Regions Financial Corporation · NYSE:RF
Regions Financial — Q2 2020 Earnings Presentation
43 slides from Regions Financial's earnings presentation, Jul 17, 2020
Slide 1: 2nd Quarter Earnings Conference Call
Exhibit 99.3 2nd Quarter Earnings Conference Call July 17, 2020
Slide 2: Responding to our communities, customers and associates
Responding to our communities, customers and associates Communities • Committing $12M to advance programs and initiatives that promote racial equity and economic empowerment for communities of color • Donating $5M toward COVID-19 relief and recovery efforts • Donating previously purchased advertisin
Slide 3: Second quarter 2020 overview
Second quarter 2020 overview ($237M) Net Loss Available to Common Shareholders Adjusted Total $1,544M Revenue(1) Adjusted Non- $898M Interest Expense(1) Generated highest $646M Adjusted Pre-Tax Pre- Provision Income(1) adj. pre-tax pre- provision income(1) in over a decade Provision Expense in $700M
Slide 4: Supporting our customers
Supporting our customers Customer Loan Modifications SBA-PPP Results (as of June 30, 2020) Balances w/ % making • Began receiving PPP Approx # of deferral ($ in Deferral as % payment in deferrals millions) of total last 61 days(1) applications April 3rd Mortgage (portfolio only) 5,500 $1,422 9% 34%
Slide 5: Second quarter 2020 highlights
Second quarter 2020 highlights Summary of second quarter results Selected items impacting the quarter QoQ YoY ($ amounts in millions, except per share data) 2Q20 Change Change (amounts in millions, except per share data) 2Q20 (1) Net interest income $ 972 4.7% 3.2% Pre-tax adjusted items : Provision
Slide 6: Average loans
Average loans Adjusted average loans and leases(1) QoQ highlights ($ in billions) $90.5 • Adjusted average loans(1) increased 11% $81.3 $81.6 • Drivers of growth include elevated commercial draw activity early in the 28.4 quarter, acquisition of equipment finance 28.2 28.6 company Ascentium Capital,
Slide 7: Average deposits
Average deposits Average deposits by segment QoQ highlights ($ in billions) $110.9 0.4 • Average deposits increased 16%; ending 8.4 $95.0 $95.7 deposits increased 17% 1.6 1.3 7.9 8.1 • Commercial customers maintained 36.4 excess cash from line draws, PPP loans, 26.2 26.6 and other government stimulu
Slide 8: Net interest income and net interest margin
Net interest income and net interest margin Liquidity Impacts in Near-term (1) • In 2Q, net interest income (NII) supported by elevated NII and NIM balance sheet from stimulus / liquidity in the system; net ($ in millions) interest margin (NIM) reduced $956 $985 $940 ◦ Elevated line-draws add ~2% NI
Slide 9: Non-interest income
Non-interest income QoQ highlights Change vs • Capital markets experienced a record 2Q20 1Q20 2Q19 quarter driven by record debt & equity ($ in millions) underwriting fees and record fees Service charges $131 (26.4)% (27.6)% generated from the placement of permanent financing for real estate Card an
Slide 10: Non-interest expense
Non-interest expense Adjusted non-interest expense(1) QoQ highlights ($ in millions) $21 $898 • Salaries and benefits increased 13%, driven primarily by liability impact associated with $15 $(3) positive market value adjustments on $41 employee benefit accounts $824 ◦ Elevated production-based incen
Slide 11: Asset quality
Asset quality Net charge-offs and ratio Criticized business loans ($ in millions) $182 ($ in millions) 132 0.80% $4,225 $123 63 $2,524 $92 0.59% $2,124 37 0.44% 55 60 50 2Q19 1Q20 2Q20 2Q19 1Q20 2Q20 Consumer net Business services Net charge-offs • No substantial reserve builds anticipated for remai
Slide 12: Bottom up review informs and narrows COVID-19 high-risk industry sectors
Bottom up review informs and narrows COVID-19 high-risk industry sectors (as of June 30, 2020) % of % Leveraged SNC % % C&I Portfolio BAL$(1) BAL$ Utilization(2) % of BAL$ % of BAL$ Deferral Criticized Energy – Oil & Gas Extraction, Oilfield Services $1.37b 1.5% 66% —% 80% 6% 48% Freight transportat
Slide 13: COVID-19 high-risk industry sectors waterfall
COVID-19 high-risk industry sectors waterfall ($ in billions) QoQ highlights $0.7 $2.3 • Based on a deep dive of our $12.4 portfolios, COVID high-risk industries were further refined to those exhibiting higher levels of stress due to COVID impact $8.4 $(6.3) • CRE Retail sector was updated to $(0.7)
Slide 14: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) QoQ highlights • Preliminary stress capital buffer for 4Q20-3Q21 estimated at 3.0%; final stress capital buffer to be determined by August 31 • CET1 ratio of 8.9%(1); internal models informed by severely 11.1% adverse stress testing continue to indicate
Slide 15: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( AM REGIONS] 15
Slide 16: Proactive hedging strategy
Proactive hedging strategy Notional cash flow derivatives at 6/30/20(1) Securities and hedges(1) as % (4) ($ in billions) 50% of earning assets $22.75 $22.75 $22.75 40% $21.50 $21.75 $18.50 30% Peer Median 27% $15.50 20% 10% 0% Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 P
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% * ~$10.5B fixed-rate loan production
Slide 18: CET1 Waterfall
CET1 Waterfall 0.6% 9.4% (0.1)% (0.3)% 8.9% (0.7)% Pre-tax pre- RWA/ Common Provision 1Q20 CET1% provision Ascentium/ 2Q20 CET1%(1) dividend expense income(2) Other Note: Provision expense includes the impact of CECL deferral 18 (1) Current quarter ratios are estimated. (2) Non-GAAP; see appendix fo
Slide 19: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights • Q2 allowance increased $760M from Q1 due primarily to: ◦ Downgrades in Retail, Hotel, Energy $136 $2,425 $382 and Restaurant sectors $242 ◦ Continued economic uncertainty $1,665 due to COVID-19 pandemic ◦ Ascentium acquisition •
Slide 20: Base R&S Economic Outlook
Base R&S Economic Outlook (as of June 19, 2020) Pre-R&S period 2Q2020 3Q2020 4Q2020 1Q2021 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 Real GDP, annualized % change (37.9)% 25.6% 9.0% 5.6% 4.1 % 3.0 % 2.9% 2.6% 2.8% Unemployment rate 13.2 % 9.9% 9.1% 8.6% 7.9 % 7.4 % 7.0% 6.7% 6.5% HPI, year-over-year % chan
Slide 21: Allowance Allocation
Allowance Allocation As of 6/30/20 As of 3/31/20 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $47,670 $1,109 2.33% $45,388 $597 1.32% CRE-OO Mortgage 5,491 249 4.53% 5,550 180 3.24% CRE-OO Construction 314 20 6.25% 309 17 5.50% Total Commercial $53,475 $1,378 2.58% $51,247
Slide 22: Commercial loans
Commercial loans As of 6/30/20 ($ in millions) Total Commitments Outstanding Balances % Utilization Administrative, Support, Waste & Repair $2,808 $1,829 65% Agriculture 767 517 67% Educational Services 4,074 3,172 78% Energy - Oil, Gas & Coal 4,303 2,195 51% Financial Services 9,065 4,281 47% Gover
Slide 23: Leveraged portfolio
Leveraged portfolio (outstanding balances as of June 30, 2020) Leveraged Balances by Industry Leverage Definition • Regions Leveraged Lending Definition - $6.1B in balances Professional • Commitments are $10M Services 17% • Leverage exceeds 3x senior debt; 4x total debt Information 13% • Includes in
Slide 24: SNC portfolio
SNC portfolio (outstanding balances as of June 30, 2020) Shared National Credit Balances by Industry 9% • Portfolio Characteristics 9% • Diverse industry mix 9% 47% $21.5B • 31% of balances are investment grade 8% • 23% of balances are leveraged 6% • 24% of balances are sponsor-backed 6% 6% • 8% of
Slide 25: Energy lending
Energy lending As of 6/30/20 Total Outstanding ($ in millions) # of Clients (1) Commitments Balances % Utilization $ Criticized % Criticized Oilfield services and supply (OFS)(2) 162 $516 $360 70% $187 52% Exploration and production (E&P)(2) 108 1,557 1,007 65% 472 47% Midstream 25 1,562 646 41% 132
Slide 26: Energy lending (continued)
Energy lending (continued) Balances by Category Gross Losses $1,500 $90 $85.8 $80 $75.1 $1,200 $70 53 $60 $ (Millions) $900 $ (Millions) $50 $40 $36.7 $600 $32.9 $30 $28.5 $300 $20 $10 $6.0 $0 $0.0 $0 P s m m r ns E& ice rea rea he oa 14 15 16 1 7 1 8 1 9 20 er v st st Ot P L 20 20 20 20 20 20 D2 0
Slide 27: Restaurant lending
Restaurant lending As of 6/30/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized Quick Service 18,491 $1,521 $1,280 84% $168 13% Casual Dining 31 560 487 87% 254 52% Other 23 166 149 90% 20 13% 53 PPP Loans 2,548 396 396 100
Slide 28: Hotel lending
Hotel lending As of 6/30/20 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized CRE-Unsecured 12 $888 $714 80% $0 0% IRE – Mortgage 17 247 238 96% 236 99% IRE – Construction 3 53 80 31 39% 31 100% Consumer Services 3,666 138 131
Slide 29: Commercial retail lending
Commercial retail lending As of 6/30/20 Total Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized % Criticized REITs 30 $3,114 $1,789 57% 92 5% IRE 150 785 740 94% 532 72% C&I: 29,073 2,701 1,495 55% 29 2% Leveraged 16 381 229 60% — —% Not Leveraged 29,057 53 2,
Slide 30: Transportation lending
Transportation lending As of 6/30/20 # of Total Outstanding % $ % ($ in millions) Clients* Commitments Balances Utilization Criticized Criticized General Freight Trucking - Long Distance 5,458 $1,095 $773 71% $32 4% Support Activities for Water Transportation 66 336 211 63% 0 0% Inland Water Transpo
Slide 31: Loans to Small Business and Small Farms
Loans to Small Business and Small Farms (outstanding balances as of June 30, 2020) Balances by Industry Balances by State Healthcare 17% Real Estate 12% Florida 29% Professional, 17% Scientific & Alabama 11% Technical 29% Services 9% 37% 36% Tennessee 10% 12% Retail Trade 9% $8.6B $8.6B Georgia 7% T
Slide 32: SBA loans
SBA loans (outstanding balances as of June 30, 2020) Balances by Industry Balances by State Healthcare 14% Manufacturing 14% Florida 29% Real Estate 12% 14% Alabama 15% 23% 25% Professional, 29% Scientific 11% Tennessee 12% 14% 8% $5.3B Restaurant, Accommodation $5.3B Georgia 10% & Lodging 10% 9% 8%
Slide 33: Consumer lending portfolio statistics
Consumer lending portfolio statistics Residential Mortgage Home Equity • Avg. origination FICO 751 • Avg. origination FICO 757 • Current LTV 59% • Current LTV 45% • 96% owner occupied • Only $134M of resets through 2021 • 68% of portfolio is 1st lien • Avg. loan size $38,518 Consumer Credit Card Con
Slide 34: 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 35: 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 36: 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) 6/30/2020 3/31/2020 6/30/2019 Selected items impacting earnings: Pre-tax adjusted items(1): Branch consolidation, property and equipment charges $ (10) $ (11) $ (2) Loss on early exti
Slide 37: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 2Q20 1Q20 4Q19 3Q19 2Q19 2Q20 vs. 1Q20 2Q20 vs. 2Q19 Total consumer loans $ 29,845 $ 30,250 $ 30,418 $ 30,527 $ 30,807 $ (405) (1.3)% $ (962) (3.1)% Less: Indirect—vehicles 1,441 1,679 1,948 2,247 2,578 (238) (1
Slide 38: 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) 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 2Q20 vs. 1Q20 2Q20 vs. 2Q19 Non-interest expense (GAAP) A $ 924 $ 836 $ 897 $ 871 $ 861 $ 88 10.5 % $ 63 7.3 % A
Slide 39: Non-GAAP reconciliation: Pre-tax pre-provision income (PPI)
Non-GAAP reconciliation: Pre- tax pre-provision income (PPI) Quarter Ended ($ amounts in millions) 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 2Q20 vs. 1Q20 2Q20 vs. 2Q19 Net income (loss) available to common shareholders (GAAP) $ (237) $ 139 $ 366 $ 385 $ 374 $ (376) (270.5)% $ (611) (163.4)
Slide 40: 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 41: Forward-looking statements (continued)
Forward-looking statements (continued) • Our ability to obtain a regulatory non-objection (as part of the CCAR process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs,
Slide 42: Forward-looking statements (continued)
Forward-looking statements (continued) • Our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, including account take- overs, a failure of which could disrupt our business and result in the disclos
Slide 43: Regions
A REGIONS AM REGIONS :«