Truist Financial Corporation · NYSE:TFC
Truist Financial — BB&T — Investor Presentation (December 2018)
15 slides from Truist Financial's investor presentation, Dec 10, 2018
Slide 1: CECL – The Lender's Perspective
CECL – The Lender’s Perspective Cindy Powell, Corporate Controller December 10, 2018 BB&T’s CECL program is under development and subject to continued testing; preliminary testing results contained herein are not necessarily indicative of the impact at adoption.
Slide 2: CECL Implementation Overview
CECL Implementation Overview . Credit loss forecasting significantly enhanced through – 2009 Supervisory Capital Assessment Program (SCAP); and CCAR – Comprehensive Capital Analysis and Review (CCAR) . Foundational Models incorporated methodologies from ALLL recognizing the close Models relationship
Slide 3: Model Design: Credit Loss Forecasting Model Framework
Model Design Credit Loss Forecasting Model Framework Segmentation based on evaluation of risk characteristics Pooled Loans Leverage existing portfolio level loss forecasting models, with targeted Individual Loan Impairment modifications, enhancements or new development in certain circumstances. TDRs
Slide 4: CECL Testing Plan
CECL Testing Plan . CECL model evaluation is an iterative process – Test 1 – evaluate foundational model’s reasonableness in estimating credit losses with the benefit of perfect economic foresight – Test 2 – evaluate sensitivity of the models to changes and limitations of future economic forecasts –
Slide 5: 1: Perfect Economic Foresight (Moody's Baseline Extended) Guide
Test 1: Perfect Economic Foresight (Moody’s Baseline Extended) Guide . Caveats – CECL estimates reflect Moody's baseline estimates with no consideration of potential qualitative adjustments – Impact of CECL at the required implementation is highly dependent on actual and forecasted economic conditio
Slide 6: 1: Perfect Economic Foresight (Moody's Baseline Extended)
Test 1: Perfect Economic Foresight (Moody’s Baseline Extended) . The RED (h0) line is the result from the CECL contractual life models (under review); qualitative adjustments are excluded ≈55% decrease . The BLUE (ALLL) line is the incurred results from today’s models including the TDR process; incl
Slide 7: 1: Perfect Economic Foresight (Moody's Baseline Extended)
Test 1: Perfect Economic Foresight (Moody’s Baseline Extended) . The RED (h0) line is the result from the CECL contractual life models (under review); qualitative adjustments are ≈131% increase excluded . The BLUE (ALLL) line is the incurred results from today’s models including the TDR process; inc
Slide 8: 2: Economic Sensitivity Observations
Test 2: Economic Sensitivity Observations . Testing was performed on 3 economic scenarios to gauge the sensitivity of the results to the economic forecast; the determination of which scenarios to use in the ACL process is a key decision . CECL will not have the benefit of perfect economic foresight;
Slide 9: 2: Moody's Economic Forecast Sensitivity Testing Guide
Test 2: Moody’s Economic Forecast Sensitivity Testing Guide . Description – Run proposed CECL models with Moody’s economic forecasts at each date (under multiple scenario conditions: baseline, strong near-term growth, moderate recession) . Purpose – Evaluate sensitivity and accuracy of economic fore
Slide 10: 2: Economic Sensitivity
Test 2: Economic Sensitivity . The RED (h0) line is the result from the CECL contractual life models (under review); qualitative adjustments are excluded . The BLUE (ALLL) line is the incurred results from today’s models; includes qualitative adjustments . The Green (s0) line is the estimate relying
Slide 11: 2: Economic Sensitivity
Test 2: Economic Sensitivity . The RED (h0) line is the result from the CECL contractual life models (under review); qualitative adjustments are excluded . The BLUE (ALLL) line is the incurred results from today’s models including the TDR process . The Green (s0) line is the estimate relying on Mood
Slide 12: Forecasted Economic Conditions Significantly Impact CECL Estimates; Procyclicality of Lending Exacerbated
Forecasted Economic Conditions Significantly Impact CECL Estimates; Procyclicality of Lending Exacerbated Summary of Reserve Rates for Selected Portfolios at Varying Points in the Economic Cycle Anticipate modest increase Benign Conditions Stressed Conditions in benign (2015/2016 Average) (2009/2010
Slide 13: Historical Inaccuracy of Economic Forecasts have Significant Implications on CECL Estimates
Historical Inaccuracy of Economic Forecasts have Significant Implications on CECL Estimates Moody’s Forecast of Unemployment Rate Baseline CECL Economic Forecast Imprecision Residential Mortgage (Most Likely Outcome) ($MM) Forecasts predicted increasing $1,800 12% unemployment well after the turn in
Slide 14: Up-Front Reserve Recognition Significantly Impacts "Breakeven Point"
Up-Front Reserve Recognition Significantly Impacts “Breakeven Point” Variability of Reserve Rate1 Costs for Selected Portfolios at Varying Points in the Economic Cycle “Breakeven” on newly originated Residential Mortgage Benign Conditions Stressed Conditions loans during stressed (2015/2016 Average)
Slide 15: Potential Modifications to CECL
Potential Modifications to CECL . Implementation of CECL in its current form could have detrimental impacts to Primary the availability, pricing and structure of credit . Upfront, life-of-loan loss recognition requirement is inconsistent with the Concerns economics of lending . CECL will negatively