Regions Financial Corporation · NYSE:RF
Regions Financial — Q2 2022 Earnings Presentation
37 slides from Regions Financial's earnings presentation, Jul 22, 2022
Slide 1: 2nd Quarter Earnings Conference Call
Exhibit 99.3 2nd Quarter Earnings Conference Call July 22, 2022
Slide 2: Second quarter 2022 overview
Second quarter 2022 overview $558M Net Income Available to Common Shareholders $0.59 Diluted Earnings Per Share • ROATCE(1) ratio improved 440 bps QoQ to 25.4%. $1.7B Total Revenue • 2Q adjusted pre-tax pre-provision income(1) of $794M represents highest level on record. $948M Non-Interest Expense •
Slide 3: Investments in our businesses
Investments in our businesses We are investing in talent, technology, and strategic acquisitions; the investments we are making across all three of our businesses are paying off. CORPORATE CONSUMER WEALTH Increased number of Treasury 44 new revenue generating Management clients 14% Mobile users incr
Slide 4: Loan growth continues
Loan growth continues Loans and leases QoQ highlights & outlook (Average, $ in billions) 3% • Avg business loans increased 5% driven by broad- $90.8 based growth across all businesses and $84.6 $87.8 industries. Commitments increased $5.5B and 31.3 utilization increased to 44.4%. 28.5 31.2 ◦ PPP loa
Slide 5: Deposit growth continues
Deposit growth continues Deposits by Segment QoQ highlights & outlook (Average, $ in billions) $138.7 $139.6 • Deposit balances acquired throughout the $131.1 2.7 2.4 0.4 10.0 pandemic remained mostly stable. 9.5 10.4 42.6 41.9 43.0 • Ending balances reflect the return of pre- pandemic seasonal patt
Slide 6: NII & margin performance
NII & margin performance NII and NIM(1) ($ in millions) $1,119 $1,026 $975 3.31% 3.43% 3.44% 3.06% 2.81% 2.85% 2Q21 1Q22 2Q22 NII NIM NIM excl. PPP/Cash (2) • In 2Q, deposit and cash balances remained elevated. • PPP and cash account for -38 bps NIM and $48M NII within the quarter (+20 bps / +$33M Q
Slide 7: NII & margin - core drivers
NII & margin - core drivers NII Attribution $1,108 Drivers of NII and NIM Positioned well for continued market rate increases • Avg. loans grew ~$3.0B in 2Q and balance sheet expansion • $1.2B securities purchases for hedging • Higher short-term rates now benefiting NII $1,015 ◦ Contractual loan and
Slide 8: Asset sensitive balance sheet
Asset sensitive balance sheet Well positioned for rising short-term and/or long-term interest rates Longer-Term Adjusted(1) NIM Expectations Short-term Rate Sensitivity Drivers Assuming rates stabilize at higher levels and deposit betas 25bps rate hike adds +$40-60M of NII over 12 months(2) follow h
Slide 9: Hedging strategy update
Hedging strategy update Net Receive Hedge Notional(1) Legacy Swap Notional (Quarterly Avg) (Annual Avg) 2022 Swap Additions 1 2Q22 2 3Q22 3 4Q22 4 1Q23 5 2Q23 6 3Q23 7 4Q23 1 2023 2 2024 3 2025 4 2026 5 2027 6 2028 Legacy Swap Notional $20.7B $17.0B $11.7B $9.4B $9.4B $9.4B $9.3B $9.3B $6.5B $1.4B $
Slide 10: Non-interest income
Non-interest income (1) Non-Interest Income ($ in millions) Adj. Non-Interest Income ($ in millions) QoQ outlook • Announced NSF/OD policy changes are $619 $640 $640 $584 $600 $583 expected to result in FY22 service charges of ~$600M and FY23 service charges of ~$550M. • Expect capital markets to ge
Slide 11: Non-interest expense
Non-interest expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ highlights & outlook ($ in millions) ($ in millions) $948 $954 • Non-interest expense increased ~2% $933 $932 $898 $895 on both a reported and adjusted basis(1). 57.9% 57.9% 56.4% 56.9% ◦ Salaries and benefits increased 5% du
Slide 12: Asset quality improvement continues
Asset quality improvement continues Net charge-offs and ratio ACL to loans ratio ($ in millions) ($ in millions) $47 $46 2.00% 23 13 $38 8 1.67% 0.23% 0.21% 1.71% 1.62% 0.17% (1) 24 33 30 Day 1 2Q21 1Q22 2Q22 2Q21 1Q22 2Q22 ACL/Loans Consumer net Business services Net charge-offs • 2Q annualized NCO
Slide 13: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) Common equity Tier 1 ratio(1) 11.9% 10.4% 10.8% 9.4% 9.2% 10.6% 2Q21 1Q22 2Q22 2Q21 1Q22 2Q22 QoQ Highlights & Outlook • Stress Capital Buffer requirement for 4Q22 through 3Q23 will remain at 2.5% Loan-to-deposit ratio(2) • Common Equity Tier 1 (CET1) ra
Slide 14: 2022 expectations
2022 expectations Expectations for 3Q22 & Beyond FY 2022 Category • 3Q NII expected to grow 8-10%(3); 2022 NII growth Expectations expected to be +16-18%(3), excl. PPP +19-21%(3); Total Adjusted Revenue expect 4Q22 NII to be ~23-25% higher than up 7.5-8.5% 1Q22(3). (from adjusted 2021 of $6,412)(1)(
Slide 15: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( Aw REGIONS| 15
Slide 16: Second quarter 2022 highlights
Second quarter 2022 highlights Summary of second quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 2Q22 Change Change (amounts in millions, except per share data) 2Q22 Net interest income $ 1,108 9.2% 15.1% Pre-tax adjusted items(1): Provision for (benefit
Slide 17: Growth in digital
Growth in digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) Active Users (Millions) Digital Sales (Accounts in Thousands) +16% +21% +16% +129% 2.99 3.1 3.3 2.4 87.2 2.8 2.2 82.2 70.7 13.3 2.28 2.0 16.8 9.7 61.0 73.9 65.4 1.31 2Q20 2Q21 2Q22 2Q20 2Q21 2Q22 2Q20 2Q21 2Q22
Slide 18: Deposit surge and beta
Deposit surge and beta Pandemic-Related Deposit Growth Adds to Low-Cost, Stable Funding Base(1) $150 $12 $137 $13 Business/ $15 Other $97 Deposits $100 Business/ Other Deposits Low-beta deposits have grown considerably and remain relatively stable. Other pandemic era increases (approx. 2/3) Retail $
Slide 19: State of the consumer
State of the consumer Regions' exposure to low-FICO borrowers remains negligible; customers with historically low deposit balances still have significant cushion Regions' consumer borrowers are in a strong position More broadly, Regions' lower-deposit-balance customers relative to pre-pandemic pre-p
Slide 20: Future NII drivers
Future NII drivers NII is positioned to benefit from higher rates, as well as natural loan growth and strategic opportunities. Hedge proceeds and the capital generated has been invested into strategically important businesses, such as Ascentium and EnerBank. NII Drivers - Current Support Relative Im
Slide 21: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights • 2Q allowance increased $21M compared to prior quarter, resulting in a $60M provision expense. $1,492 $71 $1,514 $26 • Key drivers of the increase in ACL: $(38) $(28) ◦ Significant growth in $(9) commitments in both core Business
Slide 22: Base R&S economic outlook
Base R&S economic outlook (as of June 2022) Pre-R&S period 2Q2022 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024 Real GDP, annualized % change 3.2 % 2.1 % 2.2 % 1.8 % 1.9 % 1.9 % 2.0 % 2.0 % 1.9 % Unemployment rate 3.6 % 3.5 % 3.5 % 3.4 % 3.4 % 3.4 % 3.5 % 3.5 % 3.5 % HPI, year-over-year %
Slide 23: Allowance allocation
Allowance allocation As of 6/30/2022 As of 12/31/2021 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $48,492 548 1.13 % $43,758 $613 1.40 % CRE-OO mortgage 5,218 100 1.92 % 5,287 118 2.23 % CRE-OO construction 266 6 2.40 % 264 9 3.53 % Total commercial $53,976 $654 1.21 % $4
Slide 24: Well positioned for next downturn
Well positioned for next downturn Highly Diversified Business Portfolio(1) Commercial Portfolio Migrates to Lower Risk Distribution All Other (2) Commercial 45% 46% 47% 7.2% 17.4% Technology Services 37% 7.4% 32% 26% Business Services 17% 15% 7.8% 12% 12% $61.6B Investor Real Estate 7% 4% Manufactur
Slide 25: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Credit Card Residential Mortgage Consumer FICO Scores(1) • Avg. origination FICO 750 • Avg. origination FICO 760 4% 3% • Avg. new line $6,243 • Current LTV 52% 2% • 2Q22 Yield 12.38% • 98% owner occupied • 2Q22 QTD NCO 2.70% 64% Other Consumer 81% 76% U
Slide 26: Environmental, Social & Governance
Environmental, Social & Governance ESG Governance Suite of ESG Disclosures BOARD OF DIRECTORS ESG-related elements of the Strategic Plan, annual budget, and capital planning process ■ Annual Review & ESG Report ■ TCFD Report O Board-Level Committees ■ GRI Content Index V ■ CDP Climate Change ESG str
Slide 27: Environmental, Social & Governance
Environmental, Social & Governance Highlights Promoting financial inclusivity Pursuing environmental Maintaining accountability sustainability for our ESG progress ▪ Introduced Regions Now CheckingSM to ▪ Announced new goal to reduce our ▪ Released first standalone TCFD suite of Regions Now Banking®
Slide 28: Non-GAAP information
Non-GAAP information Management uses pre-tax pre-provision income (non-GAAP) and adjusted pre-tax pre-provision income (non-GAAP), as well as the adjusted efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP) to monitor performance and believes these measures provide meaningful in
Slide 29: Non-GAAP reconciliation
Non-GAAP reconciliation Core net interest income and adjusted net interest margin Quarter-ended 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Net interest margin (FTE) (GAAP) 3.06 % 2.85 % 2.83 % 2.76 % 2.81 % Impact of SBA PPP loans (0.01)% (0.02)% (0.09)% (0.05)% (0.05)% Impact of excess cash
Slide 30: Non-GAAP reconciliation
Non-GAAP reconciliation Non-interest expense Year Ended December 31 ($ amounts in millions) 2021 2020 2019 2018 2017 2016 Non-interest expense (GAAP) $ 3,747 $ 3,643 $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: Contribution to Regions Financial Corporation foundation (3) (10) — (60) (40) — Professio
Slide 31: Non-GAAP reconciliation
Non-GAAP reconciliation Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 2Q22 vs. 1Q22 2Q22 vs. 2Q21 Net income (loss) available to common shareholders (GAAP) $ 558 $ 524 $ 414 $ 624 $ 748 $ 34 6.5 % $ (190) (25.4)% Preferred
Slide 32: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 2Q22 vs. 1Q22 2Q22 vs. 2Q21 Non-interest expense (GAAP) A $ 948 $ 933 $ 983 $ 938 $ 898 $ 15 1.6 % $ 50 5.6 % Adjustments: Contribut
Slide 33: Non-GAAP reconciliation
Non-GAAP reconciliation Return on average tangible common shareholders' equity Quarter Ended ($ amounts in millions) 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders A $ 558 $ 524 $ 414 $ 624 $ 748 A
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. Forward-looking statements are not based on historical information, but rather are related to future operations, strategi
Slide 35: Forward-looking statements (continued)
Forward-looking statements (continued) • Our ability to comply with stress testing and capital planning requirements (as part of the CCAR process or otherwise) may continue to require a significant investment of our managerial resources due to the importance of such tests and requirements. • Our abi
Slide 36: Forward-looking statements (continued)
Forward-looking statements (continued) • Market replacement of LIBOR and the related effect on our LIBOR-based financial products and contracts, including, but not limited to, derivative products, debt obligations, deposits, investments, and loans. • Possible downgrades in our credit ratings or outl
Slide 37: Regions
A REGIONS A REGIONS»