Regions Financial Corporation · NYSE:RF
Regions Financial — Q3 2023 Earnings Presentation
39 slides from Regions Financial's earnings presentation, Oct 20, 2023
Slide 1: 3rd Quarter Earnings Conference Call
Exhibit 99.3 3rd Quarter Earnings Conference Call October 20, 2023
Slide 2: Third quarter 2023 overview
Third quarter 2023 overview Continue to generate consistent, sustainable long-term performance 3Q23 Highlights Key Performance Metrics Reported • One of the best ROATCE(1) in the peer group of 20.6% (14.6% ex. Net Income Available to AOCI) $465M Common Shareholders • Continue to benefit from strong
Slide 3: Loans
Loans Softening demand but continuing to support our clients Loans and leases QoQ highlights & outlook (Average, $ in billions) $94.7 $98.6 $98.8 • Avg business loans remained stable; expect increased lending 32.3 32.9 33.4 opportunities but reserving capital for full relationship business • Avg con
Slide 4: Deposits
Deposits Normalization occurring as expected Deposits by Segment QoQ highlights & outlook (Average, $ in billions) • Deposit base remains a source of $135.5 strength, balances continue to 2.2 $125.5 $125.2 9.5 2.2 2.8 perform as expected 7.4 7.5 39.1 34.9 34.9 • Modest deposit declines, in line with
Slide 5: NII & margin performance
NII & margin performance FTE NII and NIM Drivers of NII and NIM ($ in millions) • NII -$90M, or -6.5% QoQ; NIM -31bps to 3.73% $1,393 $1,304 $1,274 • Higher long-term rates increase new production fixed-rate asset yields and reduce securities premium amortization(1) 4.04% • Higher short-term rates o
Slide 6: Hedging strategy update
Hedging strategy update Cash Flow Hedge (Quarterly Avg) (Annual Avg) Notional(1) Swaps Collars 1 3Q23 2 4Q23 3 1Q24 4 2Q24 5 3Q24 6 4Q24 7 1Q25 1 2023 2 2024 3 2025 4 2026 5 2027 6 2028 as of 9/30/2023 Swap Notional - 2Q23 $14.9B $18.0B $21.0B $21.1B $20.1B $19.5B $19.6B $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) • NIR decreased 2% on a reported and $605 $576 $606 $576 adjusted(1) basis as modest increase in $566 $567 mortgage and wealth management income was offset by declines primarily in servic
Slide 8: Non-interest expense
Non-interest expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ highlights & outlook ($ in millions) ($ in millions) $1,170 • Non-interest expense decreased ~2% on a reported $1,111 $1,093 $1,110 $1,089 $988 and adjusted basis(1); Ex. incremental operational $82 $53 losses in both quarter
Slide 9: Asset quality
Asset quality Underlying credit performance continues to normalize as expected Net charge-offs Allowance for Credit Losses (ACL) ($ in millions) ($ in millions) $1,677 $1,633 0.40% $1,539 0.46% 0.33% 311% 332% 0.19% 261% $110 $101 $81 $63 1.63% 1.65% 1.70% $47 3Q22 2Q23 3Q23 Adjusted Net Charge-Offs
Slide 10: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) QoQ Highlights & Outlook 11.4% 11.6% • Basel III Endgame - estimate a low to mid-single digit 10.6% increase in RWAs under the Expanded Risk Based Approach in addition to the phase-in of AOCI into regulatory capital 3Q22 2Q23 3Q23 ◦ CET1 adjusted to incl
Slide 11: 2023 expectations
2023 expectations Expectations for 4Q23 & Beyond FY 2023 Expectations • 4Q23 NII expected to decline ~5%(3) QoQ; 2023 NII expected to grow ~11%(3) vs 2022 Total Adjusted Revenue up 5-6% (from adjusted 2022 of $7,165)(1)(2)(3) ◦ 2024 NII expected to stabilize over the first half of the year and grow
Slide 12: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix \ AM REGIONS] 12
Slide 13: Third quarter 2023 highlights
Third quarter 2023 highlights Summary of third quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 3Q23 Change Change (amounts in millions, except per share data) 3Q23 Net interest income $ 1,291 (6.5)% 2.3% Pre-tax adjusted items(1): Branch consolidation, pr
Slide 14: Growth in digital
Growth in digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) (2) Active Users (Millions) Digital Sales (Accounts in Thousands) +22% +14% 2.55 102.0 +72% 2.39 83.8 86.8 14.6 2.25 12.5 16.5 4.14 71.3 87.4 3.20 70.3 2.40 3Q21 3Q22 3Q23 3Q21 3Q22 3Q23 Mobile Banking Deposits
Slide 15: Investments in our businesses
Investments in our businesses Investments in talent, technology and strategic acquisitions continue to pay off CORPORATE CONSUMER WEALTH Increase in revenue per quality Treasury Management revenue grew Mobile users increased 6.7% YoY relationship(2) of 5% 9% YoY(1); Global Trade Services dollar volu
Slide 16: 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 +9% Treas
Slide 17: 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)(3) ◦ Duration is fully extended at ~4.5 years as of 9/30/2023; Corporate Bonds Agency/UST provides offset to long-duration deposit
Slide 18: Higher Risk Industry Segments
Higher Risk Industry Segments (Outstanding balances as of September 30, 2023) Business Services High Risk Segments % of Total Portfolio ($ in millions) BAL$(1) NPL NPL/Loans ACL ACL/Loans Loans Consumer Discretionary Goods $3,065 3.1% $19 0.6% $57 1.9% Retail Trade & Consumer Manufacturing Freight T
Slide 19: Commercial Real Estate
(1) Commercial Real Estate Highly Diversified Total IRE Portfolio (including Unsecured CRE) Other % of Total Res. Homebuilders $ in billions 4.8% Loans 6.5% Hotel Unsecured CRE 4.9% (incl. REITS) $ 6.91 7.0 % Healthcare IRE 8.74 8.8 % Apartments 8.5% 24.6% Total(2) $ 15.65 15.8 % Retail $15.65B 9.0%
Slide 20: Allowance for credit losses waterfall
Allowance for credit losses waterfall QoQ highlights • 3Q allowance increased $44M compared to the prior quarter, ($ in millions) resulting in a $145M provision expense • Key drivers of the net increase in ACL: ◦ Adverse risk migration and $47 $15 $1,677 continued credit quality $1,633 $(18) normali
Slide 21: Base R&S economic outlook
Base R&S economic outlook (as of September 2023) Pre-R&S period 3Q2023 4Q2023 1Q2024 2Q2024 3Q2024 4Q2024 1Q2025 2Q2025 3Q2025 Real GDP, annualized % change 3.6 % 0.4 % 1.0 % 0.9 % 1.3 % 1.7 % 1.8 % 1.9 % 1.9 % Unemployment rate 3.7 % 3.7 % 3.9 % 4.0 % 4.2 % 4.3 % 4.3 % 4.2 % 4.2 % HPI, year-over-ye
Slide 22: Allowance allocation
Allowance allocation As of 9/30/2023 As of 12/31/2022 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $51,604 $664 1.29 % $50,905 $628 1.23 % CRE-OO mortgage 4,833 111 2.30 % 5,103 102 2.00 % CRE-OO construction 270 7 2.47 % 298 7 2.29 % Total commercial $56,707 $782 1.38 % $
Slide 23: Well positioned for next downturn
Well positioned for next downturn Highly Diversified Business Portfolio(1) Healthcare All Other Commercial 5.0% 3.6% Distribution Investor Real Estate 6.5% 13.4% Business Services 7.8% Utilities Financial Services 4.6% 11.3% Agriculture 0.5% Energy $65.4B 2.5% Manufacturing 7.2% (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% • 3Q23 Yield 15.57% • 98% owner occupied • 3Q23 QTD NCO 3.48% 63% Other Consumer(2) 77% 81
Slide 25: Leveraged portfolio
Leveraged portfolio (outstanding balances as of September 30, 2023) Diversified Portfolio Important Factors • Consistent with Moody's historical Regional Bank Survey Other (Portfolios <5% of total) definition; Commitments >$5M with funded debt to 25% EBITDA>4.0x ◦ Commitments are $4.2B Administrativ
Slide 26: SNC Portfolio
SNC Portfolio (outstanding balances as of September 30, 2023) Shared National Credit Balances by Sector Portfolio Characteristics • Improved portfolio composition and asset quality through focus on lower risk Other (Portfolios <5% of total) 16.0% segments CRE_Unsecured_Non-REIT Business_Services 5.3
Slide 27: SNC Portfolio
SNC Portfolio (outstanding balances as of September 30, 2023) Shared National Credit Outstandings: $14B (51%) Select and Investment Grade Asset Securitization $1.7 6.4% Real Estate Investment Trusts (REITs) $5.3 19.5% Subscription Lines $0.9 3.3% Investment Grade Utilities $27.0B $1.1 4.1% Superior
Slide 28: Non-GAAP information
Non-GAAP information Management uses computations of earnings and certain other financial measures, which exclude certain adjustments that are included in the financial results presented in accordance with GAAP, to monitor performance and believes these measures provide meaningful information to inv
Slide 29: Non-GAAP reconciliation
Non-GAAP reconciliation Non-interest expense Twelve Months Ended December 31 ($ 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 30: Non-GAAP reconciliation
Non-GAAP reconciliation Adjusted Net Charge-Offs and Ratio For the Quarter Ended ($ amounts in millions) 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 Net loan charge-offs (GAAP) $ 101 $ 81 $ 83 $ 69 $ 110 Less: charge-offs associated with the sale of unsecured consumer loans — — — — 63 Adjuste
Slide 31: Non-GAAP reconciliation
Non-GAAP reconciliation Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 3Q23 vs. 2Q23 3Q23 vs. 3Q22 Net income available to common shareholders (GAAP) $ 465 $ 556 $ 588 $ 660 $ 404 $ (91) (16.4)% $ 61 15.1 % Preferred divide
Slide 32: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 3Q23 vs. 2Q23 3Q23 vs. 3Q22 Non-interest expense (GAAP) A $ 1,093 $ 1,111 $ 1,027 $ 1,017 $ 1,170 $ (18) (1.6)% $ (77) (6.6)% Adjust
Slide 33: 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 34: Non-GAAP reconciliation
Non-GAAP reconciliation Return on average tangible common shareholders' equity Quarter Ended ($ amounts in millions) 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders (GAAP) A $ 465 $ 556 $ 588 $ 660
Slide 35: Non-GAAP reconciliation
Non-GAAP reconciliation Adjusted CET1- inclusive of AOCI(4) As of ($ amounts in millions) 9/30/2023 ADJUSTED CET1 RATIO Common equity(1) A $ 13,056 Adjustments: AOCI gain (loss) on securities(2) (3,084) AOCI gain (loss) on defined benefit pension plans and other post employment benefits (403) Adjust
Slide 36: 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 37: 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 38: 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 39: Regions
A REGIONS A REGIONS»