Regions Financial Corporation (NYSE:RF) today announced earnings
for the second quarter ended June 30, 2017. The company reported
net income available to common shareholders from continuing
operations of $301 million, an increase of 18 percent compared to
the second quarter of 2016 and 8 percent compared to the first
quarter of 2017. Earnings per diluted share from continuing
operations were $0.25, an increase of 25 percent from the second
quarter of 2016 and 9 percent from the first quarter of 2017.
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“We are pleased with our second quarter results, which
demonstrate that we are continuing to execute our strategic plan to
build long-term, sustainable growth while delivering value to our
customers, communities and shareholders,” said Grayson Hall,
Chairman, President and CEO. “Regions' strong capital position led
to another successful completion of the Comprehensive Capital
Analysis and Review (CCAR) process. We remain committed to
increasing shareholder returns while making prudent investments to
position our company to meet more customers' needs through deeper
relationships and a well-diversified business. Further, our
disciplined approach to credit continues to deliver positive
results as we reported improvements in almost every credit
metric.”
Hall added, “During the second quarter, Regions also received
further recognition for its approach to business. Based on customer
feedback, Javelin Strategy & Research recognized Regions as a
Trust in Banking Leader reflecting our reliability in meeting
customers' needs and the confidence our customers have in Regions
to look out for their best interests. Regions also received the
Gallup Great Workplace Award for the third consecutive year. These
examples illustrate how Regions' comprehensive approach to
providing financial services creates greater value for all of our
stakeholders.”
SUMMARY OF SECOND QUARTER 2017
RESULTS:
Quarter Ended ($ amounts in
millions, except per share data) 6/30/2017
3/31/2017 6/30/2016 Income from continuing operations
(A) $ 317 $ 294 $ 272 Income (loss) from discontinued operations,
net of tax (1 ) 7 3 Net income 316 301 275
Preferred dividends (B) 16 16 16 Net
income available to common shareholders $ 300 $ 285 $ 259
Net income from continuing operations
available to common shareholders (A) – (B)
$ 301 $ 278 $ 256 Diluted earnings per common share
from continuing operations $ 0.25 $ 0.23 $ 0.20
Diluted earnings per common share $ 0.25 $ 0.23 $ 0.20
Second quarter 2017 results compared to
first quarter 2017:
- Net interest income and other financing
income on a fully taxable equivalent basis increased 3 percent; the
resulting net interest margin was 3.32 percent, up 7 basis
points.
- Non-interest income increased 3
percent, and 2 percent on an adjusted basis(1).
- Non-interest expenses increased 4
percent, and 3 percent on an adjusted basis(1).
- Average loans and leases remained
relatively stable at $80.1 billion.
- Consumer lending balances decreased $87
million on an average basis.
- Business lending balances increased $19
million on an average basis.
- Average deposit balances totaled $97.5
billion, a decrease of $478 million or less than 1 percent;
low-cost deposits decreased $335 million.
- Allowance for loan and lease losses
declined 3 basis points to 1.30 percent of total loans; the
allowance for loan and lease losses attributable to direct energy
loans increased from 6.1 percent to 6.9 percent.
- Net charge-offs decreased 17 basis
points to 0.34 percent of average loans, and non-accrual loans,
excluding loans held for sale, decreased 18 percent to 1.03 percent
of loans outstanding.
Second quarter 2017 results compared to
second quarter 2016:
- Net interest income and other financing
income on a fully taxable equivalent basis increased 4 percent; the
resulting net interest margin increased 17 basis points.
- Non-interest income was relatively flat
on both a reported and adjusted basis(1).
- Non-interest expenses decreased 1
percent, but increased 1 percent on an adjusted basis(1).
- Average loans and leases decreased $1.9
billion or 2 percent.
- Consumer lending balances increased 1
percent on an average basis.
- Business lending balances decreased 4
percent on an average basis.
- Average deposit balances remained
relatively stable; while low-cost deposits increased $325
million.
- Net charge-offs decreased 1 basis
points to 0.34 percent of average loans, and non-accrual loans,
excluding loans held for sale, decreased 20 percent to 1.03 percent
of loans outstanding.
SECOND QUARTER 2017 FINANCIAL RESULTS:
Selected items
impacting earnings:
Quarter Ended ($ amounts in
millions, except per share data) 6/30/2017 3/31/2017
6/30/2016 Pre-tax adjusted items: Branch
consolidation, property and equipment charges $ (7 ) $ (1 ) $ (22 )
Salaries and benefits related to severance charges (3 ) (4 ) (1 )
Professional, legal and regulatory expense — — (3 ) Gain on sale of
affordable housing residential mortgage loans 5 — — Securities
gains (losses), net 1 — 6 Diluted EPS impact* $ — $ — $
(0.01 )
Pre-tax additional selected items**:
Pension settlement charge $ (10 ) $ — $ — Operating lease
impairment charges (7 ) (5 ) — FDIC insurance refund — — 6
* Based on income taxes at a 38.5%
incremental rate.
** Items represent an outsized or unusual
impact to the quarter or quarterly trends, but are not considered
non-GAAP adjustments.
The company continues to optimize its retail network and
incurred $7 million of expenses during the second quarter primarily
associated with the consolidation of 22 additional branches
expected to close during the fourth quarter of 2017. A previously
announced consolidation of 27 branches were closed during the
second quarter. Together, this will bring the total number of
consolidated branches since the fourth quarter of 2015 to
approximately 160, exceeding the company's previous commitment to
consolidate at least 150 branches by the end of 2017. The
consolidations are part of Regions' ongoing efficiency initiatives
as the company refines its branch network while also making prudent
investments in new technologies, delivery channels and other areas
of growth.
In addition, the company recognized $5 million of deferred gains
in the second quarter associated with the sale of $171 million of
affordable housing residential mortgage loans to Freddie Mac during
the fourth quarter of 2016. The company also incurred a $10 million
pension-related settlement charge during the second quarter, and a
$7 million impairment charge reducing the value of certain
operating lease assets. The pension settlement charge is included
in salaries and employee benefits, and the operating lease
impairment charge is recorded as a reduction in other non-interest
income.
Total
revenue
Quarter Ended ($ amounts in
millions) 6/30/2017 3/31/2017 6/30/2016
2Q17 vs. 1Q17 2Q17 vs. 2Q16
Net interest income and other financing
income
$ 882 $ 859 $ 848 $ 23 2.7 % $
34 4.0 %
Net interest income and other financing
income - fully taxable equivalent (FTE)
$ 904 $ 881 $ 869 $ 23 2.6 % $ 35 4.0 % Net interest margin (FTE)
3.32 % 3.25 % 3.15 %
Non-interest income:
Service charges on deposit accounts 169 168 166 1 0.6 % 3 1.8 %
Wealth management 108 109 103 (1 ) (0.9 )% 5 4.9 % Card & ATM
fees 104 104 99 — NM 5 5.1 % Mortgage income 40 41 46 (1 ) (2.4 )%
(6 ) (13.0 )% Capital markets fee income and other 38 32 38 6 18.8
% — NM Bank-owned life insurance 22 19 20 3 15.8 % 2 10.0 %
Commercial credit fee income 18 18 18 — NM — NM Market value
adjustments on employee benefit assets* 2 5 8 (3 ) (60.0 )% (6 )
(75.0 )% Securities gains (losses), net 1 — 6 1 NM (5 ) (83.3 )%
Other 23 14 22 9
64.3 % 1 4.5 %
Non-interest income $
525 $ 510 $ 526 $ 15 2.9 % $ (1 ) (0.2
)%
Total revenue, taxable-equivalent basis $ 1,429 $
1,391 $ 1,395 $ 38 2.7 % $ 34 2.4 %
Adjusted total revenue,
taxable-equivalent basis (non-GAAP)(1)
$ 1,423 $ 1,391 $ 1,389 $ 32 2.3 % $ 34
2.4 %
NM - Not Meaningful
* These market value adjustments relate to
assets held for certain employee benefits, and are offset within
salaries and employee benefits expense.
Comparison of second quarter 2017 to first
quarter 2017
Total revenue on a fully taxable equivalent basis was $1.43
billion in the second quarter, an increase of $38 million or 3
percent compared to the first quarter of 2017. On an adjusted
basis(1), total revenue on a fully taxable equivalent basis
increased $32 million or 2 percent from the prior quarter.
Net interest income and other financing income on a fully
taxable equivalent basis was $904 million, an increase of $23
million or 3 percent. The resulting net interest margin was 3.32
percent, an increase of 7 basis points. Net interest margin and net
interest income and other financing income benefited from higher
market interest rates, as well as favorable credit-related interest
recoveries. Further, one additional day in the quarter resulted in
an increase to net interest income and other financing income of
approximately $5 million, but reduced net interest margin by
approximately 2 basis points.
Non-interest income totaled $525 million, an increase of $15
million or 3 percent. This included the recognition of a $5 million
deferred gain associated with the sale of affordable housing
residential mortgage loans during the fourth quarter of 2016, and
an operating lease impairment charge of $7 million included in
other non-interest income during the second quarter compared to a
$5 million impairment charge recorded in the first quarter. On an
adjusted basis(1), non-interest income increased $9 million or 2
percent primarily due to increases in capital markets income and
bank-owned life insurance. Capital markets income increased $6
million or 19 percent during the quarter driven primarily by fees
generated from the placement of permanent financing for real estate
customers and merger and acquisition advisory services. Bank-owned
life insurance increased $3 million or 16 percent.
Mortgage production increased 25 percent during the quarter,
while mortgage income remained relatively stable. Within total
mortgage production, 80 percent was related to purchase activity
and 20 percent was related to refinancing. An increase in mortgage
servicing income was offset by modest spread compression and lower
hedging gains. The company completed its purchase of rights to
service $2.7 billion of mortgage loans during the quarter, bringing
the total rights purchased to more than $15 billion of mortgage
loans over the past four years. Increased servicing income is
expected to help offset the impact of lower refinancing
volumes.
Comparison of second quarter 2017 to
second quarter 2016
Total revenue on a fully taxable equivalent basis increased $34
million or 2 percent compared to the second quarter of 2016.
Adjusted(1) total revenue on a fully taxable equivalent basis also
increased $34 million or 2 percent.
Net interest income and other financing income on a fully
taxable equivalent basis increased $35 million or 4 percent
compared to the prior year. The resulting net interest margin
increased 17 basis points. Net interest margin and net interest
income and other financing income benefited from higher market
interest rates, including prudent deposit cost management, as well
as the impact of balance sheet management strategies, including
higher securities balances, and favorable credit-related interest
recoveries, partially offset by lower average loan balances.
Non-interest income was relatively flat on a reported and
adjusted basis(1). Service charges increased $3 million or 2
percent reflecting growth in checking accounts of 1.3 percent. Card
& ATM fees increased $5 million or 5 percent driven by a 10
percent increase in spending volume. Wealth management income
increased $5 million or 5 percent driven by growth in investment
management & trust fees as assets under management increased 12
percent. Bank-owned life insurance increased $2 million, or 10
percent. Market value adjustments on employee benefit assets, which
are offset in salaries and benefits, decreased $6 million.
Mortgage income decreased $6 million or 13 percent compared to
the prior year primarily due to lower production and modest spread
compression. These decreases were partially offset by an increase
in mortgage servicing income. Capital markets income remained
unchanged as an increase in fees generated from the placement of
permanent financing for real estate customers was offset by reduced
income from merger and acquisition advisory services and revenues
associated with debt underwriting and loan syndications. In
addition, other non-interest income included an operating lease
impairment charge of $7 million recorded in the current
quarter.
Non-interest
expense
Quarter Ended ($ amounts in
millions) 6/30/2017 3/31/2017 6/30/2016
2Q17 vs. 1Q17 2Q17 vs. 2Q16 Salaries
and employee benefits $ 497 $ 478 $ 480 $ 19 4.0 % $ 17
3.5 % Net occupancy expense 86 85 86 1 1.2 % — NM Furniture
and equipment expense 85 80 79 5 6.3 % 6 7.6 % Outside services 43
40 39 3 7.5 % 4 10.3 % Marketing 22 24 28 (2 ) (8.3 )% (6 ) (21.4
)% FDIC insurance assessments 26 27 17 (1 ) (3.7 )% 9 52.9 %
Professional, legal and regulatory
expenses
28 22 21 6 27.3 % 7 33.3 % Branch consolidation, property and
equipment charges 7 1 22 6 NM (15 ) (68.2 )% Credit/checkcard
expenses 12 14 14 (2 ) (14.3 )% (2 ) (14.3 )% Visa class B shares
expense 1 3 2 (2 ) (66.7 )% (1 ) (50.0 )% Provision (credit) for
unfunded credit losses (3 ) 1 11 (4 ) (400.0 )% (14 ) (127.3 )%
Other 105 102 116 3 2.9 %
(11 ) (9.5 )% Total non-interest expense from continuing
operations $ 909 $ 877 $ 915 $ 32 3.6 % $ (6 ) (0.7
)% Total adjusted non-interest expense(1) $ 899 $ 872 $ 889
$ 27 3.1 % $ 10 1.1 %
NM - Not Meaningful
Comparison of second quarter 2017 to first
quarter 2017
Non-interest expense totaled $909 million in the second quarter,
an increase of $32 million or 4 percent compared to the first
quarter of 2017. On an adjusted basis(1), non-interest expense
totaled $899 million, an increase of $27 million or 3 percent.
Increases in salaries and benefits, professional, legal and
regulatory, and furniture and equipment expenses were partially
offset by reductions in the provision for unfunded credit
losses.
Total salaries and benefits increased $19 million or 4 percent
primarily due to merit increases, higher production-based
incentives, and a $10 million pension settlement charge, partially
offset by lower payroll taxes. Professional, legal and regulatory
expenses increased $6 million, primarily due to an increase in
legal settlement expense. Furniture and equipment expense increased
$5 million or 6 percent associated with capital investment projects
including an enhanced online banking platform as well as other
technology initiatives.
The company's efficiency ratio was 63.6 percent, or 63.2 percent
on an adjusted basis(1). The effective tax rate was 29.5 percent
compared to 30.4 percent in the first quarter.
Comparison of second quarter 2017 to
second quarter 2016
Non-interest expense decreased $6 million or 1 percent from the
second quarter of 2016. On an adjusted basis(1), non-interest
expense increased $10 million or 1 percent primarily due to higher
salaries and benefits, FDIC insurance assessments, professional,
legal and regulatory, and furniture and equipment expenses. These
increases were partially offset by a reduction in the provision for
unfunded credit losses, as well as lower marketing and other real
estate expenses.
Total salaries and benefits increased $17 million or 4 percent
primarily due to merit increases and a $10 million pension
settlement charge, partially offset by lower production-based
incentives and the impact of a 1 percent reduction in staffing
levels.
FDIC insurance assessments increased $9 million reflecting the
implementation of the FDIC assessment surcharge that went into
effect in the third quarter of 2016, as well as the impact of a $6
million refund related to overpayments recorded in the second
quarter of 2016. Professional, legal and regulatory expense
increased $7 million primarily due to higher legal fees and
consulting expenses. Furniture and equipment expense increased $6
million primarily associated with the completion of certain capital
investment projects increasing expense in the current quarter.
Marketing expense decreased $6 million compared to the second
quarter of 2016 primarily due to changes in the timing of
campaigns, and overall expense reductions. Other real estate
expense, included in other non-interest expenses, also decreased $6
million.
Loans and
Leases
Average Balances
($ amounts
in millions) 2Q17 1Q17 2Q16 2Q17 vs. 1Q17 2Q17 vs. 2Q16 Commercial
and industrial $ 35,596 $ 35,330 $ 36,493 $ 266 0.8 % $ (897 ) (2.5
)%
Commercial real estate—owner-occupied
6,927 7,139 7,659 (212 ) (3.0 )% (732 ) (9.6 )% Investor real
estate 6,440 6,475 6,990 (35 ) (0.5 )%
(550 ) (7.9 )% Business Lending 48,963 48,944
51,142 19 — % (2,179 ) (4.3 )%
Residential first mortgage* 13,637 13,469 12,990 168 1.2 % 647 5.0
% Home equity 10,475 10,606 10,869 (131 ) (1.2 )% (394 ) (3.6 )%
Indirect—vehicles 2,131 2,108 2,097 23 1.1 % 34 1.6 %
Indirect—vehicles third-party 1,611 1,835 2,052 (224 ) (12.2 )%
(441 ) (21.5 )% Indirect—other consumer 1,001 937 686 64 6.8 % 315
45.9 % Consumer credit card 1,164 1,166 1,066 (2 ) (0.2 )% 98 9.2 %
Other consumer 1,128 1,113 1,058 15
1.3 % 70 6.6 % Consumer Lending 31,147
31,234 30,818 (87 ) (0.3 )% 329
1.1 % Total Loans $ 80,110 $ 80,178 $ 81,960 $ (68 ) (0.1 )% $
(1,850 ) (2.3 )%
NM - Not meaningful.
* 2017 average residential first mortgage
balances reflect the impact of $171 million associated with the
sale of affordable housing residential mortgage loans at the end of
2016.
Comparison of second quarter 2017 to first
quarter 2017
Average loans and leases remained stable at $80.1 billion for
the second quarter, as modest growth in the business lending
portfolio was offset by declines in the consumer lending portfolio;
however, total new and renewed loan production increased 46
percent.
Average balances in the consumer lending portfolio totaled $31.1
billion in the second quarter reflecting a decrease of $87 million.
Total consumer production increased 22 percent, but this growth was
offset by the company's decision to exit a third-party arrangement
within the indirect-vehicle portfolio. Average third-party
indirect-vehicle balances declined $224 million or 12 percent
during the quarter. Excluding the third-party indirect-vehicle
portfolio, average consumer balances increased $137 million.
Average residential first mortgage balances increased $168
million or 1 percent primarily attributable to a seasonal increase
in production during the second quarter. Home equity balances
declined $131 million or 1 percent as growth of $52 million in home
equity loans was offset by a decline of $183 million in home equity
lines of credit. Further, average line utilization decreased 66
basis points compared to the first quarter.
Average indirect-other consumer loans increased $64 million or 7
percent as the company continued to grow its point-of-sale
portfolio. Additionally, the company purchased approximately $138
million in unsecured consumer loans from a point-of-sale
third-party at the end of the second quarter. Consumer credit card
balances remained relatively stable with the prior quarter as an
increase in active credit cards was offset by a seasonal decline in
average customer account balances.
Average balances in the business lending portfolio totaled $49
billion in the second quarter reflecting an increase of $19 million
as growth in commercial and industrial was partially offset by
declines in owner-occupied commercial real estate and investor real
estate construction loans. The company experienced solid production
increases in both commercial and investor real estate and a 20
basis point increase in commercial line utilization during the
quarter; however, this growth was offset by declines in select
portfolios reflecting the company's risk management decisions in
certain industries and asset classes. Specifically, average direct
energy and medical office building loans declined $67 million and
$40 million, respectively. Investor real estate construction loans
decreased $41 million due in part to ongoing efforts to better
diversify production between construction and term lending.
Additionally, declines in average owner-occupied commercial real
estate loans reflect continued softness in demand and increasing
competition for middle market and small business loans.
Growth in commercial and industrial loans was led by new
relationships and expansion of existing relationships in the
government and institutional banking, asset-based lending,
financial services, and real estate investment trust portfolios.
The company expects to maintain momentum experienced this quarter
through the second half of the year with future growth driven in
part by the technology & defense, financial services, power
& utilities, and asset-based lending portfolios.
Comparison of second quarter 2017 to
second quarter 2016
Average loans and leases declined $1.9 billion or 2 percent
compared to the second quarter of 2016 as growth in the consumer
lending portfolio was more than offset by declines in the business
lending portfolio.
The average consumer lending portfolio increased $329 million or
1 percent. Residential first mortgage balances increased $647
million or 5 percent despite the impact from the affordable housing
residential mortgage loan sale in the fourth quarter of 2016.
Indirect-other increased $315 million or 46 percent, as the company
continued to successfully execute its point-of-sale lending
initiative. Consumer credit card balances increased $98 million or
9 percent as active credit cards increased 7 percent. In addition,
other consumer loans increased $70 million or 7 percent primarily
due to growth in unsecured loans generated through the branch
network. These increases were partially offset by declines in
indirect-vehicle and home equity balances. Average third-party
indirect-vehicle balances decreased $441 million or 21 percent
reflecting the company's decision to exit a third-party
arrangement, and home equity balances decreased $394 million or 4
percent as growth in home equity loans continues to be offset by
declines in home equity lines of credit.
The average business lending portfolio decreased $2.2 billion or
4 percent primarily due to declines in the direct energy,
multi-family, and medical office building portfolios, as well as
owner-occupied commercial real estate loans. Average direct energy
loans decreased $554 million or 22 percent, average multi-family
investor real estate loans decreased $479 million or 23 percent,
and average medical office building loans decreased $93 million or
24 percent. The declines in owner-occupied commercial real estate
loans reflect the competitive market and continued softness in loan
demand from middle market and small business customers.
Deposits
Average Balances
($ amounts
in millions) 2Q17 1Q17 2Q16 2Q17 vs. 1Q17 2Q17 vs. 2Q16 Low-cost
deposits $ 90,484 $ 90,819 $ 90,159 $ (335 ) (0.4 )% $ 325 0.4 %
Time deposits 7,005 7,148 7,338 (143 )
(2.0 )% (333 ) (4.5 )% Total Deposits $ 97,489 $ 97,967 $
97,497 $ (478 ) (0.5 )% $ (8 ) — % ($ amounts in millions)
2Q17 1Q17 2Q16 2Q17 vs. 1Q17 2Q17 vs. 2Q16 Consumer Bank Segment $
57,133 $ 56,243 $ 54,703 $ 890 1.6 % $ 2,430 4.4 % Corporate Bank
Segment 27,584 28,165 27,618 (581 ) (2.1 )% (34 ) (0.1 )% Wealth
Management Segment 9,545 10,041 11,280 (496 ) (4.9 )% (1,735 )
(15.4 )% Other 3,227 3,518 3,896 (291 )
(8.3 )% (669 ) (17.2 )% Total Deposits $ 97,489 $ 97,967 $
97,497 $ (478 ) (0.5 )% $ (8 ) — %
Comparison of second quarter 2017 to first
quarter 2017
Total average deposit balances were $97.5 billion in the second
quarter, a decrease of $478 million or less than 1 percent from the
first quarter of 2017. Average low-cost deposits decreased $335
million while representing 93 percent of total average deposits.
Deposit costs remained low at 15 basis points, and total funding
costs were 34 basis points in the second quarter.
Average deposits in the Consumer segment increased $890 million
or 2 percent. Average Corporate segment deposits decreased $581
million or 2 percent driven by seasonal declines. Average deposits
in the Wealth Management segment declined $496 million or 5 percent
as a result of ongoing strategic reductions of certain
collateralized deposits. Average deposits in the Other segment
decreased $291 million or 8 percent driven primarily by declines in
average retail brokered sweep deposits.
Comparison of second quarter 2017 to
second quarter 2016
Total average deposit balances remained relatively stable with
the prior year, while average low-cost deposits increased $325
million. Average deposits in the Consumer segment increased $2.4
billion or 4 percent, while average Corporate segment deposits
remained relatively stable. Average deposits in the Wealth
Management segment declined $1.7 billion or 15 percent, and average
deposits in the Other segment declined $669 million or 17 percent.
The decline in Wealth Management segment deposits relates to
ongoing strategic reductions of certain collateralized deposits.
The decline in Other segment deposits was driven by the decision to
reduce approximately $500 million of higher cost retail brokered
sweep deposits that were no longer a necessary component of the
company's current funding strategy.
Asset
quality
As of and for the Quarter Ended
($ amounts in millions) 6/30/2017 3/31/2017
6/30/2016 ALL/Loans, net 1.30 % 1.33 % 1.41 % Net loan
charge-offs as a % of average loans, annualized 0.34 % 0.51 % 0.35
% Non-accrual loans, excluding loans held for sale/Loans, net 1.03
% 1.26 % 1.25 % NPAs (ex. 90+ past due)/Loans, foreclosed
properties and non-performing loans held for sale 1.14 % 1.37 %
1.40 % NPAs (inc. 90+ past due)/Loans, foreclosed properties and
non-performing loans held for sale* 1.32 % 1.57 % 1.61 % Total
TDRs, excluding loans held for sale $ 1,450 $ 1,364 $ 1,317 Total
Criticized Loans—Business Services** $ 3,280
$ 3,538 $ 3,664
* Excludes guaranteed residential first
mortgages that are 90+ days past due and still accruing.
** Business services represents the
combined total of commercial and investor real estate loans.
Comparison of second quarter 2017 to first
quarter 2017
Net charge-offs totaled $68 million or 0.34 percent of average
loans during the second quarter compared to $100 million or 0.51
percent of average loans in the previous quarter. The provision for
loan losses was $20 million less than net charge-offs. A reduction
in non-performing and criticized loans resulted in an allowance for
loan and lease losses decline of 3 basis points to 1.30 percent of
total loans outstanding. Total non-accrual loans, excluding loans
held for sale, decreased 18 percent to 1.03 percent of loans
outstanding, and total business services criticized loans and total
delinquencies decreased 7 percent and 5 percent, respectively. The
decreases to non-accrual loans and business services criticized
loans were driven by broad-based improvement in commercial
loans.
Charge-offs related to the company’s direct energy portfolio
totaled $18 million in the quarter. The allowance for loan and
lease losses associated with the direct energy loan portfolio
increased to 6.9 percent compared to 6.1 percent in the previous
quarter. The company's direct energy exposure ended the quarter at
2.5 percent of total loans outstanding. Given the current phase of
the credit cycle, volatility in certain credit metrics can be
expected, especially related to large-dollar commercial credits and
fluctuating commodity prices.
The allowance for loan losses as a percentage of total
non-accrual loans was approximately 127 percent at quarter end.
Excluding direct energy, the allowance for loan losses, as a
percent of non-accrual loans, or the adjusted coverage ratio(1),
was 163 percent.
Comparison of second quarter 2017 to
second quarter 2016
Net charge-offs decreased 1 basis point compared to the second
quarter of 2016 and represented 0.34 percent of average loans
compared to 0.35 percent. The allowance for loan and lease losses
as a percent of total loans decreased 11 basis points.
Total non-accrual loans, excluding loans held for sale,
decreased 20 percent to 1.03 percent of loans outstanding, and
total business lending criticized loans and total delinquencies
decreased 10 percent and 11 percent, respectively.
Capital and
liquidity
As of and for Quarter Ended
6/30/2017 3/31/2017 6/30/2016 Basel III
Common Equity Tier 1 ratio(2) 11.4 % 11.3 % 11.0 % Basel III Common
Equity Tier 1 ratio — Fully Phased-In Pro-Forma (non-GAAP)(1)(2)
11.3 % 11.2 % 10.8 % Tier 1 capital ratio(2) 12.2 % 12.1 % 11.7 %
Tangible common stockholders’ equity to tangible assets
(non-GAAP)(1) 9.30 % 9.15 % 9.57 % Tangible common book value per
share (non-GAAP)(1) $ 9.28
$ 9.08 $ 9.22
Under the Basel III capital rules, Regions’ estimated capital
ratios remain well above current regulatory requirements. The Tier
1(2) and Common Equity Tier 1(2) ratios were estimated at 12.2
percent and 11.4 percent, respectively, at quarter-end under the
phase-in provisions. In addition, the Common Equity Tier 1
ratio(1)(2) was estimated at 11.3 percent on a fully phased-in
basis.
During the second quarter, the company repurchased $125 million
or 9.1 million shares of common stock and declared $84 million in
dividends to common shareholders reflecting 70 percent of earnings
returned to shareholders. The company’s liquidity position remained
solid with its loan-to-deposit ratio at the end of the quarter at
82 percent, and as of quarter-end, the company remained fully
compliant with the liquidity coverage ratio rule.
Additionally, during the second quarter, Regions completed the
annual Comprehensive Capital Analysis and Review (CCAR) process and
received no objection regarding planned capital actions. Capital
actions include the repurchase of up to $1.47 billion in common
shares over the next four quarters and a proposed increase to its
quarterly common stock dividend to $0.09 per common share beginning
in the third quarter of 2017. The $1.47 billion share repurchase
program was previously approved by the Board of Directors, and the
proposed dividend increase will be considered by the Board of
Directors at its meeting later in July 2017.
(1) Non-GAAP, refer to pages 11, 16, and 25 of the financial
supplement to this earnings release(2) Current quarter Basel III
common equity Tier 1, and Tier 1 capital ratios are estimated.
Conference Call
A replay of the earnings call will be available beginning
Friday, July 21, 2017, at 2 p.m. ET through Monday, August 21,
2017. To listen by telephone, please dial 1-855-859-2056, and use
access code 88441563. An archived webcast will also be available on
the Investor Relations page of www.regions.com.
About Regions Financial Corporation
Regions Financial Corporation (NYSE:RF), with $125 billion in
assets, is a member of the S&P 500 Index and is one of the
nation’s largest full-service providers of consumer and commercial
banking, wealth management, mortgage, and insurance products and
services. Regions serves customers across the South, Midwest and
Texas, and through its subsidiary, Regions Bank, operates
approximately 1,500 banking offices and 1,900 ATMs. Additional
information about Regions and its full line of products and
services can be found at www.regions.com.
Forward-Looking Statements
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect Regions’ current views with respect to future events and
financial performance. Forward-looking statements are not based on
historical information, but rather are related to future
operations, strategies, financial results or other developments.
Forward-looking statements are based on management’s expectations
as well as certain assumptions and estimates made by, and
information available to, management at the time the statements are
made. Those statements are based on general assumptions and are
subject to various risks, uncertainties and other factors that may
cause actual results to differ materially from the views, beliefs
and projections expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to,
those described below:
- Current and future economic and market
conditions in the United States generally or in the communities we
serve, including the effects of declines in property values,
unemployment rates and potential reductions of economic growth,
which may adversely affect our lending and other businesses and our
financial results and conditions.
- Possible changes in trade, monetary and
fiscal policies of, and other activities undertaken by,
governments, agencies, central banks and similar organizations,
which could have a material adverse effect on our earnings.
- The effects of a possible downgrade in
the U.S. government’s sovereign credit rating or outlook, which
could result in risks to us and general economic conditions that we
are not able to predict.
- Possible changes in market interest
rates or capital markets could adversely affect our revenue and
expense, the value of assets and obligations, and the availability
and cost of capital and liquidity.
- Any impairment of our goodwill or other
intangibles, or any adjustment of valuation allowances on our
deferred tax assets due to adverse changes in the economic
environment, declining operations of the reporting unit, or other
factors.
- Possible changes in the
creditworthiness of customers and the possible impairment of the
collectability of loans and leases, including operating
leases.
- Changes in the speed of loan
prepayments, loan origination and sale volumes, charge-offs, loan
loss provisions or actual loan losses where our allowance for loan
losses may not be adequate to cover our eventual losses.
- Possible acceleration of prepayments on
mortgage-backed securities due to low interest rates, and the
related acceleration of premium amortization on those
securities.
- Our ability to effectively compete with
other financial services companies, some of whom possess greater
financial resources than we do and are subject to different
regulatory standards than we are.
- Loss of customer checking and savings
account deposits as customers pursue other, higher-yield
investments, which could increase our funding costs.
- Our inability to develop and gain
acceptance from current and prospective customers for new products
and services in a timely manner could have a negative impact on our
revenue.
- The effects of any developments,
changes or actions relating to any litigation or regulatory
proceedings brought against us or any of our subsidiaries.
- Changes in laws and regulations
affecting our businesses, such as the Dodd-Frank Act and other
legislation and regulations relating to bank products and services,
as well as changes in the enforcement and interpretation of such
laws and regulations by applicable governmental and self-regulatory
agencies, which could require us to change certain business
practices, increase compliance risk, reduce our revenue, impose
additional costs on us, or otherwise negatively affect our
businesses.
- 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, or redeem preferred stock or other
regulatory capital instruments, may impact our ability to return
capital to stockholders and market perceptions of us.
- 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 and
intensity of such tests and requirements.
- Our ability to comply with applicable
capital and liquidity requirements (including, among other things,
the Basel III capital standards and the LCR rule), including our
ability to generate capital internally or raise capital on
favorable terms, and if we fail to meet requirements, our financial
condition could be negatively impacted.
- The Basel III framework calls for
additional risk-based capital surcharges for globally systemically
important banks. Although we are not subject to such surcharges, it
is possible that in the future we may become subject to similar
surcharges.
- The costs, including possibly incurring
fines, penalties, or other negative effects (including reputational
harm) of any adverse judicial, administrative, or arbitral rulings
or proceedings, regulatory enforcement actions, or other legal
actions to which we or any of our subsidiaries are a party, and
which may adversely affect our results.
- Our ability to manage fluctuations in
the value of assets and liabilities and off-balance sheet exposure
so as to maintain sufficient capital and liquidity to support our
business.
- Our ability to execute on our strategic
and operational plans, including our ability to fully realize the
financial and non-financial benefits relating to our strategic
initiatives.
- The success of our marketing efforts in
attracting and retaining customers.
- Possible changes in consumer and
business spending and saving habits and the related effect on our
ability to increase assets and to attract deposits, which could
adversely affect our net income.
- Our ability to recruit and retain
talented and experienced personnel to assist in the development,
management and operation of our products and services may be
affected by changes in laws and regulations in effect from time to
time.
- Fraud or misconduct by our customers,
employees or business partners.
- Any inaccurate or incomplete
information provided to us by our customers or counterparties.
- The risks and uncertainties related to
our acquisition and integration of other companies.
- Inability of our framework to manage
risks associated with our business such as credit risk and
operational risk, including third-party vendors and other service
providers, which could, among other things, result in a breach of
operating or security systems as a result of a cyber attack or
similar act.
- The inability of our internal
disclosure controls and procedures to prevent, detect or mitigate
any material errors or fraudulent acts.
- The effects of geopolitical
instability, including wars, conflicts and terrorist attacks and
the potential impact, directly or indirectly, on our
businesses.
- The effects of man-made and natural
disasters, including fires, floods, droughts, tornadoes,
hurricanes, and environmental damage, which may negatively affect
our operations and/or our loan portfolios and increase our cost of
conducting business.
- Changes in commodity market prices and
conditions could adversely affect the cash flows of our borrowers
operating in industries that are impacted by changes in commodity
prices (including businesses indirectly impacted by commodities
prices such as businesses that transport commodities or manufacture
equipment used in the production of commodities), which could
impair their ability to service any loans outstanding to them
and/or reduce demand for loans in those industries.
- Our inability to keep pace with
technological changes could result in losing business to
competitors.
- Our ability to identify and address
cyber-security risks such as data security breaches, “denial of
service” attacks, “hacking” and identity theft, a failure of which
could disrupt our business and result in the disclosure of and/or
misuse or misappropriation of confidential or proprietary
information; disruption or damage to our systems; increased costs;
losses; or adverse effects to our reputation.
- Our ability to realize our adjusted
efficiency ratio target as part of our expense management
initiatives.
- Significant disruption of, or loss of
public confidence in, the Internet and services and devices used to
access the Internet could affect the ability of our customers to
access their accounts and conduct banking transactions.
- Possible downgrades in our credit
ratings or outlook could increase the costs of funding from capital
markets.
- 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 affect our businesses.
- The effects of the failure of any
component of our business infrastructure provided by a third party
could disrupt our businesses; result in the disclosure of and/or
misuse of confidential information or proprietary information;
increase our costs; negatively affect our reputation; and cause
losses.
- Our ability to receive dividends from
our subsidiaries could affect our liquidity and ability to pay
dividends to stockholders.
- Changes in accounting policies or
procedures as may be required by the FASB or other regulatory
agencies could materially affect how we report our financial
results.
- Other risks identified from time to
time in reports that we file with the SEC.
- The effects of any damage to our
reputation resulting from developments related to any of the items
identified above.
The foregoing list of factors is not exhaustive. For discussion
of these and other factors that may cause actual results to differ
from expectations, look under the captions “Forward-Looking
Statements” and “Risk Factors” of Regions’ Annual Report on Form
10-K for the year ended December 31, 2016, as filed with the
SEC.
The words “anticipates,” “intends,” “plans,” “seeks,”
“believes,” “estimates,” “expects,” “targets,” “projects,”
“outlook,” “forecast,” “will,” “may,” “could,” “should,” “can,” and
similar expressions often signify forward-looking statements. You
should not place undue reliance on any forward-looking statements,
which speak only as of the date made. We assume no obligation to
update or revise any forward-looking statements that are made from
time to time.
Regions’ Investor Relations contact is Dana
Nolan at (205) 264-7040; Regions’ Media contact is Evelyn
Mitchell at (205) 264-4551.
Use of non-GAAP financial measures
Management uses the adjusted efficiency ratio (non-GAAP) and the
adjusted fee income ratio (non-GAAP) to monitor performance and
believes these measures provide meaningful information to
investors. Non-interest expense (GAAP) is presented excluding
certain adjustments to arrive at adjusted non-interest expense
(non-GAAP), which is the numerator for the efficiency ratio.
Non-interest income (GAAP) is presented excluding certain
adjustments to arrive at adjusted non-interest income (non-GAAP),
which is the numerator for the fee income ratio. Net interest
income and other financing income on a taxable-equivalent basis and
non-interest income are added together to arrive at total revenue
on a taxable-equivalent basis. Adjustments are made to arrive at
adjusted total revenue on a taxable-equivalent basis (non-GAAP),
which is the denominator for the fee income and efficiency ratios.
Regions believes that the exclusion of these adjustments provides a
meaningful base for period-to-period comparisons, which management
believes will assist investors in analyzing the operating results
of the Company and predicting future performance. These non-GAAP
financial measures are also used by management to assess the
performance of Regions’ business. It is possible that the
activities related to the adjustments may recur; however,
management does not consider the activities related to the
adjustments to be indications of ongoing operations. Regions
believes that presentation of these non-GAAP financial measures
will permit investors to assess the performance of the Company on
the same basis as that applied by management.
The Company's allowance for loan losses as a percentage of
non-accrual loans, or coverage ratio is an important credit metric
to many investors. Much of the Company's energy exposure is
collateralized and therefore requires a lower specific allowance.
Adjusting the Company's total allowance for loan losses to exclude
the portion attributable to energy and excluding non-accrual energy
loans produces an adjusted coverage ratio that management believes
could be meaningful to investors.
Tangible common stockholders’ equity ratios have become a focus
of some investors and management believes they may assist investors
in analyzing the capital position of the Company absent the effects
of intangible assets and preferred stock. Analysts and banking
regulators have assessed Regions’ capital adequacy using the
tangible common stockholders’ equity measure. Because tangible
common stockholders’ equity is not formally defined by GAAP or
prescribed in any amount by federal banking regulations it is
currently considered to be a non-GAAP financial measure and other
entities may calculate it differently than Regions’ disclosed
calculations. Since analysts and banking regulators may assess
Regions’ capital adequacy using tangible common stockholders’
equity, management believes that it is useful to provide investors
the ability to assess Regions’ capital adequacy on this same
basis.
The calculation of the fully phased-in pro-forma "Common equity
Tier 1" (CET1) is based on Regions’ understanding of the Final
Basel III requirements. For Regions, the Basel III framework became
effective on a phased-in approach starting in 2015 with full
implementation beginning in 2019. The calculation includes
estimated pro-forma amounts for the ratio on a fully phased-in
basis. Regions’ current understanding of the final framework
includes certain assumptions, including the Company’s
interpretation of the requirements, and informal feedback received
through the regulatory process. Regions’ understanding of the
framework is evolving and will likely change as analysis and
discussions with regulators continue. Because Regions is not
currently subject to the fully-phased in capital rules, this
pro-forma measure is considered to be a non-GAAP financial measure,
and other entities may calculate it differently from Regions’
disclosed calculation.
A company's regulatory capital is often expressed as a
percentage of risk-weighted assets. Under the risk-based capital
framework, a company’s balance sheet assets and credit equivalent
amounts of off-balance sheet items are assigned to broad risk
categories. The aggregated dollar amount in each category is then
multiplied by the prescribed risk-weighted percentage. The
resulting weighted values from each of the categories are added
together and this sum is the risk-weighted assets total that, as
adjusted, comprises the denominator of certain risk-based capital
ratios. CET1 capital is then divided by this denominator
(risk-weighted assets) to determine the CET1 capital ratio. The
amounts disclosed as risk-weighted assets are calculated consistent
with banking regulatory requirements on a fully phased-in
basis.
Non-GAAP financial measures have inherent limitations, are not
required to be uniformly applied and are not audited. Although
these non-GAAP financial measures are frequently used by
stakeholders in the evaluation of a company, they have limitations
as analytical tools, and should not be considered in isolation, or
as a substitute for analyses of results as reported under GAAP. In
particular, a measure of earnings that excludes selected items does
not represent the amount that effectively accrues directly to
stockholders.
Management and the Board of Directors utilize non-GAAP measures
as follows:
- Preparation of Regions' operating
budgets
- Monthly financial performance
reporting
- Monthly close-out reporting of
consolidated results (management only)
- Presentation to investors of company
performance
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170721005081/en/
Regions Financial CorporationMedia Contact:Evelyn Mitchell,
205-264-4551orInvestor Relations Contact:Dana Nolan,
205-264-7040
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