Regions Financial Corporation · NYSE:RF
Regions Financial — Q1 2021 Earnings Presentation
44 slides from Regions Financial's earnings presentation, Apr 23, 2021
Slide 1: 1st Quarter Earnings Conference Call
1st Quarter Earnings Conference Call April 23, 2021
Slide 2: First quarter 2021 overview
First quarter 2021 overview Net Income Available to $614M Common Shareholders Diluted Earnings Per $0.63 Share Adjusted Total $1,604M Revenue(1) • Adjusted total revenue(1) and adjusted pre-tax pre-provision income(1) increased 14% and Adjusted Non- $918M Interest Expense(1) 17%, respectively YoY •
Slide 3: Average loans & deposits
Average loans & deposits Adjusted average loans and leases(1) Average deposits by segment ($ in billions) ($ in billions) $119.8 $122.9 $79.9 $80.1 $79.1 0.4 0.4 8.9 9.3 26.9 27.4 27.2 $95.7 1.3 40.3 8.1 40.6 26.6 53.0 52.7 51.9 72.9 69.9 59.7 1Q20 4Q20 1Q21 1Q20 4Q20 1Q21 Consumer Bank Corporate Ba
Slide 4: Net interest income and net interest margin - liquidity impacts
Net interest income and net interest margin - liquidity impacts NII(1) and NIM ($ in millions) $1,017 $978 $940 3.44% 3.40% 3.40% 3.13% 3.02% 1Q20 4Q20 1Q21 NII(1) NIM NIM excl. PPP/Cash(2) • In 1Q, deposit and cash balances remained elevated given stimulus / liquidity in the system • PPP and cash a
Slide 5: Net interest income and net interest margin - core drivers
Net interest income and net interest margin - core drivers Core(1) NIM Attribution Drivers of Core NIM and NII 3.40% 3.40% • Rate environment impacts offset through active balance sheet management ◦ Higher avg. hedging notional; total benefit Largely able to offset ongoing impacts of reinvestment of
Slide 6: Non-interest income
Non-interest income Change vs QoQ highlights & outlook ($ in millions) 1Q21 4Q20 1Q20 • Additional government stimulus, changes in customer behavior and continued Service charges on deposit accounts $157 (1.9)% (11.8)% enhancements to overdraft practices & Card and ATM fees 115 (1.7)% 9.5% transacti
Slide 7: Non-interest expense
Non-interest expense Adjusted non-interest expense(1) QoQ highlights & outlook ($ in millions) $824 $930 $918 • Adjusted expenses(1) decreased 1% driven primarily by lower incentive compensation 57.9% 56.8% related to capital markets and mortgage 55.8% partially offset by increased payroll taxes • B
Slide 8: Asset quality
Asset quality Net charge-offs and ratio ACL to loans coverage ratio ($ in millions) ($ in millions) 2.90% 2.81% $123 2.57% 63 $94 $83 2.74% 2.69% 2.44% 53 0.59% 0.43% 46 1.71% 0.40% 1.71% 60 41 37 Day 1 (2) 3Q20 4Q20 1Q21 1Q20 4Q20 1Q21 (1) Consumer net Business services Net charge-offs ACL/Loans (i
Slide 9: Capital and liquidity
Capital and liquidity Tier 1 capital ratio(1) QoQ highlights & outlook 11.9% • During 1Q declared $149M in common dividends 11.4% • Federal Reserve restrictions on capital distributions are expected 10.6% to be lifted in 3Q subject to capital levels remaining above required levels in 2021 CCAR resul
Slide 10: 2021 expectations
2021 expectations FY 2021 Category Expectations Down modestly (dependent on Total Adjusted Revenue timing & amount of PPP (from adjusted 2020 of $6,206)(1)(2)(3) forgiveness) Adjusted Non-Interest Expense Stable (from adjusted 2020 of $3,541)(1)(2) Adjusted Average Loans Down low single digits (from
Slide 11: Appendix
> GENERATING Consistent Sustainable Long-term Performance Appendix (( Aw REGIONS| 11
Slide 12: First quarter 2021 highlights
First quarter 2021 highlights Summary of first quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 1Q21 Change Change (amounts in millions, except per share data) 1Q21 Net interest income $ 967 (3.9)% 4.2% Pre-tax adjusted items(1): Provision for (benefit fro
Slide 13: Growth in Digital
Growth in Digital Active Digital Banking Users Active Mobile Banking Users Digital Banking Log-Ins (Millions) (Millions) (Millions) 21% YoY 9% YoY 14% YoY 307 311 2.13 2.7 2.9 3.0 257 170 149 2.04 131 1.87 158 141 126 1Q20 4Q20 1Q21 1Q20 4Q20 1Q21 1Q20 4Q20 1Q21 Mobile Banking Log-Ins Online Banking
Slide 14: Hedging strategy protection
Hedging strategy protection Hedge Notional Maturity Profile Long-term NII Sensitivity Profile to Rates Cumulative NII growth (2021-2024) - scenarios assume no Hedge Notional loan growth in any Current No Hedges 1Q Notional Reductions scenario and no Hedges 1mo. LIBOR Forwards +3% to 3.5% benefit fro
Slide 15: Hedging strategy protection (cont.)
Hedging strategy protection (cont.) Cash-flow Hedge Contribution to NII - 4Q20(1) 10.7%10.5% • Goal of the hedging program is to 9.6% 9.1% 8.9% support consistent, sustainable long- WAL remaining on CF Hedges(2) term performance 6.1% • Program has worked as intended 5.7% 5.1% during the low rate env
Slide 16: 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 2021 estimate: 80% 70% • ~$11B fixed-rate loan production (e
Slide 17: CET1 Waterfall
CET1 Waterfall 0.6% 0.1% 10.3% 9.8% (0.1)% (0.1)% Pre-tax pre- Provision Common 4Q20 CET1% provision Tax & Other 1Q21 CET1%(3) expense(2) Dividend income(1) 17 (1) Non-GAAP; see appendix for reconciliation. (2) Provision expense includes the impact of CECL deferral. (3) Current quarter ratios are es
Slide 18: Allowance for credit losses waterfall
Allowance for credit losses waterfall ($ in millions) QoQ highlights $2,293 • 1Q ending allowance decreased $225M due to improvement in the economic outlook combined with stabilized credit $(83) performance and charge-offs $2,068 $(130) $(12) • The benefits of the improving economic outlook were par
Slide 19: Base R&S economic outlook
Base R&S economic outlook (as of March 2021) Pre-R&S period 1Q2021 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 Real GDP, annualized % change 4.9 % 6.8 % 6.3 % 4.9 % 3.9 % 2.7 % 2.6 % 2.4 % 2.3 % Unemployment rate 6.2 % 5.8 % 5.5 % 5.2 % 4.8 % 4.7 % 4.5 % 4.3 % 4.1 % HPI, year-over-year %
Slide 20: Allowance Allocation
Allowance Allocation As of 3/31/21 As of 12/31/20 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $43,241 $921 2.13 % $42,870 $1,027 2.40 % CRE-OO mortgage 5,335 206 3.87 % 5,405 242 4.47 % CRE-OO construction 293 22 7.52 % 300 24 7.98 % Total commercial $48,869 $1,149 2.35 %
Slide 21: COVID-19 high-risk industry sectors
Bottom up review informs and narrows COVID-19 high-risk industry sectors (as of March 31, 2021) % of Utilization C&I Portfolio BAL$(1) BAL$ Rate(2) % Criticized Energy – Oil & Gas Extraction, Oilfield Services $1.05b 1.2% 59% 32% Healthcare – Offices of Other Health Practitioners $0.18b 0.2% 60% 4%
Slide 22: COVID-19 high-risk industry sectors waterfall
COVID-19 high-risk industry sectors waterfall ($ in billions) QoQ highlights • COVID high-risk industries are continuously refined to those exhibiting higher levels of stress due $0.26 to COVID impact $5.15 • Specifically identified at-risk assets not falling into currently flagged $3.36 sectors wer
Slide 23: Commercial & IRE loans
Commercial & IRE loans As of 3/31/21 Total Outstanding ($ in millions) Commitments Balances % Utilization Administrative, Support, Waste & Repair $2,611 $1,622 62% •The outstanding balance for Agriculture 676 419 62% Real Estate within the Educational Services 3,880 2,985 77% Commercial section refl
Slide 24: Energy lending
Energy lending As of 3/31/21 Total Outstanding ($ in millions) # of Clients (1) Commitments Balances % Utilization $ Criticized % Criticized Oilfield services and supply (OFS)(2) 144 $447 $290 65% $42 14% Exploration and production (E&P)(2) 96 1,336 763 57% 295 39% Midstream 21 1,463 428 29% 112 26%
Slide 25: Energy lending (continued)
Energy lending (continued) Balances by Category Gross Losses $1,500 $1,200 $ (Millions) $140 $135.9 $900 $600 $120 $300 $0 $100 P s m m r s E& rvi ce rea rea the oa n Se ds t ns t O PL iel d Mi ow PP $ (Millions) $80 $75.1 lf D Oi $60 1Q2015 1Q2021 $40 $36.7 Balance Trend $28.5 $33.0 $20 $5,000 $6.0
Slide 26: Restaurant lending
Restaurant lending As of 3/31/21 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized Quick Service 16,936 $1,319 $1,073 81% $71 7% Casual Dining 29 519 394 76% 305 77% Other 19 145 115 79% 94 82% PPP Loans 2,699 473 473 100% — —
Slide 27: Hotel lending
Hotel lending As of 3/31/21 % of Total Outstanding Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized Criticized CRE-Unsecured (REITs) 11 $803 $626 78% $568 91% IRE – Mortgage 17 263 249 95% 233 94% IRE – Construction 1 31 28 90% 28 100% Consumer Services 3,673
Slide 28: Commercial retail lending
Commercial retail lending As of 3/31/21 Total Outstanding ($ in millions) # of Clients* Commitments Balances % Utilization $ Criticized % Criticized CRE-Unsecured (REITs) 23 $2,701 $1,087 40% $0 —% IRE 139 747 718 96% 174 24% C&I 26,953 2,564 1,313 51% 19 1% CRE-OO 838 843 798 95% 22 3% ABL 20 1,046
Slide 29: Loans to Small Business and Small Farms
Loans to Small Business and Small Farms (outstanding balances as of March 31, 2021) Balances by Industry Balances by State Healthcare 13% 13% Real Estate 13% Florida 30% 21% Transportation & Warehousing 10% 30% Alabama 10% 36% 8% $7.9B 13% Professional, Scientific & Technical Services 9% Restaurant,
Slide 30: Consumer lending portfolio statistics
Consumer lending portfolio statistics Consumer Third Party Residential Mortgage Lending Consumer Credit Card • Avg. origination FICO 749 • Avg. origination FICO 754 • Avg. origination FICO 773 • Current LTV 59% • Avg. new line $26,038 • Avg. new line $5,223 • 97% owner occupied • 48% home improvemen
Slide 31: Regions' transition away from LIBOR
Regions' transition away from LIBOR Key Accomplishments Regions’ LIBOR Transition team has made substantial progress and remains in alignment with the industry We are operationally ready for SOFR and prepared to extend new loans tied to this benchmark Financial Strategy Portfolios Transitioned Prima
Slide 32: Non-GAAP information
Non-GAAP information Management uses pre-tax pre-provision income (non-GAAP) and adjusted pre-tax pre-provision income (non-GAAP), as well as the adjusted efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP) to monitor performance and believes these measures provide meaningful in
Slide 33: Non-GAAP reconciliation: adjusted net interest margin
Non-GAAP reconciliation: adjusted net interest margin Quarter-ended 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020 Net interest margin (FTE) (GAAP) 3.02 % 3.13 % 3.13 % 3.19 % 3.44 % Impact of SBA PPP loans (0.04)% (0.07)% 0.01 % 0.02 % NM Impact of excess cash 0.42 % 0.34 % 0.27 % 0.15 % NM Adj
Slide 34: Non-GAAP reconciliation: adjusted average loans
Non-GAAP reconciliation: adjusted average loans Average Balances ($ amounts in millions) 1Q21 4Q20 3Q20 2Q20 1Q20 1Q21 vs. 4Q20 1Q21 vs. 1Q20 Commercial and industrial $ 42,816 $ 43,889 $ 46,405 $ 49,296 $ 40,519 $ (1,073) (2.4)% $ 2,297 5.7 % Less: Commercial loans transferred to held for sale — 23
Slide 35: Non-GAAP reconciliation: adjusted full year average loans
Non-GAAP reconciliation: adjusted full year average loans Average Balances Twelve Months Ended December 31 ($ amounts in millions) 2020 2019 2020 vs. 2019 Commercial and industrial $ 45,028 $ 40,162 $ 4,866 12.1 % Less: Commercial loans transferred to held for sale 179 — $ 179 NM Less: SBA PPP Loans
Slide 36: Non-GAAP reconciliation: adjusted ending loans
Non-GAAP reconciliation: adjusted ending loans As of 3/31/2021 3/31/2021 ($ amounts in millions) 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020 vs. 12/31/2020 vs. 3/31/2020 Commercial and industrial $ 43,241 $ 42,870 $ 45,199 $ 47,670 $ 45,388 $ 371 0.9 % $ (2,147) (4.7)% Less: Commercial loans
Slide 37: 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) 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020 1Q21 vs. 4Q20 1Q21 vs. 1Q20 Non-interest expense (GAAP) A $ 928 $ 987 $ 896 $ 924 $ 836 $ (59) (6.0)% $ 92 11.0
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) 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020 Total Loans $ 84,755 $ 85,266 $ 88,359 $ 90,548 $ 88,098 Less: SBA PPP Loans 4,317 3,624 4,594 4,498 — Loans excluding PPP, net (non- GAAP) $ 80,438 $ 81,642 $ 83,765 $ 8
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) 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020 1Q21 vs. 4Q20 1Q21 vs. 1Q20 Net income (loss) available to common shareholders (GAAP) $ 614 $ 588 $ 501 $ (237) $ 139 $ 26 4.4 % $ 475 341.7 % Preferre
Slide 41: 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 42: 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 43: 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 44: Regions
A REGIONS A REGIONS «