Generates positive operating leverage and
continued improvement in asset quality
Regions Financial Corporation (NYSE:RF) today announced earnings
for the first quarter ended March 31, 2018. The company reported
net income available to common shareholders from continuing
operations of $398 million, an increase of 44 percent compared to
the first quarter of 2017. Earnings per diluted share from
continuing operations were $0.35, an increase of 52 percent from
the first quarter of 2017. The company generated positive operating
leverage with reported pre-tax pre-provision income increasing 9
percent over the first quarter of 2017 and continued broad-based
asset quality improvement.
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Subsequent to the end of the first quarter, Regions announced it
had entered into a definitive agreement to sell its Regions
Insurance subsidiary and affiliates. Subject to regulatory
approval, the transaction is expected to close in the third
quarter. In connection with management's decision to sell, the
pending transaction meets the criteria for reporting as
discontinued operations at March 31, 2018. Results of the entities
being sold are reported in Regions' consolidated statements of
income separately as discontinued operations for all periods
presented. The company expects the transaction will result in an
after-tax gain of approximately $200 million, and will generate
Common Equity Tier 1 of approximately $300 million. Capital
generated from this transaction at the time of closing is expected
to be used to repurchase shares of common stock, subject to review
and non-objection by the Federal Reserve as part of the 2018
Comprehensive Capital Analysis and Review.
“We began 2018 with positive momentum, and our first quarter
financial performance demonstrates our focus on sustainable growth
is producing results,” said Grayson Hall, Chairman and CEO. “During
the quarter, we grew loans and net interest income while continuing
to prudently manage asset quality. In addition, we made progress
related to our Simplify and Grow initiative with our recently
announced organizational changes, which will further streamline our
field structure while also deepening our commitment to support
local customers and communities.”
Hall added, “Earlier this month, we also announced an agreement
to sell our Regions Insurance subsidiary, which will allow
increased focus on businesses where we can add the most value for
our customers, associates and shareholders. This decision was an
outcome of Regions' robust strategic planning and capital
allocation process and aligns with our commitment to simplify our
company and generate long-term benefits for all of our
stakeholders.”
SUMMARY OF FIRST QUARTER 2018
RESULTS:
Quarter Ended ($ amounts in
millions, except per share data) 3/31/2018 12/31/2017
3/31/2017 Income from continuing operations (A) $ 414
$ 320 $ 293 Income (loss) from discontinued operations, net of tax
— 15 8 Net income 414 335 301 Preferred dividends (B) 16 16 16 Net
income available to common shareholders $ 398 $ 319 $ 285
Net income from continuing operations
available to common shareholders (A) – (B)
$ 398 $ 304 $ 277 Diluted earnings per common share from
continuing operations $ 0.35 $ 0.26 $ 0.23 Diluted earnings
per common share $ 0.35 $ 0.27 $ 0.23
First quarter 2018 results compared to
fourth quarter 2017:
- Reported net interest income and other
financing income increased $8 million; net interest margin was 3.46
percent, up 9 basis points.
- Net interest income and other financing
income increased $2 million on an adjusted basis(1); net interest
margin increased 7 basis points on an adjusted basis(1).
- Non-interest income decreased 2
percent, and 1 percent on an adjusted basis(1).
- Non-interest expense decreased 4
percent, and 1 percent on an adjusted basis(1).
- Average loans and leases increased $368
million and totaled $79.9 billion; adjusted(1) loans and leases
increased $620 million or 1 percent.
- Consumer lending balances decreased $95
million, but increased $157 million on an adjusted basis(1).
- Business lending balances increased
$463 million.
- Average deposits decreased $1.6 billion
and totaled $95.4 billion.
- Net charge-offs increased 11 basis
points to 0.42 percent of average loans, and 9 basis points to 0.40
percent of average loans on an adjusted basis(1).
- Non-performing loans, excluding loans
held for sale, decreased 8 percent to 0.75 percent of loans
outstanding.
- Business services criticized loans
decreased 9 percent.
- Allowance for loan and lease losses
decreased 12 basis points to 1.05 percent of total loans.
- Allowance for loan losses as a percent
of non-performing loans decreased 4 basis points to 140
percent.
First quarter 2018 results compared to
first quarter 2017:
- Net interest income and other financing
income increased 6 percent; net interest margin increased 21 basis
points.
- Non-interest income increased 7
percent, and 6 percent on an adjusted basis(1).
- Non-interest expenses increased 5
percent, and 3 percent on an adjusted basis(1).
- Average loans and leases decreased $287
million, but increased $577 million on an adjusted basis(1).
- Consumer lending balances increased $38
million, and $902 million on an adjusted basis(1).
- Business lending balances decreased
$325 million.
- Average deposits decreased 3
percent.
- Net charge-offs decreased 9 basis
points, and 11 basis points on an adjusted basis(1).
- Non-performing loans, excluding loans
held for sale, decreased 40 percent.
- Business services criticized loans
decreased 37 percent.
FIRST QUARTER 2018 FINANCIAL RESULTS:
Selected items
impacting earnings from continuing operations:
Quarter Ended ($ amounts in
millions, except per share data) 3/31/2018 12/31/2017
3/31/2017 Pre-tax adjusted items: Branch
consolidation, property and equipment charges $ (3 ) $ (9 ) $ (1 )
Salaries and benefits related to severance charges (15 ) (2 ) (4 )
Expenses associated with residential mortgage loan sale (4 ) — —
Securities gains (losses), net — 10 — 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 4 — — Net provision benefit from
residential mortgage loan sale 16 — — Tax reform adjustments
through income tax expense — (61 ) — Diluted EPS impact* $ —
$ (0.08 ) $ —
Pre-tax additional selected
items**: Operating lease impairment charges $ (4 ) $ — $ (5 )
Reduction of hurricane-related allowance for loan losses 30 — —
Visa Class B shares expense (2 ) (11 ) (3 )
* 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 prudent investments in new
technologies, delivery channels and other areas of growth. As a
result, during the first quarter the company incurred $15 million
of severance expense, as well as $3 million of expenses associated
primarily with plans to consolidate between 30 and 40 branches
during 2018. Including these branches, the company will have
consolidated approximately 12 percent of its retail branch network
since the end of 2015.
In addition, the company sold $254 million of residential
mortgage loans during the first quarter of 2018 incurring $4
million in expenses associated with the transaction, which
consisted primarily of performing troubled debt restructured loans.
The company recognized $5 million in net charge-offs associated
with the loan sale; however, the company also released
approximately $21 million of loan loss allowance resulting in a $16
million net benefit to provision for loan losses.
Regions also incurred a $4 million net impairment charge
reducing the value of certain operating lease assets and recognized
$4 million of leveraged lease termination gains during the
quarter.
Lower than anticipated losses associated with certain 2017
hurricanes resulted in a reduction to the company's
hurricane-specific loan loss allowance of approximately $30
million.
Total revenue
from continuing operations
Quarter Ended ($ amounts in
millions) 3/31/2018 12/31/2017
3/31/2017 1Q18 vs. 4Q17 1Q18 vs. 1Q17
Net interest income and other financing income $ 909 $ 901 $
859 $ 8 0.9 % $ 50 5.8 % Reduction in
leveraged lease interest income resulting from tax reform —
6 — (6 ) (100.0 )% — NM
Adjusted net interest income and other financing income
(non-GAAP)(1) $ 909 $ 907 $ 859 $ 2 0.2 % $ 50 5.8 % Taxable
equivalent adjustment* 13 23 22 (10 ) (43.5 )%
(9 ) (40.9 )% Adjusted net interest income and other
financing income, taxable equivalent basis (non-GAAP)(1) $ 922
$ 930 $ 881 $ (8 ) (0.9 )% $ 41 4.7 %
Net interest margin (FTE) 3.46 % 3.37 % 3.25 % Adjusted net
interest margin (FTE) (non-GAAP)(1) 3.46 % 3.39 % 3.25 %
Non-interest income: Service charges on deposit accounts $
171 $ 171 $ 168 $ — NM 3 1.8 % Card & ATM fees 104 106 104 (2 )
(1.9 )% — NM Investment management and trust fee income 58 59 56 (1
) (1.7 )% 2 3.6 % Capital markets fee income and other 50 56 32 (6
) (10.7 )% 18 56.3 % Mortgage Income 38 36 41 2 5.6 % (3 ) (7.3 )%
Bank-owned life insurance 17 20 19 (3 ) (15.0 )% (2 ) (10.5 )%
Commercial credit fee income 17 18 18 (1 ) (5.6 )% (1 ) (5.6 )%
Investment services fee income 17 14 16 3 21.4 % 1 6.3 % Market
value adjustments on employee benefit assets** (1 ) 6 5 (7 ) (116.7
)% (6 ) (120.0 )% Securities gains (losses), net — 10 — (10 )
(100.0 )% — NM Other 36 20 15 16 80.0 %
21 140.0 %
Non-interest income $ 507 $ 516
$ 474 $ (9 ) (1.7 )% $ 33 7.0 %
Total
revenue $ 1,416 $ 1,417 $ 1,333 $ (1 )
(0.1 )% $ 83 6.2 %
Adjusted total revenue
(non-GAAP)(1) $ 1,412 $ 1,413 $ 1,333
$ (1 ) (0.1 )% $ 79 5.9 %
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 first quarter 2018 to fourth
quarter 2017
Total revenue was $1.4 billion on a reported and adjusted
basis(1), consistent with the fourth quarter.
Net interest income and other financing income was $909 million.
On an adjusted basis(1), net interest income and other financing
income increased $2 million over the prior quarter. Net interest
margin was 3.46 percent, reflecting a 7 basis point increase over
the prior quarter's adjusted basis(1). Adjusted net interest margin
and net interest income and other financing income primarily
benefited from higher interest rates offset by higher funding costs
associated with bank debt issued during the quarter. In addition,
two fewer days in the quarter reduced net interest income and other
financing income approximately $10 million, but benefited net
interest margin by approximately 4 basis points.
Non-interest income totaled $507 million, a decrease of $9
million or 2 percent. On an adjusted basis(1), non-interest income
decreased $3 million or 1 percent primarily due to decreases in
capital markets and card & ATM fees, partially offset by an
increase in mortgage income. Other non-interest income also
reflects a $6 million increase to the value of an equity investment
based on observable price transactions that occurred during the
first quarter and recognized $7 million in net gains associated
with the sale of certain low income housing investments. Offsetting
these gains, the company incurred $4 million of net impairment
charges reducing the value of certain operating lease assets.
Capital markets income declined $6 million or 11 percent from a
record high fourth quarter, and seasonal declines in card & ATM
fees resulted in a $2 million decrease reflecting lower interchange
income. Mortgage income increased $2 million or 6 percent driven by
increases in the market valuation of mortgage servicing rights and
related hedging activity.
Comparison of first quarter 2018 to first
quarter 2017
Total revenue increased $83 million or 6 percent compared to the
first quarter of 2017. Adjusted(1) total revenue increased $79
million or 6 percent.
Net interest income and other financing income increased $50
million or 6 percent. Net interest margin increased 21 basis
points. Net interest margin and net interest income and other
financing income benefited from higher interest rates and prudent
deposit cost management, partially offset by modest increases in
funding costs and lower average loan balances.
Non-interest income increased $33 million or 7 percent on a
reported basis and $29 million or 6 percent on an adjusted basis(1)
driven primarily by growth in capital markets and service charges,
partially offset by lower mortgage income. Other non-interest
income includes an increase to the value of an equity investment
and net gains associated with the sale of certain low income
housing investments during the current quarter.
Capital markets income increased $18 million or 56 percent
reflecting higher merger and acquisition advisory services,
customer interest rate swap income, and fees generated from the
placement of permanent financing for real estate customers. Service
charges income increased $3 million or 2 percent consistent with
customer account growth; however, mortgage income decreased $3
million or 7 percent compared to the prior year consistent with
lower production volumes.
Non-interest
expense from continuing operations
Quarter Ended ($ amounts in
millions) 3/31/2018 12/31/2017
3/31/2017 1Q18 vs. 4Q17 1Q18 vs. 1Q17
Salaries and employee benefits $ 495 $ 479 $ 461 $ 16
3.3 % $ 34 7.4 % Net occupancy expense 83 82 83 1 1.2
% — NM Furniture and equipment expense 81 80 79 1 1.3 % 2 2.5 %
Outside services 47 48 40 (1 ) (2.1 )% 7 17.5 % FDIC insurance
assessments 24 27 27 (3 ) (11.1 )% (3 ) (11.1 )% Professional,
legal and regulatory expenses 27 23 22 4 17.4 % 5 22.7 % Marketing
26 23 24 3 13.0 % 2 8.3 % Branch consolidation, property and
equipment charges 3 9 1 (6 ) (66.7 )% 2 200.0 % Visa class B shares
expense 2 11 3 (9 ) (81.8 )% (1 ) (33.3 )% Provision (credit) for
unfunded credit losses (4 ) (6 ) 1 2 (33.3 )% (5 ) (500.0 )% Other
100 144 102 (44 ) (30.6 )% (2 ) (2.0 )%
Total non-interest expense from continuing
operations
$ 884 $ 920 $ 843 $ (36 ) (3.9 )% $ 41 4.9 %
Total adjusted non-interest expense(1)
$ 862 $ 869 $ 838 $ (7 ) (0.8 )% $ 24 2.9 %
NM - Not Meaningful
Comparison of first quarter 2018 to fourth
quarter 2017
Non-interest expense totaled $884 million in the first quarter,
a decrease of $36 million or 4 percent, driven primarily by a $40
million contribution to the company's charitable foundation during
the fourth quarter. On an adjusted basis(1), non-interest expense
totaled $862 million, a decrease of $7 million or 1 percent.
Decreases in expense associated with Visa class B shares sold in a
prior year, as well as lower FDIC assessments were partially offset
by increases in salaries and benefits and professional fees.
Excluding the impact of severance charges, the increase to salaries
and benefits was driven primarily by seasonally higher payroll
taxes partially offset by staffing reductions. Consistent with the
company's efforts to simplify and streamline its organization,
staffing levels are lower by approximately 350 positions since
year-end and 735 positions since the first quarter of the prior
year.
The company's reported first quarter efficiency ratio was 61.9
percent and 60.5 percent on an adjusted basis(1), essentially
unchanged from the prior quarter, and the effective tax rate was
23.6 percent.
Comparison of first quarter 2018 to first
quarter 2017
Non-interest expense increased $41 million or 5 percent in the
first quarter compared to the first quarter of the prior year. On
an adjusted basis(1), non-interest expense increased $24 million or
3 percent primarily due to higher salaries and benefits and
professional fees. Excluding the impact of severance charges, the
increase to salaries and benefits was driven primarily by merit
increases and higher production-based incentives, partially offset
by staffing reductions.
Loans and
Leases
Average Balances
($ amounts in millions) 1Q18 4Q17 1Q17 1Q18 vs. 4Q17 1Q18
vs. 1Q17 Commercial and industrial $ 36,464 $ 35,689 $ 35,330 $ 775
2.2 % $ 1,134 3.2 % Commercial real estate—owner-occupied 6,435
6,543 7,139 (108 ) (1.7 )% (704 ) (9.9 )% Investor real estate
5,720 5,924 6,475 (204 ) (3.4 )% (755 ) (11.7 )% Business Lending
48,619 48,156 48,944 463 1.0 % (325 ) (0.7 )% Residential
first mortgage* 13,977 13,954 13,469 23 0.2 % 508 3.8 % Home equity
10,041 10,206 10,606 (165 ) (1.6 )% (565 ) (5.3 )%
Indirect—vehicles 2,248 2,177 2,108 71 3.3 % 140 6.6 %
Indirect—vehicles third-party 1,061 1,223 1,835 (162 ) (13.2 )%
(774 ) (42.2 )% Indirect—other consumer 1,531 1,400 937 131 9.4 %
594 63.4 % Consumer credit card 1,257 1,238 1,166 19 1.5 % 91 7.8 %
Other consumer 1,157 1,169 1,113 (12 ) (1.0 )% 44 4.0 %
Consumer Lending 31,272 31,367 31,234 (95 ) (0.3 )% 38 0.1 %
Total Loans $ 79,891 $ 79,523 $ 80,178 $ 368 0.5 % $ (287 )
(0.4 )% Adjusted Consumer Lending (non-GAAP)(1) $ 30,047 $
29,890 $ 29,145 $ 157 0.5 % $ 902 3.1 % Adjusted
Total Loans (non-GAAP)(1) $ 78,666 $ 78,046 $ 78,089 $ 620
0.8 % $ 577 0.7 %
NM - Not meaningful.
* 2018 average residential first mortgage balances include the
impact of a $254 million loan sale.
Comparison of first quarter 2018 to fourth
quarter 2017
Average loans and leases increased $368 million to $79.9 billion
in the first quarter. Adjusted(1) average loans and leases
increased $620 million or 1 percent reflecting modest growth in the
business and consumer lending portfolios.
Average balances in the consumer lending portfolio decreased $95
million to $31.3 billion. Adjusted(1) average consumer loans
increased $157 million reflecting growth in residential mortgage,
indirect-other consumer, indirect-vehicle, and consumer credit
card, partially offset by continued declines in home equity.
Despite the first quarter loan sale, average residential first
mortgage balances increased $23 million. Average indirect-other
consumer loans increased $131 million or 9 percent as the company
continued to expand and grow its point-of-sale portfolio, and
credit card balances increased $19 million or 2 percent consistent
with an increase in active credit cards. Average indirect-vehicle
loans increased $71 million or 3 percent, while home equity
portfolio balances declined $165 million or 2 percent driven
primarily by declines in home equity lines of credit.
Average balances in the business lending portfolio totaled $48.6
billion reflecting an increase of $463 million as growth in
commercial and industrial loans was partially offset by declines in
owner-occupied commercial real estate and investor real estate.
Commercial and industrial loans grew $775 million during the
quarter, led by growth in government & institutional banking,
energy & natural resources, and technology & defense.
Owner-occupied commercial real estate loans decreased $108 million
reflecting a slowing pace of decline, and investor real estate
loans decreased $204 million driven by maturities and refinancing
activity. The company is encouraged by increasing opportunities in
2018 as economic conditions and customer sentiment continue to
modestly improve.
Comparison of first quarter 2018 to first
quarter 2017
Despite a 24 percent increase in total new and renewed loan
production, average loans and leases declined modestly compared to
the first quarter of 2017. Adjusted(1) average loans increased $577
million or 1 percent.
Average balances in the consumer lending portfolio remained
relatively stable. Adjusted(1) average consumer balances increased
$902 million or 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
$325 million or 1 percent primarily due to elevated loan payoffs
and pay downs as well as de-risking efforts within certain loan
portfolios throughout the prior year, including decreases in direct
energy loans, multi-family investor real estate loans, and medical
office building loans. In addition, declines in owner-occupied
commercial real estate loans reflect the competitive market and
continued softness in loan demand from middle market and small
business customers.
Deposits
Average Balances
($ amounts in millions) 1Q18 4Q17 1Q17 1Q18 vs. 4Q17 1Q18
vs. 1Q17 Low-cost deposits $ 88,615 $ 90,125 $ 90,819 $ (1,510 )
(1.7 )% $ (2,204 ) (2.4 )% Time deposits 6,813 6,935 7,148 (122 )
(1.8 )% (335 ) (4.7 )% Total Deposits $ 95,428 $ 97,060 $ 97,967 $
(1,632 ) (1.7 )% $ (2,539 ) (2.6 )% ($ amounts in millions)
1Q18 4Q17 1Q17 1Q18 vs. 4Q17 1Q18 vs. 1Q17 Consumer Bank Segment $
57,146 $ 56,921 $ 56,243 $ 225 0.4 % $ 903 1.6 % Corporate Bank
Segment 27,672 28,362 28,165 (690 ) (2.4 )% (493 ) (1.8 )% Wealth
Management Segment 8,942 9,163 10,041 (221 ) (2.4 )% (1,099 ) (10.9
)% Other 1,668 2,614 3,518 (946 ) (36.2 )% (1,850 ) (52.6 )% Total
Deposits $ 95,428 $ 97,060 $ 97,967 $ (1,632 ) (1.7 )% $ (2,539 )
(2.6 )%
Comparison of first quarter 2018 to fourth
quarter 2017
Total average deposit balances decreased $1.6 billion to $95.4
billion in the first 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
increased to 21 basis points, while total funding costs remained
low at 46 basis points in the first quarter.
Average deposits in the Consumer segment increased $225 million
while average Corporate segment deposits decreased $690 million, or
2 percent driven primarily by seasonal declines. Average deposits
in the Wealth Management segment declined $221 million or 2 percent
and includes the impact of ongoing strategic reductions of certain
collateralized deposits. Average deposits in the Other segment
decreased $946 million or 36 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 first quarter 2018 to first
quarter 2017
Total average deposit balances decreased $2.5 billion or 3
percent from the prior year. Growth in average Consumer segment
deposits was offset by strategic reductions in Corporate, Wealth
Management, and Other segment deposits.
Asset
quality
As of and for the Quarter Ended
($ amounts in millions) 3/31/2018 12/31/2017
3/31/2017 ALL/Loans, net 1.05 % 1.17 % 1.33 % Allowance for
loan losses to non-performing loans, excluding loans held for sale
1.40x 1.44x 1.06x Net loan charge-offs as a % of average loans,
annualized 0.42 % 0.31 % 0.51 % Adjusted net loan charge-offs as a
% of average loans (non-GAAP), annualized 0.40 % 0.31 % 0.51 %
Non-accrual loans, excluding loans held for sale/Loans, net 0.75 %
0.81 % 1.26 % NPAs (ex. 90+ past due)/Loans, foreclosed properties
and non-performing loans held for sale 0.85 % 0.92 % 1.37 % NPAs
(inc. 90+ past due)/Loans, foreclosed properties and non-performing
loans held for sale* 1.02 % 1.13 % 1.57 % Total TDRs, excluding
loans held for sale $ 996 $ 1,144 $ 1,364 Total Criticized
Loans—Business Services** $ 2,223
$ 2,456 $ 3,538
* 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 first quarter 2018 to fourth
quarter 2017
Broad-based asset quality improvement continued during the first
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 8
percent to 0.75 percent of loans outstanding, marking consecutive
quarters at a new 10-year low. Business services criticized and
total troubled debt restructured loans decreased 9 percent and 13
percent, respectively, and total delinquencies decreased 4
percent.
Net charge-offs totaled $84 million or 0.42 percent of average
loans compared to $63 million or 0.31 percent of average loans in
the previous quarter. The increase in net charge-offs was primarily
attributable to larger recoveries in the fourth quarter and
approximately $5 million associated with the sale of primarily
troubled debt restructured residential mortgage loans during the
current quarter. Improving economic conditions drove improvements
in credit metrics, particularly pay downs and payoffs of adversely
rated loans. This improvement, combined with a $30 million
reduction of hurricane-specific allowance and a $21 million
reduction of allowance associated with the loan sale, resulted in a
credit provision of $10 million. The allowance for loan and lease
losses decreased 12 basis points to 1.05 percent of total loans
outstanding. The resulting allowance for loan and lease losses as a
percent of total non-accrual loans decreased 4 basis points to 140
percent. Given the current phase of the credit cycle, volatility in
certain credit metrics can be expected, especially related to
large-dollar commercial credits.
Comparison of first quarter 2018 to first
quarter 2017
Net charge-offs decreased 9 basis points compared to the first
quarter of 2017 and represented 0.42 percent of average loans
compared to 0.51 percent in the prior year. The allowance for loan
and lease losses as a percent of total loans decreased 28 basis
points. Total non-performing loans, excluding loans held for sale,
decreased 40 percent, and total business lending criticized loans
decreased 37 percent.
Capital and
liquidity
As of and for Quarter Ended
3/31/2018 12/31/2017 3/31/2017 Basel
III Common Equity Tier 1 ratio(2) 11.1 % 11.1 % 11.3 % Basel III
Common Equity Tier 1 ratio — Fully Phased-In Pro-Forma
(non-GAAP)(1)(2) 11.0 % 11.0 % 11.2 % Tier 1 capital ratio(2) 11.9
% 11.9 % 12.1 % Tangible common stockholders’ equity to tangible
assets (non-GAAP)(1) 8.54 % 8.71 % 9.15 % Tangible common book
value per share (non-GAAP)(1) $ 8.98
$ 9.16 $ 9.08
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 11.9
percent and 11.1 percent, respectively, at quarter-end under the
phase-in provisions. In addition, the Common Equity Tier 1
ratio(1)(2) was estimated at 11.0 percent on a fully phased-in
basis.
During the first quarter, the company repurchased $235 million
or 12.5 million shares of common stock and declared $101 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 82 percent, and as of quarter-end, the company remained
fully compliant with the liquidity coverage ratio rule.
(1) Non-GAAP, refer to pages 6, 9, 10, 15, 21 and 24 of the
financial supplement to this earnings release
(2) Current quarter Basel III common equity Tier 1, and Tier 1
capital ratios are estimated.
Conference Call
A replay of the earnings call will be available beginning
Friday, April 20, 2018, at 2 p.m. ET through Sunday, May 20, 2018.
To listen by telephone, please dial 1-855-859-2056, and use access
code 5947769. 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 $123 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,
increased 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 “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. 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.
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: https://www.businesswire.com/news/home/20180420005108/en/
Regions Financial CorporationMedia Contact:Evelyn
Mitchell, 205-264-4551orInvestor Relations Contact:Dana
Nolan, 205-264-7040
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