Regions Financial Corporation · NYSE:RF
Regions Financial — Q1 2023 Earnings Presentation
37 slides from Regions Financial's earnings presentation, Apr 21, 2023
Slide 1: 1st Quarter Earnings Conference Call
Exhibit 99.3 1st Quarter Earnings Conference Call April 21, 2023
Slide 2: First quarter 2023 overview
First quarter 2023 overview Continue to generate consistent, sustainable long-term performance 1Q23 Highlights Key Performance Metrics Reported • ROATCE(1) ratio improved 570 bps Net Income Available to $588M YoY to 26.7% (19.9% excluding AOCI) Common Shareholders • 1Q NII grew to a record $1.4B Dil
Slide 3: Diversified deposit base
Diversified deposit base Insured/Uninsured Deposit Mix(1)(2) Diversified Industry Mix of Wholesale Deposit Total Primary Liquidity is ~2x the levels of less stable deposit categories Balances(2) Note: ‘Retail’ includes consumer, wealth and small business Retail Uninsured Real Estate - Services, $8.6
Slide 4: Liquidity advantage
Liquidity advantage Key Liquidity Position/Levels as of 3/31/2023 $ in Billions Position as of 12/31/2022 3/31/2023 (1) Cash at the Federal Reserve $ 9.1 $ 6.5 Liquid Securities Free to Use incl. BTFP(2) 18.5 20.7 Liquid IG Corporate Bonds 0.7 0.6 Regions Highly Liquid Assets incl. BTFP $ 28.3 $ 27.
Slide 5: Loan growth continues
Loan growth continues Loans and leases QoQ highlights & outlook 2% (Average, $ in billions) • Avg business loans increased 2% $95.8 $97.3 $87.8 reflecting high-quality, broad- based growth across utilities, retail 32.0 32.4 31.2 trade (automotive, grocery, hardware, & consumer essentials) and financ
Slide 6: Deposits
Deposits Normalization occurring as expected Deposits by Segment QoQ highlights & outlook (Average, $ in billions) • Deposit base remains a source of strength, $138.7 $133.0 balances continue to perform as expected 2.6 $129.0 2.2 2.1 10.4 9.0 8.4 • ~$2B of $3B 1Q ending outflow from 42.6 38.2 36.3 c
Slide 7: NII & margin performance
NII & margin performance FTE NII and NIM(1) Drivers of NII and NIM ($ in millions) $1,414 $1,430 • NII +$16M, or +1% linked-quarter; NIM +23bps $1,026 • Higher short-term rates largely drive NII growth, 4.22% overcoming deposit balance and pricing 3.99% normalization ◦ 1Q deposit cost = 56bps / inte
Slide 8: Hedging strategy update
Hedging strategy update Net Receive Hedge Notional(1) (Quarterly Avg) (Annual Avg) Swaps Collars 1 1Q23 2 2Q23 3 3Q23 4 4Q23 5 1Q24 6 2Q24 7 3Q24 1 2023 2 2024 3 2025 4 2026 5 2027 6 2028 Swap Notional - 4Q22 $10.7B $10.9B $15.7B $18.7B $21.5B $21.1B $20.1B $14.0B $20.5B $19.0B $13.8B $9.0B $3.1B 1Q
Slide 9: Non-interest income
Non-interest income Non-Interest Income Adj. Non-Interest Income (1) QoQ outlook ($ in millions) ($ in millions) • Expect to offer a grace period feature in $600 2023 resulting in FY23 service charges of $584 $583 $534 $550 $535 ~$550M(2) • Total capital markets decreased 31%; Ex. CVA/DVA, it increa
Slide 10: Non-interest expense
Non-interest expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ highlights & outlook ($ in millions) ($ in millions) • Non-interest expense increased ~1% on a $1,017 $1,027 $1,012 $1,025 reported and adjusted basis(1) $933 $932 • Salaries & benefits increased ~2% due to merit (effective 3
Slide 11: Asset quality
Asset quality Underlying credit performance continues to normalize as expected Net charge-offs Allowance for Credit Losses (ACL) ($ in millions) ($ in millions) $1,582 $1,596 $1,492 446% 317% 288% 0.29% 0.35% 1.67% 1.63% 1.63% 0.21% 1Q22 4Q22 1Q23 Net Charge-Offs Net Charge-Offs Ratio ACL ACL/Loans
Slide 12: Commercial Real Estate
Commercial Real Estate Highly Diversified Total IRE Portfolio (including Unsecured CRE) $ in billions % of Total Loans Res. Homebuilders Commercial Land 7.4% 0.1% Unsecured CRE $ 6.7 6.8 % Other (incl. REITS) 4.6% Apartments IRE 8.4 8.6 % 24.3% Hotel 4.9% Total(1) $ 15.1 15.4 % Healthcare 7.7% $15.1
Slide 13: Higher Risk Industry Segments
Higher Risk Industry Segments (Outstanding balances as of March 31, 2023) Business Services High Risk Segments % of Total Portfolio ($ in millions) BAL$(1) NPL NPL/Loans ACL ACL/Loans Loans Consumer Discretionary Goods $2,009 2.0% $15 0.8% $35 1.7% Retail Trade & Consumer Manufacturing Freight Trans
Slide 14: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) Common equity Tier 1 ratio(1) 11.2% 9.6% 9.8% 10.8% 10.9% 9.4% 1Q22 4Q22 1Q23 1Q22 4Q22 1Q23 Loan-to-deposit ratio(2) QoQ Highlights & Outlook • Common Equity Tier 1 (CET1) ratio increased to 74% 76% 9.8%, reflecting solid capital generation through 63%
Slide 15: 2023 expectations
2023 expectations Expectations for 2Q23 & Beyond FY 2023 Expectations • 2Q NII QoQ decline of 1.5-3.5%(3); FY 2023 NII growth of 12-14%(3) Total Adjusted Revenue up 6-8% (from adjusted 2022 of $7,165)(1)(2)(3) • Additional OD policy changes will result Adjusted Non-Interest Expense up 4.5-5.5%; expe
Slide 16: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix \ AM REGIONS] 16
Slide 17: First quarter 2023 highlights
First quarter 2023 highlights Summary of first quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 1Q23 Change Change (amounts in millions, except per share data) 1Q23 Net interest income $ 1,417 1.1% 39.6% (1) Pre-tax adjusted items : Provision for (benefit
Slide 18: Deposit advantage
Deposit advantage Well diversified deposit base vs. Peers % of Total Deposits Balance in Accounts % of Total Deposits Insured By FDIC(1) Less than $250k(1) Regions holds a larger proportion of smaller deposit ...Resulting in the highest mix of FDIC insured deposits balance accounts when compared to
Slide 19: Investments in our businesses
Investments in our businesses Investments in talent, technology and strategic acquisitions continue to pay off CORPORATE CONSUMER WEALTH Treasury Management client base Mobile users increased Increase in revenue per quality grew 8.7% YoY(1); Revenue grew 6.3% YoY relationship(2) of 3% 8.2% QoQ Indus
Slide 20: Growth in digital
Growth in digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) Active Users (Millions) Digital Sales (Accounts in Thousands) +19% +16% +75% 101.9 3.55 2.46 85.5 82.6 2.31 26.6 10.8 16.8 2.11 2.73 74.7 65.8 75.3 2.03 1Q21 1Q22 1Q23 1Q21 1Q22 1Q23 Mobile Banking Deposits Lend
Slide 21: Securities portfolio provides downside rate protection / liquidity
Securities portfolio provides downside rate protection / liquidity • Portfolio constructed to protect against changes in market rates Securities portfolio composition(1) ◦ Duration of approximately 5 years as of Corporate Bonds Agency/UST 3/31/2023 (fully extended) provides offset 4% 7% to long-dura
Slide 22: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights • 1Q allowance increased $14M compared to prior quarter, resulting $38 $1,596 $1,582 $33 in a $135M provision expense. $1,544 $(19) $(38) • Key drivers of the net increase in ACL: ◦ Credit quality changes and normalization within s
Slide 23: Base R&S economic outlook
Base R&S economic outlook (as of March 2023) Pre-R&S period 1Q2023 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024 3Q2024 4Q2024 1Q2025 Real GDP, annualized % change 1.4 % 0.2 % 0.8 % 0.9 % 1.2 % 1.4 % 1.6 % 1.9 % 2.0 % Unemployment rate 3.6 % 3.8 % 3.9 % 4.2 % 4.2 % 4.3 % 4.3 % 4.3 % 4.2 % HPI, year-over-year %
Slide 24: Allowance allocation
Allowance allocation As of 3/31/2023 As of 12/31/2022 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $51,811 $660 1.27 % $50,905 $628 1.23 % CRE-OO mortgage 4,938 103 2.10 % 5,103 102 2.00 % CRE-OO construction 306 7 2.24 % 298 7 2.29 % Total commercial $57,055 $770 1.35 % $
Slide 25: Well positioned for next downturn
Well positioned for next downturn Highly Diversified Business Portfolio(1) All Other Commercial Healthcare 3.6% 5.3% Distribution Investor Real Estate 6.6% 13.0% Business Services 7.6% Financial Services Utilities 10.6% 4.7% Agriculture 0.5% Energy $65.5B 2.6% Manufacturing (2) 8.1% CRE Unsecured, i
Slide 26: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Credit Card Residential Mortgage Consumer FICO Scores(1) • Avg. origination FICO 769 • Avg. origination FICO 758 • Avg. new line $6,835 • Current LTV 52% 3% 2% 3% • 1Q23 Yield 14.93% • 98% owner occupied • 1Q23 QTD NCO 3.47% 62% Other Consumer(2) 76% 81
Slide 27: Environmental, Social & Governance
Environmental, Social & Governance ESG Governance Suite of ESG Disclosures BOARD OF DIRECTORS ESG-related elements of the Strategic Plan, annual budget, and capital planning process ■ Annual Review & ESG Report ■ TCFD Report O Board-Level Committees ■ SASB Index V ■ GRI Index ESG strategies, initiat
Slide 28: Environmental, Social & Governance
Environmental, Social & Governance Creating Shared Value Through Commitments and Initiatives Pursuing environmental Fostering diversity, equity, Promoting financial inclusivity sustainability and inclusion ▪ Introduced Regions Now CheckingSM to ▪ Surpassed 2023 target to reduce ▪ Nurtured inclusivit
Slide 29: Non-GAAP information
Non-GAAP information Management uses pre-tax pre-provision income (non-GAAP) and adjusted pre-tax pre-provision income (non-GAAP), as well as the adjusted efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP) to monitor performance and believes these measures provide meaningful in
Slide 30: Non-GAAP reconciliation
Non-GAAP reconciliation Non-interest expense Twelve Months Ended December 31 ($ amounts in millions) 2022 2021 2020 2019 2018 2017 2016 Non-interest expense (GAAP) $ 4,068 $ 3,747 $ 3,643 $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: Contribution to Regions Financial Corporation foundation — (3) (10)
Slide 31: Non-GAAP reconciliation
Non-GAAP reconciliation Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 1Q23 vs. 4Q22 1Q23 vs. 1Q22 Net income available to common shareholders (GAAP) $ 588 $ 660 $ 404 $ 558 $ 524 $ (72) (10.9)% $ 64 12.2 % Preferred divide
Slide 32: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 1Q23 vs. 4Q22 1Q23 vs. 1Q22 Non-interest expense (GAAP) A $ 1,027 $ 1,017 $ 1,170 $ 948 $ 933 $ 10 1.0 % $ 94 10.1 % Adjustments: Br
Slide 33: Non-GAAP reconciliation
Non-GAAP reconciliation Return on average tangible common shareholders' equity Quarter Ended ($ amounts in millions) 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders (GAAP) A $ 588 $ 660 $ 404 $ 558
Slide 34: 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. The words “future,” “anticipates,” “assumes,” “intends,” “plans,” “seeks,” “believes,” “predicts,” “potential,” “objectiv
Slide 35: Forward-looking statements (continued)
Forward-looking statements (continued) • Our inability to keep pace with technological changes, including those related to the offering of digital banking and financial services, could result in losing business to competitors. • Changes in laws and regulations affecting our businesses, including leg
Slide 36: Forward-looking statements (continued)
Forward-looking statements (continued) • The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage (specifically in the Southeastern United States), which may negatively affect our operations and/or our loan portfolios and incre
Slide 37: Regions
A REGIONS A REGIONS»