Regions Financial Corporation · NYSE:RF
Regions Financial — Q4 2022 Earnings Presentation
37 slides from Regions Financial's earnings presentation, Jan 20, 2023
Slide 1: 4th Quarter Earnings Conference Call
Exhibit 99.3 4th Quarter Earnings Conference Call January 20, 2023
Slide 2: 2022 overview
2022 overview Continue to generate consistent, sustainable long-term performance 4Q22 FY22 Highlights Key Performance Metrics Reported Adjusted(1) Reported Adjusted(1) • Both reported and adjusted FY PPI(1) represent highest level on Net Income Available to Common Shareholders $660M $2.1B record • 4
Slide 3: Investments in our businesses
Investments in our businesses Investments in talent, technology and strategic acquisitions continue to pay off CORPORATE CONSUMER WEALTH Record 2022 non- Treasury Management client base Mobile users increased interest income grew 11.5% YoY(1); 2022 Revenue 5.7% YoY reflecting growth of grew 10% achi
Slide 4: Loan growth continues
Loan growth continues Loans and leases 1% QoQ highlights & outlook (Average, $ in billions) • Avg business loans increased 2% reflecting $94.6 $95.8 high-quality, broad-based growth across $86.6 financial services, wholesale durables, 32.2 32.0 information services and multi-family 31.5 • Line commi
Slide 5: Deposits
Deposits Normalization occurring as expected Deposits by Segment QoQ highlights & outlook (Average, $ in billions) $136.7 • Avg total consumer balances modestly lower, $135.5 $133.0 3.0 $2.3 2.2 driven by higher-balance customers seeking 10.1 $9.5 9.0 investment alternatives 42.7 $39.0 38.2 • Avg co
Slide 6: NII & margin performance
NII & margin performance FTE NII and NIM(1) Drivers of NII and NIM ($ in millions) $1,414 • NII +$140M, or +11% linked-quarter; NIM +0.46% $1,274 $1,029 • Higher short-term rates largely drive NII growth 3.99% ◦ Additional asset sensitivity in the quarter 3.53% from hedge notional maturities(2) offs
Slide 7: Hedging strategy update
Hedging strategy update Net Receive Hedge Notional(1) (Quarterly Avg) (Annual Avg) 4Q22 Swap Additions 1 2 4Q22 2 1Q23 3 2Q23 4 3Q23 5 4Q23 6 1Q24 7 2Q24 1 2023 2 2024 3 2025 4 2026 5 2027 6 2028 Swap Notional - 3Q22 $6.7B $9.7B $9.9B $15.7B $18.7B $21.5B $21.1B $13.5B $20.5B $17.4B $10.8B $6.0B $1.
Slide 8: Non-interest income
Non-interest income Non-Interest Income Adj. Non-Interest Income (1) QoQ outlook ($ in millions) ($ in millions) • 4Q reported NIR includes $50M of insurance $615 $605 $600 $615 $606 proceeds related to 3Q regulatory settlement $550 • Expect to offer a grace period feature in 2023 resulting in FY23
Slide 9: Non-interest expense
Non-interest expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ highlights & outlook ($ in millions) ($ in millions) $1,170 • Non-interest expense decreased ~13% on a $1,017 $1,012 reported basis but increased ~2% on an adjusted $983 $988 $967 basis(1) 62.3% 59.8% • Reported professional
Slide 10: Asset quality
Asset quality Underlying credit performance remains broadly stable Net charge-offs Allowance for Credit Losses (ACL) ($ in millions) ($ in millions) $1,574 $1,539 $1,582 0.46% 0.29% 0.20% 0.19% $110 349% 317% 311% $63 $69 1.79% 1.63% 1.63% $44 $47 4Q21 3Q22 4Q22 4Q21 3Q22 4Q22 (1) Adjusted Net Charg
Slide 11: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) Common equity Tier 1 ratio(1) 11.0% 10.9% 9.6% 9.6% 9.3% 10.6% 4Q21 3Q22 4Q22 4Q21 3Q22 4Q22 Loan-to-deposit ratio(2) QoQ Highlights & Outlook • Common Equity Tier 1 (CET1) ratio increased to 70% 74% 9.6%, reflecting solid capital generation through 63%
Slide 12: 2023 expectations
2023 expectations FY 2023 Expectations Expectations for 1Q23 & Beyond • 1Q NII growth of 1-3%(3); 2023 NII Total Adjusted Revenue up 8-10% (from adjusted 2022 of $7,165)(1)(2)(3) growth of 13-15%(3) Adjusted Non-Interest Expense ) up 4.5-5.5% • OD policy changes will result in FY23 (from adjusted 20
Slide 13: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix \ Aw REGIONS| 13
Slide 14: Fourth quarter 2022 highlights
Fourth quarter 2022 highlights Summary of fourth quarter results Selected items impact QoQ YoY FY ($ amounts in millions, except per share data) 4Q22 Change Change (amounts in millions, except per share data) 4Q22 2022 Net interest income $ 1,401 11.0% 37.5% Pre-tax adjusted items(1): Branch consoli
Slide 15: Growth in digital
Growth in digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) Active Users (Millions) Digital Sales (Accounts in Thousands) +13% +17% +93% 3.18 3.28 2.40 5.5% 3.44 2.89 2.27 75.8 68.0 2.04 64.5 9.6 12.7 2.66 11.3 53.2 66.2 55.3 1.79 4Q20 4Q21 4Q22 4Q20 4Q21 4Q22 4Q20 4Q21
Slide 16: Deposit mix and outlook
Deposit mix and outlook 12/31/2022 Deposits(1)(2) Trends & Outlook (Ending, $ in billions) • New Customers & Customers with Low Betas in 2019: Customers who had low deposit betas in the Consumer & Wealth 2019 rate cycle (effective annual rate <20bps)(3) and new customers since 2019 have exhibited ve
Slide 17: 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 18: Median customer deposit balances
Median customer deposit balances Consumer and Corporate Median Consumer Customer Deposit Balances(1) Median Corporate Deposit Balances(2) (12/31/2019-11/30/2022) (12/31/2019-11/30/2022) Stimulus Rounds 2 & 3 Up ~62% Stimulus Round 1 Up ~49% Retail Deposits 0 1 0 1 9 1 1 2 0 2 0 2 0 1 0 1 9 1 1 2 0 2
Slide 19: Higher Risk Industry Segments
Higher Risk Industry Segments (Outstanding balances as of December 31, 2022) Business Services High Risk Segments Portfolio BAL$(1) % of Total Loans % NPL % ACL Consumer Discretionary Goods $1.76 1.8% 2.0% 1.8% Retail Trade & Consumer Manufacturing Freight Transportation $0.98 1.0% 1.0% 3.6% Transpo
Slide 20: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights • 4Q allowance increased $43M $53 compared to prior quarter, resulting $42 $1,582 in a $112M provision expense. $1,539 $(20) $(32) • Key drivers of the increase in ACL: ◦ High quality balance growth ◦ Credit quality changes and nor
Slide 21: Base R&S economic outlook
Base R&S economic outlook (as of December 2022) Pre-R&S period 4Q2022 1Q2023 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024 3Q2024 4Q2024 Real GDP, annualized % change 1.1 % 0.3 % 0.6 % 0.9 % 1.3 % 1.6 % 2.3 % 2.2 % 2.4 % Unemployment rate 3.7 % 3.8 % 4.0 % 4.2 % 4.3 % 4.4 % 4.4 % 4.4 % 4.3 % HPI, year-over-yea
Slide 22: Allowance allocation
Allowance allocation As of 12/31/2022 As of 12/31/2021 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $50,905 $628 1.23 % $43,758 $613 1.40 % CRE-OO mortgage 5,103 102 2.00 % 5,287 118 2.23 % CRE-OO construction 298 7 2.29 % 264 9 3.53 % Total commercial $56,306 $737 1.31 %
Slide 23: Well positioned for next downturn
Well positioned for next downturn Highly Diversified Business Portfolio(1) (2) Healthcare All Other Commercial 5.7% 3.8% Investor Real Estate Commodities 13.0% 6.8% Distribution 6.8% Financial Services 10.8% Business Services 7.5% $64.7B Manufacturing 8.3% (3) CRE Unsecured, including REITs 10.4% Te
Slide 24: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Credit Card Residential Mortgage Consumer FICO Scores(1) • Avg. origination FICO 769 • Avg. origination FICO 759 • Avg. new line $6,394 • Current LTV 52% 2% 2% 2% • 4Q22 Yield 14.34% • 98% owner occupied • 4Q22 QTD NCO 2.94% 63% Other Consumer(2) 81% 76
Slide 25: Environmental, Social & Governance
Environmental, Social & Governance ESG Governance Suite of ESG Disclosures BOARD OF DIRECTORS ESG-related elements of the Strategic Plan, annual budget, and capital planning process ■ Annual Review & ESG Report ■ TCFD Report O Board-Level Committees ■ SASB Index V ■ GRI Index ESG strategies, initiat
Slide 26: Environmental, Social & Governance
Environmental, Social & Governance Creating Shared Value Through Commitments and Initiatives Pursuing environmental Fostering diversity, equity, Promoting financial inclusivity sustainability and inclusion ▪ Introduced Regions Now CheckingSM to ▪ Surpassed 2023 target to reduce ▪ Nurtured inclusivit
Slide 27: Non-GAAP information
Non-GAAP information Management uses pre-tax pre-provision income (non-GAAP) and adjusted pre-tax pre-provision income (non-GAAP), as well as the adjusted efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP) to monitor performance and believes these measures provide meaningful in
Slide 28: Non-GAAP reconciliation
Non-GAAP reconciliation Adjusted Net Charge-Offs and Ratio Year-Ended For the Quarter Ended ($ amounts in millions) 2022 2021 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Net loan charge-offs (GAAP) $263 $204 $69 $110 $38 $46 $44 Less: charge-offs associated with the sale of unsecured consume
Slide 29: Non-GAAP reconciliation
Non-GAAP reconciliation Non-interest expense Twelve Months Ended December 31 ($ 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 Pre-tax pre-provision income (PPI) Year Ended Quarter Ended ($ amounts in millions) 2022 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 4Q22 vs. 3Q22 4Q22 vs. 4Q21 Net income available to common shareholders (GAAP) $ 2,146 $ 660 $ 404 $ 558 $ 524 $ 414 $ 256 63.4 % $ 246
Slide 31: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 4Q22 vs. 3Q22 4Q22 vs. 4Q21 Non-interest expense (GAAP) A $ 1,017 $ 1,170 $ 948 $ 933 $ 983 $ (153) (13.1)% $ 34 3.5 % Adjustments:
Slide 32: Non-GAAP reconciliation
Non-GAAP reconciliation NII, non-interest income/expense, and efficiency ratio Twelve Months Ended December 31 ($ amounts in millions) 2022 2021 2022 vs. 2021 Non-interest expense (GAAP) A $ 4,068 $ 3,747 $ 321 8.6 % Adjustments: Contribution to the Regions Financial Corporation foundation — (3) 3 1
Slide 33: Non-GAAP reconciliation
Non-GAAP reconciliation Return on average tangible common shareholders' equity Year-Ended Quarter Ended ($ amounts in millions) 2022 2021 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders (GAAP) 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. The words “future,” “anticipates,” “assumes,” “intends,” “plans,” “seeks,” “believes,” “predicts,” “potential,” “objectiv
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»