Company: TFC
Filing Date: 2025-02-25
Form Type: 10-K
Source: 0000092230-25-000020
Chunk: 168

Company: TRUIST FINANCIAL CORP
Filing Date: 2025-02-25
Form: 10-K
Item: Item 2
Chunk 168
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 activities (basis risk); changing rate relationships across the spectrum of maturities (yield curve risk); and interest-related options inherently embedded in bank products (options risk).

The primary objectives of market risk management are to minimize adverse effects from changes in market risk factors on net interest income, net income, and capital, and to offset the risk of price changes for certain assets and liabilities recorded at fair value. At Truist, market risk management also includes the enterprise-wide IPV function.

Interest Rate Market Risk

As a financial institution, Truist is exposed to interest rate risk from assets, liabilities, and off-balance sheet positions. Truist primarily monitors this risk through two measurement types, (i) NII at risk and (ii) economic value of equity. Truist manages this risk with securities, derivatives, and broader asset liability management activities. Truist uses derivatives to hedge interest income variability of floating rate loans and to hedge valuation changes of long-term debt and investment securities.

IRR measurement is reported monthly through the ALCO. Monthly IRR reporting includes exposure and historical trends relative to risk limit scenarios, impacts to a wide range of rate scenarios, and sensitivity tests of key assumptions. IRR reporting is provided to the BRC quarterly.

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IRR measurement is influenced by data, assumptions, and models. Due to their high sensitivity to market rates, mortgage (loan and security) prepayments leverage an industry model that results in varying prepayment speeds across rate scenarios. Prepayments for non-mortgage loans leverage a mix of dynamic models (varying results based on market rates) and static prepayment assumptions based on historical experience. Prior to December 2024, interest-bearing-deposit rate paid was projected to move at a constant ratio (deposit beta) of market rates, primarily the Federal Funds Rate, aligned to historical through the cycle experience, and deposit balances in alternate scenarios were aligned to the Truist baseline scenario. In December 2024, we enhanced our deposit methodology to more dynamically incorporate client deposit balance levels, the mix across product types, and deposit rate paid across alternate rate scenarios based on modeled changes in customer and bank behavior. 

NII at risk measures the change in NII under alternate interest rate scenarios relative to Truist’s baseline scenario, which incorporates Truist’s current balance sheet and off-balance sheet hedges as well as expectations for new business over the forecast horizon. Truist’s baseline scenario relies on assumptions including expectations of the economy and interest rates – which