Regions Financial Corporation · NYSE:RF
Regions Financial — Q4 2020 Earnings Presentation
50 slides from Regions Financial's earnings presentation, Jan 22, 2021
Slide 1: 4th Quarter Earnings Conference Call
Exhibit 99.3 4th Quarter Earnings Conference Call January 22, 2021
Slide 2: 2020 overview
2020 overview 4Q20 FY 2020 $588M $991M Net Income Available to Common Shareholders Diluted Earnings Per $0.61 $1.03 Share Adjusted Total $1,655M $6,206M Revenue(1) Generated highest Adjusted Non- $930M $3,541M Interest Expense(1) adjusted pre-tax pre-provision income(1) in over a decade providing op
Slide 3: Average loans
Average loans Adjusted average loans and leases(1) QoQ highlights & outlook ($ in billions) • Average loans decreased 3%; adjusted average loans(1) decreased 2% $82.0 $80.1 $78.6 • Commercial line utilization levels reached historical low, ending quarter just under 40% 27.3 27.4 26.6 • Despite impro
Slide 4: Average deposits
Average deposits Average deposits by segment QoQ highlights & outlook ($ in billions) $119.8 • Average and ending deposits increased $116.7 0.4 0.4 8.9 3% 8.7 • Full-year average deposits 17% higher $94.5 0.6 40.6 than 2019 7.9 38.8 ◦ Growth predominately in non- 26.6 interest bearing core operating
Slide 5: Net interest income and net interest margin - liquidity impacts
Net interest income and net interest margin - liquidity impacts NII(1) and NIM ($ in millions) $1,000 $1,017 $931 3.39% 3.41% 3.40% 3.13% 3.13% 4Q19 3Q20 4Q20 NII(1) NIM NIM excl. PPP/Cash • In 4Q, deposit and cash balances remained elevated given stimulus / liquidity in the system • PPP loans accou
Slide 6: Net interest income and net interest margin - Core Drivers
Net interest income and net interest margin - Core Drivers Core(1) NIM Attribution Core Drivers of NIM and NII • Rate environment impacts offset through active 3.41% 3.40% balance sheet management; trend likely to continue in near-term ◦ Higher avg. hedging notional; total benefit Largely able to of
Slide 7: Non-interest income
Non-interest income Change vs QoQ highlights & outlook ($ in millions) 4Q20 3Q20 4Q19 • Expect 2021 service charges to grow but remain 10%-15% below 2019 levels due to Service charges on deposit accounts $160 5.3% (14.4)% continued elevated deposits and ongoing enhancements to overdraft practices an
Slide 8: Non-interest expense
Non-interest expense Adjusted non-interest expense(1) QoQ highlights & outlook ($ in millions) $869 $889 $930 • Adjusted expenses(1) increased 5% QoQ driven primarily by higher incentive 58.1% compensation from record capital markets 55.3% 55.8% activities • Base salaries were lower QoQ as the compa
Slide 9: Asset quality
Asset quality Net charge-offs and ratio Criticized business loans ($ in millions) ($ in millions) $113 $96 $94 $3,734 $3,800 75 31 0.50% 53 0.46% 0.43% $2,251 65 38 41 4Q19 3Q20 4Q20 4Q19 3Q20 4Q20 Consumer net Business services Net charge-offs charge-offs net charge-offs ratio • 4Q annualized net c
Slide 10: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) QoQ highlights & outlook • During 4Q declared $148M in common dividends 11.4% • Federal Reserve released results of its updated Supervisory Stress 10.9% 10.8% Test and indicated Regions met or exceeded all minimum capital levels under the provided scenar
Slide 11: 2021 expectations
2021 expectations FY 2021 Category Expectations Down modestly (dependent on Total Adjusted Revenue timing & amount of PPP (from adjusted 2020 of $6,206)(1)(2)(3) forgiveness) Adjusted Non-Interest Expense Stable to down modestly (from adjusted 2020 of $3,541)(1)(2) Adjusted Average Loans Down low si
Slide 12: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( AM REGIONS] 12
Slide 13: Fourth quarter 2020 highlights
Fourth quarter 2020 highlights Summary of fourth quarter results Selected items impact QoQ YoY FY ($ amounts in millions, except per share data) 4Q20 Change Change (amounts in millions, except per share data) 4Q20 2020 Net interest income $ 1,006 1.8% 9.6% Pre-tax adjusted items(1): Provision (credi
Slide 14: Growth in Digital
Growth in Digital Active Digital Banking Users Active Mobile Banking Users Digital Banking Log-Ins (Millions) (Millions) (Millions) 22% YoY 7% YoY 9% YoY 301 286 2.04 246 2.7 2.8 2.9 2.01 143 143 127 1.88 158 143 119 4Q19 3Q20 4Q20 4Q19 3Q20 4Q20 4Q19 3Q20 4Q20 Mobile Banking Log-Ins Online Banking
Slide 15: Hedging strategy protection
Hedging strategy protection Cash-flow Hedge Contribution to NII - 3Q20(1) Cash-flow Hedge Program Details 12/31/20(1) Fixed Rate/ Inclusive of 9.9% 9.6% 9.5% Cash-Flow Hedge Notional Strike(3) deferred G/L(4) 8.7% Program Swaps $11.0B 2.15% 2.18% WAL remaining 6.9% on CF Hedges(2) Program Floors $5.
Slide 16: Interest rate exposure of future business and long-term rates
Interest rate exposure of future business and long-term rates • The majority of Regions’ residual NII exposure to interest rates Fixed / float loan mix(1) 100% comes from future business activities and cash-flow reinvestment; 90% full-year 2021 estimate: 80% 70% • ~$11B fixed-rate loan production (e
Slide 17: CET1 Waterfall
CET1 Waterfall 0.6% 0.1% 9.8% 9.3% (0.1)% (0.1)% Pre-tax pre- Provision Common 3Q20 CET1% provision Tax & Other 4Q20 CET1%(3) expense(2) Dividend income(1) 17 (1) Non-GAAP; see appendix for reconciliation. (2) Provision expense includes the impact of CECL deferral. (3) Current quarter ratios are est
Slide 18: Bottom up review informs and narrows COVID-19 high-risk industry sectors
Bottom up review informs and narrows COVID-19 high-risk industry sectors (as of December 31, 2020) % of Utilization Leveraged SNC % % C&I Portfolio BAL$(1) BAL$ Rate(2) % of BAL$ % of BAL$ Deferral Criticized Energy – Oil & Gas Extraction, Oilfield Services, Coal $1.13b 1.3% 53% —% 78% —% 39% Health
Slide 19: COVID-19 high-risk industry sectors waterfall
COVID-19 high-risk industry sectors waterfall ($ in billions) QoQ highlights • COVID high-risk industries are continuously refined to those exhibiting higher levels of stress due to COVID impact • Specifically identified at-risk assets not falling into currently flagged $0.89 $0.19 sectors were incl
Slide 20: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights $2,425 • 4Q ending allowance was down ~$132M due to stabilization in economic outlook and improved credit performance, $99 $2,293 charge-offs previously provided for, and $(94) the impact of active portfolio management strategies $
Slide 21: Base R&S economic outlook
Base R&S economic outlook (as of December 11, 2020) Pre-R&S period 4Q2020 1Q2021 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 Real GDP, annualized % change 3.4 % 0.5 % 1.6 % 5.0 % 5.3 % 3.9 % 2.9 % 2.4 % 2.4 % Unemployment rate 6.8 % 6.6 % 6.4 % 6.1 % 5.8 % 5.4 % 5.2 % 5.0 % 4.9 % HPI, year-over
Slide 22: Supporting our customers
Supporting our customers Customer Loan Modifications Highlights • 57% of active mortgage deferral As of 9/30/20 As of 12/31/20 balances as of 12/31/20 are due to Balances w/ deferral ($ in Deferral as % Balances w/ deferral ($ in Deferral as % GNMA repurchases millions) of total millions) of total •
Slide 23: Allowance Allocation
Allowance Allocation As of 12/31/20 As of 9/30/20 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $42,870 $1,027 2.40 % $45,199 $1,119 2.48 % CRE-OO mortgage 5,405 242 4.47 % 5,451 247 4.53 % CRE-OO construction 300 24 7.98 % 305 22 7.16 % Total commercial $48,575 $1,293 2.66
Slide 24: Commercial & IRE loans
Commercial & IRE loans As of 12/31/20 Total Outstanding ($ in millions) Commitments Balances % Utilization Administrative, Support, Waste & Repair $2,622 $1,605 61% •The outstanding balance for Agriculture 756 424 56% Real Estate within the Educational Services 3,907 3,055 78% Commercial section ref
Slide 25: Leveraged portfolio
Leveraged portfolio (outstanding balances as of December 31, 2020) Leveraged Balances by Industry Leverage Definition • Regions Leveraged Lending Definition - $5.4B in balances Professional Services 19% a. Commitments are $9.4M b.Leverage exceeds 3x senior debt; 4x total debt Information 15% c. Incl
Slide 26: SNC portfolio
SNC portfolio (outstanding balances as of December 31, 2020) Shared National Credit Balances by Industry • Portfolio Characteristics 11% 8% • Diverse industry mix 48% 7% • 34% of balances are investment grade $18.3B 7% • 24% of balances are leveraged 7% 6% 6% • 26% of balances are sponsor-backed • 1
Slide 27: Energy lending
Energy lending As of 12/31/20 Total Outstanding ($ in millions) # of Clients (1) Commitments Balances % Utilization $ Criticized % Criticized Oilfield services and supply (OFS)(2) 148 $449 $289 64% $66 23% Exploration and production (E&P)(2) 100 1,391 787 57% 346 44% Midstream 25 1,527 485 32% 135 2
Slide 28: Energy lending (continued)
Energy lending (continued) Balances by Category Gross Losses $1,500 $140 $135.9 $1,200 $120 $100 $ (Millions) $900 $ (Millions) $80 $75.1 $600 $60 $300 $40 $36.7 $33.0 $28.5 $0 P es m m r ns $20 E& ic ea ea he a erv str str Ot P Lo $6.0 S d n iel d Mi D ow PP $0 $0.0 lf Oi 14 15 16 17 18 19 20 20 20
Slide 29: Restaurant lending
Restaurant lending As of 12/31/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized Quick Service 13,188 $1,374 $1,127 82% $98 9% Casual Dining 30 488 429 88% 389 91% Other 22 148 120 81% 97 81% PPP Loans 2,475 347 347 100% —
Slide 30: Hotel lending
Hotel lending As of 12/31/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized CRE-Unsecured (REITs) 11 $824 $606 74% $602 99% IRE – Mortgage 15 216 202 94% 187 93% IRE – Construction 3 80 66 83% 66 100% Consumer Services 3,59
Slide 31: Commercial retail lending
Commercial retail lending As of 12/31/20 Total Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized % Criticized CRE-Unsecured (REITs) 26 $2,802 $1,210 43% $0 —% IRE 146 779 749 96% 194 26% C&I: 22,780 2,577 1,254 49% 25 2% Leveraged 13 269 155 58% — —% Not Lever
Slide 32: Religious, Leisure, Personal & Non-Profit Services lending
Religious, Leisure, Personal & Non- Profit Services lending As of 12/31/20 # of Total Outstanding % ($ in millions) Clients* Commitments Balances Utilization $ Criticized % Criticized Amusement, Gambling & Recreation 1,262 $565 $382 68% $35 9% Religious Organizations 4,605 435 291 67% 15 5% Death Ca
Slide 33: Healthcare lending
Healthcare lending As of 12/31/20 # of Total Outstanding % ($ in millions) Clients* Commitments Balances Utilization $ Criticized % Criticized Facilities 2,455 $2,185 $1,244 57% $6 —% Patient Based Providers 8,687 1,813 1,326 73% 62 5% Goods & Services 1,297 2,065 1,025 50% 22 2% REITs — 3 0 —% 0 —%
Slide 34: Loans to Small Business and Small Farms
Loans to Small Business and Small Farms (outstanding balances as of December 31, 2020) Balances by Industry Balances by State Healthcare 14% 14% Real Estate 13% Florida 29% 21% 29% Transportation & Warehousing 10% Alabama 10% 37% 8% $7.4B 13% Professional, Scientific & Technical Services 9% Retail T
Slide 35: SBA loans
SBA loans (outstanding balances as of December 31, 2020) Balances by Industry Balances by State Healthcare 14% 14% 24% Manufacturing 13% Florida 29% Real Estate 12% 26% 29% Alabama 14% 13% 8% $4.4B Restaurant, Accommodation & Lodging 11% Professional, Scientific 10% $4.4B Tennessee 11% Georgia 10% 1
Slide 36: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Third Party Residential Mortgage Lending Consumer Credit Card • Avg. origination FICO 749 • Avg. origination FICO 754 • Avg. origination FICO 769 • Current LTV 60% • Avg. new line $25,253 • Avg. new line $4,832 • 97% owner occupied • 49% home improvemen
Slide 37: LIBOR transition
LIBOR transition Four pillars of execution • Regions is continuing to make progress toward all LIBOR Transition goals and objectives under the assumption of a LIBOR cessation date at year- end 2021 and is operationally ready to offer SOFR based bilateral commercial loans and ARMs. • Regions is close
Slide 38: Non-GAAP information
Non-GAAP information Management uses pre-tax pre-provision income (non-GAAP) and adjusted pre-tax pre-provision income (non-GAAP), as well as the adjusted efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP) to monitor performance and believes these measures provide meaningful in
Slide 39: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 4Q20 3Q20 2Q20 1Q20 4Q19 4Q20 vs. 3Q20 4Q20 vs. 4Q19 Commercial and industrial $ 43,889 $ 46,405 $ 49,296 $ 40,519 $ 39,743 $ (2,516) (5.4)% $ 4,146 10.4 % Less: Commercial loans transferred to held for sale 237
Slide 40: Non-GAAP reconciliation: adjusted ending loans
Non-GAAP reconciliation: adjusted ending loans As of 12/31/2020 12/31/2020 ($ amounts in millions) 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 vs. 9/30/2020 vs. 12/31/2019 Commercial and industrial $ 42,870 $ 45,199 $ 47,670 $ 45,388 $ 39,971 $ (2,329) (5.2)% $ 2,899 7.3 % Less: Commercial l
Slide 41: Non-GAAP reconciliation: NII, non-interest income/expense, operating leverage and efficiency ratio
Non-GAAP reconciliation: NII, non-interest income/expense, operating leverage and efficiency ratio Quarter Ended ($ amounts in millions) 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 4Q20 vs. 3Q20 4Q20 vs. 4Q19 Non-interest expense (GAAP) A $ 987 $ 896 $ 924 $ 836 $ 897 $ 91 10.2 % $ 90 10.0 %
Slide 42: Non-GAAP reconciliation: NII, non-interest income/expense, operating leverage and efficiency ratio
Non-GAAP reconciliation: NII, non-interest income/expense, operating leverage and efficiency ratio Year Ended ($ amounts in millions) 2020 2019 2020 vs. 2019 Non-interest expense (GAAP) K $ 3,643 $ 3,489 154 4.4 % Adjustments: Contribution to the Regions Financial Corporation foundation (10) — (10)
Slide 43: Non-GAAP reconciliation: non-interest expense
Non-GAAP reconciliation: non-interest expense Year Ended December 31 ($ amounts in millions) 2020 2019 2018 2017 2016 Non-interest expense (GAAP) $ 3,643 $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: Contribution to Regions Financial Corporation foundation (10) — (60) (40) — Professional, legal and r
Slide 44: Non-GAAP reconciliation: ACL/Loans excluding PPP
Non-GAAP reconciliation: ACL/Loans excluding PPP As of ($ amounts in millions) 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 Total Loans $ 85,266 $ 88,359 $ 90,548 $ 88,098 $ 82,963 Less: SBA PPP Loans 3,624 4,594 4,498 — — Loans excluding PPP, net (non- GAAP) $ 81,642 $ 83,765 $ 86,050 $ 88,0
Slide 45: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 4Q20 vs. 3Q20 4Q20 vs. 4Q19 Net income (loss) available to common shareholders (GAAP) $ 588 $ 501 $ (237) $ 139 $ 366 $ 87 17.4 % $ 222 60.7 % Preferr
Slide 46: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre-tax pre-provision income (PPI) Year Ended ($ amounts in millions) 12/31/2020 12/31/2019 2020 vs. 2019 Net income available to common shareholders (GAAP) $ 991 $ 1,503 $ (512) (34.1)% Preferred dividends (GAAP) 103 79 24 30.4 % Income tax expense (GAAP) 220 403 (183) (45.
Slide 47: Forward-looking statements
Forward-looking statements Forward-Looking Statements This presentation may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not based on historical information, but rather are related to future operations, strategi
Slide 48: Forward-looking statements (continued)
Forward-looking statements (continued) • Changes in laws and regulations affecting our businesses, including legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-r
Slide 49: Forward-looking statements (continued)
Forward-looking statements (continued) • Changes in commodity market prices and conditions could adversely affect the cash flows of our borrowers operating in industries that are impacted by changes in commodity prices (including businesses indirectly impacted by commodities prices such as businesse
Slide 50: Regions
A REGIONS A REGIONS=