Regions Financial Corporation · NYSE:RF
Regions Financial — Q2 2023 Earnings Presentation
34 slides from Regions Financial's earnings presentation, Jul 21, 2023
Slide 1: 2nd Quarter Earnings Conference Call
Exhibit 99.3 2nd Quarter Earnings Conference Call July 21, 2023
Slide 2: Second quarter 2023 overview
Second quarter 2023 overview Continue to generate consistent, sustainable long-term performance 2Q23 Highlights Key Performance Metrics Reported • One of the best ROATCE(1) in the Net Income Available to peer group of 23.8% (18.1% ex. $556M Common Shareholders AOCI) Diluted Earnings Per Share $0.59
Slide 3: Loan growth continues
Loan growth continues Loans and leases QoQ highlights & outlook 1% (Average, $ in billions) $97.3 $98.6 • Avg business loans increased 1% $90.7 reflecting high-quality, broad-based 32.4 32.9 growth across the 31.3 telecommunications, multi-family, and energy industries 59.4 64.9 65.7 ▪ ~84% of 2Q bu
Slide 4: Deposits
Deposits Normalization occurring as expected Deposits by Segment QoQ highlights & outlook (Average, $ in billions) • Deposit base remains a source of strength, $139.5 balances continue to perform as expected 2.4 $129.0 $125.5 10.0 2.1 2.2 8.4 7.4 • $4.8B of deposit outflow in 1H23 consistent 41.9 36
Slide 5: NII & margin performance
NII & margin performance FTE NII and NIM Drivers of NII and NIM ($ in millions) • NII -$36M, or -2.5% QoQ $1,430 $1,393 • NIM -18bps to 4.04% $1,119 4.22% • Higher short-term rates overcome by deposit balance 4.04% and pricing normalization 3.06% ◦ 2Q deposit cost = 0.83% ◦ 2Q interest-bearing depos
Slide 6: Hedging strategy update
Hedging strategy update Net Receive Hedge (Quarterly Avg) (Annual Avg) Notional(1) Swaps Collars 1 2Q23 2 3Q23 3 4Q23 4 1Q24 5 2Q24 6 3Q24 7 4Q24 1 2023 2 2024 3 2025 4 2026 5 2027 6 2028 as of 6/30/2023 Swap Notional - 2Q23 $8.6B $15.0B $18.0B $21.0B $21.1B $20.1B $19.5B $13.0B $20.4B $19.0B $15.5B
Slide 7: Non-interest income
Non-interest income Non-Interest Income Adj. Non-Interest Income (1) QoQ outlook ($ in millions) ($ in millions) • Rolled out new Overdraft Grace period $640 $640 feature in late 2Q23; Expect FY23 service $576 $576 $534 $535 charges of ~$575M • Card & ATM Fees increased driven by seasonally higher s
Slide 8: Non-interest expense
Non-interest expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ highlights & outlook ($ in millions) ($ in millions) • Non-interest expense increased ~8% on a reported and $1,111 $1,110 adjusted basis(1); Ex. incremental $82M associated with $1,027 check fraud in 2Q, NIE remained stable v
Slide 9: Asset quality
Asset quality Underlying credit performance continues to normalize as expected Net charge-offs Allowance for Credit Losses (ACL) ($ in millions) ($ in millions) $1,596 $1,633 $1,514 $83 $81 410% 332% 288% $38 0.35% 0.33% 1.62% 1.63% 1.65% 0.17% 2Q22 1Q23 2Q23 2Q22 1Q23 2Q23 Net Charge-Offs Net Charg
Slide 10: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) Common equity Tier 1 ratio(1) 11.4% 9.9% 10.1% 11.2% 9.2% 10.6% 2Q22 1Q23 2Q23 2Q22 1Q23 2Q23 QoQ Highlights & Outlook (2) Loan-to-deposit ratio • Common Equity Tier 1 (CET1) ratio(1) increased to 10.1%, reflecting solid capital generation through earnin
Slide 11: 2023 expectations
2023 expectations Expectations for 3Q23 & Beyond FY 2023 Expectations • 3Q23 NII expected to decline ~5%(3) Total Adjusted Revenue QoQ; 2023 NII expected to grow (from adjusted 2022 of $7,165)(1)(2)(3) up 6-8% 12-14%(3) vs 2022 Adjusted Non-Interest Expense (1)(2) up ~6.5% • Rolled out new Overdraft
Slide 12: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix \ AM REGIONS] 12
Slide 13: Second quarter 2023 highlights
Second quarter 2023 highlights Summary of second quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 2Q23 Change Change Net interest income $ 1,381 (2.5)% 24.6% (amounts in millions, except per share data) 2Q23 (1) Pre-tax adjusted items : Provision for (bene
Slide 14: 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 grew Increase in revenue per quality 9% YoY(1); Customer penetration Mobile users increased 6.7% YoY relationship(2) of 5% exceedin
Slide 15: Treasury Management
Treasury Management Enabling our clients to optimize cash flow and manage risk with a comprehensive & competitive suite of Treasury Management solutions Steadily Growing our Treasury Management Business Continually Investing in Technology & Talent • Delivering capabilities in line with our +13% Trea
Slide 16: Growth in digital
Growth in digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) Active Users (Millions) Digital Sales (Accounts in Thousands) +12% +15% +69% 2.52 99.6 3.85 88.7 82.7 2.36 20.5 2.19 13.3 16.8 2.99 75.4 65.9 79.1 2.28 2Q21 2Q22 2Q23 2Q21 2Q22 2Q23 Mobile Banking Deposits Lendi
Slide 17: Securities portfolio provides downside rate protection / liquidity
Securities portfolio provides downside rate protection / liquidity • Portfolio constructed to protect against changes in market Securities portfolio composition(1) rates Corporate Bonds Agency/UST ◦ Duration of 4.7 years as of 6/30/2023 provides 4% 8% offset to long-duration deposit book Non-Agency
Slide 18: Higher Risk Industry Segments
Higher Risk Industry Segments (Outstanding balances as of June 30, 2023) Business Services High Risk Segments % of Total Portfolio ($ in millions) BAL$(1) NPL NPL/Loans ACL ACL/Loans Loans Consumer Discretionary Goods $1,904 1.9% $15 0.8% $39 2.1% Retail Trade & Consumer Manufacturing Freight Transp
Slide 19: Commercial Real Estate
(1) Commercial Real Estate Highly Diversified Total IRE Portfolio (including Unsecured CRE) Res. Homebuilders Commercial Land $ in billions % of Total Loans 6.2% 0.1% Other Unsecured CRE $ 7.04 7.1 % 4.3% (incl. REITS) Apartments 25.2% Hotel IRE 8.63 8.7 % 5.9% Healthcare Total(2) $ 15.67 15.8 % 8.3
Slide 20: Allowance for credit losses waterfall
Allowance for credit losses waterfall QoQ highlights • 2Q allowance increased $37M compared to the prior quarter, ($ in millions) resulting in a $118M provision expense $15 $7 $1,633 • Key drivers of the net increase in $1,596 $15 ACL: ◦ Increased qualitative ACL due to elevated risk in Business Off
Slide 21: Base R&S economic outlook
Base R&S economic outlook (as of June 2023) Pre-R&S period 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024 3Q2024 4Q2024 1Q2025 2Q2025 Real GDP, annualized % change 1.2 % 0.9 % 0.9 % 1.2 % 1.1 % 1.2 % 1.3 % 1.4 % 1.6 % Unemployment rate 3.5 % 3.6 % 3.8 % 3.9 % 4.1 % 4.2 % 4.3 % 4.3 % 4.2 % HPI, year-over-year %
Slide 22: Allowance allocation
Allowance allocation As of 6/30/2023 As of 12/31/2022 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $52,300 $677 1.29 % $50,905 $628 1.23 % CRE-OO mortgage 4,797 106 2.21 % 5,103 102 2.00 % CRE-OO construction 292 7 2.31 % 298 7 2.29 % Total commercial $57,389 $790 1.38 % $
Slide 23: Well positioned for next downturn
Well positioned for next downturn Highly Diversified Business Portfolio(1) Healthcare All Other Commercial 4.8% 3.6% Distribution Investor Real Estate 6.6% 13.1% Business Services 7.7% Utilities Financial Services 4.6% 10.7% Agriculture 0.4% Energy $66.0B 2.7% Manufacturing 7.8% (2) CRE Unsecured, i
Slide 24: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Credit Card Residential Mortgage Consumer FICO Scores(1) • Avg. origination FICO 770 • Avg. origination FICO 764 • Avg. new line $8,820 • Current LTV 53% 3% 2% 3% • 2Q23 Yield 15.10% • 98% owner occupied • 2Q23 QTD NCO 3.38% 64% Other Consumer(2) 77% 81
Slide 25: Non-GAAP information
Non-GAAP information Management uses computations of earnings and certain other financial measures, which exclude certain adjustments that are included in the financial results presented in accordance with GAAP, to monitor performance and believes these measures provide meaningful information to inv
Slide 26: Non-GAAP reconciliation
Non-GAAP reconciliation Non-interest expense Twelve Months Ended December 31 ($ 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 27: Non-GAAP reconciliation
Non-GAAP reconciliation Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 2Q23 vs. 1Q23 2Q23 vs. 2Q22 Net income available to common shareholders (GAAP) $ 556 $ 588 $ 660 $ 404 $ 558 $ (32) (5.4)% $ (2) (0.4)% Preferred divide
Slide 28: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 2Q23 vs. 1Q23 2Q23 vs. 2Q22 Non-interest expense (GAAP) A $ 1,111 $ 1,027 $ 1,017 $ 1,170 $ 948 $ 84 8.2 % $ 163 17.2 % Adjustments:
Slide 29: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Twelve Months Ended December 31 ($ amounts in millions) 2022 Non-interest expense (GAAP) A $ 4,068 Adjustments: Branch consolidation, property and equipment charges (3) Professional, legal and regulatory expenses (179) Ad
Slide 30: Non-GAAP reconciliation
Non-GAAP reconciliation Return on average tangible common shareholders' equity Quarter Ended ($ amounts in millions) 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders (GAAP) A $ 556 $ 588 $ 660 $ 404
Slide 31: 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 32: 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 33: 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 34: Regions
A REGIONS A REGIONS»