Regions Financial Corporation · NYSE:RF
Regions Financial — Q3 2020 Earnings Presentation
46 slides from Regions Financial's earnings presentation, Oct 20, 2020
Slide 1: 3rd Quarter Earnings Conference Call
Exhibit 99.3 3rd Quarter Earnings Conference Call October 20, 2020
Slide 2: Third quarter 2020 overview
Third quarter 2020 overview $501M Net Income Available to Common Shareholders Diluted Earnings Per $0.52 Share Adjusted Total $1,596M Revenue(1) Generated highest Adjusted Non- adjusted pre-tax pre- $889M Interest Expense(1) provision income(1) in over a decade $707M Adjusted Pre-Tax Pre- Provision
Slide 3: Supporting our customers
Supporting our customers Customer Loan Modifications Highlights • 37% of active mortgage deferral As of 6/30/20 As of 9/30/20 balances as of 9/30/20 are due to Balances w/ deferral ($ in Deferral as % Balances w/ deferral ($ in Deferral as % GNMA repurchases during the millions) of total millions) o
Slide 4: Average loans
Average loans Adjusted average loans and leases(1) QoQ highlights ($ in billions) • Average loans decreased 3%; adjusted $85.8 average loans(1) decreased 4% $82.3 $78.8 • Pipelines remain healthy, however clients 26.9 continue to deleverage 27.3 26.3 • Commercial line utilization levels reached hist
Slide 5: Average deposits
Average deposits Average deposits by segment QoQ highlights ($ in billions) $116.7 $110.9 0.4 • Average deposits increased 5%; ending 0.4 8.7 8.4 deposits increased 1% $94.0 • Commercial clients' cash increases 1.3 7.8 38.8 resulting from focus on supply chain 36.4 efficiencies and declines in worki
Slide 6: Net interest income and net interest margin - Liquidity Impacts
Net interest income and net interest margin - Liquidity Impacts NII(1) and NIM ($ in millions) $985 $1,000 $950 3.44% 3.38% 3.41% 3.19% 3.13% 3Q19 2Q20 3Q20 NII(1) NIM NIM excl. PPP/Cash • In 3Q, deposit and cash balances remained elevated given stimulus / liquidity in the system ◦ PPP and cash acco
Slide 7: Net interest income and net interest margin - Core Drivers
Net interest income and net interest margin - Core Drivers Core(1) NIM Attribution Core Drivers of NIM and NII • 3Q benefits from +$3B forward starting hedge 3.41% notional becoming active; additional benefit from 3.38% lower short-term rates offsets a portion of the long-term pressure: ◦ Hedging pr
Slide 8: Non-interest income
Non-interest income QoQ highlights Change vs • Service charges impacted by elevated deposits and lower customer spend; while improved, at ($ in millions) 3Q20 2Q20 3Q19 current levels expect $30-35M per quarter negative impact vs. prior year levels Service charges $152 16.0% (18.3)% • Card & ATM fee
Slide 9: Non-interest expense
Non-interest expense Adjusted non-interest expense(1) QoQ highlights ($ in millions) $865 $898 $889 • Adjusted expenses(1) decreased 1% compared to the prior quarter • Excluding COVID-related expenses and the impact 57.4% 57.7% 55.3% of changes in market valuation on employee benefit accounts, 3Q ad
Slide 10: Asset quality
Asset quality Net charge-offs and ratio Criticized business loans ($ in millions) $182 ($ in millions) 132 0.80% $4,225 $113 $3,734 $92 75 $2,319 30 0.50% 0.44% 62 50 38 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 Consumer net Business services Net charge-offs • If positive trends continue, no additional reserve
Slide 11: Bottom up review informs and narrows COVID-19 high-risk industry sectors
Bottom up review informs and narrows COVID-19 high-risk industry sectors (as of September 30, 2020) % of Utilization Leveraged SNC % % C&I Portfolio BAL$(1) BAL$ Rate(2) % of BAL$ % of BAL$ Deferral Criticized Energy – Oil & Gas Extraction, Oilfield Services $1.15b 1.3% 60% —% 79% 3% 43% Healthcare
Slide 12: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) QoQ highlights • During 3Q declared $149M in common dividends • 3.0% Stress Capital Buffer for 4Q20-3Q21 10.8% 10.8% 10.4% • Common Equity Tier 1 ratio increased ~40 bps to an estimated 9.3%; expect near-term capital levels to increase further • Historic
Slide 13: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( Aw REGIONS| 13
Slide 14: Third quarter 2020 highlights
Third quarter 2020 highlights Summary of third quarter results Selected items impacting the quarter QoQ YoY ($ amounts in millions, except per share data) 3Q20 Change Change (amounts in millions, except per share data) 3Q20 (1) Net interest income $ 988 1.6% 5.4% Pre-tax adjusted items : Provision f
Slide 15: Growth in Digital
Growth in Digital Active Digital Banking Users Active Mobile Banking Users Digital Banking Log-Ins (Millions) (Millions) (Millions) 9% YoY 22% YoY 5% YoY 2.0 2.0 285 286 2.7 2.8 2.8 234 147 143 120 1.8 143 138 114 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 Mobile Banking Log-Ins Online Banking Log
Slide 16: Hedging strategy protection
Hedging strategy protection Cash-flow Hedge Contribution to NII - 2Q20(1) Cash-flow Hedge Program Details 9/30/20(1) Cash-Flow Fixed Rate/ Inclusive of Hedge Notional Strike(3) deferred G/L(4) 9.5% 4.6 Program Swaps $11.0B 2.15% 2.18% 8.8% 8.5% WAL remaining on CF Hedges(2) Program Floors $5.75B 2.1
Slide 17: Interest rate exposure of future business and long-term rates
Interest rate exposure of future business and long-term rates • The majority of Regions’ residual NII exposure to interest rates Fixed / float loan mix(1) 100% comes from future business activities and cash-flow reinvestment; 90% full-year 2020 estimate: 80% 70% * ~$10.5B fixed-rate loan production
Slide 18: CET1 Waterfall
CET1 Waterfall 0.7% 9.3% 8.9% (0.1)% (0.1)% (0.1)% Pre-tax pre- Common Provision 2Q20 CET1% provision Tax & Other 3Q20 CET1%(3) Dividend expense(2) income(1) (1) Non-GAAP; see appendix for reconciliation. 18 (2) Provision expense includes the impact of CECL deferral. (3) Current quarter ratios are e
Slide 19: COVID-19 high-risk industry sectors waterfall
COVID-19 high-risk industry sectors waterfall ($ in billions) QoQ highlights • COVID high-risk industries are continuously refined to those exhibiting higher levels of stress due $8.43 $0.03 to COVID impact $6.58 • Several sub-sectors were removed $(1.17) including but not limited to: $(0.71) ◦ Groc
Slide 20: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights • Q3 ending allowance was essentially flat $2,425 $135 $2,425 to 2Q as economic and credit performance was generally in line with expectations $(113) $(22) • Net charge-offs incurred during the quarter were offset by increased risk
Slide 21: Base R&S Economic Outlook
Base R&S Economic Outlook (as of September 18, 2020) Pre-R&S period 3Q2020 4Q2020 1Q2021 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 Real GDP, annualized % change 25.2% 8.5% 1.4% 1.9% 2.1% 2.1% 2.3% 2.3% 1.9% Unemployment rate 9.0% 8.4% 8.1% 7.7% 7.4% 7.0% 6.8% 6.6% 6.4% HPI, year-over-year % change 5
Slide 22: Allowance Allocation
Allowance Allocation As of 9/30/20 As of 6/30/20 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $45,199 $1,119 2.48% $47,670 $1,109 2.33% CRE-OO Mortgage 5,451 247 4.53% 5,491 249 4.53% CRE-OO Construction 305 22 7.16% 314 20 6.25% Total Commercial $50,955 $1,388 2.72% $53,4
Slide 23: Commercial & IRE loans
Commercial & IRE loans As of 9/30/20 Total Outstanding ($ in millions) Commitments Balances % Utilization Administrative, Support, Waste & Repair $2,736 $1,739 64% • The outstanding balance for Agriculture 732 486 66% Real Estate within the Educational Services 3,972 3,052 77% Commercial section ref
Slide 24: Leveraged portfolio
Leveraged portfolio (outstanding balances as of September 30, 2020) Leveraged Balances by Industry Leverage Definition • Regions Leveraged Lending Definition - $5.7B in balances Professional • Commitments are $10M Services 18% • Leverage exceeds 3x senior debt; 4x total debt Information 14% • Includ
Slide 25: SNC portfolio
SNC portfolio (outstanding balances as of September 30, 2020) Shared National Credit Balances by Industry 10% • Portfolio Characteristics 8% • Diverse industry mix 8% $19.4B • 30% of balances are investment grade 55% 7% • 23% of balances are leveraged 6% 6% • 25% of balances are sponsor-backed • 8%
Slide 26: Energy lending
Energy lending As of 9/30/20 Total Outstanding ($ in millions) # of Clients (1) Commitments Balances % Utilization $ Criticized % Criticized Oilfield services and supply (OFS)(2) 154 $484 $312 64% $114 37% Exploration and production (E&P)(2) 104 1,421 835 59% 381 46% Midstream 23 1,562 592 38% 135 2
Slide 27: Energy lending (continued)
Energy lending (continued) Balances by Category Gross Losses $1,500 $140 $128.0 $120 $1,200 $100 $ (Millions) $900 $ (Millions) $80 $75.1 $600 $60 $40 $36.7 $32.9 $28.5 $300 $20 $6.0 $0 $0.0 $0 P s m m r ns E& ice rea rea he oa 14 15 16 1 7 1 8 1 9 20 er v st st Ot P L 20 20 20 20 20 20 D2 0 S d n Y
Slide 28: Restaurant lending
Restaurant lending As of 9/30/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized Quick Service 17,821 $1,554 $1,278 82% $166 13% Casual Dining 30 500 447 89% 244 55% Other 22 150 121 81% 44 36% PPP Loans 2,649 407 407 100% —
Slide 29: Hotel lending
Hotel lending As of 9/30/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized CRE-Unsecured (REITs) 11 $863 $676 78% $0 0% IRE – Mortgage 17 253 237 94% 222 94% IRE – Construction 3 80 51 64% 51 100% Consumer Services 3,545 14
Slide 30: Commercial retail lending
Commercial retail lending As of 9/30/20 Total Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized % Criticized CRE-Unsecured (REITs) 28 $2,979 $1,406 47% $92 7% IRE 149 780 733 94% 182 25% C&I: 28,121 2,777 1,461 53% 42 3% Leveraged 16 390 225 58% — —% Not Lever
Slide 31: Religious, Leisure, Personal & Non-Profit Services Lending
Religious, Leisure, Personal & Non-Profit Services Lending As of 9/30/20 # of Total Outstanding % ($ in millions) Clients* Commitments Balances Utilization $ Criticized % Criticized Amusement, Gambling & Recreation 1,305 $581 $479 82% $102 21% Religious Organizations 4,718 447 303 68% 21 7% Arts, En
Slide 32: Healthcare Lending
Healthcare Lending As of 9/30/20 # of Total Outstanding % ($ in millions) Clients* Commitments Balances Utilization $ Criticized % Criticized Facilities 2,434 $2,228 $1,296 58% $21 2% Patient Based Providers 12,618 2,007 1,517 76% 81 5% Goods & Services 1,351 2,097 1,071 51% 22 2% REITs — 3 0 —% 0 0
Slide 33: Loans to Small Business and Small Farms
Loans to Small Business and Small Farms (outstanding balances as of September 30, 2020) Healthcare 16% Balances by Industry Real Estate 12% Balances by State Professional, Scientific & Technical Services 9% Florida 29% 16% Transportation & Alabama 10% 21% Warehousing 9% 29% 37% Tennessee 10% Retail
Slide 34: SBA loans
SBA loans (outstanding balances as of September 30, 2020) Balances by Industry Balances by State Healthcare 14% Manufacturing 13% Florida 29% Real Estate 12% 14% Alabama 14% 24% Professional, 26% 29% Scientific 11% Tennessee 12% 13% 8% $5.4B Restaurant, Accommodation $5.4B Georgia 10% & Lodging 10%
Slide 35: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Third Party Residential Mortgage Lending Consumer Credit Card • Avg. origination FICO 751 • Avg. origination FICO 754 • Avg. origination FICO 766 • Current LTV 60% • Avg. new line $28,875 • Avg. new line $4,318 • 96% owner occupied • 42% home improvemen
Slide 36: LIBOR transition
LIBOR transition Four pillars of execution • Regions completed a comprehensive LIBOR Impact Assessment in 1H 2019 • Regions has established an Executive Steering Committee to guide program decisions and transition strategy. • Regions has begun enterprise-wide efforts to transition to alternative rat
Slide 37: 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 38: Non-GAAP and additional selected items impacting earnings
Non-GAAP and additional selected items impacting earnings Quarter Ended (amounts in millions, except per share data) 9/30/2020 6/30/2020 9/30/2019 Selected items impacting earnings: Pre-tax adjusted items(1): Branch consolidation, property and equipment charges $ (3) $ (10) $ (5) Loss on early extin
Slide 39: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 3Q20 2Q20 1Q20 4Q19 3Q19 3Q20 vs. 2Q20 3Q20 vs. 3Q19 Commercial and industrial $ 46,405 $ 49,296 $ 40,519 $ 39,743 $ 40,200 $ (2,891) (5.9)% $ 6,205 15.4 % Less: SBA PPP Loans 4,558 3,213 — — — 1,345 41.9 % 4,55
Slide 40: 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) 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 3Q20 vs. 2Q20 3Q20 vs. 3Q19 Non-interest expense (GAAP) A $ 896 $ 924 $ 836 $ 897 $ 871 $ (28) (3.0)% $ 25 2.9 %
Slide 41: Non-GAAP reconciliation: non-interest expense
Non-GAAP reconciliation: non-interest expense Year Ended December 31 2019 2018 2017 2016 (Dollars in millions) ADJUSTED NON-INTEREST EXPENSE Non-interest expense (GAAP) $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: Contribution to Regions Financial Corporation foundation — (60) (40) — Professional, l
Slide 42: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre- tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 3Q20 vs. 2Q20 3Q20 vs. 3Q19 Net income (loss) available to common shareholders (GAAP) $ 501 $ (237) $ 139 $ 366 $ 385 $ 738 311.4 % $116 30.1 % Prefer
Slide 43: Forward-looking statements
Forward-looking statements Forward-Looking Statements This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement. Forward-looking statements ar
Slide 44: 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 45: Forward-looking statements (continued)
Forward-looking statements (continued) • The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively af
Slide 46: Regions
A REGIONS A REGIONS «