Regions Financial Corporation · NYSE:RF
Regions Financial — Q1 2020 Earnings Presentation
43 slides from Regions Financial's earnings presentation, Apr 17, 2020
Slide 1: 1st Quarter Earnings Conference Call
Exhibit 99.3 1st Quarter Earnings Conference Call April 17, 2020
Slide 2: Providing solutions to our customers, communities and associates
Providing solutions to our customers, communities and associates Customers • Special financial assistance for customers experiencing pandemic related hardships • Helping business customers access the Small Business Administration's Paycheck Protection Program • Temporarily halted new foreclosures an
Slide 3: Supporting our customers
Supporting our customers Customer SBA -Paycheck Additional Customer Loan Protection Program Assistance (1) Modifications (PPP) • Granting extension, • Began receiving PPP • Penalty-free CD deferrals, and forbearance applications April 3rd withdrawal • Loan payment deferral ◦ Through April 16th, • Wa
Slide 4: Delivering consistent performance
Delivering consistent performance Interest Rate Proactive strategic hedging Sensitivity program Credit Risk Balance sheet de-risking & Framework optimization Capital Allocation Focused on risk-adjusted returns Improving Simplify and Grow, technology, Efficiency priority markets, and efficiency Due t
Slide 5: First quarter 2020 overview
First quarter 2020 overview Net Income(1) Adj. Revenue(2) Adj. Expenses(2) $139M $1.4B $824M - 2.6% YoY - 3.3% YoY EPS(1) of $0.14 NII up 1% QoQ, supported Adjusted expenses remain by hedging strategy well controlled CECL provision in Adj. positive Adj. efficiency excess of net operating leverage(2)
Slide 6: First quarter 2020 highlights
First quarter 2020 highlights Summary of first quarter results Selected items impacting the quarter QoQ YoY ($ amounts in millions, except per share data) 1Q20 Change Change (amounts in millions, except per share data) 1Q20 Net interest income $ 928 1.1% (2.1)% Pre-tax adjusted items(1): Provision f
Slide 7: Average loans
Average loans Adjusted average loans and leases(1) QoQ highlights ($ in billions) • Adjusted average loans(1) increased 1%; $80.8 $80.4 $81.6 adjusted ending loans(1) increased 7% • Utilization rates increased ~9 percentage 28.3 28.4 28.6 points to 54%; utilization peaked at ~51% during prior global
Slide 8: Average deposits
Average deposits Average deposits by segment QoQ highlights ($ in billions) $94.2 $94.5 $95.7 • Average deposits increased 1%; ending 1.4 0.6 1.3 7.9 7.9 8.1 deposits increased 3% • Many corporate customers drawing on their 26.9 26.6 26.6 lines are keeping excess cash in deposit accounts • Expect ba
Slide 9: Net interest income and net interest margin
Net interest income and net interest margin NII(1) and NIM Total deposit costs ($ in millions) $961 $931 $940 3.51% 3.44% 3.39% If low rates persist, deposit yields to near historical minimums in 1Q19 4Q19 1Q20 coming quarters (1) NII NIM NIM Attribution (excluding PPP)(4) • Net interest income and
Slide 10: Non-interest income
Non-interest income (1) Adjusted ($ in millions) non-interest income $564 Change vs $501 $483 1Q20 4Q19 1Q19 ($ in millions) Service charges $178 (4.8)% 1.7% Card and ATM fees 105 (6.3)% (3.7)% Wealth management income 84 —% 10.5% Capital markets income 43 (23.2)% (2.3)% 1Q19 4Q19 1Q20 (excluding CV
Slide 11: Disciplined expense management
Disciplined expense management QoQ highlights Adjusted non-interest expense(1) ($ in millions) • Adjusted non-interest expense(1) remained well- controlled, decreasing QoQ driven primarily by $869 $852 lower salaries and benefits, professional fees $824 and marketing expenses ◦ S&B down 4%; lower pr
Slide 12: Asset quality
Asset quality Net charge-offs and ratio Criticized business loans ($ in millions) $123 ($ in millions) $2,524 63 $2,119 $2,251 $96 31 0.59% $78 0.46% 20 0.38% 58 65 60 1Q19 4Q19 1Q20 1Q19 4Q19 1Q20 • 1Q20 NCOs were 0.59% of average loans, includes the impact of Consumer net Commercial net Net charge
Slide 13: Strong capital and liquidity position
Strong capital and liquidity position Tier 1 capital ratio(1) • Granular and stable deposit base provides superior liquidity value; enhanced by low loan-to-deposit ratio • Beyond deposits, have readily available liquid assets and cash of $28B, and additional significant liquidity at the Discount Win
Slide 14: Appendix
> GENERATING Long-term Performance Appendix \ Consistent Sustainable Max REGIONS 14
Slide 15: Ample sources of additional liquidity aided by strong Risk Management
Ample sources of additional liquidity aided by strong Risk Management Liquidity Risk Management Additional Liquidity Sources Regions’ Risk Management and Stress Testing have guided Beyond deposits, Regions has additional liquidity us to liquidity levels that are well prepared for the current sources
Slide 16: Proactive hedging strategy
Proactive hedging strategy Notional cash flow derivatives at 3/31/20(1) Securities and hedges(1) as % of earning ($ in billions) assets(4) 50% $22.75 $22.75 $22.75 40% $21.50 $21.75 Peer Median 28% $18.50 30% $15.50 20% 10% 0% Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Pe
Slide 17: 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 comes Fixed / float loan mix(1) 100% from future business activities and cash-flow reinvestment; 2020 90% expectation: 80% 70% * ~$9.5B fixed rate loan production; $7.5B o
Slide 18: CECL allowance for credit losses waterfall
CECL allowance for credit losses waterfall ($ in millions) Highlights • Day 1 adjustment due to 1/1/20 CECL adoption resulted in an allowance for credit losses (ACL) $207 $1,665 of $1.415B $36 • Q1 allowance increased $250M due primarily $501 $16 to the uncertainty associated with COVID–19, $(9) and
Slide 19: Leveraged portfolio
Leveraged portfolio (outstanding balances as of March 31, 2020) Leveraged Balances by Industry Regions Leveraged Lending Definition - $6.8B in balances • Commitments are $10M • Leverage exceeds 3x senior debt; 4x total debt Professional Services 15% • Includes investment & non-investment grade loans
Slide 20: SNC portfolio
SNC portfolio (outstanding balances as of March 31, 2020) Shared National Credit Balances by Industry 10% Portfolio Characteristics 9% 8% • Diverse Industry mix 47% $24.7B • 42% of balances are Investment Grade 7% 7% • 22% of balances are Leveraged 6% 6% • 23% of balances are sponsor backed • Only 4
Slide 21: Energy lending
Energy lending As of 3/31/20 • Leader in the Energy lending business for over 50 years Total Outstanding • Throughout 2019 and 2020, growth in Energy commitments ($ in millions) Commitments Balances % Utilization $ Criticized % Criticized and outstandings have been essentially flat Oilfield services
Slide 22: Energy lending (continued)
Energy lending (continued) Balances by Category Gross Losses $1,500 $80 $75.1 $70 $1,200 $60 53 $ (Millions) $900 $50 $ (Millions) $40 $36.7 $32.9 $600 $30 $28.5 $24.5 $20 $300 $10 $6.0 $0 $0.0 $0 P es r E& c am am he 14 15 16 1 7 1 8 1 9 2 0 ervi stre stre Ot 20 20 20 20 20 20 20 el dS Mi d wn lfi
Slide 23: Restaurant lending
Restaurant lending • Team of bankers in place with specialization in this industry As of 3/31/20 • Greater risk focus on quality of sponsor 53 % of • Prior to the pandemic, Regions had strategically ($ in Total Outstanding Outstanding millions) # of Clients* Commitments Balances % Utilization $ Crit
Slide 24: Hotel lending
Hotel lending As of 3/31/20 • CRE – Unsecured outstanding balance is comprised of 12 REIT customers ($ in millions) Total Outstanding % Utilization $ Criticized % of Commitments Balances Outstanding • 75% of balances are investment grade 53 Criticized CRE-Unsecured $871 $795 91% $0 0% • 73% are SNCs
Slide 25: Commercial retail lending
Commercial retail lending • Approximately $556 million of outstanding balances across the REIT and IRE portfolios relate to shopping malls and outlet centers, As of 3/31/20 comprised of ~$348 million Class A and ~$208 million Class B/C. Total Outstanding % $ % • Portfolio exposure to REITs specializ
Slide 26: Consumer goods manufacturing lending
Consumer goods manufacturing lending As of 3/31/20 ($ in millions) Total Outstanding % Utilization $ Criticized % Criticized Commitments Balances Food, Beverage $1,313 $767 58% $49 6% & Tobacco 53 Wood & Related 628 437 70% 36 8% Products • 24% of balances are Leveraged Paper, Packaging 699 318 45%
Slide 27: Transportation lending
Transportation lending As of 3/31/20 ($ in millions) Total Outstanding % Utilization $ Criticized % Criticized Commitments Balances General Freight $886 $570 64% $14 2% Trucking - Long Distance 53 Support Activities 342 219 64% — 0% for Water Transportation Inland Water 439 331 75% — 0% • 9% of bala
Slide 28: Commercial loans
Commercial loans As of 3/31/20 ($ in millions) Total Outstanding % Utilization Commitments Balances Administrative, Support, Waste & Repair $2,368 $1,558 66% Agriculture 672 422 63% • Includes Commercial and Commercial Real Educational Services 533,579 2,801 78% Estate-Owner Occupied Loans Energy -
Slide 29: Loans to Small Business and Small Farms
Loans to Small Business and Small Farms (outstanding balances as of March 31, 2020) Balances by Industry Balances by State Healthcare 14% Real Estate 13% Florida 35% 14% Professional, Alabama 13% 27% Scientific & Technical 35% Tennessee 12% 13% Services 10% 45% $4.5B $4.5B Georgia 7% Retail Trade 9%
Slide 30: SBA loans
SBA loans (outstanding balances as of March 31, 2020) Balances by Industry Balances by State Manufacturing 15% Retail Trade 13% Florida 32% 15% Restaurant, Texas 17% 25% Accommodation 31% 32% & Lodging 12% Georgia 11% 13% $805M Religious, Leisure 11% $805M Alabama 8% 7% 9% 12% Arkansas 7% Real Estat
Slide 31: Consumer lending update - COVID-19
Consumer lending update - COVID-19 Residential Mortgage • Over 3,500 residential mortgage customers have received assistance as of April 8th • By far the biggest reason for requesting assistance is “Loss of Employment” followed by “Self-employed Loss of Income” • Similar trends have been seen on Fan
Slide 32: Consumer lending portfolio statistics
Consumer lending portfolio statistics Residential Mortgage Home Equity • Avg. origination FICO 750 • Avg. origination FICO 757 • Current LTV 60% • Current LTV 46% • 96% owner occupied • Only $338M of resets through 2021 • 67% of portfolio is 1st lien • Avg. loan size $37,125 Consumer Credit Card Con
Slide 33: LIBOR transition
LIBOR transition Four pillars of execution ◦ Regions completed a comprehensive LIBOR Impact Assessment in 1H 2019 ◦ Regions has begun enterprise-wide efforts to transition to alternative rates consistent with industry timelines. Core Products & Financial Strategy & Contracts Communications Integrati
Slide 34: 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 i
Slide 35: Non-GAAP and additional selected items impacting earnings
Non-GAAP and additional selected items impacting earnings Quarter Ended Selected items impacting earnings: 3/31/2020 12/31/2019 3/31/2019 Pre-tax adjusted items Branch consolidation, property and equipment charges $ (11) $ (12) $ (6) Loss on early extinguishment of debt — (16) — Salaries and benefit
Slide 36: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 1Q20 4Q19 1Q19 1Q20 vs. 4Q19 1Q20 vs. 1Q19 Total consumer loans $ 30,250 $ 30,418 $ 31,207 $ (168) (0.6)% $ (957) (3.1)% Less: Indirect—vehicles 1,679 1,948 2,924 (269) (13.8)% (1,245) (42.6)% Adjusted total con
Slide 37: Non-GAAP reconciliation: adjusted ending loans
Non-GAAP reconciliation: adjusted ending loans As of 3/31/2020 3/31/2020 ($ amounts in millions) 3/31/2020 12/31/2019 3/31/2019 vs. 12/31/2019 vs. 3/31/2019 Total consumer loans $ 29,988 $ 30,567 $ 30,903 $ (579) (1.9)% $ (915) (3.0)% Less: Indirect—vehicles 1,557 1,812 2,759 (255) (14.1)% (1,202) (
Slide 38: 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) 3/31/2020 12/31/2019 3/31/2019 1Q20 vs. 4Q19 1Q20 vs. 1Q19 Non-interest expense (GAAP) A $ 836 $ 897 $ 860 $ (61) (6.8)% $ (24) (2.8)% Adjustments: Branch consolid
Slide 39: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 3/31/2020 12/31/2019 3/31/2019 1Q20 vs. 4Q19 1Q20 vs. 1Q19 Net income available to common shareholders (GAAP) $ 139 $ 366 $ 378 $ (227) (62.0)% $ (239) (63.2)% Preferred dividends (GAAP) 23 23 16 — —% 7
Slide 40: Forward-looking statements
Forward-looking statements Forward-Looking Statements This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement, including statements regardin
Slide 41: Forward-looking statements (continued)
Forward-looking statements (continued) • Our ability to obtain a regulatory non-objection (as part of the CCAR process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs,
Slide 42: Forward-looking statements (continued)
Forward-looking statements (continued) • Our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, including account take-overs, a failure of which could disrupt our business and result in the disclosu
Slide 43: Regions
A REGIONS AM REGIONS: