Truist's $240 Million Overdraft Class Action Lawsuit Settlement Compresses Q4 Earnings

Truist Financial announced a major financial setback for the fourth quarter, driven by a $240 million settlement to resolve a 15-year overdraft class action lawsuit—a case that traces back to one of its predecessor institutions. Combined with $63 million in employee severance costs, these expenses significantly compressed the bank’s quarterly profits and missed analyst expectations by a notable margin.

The Legal Background: A 15-Year Battle Over Overdraft Fees

The overdraft class action lawsuit originated from SunTrust Banks, one of Truist’s former entities, and has consumed more than a decade and a half of litigation. The original plaintiff argued that SunTrust should have classified overdraft fees as interest subject to Georgia’s strict interest rate caps. The case later expanded to allege violations of both civil and criminal usury statutes, with class members seeking $452 million in fee refunds plus pre-judgment interest.

The litigation reached a critical turning point when the Georgia Supreme Court ruled against Truist in a decision the bank unsuccessfully appealed to the U.S. Supreme Court earlier this month. That rejection paved the way for the current settlement, which still requires preliminary court approval.

How the Settlement Dragged Down Q4 Financials

The $130 million in legal settlement expenses reduced Truist’s fourth-quarter earnings per share by 12 cents and full-year earnings by 18 cents. When combined with the $63 million in employee severance costs, the impact on profitability became substantial. Net income did reach $1.35 billion, a 6.1% increase year-over-year, but earnings per share came in at $1.00—missing the consensus forecast by 9 cents, according to S&P Capital IQ.

The settlement represents just one component of Truist’s broader struggle with elevated expenses. Fourth-quarter noninterest expenses jumped to $3.17 billion, up 4% from the prior year, signaling ongoing cost pressures across the organization.

Restructuring Charges and Workforce Dynamics

Beyond legal expenses, Truist continues to absorb significant restructuring costs as part of a major organizational overhaul launched in late 2023. The bank aims to achieve $750 million in cost savings over 12 to 18 months through workforce optimization and operational consolidation.

Over the past two years, restructuring charges—including severance, facility costs, professional services, and processing fees—have accumulated to $358 million. The bank’s workforce has fluctuated as part of this transition: ending 2024 with 37,661 full-time equivalents, climbing to 38,534 by September 2025, then contracting to 38,062 by year-end 2025.

Chief Financial Officer Mike Maguire explained that these shifts reflect a deliberate strategy to convert temporary contractors into permanent staff. While headcount may temporarily increase as contractors transition to full-time roles, the average cost per employee should decline if the bank executes this plan effectively. Maguire signaled that severance and facility expenses will persist into 2026 but should begin declining as restructuring matures.

Revenue Strength Amid Cost Headwinds

Despite the expense challenges, Truist’s revenue grew across multiple fronts. Total revenue climbed to $5.25 billion from $5.06 billion in the year-ago quarter. Net interest income expanded 3.06% to $3.7 billion, aided by higher average loan balances and reduced deposit costs. Fee income rose 5.17% to $1.55 billion, boosted by gains in investment banking, trading, and wealth management services.

These gains demonstrate underlying business momentum even as one-time charges weighed on profitability.

Capital Allocation and Long-Term Return Targets

CEO Bill Rogers reaffirmed Truist’s goal of achieving a 15% return on tangible common equity by 2027—up from the 12.7% delivered in 2025. The bank plans to accelerate share buybacks in 2026, targeting approximately $4 billion in repurchases, including roughly $1 billion by March. In 2025, Truist returned $2.5 billion to shareholders through buybacks, and the board has authorized up to $10 billion in future repurchases with no expiration date.

Rogers declined to project specific return targets beyond 2027, citing uncertainties around the bank’s future capital position and broader macroeconomic conditions.

Looking Forward

The overdraft class action lawsuit settlement marks a symbolic milestone—closing a painful chapter in Truist’s legal history—but the financial wounds will linger through restructuring efforts. With severance costs expected to continue and legal clarity finally achieved, Truist can now focus capital and management attention on executing its $750 million efficiency program and driving the return on equity improvement needed to justify 2027 targets.