Regions Financial Corporation · NYSE:RF
Regions Financial — Q4 2023 Earnings Presentation
41 slides from Regions Financial's earnings presentation, Jan 19, 2024
Slide 1: 4th Quarter Earnings Conference Call
Exhibit 99.3 4th Quarter Earnings Conference Call January 19th, 2024
Slide 2: 2023 Overview
2023 Overview Continue to deliver consistent, sustainable long-term performance 4Q23 FY23 Highlights Key Performance Metrics Reported Adjusted(1) Reported Adjusted(1) • Record FY pre-tax pre-provision income(1) of $3.2B Net Income Available to $367M $2.0B • One of the best FY ROATCE(1) in the peer C
Slide 3: Loans
Loans Softening demand but continuing to support our clients Loans and leases QoQ Highlights & Outlook (Average, $ in billions) $95.8 $98.8 $98.3 • Avg and ending loans decreased modestly QoQ; Ending loans grew 32.0 33.4 33.4 ~1.4% vs PY • Avg business loans declined ~1% QoQ; Reserving capital for f
Slide 4: Deposits
Deposits Normalization occurring as expected Deposits by Segment QoQ Highlights & Outlook (Average, $ in billions) • Deposits increased modestly both on $133.0 $126.4 an average and ending basis primarily $125.2 2.2 9.0 2.8 3.0 due to increases in IB business 7.5 7.7 38.2 34.9 36.3 products; Expect
Slide 5: NII & Margin Performance
NII & Margin Performance FTE NII and NIM Drivers of NII and NIM ($ in millions) • NII -$60M, or -4.6% QoQ; NIM -13bps to 3.60% $1,414 $1,304 • Elevated long-term interest rates increase new production $1,244 fixed-rate asset yields • Added $500M to securities balance 3.99% 3.73% 3.60% • Deposit mix
Slide 6: 2024 NII Range and Assumptions
2024 NII Range and Assumptions "Neutral" interest rate risk position; NII performance will depend mostly on deposit dynamics 2024 NII(1) Performance Range(2) NII Sensitivity to Interest Rates Upper End • Through hedging, managed NII sensitivity • Easing fed funds rate and to be mostly neutral to cha
Slide 7: Non-Interest Income
Non-Interest Income Non-Interest Income Adj. Non-Interest Income (1) QoQ Highlights & Outlook ($ in millions) ($ in millions) • NIR increased ~2% on both a reported and adjusted(1) basis as a decline in $600 $580 $581 $566 $550 $567 capital markets was offset by modest increases in most other catego
Slide 8: Non-Interest Expense
Non-Interest Expense Non-Interest Expense Adj. Non-Interest Expense(1) QoQ Highlights & Outlook ($ in millions) ($ in millions) $1,089 • NIE increased ~8% on a reported basis $1,185 $1,038 $1,093 $1,012 including $119M FDIC special assessment $1,017 $53 and $28M in severance-related costs but 65.0%
Slide 9: Asset Quality
Asset Quality Underlying credit performance continues to normalize as expected Net charge-offs Allowance for Credit Losses (ACL) ($ in millions) ($ in millions) $1,677 $1,700 0.54% 0.40% $1,582 0.29% 317% 0.39% 261% 132 211% 101 69 $35 1.63% 1.70% 1.73% 4Q22 3Q23 4Q23 Adjusted Net Charge-Offs(1) Adj
Slide 10: Historical Credit Profile
Historical Credit Profile Total Net Charge-Offs 2.00% 1.50% Average Pre-Pandemic Average Pandemic 0.46% 0.35% 1.00% (1) 0.54% 0.50% —% 13 20 22 23 1Q 1Q 4Q 4Q Non-Performing Loans 2.50% 2.00% Average Pre-Pandemic Average Pandemic 1.07% 0.64% 1.50% 1.00% 0.82% 0.50% —% 13 20 22 23 1Q 1Q 4Q 4Q • Non-A
Slide 11: Capital and Liquidity
Capital and Liquidity Tier 1 capital ratio(1) QoQ Highlights & Outlook 11.6% 11.5% 10.9% • Basel III Endgame - Estimate a low to mid-single digit increase in RWAs under the Expanded Risk Based Approach in addition to the phase-in of AOCI into regulatory capital 4Q22 3Q23 4Q23 ◦ CET1 adjusted to incl
Slide 12: 2024 Expectations
2024 Expectations Expectations for 1Q24 & Beyond(3) FY 2024 Expectations Net Interest Income • 2024 NII expected to stabilize over $4.7-$4.8B the first half of the year and grow (3) (vs. 2023 of $5,320) Adjusted Non-Interest Income over the back half of the year (1)(2) (vs. adjusted 2023 of $2,259)
Slide 13: Appendix
> GENERATING A d 7 Consistent Sustainable p pen 1X \ Long-term Performance Aw REGIONS| 13
Slide 14: Fourth Quarter 2023 Highlights
Fourth Quarter 2023 Highlights Summary of fourth quarter results Selected items impact QoQ YoY ($ amounts in millions, except per share data) 4Q23 Change Change (amounts in millions, except per share data) 4Q23 FY23 (1) Pre-tax adjusted items : Net interest income $ 1,231 (4.6)% (12.1)% Securities g
Slide 15: Growth in Digital
Growth in Digital Digital Usage Sales and Transactions Zelle Transactions (Millions) (1) Active Users (Millions) Consumer Checking Sales by Channel(4) +13% 2% 2% 2% 2.56 +61% 2.40 72% 76% 75% 4.28 2.27 3.44 26% 22% 23% 2.66 4Q21 4Q22 4Q23 4Q21 4Q22 4Q23 Digital Contact Center Branch Mobile Banking D
Slide 16: Investments in Our Businesses
Investments in Our Businesses Investments in talent, technology and strategic acquisitions continue to pay off CORPORATE CONSUMER WEALTH Acquisitions remain well-positioned for Industry leading Customer Satisfaction Total Wealth Management revenue synergies: FY23 Clearsight fees Relationship growth
Slide 17: Treasury Management
Treasury Management Enabling our clients to optimize cash flow and manage risk with a comprehensive & competitive suite of Treasury Management solutions Steadily Growing our Treasury Management Business Continually Investing in Technology & Talent Delivered another record year in 2023 • Expanding cl
Slide 18: Hedging Strategy Update
Hedging Strategy Update Hedging helps create a mostly "neutral" interest rate risk position with a well-protected margin in 3.50% range Cash Flow Hedge (Quarterly Avg) (Annual Avg) Notional(1) Swaps Collars 1 4Q23 2 1Q24 3 2Q24 4 3Q24 5 4Q24 1 2024 2 2025 3 2026 4 2027 5 2028 6 2029 as of 12/31/2023
Slide 19: Securities Portfolio
Securities Portfolio Provides downside rate protection/liquidity • Portfolio constructed to protect against changes in market rates Securities portfolio composition(1) ◦ Duration is fully extended at ~4.5 years as of 12/31/2023; Corporate Bonds Agency/UST provides offset to long-duration deposit boo
Slide 20: Higher Risk Industry Segments
Higher Risk Industry Segments (Outstanding balances as of December 31, 2023) Business Services High Risk Segments % of Total Portfolio ($ in millions) BAL$(1) NPL NPL/Loans ACL ACL/Loans Loans Consumer Discretionary Goods $2,718 2.8% $17 0.6% $56 2.1% Retail Trade & Consumer Manufacturing Trucking 1
Slide 21: Commercial Real Estate
Commercial Real Estate (Outstanding balances as of December 31, 2023) Highly Diversified Total IRE Portfolio (including Unsecured CRE) Other % of Total Res. Homebuilders $ in billions 3.9% Hotel Loans 6.5% 4.9% Unsecured CRE $ 6.8 6.9 % (incl. REITS) Healthcare 8.8% IRE 8.8 9.0 % Apartments 25.9% To
Slide 22: Allowance for Credit Losses
Allowance for Credit Losses QoQ Highlights • 4Q allowance increased ($ in millions) $23M compared to the prior quarter, resulting in a $1,677 $47 $12 $1,700 $155M provision expense $(9) $(27) • Primary driver of the net increase in ACL was adverse risk migration and continued credit quality normaliz
Slide 23: Base R&S Economic Outlook
Base R&S Economic Outlook (As of December 2023) Pre-R&S period 4Q2023 1Q2024 2Q2024 3Q2024 4Q2024 1Q2025 2Q2025 3Q2025 4Q2025 Real GDP, annualized % change 1.2 % 1.3 % 1.4 % 1.8 % 2.1 % 2.4 % 2.5 % 2.5 % 2.3 % Unemployment rate 3.8 % 3.8 % 3.9 % 4.0 % 4.1 % 4.1 % 4.1 % 4.0 % 3.9 % HPI, year-over-yea
Slide 24: Allowance Allocation
Allowance Allocation As of 12/31/2023 As of 12/31/2022 (in millions) Loan Balance ACL ACL/Loans Loan Balance ACL ACL/Loans C&I $50,865 $697 1.37 % $50,905 $628 1.23 % CRE-OO mortgage 4,887 110 2.25 % 5,103 102 2.00 % CRE-OO construction 281 7 2.38 % 298 7 2.29 % Total commercial $56,033 $814 1.45 %
Slide 25: Well Positioned for Next Downturn
Well Positioned for Next Downturn Highly Diversified Business Portfolio(1) Healthcare All Other Commercial 4.9% 3.7% Distribution 6.2% Investor Real Estate 13.7% Business Services 7.6% Utilities 4.7% Financial Services Agriculture 11.7% 0.4% Energy 2.3% $64.9B Manufacturing 7.4% (2) CRE Unsecured, i
Slide 26: Consumer Lending Portfolio
Consumer Lending Portfolio Consumer Credit Card Home Equity Consumer FICO Scores(1) • Avg. origination FICO 770 • Current LTV 35% 2% 2% 3% • Avg. origination FICO 785 • Avg. new line $7,813 • 65% of portfolio is 1st lien • 4Q23 Yield 15.29% • Avg. loan size $34,700 63% • 4Q23 QTD NCO 3.98% • $136M t
Slide 27: Leveraged Portfolio
Leveraged Portfolio (Outstanding balances as of December 31, 2023) Diversified Portfolio Important Factors • Consistent with Moody's historical Regional Bank Survey Other (Portfolios <5% of total) definition; Commitments >$5M with funded debt to 23% EBITDA>4.0x Administrative, Support, Waste & Repai
Slide 28: SNC Portfolio
SNC Portfolio (Outstanding balances as of December 31, 2023) Shared National Credit Balances by Sector Portfolio Characteristics • Improved portfolio composition and asset quality through focus on lower risk Other (Portfolios <5% of total) 16% segments CRE Unsecured Non-REIT • 48% of balances consis
Slide 29: Non-GAAP Information
Non-GAAP Information Management uses computations of earnings and certain other financial measures, which exclude certain adjustments that are included in the financial results presented in accordance with GAAP, to monitor performance and believes these measures provide meaningful information to inv
Slide 30: Non-GAAP Reconciliation
Non-GAAP Reconciliation Non-Interest Expense Twelve Months Ended December 31 ($ amounts in millions) 2023 2022 2021 2020 2019 2018 2017 2016 Non-interest expense (GAAP) $ 4,416 $ 4,068 $ 3,747 $ 3,643 $ 3,489 $ 3,570 $ 3,491 $ 3,483 Adjustments: FDIC special assessment (119) — — — — — — — Contributi
Slide 31: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted Net Charge-Offs and Ratio For the Quarter Ended ($ amounts in millions) 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 Net loan charge-offs (GAAP) $ 132 $ 101 $ 81 $ 83 $ 69 Less: charge-offs associated with the sale of unsecured consumer loans 35 — — — — Adjust
Slide 32: Non-GAAP Reconciliation
Non-GAAP Reconciliation Pre-tax Pre-Provision Income (PPI) Quarter Ended ($ amounts in millions) 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 4Q23 vs. 3Q23 4Q23 vs. 4Q22 Net income available to common shareholders (GAAP) $ 367 $ 465 $ 556 $ 588 $ 660 $ (98) (21.1)% $ (293) (44.4)% Preferred d
Slide 33: Non-GAAP Reconciliation
Non-GAAP Reconciliation NII, non-interest income/expense, and efficiency ratio Quarter Ended ($ amounts in millions) 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 4Q23 vs. 3Q23 4Q23 vs. 4Q22 Non-interest expense (GAAP) A $ 1,185 $ 1,093 $ 1,111 $ 1,027 $ 1,017 $ 92 8.4 % $ 168 16.5 % Adjustmen
Slide 34: Non-GAAP Reconciliation
Non-GAAP Reconciliation NII, non-interest income/expense, and efficiency ratio Twelve Months Ended December 31 ($ amounts in millions) 2023 Non-interest expense (GAAP) A $ 4,416 Adjustments: FDIC assessment (119) Branch consolidation, property and equipment charges (7) Salaries and employee benefits
Slide 35: Non-GAAP Reconciliation
Non-GAAP Reconciliation Return on average tangible common shareholders' equity Year Ended Quarter Ended ($ amounts in millions) 2023 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Net income available to common shareholders (GAAP) A $ 1,976
Slide 36: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted CET1- inclusive of AOCI(4) Quarter Ended ($ amounts in millions) 12/31/2023 9/30/2023 ADJUSTED CET1 RATIO Common equity(1) A $ 12,976 $ 13,056 Adjustments: AOCI gain (loss) on securities(2) (2,064) (3,084) AOCI gain (loss) on defined benefit pension plans and other p
Slide 37: Non-GAAP Reconciliation
Non-GAAP Reconciliation Tangible Common Ratios As of and for Quarter Ended ($ amounts in millions, except per share data) 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 TANGIBLE COMMON RATIOS Shareholders’ equity (GAAP) A $ 17,429 $ 16,100 $ 16,639 $ 16,883 $ 15,947 Less: Preferred stock (GAAP)
Slide 38: 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 39: Forward-Looking Statements (continued)
Forward-Looking Statements (continued) • Our inability to keep pace with technological changes, including those related to the offering of digital banking and financial services, could result in losing business to competitors. • Changes in laws and regulations affecting our businesses, including leg
Slide 40: Forward-Looking Statements (continued)
Forward-Looking Statements (continued) • The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage (specifically in the Southeastern United States), which may negatively affect our operations and/or our loan portfolios and incre
Slide 41: Regions
A REGIONS AM REGIONS: