Despite significant increase to allowance for
credit losses, delivers solid revenue and pre-tax pre-provision
income(1) growth over the prior year
Regions Financial Corporation (NYSE:RF) today announced results
for the second quarter ended June 30, 2020. The company reported a
net loss available to common shareholders of $237 million, or $0.25
loss per share. Results include a credit loss provision in excess
of net charge-offs of $700 million. The resulting increase to the
company's allowance for credit losses reflects adverse conditions
and significant uncertainty around the economic outlook combined
with downgrades in certain loan portfolios significantly impacted
by the COVID-19 pandemic. Total revenue and pre-tax pre-provision
income(1) each increased 8 percent over the prior year. Adjusted
revenue(1) grew 6 percent while adjusted pre-tax pre-provision
income(1) increased 8 percent, representing its highest level in
over a decade. Pre-tax pre-provision income reflected strong loan
and deposit growth and the benefits of a proactive interest rate
hedging strategy despite a challenging operating environment.
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"While our company and industry continue to navigate the
unprecedented economic conditions created by the global coronavirus
pandemic, this quarter's results demonstrate that our core business
is solid and resilient," said John Turner, President and CEO. "Our
reported net loss reflects a significant credit loss provision that
provides for potential future losses in the severely adverse
economy in which we are operating. The actions we have taken over
time to strengthen and diversify our business, de-risk our loan
book, deploy an effective interest rate hedging program and
streamline our operating model have positioned us to support our
customers and communities through these challenges."
"We continue to prioritize proactive risk management and
strategic investments to improve service, efficiency and
effectiveness while carefully managing expenses," continued Turner.
"By focusing on our customers and the things we can control, we
will deliver sustainable, long-term performance for our
shareholders."
Regions is continuing to offer financial assistance to support
customers experiencing financial hardships related to the COVID-19
pandemic. As of June 30, 2020, the company has processed
approximately 27,000 consumer payment deferral requests totaling
$1.9 billion, including approximately 5,500 totaling $1.4 billion
related to residential mortgages. In addition, the company has
processed requests for approximately 18,000 mortgage loans serviced
for others totaling $3.0 billion. From a business customer
perspective, the company has processed approximately 14,000 payment
deferral requests totaling $3.8 billion. In addition, Regions has
facilitated assistance to its business customers through the Small
Business Administration's (SBA) Paycheck Protection Program (PPP)
totaling approximately $5 billion as of June 30, 2020.
Importantly, Regions continues to support customers outside of
the stimulus programs. During the quarter, new and renewed
originations to business customers, excluding PPP loans, totaled
just under $13 billion. Of that total, approximately half
represented new production and half represented renewals.
SUMMARY OF SECOND QUARTER 2020 RESULTS:
Quarter Ended
(amounts in millions, except per share
data)
6/30/2020
3/31/2020
6/30/2019
Net income (loss)
$
(214
)
$
162
$
390
Preferred dividends
23
23
16
Net income (loss) available to common
shareholders
$
(237
)
$
139
$
374
Weighted-average diluted shares
outstanding
960
961
1,012
Actual shares outstanding—end of
period
960
957
1,004
Diluted earnings (loss) per common
share
$
(0.25
)
$
0.14
$
0.37
Selected items impacting
earnings:
Pre-tax adjusted items(1):
Branch consolidation, property and
equipment charges
$
(10
)
$
(11
)
$
(2
)
Loss on early extinguishment of debt
(6
)
—
—
Salaries and benefits related to severance
charges
(2
)
(1
)
(2
)
Professional and related fees associated
with the purchase of Ascentium Capital
(8
)
—
—
Securities gains (losses), net
1
—
(19
)
Leveraged lease termination gains
—
2
—
Total pre-tax adjusted items(1)
$
(25
)
$
(10
)
$
(23
)
Diluted EPS impact*
$
(0.02
)
$
(0.01
)
$
(0.02
)
Pre-tax additional selected items**:
CECL provision in excess of net
charge-offs***
$
(700
)
$
(250
)
$
—
Capital markets income - CVA/DVA
34
(34
)
(7
)
MSR net hedge performance
2
14
(7
)
PPP loans net interest income
16
—
—
COVID-19 related expenses
(19
)
(4
)
—
Total pre-tax additional selected
items**
$
(667
)
$
(274
)
$
(14
)
* Based on income taxes at an approximate 25% incremental rate.
Tax rates associated with leveraged lease terminations are
incrementally higher based on their structure. ** Items represent
an outsized or unusual impact to the quarter or quarterly trends,
but are not considered non-GAAP adjustments. *** CECL was adopted
January 1, 2020. Periods prior to January 1, 2020 reflect results
under the incurred loss model.
During the second quarter of 2020, total revenue increased
approximately 9 percent on a reported and adjusted basis(1)
compared to the first quarter of 2020, reflecting growth in both
net interest income and non-interest income. Despite lower market
interest rates, net interest income benefited from the company's
significant hedging program as well as elevated loan balances,
including the impact of the company's second quarter purchase of
equipment finance business Ascentium Capital and loans originated
through the SBA's PPP. Non-interest income benefited from strong
mortgage production and capital markets activity, as well as market
value recoveries in customer derivative credit valuation
adjustments and assets held for employee benefits which are offset
within salaries and benefits. Non-interest expense increased 11
percent during the quarter on a reported basis and 9 percent on an
adjusted basis(1), driven by increases in salaries and benefits,
including expenses related to the company's recent equipment
finance acquisition, professional fees and expenses related to the
COVID-19 pandemic. Despite a challenging economic backdrop, pre-tax
pre-provision income(1) increased 8 percent, and adjusted pre-tax
pre-provision income(1) increased 10 percent, in each case, versus
the prior quarter.
During the second quarter, credit loss provision totaled $882
million. The provision reflects adverse conditions and significant
uncertainty within the economic outlook combined with downgrades in
certain portfolios, as well as the impact of $182 million in net
charge-offs. This quarter's provision also includes $64 million
related to the initial allowance for non-credit deteriorated loans
acquired with the company's equipment finance purchase, which
closed on April 1, 2020. Compared to the first quarter of 2020,
annualized net charge-offs increased to 0.80 percent of average
loans, while total non-performing loans decreased 4 basis points to
0.68 percent of total loans outstanding. Business services
criticized loans increased 263 basis points to 7.0 percent of total
business services loans outstanding. The allowance for credit
losses increased to 2.68 percent of total loans and 395 percent of
non-performing loans, excluding loans held for sale. Excluding PPP
loans, which are fully government guaranteed, the allowance for
credit losses increases to 2.82 percent(1).
Non-GAAP adjusted items(1) impacting the company's earnings are
identified to assist investors in analyzing Regions' operating
results on the same basis as that applied by management and provide
a basis to predict future performance. Non-GAAP adjusted items(1)
in the current quarter reflect, among other things, the company's
continued focus on increasing organizational efficiency and
effectiveness. This included $10 million of net expenses associated
with branch consolidations and property and equipment charges.
Additional items this quarter include $6 million in early debt
extinguishment charges and approximately $8 million in professional
fees and related costs associated with the company's equipment
finance business purchase Ascentium Capital.
Total revenue
Quarter Ended
($ amounts in millions)
6/30/2020
3/31/2020
6/30/2019
2Q20 vs. 1Q20
2Q20 vs. 2Q19
Net interest income
$
972
$
928
$
942
$
44
4.7
%
$
30
3.2
%
Taxable equivalent adjustment
13
12
14
1
8.3
%
(1
)
(7.1
)%
Net interest income, taxable equivalent
basis
$
985
$
940
$
956
$
45
4.8
%
$
29
3.0
%
Net interest margin (FTE)
3.19
%
3.44
%
3.45
%
Non-interest income:
Service charges on deposit accounts
$
131
$
178
$
181
$
(47
)
(26.4
)%
$
(50
)
(27.6
)%
Card and ATM fees
101
105
120
(4
)
(3.8
)%
(19
)
(15.8
)%
Wealth management income
79
84
79
(5
)
(6.0
)%
—
—
%
Capital markets income
95
9
39
86
NM
56
143.6
%
Mortgage income
82
68
31
14
20.6
%
51
164.5
%
Commercial credit fee income
17
18
18
(1
)
(5.6
)%
(1
)
(5.6
)%
Bank-owned life insurance
18
17
19
1
5.9
%
(1
)
(5.3
)%
Securities gains (losses), net
1
—
(19
)
1
NM
20
105.3
%
Market value adjustments on employee
benefit assets*
16
(25
)
(2
)
41
164.0
%
18
NM
Other
33
31
28
2
6.5
%
5
17.9
%
Non-interest income
$
573
$
485
$
494
$
88
18.1
%
$
79
16.0
%
Total revenue
$
1,545
$
1,413
$
1,436
$
132
9.3
%
$
109
7.6
%
Adjusted total revenue
(non-GAAP)(1)
$
1,544
$
1,411
$
1,455
$
133
9.4
%
$
89
6.1
%
NM - Not Meaningful * These market value adjustments relate to
assets held for employee benefits that are offset within salaries
and employee benefits expense.
Comparison of second quarter 2020 to first
quarter 2020
Total revenue of approximately $1.5 billion increased 9 percent
on a reported and adjusted basis(1) compared to the prior quarter.
Net interest income increased 5 percent, while net interest margin
decreased 25 basis points to 3.19 percent. Net interest income was
supported by loan growth attributable to the company's equipment
finance acquisition, PPP loans, and higher average commercial line
draws, as well as the company's significant hedging program. Net
interest income also benefited from strong deposit growth,
attributable to stimulus programs and customer focus on liquidity
management. However, this elevated liquidity negatively impacted
net interest margin. Additionally, while net interest income and
net interest margin are well-protected from declines in short-term
interest rates through hedging and deposit cost management,
declines in long-term interest rates introduce pressure through
higher mortgage-backed securities' (MBS) premium amortization and
the repricing of fixed-rate loans and securities at lower market
interest rate levels.
Non-interest income increased approximately 18 percent on a
reported and an adjusted basis(1) as increases in mortgage and
capital markets income more than offset declines in service
charges, card & ATM fees, and wealth management income.
Mortgage income increased 21 percent driven primarily by record
production volumes associated with the low interest rate
environment. Capital markets also experienced a record quarter with
income higher by $86 million, reflecting increases across most
categories. Within capital markets, debt and equity underwriting as
well as permanent financing placements for real estate clients each
experienced a record quarter. Capital markets income was also
favorably impacted by $34 million of positive market-related credit
valuation adjustments resulting primarily from normalizing credit
spreads during the second quarter, compared to $34 million of
negative valuation adjustments during the prior quarter. Service
charges and card & ATM fees decreased 26 percent and 4 percent,
respectively driven by elevated customer deposits and a general
decline in consumer spending activity associated with the COVID-19
pandemic. Similarly, wealth management income decreased 6 percent
driven primarily by a decline in customer activity. Market value
adjustments on employee benefit assets improved during the quarter,
however, this improvement was offset through a corresponding
increase in salaries and benefits.
Comparison of second quarter 2020 to
second quarter 2019
Total revenue increased 8 percent on a reported basis and 6
percent on an adjusted basis(1) compared to the second quarter of
2019. Net interest income increased 3 percent, while net interest
margin decreased 26 basis points. Net interest income was supported
by loan growth attributable to the company's equipment finance
acquisition, PPP loans, and higher average commercial line draws.
While these items support net interest income, elevated liquidity
in the form of lower returning assets such as excess cash held at
the Federal Reserve, PPP loans, and average commercial line draws
reduced net interest margin. Additionally, while net interest
income and net interest margin are well-protected from declines in
short-term interest rates through hedging and deposit cost
management, long-term interest rate reductions did introduce
pressure when compared to the second quarter of 2019, through
higher MBS premium amortization and repricing of fixed-rate loans
and securities at lower market interest rate levels.
Non-interest income increased 16 percent on a reported basis and
12 percent on an adjusted basis(1). Mortgage income increased
significantly to $82 million, driven by increased production and
sales income reflecting a 171 percent increase in total mortgage
production as lower market interest rates drove increased activity.
Capital markets income also increased significantly reflecting
growth across most categories. The increase was also impacted by
significant improvement in market-related credit valuation
adjustments tied to customer derivatives. Service charges and card
& ATM fees declined 28 percent and 16 percent, respectively as
consumer activity was negatively impacted by the COVID-19
pandemic.
Non-interest expense
Quarter Ended
($ amounts in millions)
6/30/2020
3/31/2020
6/30/2019
2Q20 vs. 1Q20
2Q20 vs. 2Q19
Salaries and employee benefits
$
527
$
467
$
469
$
60
12.8
%
$
58
12.4
%
Net occupancy expense
76
79
80
(3
)
(3.8
)%
(4
)
(5.0
)%
Furniture and equipment expense
86
83
84
3
3.6
%
2
2.4
%
Outside services
44
45
52
(1
)
(2.2
)%
(8
)
(15.4
)%
Professional, legal and regulatory
expenses
28
18
26
10
55.6
%
2
7.7
%
Marketing
22
24
23
(2
)
(8.3
)%
(1
)
(4.3
)%
FDIC insurance assessments
15
11
12
4
36.4
%
3
25.0
%
Credit/checkcard expenses
12
13
18
(1
)
(7.7
)%
(6
)
(33.3
)%
Branch consolidation, property and
equipment charges
10
11
2
(1
)
(9.1
)%
8
400.0
%
Visa class B shares expense
9
4
3
5
125.0
%
6
200.0
%
Loss on early extinguishment of debt
6
—
—
6
NM
6
NM
Other
89
81
92
8
9.9
%
(3
)
(3.3
)%
Total non-interest expense
$
924
$
836
$
861
$
88
10.5
%
$
63
7.3
%
Total adjusted non-interest expense(1)
$
898
$
824
$
857
$
74
9.0
%
$
41
4.8
%
NM - Not Meaningful
Comparison of second quarter 2020 to first
quarter 2020
Non-interest expense increased 11 percent on a reported basis
and 9 percent on an adjusted basis(1) compared to the first
quarter. Salaries and benefits increased 13 percent driven
primarily by positive market value adjustments on certain employee
benefit assets, the addition of approximately 460 associates
through the company's equipment finance acquisition, increased
production-based incentives tied primarily to elevated mortgage and
capital markets income, COVID-19 related bonuses, and the company's
annual merit increase. Professional fees increased 56 percent
driven primarily by costs associated with the company's equipment
finance acquisition. FDIC insurance assessments increased 36
percent attributable primarily to the effects of unfavorable
economic conditions, a higher assessment base and changes in
unsecured bank debt. In addition, expenses associated with Visa
class B shares sold in a prior year increased to $9 million. The
company also incurred a $6 million loss associated with $7.4
billion of early extinguishment of FHLB advances and a $650 million
bank debt tender. These liability management actions were executed
in response to excess liquidity levels resulting from this
quarter's significant deposit growth.
The company's second quarter efficiency ratio was 59.4 percent
on a reported basis and 57.7 percent on an adjusted basis(1). The
effective tax rate was approximately 18.3 percent.
Comparison of second quarter 2020 to
second quarter 2019
Non-interest expense increased 7 percent on a reported basis and
5 percent on an adjusted basis(1) compared to the second quarter of
2019. Salaries and benefits increased 12 percent driven primarily
by higher production-based incentives and the addition of
associates through the company's equipment finance acquisition.
Occupancy expense decreased 5 percent driven primarily by lower
utilities and maintenance expenses resulting from the reduced use
of corporate space during the pandemic. In addition, other
non-interest expense decreased driven primarily by a reduction in
operational losses.
Loans and Leases
Average Balances
($ amounts in millions)
2Q20
1Q20
2Q19
2Q20 vs. 1Q20
2Q20 vs. 2Q19
Commercial and industrial
$
49,296
$
40,519
$
40,707
$
8,777
21.7
%
$
8,589
21.1%
Commercial real estate—owner-occupied
5,804
5,832
5,895
(28
)
(0.5
)%
(91
)
(1.5)%
Investor real estate
7,019
6,648
6,496
371
5.6
%
523
8.1%
Business Lending
62,119
52,999
53,098
9,120
17.2
%
9,021
17.0%
Residential first mortgage
14,884
14,469
14,150
415
2.9
%
734
5.2%
Home equity
8,042
8,275
8,910
(233
)
(2.8
)%
(868
)
(9.7)%
Indirect—vehicles*
1,441
1,679
2,578
(238
)
(14.2
)%
(1,137
)
(44.1)%
Indirect—other consumer
3,111
3,263
2,662
(152
)
(4.7
)%
449
16.9%
Consumer credit card
1,230
1,348
1,286
(118
)
(8.8
)%
(56
)
(4.4)%
Other consumer
1,137
1,216
1,221
(79
)
(6.5
)%
(84
)
(6.9)%
Consumer Lending
29,845
30,250
30,807
(405
)
(1.3
)%
(962
)
(3.1)%
Total Loans
$
91,964
$
83,249
$
83,905
$
8,715
10.5
%
$
8,059
9.6%
Adjusted Consumer Lending
(non-GAAP)(1)
28,404
28,571
28,229
(167
)
(0.6
)%
175
0.6%
Adjusted Total Loans (non-GAAP)(1)
$
90,523
$
81,570
$
81,327
$
8,953
11.0
%
$
9,196
11.3%
NM - Not meaningful. * Indirect vehicles is an exit
portfolio.
Comparison of second quarter 2020 to first
quarter 2020
Average loans and leases increased approximately 10 percent on a
reported basis and 11 percent on an adjusted basis(1) compared to
the prior quarter. Business lending loan growth was driven by the
company's equipment finance acquisition and loans originated
through the SBA's PPP, which together added approximately $5
billion to average loans during the quarter. Average business
lending loan growth was also impacted by elevated commercial line
draws experienced late in the first quarter. Commercial loan
utilization levels normalized during the quarter ending at
approximately 45 percent, in-line with pre-pandemic trends.
Adjusted(1) average balances in the consumer lending portfolio
declined 1 percent as growth in residential first mortgage was more
than offset by declines in other categories.
Comparison of second quarter 2020 to
second quarter 2019
Average loans and leases increased 10 percent on a reported
basis, and 11 percent on an adjusted basis(1) compared to the
second quarter of 2019. Average balances in the business lending
portfolio increased 17 percent led by growth in commercial and
industrial loans resulting primarily from the company's equipment
finance acquisition, PPP loans, and elevated commercial line draws
experienced late in the first quarter of 2020. Owner-occupied
commercial real estate loans declined 2 percent, while investor
real estate loans increased 8 percent. Adjusted(1) average balances
in the consumer lending portfolio increased 1 percent as growth in
residential first mortgage and indirect-other consumer was
partially offset by declines in consumer credit card, home equity
lending and other consumer loans.
Deposits
Average Balances
($ amounts in millions)
2Q20
1Q20
2Q19
2Q20 vs. 1Q20
2Q20 vs. 2Q19
Customer low-cost deposits
$
104,159
$
87,451
$
85,908
$
16,708
19.1%
$
18,251
21.2%
Customer time deposits
6,690
7,302
7,800
(612
)
(8.4)%
(1,110
)
(14.2)%
Corporate treasury time deposits
72
280
657
(208
)
(74.3)%
(585
)
(89.0)%
Corporate treasury other deposits
—
639
553
(639
)
(100.0)%
(553
)
(100.0)%
Total Deposits
$
110,921
$
95,672
$
94,918
$
15,249
15.9%
$
16,003
16.9%
($ amounts in millions)
2Q20
1Q20
2Q19
2Q20 vs. 1Q20
2Q20 vs. 2Q19
Consumer Bank Segment
$
65,722
$
59,711
$
59,277
$
6,011
10.1%
$
6,445
10.9%
Corporate Bank Segment
36,409
26,618
26,154
9,791
36.8%
10,255
39.2%
Wealth Management Segment
8,382
8,073
7,924
309
3.8%
458
5.8%
Other
408
1,270
1,563
(862
)
(67.9)%
(1,155
)
(73.9)%
Total Deposits
$
110,921
$
95,672
$
94,918
$
15,249
15.9%
$
16,003
16.9%
Comparison of second quarter 2020 to first
quarter 2020
Total average deposit balances increased 16 percent to $111
billion in the second quarter. Average Consumer segment deposit
growth was driven by government stimulus payments as well as
reduced spending related to the COVID-19 pandemic. Corporate
segment deposit growth reflects customers bringing excess deposits
back to Regions. In addition, many corporate customers have used
other sources of liquidity to paydown line draws maintaining
current balances within their deposit accounts. Wealth segment
deposit growth was driven by delayed tax filing deadline as well as
elevated client liquidity needs.
Comparison of second quarter 2020 to
second quarter 2019
Total average deposit balances increased 17 percent compared to
the second quarter of 2019 as growth in low-cost deposits was
partially offset a decrease in average time deposits. Growth in
average Consumer, Wealth and Corporate segment deposits was
partially offset by declines in average Other segment deposits.
Asset quality
As of and for the Quarter
Ended
($ amounts in millions)
6/30/2020
3/31/2020
6/30/2019
ACL/Loans, net
2.68%
1.89%
1.08%
ALL/Loans, net
2.51%
1.77%
1.02%
Allowance for credit losses to
non-performing loans, excluding loans held for sale
395%
261%
169%
Allowance for loan losses to
non-performing loans, excluding loans held for sale
370%
244%
160%
Provision for credit losses*
$882
$373
$92
Net loans charged-off
$182
$123
$92
Net loan charge-offs as a % of average
loans, annualized
0.80%
0.59%
0.44%
Non-accrual loans, excluding loans held
for sale/Loans, net
0.68%
0.72%
0.64%
NPAs (ex. 90+ past due)/Loans, foreclosed
properties, non-marketable investments and non-performing loans
held for sale
0.74%
0.79%
0.72%
NPAs (inc. 90+ past due)/Loans, foreclosed
properties, non-marketable investments and non-performing loans
held for sale**
0.93%
0.96%
0.89%
Total TDRs, excluding loans held for
sale
$626
$599
$703
Total Criticized Loans—Business
Services***
$4,225
$2,524
$2,124
* CECL was adopted January 1, 2020. Periods prior to January 1,
2020 reflect results under the incurred loss model. Upon adoption
of CECL, the provision for credit losses is the sum of the
provision for loan losses and the provision for unfunded credit
commitments. Prior to the adoption of CECL, the provision for
unfunded commitments was included in other non-interest expense. **
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 2020 to first
quarter 2020
Credit loss provision for the second quarter totaled $882
million representing a $509 million increase over the first
quarter. The provision reflects adverse conditions and significant
uncertainty within the economic outlook combined with downgrades in
certain portfolios, as well as the impact of $182 million in net
charge-offs. Significant uncertainty within the economic outlook
includes uncertainty regarding the impact of unemployment as well
as the benefits of government stimulus enacted and potential
additional stimulus. This quarter's provision also includes $64
million related to the initial allowance for non-credit
deteriorated loans acquired as part of the company's equipment
finance acquisition. The resulting allowance for credit losses is
equal to 2.68 percent of total loans and 395 percent of total
non-accrual loans, excluding loans held for sale. Excluding PPP
loans, which are fully government guaranteed, the allowance for
credit losses increases to 2.82 percent(1). Annualized net
charge-offs increased to 80 basis points of average loans. The
increase reflects charges taken within the energy and restaurant
portfolios. Additionally, results include charge-offs from the
company's recent equipment finance acquisition. Total non-accrual
loans, excluding loans held for sale, decreased 4 basis points to
0.68 percent of total loans. Total delinquencies and troubled debt
restructured loans increased 6 percent and 5 percent, respectively.
As the company has continued to work with customers through loan
deferral or forbearance, existing credit policies remain in effect
including downward risk-rating revisions as necessary. This
approach, as well as specific downgrades resulting from detailed
reviews within the energy, restaurant, hotel and retail portfolios,
resulted in a 67 percent increase in business services criticized
loans.
Comparison of second quarter 2020 to
second quarter 2019
Annualized net charge-offs increased 36 basis points compared
with the second quarter of 2019, and the allowance for credit
losses as a percent of total loans increased 160 basis points
reflecting the adoption of CECL and deterioration in the loan
portfolio due to the onset of COVID-19. As a percent of total
non-accrual loans, excluding loans held for sale, the allowance for
credit losses increased 226 percentage points. Total business
services criticized loans increased 99 percent driven primarily by
an increase in the energy, restaurant, hotel and retail portfolios.
Total delinquencies and total troubled debt restructured loans
decreased 5 percent and 11 percent, respectively.
Capital and liquidity
As of and for Quarter
Ended
6/30/2020
3/31/2020
6/30/2019
Basel III Common Equity Tier 1
ratio(2)
8.9%
9.4%
9.9%
Tier 1 capital ratio(2)
10.4%
10.6%
11.1%
Tangible common stockholders’ equity to
tangible assets (non-GAAP)(1)
7.72%
8.68%
8.53%
Tangible common book value per share
(non-GAAP)(1)*
$11.16
$11.67
$10.42
* Tangible common book value per share includes the impact of
quarterly earnings and changes to market value adjustments within
accumulated other comprehensive income, as well as continued
capital returns.
During the second quarter, the Federal Reserve released the
results of its Supervisory Stress Test and indicated that Regions
exceeded all minimum capital levels under the severely adverse
scenario. Regions' preliminary Stress Capital Buffer requirement
for the fourth quarter of 2020 through the third quarter of 2021,
as determined by the Federal Reserve, is 3.0 percent, representing
the amount of capital degradation under the severely adverse
scenario, inclusive of four quarters of planned common stock
dividends. Regions' robust capital planning process is designed to
ensure the efficient use of capital and to support lending
activities and focus on appropriate shareholder returns. Regions'
Board of Directors will evaluate the common stock dividend at its
regularly scheduled meeting in July 2020.
Regions maintains a strong capital position. Estimated capital
ratios remain well above current regulatory requirements under the
Basel III capital rules. The Tier 1(2) and Common Equity Tier 1(2)
ratios were estimated at 10.4 percent and 8.9 percent,
respectively, at quarter-end. The linked-quarter declines in these
ratios were driven primarily by this quarter's net loss, the
purchase of Ascentium Capital, and growth in risk-weighted assets.
The company's issuance of $350 million of preferred equity during
the quarter mitigated the decline in Tier 1 capital. In addition,
growth in total deposits has contributed to historically elevated
liquidity sources for the company, well above internal risk
requirements.
The company declared $149 million in dividends to common
shareholders during the second quarter. The company did not
repurchase shares in the quarter and as previously announced will
temporarily suspend share repurchases through year-end 2020 due to
the COVID-19 pandemic.
(1) Non-GAAP; refer to pages 7, 11, 12, 13, 15, 20, 21, and 24
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 17, 2020, at 2 p.m. ET through Monday, August 17,
2020. To listen by telephone, please dial 855-859-2056, and use
access code 9063417. 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 $144 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, and mortgage products and services.
Regions serves customers across the South, Midwest and Texas, and
through its subsidiary, Regions Bank, operates approximately 1,400
banking offices and 2,000 ATMs. Regions Bank is an Equal Housing
Lender and Member FDIC. 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. Any
statement that does not describe historical or current facts is a
forward-looking statement. 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 current
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, and because they also relate to the
future they are likewise subject to inherent uncertainties and
other factors that may cause actual results to differ materially
from the views, beliefs and projections expressed in such
statements. Therefore, we caution you against relying on any of
these forward-looking 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 (in particular the
Southeastern United States), including the effects of possible
declines in property values, increases in unemployment rates,
financial market disruptions 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.
- 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.
- The impact of pandemics, including the COVID-19 pandemic, on
our businesses and financial results and conditions.
- Any impairment of our goodwill or other intangibles, any
repricing of assets, or any adjustment of valuation allowances on
our deferred tax assets due to changes in law, adverse changes in
the economic environment, declining operations of the reporting
unit or other factors.
- The effect of changes in tax laws, including the effect of any
future interpretations of or amendments to Tax Reform, which may
impact our earnings, capital ratios and our ability to return
capital to shareholders.
- 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.
- Loss of customer checking and savings account deposits as
customers pursue other, higher-yield investments, which could
increase our funding costs.
- 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 effectively compete with other traditional and
non-traditional financial services companies, some of whom possess
greater financial resources than we do or are subject to different
regulatory standards than we are.
- Our inability to develop and gain acceptance from current and
prospective customers for new products and services and the
enhancement of existing products and services to meet customers’
needs and respond to emerging technological trends in a timely
manner could have a negative impact on our revenue.
- Our inability to keep pace with technological changes could
result in losing business to competitors.
- Changes in laws and regulations affecting our businesses,
including 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
shareholders 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 of such tests and
requirements.
- Our ability to comply with applicable capital and liquidity
requirements (including, among other things, the Basel III capital
standards), 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 effects of any developments, changes or actions relating to
any litigation or regulatory proceedings brought against us or any
of our subsidiaries.
- 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 risks and uncertainties related to our acquisition or
divestiture of businesses.
- The success of our marketing efforts in attracting and
retaining customers.
- 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.
- 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 or failure to deliver
our services effectively.
- Dependence on key suppliers or vendors to obtain equipment and
other supplies for our business on acceptable terms.
- The inability of our internal 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
(specifically in the Southeastern United States), which may
negatively affect our operations and/or our loan portfolios and
increase our cost of conducting business. The severity and impact
of future earthquakes, fires, hurricanes, tornadoes, droughts,
floods and other weather-related events are difficult to predict
and may be exacerbated by global climate change.
- 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 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
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 achieve our expense management initiatives.
- Possible cessation or market replacement of LIBOR and the
related effect on our LIBOR-based financial products and contracts,
including, but not limited to, derivative products, debt
obligations, deposits, investments, and loans.
- Possible downgrades in our credit ratings or outlook could
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 in risks to
us and general economic conditions that we are not able to
predict.
- 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
shareholders.
- Changes in accounting policies or procedures as may be required
by the FASB or other regulatory agencies could materially affect
our financial statements and how we report those results, and
expectations and preliminary analyses relating to how such changes
will affect our financial results could prove incorrect.
- Other risks identified from time to time in reports that we
file with the SEC.
- Fluctuations in the price of our common stock and inability to
complete stock repurchases in the time frame and/or on the terms
anticipated.
- 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, 2019 and the "Risk Factors" of
Regions' Quarterly Report on Form 10-Q for the quarter ended March
31, 2020 as filed with the SEC.
Further, statements about the potential effects of the COVID-19
pandemic on our businesses and financial results and conditions may
constitute forward-looking statements and are subject to the risk
that the actual effects may differ, possibly materially, from what
is reflected in those forward-looking statements due to factors and
future developments that are uncertain, unpredictable and in many
cases beyond our control, including the scope and duration of the
pandemic, actions taken by governmental authorities in response to
the pandemic, and the direct and indirect impact of the pandemic on
our customers, third parties and us.
The words “future,” “anticipates,” “assumes,” “intends,”
“plans,” “seeks,” “believes,” “predicts,” “potential,”
“objectives,” “estimates,” “expects,” “targets,” “projects,”
“outlook,” “forecast,” “would,” “will,” “may,” “might,” “could,”
“should,” “can,” and similar terms and 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. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible to predict all of them. We assume
no obligation and do not intend to update or revise any
forward-looking statements that are made from time to time, either
as a result of future developments, new information or otherwise,
except as may be required by law.
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 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 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.
Adjusted non-interest income (non-GAAP) and adjusted non-interest
expense (non-GAAP) are used to determine adjusted pre-tax
pre-provision income (non-GAAP). Net interest income (GAAP) 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 allowance for credit losses (ACL) as a percentage of total
loans is an important ratio, especially during periods of economic
stress. Management believes this ratio provides investors with
meaningful additional information about credit loss allowance
levels when the SBA's Paycheck Protection Program loans, which are
fully backed by the U.S. government, are excluded from total loans
which is the denominator used in the ACL ratio. This adjusted ACL
ratio represents a non-GAAP financial measure.
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.
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: https://www.businesswire.com/news/home/20200717005093/en/
Media Contact: Evelyn Mitchell (205) 264-4551
Investor Relations Contact: Dana Nolan (205) 264-7040
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