New York, November 03, 2022 -- Moody's Investors Service ("Moody's") has affirmed all of the ratings of Truist Financial Corporation ("Truist") and its subsidiaries. The parent company is rated A3 for senior debt and its bank subsidiary, Truist Bank, has deposit ratings of Aa3/Prime-1 and a standalone baseline credit assessment (BCA) of a2. The bank subsidiary also has an A2 long-term senior debt rating as well as Counterparty Risk Assessments of A1(cr)/Prime-1(cr) and Counterparty Risk Ratings of A2/Prime-1. Truist's rating outlook remains stable.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL470928 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The affirmation of Truist Bank's BCA and ratings reflects the effective completion of its multi-year integration. Truist was formed in December 2019 as a result of the merger between BB&T Corporation and SunTrust Banks, Inc., the largest bank combination in the US since the 2007/08 financial crisis. The integration was a significant undertaking, resulting in approximately $4 billion of operating expenses, restructuring charges and other costs tied to the merger over the past three years, but those costs will be modest in Q4 2022 and fade away entirely in 2023. Moreover, management's deliberate approach has given Truist a strong, diverse and resilient platform for organic growth, which Moody's expects will support its earnings in the coming years.
Although the elimination of merger integration risk is credit positive, Truist's management has cited it as support for its decision to reduce its common equity Tier 1 (CET1) capital ratio by about 100 basis points over the past year, a credit challenge. Truist reported a 9.1% CET1 ratio on September 30, 2022. Moreover, Truist's tangible common equity on a Moody's-adjusted basis (TCE) is below 9.0%, with most of the differential attributable to Moody's exclusion of the CECL phase-in, which regulators have allowed banks to amortize into their capital over a five-year period ending at the start of 2025. As such, the ratios will continue to converge and Moody's expects the firm will soon operate with TCE in excess of 9.0%, which is consistent with Truist Bank's assigned BCA.
Truist's asset risk provides significant rating support. The bank's loan portfolio is diverse, with limited concentration risk by geography, loan category or individual relationship. In particular, although centered on growing Southeastern states with above-average demographics, Truist's commercial real estate portfolio, including a small construction component, is less than its TCE. Pockets of asset risk do exist, including Truist's leveraged loan portfolio and its subprime auto book, but these are modest in size and Moody's believes them to be well-managed. Like most US banks, Truist's current credit metrics are strong, but Moody's also expects Truist would fare comparatively well under stress, a conclusion supported by Truist's performance in the Federal Reserve's most recent stress test. At September 30, 2022, Truist's loan loss allowance and unamortized fair value mark, largely on legacy SunTrust loans, totaled 1.60% of gross loans and leases, a healthy level of coverage that significantly exceeded Truist's nonperforming loan balance at the same date.
Truist also enjoys strong liquidity. Nonetheless, as a percentage of its balance sheet, Truist's holdings of liquid assets have slowly declined over the course of 2022 and Moody's expects further declines as proceeds from maturing investment securities, which grew significantly during the pandemic, are used to fund loan growth. Still, Truist's liquidity will remain robust, an expectation reinforced by its regulatory liquidity requirements as a large regional bank. Truist's market funding reliance is also likely to grow from current levels, but Moody's expects Truist's core deposit funding profile to remain healthy. Truist ranks in the top three in deposit market share in multiple US states, including Florida, North Carolina, Georgia and Virginia, states that account for about 70% of its total deposits.
With respect to profitability, expenses tied to the merger cited above diminished Truist's earnings for the past three years. For example, in 2021, these expenses were nearly 11% of Truist's total noninterest expenses and they have accounted for more than 7% of year to date expenses in 2022, through September. As those expenses fully recede, Truist's profitability is poised to strengthen, a dynamic that will also be aided by continued net interest income growth from the rise in market interest rates. Truist's net interest margin (NIM) has climbed 36 basis points (bps) since the final quarter of 2021, and on a core basis, which excludes accretion income, its NIM has risen 47 bps. Creditors also benefit from Truist's revenue diversity as its broad direct retail and commercial banking franchise is augmented by its large insurance agency/brokerage business, its middle-market focused capital markets business and its sizable wealth management platform.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A successful merger integration and conversion process was already incorporated into Truist's ratings. Therefore, for positive pressure to emerge on Truist's already above-average ratings, it would have to achieve more robust and enduring profitability metrics while also taking a more credit positive stance on capitalization. In addition, upward rating pressure could develop for specific debt classes if there were changes in regulatory requirements or other developments that were expected to lead to a sustained increase in either the amount of that debt class outstanding or in the amount of more junior obligations outstanding relative to tangible banking assets and estimated losses in Moody's advanced LGF framework.
Truist's ratings could be downgraded if its liquidity metrics weaken beyond Moody's expectations, if its profitability and efficiency metrics fail to improve from recent levels and/or if it fails to operate with a TCE ratio at or above 9% by the end of 2023. Truist's current ratings assume that its credit quality would likely deteriorate in an economic downturn. However, if Truist's credit costs increase relatively more than those of its peers, or if it experiences material operating risk, that could also result in negative rating pressure.
Downward rating pressure could develop for specific debt classes in the event of a sustained decrease in either the amount of that debt class outstanding or in the amount of more junior obligations outstanding relative to tangible banking assets and estimated losses in Moody's advanced LGF framework.
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL470928 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Allen Tischler
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald Robertson
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
