How Lower Interest Rate Cycles Reshape Banking NII: TFC and Peers in Focus

The Federal Reserve’s easing trajectory—marked by an initial cut in 2024 followed by three additional reductions in 2025—has pushed benchmark rates to 3.50-3.75%, creating a pivotal moment for regional banking profitability. As interest rates fall, the conventional wisdom about net interest income (NII) requires nuanced reassessment. Truist Financial Corporation TFC and its competitors face a shifting landscape where lower rates paradoxically create both headwinds and tailwinds for NII expansion.

Understanding the Mechanics: Why Lower Rates Can Still Support NII Growth

Contrary to intuition, declining interest rates don’t necessarily spell doom for bank net interest income. Here’s why: As rates fall, funding costs—what banks pay depositors—stabilize and decline more rapidly than loan yields compress. This creates what managers call a “favorable funding cost dynamic.” With reduced debt servicing burdens, borrower solvency improves and payment stress eases, directly translating to lower delinquency rates and reduced charge-offs.

More importantly, lower rates typically unlock increased loan demand. Reduced borrowing costs incentivize corporations and consumers to take on credit, expanding total loan volumes. For Truist, this dynamic has proven compelling. Over the 2019-2024 period, the bank achieved a net interest income CAGR of 14%, despite NII pullbacks in 2021 and 2024. Through the first nine months of 2025, Truist’s NII momentum continued upward, supported by continued merger integration and solid loan pipelines.

TFC’s Near-Term Positioning and Management Guidance

Management’s fourth-quarter 2025 guidance reflects confidence in this environment: NII is anticipated to rise 2% sequentially, primarily fueled by sustained loan growth, higher client deposit balances, and declining deposit costs as rate-cut expectations materialize. The net interest margin (NIM)—measuring the spread between loan yields and funding costs—is projected to expand sequentially during the quarter. Looking into 2026, while broader economic expectations remain mixed, consensus suggests moderate easing will persist throughout the year.

Against this backdrop, Truist’s medium-term NII trajectory appears robust. Projections indicate growth of 2.3% in 2025, accelerating to 4% in 2026, then moderating to 2.7% in 2027. These estimates assume stabilizing deposit costs, resilient economic activity, and sustained loan demand—all reasonable suppositions given current policy guidance.

Regional Banking Peers: A Comparative Analysis

Fifth Third Bancorp FITB demonstrates how peer institutions navigate this transition. The bank posted a five-year NII CAGR of 4.2% through 2024, with year-to-date 2025 results (through September) showing NII of $4.4 billion on a tax-equivalent basis, representing 6.2% year-over-year growth. Notably, Fifth Third’s NIM improved to 3.10% from 2.88% year-over-year, bucking the compression narrative. Management expects 2025 adjusted NII growth of 5.5-6.5% from a $5.6 billion 2024 base, supported by normalizing funding costs and disciplined loan expansion.

U.S. Bancorp USB presents a contrasting but complementary profile. The bank’s five-year NII CAGR (2019-2024) reached 4.4%, with first-nine-months 2025 NII of $4.251 billion (tax-equivalent), up 2% year-over-year. U.S. Bancorp’s NIM stood at 2.75% as of September 30, 2025, marginally higher than the prior-year 2.74%. The bank’s forward strategy emphasizes loan growth, funding cost stabilization, and strategic repositioning of its investment portfolio to unlock additional NII contributions.

Market Context and Investment Perspective

Truist shares have appreciated 13.2% over the past six months, underperforming the broader banking industry’s 18.2% gain. The company carries a Zacks Rank of #2 (Buy), reflecting analyst optimism regarding its fundamental positioning as the rate environment stabilizes.

The emerging picture suggests that while the initial shock of falling rates creates margin pressure, the subsequent phase—characterized by stabilized funding costs, renewed loan demand, and improved credit quality—provides substantial NII support. For Truist and similarly-positioned regional banks, this cycle offers a platform for sustained earnings growth into 2026 and beyond.