## Interest Rate Cuts Could Be a Game-Changer for Banking NII

As the Federal Reserve continues its easing cycle with rates now sitting at 3.50-3.75%, banks like **Truist Financial Corporation (TFC)** are recalibrating their net interest income strategies. The conventional wisdom suggests lower rates squeeze margins, but the real story around banking NII is more nuanced for institutions like Truist.

Over the five-year period spanning 2019-2024, Truist's NII grew at a 14% compound annual rate, despite dips in 2021 and 2024. The real tailwind hasn't been rates alone—it's been loan volumes and merger activity. Now, with the Fed having cut rates three times since 2024, that thesis is shifting. Here's why: cheaper borrowing costs actually spur more lending demand, which means bigger loan portfolios. And more loans, even at tighter margins, can offset the earnings pressure from a lower rate environment.

Management guidance for Q4 2025 signals a 2% sequential NII increase, underpinned by expanding loan balances, growing customer deposits, and declining funding costs. The spread between loan yields and deposit costs—essentially the banking NII margin—is also expected to widen in the quarter, a signal that deposit competition is easing.

For 2026, analysts see moderate rate cuts occurring throughout the year. If that happens, Truist's NII is projected to expand 2.3% in 2025, 4% in 2026, and 2.7% in 2027. Lower rates also ease payment burdens on borrowers, potentially reducing loan defaults and charge-offs—another hidden benefit to banking NII stability.

## How Rivals Are Navigating the Rate Environment

Truist isn't alone in navigating this shift. **Fifth Third Bancorp (FITB)** has posted a five-year NII CAGR of 4.2%, with nine-month 2025 results showing a 6.2% year-over-year jump to $4.4 billion. Its net interest margin ticked up to 3.10% from 2.88%, signaling healthy deposit dynamics. For full-year 2025, Fifth Third expects NII to grow between 5.5-6.5%.

**U.S. Bancorp (USB)** has compiled a more conservative but stable five-year NII growth record of 4.4%. The bank reported $4.251 billion in NII (tax-equivalent basis) for the first nine months of 2025, up 2% year-over-year. Its net interest margin stands at 2.75%, virtually flat versus the prior-year period of 2.74%.

The divergence between these peers underscores how individual bank strategies—particularly on deposit gathering and loan origination—matter more than the macro rate picture alone.

## Shares Lag, Valuation Still Questions

TFC stock has climbed 13.2% over the past six months, trailing the broader banking sector's 18.2% gain. The company carries a Zacks Rank of #2 (Buy), reflecting modest conviction in the equity. Whether the improved outlook for banking NII from lower rates translates into stock outperformance will depend on how aggressively Truist can grow its loan book while managing deposit costs—the true tug-of-war in today's rate environment.