BIRMINGHAM, Ala.--(BUSINESS WIRE)--
Regions Financial Corporation (NYSE:RF) today announced earnings for the
first quarter ended March 31, 2016. The company reported net income
available to common shareholders of $257 million, an increase of 18
percent compared to the first quarter of 2015. Earnings per diluted
share was $0.20, an increase of $0.04 from the first quarter of 2015.
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"These results illustrate that we are successfully executing our
strategic plan, which includes reducing expenses so we can invest in new
revenue initiatives," said Chairman, President and CEO Grayson Hall. "We
are demonstrating that we can increase revenue while prudently managing
expenses, which puts us on track to reach our long-term performance
targets."
SUMMARY OF FIRST QUARTER 2016 RESULTS:
FIRST QUARTER 2016 FINANCIAL RESULTS:
Selected items impacting earnings
During the first quarter of 2016, the company incurred $14 million of
property-related expenses primarily related to previously announced
branch consolidations as well as occupancy optimization initiatives. The
company also incurred $12 million of severance expense, primarily
related to efficiency efforts as the company executes its plan to
eliminate $300 million in core expenses over the next three years.
The company also recorded additional income in bank-owned life insurance
of $14 million in the first quarter related to a claim benefit as well
as a gain on exchange of policies. In addition, professional and legal
fees benefited from a $7 million settlement recovery, and insurance
proceeds of $3 million were recognized related to prior legal matters.
First quarter 2016 results compared to fourth
quarter 2015:
-
Average loans and leases totaled $82 billion, an increase of 1 percent.
-
Business lending balances increased 1 percent on an average basis.
-
Consumer lending balances increased 1 percent on an average basis.
-
Average deposit balances totaled $98 billion, an increase of $262
million; low-cost deposits increased $712 million or 1 percent.
-
Net interest income and other financing income on a fully taxable
equivalent (FTE) basis was $883 million, an increase of $12 million or
1 percent excluding the lease adjustment(4) from the prior
quarter. The resulting net interest margin was 3.19 percent.
-
Non-interest income increased 1 percent on an adjusted basis(1).
-
Non-interest expenses decreased 2 percent on an adjusted basis(1).
-
Net charge-offs decreased 13 percent while non-accrual loans,
excluding loans held for sale, increased 27 percent and represented
1.22 percent of loans outstanding.
-
The fully phased-in pro-forma Common Equity Tier 1 ratio(1)(2) was
estimated at 10.7 percent and the loan-to-deposit ratio was 83 percent
at March 31, 2016.
First quarter 2016 results compared to first
quarter 2015:
-
Average loans and leases increased $4 billion or 5 percent.
-
Business lending balances increased $2 billion or 4 percent on an
average basis.
-
Consumer lending balances increased $1 billion or 5 percent on an
average basis.
-
Average deposit balances increased $2 billion or 2 percent; average
low-cost deposits increased 4 percent.
-
Net interest income and other financing income (FTE) increased $51
million or 6 percent.
-
Non-interest income increased 10 percent on an adjusted basis(1).
-
Non-interest expenses were relatively flat on an adjusted basis(1).
-
Net charge-offs increased 26 percent and represented 0.34 percent of
average loans while non-accrual loans, excluding loans held for sale,
increased 24 percent and represented 1.22 percent of loans outstanding.
Total revenue
*Excluding the $15 million lease adjustment recorded in the fourth
quarter 2015, net interest income and other financing income would have
been $851 million or $871 million on an FTE basis and the net interest
margin would have been 3.13 percent.
Comparison of first quarter 2016 to fourth quarter
2015
Total revenue (FTE) was $1.4 billion in the first quarter. On an
adjusted basis(1) compared to the prior quarter total revenue
(FTE) increased $33 million or 2 percent. Net interest income and other
financing income (FTE)was $883 million, an increase of $27 million or 3
percent, and the resulting net interest margin was 3.19 percent.
Excluding the $15 million lease adjustment in the prior quarter, net
interest income and other financing income (FTE) increased $12 million
or 1 percent. Net interest income and other financing income benefited
from the increase in short-term rates, higher loan balances and lower
premium amortization; however, these increases were partially offset by
lower dividends on Federal Reserve stock and one less day in the quarter.
Non-interest income totaled $506 million in the first quarter. On an
adjusted basis(1) compared to the prior quarter this
represented an increase of 1 percent that was driven primarily by
revenue diversification initiatives. In particular, capital markets
income increased $13 million or 46 percent from the prior quarter driven
by revenue contributions from the recently expanded mergers and
acquisition advisory services group, fees generated from the placement
of permanent financing for real estate customers, as well as syndicated
loan transactions. Wealth Management income increased $6 million or 6
percent from the fourth quarter, driven by seasonal increases in
insurance income, revenue from recent insurance related acquisitions and
increased investment services fee income. This was partially offset by
lower investment management fees driven by challenging market conditions.
Solid growth in checking accounts helped to offset the impact of
seasonality and posting order changes that went into effect in early
November 2015, as service charges declined 4 percent. Seasonally lower
transaction volume impacted card and ATM income which declined 1
percent. Other non-interest income included a reduction to revenue of
$12 million reflecting a decline in market value related to assets held
for certain employment benefits, which is offset in salaries and
benefits.
Comparison of first quarter 2016 to first quarter
2015
Total revenue (FTE) increased $96 million or 7 percent on an adjusted
basis(1) compared to the first quarter of 2015. Net interest
income and other financing income (FTE) increased $51 million or 6
percent. The increase was driven primarily by loan growth, balance sheet
hedging and optimization strategies and the impact of higher short term
rates.
Non-interest income increased $36 million or 8 percent. The
year-over-year improvement was driven primarily by growth in checking
accounts and credit card accounts, higher bank owned life insurance
income, as well as new revenue initiatives. Capital markets income
increased $21 million or more than doubled from the prior year as the
company expanded M&A advisory service offerings and increased loan
syndication volume and fees generated from the placement of permanent
financing for real estate customers.
Card and ATM income increased $10 million or 12 percent, primarily
related to an increase in transaction volume as the company grew active
debit cards 4 percent and increased commercial card usage 38 percent.
Wealth Management income improved $8 million or 8 percent as the company
expanded insurance capabilities and increased investment services fee
income through additional financial consultants. Service charges
declined 1 percent from the first quarter of 2015 and were impacted by
posting order changes that went into effect in early November 2015.
However, excluding this change, service charges would have increased
over the prior year.
Non-interest expense
Comparison of first quarter 2016 to fourth quarter
2015
Non-interest expense totaled $869 million in the first quarter. On an
adjusted basis(1) this represents a decrease of $18 million
or 2 percent. Total salaries and benefits decreased $3 million from the
previous quarter, which included $12 million in severance expense.
Excluding severance charges in both the first quarter of 2016 and the
fourth quarter of 2015, salaries and benefits declined $9 million or 2
percent. The decrease for the quarter was primarily due to a 2 percent
reduction in staffing and lower expenses related to a decline in market
value for assets held for certain employment benefits. This was
partially offset by seasonal increases in payroll taxes and increased
incentives related to fee based revenue growth.
Legal fees declined $9 million or 41 percent which included a favorable
legal settlement of $7 million. Total occupancy expenses decreased as
the company benefits from lower total square footage resulting from
branch and non-branch reductions.
The adjusted efficiency ratio(1) was 60.6 percent. Under the
current operating environment with continued low interest rates, the
company remains committed to disciplined expense management and is
taking steps to continue to improve efficiencies and lower costs.
The effective tax rate for the first quarter was 29.3 percent which
includes a benefit related to the conclusion of a state tax examination.
Excluding the impact of this benefit, the effective tax rate was 30.3
percent. The effective tax rate is expected to be in the 29 to 31
percent range during 2016.
Comparison of first quarter 2016 to first quarter
2015
Non-interest expense increased $3 million on an adjusted basis(1) from
the first quarter of last year. Total salaries and benefits increased
$17 million from the previous year, primarily attributable to $12
million in 2016 severance expenses.
The company incurred branch consolidation, property and equipment costs
totaling $14 million in the first quarter of 2016 and $22 million in the
first quarter of 2015. Legal fees declined $6 million from the prior
year, primarily related to favorable legal settlements in the first
quarter of 2016.
Loans and Leases
Comparison of first quarter 2016 to fourth quarter
2015
Average loans and leases were $82 billion for the first quarter, an
increase of $750 million or 1 percent. Average balances in the business
lending portfolio were $51 billion during the first quarter, an increase
of $486 million or 1 percent. This increase was driven by Corporate
Banking and Real Estate Banking. New relationships in the Technology &
Defense group and an increase in line utilization in Energy & Natural
Resources also contributed to loan growth. Commercial loan balances
increased $373 million or 1 percent. Investor real estate loans
increased $113 million or 2 percent. Commitments remained flat from the
previous quarter and commercial line utilization increased 110 basis
points to 47.8 percent from the previous quarter.
The consumer lending portfolio experienced growth in almost every
product category as average balances increased $264 million or 1 percent
from the prior quarter. Indirect-vehicle lending continued to expand as
balances increased $87 million or 2 percent from the previous quarter.
Indirect-other increased $76 million or 15 percent as the company
continues to successfully expand its point-of-sale initiatives.
Residential first mortgage balances increased $75 million or 1 percent,
and home equity balances increased $8 million as new production
continued to out-pace run-off. Additionally, consumer credit card
balances increased $19 million or 2 percent as active credit cards
increased 2 percent.
Comparison of first quarter 2016 to first quarter
2015
Average loans and leases increased $4 billion or 5 percent over the
prior year (3) as both the business and consumer lending
portfolios achieved growth.
Average business lending balances increased $2 billion or 4 percent, as
all lending groups achieved growth including Corporate Banking,
Commercial Banking and Real Estate Banking. Within Corporate Banking,
the company's specialized lending groups achieved solid loan growth,
driven by new relationships within Restaurant, Technology & Defense, and
Energy & Natural Resources primarily in the midstream sector. Average
commercial loan balances increased $2 billion or 5 percent and investor
real estate loans increased $156 million or 2 percent. Commitments
increased 6 percent and commercial line utilization increased 180 basis
points from the previous year.
The consumer lending portfolio experienced growth in every product
category as average balances increased $1.4 billion or 5 percent from
the prior year. Residential first mortgage balances increased $498
million or 4 percent benefiting from an increase in new-home purchases
and continued low interest rates. Home equity balances increased $71
million. Indirect-vehicle lending balances increased $348 million or 9
percent as production increased 21 percent. Indirect-other increased
$362 million or 153 percent as the company successfully implemented its
point-of-sale initiatives. Additionally, consumer credit card balances
increased $73 million or 8 percent as active credit cards increased 12
percent, and the company's penetration rate of deposit base customers
increased 165 basis points over the year to approximately 17.5 percent.
Deposits
Comparison of first quarter 2016 to fourth quarter
2015
Total average deposit balances were $98 billion in the first quarter, an
increase of $262 million compared to the prior quarter. In the quarter,
average low-cost deposits increased $712 million and represented 92
percent of average deposits, reflecting the company's solid funding
base. Deposit costs remained near historical lows at 11 basis points,
and total funding costs were 28 basis points for the first quarter.
Comparison of first quarter 2016 to first quarter
2015
Total average deposit balances increased $2 billion or 2 percent from
the prior year. Average low-cost deposits increased $3 billion or 4
percent from the prior year.
Asset quality
* Business services represents the combined total of commercial and
investor real estate loans.
~ ALL excludes operating leases
Comparison of first quarter 2016 to fourth quarter
2015
Net charge-offs totaled $68 million for the first quarter, a decrease of
$10 million from the previous quarter. Net charge-offs as a percent of
average loans were 0.34 percent compared to 0.38 percent in the fourth
quarter. The provision for loan losses was $113 million, and the
resulting allowance for loan and lease losses was 1.41 percent of total
loans outstanding at the end of the quarter. This compares to 1.36
percent of total loans outstanding in the fourth quarter, and the
increase was primarily attributable to an increase in energy related
loan reserves. Total loan loss allowance for the direct energy loan
portfolio was 8 percent at the end of the first quarter compared to 6
percent at the end of the fourth quarter.
Total non-accrual loans, excluding loans held for sale, increased $211
million from the previous quarter and represented 1.22 percent of total
loans, while troubled debt restructured loans declined 2 percent.
Beginning primarily in the third quarter of 2015, low oil prices began
to drive the migration of a number of large energy credits into
criticized loans, primarily in the exploration and production as well as
oil field services sectors. Continued low oil prices prompted further
migration of some of those credits into classified loans. As a result,
total business services criticized loans increased 8 percent including a
36 percent increase in classified loans.
Comparison of first quarter 2016 to first quarter
2015
Net charge-offs increased $14 million from the first quarter of 2015.
Net charge-offs as a percent of average loans was 0.34 percent compared
to 0.28 percent in the first quarter last year. The allowance for loan
and lease losses as a percent of total loans increased 1 basis point.
Total non-accrual loans, excluding loans held for sale, increased $193
million from the previous year, while troubled debt restructured loans
declined 15 percent. Total business services criticized and classified
loans increased 28 percent, primarily related to risk rating migration
in the energy portfolio.
Capital and liquidity
Under the Basel III capital rules, Regions' estimated ratios remain well
above current regulatory requirements. The Tier 1(2) and
Common Equity Tier 1(2) ratios were estimated at 11.6 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 10.7 percent on a fully phased-in basis.
During the first quarter, the company repurchased $175 million or 23
million shares of common stock. In addition, the company declared $80
million in dividends to common shareholders.
The company's loan-to-deposit ratio at the end of the quarter was 83
percent. Additionally, as of period-end, the company was fully compliant
with the liquidity coverage ratio rule.
(1) Non-GAAP, refer to pages 9 and 19 of the financial supplement to
this earnings release
(2) Current quarter Basel III common equity Tier 1, and Tier 1 capital
ratios are estimated.
(3) During the fourth quarter of 2015, Regions corrected the accounting
for certain leases which had previously been included in commercial
loans. These leases had been
classified as capital leases but were subsequently determined to be
operating leases. The adjustment resulted in a reclassification of these
leases out of loans into other
earning assets. The average balance of these leases in the first quarter
of 2016 was $825 million. Prior periods were not restated to account for
this change.
(4) The cumulative effect on pre-tax income related to the lease
adjustment lowered net interest income and other financing income $15
million in the fourth quarter of 2015.
Conference Call
A replay of the earnings call will be available from Friday, April 15,
2016, at 2 p.m. ET through Monday, May 15, 2016. To listen by telephone,
please dial 1-855-859-2056, and use access code 68982537. An archived
webcast will also be available until May 15 on the Investor Relations
page of www.regions.com.
About Regions Financial Corporation
Regions Financial Corporation (NYSE:RF), with $126 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 1,600 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
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.
-
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
comprehensive capital analysis and review ("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 liquidity coverage ratio "LCR" rule), including our
ability to generate capital internally or raise capital on favorable
terms, and if we fail to meet requirements, our financial condition
could be negatively impacted.
-
The Basel III framework calls for additional risk-based capital
surcharges for globally systemically important banks. Although we are
not subject to such surcharges, it is possible that in the future we
may become subject to similar surcharges.
-
The costs, including possibly incurring fines, penalties, or other
negative effects (including reputational harm) of any adverse
judicial, administrative, or arbitral rulings or proceedings,
regulatory enforcement actions, or other legal actions to which we or
any of our subsidiaries are a party, and which may adversely affect
our results.
-
Our ability to manage fluctuations in the value of assets and
liabilities and off-balance sheet exposure so as to maintain
sufficient capital and liquidity to support our business.
-
Our ability to execute on our strategic and operational plans,
including our ability to fully realize the financial and non-financial
benefits relating to our strategic initiatives.
-
The success of our marketing efforts in attracting and retaining
customers.
-
Possible changes in consumer and business spending and saving habits
and the related effect on our ability to increase assets and to
attract deposits, which could adversely affect our net income.
-
Our ability to recruit and retain talented and experienced personnel
to assist in the development, management and operation of our products
and services may be affected by changes in laws and regulations in
effect from time to time.
-
Fraud or misconduct by our customers, employees or business partners.
-
Any inaccurate or incomplete information provided to us by our
customers or counterparties.
-
The risks and uncertainties related to our acquisition and integration
of other companies.
-
Inability of our framework to manage risks associated with our
business such as credit risk and operational risk, including
third-party vendors and other service providers, which could, among
other things, result in a breach of operating or security systems as a
result of a cyber attack or similar act.
-
The inability of our internal disclosure controls and procedures to
prevent, detect or mitigate any material errors or fraudulent acts.
-
The effects of geopolitical instability, including wars, conflicts and
terrorist attacks and the potential impact, directly or indirectly, on
our businesses.
-
The effects of man-made and natural disasters, including fires,
floods, droughts, tornadoes, hurricanes, and environmental damage,
which may negatively affect our operations and/or our loan portfolios
and increase our cost of conducting business.
-
Changes in commodity market prices and conditions could adversely
affect the cash flows of our borrowers operating in industries that
are impacted by changes in commodity prices (including businesses
indirectly impacted by commodities prices such as businesses that
transport commodities or manufacture equipment used in the production
of commodities), which could impair their ability to service any loans
outstanding to them and/or reduce demand for loans in those industries.
-
Our inability to keep pace with technological changes could result in
losing business to competitors.
-
Our ability to identify and address cyber-security risks such as data
security breaches, "denial of service" attacks, "hacking" and identity
theft, a failure of which could disrupt our business and result in the
disclosure of and/or misuse or misappropriation of confidential or
proprietary information; increased costs; losses; or adverse effects
to our reputation.
-
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
Financial Accounting Standards Board ("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 Securities and Exchange Commission ("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, 2015, as filed with the Securities and Exchange Commission.
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) 581-7890;
Regions' Media contact is Evelyn Mitchell at (205) 264-4551.
Use of non-GAAP financial measures
Management uses the adjusted efficiency ratio (non-GAAP) and the
adjusted fee income ratio (non-GAAP) to monitor performance and believes
these measures provide meaningful information to investors. Non-interest
expense (GAAP) is presented excluding certain adjustments to arrive at
adjusted non-interest expense (non-GAAP), which is the numerator for the
efficiency ratio. Non-interest income (GAAP) is presented excluding
certain adjustments to arrive at adjusted non-interest income
(non-GAAP), which is the numerator for the fee income ratio. Net
interest income and other financing income on a taxable-equivalent basis
and non-interest income are added together to arrive at total revenue on
a taxable-equivalent basis. Adjustments are made to arrive at adjusted
total revenue on a taxable-equivalent basis (non-GAAP), which is the
denominator for the fee income and efficiency ratios. Regions believes
that the exclusion of these adjustments provides a meaningful base for
period-to-period comparisons, which management believes will assist
investors in analyzing the operating results of the Company and
predicting future performance. These non-GAAP financial measures are
also used by management to assess the performance of Regions' business.
It is possible that the activities related to the adjustments may recur;
however, management does not consider the activities related to the
adjustments to be indications of ongoing operations. Regions believes
that presentation of these non-GAAP financial measures will permit
investors to assess the performance of the Company on the same basis as
that applied by management.
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.
During the fourth quarter 2015, Regions corrected the accounting for
certain leases which had previously been included in loans. These leases
had been classified as capital leases but were subsequently determined
to be operating leases. The adjustment resulted in a reclassification of
these leases out of loans into other earning assets. Regions believes
including the impact of the operating leases, reported as capital leases
prior to the fourth quarter of 2015, provides a meaningful calculation
of loan and lease growth rates and presents them on the same basis as
that applied by management. Total loans (GAAP) is presented including
the lease adjustment to arrive at adjusted total loans and leases
(non-GAAP).
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/20160415005093/en/
Regions Financial Corporation
Media Contact:
Evelyn
Mitchell, 205-264-4551
or
Investor Relations Contact:
Dana
Nolan, 205-581-7890
Source: Regions Financial Corporation
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