Solid revenue and pre-tax pre-provision income
growth over the prior year
Regions Financial Corporation (NYSE:RF) today announced earnings
for the second quarter ended June 30, 2018. The company reported
net income available to common shareholders from continuing
operations of $362 million, an increase of 21 percent compared to
the second quarter of 2017. Earnings per diluted share from
continuing operations were $0.32, an increase of 28 percent from
the second quarter of 2017. Total revenue grew 5 percent while
pre-tax pre-provision income grew 6 percent over the prior year.
Adjusted pre-tax pre-provision(1) income increased 12 percent.
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“Regions is making meaningful progress on its strategic plan to
grow revenues, develop deeper customer relationships, deliver
enhanced services to the marketplace, and operate more effectively
over time,” said John Turner, President and CEO. “We continue to
make prudent investments to ensure Regions is well-positioned to
meet the needs of today’s customers, and also anticipate and meet
the needs of tomorrow’s customers. Importantly, our deposit base
remains strong, and asset quality continues to improve. We are also
pleased that our capital planning process led to another successful
completion of the Comprehensive Capital Analysis and Review
(CCAR).”
Turner added, “Regions also received further recognition for our
customer-focused approach to business. Based on customer feedback,
Javelin Strategy & Research designated Regions as a Trust in
Banking Leader for the second consecutive year, reflecting our
reliability in meeting customers’ needs and the confidence
customers have in Regions to look out for their best interests. Our
commitment to service and the quality of our customer interactions
are the hallmarks of our business. These qualities are part of the
culture that Executive Chairman, Grayson Hall, established during
his successful tenure as CEO and will continue to define our
comprehensive approach to customer service and relationship
banking.”
SUMMARY OF SECOND QUARTER 2018
RESULTS:
Quarter Ended ($ amounts
in millions, except per share data) 6/30/2018
3/31/2018 6/30/2017 Income from continuing operations
(A) $ 378 $ 414 $ 316 Income (loss) from discontinued operations,
net of tax (3 ) — — Net income 375 414 316 Preferred
dividends (B) 16 16 16 Net income available to
common shareholders $ 359 $ 398 $ 300 Net
income from continuing operations available to common
shareholders (A) – (B)
$ 362 $ 398 $ 300 Diluted earnings per
common share from continuing operations $ 0.32 $ 0.35
$ 0.25 Diluted earnings per common share $ 0.32
$ 0.35 $ 0.25
Second quarter 2018 results compared to
first quarter 2018:
- Net interest income and other financing
income increased $17 million, and net interest margin was 3.49
percent, up 3 basis points.
- Non-interest income increased 1
percent, and 2 percent on an adjusted basis(1).
- Non-interest expense increased 3
percent, and 2 percent on an adjusted basis(1).
- Average loans and leases increased $66
million and totaled $80.0 billion; adjusted(1) loans and leases
increased $382 million.
- Consumer lending balances decreased $95
million, and increased $221 million on an adjusted basis(1).
- Business lending balances increased
$161 million.
- Average deposits decreased $175 million
and totaled $95.3 billion.
- Net charge-offs decreased 10 basis
points on a reported basis and 8 basis points on an adjusted
basis(1) to 0.32 percent of average loans.
- Non-performing loans, excluding loans
held for sale, decreased 1 basis point to 0.74 percent of loans
outstanding.
- Business services criticized loans
decreased 14 percent.
- Allowance for loan and lease losses
decreased 1 basis point to 1.04 percent of total loans.
- Allowance for loan and lease losses as
a percent of non-performing loans increased to 141 percent from 140
percent.
Second quarter 2018 results compared to
second quarter 2017:
- Net interest income and other financing
income increased 5 percent; net interest margin increased 17 basis
points.
- Non-interest income increased 4
percent, and 6 percent on an adjusted basis(1).
- Non-interest expenses increased 4
percent, and 1 percent on an adjusted basis(1).
- Average loans and leases decreased $153
million, and increased $803 million on an adjusted basis(1).
- Consumer lending balances increased $30
million, and $986 million on an adjusted basis(1).
- Business lending balances decreased
$183 million.
- Average deposits decreased 2
percent.
- Net charge-offs decreased 2 basis
points to 0.32 percent of average loans.
- Non-performing loans, excluding loans
held for sale, decreased 29 basis points to 0.74 percent of loans
outstanding.
- Business services criticized loans
decreased 42 percent.
SECOND QUARTER 2018 FINANCIAL
RESULTS:
Selected items
impacting earnings from continuing operations:
Quarter Ended ($ amounts
in millions, except per share data) 6/30/2018
3/31/2018 6/30/2017 Pre-tax adjusted items: Branch
consolidation, property and equipment charges $ (1 ) $ (3 ) $ (7 )
Salaries and benefits related to severance charges (34 ) (15 ) (3 )
Expenses associated with residential mortgage loan sale — (4 ) —
Securities gains (losses), net 1 — 1 Leveraged lease termination
gains — 4 — Net provision benefit from residential mortgage loan
sale — 16 — Gain on sale of affordable housing residential mortgage
loans — — 5 Diluted EPS impact* $ (0.02 ) $ — $ —
Pre-tax additional selected items**: Operating
lease impairment charges $ (5 ) $ (4 ) $ (7 ) Reduction of
hurricane-related allowance for loan losses 10 30 — Visa Class B
shares expense (10 ) (2 ) (1 ) Pension settlement charge
— —
(10 )
* Based on income taxes at a 25.0%
incremental rate beginning in 2018, and 38.5% for all prior
periods.
** Items represent an outsized or unusual
impact to the quarter or quarterly trends, but are not considered
non-GAAP adjustments.
Regions continues to take actions with respect to its Simplify
and Grow initiative, including streamlining its structure and
refining its branch network while making investments in new
technologies, delivery channels and other drivers of growth.
Related to this continuous improvement process, the company
incurred $34 million of related severance expense during the second
quarter, as well as $1 million of expenses associated with
previously announced branch consolidations.
Regions also incurred a $5 million net impairment charge
reducing the value of certain operating lease assets during the
quarter, and $10 million of expense associated with Visa class B
shares sold in a prior year.
Lower than anticipated losses associated with 2017 hurricanes
resulted in a reduction of the company’s remaining
hurricane-related loan loss allowance of $10 million.
Total revenue
from continuing operations
Quarter Ended ($ amounts
in millions) 6/30/2018 3/31/2018
6/30/2017 2Q18 vs. 1Q18 2Q18 vs. 2Q17
Net interest income and other financing income $ 926 $ 909 $
882 $ 17 1.9 % $ 44 5.0 % Taxable equivalent
adjustment* 12 13 22 (1 ) (7.7 )% (10 )
(45.5 )% Net interest income and other financing income, taxable
equivalent basis (non-GAAP)(1) $ 938 $ 922 $ 904
$ 16 1.7 % $ 34 3.8 % Net interest margin
(FTE) 3.49 % 3.46 % 3.32 %
Non-interest income:
Service charges on deposit accounts $ 175 $ 171 $ 169 $ 4 2.3 % 6
3.6 % Card & ATM fees 112 104 104 8 7.7 % 8 7.7 % Wealth
management income 77 75 72 2 2.7 % 5 6.9 % Capital markets income
57 50 38 7 14.0 % 19 50.0 % Mortgage Income 37 38 40 (1 ) (2.6 )%
(3 ) (7.5 )% Bank-owned life insurance 18 17 22 1 5.9 % (4 ) (18.2
)% Commercial credit fee income 17 17 18 — NM (1 ) (5.6 )% Market
value adjustments on employee benefit assets** (2 ) (1 ) 2 (1 )
100.0 % (4 ) (200.0 )% Securities gains (losses), net 1 — 1 1 NM —
NM Other 20 36 24 (16 ) (44.4 )% (4 ) (16.7 )%
Non-interest income $ 512 $ 507 $ 490 $
5 1.0 % $ 22 4.5 %
Total revenue $ 1,438
$ 1,416 $ 1,372 $ 22 1.6 % $ 66
4.8 %
Adjusted total revenue (non-GAAP)(1) $
1,437 $ 1,412 $ 1,366 $ 25 1.8 % $ 71
5.2 %
NM - Not Meaningful
* Changes in corporate income tax rates
effective in 2018 resulted in a decrease to the taxable equivalent
adjustment.
** These market value adjustments relate
to assets held for certain employee benefits and are offset within
salaries and employee benefits expense.
Comparison of second quarter 2018 to first
quarter 2018
Total revenue was $1.4 billion reflecting an increase of 2
percent on both a reported and adjusted basis(1).
Net interest income and other financing income increased $17
million over the prior quarter while net interest margin rose 3
basis points to 3.49 percent. Net interest margin and net interest
income and other financing income benefited from higher interest
rates and prudent deposit cost management partially offset by a
leveraged lease residual value adjustment. One additional day in
the quarter benefited net interest income and other financing
income by approximately $5 million, but reduced net interest margin
by approximately 2 basis points.
Non-interest income increased $5 million on a reported basis,
and $8 million on an adjusted basis(1), as increases in service
charges, card & ATM fees, wealth management, and capital
markets income were partially offset by a decrease in other
non-interest income. The decline in other non-interest income was
attributable primarily to net gains associated with the sale of
certain low income housing investments and a positive valuation
adjustment associated with a private equity investment totaling
approximately $13 million during the first quarter that did not
repeat. In addition, net impairment charges reducing the value of
certain operating lease assets increased $1 million during the
second quarter.
Reflecting account growth and seasonally higher interchange
income, service charges and card & ATM fees increased 2 percent
and 8 percent, respectively. Wealth management income increased 3
percent driven by an increase in investment services income.
Investments in capital markets continue to pay off as the
company delivered a record quarter, with income totaling $57
million, a 14 percent increase compared to the prior quarter. The
second quarter increase was driven primarily by increases in merger
and acquisition advisory services and customer derivative
activity.
Mortgage income remained stable during the quarter. The company
continues to evaluate opportunities to grow its loan servicing
portfolio, and in the second quarter, reached an agreement to
purchase the rights to service approximately $3.6 billion of
mortgage loans with an expected close date of July 31, 2018,
subject to customary closing conditions. Increased servicing income
is expected to help offset the impact of lower mortgage production
associated with rising interest rates and lack of housing
supply.
Comparison of second quarter 2018 to
second quarter 2017
Total revenue increased 5 percent on both a reported and
adjusted basis(1) compared to the second quarter of 2017.
Net interest income and other financing income increased 5
percent. Net interest margin increased 17 basis points. Net
interest margin and net interest income and other financing income
benefited from higher interest rates and prudent deposit cost
management.
Non-interest income increased 4 percent on a reported basis and
6 percent on an adjusted basis(1) driven primarily by growth in
capital markets income, card and ATM fees, wealth management income
and service charges, partially offset by lower mortgage and
bank-owned life insurance income.
Capital markets income increased 50 percent reflecting higher
merger and acquisition advisory fees, customer interest rate swap
income, and fees generated from securities underwriting and
placement. Card and ATM fees increased 8 percent primarily due to
higher interchange revenue associated with account growth. Wealth
management income increased 7 percent led by growth in investment
services income. Service charges income increased 4 percent
reflecting continued customer account growth. Partially offsetting
these increases, mortgage income declined 8 percent compared to the
prior year consistent with lower production volumes, and bank-owned
life insurance decreased 18 percent.
Non-interest
expense from continuing operations
Quarter Ended ($ amounts
in millions) 6/30/2018 3/31/2018
6/30/2017 2Q18 vs. 1Q18 2Q18 vs. 2Q17
Salaries and employee benefits $ 511 $ 495 $ 470 $ 16
3.2 % $ 41 8.7 % Net occupancy expense 84 83 85 1 1.2
% (1 ) (1.2 )% Furniture and equipment expense 81 81 84 — NM (3 )
(3.6 )% Outside services 48 47 43 1 2.1 % 5 11.6 % FDIC insurance
assessments 25 24 26 1 4.2 % (1 ) (3.8 )% Professional, legal and
regulatory expenses 33 27 28 6 22.2 % 5 17.9 % Marketing 25 26 22
(1 ) (3.8 )% 3 13.6 % Branch consolidation, property and equipment
charges 1 3 7 (2 ) (66.7 )% (6 ) (85.7 )% Visa class B shares
expense 10 2 1 8 400.0 % 9 NM Provision (credit) for unfunded
credit losses (1 ) (4 ) (3 ) 3 (75.0 )% 2 (66.7 )% Other 94
100 112 (6 ) (6.0 )% (18 ) (16.1 )% Total
non-interest expense from continuing operations $ 911 $ 884
$ 875 $ 27 3.1 % $ 36 4.1 % Total
adjusted non-interest expense(1) $ 876 $ 862 $ 865
$ 14 1.6 % $ 11 1.3 %
NM - Not Meaningful
Comparison of second quarter 2018 to first
quarter 2018
Non-interest expense increased 3 percent compared to the first
quarter. On an adjusted basis(1), non-interest expense increased 2
percent primarily due to increases in expense associated with Visa
class B shares sold in a prior year and increased professional fees
associated with higher legal costs. Excluding the impact of
severance charges, salaries and benefits decreased $3 million or 1
percent reflecting staffing reductions and lower payroll taxes
partially offset by annual merit increases. Consistent with the
company’s efforts to rationalize and streamline its organization,
staffing levels declined by 340 full-time equivalent positions from
the prior quarter and approximately 1,100 full-time equivalent
positions from the second quarter of the prior year.
The company’s reported second quarter efficiency ratio was 62.7
percent and 60.4 percent on an adjusted basis(1), down slightly
from the prior quarter. The effective tax rate was 19.2 percent in
the quarter and was favorably impacted by excess tax benefits
related to the vesting of share-based payments.
Comparison of second quarter 2018 to
second quarter 2017
Non-interest expense increased 4 percent compared to the second
quarter of the prior year. On an adjusted basis(1), non-interest
expense increased 1 percent primarily due to higher salaries and
benefits and expense associated with Visa class B shares sold in a
prior year. Excluding the impact of severance charges, the increase
to salaries and benefits was driven primarily by merit increases
and higher production-based incentives, partially offset by
staffing reductions.
Loans and
Leases
Average Balances
($ amounts in millions) 2Q18 1Q18 2Q17 2Q18 vs. 1Q18 2Q18 vs. 2Q17
Commercial and industrial $ 36,874 $ 36,464 $ 35,596 $ 410
1.1 % $ 1,278 3.6 % Commercial real estate—owner-occupied
6,315 6,435 6,927 (120 ) (1.9 )% (612 ) (8.8 )% Investor real
estate 5,591 5,720 6,440 (129 ) (2.3 )% (849 )
(13.2 )% Business Lending 48,780 48,619 48,963
161 0.3 % (183 ) (0.4 )% Residential first mortgage* 13,980
13,977 13,637 3 — % 343 2.5 % Home equity 9,792 10,041 10,475 (249
) (2.5 )% (683 ) (6.5 )% Indirect—vehicles 2,351 2,248 2,131 103
4.6 % 220 10.3 % Indirect—vehicles third-party 909 1,061 1,611 (152
) (14.3 )% (702 ) (43.6 )% Indirect—other consumer 1,743 1,531
1,001 212 13.8 % 742 74.1 % Consumer credit card 1,245 1,257 1,164
(12 ) (1.0 )% 81 7.0 % Other consumer 1,157 1,157
1,128 — — % 29 2.6 % Consumer Lending 31,177
31,272 31,147 (95 ) (0.3 )% 30 0.1 %
Total Loans $ 79,957 $ 79,891 $ 80,110 $ 66
0.1 % $ (153 ) (0.2 )% Adjusted Consumer Lending
(non-GAAP)(1) $ 30,268 $ 30,047 $ 29,282 $ 221
0.7 % $ 986 3.4 % Adjusted Total Loans (non-GAAP)(1)
$ 79,048 $ 78,666 $ 78,245 $ 382 0.5 %
$ 803 1.0 %
NM - Not meaningful.
* 2018 average residential first mortgage
balances include the impact of a $254 million loan sale during the
first quarter of 2018.
Comparison of second quarter 2018 to first
quarter 2018
Average loans and leases increased to $80.0 billion in the
second quarter. Adjusted(1) average loans and leases increased $382
million reflecting modest growth in the business and consumer
lending portfolios.
Adjusted(1) average consumer loans increased 1 percent.
Excluding the impact of the first quarter loan sale, average
residential first mortgage balances increased $167 million or 1
percent. Average indirect-other consumer loans increased 14 percent
as the company continued to expand and grow its point-of-sale
portfolio. Average indirect-vehicle loans increased 5 percent,
while home equity balances declined 2 percent.
Average balances in the business lending portfolio totaled $48.8
billion reflecting modest growth. Growth in commercial and
industrial loans was led by increases in specialized lending.
Owner-occupied commercial real estate and investor real estate
loans decreased as production increases continue to reduce the
impact of maturities and refinancing activity.
Comparison of second quarter 2018 to
second quarter 2017
Average loans and leases declined modestly compared to the
second quarter of 2017; however, adjusted(1) average loans
increased $803 million or 1 percent. The company experienced an 8
percent increase in total new and renewed loan production.
Adjusted(1) average consumer balances increased 3 percent as
solid growth in residential first mortgage, indirect-other
consumer, indirect-vehicle, consumer credit card, and other
consumer loans was partially offset by declines in home equity
balances.
Average balances in the business lending portfolio decreased
modestly primarily due to elevated loan payoffs and pay downs as
well as de-risking efforts within certain loan portfolios
throughout the prior year, including decreases in direct energy
loans, multi-family investor real estate loans, and medical office
building loans. In addition, declines in owner-occupied commercial
real estate loans reflect the competitive market and continued
softness in loan demand from middle market and small business
customers.
Deposits
Average Balances
($ amounts in
millions) 2Q18 1Q18 2Q17 2Q18 vs. 1Q18 2Q18 vs. 2Q17 Low-cost
deposits $ 88,561 $ 88,615 $ 90,484 $ (54 ) (0.1 )% $
(1,923 ) (2.1 )% Time deposits 6,692 6,813
7,005 (121 ) (1.8 )% (313 ) (4.5 )% Total Deposits $
95,253 $ 95,428 $ 97,489 $ (175 ) (0.2 )% $
(2,236 ) (2.3 )% ($ amounts in millions) 2Q18 1Q18 2Q17 2Q18
vs. 1Q18 2Q18 vs. 2Q17 Consumer Bank Segment $ 58,152 $ 57,146 $
57,133 $ 1,006 1.8 % $ 1,019 1.8 % Corporate Bank Segment 27,160
27,672 27,584 (512 ) (1.9 )% (424 ) (1.5 )% Wealth Management
Segment 8,528 8,942 9,545 (414 ) (4.6 )% (1,017 ) (10.7 )% Other
1,413 1,668 3,227 (255 ) (15.3 )% (1,814 )
(56.2 )% Total Deposits $ 95,253 $ 95,428 $ 97,489
$ (175 ) (0.2 )% $ (2,236 ) (2.3 )%
Comparison of second quarter 2018 to first
quarter 2018
Total average deposit balances decreased modestly to $95.3
billion in the second quarter reflecting continued optimization of
the company’s deposit portfolio reducing certain higher cost
brokered and collateralized deposits. Average low-cost deposits
represented 93 percent of total average deposits, and deposit costs
totaled 24 basis points, while total funding costs remained low at
52 basis points in the second quarter.
Average deposits in the Consumer segment increased $1.0 billion
or 2 percent while average Corporate segment deposits decreased
$512 million, or 2 percent driven primarily by customers using
liquidity to pay down debt or invest in their businesses, as well
as seasonal declines in public fund accounts. Average deposits in
the Wealth Management segment declined $414 million or 5 percent
and included the impact of ongoing strategic reductions of certain
collateralized deposits. Average deposits in the Other segment
decreased $255 million or 15 percent driven primarily by the
decision to reduce higher cost retail brokered sweep deposits
consistent with the company’s current funding strategy.
Comparison of second quarter 2018 to
second quarter 2017
Total average deposit balances decreased $2.2 billion or 2
percent from the prior year. Growth in average Consumer segment
deposits was offset by strategic reductions in Corporate, Wealth
Management, and Other segment deposits.
Asset
quality
As of and for the Quarter
Ended ($ amounts in millions) 6/30/2018 3/31/2018
6/30/2017 ALL/Loans, net 1.04 % 1.05 % 1.30 %
Allowance for loan losses to non-performing loans, excluding loans
held for sale 1.41x 1.40x 1.27x Net loan charge-offs as a % of
average loans, annualized 0.32 % 0.42 % 0.34 % Adjusted net loan
charge-offs as a % of average loans (non-GAAP), annualized 0.32 %
0.40 % 0.34 % Non-accrual loans, excluding loans held for
sale/Loans, net 0.74 % 0.75 % 1.03 % NPAs (ex. 90+ past due)/Loans,
foreclosed properties and non-performing loans held for sale 0.83 %
0.85 % 1.14 % NPAs (inc. 90+ past due)/Loans, foreclosed properties
and non-performing loans held for sale* 0.99 % 1.02 % 1.32 % Total
TDRs, excluding loans held for sale $827 $996 $1,450 Total
Criticized Loans—Business Services**
$1,908 $2,223 $3,280
* 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 2018 to first
quarter 2018
Broad-based asset quality improvement continued during the
second quarter. Non-performing, criticized and troubled debt
restructured loans, as well as total delinquencies, all declined.
Total non-performing loans, excluding loans held for sale,
decreased to 0.74 percent of loans outstanding, the lowest level
since 2007. Business services criticized and total troubled debt
restructured loans decreased 14 percent and 17 percent,
respectively, and total delinquencies decreased 21 percent.
Net charge-offs totaled $62 million or 0.32 percent of average
loans compared to $79 million or 0.40 percent of average loans in
the previous quarter on an adjusted basis(1). The provision for
loan losses approximated net charge-offs during the second quarter
and included the release of the company’s remaining
hurricane-specific loan loss allowance of $10 million. The
allowance for loan and lease losses totaled 1.04 percent of total
loans outstanding, and 141 percent of total non-accrual loans.
However, volatility in certain credit metrics can be expected,
especially related to large-dollar commercial credits.
Comparison of second quarter 2018 to
second quarter 2017
Net charge-offs decreased 2 basis points compared to the second
quarter of 2017. The allowance for loan and lease losses as a
percent of total loans decreased 26 basis points. Total
non-performing loans, excluding loans held for sale, decreased 28
percent, and total business lending criticized loans decreased 42
percent.
Capital and
liquidity
As of and for Quarter Ended 6/30/2018
3/31/2018 6/30/2017 Basel III Common Equity Tier 1 ratio(2)
11.0 % 11.1 % 11.5 % Basel III Common Equity Tier 1 ratio — Fully
Phased-In Pro-Forma (non-GAAP)(1)(2) 10.9 % 11.0 % 11.4 % Tier 1
capital ratio(2) 11.8 % 11.9 % 12.3 % Tangible common stockholders’
equity to tangible assets (non-GAAP)(1) 8.36 % 8.54 % 9.30 %
Tangible common book value per share (non-GAAP)(1) $8.97
$8.98 $9.28
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 11.8
percent and 11.0 percent, respectively, at quarter-end under the
phase-in provisions. In addition, the Common Equity Tier 1
ratio(1)(2) was estimated at 10.9 percent on a fully phased-in
basis.
During the second quarter, the company repurchased $235 million
or 13 million shares of common stock and declared $100 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 84 percent, and as of quarter-end, the company remained
fully compliant with the liquidity coverage ratio rule.
On July 2, 2018, Regions completed the sale of its Regions
Insurance subsidiary and affiliates. The after-tax gain associated
with the transaction was approximately $200 million and Common
Equity Tier 1 capital generated was approximately $300 million. The
after-tax gain will be reflected in Regions’ third quarter
consolidated statements of income as a component of discontinued
operations.
During the second quarter, Regions completed the annual
Comprehensive Capital Analysis and Review (CCAR) process and
received no objection regarding planned capital actions. Capital
actions incorporate the capital generated from the sale of Regions
Insurance and include up to $2.031 billion in common share
repurchases over the next four quarters and a proposed 56 percent
increase to its quarterly common stock dividend to $0.14 per common
share beginning in the third quarter of 2018. The $2.031 billion
share repurchase program was previously approved by the Board of
Directors, and the proposed dividend increase will be considered by
the Board of Directors at its July 2018 meeting.
(1) Non-GAAP, refer to pages 7, 11, 12, 17, 23, 24 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, July 20, 2018, at 2 p.m. ET through Monday, August 20,
2018. To listen by telephone, please dial 1-855-859-2056, and use
access code 7489087. An archived webcast will also be available on
the Investor Relations page of www.regions.com.
About Regions Financial Corporation
Regions Financial Corporation (NYSE:RF), with $125 billion in
assets, is a member of the S&P 500 Index and is one of the
nation’s largest full-service providers of consumer and commercial
banking, wealth management, and mortgage 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 2,000 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 possible declines in property
values, increases in 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, 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 Tax Reform and 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 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 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, 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 ability to identify and address
cyber-security risks such as data security breaches, malware,
“denial of service” attacks, “hacking” and identity theft, a
failure of which could disrupt our business and result in the
disclosure of and/or misuse or misappropriation of confidential or
proprietary information, disruption or damage to our systems,
increased costs, losses, or adverse effects to our reputation.
- Our ability to realize our adjusted
efficiency ratio target as part of our expense management
initiatives.
- 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.
- 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, 2017 as filed with the
SEC.
The words “future,” “anticipates,” “assumes,” “intends,”
“plans,” “seeks,” “believes,” “predicts,” “potential,”
“objectives,” “estimates,” “expects,” “targets,” “projects,”
“outlook,” “forecast,” “would,” “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 and do not intend 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. Net interest income and other financing
income (GAAP) is presented excluding certain adjustments related to
tax reform to arrive at adjusted net interest income and other
financing income (non-GAAP). 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.
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: https://www.businesswire.com/news/home/20180720005022/en/
Regions Financial CorporationMedia:Evelyn
Mitchell, 205-264-4551orInvestor Relations:Dana Nolan,
205-264-7040
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