Solid revenue growth and expense control
produce positive operating leverage
Regions Financial Corporation (NYSE:RF) today announced earnings
for the fourth quarter and full year ended December 31, 2017. For
the fourth quarter, the company reported net income available to
common shareholders from continuing operations of $318 million and
earnings per diluted share from continuing operations of $0.27. For
the full year of 2017, the company reported net income available to
common shareholders from continuing operations of $1.2 billion, an
increase of 9 percent over the prior year, and earnings per diluted
share from continuing operations of $1.00, an increase of 15
percent. Pre-tax pre-provision income increased 4 percent over the
prior year generating approximately 2 percent in positive operating
leverage. Adjusted pre-tax pre-provision income(1) increased 6
percent over the prior year generating approximately 2 percent in
positive operating leverage on an adjusted basis(1).
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“These results reflect a strong fourth quarter and end to 2017
as our teams made clear progress in executing Regions’ strategic
plan to deliver greater value for our customers and shareholders,”
said Grayson Hall, Chairman and CEO. “As we look ahead to our 2018
priorities, we are moving forward with Regions’ Simplify and Grow
initiative, which will further position Regions for sustainable,
long-term growth. As part of this effort, we are conducting a
fresh, comprehensive review of the company with the goal of
consistently improving the experience customers have with Regions.
We are identifying ways to streamline processes and organizational
structure while expediting product and service enhancements that
make it easier for people to bank with us.”
Hall added, “Earlier this month, we were also pleased to
announce new investments in our associates, our products and
services, and our communities as a result of the savings we expect
from federal tax reform. These investments, including a more
competitive minimum hourly wage and greater support for product
innovation, economic development, revenue growth and more, are all
key to helping Regions carry out its mission and create shared
value for our customers, our associates, our communities, and our
shareholders.”
SUMMARY OF FULL YEAR 2017
RESULTS:
Year Ended December 31 ($ amounts in
millions, except per share data) 2017 2016
Income from continuing operations (A) $ 1,257 $ 1,158 Income (loss)
from discontinued operations, net of tax 6 5 Net income
1,263 1,163 Preferred dividends (B) 64 64 Net income
available to common shareholders $ 1,199 $ 1,099 Net income
from continuing operations available to common
shareholders (A) – (B)
$ 1,193 $ 1,094 Diluted earnings per common share
from continuing operations $ 1.00 $ 0.87 Diluted
earnings per common share $ 1.00 $ 0.87
Full-year 2017 results compared to
full-year 2016:
- Net interest income and other financing
income on a fully taxable equivalent basis increased 4 percent on a
reported and adjusted basis(1); the resulting net interest margin
was 3.32 percent, up 18 basis points, and 3.33 percent, up 19 basis
points on an adjusted basis(1).
- Non-interest income decreased 2
percent, but was relatively stable on an adjusted basis(1).
- Non-interest expenses remained flat,
but increased 1 percent on an adjusted basis(1).
- The company reported an efficiency
ratio of 63.2 percent and an adjusted efficiency ratio(1) of 62.2
percent, in 2017, an improvement of 100 and 110 basis points,
respectively, compared to the prior year.
- Regions generated positive operating
leverage of approximately 2 percent on an adjusted basis(1).
- Average loans and leases totaled $79.8
billion, down 2 percent.
- Consumer lending balances increased 1
percent.
- Business lending balances decreased 4
percent.
- Average deposits totaled $97.3 billion,
relatively stable with the prior year.
- Net charge-offs increased 4 basis
points to 0.38 percent of average loans.
- Non-performing loans, excluding loans
held for sale, decreased 35 percent to 0.81 percent of loans
outstanding.
- Business services criticized loans
decreased 32 percent.
- Allowance for loan and lease losses
decreased 19 basis points to 1.17 percent of total loans; allowance
for loan and lease losses as a percent of non-performing loans
increased 34 basis points to 144 percent.
- The Common Equity Tier 1 ratio(2) was
estimated at 10.9 percent at December 31, 2017. The fully phased-in
pro-forma Common Equity Tier 1 ratio(1)(2) was estimated at 10.8
percent, and the loan-to-deposit ratio was 83 percent.
- Regions returned $1.6 billion of
earnings to shareholders through dividends and share
repurchases.
SUMMARY OF FOURTH QUARTER 2017
RESULTS:
Quarter Ended ($ amounts in millions,
except per share data) 12/31/2017 9/30/2017
12/31/2016 Income from continuing operations (A) $
334 $ 312 $ 294 Income (loss) from discontinued operations, net of
tax 1 (1 ) 1 Net income 335 311 295 Preferred dividends (B)
16 16 16 Net income available to common shareholders
$ 319 $ 295 $ 279 Net income from continuing
operations available to common
shareholders (A) – (B)
$ 318 $ 296 $ 278 Diluted earnings per common
share from continuing operations $ 0.27 $ 0.25 $ 0.23
Diluted earnings per common share $ 0.27 $ 0.25
$ 0.23
Fourth quarter 2017 results compared to
third quarter 2017:
- Net interest income and other financing
income on a fully taxable equivalent basis remained relatively
stable but increased 1 percent on an adjusted basis(1); the
resulting net interest margin was 3.37 percent, up 1 basis point,
and 3.39 percent, up 3 basis points on an adjusted basis(1).
- Non-interest income increased 8
percent, and 7 percent on an adjusted basis(1).
- Non-interest expense increased 7
percent, and 2 percent on an adjusted basis(1).
- Average loans and leases totaled $79.5
billion, relatively stable with the prior quarter.
- Consumer lending balances increased
modestly.
- Business lending balances decreased
modestly.
- Average deposits totaled $97.1 billion,
relatively stable with the prior quarter.
- Net charge-offs decreased 7 basis
points to 0.31 percent of average loans.
- Non-performing loans, excluding loans
held for sale, decreased 14 percent to 0.81 percent of loans
outstanding.
- Business services criticized loans
decreased 17 percent.
- Allowance for loan and lease losses
decreased 14 basis points to 1.17 percent of total loans; the
allowance for loan and lease losses attributable to direct energy
loans, decreased from 6.1 percent to 4.6 percent.
- Allowance for loan losses as a percent
of non-performing loans increased 7 basis points to 144
percent.
Fourth quarter 2017 results compared to
fourth quarter 2016:
- Net interest income and other financing
income on a fully taxable equivalent basis increased 6 percent on a
reported and adjusted basis(1); the resulting net interest margin
increased 21 basis points, and 23 basis points on an adjusted
basis(1).
- Non-interest income increased 6 percent
on a reported and adjusted basis(1).
- Non-interest expenses increased 6
percent, and 3 percent on an adjusted basis(1).
- Average loans and leases decreased 1
percent.
- Consumer lending balances were
relatively stable on an average basis.
- Business lending balances decreased 2
percent on an average basis.
- Average deposits decreased 1
percent.
- Net charge-offs decreased 10 basis
points.
FOURTH QUARTER 2017 FINANCIAL
RESULTS:
Selected items
impacting earnings:
Quarter Ended ($ amounts in millions,
except per share data) 12/31/2017 9/30/2017
12/31/2016 Pre-tax adjusted items: Branch consolidation,
property and equipment charges $ (9 ) $ (5 ) $ (17 ) Salaries and
benefits related to severance charges (2 ) (1 ) (5 ) Securities
gains (losses), net 13 8 5 Reduction in leveraged lease interest
income resulting from tax reform (6 ) — — Contribution to Regions'
charitable foundation associated with tax reform (40 ) Leveraged
lease termination gains, net — 1 — Gain on sale of affordable
housing residential mortgage loans — — 5 Tax reform adjustments
through income tax expense (52 ) — — Diluted EPS impact* $
(0.07 ) $ — $ (0.01 )
Pre-tax additional selected
items**: Operating lease impairment charges $ — $ (10 ) $ — Pension
settlement charges — (2 ) — Hurricane-related impacts on
non-interest income and expense, net — (13 ) — Visa Class B shares
expense (11 ) (4 ) —
*
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.
Regions continues its ongoing efficiency initiatives, including
refining its branch network while making prudent investments in new
technologies, delivery channels and other areas of growth. During
the fourth quarter, the company incurred $9 million of expenses
associated primarily with announced branch consolidations. The
company has now consolidated approximately 10 percent of its branch
count over the past two years.
The company also recognized $13 million in securities gains
during the fourth quarter primarily associated with the sale of
securities held for employee-benefit purposes.
In connection with income tax reform, commonly referred to as
the Tax Cuts and Jobs Act, the company incurred a $29 million
tax-related charge associated primarily with the revaluation of its
net deferred income tax assets. The company also revised its
amortization associated with low-income housing investments
resulting in an additional $23 million tax-related charge. In
addition, the company reduced net interest income and other
financing income by $6 million associated with leveraged leases.
The company also contributed $40 million to its charitable
foundation in the fourth quarter.
Regions also incurred $11 million of expense in the fourth
quarter associated with Visa class B shares sold in a prior
year.
Total
revenue
Quarter Ended ($ amounts in
millions) 12/31/2017 9/30/2017
12/31/2016 4Q17
vs. 3Q17 4Q17 vs. 4Q16
Net interest income and
other financing income $ 901 $ 898 $ 853 $
3 0.3 % $ 48 5.6 % Net
interest income and other financing income - fully taxable
equivalent (FTE) $ 924 $ 921 $ 874 $ 3 0.3 % $ 50 5.7 % Reduction
in leveraged lease interest income resulting from tax reform
6 — — 6 NM 6 NM Adjusted net
interest income and other financing income, taxable equivalent
basis (non-GAAP)(1) $ 930 $ 921 $ 874 $ 9 1.0 % $ 56 6.4 % Net
interest margin (FTE) 3.37 % 3.36 % 3.16 % Adjusted net interest
margin (FTE) (non-GAAP)(1) 3.39 % 3.36 % 3.16 %
Non-interest income: Service charges on deposit accounts 171
175 173 (4 ) (2.3 )% (2 ) (1.2 )% Wealth management 110 108 103 2
1.9 % 7 6.8 % Card & ATM fees 106 103 103 3 2.9 % 3 2.9 %
Capital markets fee income and other 56 35 31 21 60.0 % 25 80.6 %
Mortgage Income 36 32 43 4 12.5 % (7 ) (16.3 )% Bank-owned life
insurance 20 20 20 — NM — NM Commercial credit fee income 18 17 19
1 5.9 % (1 ) (5.3 )% Market value adjustments on employee benefit
assets* 6 3 3 3 100.0 % 3 100.0 % Securities gains (losses), net 13
8 5 5 62.5 % 8 160.0 % Other 19 14
22 5 35.7 % (3 ) (13.6 )%
Non-interest income $ 555 $ 515 $ 522 $
40 7.8 % $ 33 6.3 %
Total revenue,
taxable-equivalent basis $ 1,479 $ 1,436 $ 1,396
$ 43 3.0 % $ 83 5.9 %
Adjusted total
revenue, taxable-equivalent basis (non-GAAP)(1) $ 1,472
$ 1,427 $ 1,386 $ 45 3.2 % $ 86
6.2 %
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 fourth quarter 2017 to third
quarter 2017
Total revenue on a fully taxable equivalent basis was $1.5
billion, reflecting a $43 million increase over the third quarter
of 2017. On an adjusted basis(1), total revenue on a fully taxable
equivalent basis increased $45 million or 3 percent from the prior
quarter.
Net interest income and other financing income on a fully
taxable equivalent basis was $924 million. On an adjusted basis(1),
net interest income and other financing income on a fully taxable
equivalent basis was $930 million, an increase of 1 percent over
the prior quarter. The resulting net interest margin was 3.37
percent. On an adjusted basis(1) the resulting net interest margin
was 3.39 percent, an increase of 3 basis points. The adjusted basis
excludes the tax-related reduction to income of $6 million
associated with leveraged leases. Adjusted net interest margin and
net interest income and other financing income benefited from
higher market interest rates in the fourth quarter offset by the
full impact of debt issued during the third quarter and lower
credit-related interest recoveries.
Non-interest income totaled $555 million, an increase of $40
million or 8 percent. On an adjusted basis(1), non-interest income
increased $36 million or 7 percent primarily due to increases in
capital markets, mortgage, and card & ATM fees. In addition,
the company incurred $10 million of impairment charges reducing the
value of certain operating lease assets during the third quarter
that did not repeat in the fourth quarter.
Capital markets income increased $21 million or 60 percent
driven primarily by higher merger and acquisition advisory
services, loan syndication income, and fees generated from the
placement of permanent financing for real estate customers. As it
relates to mortgage income, production declined seasonally 3
percent in the quarter while income increased $4 million or 13
percent. The increase was primarily due to valuation adjustments
associated with residential mortgage servicing rights and related
hedges recorded in the third quarter which did not repeat at the
same level in the fourth quarter. Card & ATM fees increased $3
million or 3 percent attributable to seasonally higher interchange
income.
Comparison of fourth quarter 2017 to
fourth quarter 2016
Total revenue on a fully taxable equivalent basis increased $83
million or 6 percent compared to the fourth quarter of 2016.
Adjusted(1) total revenue on a fully taxable equivalent basis
increased $86 million or 6 percent.
Net interest income and other financing income on a fully
taxable equivalent basis increased $50 million or 6 percent on a
reported basis, and $56 million or 6 percent on an adjusted
basis(1). The resulting net interest margin increased 21 basis
points on a reported basis, and 23 basis points on an adjusted
basis(1). Net interest margin and net interest income and other
financing income benefited from higher market interest rates along
with prudent deposit cost management, partially offset by lower
average loan balances, the impact of debt issued during the third
quarter and the tax-related reduction associated with leveraged
leases.
Non-interest income increased $33 million or 6 percent on a
reported basis, and $30 million or 6 percent on an adjusted
basis(1) driven primarily by growth in capital markets, wealth
management, and card & ATM fees, partially offset by lower
mortgage income.
Capital markets income increased $25 million or 81 percent
reflecting higher merger and acquisition advisory services, loan
syndication income, and fees generated from the placement of
permanent financing for real estate customers. Wealth management
income increased $7 million or 7 percent, and card & ATM fees
increased $3 million or 3 percent. However, mortgage income
decreased $7 million or 16 percent compared to the prior year
consistent with lower production volumes.
Non-interest
expense
Quarter Ended ($ amounts in
millions) 12/31/2017 9/30/2017
12/31/2016 4Q17 vs. 3Q17 4Q17 vs. 4Q16
Salaries and employee benefits $ 496 $ 483 $ 472 $ 13
2.7 % $ 24 5.1 % Net occupancy expense 83 91 89 (8 )
(8.8 )% (6 ) (6.7 )% Furniture and equipment expense 81 84 80 (3 )
(3.6 )% 1 1.3 % Outside services 48 41 41 7 17.1 % 7 17.1 % FDIC
insurance assessments 27 28 28 (1 ) (3.6 )% (1 ) (3.6 )%
Professional, legal and regulatory expenses 24 21 26 3 14.3 % (2 )
(7.7 )% Marketing 23 24 23 (1 ) (4.2 )% — NM Credit/checkcard
expenses 11 13 14 (2 ) (15.4 )% (3 ) (21.4 )% Branch consolidation,
property and equipment charges 9 5 17 4 80.0 % (8 ) (47.1 )% Visa
class B shares expense 11 4 — 7 175.0 % 11 NM Provision (credit)
for unfunded credit losses (6 ) (8 ) (3 ) 2 (25.0 )% (3 ) 100.0 %
Other 145 100 112 45 45.0 % 33
29.5 % Total non-interest expense from continuing operations $ 952
$ 886 $ 899 $ 66 7.4 % $ 53 5.9
% Total adjusted non-interest expense(1) $ 901 $ 880
$ 877 $ 21 2.4 % $ 24 2.7 %
NM - Not Meaningful
Comparison of fourth quarter 2017 to third
quarter 2017
Non-interest expense totaled $952 million in the fourth quarter,
an increase of $66 million or 7 percent, and included a $40 million
contribution to the company's charitable foundation. On an adjusted
basis(1), non-interest expense totaled $901 million, an increase of
$21 million or 2 percent. Total salaries and benefits increased $13
million or 3 percent primarily due to higher production-based
incentives and health insurance costs. Outside services increased
$7 million or 17 percent primarily due to additional expense
related to a new Wealth Management platform, which will be offset
by lower salaries and benefits costs in future quarters. Visa class
B shares expense also increased $7 million. Occupancy expense
decreased $8 million or 9 percent primarily due to
hurricane-related expenses recorded in the third quarter.
The company's reported fourth quarter efficiency ratio was 64.3
percent and 61.1 percent on an adjusted basis(1). The adjusted
efficiency ratio reflects a 60 basis point improvement compared to
the third quarter. The effective tax rate was 39.0 percent compared
to 30.9 percent in the third quarter, impacted by adjustments
associated with tax reform. Excluding these adjustments, the
company's effective tax rate would have been approximately 30
percent in the fourth quarter.
Comparison of fourth quarter 2017 to
fourth quarter 2016
Non-interest expense increased $53 million or 6 percent. On an
adjusted basis(1), non-interest expense increased $24 million or 3
percent primarily due to higher salaries and benefits costs. Total
salaries and benefits increased $24 million or 5 percent reflecting
the impact of merit increases, benefits costs and higher
production-based incentives compared to the fourth quarter of
2016.
Loans and
Leases
Average Balances
($ amounts in millions)
4Q17 3Q17 4Q16 4Q17 vs. 3Q17 4Q17 vs. 4Q16 Commercial and
industrial $ 35,689 $ 35,438 $ 35,149 $ 251 0.7 % $
540 1.5 % Commercial real estate—owner-occupied 6,543
6,745 7,319 (202 ) (3.0 )% (776 ) (10.6 )% Investor real estate
5,924 6,075 6,672 (151 ) (2.5 )% (748 ) (11.2
)% Business Lending 48,156 48,258 49,140 (102
) (0.2 )% (984 ) (2.0 )% Residential first mortgage 13,954 13,808
13,485 146 1.1 % 469 3.5 % Home equity 10,206 10,341 10,711 (135 )
(1.3 )% (505 ) (4.7 )% Indirect—vehicles 2,177 2,156 2,075 21 1.0 %
102 4.9 % Indirect—vehicles third-party 1,223 1,406 2,021 (183 )
(13.0 )% (798 ) (39.5 )% Indirect—other consumer 1,400 1,258 889
142 11.3 % 511 57.5 % Consumer credit card 1,238 1,200 1,146 38 3.2
% 92 8.0 % Other consumer 1,169 1,158 1,122 11
0.9 % 47 4.2 % Consumer Lending 31,367
31,327 31,449 40 0.1 % (82 ) (0.3 )%
Total Loans $ 79,523 $ 79,585 $ 80,589 $ (62 )
(0.1 )% $ (1,066 ) (1.3 )%
NM - Not meaningful.
Comparison of fourth quarter 2017 to third
quarter 2017
Average loans and leases remained relatively stable at $79.5
billion in the fourth quarter as modest growth in the consumer
lending portfolio was offset by declines in the business lending
portfolio. Total new and renewed loan production increased
approximately 2 percent. On an ending basis, total loans and leases
were $79.9 billion, an increase of $591 million from the third
quarter providing momentum going into 2018.
Average balances in the consumer lending portfolio totaled $31.4
billion in the fourth quarter reflecting a modest increase of $40
million. Growth in the consumer lending portfolio continues to be
impacted by the company's decision to exit a third-party
arrangement within the indirect-vehicle portfolio. Excluding the
third-party indirect-vehicle portfolio, average consumer balances
increased $223 million.
Average residential first mortgage balances increased $146
million or 1 percent, but continue to be constrained by a lack of
housing supply. Home equity balances declined $135 million or 1
percent driven by declines in home equity lines of credit. Average
indirect-other consumer loans increased $142 million or 11 percent
as the company continued to expand and grow its point-of-sale
portfolio. Consumer credit card balances increased $38 million or 3
percent consistent with an increase in active credit cards.
Average balances in the business lending portfolio totaled $48.2
billion in the fourth quarter reflecting a decrease of $102 million
as growth in commercial and industrial loans was offset by declines
in owner-occupied commercial real estate and investor real estate.
Solid loan production trends continued in the business lending
portfolio during the quarter. Commercial and industrial loans grew
$672 million on an ending basis during the quarter, led by growth
in specialized lending. Owner-occupied commercial real estate loans
declined $94 million reflecting a slowing pace of decline, and
investor real estate loans declined $101 as growth in term mortgage
loans was offset by declines in construction loans. The company is
encouraged by improving opportunities in 2018 as economic
conditions and customer sentiment continue to modestly improve. In
addition, the majority of its deliberate risk management decisions
in certain industries and asset classes within the business lending
portfolio is substantially complete.
Comparison of fourth quarter 2017 to
fourth quarter 2016
Despite a 21 percent increase in total new and renewed loan
production, average loans and leases declined $1.1 billion or 1
percent compared to the fourth quarter of 2016.
Average balances in the consumer lending portfolio decreased $82
million. Average residential first mortgage balances increased $469
million or 3 percent despite the impact from an affordable housing
residential mortgage loan sale in the fourth quarter of 2016.
Average indirect-other consumer loans increased $511 million or 57
percent as the company continued to successfully execute its
point-of-sale lending initiatives. Average consumer credit card
balances increased $92 million or 8 percent as active credit cards
increased 7 percent. In addition, average other consumer loans
increased $47 million or 4 percent primarily due to growth in
unsecured loans generated through the branch network and improved
online lending capabilities. These increases were offset by
declines in indirect-vehicle and home equity balances. Average
indirect-vehicle balances decreased $696 million or 17 percent
reflecting the company's decision to exit a third-party
arrangement, and total home equity balances decreased $505 million
or 5 percent as growth in home equity loans continues to be offset
by declines in home equity lines of credit.
Average balances in the business lending portfolio decreased
$984 million or 2 percent primarily due to elevated loan payoffs
and pay downs as well as continued de-risking within certain loan
portfolios. Average direct energy loans decreased $359 million or
17 percent, average multi-family investor real estate loans
decreased $198 million or 10 percent, and average medical office
building loans decreased $148 million or 40 percent. In addition,
declines in owner-occupied commercial real estate loans reflect the
competitive market and continued softness in loan demand from
middle market and small business customers.
Deposits
Average Balances
($ amounts
in millions) 4Q17 3Q17 4Q16 4Q17 vs. 3Q17 4Q17 vs. 4Q16 Low-cost
deposits $ 90,125 $ 89,934 $ 90,992 $ 191 0.2 % $
(867 ) (1.0 )% Time deposits 6,935 6,929
7,505 6 0.1 % (570 ) (7.6 )% Total Deposits $
97,060 $ 96,863 $ 98,497 $ 197 0.2 % $
(1,437 ) (1.5 )% ($ amounts in millions) 4Q17 3Q17 4Q16 4Q17
vs. 3Q17 4Q17 vs. 4Q16 Consumer Bank Segment $ 56,921 $ 56,980 $
55,638 $ (59 ) (0.1 )% $ 1,283 2.3 % Corporate Bank Segment 28,362
27,607 28,730 755 2.7 % (368 ) (1.3 )% Wealth Management Segment
9,163 9,269 10,245 (106 ) (1.1 )% (1,082 ) (10.6 )% Other 2,614
3,007 3,884 (393 ) (13.1 )% (1,270 ) (32.7 )%
Total Deposits $ 97,060 $ 96,863 $ 98,497 $
197 0.2 % $ (1,437 ) (1.5 )%
Comparison of fourth quarter 2017 to third
quarter 2017
Total average deposit balances were $97.1 billion in the fourth
quarter reflecting an increase of $197 million. Average low-cost
deposits increased $191 million and represented 93 percent of total
average deposits. Deposit costs remained unchanged at 17 basis
points, and total funding costs were 38 basis points in the fourth
quarter.
Average deposits in the Consumer segment decreased $59 million
while average Corporate segment deposits increased $755 million.
Average deposits in the Wealth Management segment declined $106
million or 1 percent as a result of ongoing strategic reductions of
certain collateralized deposits. Average deposits in the Other
segment decreased $393 million or 13 percent driven primarily by
the decision to reduce higher cost retail brokered sweep deposits
that were no longer a necessary component of the company's current
funding strategy.
Comparison of fourth quarter 2017 to
fourth quarter 2016
Total average deposit balances decreased $1.4 billion or 1
percent from the prior year, including an $867 million decrease in
average low-cost deposits. Growth in average Consumer segment
deposits was offset by strategic reductions in Corporate, Wealth
Management, and Other segment deposits.
Asset
quality
As of and for the Quarter Ended
($ amounts in millions) 12/31/2017 9/30/2017
12/31/2016 ALL/Loans, net 1.17% 1.31% 1.36% Allowance for
loan losses to non-performing loans, excluding loans held for sale
1.44x 1.37x 1.10x Net loan charge-offs as a % of average loans,
annualized 0.31% 0.38% 0.41% Non-accrual loans, excluding loans
held for sale/Loans, net 0.81% 0.96% 1.24% NPAs (ex. 90+ past
due)/Loans, foreclosed properties and non-performing loans held for
sale 0.92% 1.06% 1.37% NPAs (inc. 90+ past due)/Loans, foreclosed
properties and non-performing loans held for sale* 1.13% 1.25%
1.58% Total TDRs, excluding loans held for sale $1,144 $1,332
$1,385 Total Criticized Loans—Business Services**
$2,456 $2,962 $3,612 *
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 fourth quarter 2017 to third
quarter 2017
The company reported broad-based asset quality improvement
during the quarter. Non-performing, criticized and troubled debt
restructured loans all declined. Total non-performing loans,
excluding loans held for sale, decreased 14 percent to 0.81 percent
of loans outstanding, marking the lowest level in over ten years.
Business services criticized and total troubled debt restructured
loans decreased 17 percent and 13 percent, respectively. As
expected, early and late-stage delinquencies for residential
mortgage loans increased in hurricane impacted markets, and the
company's $40 million hurricane-related reserve remains unchanged.
Despite the increase within residential mortgage, total
delinquencies, excluding government guaranteed loans, declined
approximately 1 percent.
Net charge-offs totaled $63 million or 0.31 percent of average
loans compared to $76 million or 0.38 percent of average loans in
the previous quarter. Improving economic conditions drove
broad-based improvements in credit metrics, particularly
improvements in risk ratings along with payoffs and paydowns of
criticized loans, resulting in a negative provision expense of $44
million. The allowance for loan and lease losses decreased 14 basis
points to 1.17 percent of total loans outstanding. However, the
resulting allowance for loan and lease losses as a percent of total
non-accrual loans increased 7 basis points to 144 percent. Given
the current phase of the credit cycle, volatility in certain credit
metrics can be expected, especially related to large-dollar
commercial credits, fluctuating commodity prices, and continued
analysis of hurricane exposures.
Comparison of fourth quarter 2017 to
fourth quarter 2016
Net charge-offs decreased 10 basis points compared to the fourth
quarter of 2016 and represented 0.31 percent of average loans
compared to 0.41 percent in the prior year. The allowance for loan
and lease losses as a percent of total loans decreased 19 basis
points. Total non-performing loans, excluding loans held for sale,
decreased 35 percent, and total business lending criticized loans
decreased 32 percent.
Capital and
liquidity
As of and for Quarter
Ended 12/31/2017 9/30/2017
12/31/2016 Basel III Common Equity Tier 1 ratio(2) 10.9% 11.3%
11.2% Basel III Common Equity Tier 1 ratio — Fully Phased-In
Pro-Forma (non-GAAP)(1)(2) 10.8% 11.2% 11.1% Tier 1 capital
ratio(2) 11.7% 12.1% 12.0% Tangible common stockholders’ equity to
tangible assets (non-GAAP)(1) 8.71% 9.18% 8.99% Tangible common
book value per share (non-GAAP)(1) $9.16
$9.33 $8.95
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 11.7
percent and 10.9 percent, respectively, at quarter-end under the
phase-in provisions. In addition, the Common Equity Tier 1
ratio(1)(2) was estimated at 10.8 percent on a fully phased-in
basis.
During the fourth quarter, the company repurchased $500 million
or 31.1 million shares of common stock and declared $103 million in
dividends to common shareholders. The company’s liquidity position
remained solid with its loan-to-deposit ratio at the end of the
quarter at 83 percent, and as of quarter-end, the company remained
fully compliant with the liquidity coverage ratio rule.
(1)
Non-GAAP, refer to pages 8, 12, 13, and 27
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, January 19, 2018, at 2 p.m. ET through Monday, February 19,
2018. To listen by telephone, please dial 1-855-859-2056, and use
access code 1997189. 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 $124 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, malware, “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 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 and other
financing income (GAAP) on a taxable-equivalent basis and
non-interest income are added together to arrive at total revenue
on a taxable-equivalent basis. Net interest income and other
financing income on a taxable-equivalent basis is presented
excluding certain adjustments related to tax reform to arrive at
adjusted net interest income and other financing income on a
taxable-equivalent basis (non-GAAP). 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/20180119005182/en/
Regions Financial CorporationMedia Contact:Evelyn Mitchell,
205-264-4551orInvestor Relations Contact:Dana Nolan,
205-264-7040
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