WEBINAR: COVID-19 IMPACT ON CONSUMER CREDITApril 29th, 2020

Please note that this session was held at a particular point in time (Wednesday April 29,2020, 4pm-5pm EDT), and in light of the rapidly evolving COVID-19 situation, it is possible these discussions are no longer accurate after that date.

CONFIDENTIALITYOur clients’ industries are extremely competitive, and the maintenance of confidentiality with respect to our clients’ plans and data is critical. Oliver Wyman rigorously applies internal confidentiality practices to protect the confidentiality of all client information.

Similarly, our industry is very competitive. We view our approaches and insights as proprietary and therefore look to our clients to protect our interests in our proposals, presentations, methodologies and analytical techniques. Under no circumstances should this material be shared with any third party without the prior written consent of Oliver Wyman.

© Oliver Wyman

3© Oliver Wyman

OUR HOSTS

OUR PANELISTS

Deepak KollaliPartner, Co-Head of Risk & Public Policy

Adam SchneiderPartner, Retail & Business Banking and Digital

Mike DuanePartner, Risk & Public Policy

Manish GuptaFounder and CEO of Corridor Platforms

Ash GuptaOliver Wyman Senior Advisor,Formerly Chief Risk Officer for American Express

Brian GunnOliver Wyman Senior Advisor,Formerly Chief Risk Officer for Santander US and Ally Financial

Kevin MossOliver Wyman Senior Advisor,Formerly Chief Risk Officer for Wells Fargo Consumer Lending and SoFi

4© Oliver Wyman

WEBINAR AGENDA

01 Opening Remarks

02 Consumer Credit Results and Outlook

03 Roundtable Discussion with Oliver Wyman Senior Advisors

04 Additional Q&A and Closing Remarks

OPENING REMARKS

01Asking questions during the Q&A2

Logistics1

3 Post Webinar Distribution

Deepak KollaliPartner, Co-Head of Risk& Public Policy

CONSUMER CREDIT RESULTS AND OUTLOOK

02Effects on Consumer Lending2

Economic Outlook1

Mike DuanePartner, Risk & Public Policy

7© Oliver Wyman

ECONOMIC INDICATORS HAVE TURNED SHARPLY NEGATIVE AS A RESULT OF THE COVID-19 CRISIS, WITH SIGNIFICANT UNCERTAINTY AND UNPRECEDENTED REACTIONS

Scale and sharpness of the pandemic1 Uncertainty in speed/strength of recovery2

Unprecedented government support3 Not yet reflected in credit outcomes4

1. Source: FRED; Conference Board. 2. Source: Bank of America (Apr 2), UBS (Apr 2), Goldman Sachs (Mar 31), Morgan Stanley (Apr 3). TD Securities (Mar 25), Deutsche (Apr 13), JP Morgan (Apr 17). 3. Source: CARES Act; Fannie Mae and Freddie Mac; Mortgage Bankers Association. 4. Source: SNL; Capital IQ; Banks’ earnings reports; Oliver Wyman analysis. 5. Top 10 largest US Banks. Excludes Goldman Sachs and Morgan Stanley due to limited disclosure

26.5M unemployment claims in the last 5 weeks

10% decline in Consumer Confidence Index since March

28x increase in mortgage forbearance since early March

150%+ increase in avg. unemployment insurance payment

0.42% 0.45%

Q1 2020Q4 2019

Net Charge-off rate (Net Charge-offs / Average Loans) - NCOsAnnualized % of average loans for reporting banks5

1

3

2

4

Median Q2 Unemployment Rate forecasts moved from

12.5% to 15.7% between end of March and mid-April

Potential for high variation in timing and intensity as states reopen

8© Oliver Wyman

LOSS PROVISIONS INCREASED BY MORE THAN 4X FROM Q4 2019 TO Q1 2020, AND ADDITIONAL ACTIONS LIKELY AS WE LEARN MORE ABOUT THE CRISIS

Provisions for credit losses (excluding day 1 CECLimpact)In $BN for reporting banks1

Allowance coverage ratio vs. 9Q DFAST credit loan losses in Severely Adverse scenario

5.7 5.5 5.4 6.0 6.4

20.7

6.1

Q3 2019Q2 2019

0.4

Q1 2019-0.3

0.4 0.1

Q4 2019 Q1 2020

6.15.3 5.8

27.1

Reserve build Net Charge-offs

41%25%

36%

41%

JPM

15%

27%26%

BAC

32%

18%

Citi

4%

37%

WFC

8%

12%

51%

33%

61%

USB PNC

45%

35%

Q1 20 Allowance Coverage Rate (incremental)Q4 19 Allowance Coverage RateSource: SNL, Capital IQ, Banks’ earnings reports, Oliver Wyman analysis

1. Top 10 largest US Banks. Excludes Morgan Stanley due to limited disclosure: Credit provision is embedded in non-interest expense

Provisions for the 10 largest US banks increased more than 4x in Q1 2020…

… with reserves already accounting for 35-60% of 9Q DFAST stress credit losses

Q1 20 Allowance Coverage Rate (total)

9© Oliver Wyman

U.S. Unemployment Forecasts compared to the 2008-09 Financial CrisisQ1 2020 – Q4 2021

Financial Crisis quarter2020 COVID Crisis projection

1. Source: U.S. Bureau of Labor Statistics2. Source: “Unemployment Rate” – Federal Reserve Bank of St Louis3. Consensus as the average of Goldman Sachs (Mar 31), JP Morgan (Apr 17), Morgan Stanley (Apr 3), Deutsche (Apr 13), UBS (Apr 15), TD (Mar 25), Bank of America (Apr 2) forecasts; consensus for 2020 Q4 –

2021 Q4 a combination of JPM, Goldman, TD, and some Deutsche

UNEMPLOYMENT IS FORECAST TO SPIKE QUICKLY AND DRAMATICALLY, RETURNING TO PRE-COVID LEVELS BY LATE-2021

Last updated: 4/28/2020

3%

15%

10%

8%

14%

4%

9%

5%

7%

16%

6%

11%12%13%

17%18%19%20%

(2008 Q3)(3Q 20)

(2008 Q1)(1Q 20)

Une

mpl

oym

ent r

ate

(2008 Q2)(2Q 20)

(2008 Q4) (4Q 20)

(2009 Q1) (1Q 21)

(2009 Q2) (2Q 21)

(2009 Q3) (3Q 21)

2020 Covid Crisis consensus3

(2009 Q4) (4Q 21)

Financial Crisis2

= Range of COVID Crisis forecast estimates

Peak unemployment during financial crisis1

10© Oliver Wyman

Key points

• Uncertainty: Government and individual choices that will drive the course of the pandemic and economic recovery are still very much up-in-the-air, and may vary across the US

• Tactical response: Banks are preparing for the first wave of the pandemic now, but need to be agile as the crisis evolves (e.g., be ready for extended lockdown, slow recovery, etc.)

• Future response: Banks must be both reactive and proactive in crisis response; risk mitigation actions taken now, can have significant impact on bank’s futures for years to come

Projected days until active cases show a consistent (14-day) downward trajectory – as of 4/17/2020

Modelling the next 12-18 monthsWhat-ifs needed to simulate possible sources of uncertainty

NO LOCKDOWN REQUIRED IN SUMMER MONTHS

CURRENT LOCKDOWN ENDS IN EARLY 06/20

TWO SHORT LOCKDOWNS DURING NEXT WINTER Key variables

COVIDseasonality

Herd immunity or mutation

Healthcarecapacity

Lockdowneffectiveness

THE ECONOMIC OUTLOOK WILL BE CLOSELY LINKED TO THE PANDEMIC’S EVOLUTIONSample projections and scenarios from OW Pandemic Navigator

ROUNDTABLEModerated by

03Adam SchneiderPartner, Retail & Business Banking and Digital

OUR PANELISTS

Manish GuptaFounder and CEO of Corridor Platforms

Ash GuptaOliver Wyman Senior Advisor,Formerly Chief Risk Officer for American Express

Brian GunnOliver Wyman Senior Advisor,Formerly Chief Risk Officer for Santander US and Ally Financial

Kevin MossOliver Wyman Senior Advisor,Formerly Chief Risk Officer for Wells Fargo Consumer Lending and SoFi

Deepak KollaliPartner, Co-Head of Risk& Public Policy

CLOSING REMARKS

04

Mike DuanePartner, Risk & Public Policy

14© Oliver Wyman

Operational delivery

Acquisitions & underwriting Customer management Workout

Central purpose and principles

Customer offering and credit strategy design

Setup COVID control tower to dynamically respond to ever-changing epidemiological, economic, and policy environment

Define crisis response objectives, considering the bank’s financial capacity and risk appetite, and external requirements

Define key customer segments and archetypes based on key crisis drivers and expected impact on customer well-being

Determine treatment waterfall and ‘offramps’ to provide solutions to customers at different level of distress

12

34

Design customer journey for each segment with initial outreach, information gathering, and follow up5

Approval Pricing

Line assignment Cross-sell

Modifications Line management

Retention

Collections Collateral management

Application fraud

Optimize process and controls, including processes and procedures key compensating measures

Build execution capacity to deliver effective customer assistance across both internal and third party resources

Design and implement reporting, monitoring, and data collection to support control tower and decision making

Modify underlying systems, technologies, and tools to support updated processes

78910

SESSION WRAP-UP: HOW DOES A BANK ORGANIZE AN EFFECTIVE COVID RESPONSE?

Re-examine BAU credit risk management to identify models/processes/strategies requiring adaptation to the new environment6

15© Oliver Wyman

THANK YOU; POST-WEBINAR LOGISTICS; Q&A

Contact us Next webinar

• Next webinar on COVID and FS Impacts on May 6 at 4pm.

Deepak KollaliDeepak.Kollali@oliverwyman.com

Adam SchneiderAdam.Schneider@oliverwyman.com

Mike DuaneMichael.Duane@oliverwyman.com

16© Oliver Wyman

READ OUR LATEST INSIGHTS ABOUT COVID-19 AND ITS GLOBAL IMPACT ONLINE

Oliver Wyman and our parent company Marsh & McLennan (MMC) have been monitoring the latest events and are putting forth our perspectives to support our clients and the industries they serve around the world. Our dedicated COVID-19 digital destination will be updated daily as the situation evolves

Visit our dedicated COVID-19 website:https://www.oliverwyman.com/coronavirus

QUALIFICATIONS, ASSUMPTIONS AND LIMITING CONDITIONSThis report is for the exclusive use of the Oliver Wyman client named herein. This report is not intended for general circulation or publication, nor is it to be reproduced, quoted or distributed for any purpose without the prior written permission of Oliver Wyman. There are no third party beneficiaries with respect to this report, and Oliver Wyman does not accept any liability to any third party.

Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information. The findings contained in this report may contain predictions based on current data and historical trends. Any such predictions are subject to inherent risks and uncertainties. Oliver Wyman accepts no responsibility for actual results or future events.

The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. No obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof.

All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. This report does not represent investment advice nor does it provide an opinion regarding the fairness of any transaction to any and all parties. In addition, this report does not represent legal, medical, accounting, safety or other specialized advice. For any such advice, Oliver Wyman recommends seeking and obtaining advice from a qualified professional.