Regions Financial Corporation · NYSE:RF
Regions Financial — Q2 2021 Earnings Presentation
45 slides from Regions Financial's earnings presentation, Jul 23, 2021
Slide 1: 2nd Quarter Earnings Conference Call
Exhibit 99.3 2nd Quarter Earnings Conference Call July 23, 2021
Slide 2: Second quarter 2021 overview
Second quarter 2021 overview Net Income Available to $748M Common Shareholders Diluted Earnings Per $0.77 Share Adjusted Total $1,563M Revenue(1) • Adjusted pre-tax pre-provision income(1) increased 3% YoY • Adjusted efficiency ratio(1) Adjusted Non- $895M Interest Expense(1) improved 80bps YoY to 5
Slide 3: Poised for growth
Poised for growth Committed to continuous expansion of platforms and capabilities Innovating through digital investments and enhancing our customer experiences to generate shareholder return Digital investments Business segments Strong & recovering generate return prove resilient markets Online and
Slide 4: Loans picking up momentum
Loans picking up momentum Adjusted loans and leases(1) QoQ highlights & outlook • Adjusted ending loans increased 1% QoQ, providing momentum for loan growth in 2H21. (Average, $ in billions) • Commercial pipelines have surpassed pre- $85.8 pandemic levels, production remains strong, and $79.3 $79.2
Slide 5: Deposit growth continues
Deposit growth continues Average deposits by segment QoQ highlights & outlook ($ in billions) $131.1 • Pace of deposit growth has slowed, $122.9 0.4 balances continued to increase to new 0.4 9.5 $110.9 9.3 record levels. 0.4 8.4 • Average deposits grew across all three 43.0 40.3 business segments Qo
Slide 6: Net interest income and net interest margin - liquidity impacts
Net interest income and net interest margin - liquidity impacts NII(1) and NIM ($ in millions) $985 $978 $975 3.36% 3.40% 3.31% 3.19% 2.81% 3.02% 2Q20 1Q21 2Q21 NII(1) NIM NIM excl. PPP/Cash(2) • In 2Q, deposit and cash balances remained elevated given stimulus / liquidity in the system. • PPP and c
Slide 7: Net interest income and net interest margin - core drivers
Net interest income and net interest margin - core drivers Core(1) NII Attribution Drivers of Core NII and adjusted NIM(1) • Rate environment impacts offset through active Offset ongoing impacts of $936 reinvestment through balance balance sheet management sheet management strategies $929 ◦ Hedging
Slide 8: Non-interest income
Non-interest income QoQ highlights & outlook Change vs • Service charges impacted by 3 additional business days. Changes in customer behavior and customer ($ in millions) 2Q21 1Q21 2Q20 benefits from enhancements to overdraft practices and transaction posting are likely to Service charges on deposit
Slide 9: Non-interest expense
Non-interest expense Adjusted non-interest expense(1) QoQ highlights & outlook ($ in millions) $898 $918 $895 • Adjusted non-interest expenses impacted primarily by lower capital markets' incentive 57.7% 56.9% compensation, payroll taxes and legal and 56.8% professional fees, partially offset by an
Slide 10: Asset quality
Asset quality Net charge-offs and ratio ACL to loans ratio ($ in millions) ($ in millions) $182 132 2.82% 2.57% 2.68% 2.07% 1.71% 2.44% 2.00% 0.80% $83 1.71% 46 0.40% $47 Day 1 (2) 2Q20 1Q21 2Q21 50 23 37 24 0.23% (1) ACL/Loans (incl. PPP) ACL/Loans (excl. PPP) 2Q20 1Q21 2Q21 • 2Q annualized NCOs at
Slide 11: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) Common equity Tier 1 Loan-to-deposit ratio(2) ratio(1) 11.9% 11.9% 10.3% 10.4% 78% 65% 64% 10.4% 8.9% 2Q20 1Q21 2Q21 2Q20 1Q21 2Q21 2Q20 1Q21 2Q21 QoQ Highlights & Outlook • During 2Q, Regions declared $147M in common dividends. • Preliminary Stress Capi
Slide 12: 2021 expectations
2021 expectations FY 2021 Category Expectations Stable to up modestly Total Adjusted Revenue (dependent on timing & amount (from adjusted 2020 of $6,206)(1)(2) of PPP forgiveness) Adjusted Non-Interest Expense Stable to up modestly (from adjusted 2020 of $3,541)(1)(2) Adjusted Average Loans Down low
Slide 13: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( Aw REGIONS| 13
Slide 14: Second quarter 2021 highlights
Second quarter 2021 highlights Summary of second quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 2Q21 Change Change (amounts in millions, except per share data) 2Q21 Net interest income $ 963 (0.4)% (0.9)% Pre-tax adjusted items(1): Provision for (benefit
Slide 15: Making banking easier
Making banking easier Providing transparency, simplicity and speed into how accounts work Improved New Product - Visibility and Enhanced Product Coming Transparency Features Soon Expanded Alert Capabilities Simplified Transaction Posting Order New Checking Account Product – ◦ Balance alerts based on
Slide 16: Growth in digital
Growth in digital Active Digital Banking Users Active Mobile Banking Users Digital Banking Log-Ins(4) (Millions) (Millions) (Millions) 9% YoY 13% YoY 2.21 311 2.13 285 274 3.0 3.1 2.8 170 1.95 147 155 138 141 118 2Q20 1Q21 2Q21 2Q20 1Q21 2Q21 2Q20 1Q21 2Q21 Mobile Banking Log-Ins Online Banking Log-
Slide 17: Hedging strategy update
Hedging strategy update Hedge Notional Maturity Profile Long-term NII Sensitivity Profile to Rates Hedge Notional 1mo. LIBOR 1Q notional reductions Cumulative NII growth (2021-2024) - scenarios assume no 2Q notional reductions Current No Hedges(5) loan growth in any 2Q unwinds offset by Hedges scena
Slide 18: NII exposure to the yield curve
NII exposure to the yield curve Spot Yield Curve • Historically, Bank valuations are closely 2.00% 3.50% correlated with the steepness of the yield curve 30Y Mtg: US Treasury Rates 10Y UST: Mortgage Rates -29bps 3.00% -46bps 1.50% 2.50% ◦ The typical indicator for steepness often 2.00% used is the 1
Slide 19: Balance sheet management
Balance sheet management Cash management update • Recent liquidity inflows represent an NII ~$34B Deposit Growth (Dec 2019 to May 2021) opportunity, with cash deployment dependent on: • Deposit growth broadly distributed across products, ◦ stability of deposit inflows businesses, and industries ◦ re
Slide 20: PPP loan details
PPP loan details ($ in millions) 2Q20 3Q20 4Q20 1Q21 2Q21 Round 1-average $ 3,213 $ 4,558 $ 4,143 $ 3,171 $ 2,401 Round 2-average — — — 627 1,500 Total-average $ 3,213 $ 4,558 $ 4,143 $ 3,798 $ 3,901 NII(1) $ 18 $ 31 $ 54 $ 40 $ 43 Round 1-ending $ 4,498 $ 4,594 $ 3,624 $ 2,974 $ 1,438 Round 2-endin
Slide 21: CET1 waterfall
CET1 waterfall 0.6% 0.2% 10.3% 10.4% (0.1)% (0.1)% (0.1)% (0.2)% (0.2)% Pre-tax pre- 1Q21 Provision Preferred Common Tax & Share Increase in 2Q21 provision CET1% benefit(2) expense(3) Dividend Other Repurchases RWAs CET1%(4) income(1) 21 (1) Non-GAAP; see appendix for reconciliation. (2) Provision b
Slide 22: 2Q21 - 4Q21 projected preferred stock expense
2Q21 - 4Q21 projected preferred stock expense ($ in millions) Regions Preferred Par Value 2Q21 3Q21E 4Q21E Series A $500.0 $21.8 $— $— Series B $500.0 $8.0 $8.0 $8.0 Series C $500.0 $7.1 $7.1 $7.1 Series D $350.0 $5.0 $5.0 $5.0 Series E $400.0 $— $6.5 $4.5 Total $41.9 $26.6 $24.6 • Series A shares w
Slide 23: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights $2,068 • 2Q ending allowance decreased $384M due to continued improvement in the $(47) economic outlook and expectations of improving credit performance in certain $1,684 sectors / clients. $(265) $(72) • The benefits of the improv
Slide 24: Base R&S economic outlook
Base R&S economic outlook (as of June 2021) Pre-R&S period 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 2Q2023 Real GDP, annualized % change 6.8 % 6.1 % 6.2 % 5.1 % 3.4 % 3.0 % 2.3 % 2.3 % 2.1 % Unemployment rate 5.8 % 5.2 % 4.9 % 4.6 % 4.4 % 4.2 % 4.0 % 3.9 % 3.8 % HPI, year-over-year %
Slide 25: Allowance allocation
Allowance allocation As of 6/30/21 As of 12/31/20 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $42,628 $756 1.77 % $42,870 $1,027 2.40 % CRE-OO mortgage 5,381 150 2.79 % 5,405 242 4.47 % CRE-OO construction 245 13 5.37 % 300 24 7.98 % Total commercial $48,254 $919 1.90 % $
Slide 26: Bottom up review informs and narrows COVID-19 high-risk industry sectors
Bottom up review informs and narrows COVID-19 high-risk industry sectors (as of June 30, 2021) % of Utilization C&I Portfolio BAL$(1) BAL$ Rate(2) % Criticized Energy – Oil & Gas Extraction, Oilfield Services, Coal $1.02b 1.2% 50% 27% Consumer Services & Travel – Amusement, Arts and Recreation, Char
Slide 27: COVID-19 high-risk industry sectors waterfall
COVID-19 high-risk industry sectors waterfall ($ in billions) QoQ highlights • COVID high-risk industries are continuously refined to those exhibiting higher levels of stress due to COVID impact • Previous specifically identified at-risk assets were removed from the $3.36 $0.22 methodology $(0.20) $
Slide 28: EnerBank USA acquisition
EnerBank USA acquisition Company Overview • Headquartered in Salt Lake City, UT, EnerBank USA Portfolio Overview originates prime and super-prime home improvement LTM Originations Heat Map(1) point-of-sale loans through a national network of contractors • A top 5 originator in the home improvement p
Slide 29: EnerBank USA acquisition
EnerBank USA acquisition Home Improvement Point-of-Sale Financing Deepens Regions' Commitment to Being the Premier Lender to Homeowners Regions has been on a multi-year journey investing in products, services and omni-channel origination capabilities central to Mortgage Lending, Mortgage Servicing a
Slide 30: EnerBank USA acquisition
EnerBank USA acquisition Proven Performance Through Cycles Modeling Considerations Valuation ($ in millions) Prime/Super-prime focus and well controlled underwriting processes have generated best in Purchase Price $960 class credit metrics through economic cycles Est. Value of Tax Step-Up(2) $70 Est
Slide 31: EnerBank USA acquisition
EnerBank USA acquisition Home Improvement Finance Market Loan Balances(3) Opportunity(1) (in billions) Home Improvement Expenditures: $506B 8.1% Annual growth from 2018 - 2021 h owt $3.0 d Gr st aine $2.5 Professional Market(2): S u $156B $1.9 $1.4 $1.2 $1.3 Top 5 Lenders $0.9 $0.7 (including $0.5 E
Slide 32: Environmental & social highlights
Environmental & social highlights Focus on the Customer • Regions Now Banking® • Regions Affordable Mortgage • Small Business products and services • Fair & Responsible Lending Policy • Regions360® approach • Bank Your Way Advancement of Diversity, Continuous Improvement in Equity, & Inclusion (DEI)
Slide 33: 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 34: Non-GAAP reconciliation: core net interest income and adjusted net interest margin
Non-GAAP reconciliation: core net interest income and adjusted net interest margin Quarter-ended 6/30/2021 3/31/2021 Net interest income (FTE) (GAAP) $ 975 $ 978 Impact of SBA PPP loans (43) (40) Impact of excess cash (3) (2) Core net interest income (FTE) (non-GAAP) $ 929 $ 936 Net interest margin
Slide 35: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 2Q21 1Q21 4Q20 3Q20 2Q20 2Q21 vs. 1Q21 2Q21 vs. 2Q20 Commercial and industrial $ 43,140 $ 42,816 $ 43,889 $ 46,405 $ 49,296 $ 324 0.8 % $ (6,156) (12.5)% Add: Commercial loans held for sale reclassified to the p
Slide 36: Non-GAAP reconciliation: adjusted full year average loans
Non-GAAP reconciliation: adjusted full year average loans Average Balance Tweleve Months Ended ($ amounts in millions) December 31, 2020 Total Loans $ 87,813 Add: Commercial loans held for sale reclassified to the portfolio 1 Less: SBA PPP Loans 2,986 Less: Indirect—other consumer exit portfolio 1,4
Slide 37: Non-GAAP reconciliation: adjusted ending loans
Non-GAAP reconciliation: adjusted ending loans As of 6/30/2021 6/30/2021 ($ amounts in millions) 6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 vs. 3/31/2021 vs. 6/30/2020 Commercial and industrial $ 42,628 $ 43,241 $ 42,870 $ 45,199 $ 47,670 $ (613) (1.4)% $ (5,042) (10.6)% Add: Commercial loan
Slide 38: Non-GAAP reconciliation: non-interest expense
Non-GAAP reconciliation: non-interest expense Year Ended December 31 ($ amounts in millions) 2020 2019 2018 2017 2016 Non-interest expense (GAAP) $ 3,643 $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: Contribution to Regions Financial Corporation foundation (10) — (60) (40) — Professional, legal and r
Slide 39: Non-GAAP reconciliation: ACL/Loans excluding PPP
Non-GAAP reconciliation: ACL/Loans excluding PPP As of ($ amounts in millions) 6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 Total Loans $ 84,074 $ 84,755 $ 85,266 $ 88,359 $ 90,548 Less: SBA PPP Loans 2,948 4,317 3,624 4,594 4,498 Loans excluding PPP, net (non- GAAP) $ 81,126 $ 80,438 $ 81,642
Slide 40: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre-tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 2Q21 vs. 1Q21 2Q21 vs. 2Q20 Net income (loss) available to common shareholders (GAAP) $ 748 $ 614 $ 588 $ 501 $ (237) $ 134 21.8 % $ 985 415.6 % (1) Pr
Slide 41: 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) 6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 2Q21 vs. 1Q21 2Q21 vs. 2Q20 Non-interest expense (GAAP) A $ 898 $ 928 $ 987 $ 896 $ 924 $ (30) (3.2)% $ (26) (2.
Slide 42: 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 43: 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 44: Forward-looking statements (continued)
Forward-looking statements (continued) • Possible downgrades in our credit ratings or outlook could, among other negative impacts, increase the costs of funding from capital markets. • The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook, which could result
Slide 45: A REGIONS
A REGIONS A REGIONS «