business opportunities, et cetera.
Sure. I'd start out, and Mike said it, a hallmark of the company going forward is going to be a high-quality balance sheet with strong through the cycle capital position. Mike talked about the stuff, reducing duration in the securities portfolio, reducing wholesale borrowings, and then I mentioned meaningful reduction in stressed credit loss profile with moving out some unprofitable or marginally profitable assets with high-risk profiles, especially as you go through a cycle. As an overarching view, take that as the hallmark of the company. The path we're going down is focusing resources to drive precise execution, no financial engineering in the work that we're doing. As Mike will go through, we're looking through to the future Basel III rules and whether the AOCI comes through the Tier 1 common or not.
It sort of changes that dynamic of how you think about earn backs and the like because it will be in your capital soon enough anyway. Why don't you go through, Mike?
Yeah. Good morning, Scott. Maybe just to add to that. We do think it is, and as we have demonstrated with RAC, a sensible thing to sort of pair these capital creation events with our ambition to improve the duration of the balance sheet. Mike mentioned with Basel III really coming into focus and insight. We do feel like it is sensible to take action around the securities portfolio. It is not an endless population of actionable AFS bonds, right? The securities that we targeted with the RAC sale were the most obvious population to pursue. I think I mentioned this fall at a conference, we felt like there could be another $17 billion or $18 billion of AFS securities that we think could be actionable. We think the opportunity to, again, reduce duration especially is a worthwhile endeavor. Look, we need to get LightStream completed.
We are going to continue to evaluate these other businesses and products and operations and let that all settle. That maybe gives you some insight into our thinking.
Yeah, the overarching theme we keep saying is creating incremental capacity within our existing resources so that the capital neutral generated capital from selling an unprofitable higher risk business capital neutral trade. We will think about the same way on LightStream. As we are going through the sources and uses, we are thinking about the same thing from an expense perspective.
Perfect. Thank you. Then maybe this follow-up, just sort of qualitatively. I think there's this sentiment in the market that in the immediate few years after the BB&T SunTrust deal, Truist spent a lot of time sort of on back feet as you went through kind of extended integration, et cetera, and had gotten back on its front feet over the last couple of years. But just now that you're sort of a fresh set of eyes, I guess what's your sense for the internal perception of the kind of momentum that Truist has sort of culturally versus where you want or need it to be?
Well, I think we're fortunate to have a terrific leadership team, a terrific base of employees here. I mentioned the comment on our clients. I don't think it's internally different. People want to be on a winning team, and to be on a winning team, to take this great franchise and all the great foundation that was built through the merger and make it a winning team. We're making tough decisions, moving with pace. We're communicating clearly with our people. I think you can ask them yourselves, but I think they're responding well. Certainly when I see in the markets when I'm out with the team, they're on their front feet. They want investment in the businesses. With investment in the businesses, they can win. We have great markets that attract great competition, and if we don't invest, it's hard to compete.
Our people want to win and compete, but we can't just ask them to work harder without the right level of investment. The sources and uses exercise, it's a balance inside the company. You've heard about some of the earlier sources and uses where you have an unprofitable business where we can change and create a lot of positive benefits. It gets tougher as we go. People will have to give up some stuff to put us in a position to win. But when you look at primary measures of how people are, we look at top-performing turnover, which is down on a year-over-year basis. You see some indications like that. But I think I'd just summarize it by saying people want to win, and so do we, and we want to do the right things to drive that.
Perfect. All right, good. Thank you very much.
The next question comes from Manan Gosalia with Morgan Stanley. Please go ahead.
Hey, good morning, and welcome, Mike. I was wondering if you can give us more color on some of the lending businesses you noted were attractive for Truist, but that you don't participate in right now. I think you noted some of the hiring efforts are also already underway. If you can talk to how much more there is to do, and how quickly you think the production can show up on the balance sheet.
Sure. To go back to two things I mentioned in Ryan's question, we have a great small business platform. It's a complete deposit machine. We're under-penetrated in lending there, so good opportunities there. Then you go through the major consumer lending categories. We obviously have competitively national platforms with Service Finance and Sheffield, but we see opportunity to grow home equity for our clients, indirect auto for our clients, certainly credit card for our clients. And continue even with the national decision on LightStream, we're still going to do unsecured for our clients where it helps the relationship. So good growth opportunities on the consumer side. Great lending opportunity on the small business side. On the wealth side, relative to peers, our lending penetration is very low, so great opportunity there. And then, as I mentioned earlier, we have an absolutely outstanding wholesale platform, great leadership team.
We're attracting talent in the business. It's unique to have, as I said, the Wall Street capabilities, big balance sheet, great DCM platform, and be as penetrated into the markets as we are. That business would benefit, as I said, from more salespeople and more investments in some certain key products. Treasury management obviously is clear there. More feet on the ground in FX rates, middle market lending. Then we're under-penetrated in areas like any of the asset-based or asset-backed platforms. Securities-based lending, as I talked to on the wealth side. Equipment finance, cap calls in the full relationship on the private equity side. Those are incremental areas. You go to every market we're in, we have more opportunity there. And Kristin and her team have done a great job building out really over the last year with hires in our corporate banking business where we're under-penetrated there.
You go nationally, we're less than 3% share of commercial lending. So feel good about all the opportunities to put money to work there. That's not a long investment cycle. On the retail side, as you go to start thinking about reinvigorating the branch franchise and the like, we'll get some immediate returns from better execution and immediate investment, but it's a longer investment cycle. On the commercial side, it's a much shorter investment cycle, and we've been at it for several years on treasury management. So excited about our opportunities there.
Yes. Actually, that was going to be my follow-up question on the branch strategy because you mentioned that there's some work to do in strengthening the branch footprint, making the branches more inviting. I guess, what is the pace at which you can make these investments? Is there more opportunity to either optimize the branch footprint or grow the branch footprint and bring in those DDAs in the medium term?
Yes, there is, and that's a big focus of the exercise we're going through. We think we've got a great footprint. It's not about going into other markets. We're in the best markets in the country. We haven't virtually opened any branches. Our branches need refurbishment. Lots of room to take on the ATM strategy. We haven't built a rewards platform that's become table stakes for the best-performing banks who are winning the most net new accounts. Have good mobile and digital platforms, but have to constantly invest there to stay competitive. Performance-based marketing has been light for us. Workplace banking has been light for us. So each of those have a slightly different investment cycle. You've obviously seen a lot of stats out there as people open branches. It takes time.
But the esprit de corps and the momentum that it builds within our franchise by just starting is important. Spent a lot of time in the branches since I've started, and we're already after some of the basic revitalization of the network. As we go through the remainder of the year and work on the sources and uses, this is a big part of it. As you saw in the moves we made this morning on the management side, there's a big execution part of this too, and we're building a team that has deep experience doing this, seeing what works, what hasn't worked before to complement the team we have here.
Great. Thank you.
Ladies and gentlemen, we ask that you please limit yourself to one question. The next question comes from Erika Najarian with UBS. Please go ahead.
Hi. Good morning. Just on the ROTCE outlook. A lot of discussions with your investors have sort of centered around the idea that they are confident that over time you will get to that 16%-18%, but there is a nervousness that that is going to cost you in terms of earnings power. As we think about that natural tension between growth versus returns, and of course, the premise of this MOE years ago was that this was going to be the bank in the growthiest footprint in the U.S. Mike, I am curious how you are thinking about that through time. Additionally, as you think about 2027, you mentioned investments, and appropriately so many times.
Is there enough cost to recycle here over the near term, or you are just really dead focused on getting the businesses the investment oxygen it needs so you can not only get to the 16%-18%, but also appropriate earnings power for the company?
I'd say yes to everything. Yes, there's investment that's needed, and we started that. A lot of this investment that we're talking about has to naturally be sequenced over time. Even if you had the money, you can't just wake up and snap your finger and spend all of the money. There's a natural sequencing to it over time. With respect to 2027 and the specific numbers there, we're doing the work now. We're going as fast as we can, and as soon as there's anything to tell you, as we find sources along the way, we've been telling it to you. I just showed up, so I don't have a lot of the past history. When you take a hard look at the businesses we have, the processes we have, and what we're doing, we're encouraged.
You're either discouraged or encouraged, but we're encouraged by the opportunity we're finding to reallocate existing expenses that aren't adding to the strategy of being the most important financial partner to your clients, and the ability to redirect those into strategic investments. The work we're doing, we're still early in it. You identify the source, the use. We're clear. I just answered some of the uses we do, how those uses play out over time, and how those investment dollars come out over time. The goal is to continue as best we can to work within our existing expense base to reallocate expenses and create incremental capacity for these investments. I think it's important just starting somewhere is important. We haven't invested in the branch franchise in a long time. We'll start somewhere and then pace that out as we go.
Yeah. Erika, I would maybe just add because you put the continuum of growth versus returns. I think we believe that we can grow and improve returns. You think about some of the areas where Mike has talked about investing on the wholesale business. We want to grow those businesses from a footings perspective, but we want to do a much better job driving better returns through having broader relationships and delivering more products and services to those clients. On the consumer side, a lot of the focus is going to be on creating even higher quality funding portfolios over time to support that growth. So we see a scenario, at least that's the design, to have the company.
Again, are we taking a couple of steps back here as we divest businesses that aren't aligned to the strategy and that don't have the profit potential that we desire? Yes. We hope that sooner than later we'll be back into growth mode. Frankly, we're in growth mode, but it's being offset by some of these small steps backward. We can grow, I think, and improve profitability. The goal is just where you started. We hope that the merger seven years ago now creates the best bank and the best footprints. But given the lack of investment and some deferred investments since then, we are clear-eyed about the work we have to do, and that's what we are going after now. I can assure you we are doing it with focus, clarity, and urgency.
Thank you.
The next question comes from Ken Usdin with Autonomous Research. Please go ahead.
Hi. Thanks. Good morning. Thanks for the update on the fourth quarter NII outlook. I just wanted to follow that further and just ask. So that clearly reflects the RAC loan sale and the increase from the AFS securities repositioning. Is there a way you can kind of give us or box that for the incremental LightStream sale in terms of how that would impact, I guess, more 2027 numbers, given that we do not exactly know when in fourth quarter that might close?
Yeah, sure, Ken. Good morning. We don't know precisely when LightStream will close. We do expect it to close during the quarter, perhaps mid-quarter or so. If you look at the full quarter impact of LightStream from an NII perspective, it would be in the, call it $95 million area. So that business has about a nine-and-a-quarter yield and apply funds against it. That gets you to $95 million.
And then would you expect to do the same?
Yes, I'm sorry. I assume you're going.
I'm sorry.
What are you doing with the proceeds? You've seen what we've done with Regional. We did mention that we're going to evaluate an AFS repositioning here. The population of bonds, I mentioned this a little bit earlier on the call, that would be sort of next up to target has a different profile than what we just did with RAC. The RAC repositioning we sold agency MBS that had a duration profile of, call it, close to six years or so and replaced it with securities, one swap with a higher proportion of U.S. Treasuries, had a duration profile closer to three. The population that would be next up is probably a mid two's yielding. Again, agency MBS, but it's for the most part swapped, and so it has a duration profile that's closer to, call it three years.
As we look forward, and I mentioned this in our prepared remarks, the entire purchase ticket on the other side of that would be U.S. Treasuries, and we would swap those U.S. Treasuries. So that would take the effective duration closer to zero, frankly. Again, don't know exactly what we'll do or when we'll do it, but that maybe gives you a couple of puzzle pieces.
It does. Thanks. On the cost side, it seems like you're going to spend to save to invest, and obviously that's a lot, and we're going to hear more in January. But just maybe top-down views of just how you think about that. Are you going to try to just hold the line on total cost at the end of the day, or is it a today versus tomorrow debate in terms of just how you look at ROI on save versus spend and invest? Thanks.
Yeah. I would just say I'd think about it this way, and Mike's gone into a fair amount of detail about it. The same strategic lens that we're looking at our businesses and our products, we're looking at every single dollar of expense in the company, and if it's not aligned to where we're headed, and it doesn't add value and it doesn't protect the firm or serve clients in a meaningful way, we're going to simply stop it. So we think there's going to be a significant opportunity to remix those dollars to support the investment agenda. Look, you asked for a top-down. We don't expect there to be some seismic shift in the trajectory of our expense profile.
But look, we got to get through the work, and we're going to come back in January and give you a fuller sense for what 2027 looks like and beyond. Again, I think it's important that Mike did highlight that he's comfortable with a 15% ROTCE. So hopefully that helps for next year, pardon me.
Yeah. Thanks, Mike.
The next question comes from Mike Mayo with Wells Fargo. Please go ahead.
Hi. You said you want to become a top-performing bank. So for investors five years from now, what does that mean? And what message are you sending to employees about how you'd like to see them change the way they do business each day? Thanks.
I think the concept of being the top-performing bank for us obviously impacts all of our constituencies. Great place to work, great place to bank, and then a great return for our investors. As I said, I think we've got, and I think people agree, we've got all the attributes to do this. We just haven't put them in a package and put the execution around it to deliver on that. When we go through and look at what does that look like in the franchise. Obviously, from the shareholder view, Mike, we want to be a top returning bank from the customer perspective. We'd love to see much faster growth reflective of some of our peers in net new DDA accounts in the branches, great penetration of our lending products in the branches, strong net promoter scores across all the segments.
Obviously, that all coming to fruition in a strong competitive ROTCE in that 16%-18% range where most of our peers, the top-performing peers are on the commercial side. Deep, longstanding relationships, great treasury management penetration, net new flows in the wealth business. Those are some of the attributes that you would expect to see of a top-performing business. We'll outline when we come out in January, when we walk you through the thing, we're going to narrow down and make it very clear for you, some of them I just mentioned, what the KPIs will be across the businesses so it'd be clear to hold us accountable. It's not going to be a shifting array of whatever's working that quarter is the key measure to look at. Hopefully, and obviously a great place to work. I talked about top performer turnover and the like.
Those would be the attributes across the businesses.
To get to that top-performing status, I guess Mike just said no seismic increase in expenses, but I am wondering about that trade-off, like spend more today to get to those higher performing levels sooner. Why create this constraint on expenses when you've only been there six, seven weeks? You're looking out, I guess, over the next five to 10 years. Why not spend more now? There's a trade-off there. I know we all want-
Of course.
Better earnings.
Of course.
How do you think about that?
Again, we're going through the work now. We're identifying sources, and every source comes with a tough choice, as I said earlier. For everything we do, there's at least one person who likes it. We got to make tough choices, and those will impact some stuff internally. The ability to pace at which we reinvest it really comes down to where can you be sure of great execution and crisp execution against this. So that's a balance of making sure we have experienced people capable of doing it, breaking our businesses down into digestible units that we can clearly hold accountable. I think, at least what we're seeing so far in the near term to get the investments going that we need to get going, the constraint's going to be more on whether we could actually do this stuff.
Longer term, we're going to have to continue to source the expenses. What we're finding now is, at least for the next couple of years, we can get the key investments we needed going by reallocating existing expenses. We'll naturally grow expenses, whatever the long-term.
Yeah. Mike, I would say the word seismic was intentional, right? That's not intended to say that there won't be a change in our expense profile. We don't know. We're doing the work. We're mindful of the profitability momentum and the profitability expectations. There are some concerns out there that it'll be a sort of step functional change, and that's just not how we're thinking about it.
The constraint. I would love your point, Mike, is would you love to spend it all now to get there? You just can't get it done on the investment side. They take time. You got to sequence them in. As I mentioned in my comments adding feet on the ground in the corporate business. We're already there. We added 40 bankers, really top-ranked bankers so far. So we'll keep doing on the stuff that you can get at, but mindful of the creating capacity within the base.
Understood. Thank you.
Yeah.
The next question comes from John Pancari with Evercore. Please go ahead.
Good morning, and Mike, welcome to the call. At the risk of beating a dead horse, just around the confidence in the long-term ROTCE of 16%-18%, just any way to help us if that timing of that attainability of the 16%-18% has changed under your purview as you've looked at these different levers that need to be pulled? Then when it comes to the expense side of it, any way to maybe help us with the long-term efficiency ratio that you envision for the company that is appropriate under that 16%-18%? Is it fair to assume that there could be some upward pressure on the efficiency here in the next several quarters as you execute on this before it finds its way to that long-term level? Thanks.
Hey, good morning, John. It's Mike. I'll take it. When we initially published the ROTCE targets, I think we sort of talked about that 16%-18% as a three to five year target. A lot of moving parts here still. You shouldn't hear us say we're changing that outlook. I think we view that as a sort of medium, long-term view. So more to come in January there. But again, hopefully you're feeling us express confidence that's where we're headed. In terms of efficiency ratio, I try to think about what's the constellation of metrics that creates the profile that gets us there. Today we're 56%, 57%. I think you could see that improving a little bit more so because we're going to become more productive from a revenue perspective.
We want to put more revenue through the platform, capital efficient revenue, and I think that has a likelihood of improving our tangible efficiency ratio from where it is today, call it maybe mid-50s.
I think I'd just add, rather than looking at the absolute level of efficiency ratio, it's where the money's being spent, and that's where we're finding more opportunity.
The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Hey, good morning.
Good morning.
Just briefly. Welcome, Mike, and it sounds like I didn't hear you push back on Mike Mayo's question around this seems like a five year process. What seems very clear, what you're trying to do makes sense. The how is super difficult given the markets you operate in. Is it fair, and I'm not trying to put this up and you down, but this does feel like a five year process. If you have any reflections or thoughts on that. Secondly, should we expect more senior executive changes as we fast-forward to January? I'm assuming there's going to be a lot of line of business changes given the appointments of Steve and Shim, as you pointed out, across both those businesses. Thank you.
Sure. I think the key point on the investments we have to start. We know exactly where we want to go, and we're going to start on those investments. As I said, in some of the retail areas, there's a fair amount of deferred investment there. You got to start, and you start that process. As you go through the different investments, yes, some are. I don't think branch refurbishments, we've got some catch-up work to do there. But that should be a constant maintenance investment perpetually through time. Opening new branches to fill in gaps in our existing franchise. That obviously has a cycle to it. Other things like adding salespeople in key areas or finishing what started as a build in treasury management in 2023. It's just each investment has a separate timeline around it, so it won't be a universal one spot in time.
Key point for us is we know the assets that we have. We know the attributes of the company. We're in this great footprint. You just don't sit in the footprint and grow and be successful. You have to put money into it. You have to go compete, and our people are ready to do that if we give them the investment, and that's what we're doing. As Mike said from the long-term ROTCE perspective that was put out over the last year, and it's three to five years out, and that's the path we're working on giving you a nice bridge to in the beginning of next year. We've got a great management team here. I think in the opening comments I made, this is a two part process. You have to get the sources, and then you have to make the investments.
We want to make sure we are surrounded by people who have the experience and have done this before, where we are putting key investments in. Today's changes were really to add to and complement the existing base of talent we have here, flatten that organization out some, add to the depth, and as I said to Mike, create more digestible units where you can really hold people accountable to key performance stats. If there are other opportunities to do that and add talent, people want to come work with us, we will do it. We have a great team here and feel very good about the foundation we are working off of.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Brad Milsaps for any closing remarks.
Okay. Thank you, Betsy. That completes our earnings call. Apologies that we could not accommodate all you guys today, but please feel free to reach out to the investor relations team with questions. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you may now disconnect the call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.