A “majority” of Truist Bank’s 330,000 consumer loan deferrals are current, including the bank’s subprime auto book, Chief Risk Officer Clarke Starnes III said during the company first-quarter earnings call yesterday. In total, consumer loan deferrals account for approximately 3% of the total managed portfolio, or $9 billion in balances.
Truist has an auto portfolio of $25 billion, including prime and subprime contracts.
Still, the Charlotte, N.C.-based bank is padding its loss reserves in accordance with CECL guidelines, due to the COVID-19 economic crisis. At the beginning of the year, Truist increased its allowance for credit losses to $5 billion, up from the $3.6 billion of losses it incurred in 2019. The bank then increased its allowance another $600 million by the end of the quarter in response to coronavirus.
It remains uncertain whether the bank will continue to increase those loss provisions, said Daryl Bible, the bank’s chief financial officer.
“We feel we are adequately reserved from what we know. The government’s going to have over $6 trillion of stimulus when it’s all said and done,” Bible said, noting the current stimulus amount is three times more than that of the Great Recession.
“All of the forbearance that’s been occurring right now, that all has to play out,” Bible explained.
Allowances for credit losses on Truist’s auto portfolio amounted to $142 million in the first quarter, and the lender’s recorded charge-offs were 1.92% as a percentage of its outstandings, down from 2.41% last quarter. Accounts 30 to 89 days past due also dropped to $521 million, from $560 million last quarter, and accounts 90 days delinquent remained flat at $11 million during the same time period.
As far as liquidity is concerned, Truist is in a good position to weather the recession. The bank’s holding company alone holds $12 billion of cash and cash equivalents, enough to cover 17 months of contracts and expected outflows with no inflows, according to the earnings presentation. Many economists predict the economy will bounce back once shelter-in-place orders are lifted.
Further, Truist’s preliminary CET1 ratio — a measure of a financial institution’s solvency during a financial crisis that compares current capital to its risk-weighted assets — was 9.1%. Federal guidelines mandate a minimum CET1 ratio of 4.5%.
Truist became the sixth-largest bank in the U.S. last December when SunTrust Banks and BB&T Bank merged.
